Provident Capital likely to be wound up at October 24 meeting of creditors

Creditors of failed mortgage fund manager and non-bank lender Provident Capital have been recommended to vote in favour of winding up the business following the rejection of a bid by former Provident boss Michael O’Sullivan and fellow executive Michael Bersten to regain control of the business.

A meeting of creditors is scheduled to be held on October 24 in Sydney.

Australian Executor Trustees Limited (AETL), which represents Provident Capital debenture holders, rejected a recommendation from O’Sullivan and Bersten that they resume control of Provident under a deed of company arrangement (DOCA), according to a circular to creditors issued by joint administrators Joseph Hayes and Tony McGrath from McGrath Nicol.

Hayes and McGrath represent unsecured creditors of Provident Capital, who are owed around $1.1 million and were appointed by AETL on September 18. These include $430,000 owing in employee entitlements.

“Michael O’Sullivan and Michael Bersten (two of PCL’s directors) have proposed a DOCA for the company,” report Hayes and McGrath in their October 17 circular to creditors.

“The DOCA essentially involves the transfer of debenture holder interests (and the debenture holder loan book) into the high-yield fund (HYF), the retirement of the receivers [PPB Advisory, which represents secured creditors], and the resumption of control of the company’s operations by the directors.”

The administrators note that based on preliminary investigations, they are "unable to form a clear view as to whether the proposed DOCA will generate a superior return for creditors than a liquidation".

They do note though that their preliminary investigations “indicate that there are a number of matters that raise concerns”.

“In order for the DOCA to be implemented, the trustee (in its capacity as secured creditor) is required to vote in favour of it.

“On 12 October 2012, we were advised by the trustee’s lawyers that the trustee does not support the DOCA and will be voting for the company to be wound up at the second meeting of creditors.

“Given the trustee’s position, the DOCA is incapable of implementation and, as the company is insolvent, there are no options other than to place the company into liquidation.

“Our recommendation is that creditors vote for the company to be wound up.”

Receivers and managers at PPB Advisory continue to have “control of the company’s business, assets and loans” and represent the interests of debenture holders.

In August, PPB Advisory told debenture holders it was hopeful of restarting the flow of payments before the end of the year, but that they should not expect a full refund of their investments.

Secured creditors are owed in excess of $200 million.