RCR creditors advised to support liquidation

RCR Tomlinson may have been trading while insolvent for a month or more before it entered administration.

A rapid push into solar farms was costly for RCR Tomlinson.

RCR Tomlinson may have been trading while insolvent for a month or more before it entered administration, with a recommendation made to creditors for the engineering and infrastructure group to be liquidated.

RCR “may have become insolvent prior to the end of October 2018 (or possibly earlier)”, administrators McGrathNicol said in their report to creditors. “A liquidator (if appointed) will undertake additional work to confirm the exact date that RCR became insolvent.”

The Perth-based contractor asked its secured lenders for extra funds on November 20 and was declined the day after, resulting in its fall into administration, raising concerns that the company’s board members may have breached their duties as directors.

About 4400 unsecured creditors owed $170 million are unlikely to receive any money back should McGrathNicol’s recommendation for RCR to be liquidated proceed at a second creditors’ meeting in Sydney and Perth next Tuesday.

Secured creditors including CBA will receive between $80.9m and $156.7m compared with total claims of up to $231.9m, with the shortfall indicating that no funds will be left to pay unsecured creditors.

“The administrators recommend creditors vote in favour of the RCR Group entering creditors’ voluntary liquidation,” McGrathNicol said in its report. “Due to the quantum of the forecast deficiency to the secured creditors, it is probable that there will be no distribution paid to unsecured creditors.”

RCR’s board was chaired by Roderick Brown alongside directors Bruce James, Lloyd Jones, Susan Palmer and David Robinson.

The unexpected fall of RCR sparked a wave of uncertainty in Australia’s booming solar market after a huge cost blowout at two Queensland solar farms it was building.

RCR’s rapid entry into constructing solar farms over an 18-month period proved to be its undoing. The contractor won 15 solar contracts worth $1.5 billion, which “introduced a significantly different risk profile” to its finances with no noticeable changes to its governance or risk management processes, McGrathNicol said.

The company’s optimistic cash flow forecasts were also highlighted in the report.

“The cash flow forecasts, in particular those prepared in August and October, proved optimistic due to deficiencies in the assumptions underpinning the forecasts,” McGrathNicol said. “Management does not appear to have applied sufficient scepticism in challenging the assumptions, particularly in relation to the timing of milestone payments and new project wins.”