Shareholders in struggling debt collector Collection House (ASX: CLH) could be left with nothing if creditors follow the recommendations from voluntary administrators and vote to accept a takeover from Credit Corp (ASX: CCP) at a meeting to be held on 13 September.
If the deal proves successful, it would mark the final seal on a relationship with Credit Corp that involved more than $160 million in asset sales over two years from the target to the acquirer in order to stay afloat in addition to loan arrangements.
FTI Consulting revealed today that the deed of company arrangement (DOCA) proposed by Credit Corp would be expected to deliver between 3 to 8 cents in the dollar on unsecured creditors' claims.
The other alternatives up for a vote will be returning Collection House to the control of directors or putting the company in liquidation.
"Given unsecured creditors will not be paid in full, there will be no return to shareholders of CLH," FTI Consulting wrote in a statement published on the ASX today.
"Under the proposed DOCA the voluntary administrators will make an application to the court for the transfer of the shares in CLH to Credit Corp. The proposed DOCA cannot be successfully completed until the court approves that application.
"Upon transfer of all the shares in CLH, it is intended the proposed DOCA will complete and a creditors' trust will be created to deal with and pay distributions to the creditors of CLH."
Currently suspended from quotation, Collection House had a market capitalisation of $9.65 million prior to the trading freeze and the acquisition from Credit Corp has been valued at $11 million. The Brisbane-based group has been in administration since 30 June after "exhaustive attempts to restructure the business and raise additional funding were unsuccessful”.
The group had been in a dire state for years, but the announcement followed swiftly after the collapse of Volt Bank, with which Collection House had a debt facility as well as a substantial holding.
The debt collector was beset by woes during the pandemic period as its sector remained depressed leading to a "disappointing" performance for the company.
“General levels of activity in the receivables management sector over the last six months remain depressed, as clients continued to implement conservative customer engagement strategies in response to the longer than anticipated COVID-19 impacts, with revenue remaining significantly lower than pre-COVID levels,” CLH said in February this year.
That half year report was a harbinger of things to come for CLH, which saw its loss worsen significantly by 570.3 per cent to $63.7 million, compared to a $9.5 million loss in the prior corresponding half year period.
Revenue was also weaker in the six months to 31 December 2021, down 42.7 per cent from $46.2 million to just $26.4 million.
Help us deliver quality journalism to you.
As a free and independent news site providing daily updates
during a period of unprecedented challenges for businesses everywhere
we call on your support