Archive | Totem

Totem folds after 5 months of compromise scheme

Totem Auckland Ltd (Roslie Capper & her father, Colin Josephson) failed to survive until Christmas after creditors & shareholders voted in July to support a debt-compromise scheme.


It traded with reasonable success until November but didn’t have strong enough December earnings and was placed in liquidation on 20 December. Jeff Meltzer & Lloyd Hayward (Meltzer Mason Heath), who ran the debt-compromise scheme, were appointed liquidators.


The company set up a reception venue in the rebuilt former Apex building across Customs St West from the Sebel Hotel, Viaduct Harbour in 2002. Ms Capper wanted to establish an entrepreneurs’ club in 2001, with corporate & individual memberships, but was dogged by the receivership of the original builder (Hartner Construction Ltd), which caused a year’s delay.


Totem Auckland leased its premises from Totem on the Viaduct Ltd, owned by Ms Capper. It stopped trading on 17 December. The fixed assets will be auctioned. Totem Auckland had nearly $1 million of fittings, equipment & leasehold improvements, owed more than $34,000 in tax (including Paye), $399,000 on a first debenture, $703,000 to unsecured creditors and had $1.16 million in ordinary shares (including $590,000 held by the directors).


The demise of Totem raised some public-interest issues before the debt-compromise scheme was approved. Although I wrote about a shareholder’s application to wind the company up in April, Associate Judge Graham Lang prevented me from writing further about it until the papers for the debt-compromise scheme were posted out in June.


There was one obvious reason for that: Publicity could jeopardise the rescue of the business.


There were also obvious reasons why I shouldn’t have been silenced: Apart from the interests of people who were involved in the business & knew it was in dire straits, newcomers (such as chefs & other staff) & new suppliers could be prejudiced by working for or trading with a company which was either insolvent or was propped up by loans which were unlikely to be repaid, and there were property issues.


The order preventing me from writing about the company was of short duration and I was happy not to jeopardise the rescue attempt.


But 2 issues remained: Should a court suppress public knowledge of a process – a liquidation application – which comes long after distress has become apparent? This is a separate issue from advertising of an application, which also enables public knowledge but is more to do with the formal processes of the court.


Secondly, should a court try to order a commercial future, or should it let market forces apply? Allowing market knowledge – instead of suppression – to affect the company’s outcome would probably have resulted in immediate closure at a cost to those involved roughly similar to their cost now. It might also have enabled a new business operator to enter the premises at a good price (for the newcomer) and to set up a successful business several months earlier than will now be possible.


As I saw the judge’s ruling affecting me and the shareholder seeking liquidation, he was favouring one set of investors (those already affected) over another set, those who might have gained by picking up the premises as a result of the company’s demise.


There is no question that the judge was entitled to do what he did. And, as is often the case where a troubled business has a better-than-50% chance of survival if given time to refinance or re-order affairs, a court would seem unreasonable (and commercially unaware) if it stomped on the rescue attempt.


Court processes often interfere with market forces; it’s an essential feature of the court’s reason for being. But, in a case like this one, is it right for the court to take it out of the public eye?


 


Earlier stories, 18 July 2004: Totem Auckland scheme approved


28 June 2004: Totem Auckland’s debt compromise goes to vote on 8 July

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Totem Auckland scheme approved

Totem Auckland Ltd (Roslie Capper) has won court approval for a debt-compromise scheme & a permanent stay on a liquidation application brought by 2 creditors.


Creditors in the compromise scheme voted 20-2 & 90.9-9.1% for the proposal. Subordinated creditors, including shareholders, voted 100% for the scheme, managed by Jeff Meltzer & Lloyd Hayward of Meltzer Mason Heath.


The scheme went before Associate Judge Graham Lang for approval on Wednesday.


Heather & Paul Thomson, who went to court to have Totem wound up, didn’t oppose the permanent stay on their application.


Totem Auckland occupies 2 floors of the rebuilt former Apex building across Customs St West from the Sebel Hotel in the Viaduct. It leases its premises from Totem on the Viaduct Ltd, owned by Ms Capper. Her idea was to establish an entrepreneurs’ club, with conference facilities for members & for hire.


