Printing body blasts Ovato over restructure, redundancies

Ovato’s conduct is being question by some in the printing industry along with the government’s unwillingness to act on the legal loopholes it ‘exploited’.

Taxpayers will be picking up the tab, which is set to run higher than $17m, while Ovato continues to operate from its NSW and Queensland sites.

The peak body for the printing industry has attacked the restructure that it says gives Ovato a commercial edge over its competition and validates the printing giant’s strategy to undercut competition after running losses for several years.

The shock move by Ovato to leave redundancy payouts for 330 workers to the taxpayer will also result in the broader printing industry being left to pay the price for suppliers left out in the cold.

Ovato kicked off the liquidation of four of its business entities on New Year’s Eve after a NSW court approved its highly complex corporate restructuring.

As part of the restructure, Ovato pushed 330 workers into corporate entities with only $2m in funds to pay creditors. The workers, who have been made ­redundant, will receive only a fraction of the payouts they are entitled to from Ovato, with the remainder to be subsidised by the Fair Entitlements Guarantee scheme.

Many workers have been without pay after being stood down and must wait for the government scheme to kick into gear to pay out owing entitlements.

This will result in taxpayers picking up the tab, which is set to run higher than $17m, while Ovato continues to operate from its NSW and Queensland sites.

Print and Visual Communication Association president Walter Kuhn said Ovato had made its financial pain an issue for the industry as a whole.

“Suppliers will want the money they have lost back in some form or fashion. That will increase ­pricing to the rest of the industry to recoup those losses,” Mr Kuhn said.

“It means the rest of the industry has to pay the debts of one large company because they can’t run their business properly,” Mr Kuhn added.

The highly complex restructure by Ovato, engineered by law firm Ashurst, was bitterly opposed by members of the print industry who, in a letter to members of the government and parties involved in the dispute, described it as “an ‘asset strip’.”

The vote to transfer the assets and approve the restructure was approved by one shareholder of each of the member scheme companies rather than a vote by creditors. “As far as I am aware, these member’s schemes are without precedent,” the letter said. “One can expect to see further similar schemes in future where an insolvent company seeks to leave behind its employees in this manner to avoid paying redundancy costs as part of a restructuring.”

Mr Kuhn questioned whether a smaller print company would have been allowed to shirk its responsibilities in a similar fashion to Ovato.

“They’ve set a precedent now not just for the printing industry but for every industry,” he said.

“The government should have stepped in and said they should pay the entitlements of the 300 staff.”

The printing industry fought the restructure tooth and nail, but the federal government and Industrial Relations Minister Christian Porter took no steps to oppose the plan.

When asked about the restructure scheme in parliament, Mr Porter said the government had no plans to intervene and the scheme would preserve up to 800 jobs in Ovato’s broader operations.

Ovato corresponded with Mr Porter last month after the Australian Manufacturing Workers Union attacked its restructure.

An Ovato spokesman said: “It can be argued that the restructure saved taxpayers $57m because that would have been the extra cost of FEGS payments for Ovato’s remaining 900 employees if this restructure had not gone ahead.”

MJ Printing managing director John Kempton questioned Ovato’s conduct and the government’s unwillingness to act on the legal loopholes it had exploited.

“I believe it is the responsibility of owners and managing directors to run a financially and morally responsible operation,” Mr Kempton said. “This also means looking ahead, making sure you can always meet your obligations to staff, suppliers and customers.

“If Ovato are not breaking any laws and people are outraged then the legislation and laws are wrong.”

Ovato received at least $12m in JobKeeper payments, as well as considerable payments from the New Zealand government’s wage subsidy scheme last year.

But the conditions of the tie-up between PMP and Hannan Print, which joined to create Ovato in 2017, have also been weighing on it. Its annual results in September showed the business made a net loss of $108.8m in 2020.

Considerable liabilities are also weighing on the business, totalling $291.8m last year.

The Hannan family owns the Warwick Farm site Ovato operates from in NSW, as well as sites in Queensland.

The Hannans sold the Nobel Park, Melbourne site the printer previously operated from in 2017 for $15m, leaving it occupying the site in Clayton in the city’s east that it does not own.

Hannan family patriarch ­Michael Hannan serves as Ovato chairman, and the family holds almost 50 per cent of shares in the group.

However, unlike the creditors who have lost out from unpaid debts caused by the restructure, the Hannans will have rents on Ovato sites, which were deferred during the pandemic, repaid over the remainder of the leases.

These sites will remain under the ownership of the Hannans under the terms of the restructure.

Considered among the wealthiest families in the country, the Hannans, together with private equity-backed Are Media, publishers of New Idea and Women’s Day magazines, have agreed to underwrite $35m of the $40m recapitalisation of the business put in place as part of the restructure.

Are Media now controls 22.9 per cent of shares in the printer.

Ovato is also party to strained relationships outside the printing industry.

News Xpress director Mark Fletcher, who represents a group of newsagents, says Ovato has engaged in a practice of oversupplying customers with magazines they do not want for decades.

“We are forced to keep some magazines for a lot longer than we should in the shop which has a cashflow problem,” he said.

“Ovato has been very much part of that problem.”

Mr Fletcher questioned whether Mercury Capital, the private ­equity firm behind Are Media, would bring new eyes to Ovato as part of its stake.

“I don’t think we’ve seen the end game of what’s going to happen to Ovato,” he said.

“Ovato chief executive Kevin Slaven and the Hannan family have a lot to answer for.”

Labor industrial relations spokesman Tony Burke questioned the terms of the deal that have resulted in Ovato walking away from 330 workers and its creditors.

“It doesn’t seem like the owners are struggling — and yet workers still haven’t been paid their entitlements and Scott Morrison seems happy for taxpayers to pick up the bill,” Mr Burke said.

“This is setting an appalling precedent. These workers are being forced to wait months for what’s rightfully theirs, and the government is just letting the company off the hook.

“These are the sorts of problems in industrial relations the government should be trying to fix — rather than trying to hit essential workers with a pay cut.”