Picton analysis: by Wayne Robinson, Print21 editor
It was always going to end in tears. Offering the mighty ATO 1c-2c in the dollar, while giving smaller creditors 100c in the dollar – and so gaining their votes for the deal to go through and the company to stay alive – was a risky strategy, to say the least.
While the controversial Deed of Company Arrangement which facilitated the 1c in the dollar deal at Picton Press was perfectly legal, it was a long way from passing the pub test.
It clearly enraged the Australian Tax Office, which set its face like flint in its battle to get the deal rescinded, spending countless hours – and dollars – in court appearance after court appearance in its bid to overturn the Picton DOCA, under which it would have been left with at most a paltry $26,000 on the $1.3m it was owed.
It also infuriated the local Perth print community – Picton's rivals – who felt justifiably aggrieved that while they were paying 100c in the dollar to the ATO, and to their paper merchants, they were now competing against a printer that was effectively receiving a 98-99 per cent discount from both.
It was always an outrageous piece of financial engineering – nifty or brazen, depending on which side of the fence you sat. Clearly with the company's options narrowing – in administration, no-one willing to buy it, workload diminishing, big debts – it seemed like a workable option to Picton directors Dennis Hague and Gary Kennedy.
Administrator Jeremy Nipps from Cor Cordis managed to get it through the creditors' meeting, much to the wide-eyed surprise of many of those present, thanks to the backing of the less-than-$10,000 creditors and the employees, who understood they would get 100c in the dollar if they voted for it.
From that point it could have been a relatively straightforward run for Picton to get back on its feet, albeit without friends. However, the unwavering opposition of the ATO proved a huge obstacle, preventing the DOCA from enacting the Creditors' Trust while it was being challenged in the courts, so keeping the company shackled.
The ATO piled on the pressure, including naming the two administrators themselves, Jeremy Nipps and Cliff Brooke, as defendants in its court action – an unusual move which would have been more than uncomfortable for the duo, and for their bosses at Cor Cordis.
The intensifying pressure cooker atmosphere eventually saw the relationship between the administrators and the directors break down, with both sides making various accusations against the other: the administrators claiming “unauthorised” payments had been made and demanding the directors inject a third of a million dollars back into the company, and the directors rejecting the demand and accusing the administrators of “shortcomings”.
In the end Cor Cordis decided enough was enough. We will never know all the reasons it decided to invite the creditors to pull the pin. It did say that the company was trading at a loss and could not continue. Its fees ran to the not inconsiderable sum of $612,000 for its time with the company, whose turnover had dropped from $13.5m in 2012 to $7m in 2017, and $3.1m in the six months of adminstration from May to November last year.
Also working against Picton was the print community itself. For so long a fragmented industry with no power, in recent times cohesion and resulting muscle has been evident, particularly in the face of perceived financial shenanigans. This unity was first manifest when Stephen Anstice, at the time CEO of IPMG, famously told the paper merchants that if they supplied the US hedge fund KKR's iteration of Geon he would never buy from them again. Virtually every other major printer in the country immediately fell in lockstep with him, and just days later the Geon empire – and KKR's ambitions for some fast money – were dust. Since then merchants have been ultra-wary of dealing with failed companies, as local printers have made their feelings clear.
In Picton's case, paper came from an unknown source: rumours suggest either a friendly out-of-town printer ordering for Picton as well as itself, or an east coast merchant with nothing to lose from Perth printers.
In regard to paper, the collapse of Picton is problematic for the industry as a whole. Ball & Doggett was insured, but paper insurers are becoming harder to find for the merchants as insurers look at the stats, which don't look good – Picton being the latest in long line of failed printers with huge paper bills that insurers have been paying out on. Printers are going to struggle to get anything more than 30 day terms – and not even that in many cases – from their merchants, who many say fund the industry; they certainly assist in the cash flow of many printers.
There are no winners from the Picton affair, which is a story of lofty ambitions, bad timing and a desperate attempt to survive. The roots of the collapse go back to to 2012 when the directors of the growing business made the decision to invest in a new ten-colour B1 perfector. This was seen as ambitious even at the time for the Perth market, which isn't huge, and has half a dozen decent sized printers including Scott, Advance, Daniels, and Quality Print serving the market.
Unfortunately for Picton, the timing was terrible: virtually the day the new press was commissioned in 2013, the WA economy, which had been booming for a decade, tanked as growth in the soaraway mining sector suddenly stopped. Business is like that – you can enjoy riding an unexpected wave, or be dumped from one that ends without warning. Unfortunately for Picton it was the latter.
Directors Dennis Hague and Gary Kennedy are by all accounts regular decent guys, hard working, typical print business owners. Let's hope their family homes are in their wives' names, because with $6.8m owed to secured creditors and $3.5m unsecured, the debts are topping $10m, and with company assets a fraction of that, the future could be bleak.
For printers around the country Picton is a salutory lesson in over-extending, and in the dangers of taking a survival course that pits the rest of the industry, and the ATO, against you.