Company website:


http://www.totem-auckland.co.nz/


Scheme manager: Meltzer Mason Heath


http://www.mmh.co.nz/


Previous story:


28 June 2004: Totem Auckland’s debt compromise goes to vote on 8 July

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Totem Auckland’s debt compromise goes to vote on 8 July

Totem Auckland Ltd (Roslie Capper) will put a debt-compromise proposal to creditors on Thursday 8 July, after getting a liquidation application put off until the following week.


Totem Auckland occupies 2 floors of the rebuilt former Apex building across Customs St West from the Sebel Hotel in the Viaduct. It leases its premises from Totem on the Viaduct Ltd, owned by Ms Capper.


Ms Capper wanted to establish an entrepreneurs’ club in 2001, with corporate & individual memberships, but was dogged by the receivership of the original builder (Hartner Construction Ltd), which caused a year’s delay. Totem also had to vacate the premises because of a lack of fire safety in the empty floor below.


Totem Auckland sold shares, but with its bad start & continuing poor cashflow it had a $1.7 million shortfall to pay creditors (including new shareholders) by the end of February.


One of those share investors, Heather Thomson, applied to have Totem Auckland wound up, but faced applications to stay those proceedings & restrain advertising. Her application was mentioned in a U column item on 8 April. (Totem Auckland fights liquidation move)


Jeff Meltzer & Lloyd Hayward (Meltzer Mason Heath) worked on a restructure and have put together the part XIV compromise proposal.


Associate Judge Graham Lang heard evidence & submissions about the scheme & the company’s chances of survival in the Auckland High Court on 10 June, but restrained advertising until notice of the scheme was posted to creditors, which was done at the end of last week.


The judge also prohibited publication of the issues raised at that hearing until 28 June “to ensure that the compromise manager has an opportunity to mail out the compromise proposal to all interested parties before news of the proposal appears in the media.”


At the June hearing, AJ Lang recognised the difference between advertising & publication of news, acknowledged that “a lot of people will not be happy – without advertising, they don’t know what’s going on” and added: “If they find I’m letting a totally insolvent company carry on they would be unhappy.”


The compromise documents declare that Totem Auckland is insolvent, outline the reasons for its predicament but also say it’s been paying trade bills since February as they fall due, its cashflow is positive & it’s projecting profits, from which creditors will be paid over the next 3 years.


Creditors owed less than $500 will be paid in full within a month of the scheme’s approval, others by instalments starting next April and continuing through to 100c/$ by 1 July 2007. The company’s statement of position said creditors would get nothing in a liquidation.


Totem Auckland has secured $400,000 from the Josephson family (Colin Josephson is a director) and a new general manager has been employed to market & develop the business.


Forecasts prepared by the directors show a $39,000 loss for the March 2005 year, then profits of $335,000 & $332,000 in the next 2 years. The loss in the current year is up to June – the net return from July to March 2005 is estimated at $102,000. The directors have forecast positive cashflow from July to March 2005 of $80,000, and about $370,000 in each of the next 2 years.


The statement of position shows a $1.7 million shortfall at March 2004 – gross realisations just over $76,000 not covering the $88,000 owed to secured creditors, another $766,000 owed to unsecured creditors plus $934,000 to subordinated creditors (including shareholders).


Heather & Paul Thomson, who went to court to have Totem wound up, are shown as being owed $25,000 each. Although their money was for shares, they’ve been included in the list of compromise creditors for their $50,000. The biggest creditor apart from Mr Josephson is Totem on the Viaduct Ltd, owed $248,000 in rent.


Ms Capper has more than $100,000 of subordinated debt as a Totem Auckland shareholder and Mr Josephson will have his $400,000 injection subordinated & repaid at a slower rate than compromise debts.


The creditors’ meeting is on Thursday 8 July at 11am at the Institute of Chartered Accountants, Ohinerau St, Remuera. The liquidation application is due back in court on Wednesday 14 July to allow for the creditors’ vote.


Earlier stories:


Totem Auckland fights liquidation move


Auckland City consent activity 27 June 2001, Hobson ward/Viaduct

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