Ducking And Weaving
Sydney Morning Herald
Saturday February 19, 2000
When the Prime Minister helped the National Textiles workers he could have had no idea of the mess he was getting into. Marian Wilkinson and Ian Verrender report.
WHEN John Howard landed at Williamtown air base near Newcastle at the end of his difficult tour of regional Australia, he appeared to have regained his political touch. A delegation of sacked workers from the troubled National Textiles plant was there to meet him and the Prime Minister was clearly moved by their plight.
For days, Howard had been hammered over his earlier refusal to meet the workers after the company had called in an administrator and stopped paying its creditors. The failed company was chaired by Howard's brother, Stan, and the Opposition Leader, Kim Beazley, had been pounding Howard for his heartlessness.
After Howard met workers that day, February 4, he was considering making National Textiles a special case, upping the assistance the workers could receive under his Workplace Relations Minister's safety net scheme for sacked employees. ``I am very sympathetic," Howard told the media.
But down in Sydney, that same day, a far less heartwarming scene was being played out. A nasty business dispute was developing over the proposed scheme, or deed of arrangement, to sort out National Textiles' affairs.
The dispute was between the administrator of National Textiles, John Star, who had been appointed by the directors when the company hit trouble, and the company's banker, Scottish Pacific Finance, which had put in its own man, Vince Barilla, as a receiver.
Barilla was acutely aware that proposed deed of arrangement being supported by Star and the directors had promised the workers some $7 million towards their entitlement. A commitment of help by Howard and the NSW Government could get the workers all their money. Howard, in his meeting with the workers, had urged them to get behind the deed of arrangement.
But central to the deed going ahead was a sell-off of key company assets to Bruck Textiles, a company run by an old business associate of the central player in National Textiles, Phil Bart. In addition, Bart also would walk away with a key asset to settle a loan he had advanced the company.
Barilla and the bank were extremely unhappy with the sales contract. He put out a press release warning that his client, Scottish Pacific, might sink the deed of arrangement because of it.
``The [sale] contract favours certain interests at the expense of Scottish Pacific," Barilla alleged. Those interests, in Barilla's opinion, were Phil Bart and his associates.
In the political point scoring around the textile workers' plight, the internecine brawl inside the company did not get much attention in Canberra. But this nasty fight over the assets lies at the heart of John Howard's trouble today.
Significantly, Howard was aware when he met the National Textile workers there was some dispute over the deed of arrangement and the asset sale. His brother Stan had telephoned him shortly before the workers' meeting. During that conversation, Howard would later tell the media, Stan told him, ``there's a bit of to-ing and fro-ing on the deed of arrangement", and there were newspaper reports of ``the jockeying between the bank and one of the individual creditors, I think the individual creditor, Bart", said Howard. Despite this, Howard urged the workers to support the proposed deed as a way to get their money.
Four days later, when Cabinet decided on a special assistance package for the Newcastle workers it was conditional on the deed of arrangement going ahead. Cabinet's decision was heavily based on the advice of National Textiles' administrator, Star. His clear advice was that without the deed of arrangement and the sale to Bruck, National Textiles could face liquidation and the workers would get next to nothing. It was a powerful message to the politicians.
Immediately after the Cabinet decision, Howard publicly urged support for Star's proposed deed of arrangement. That night on the ABC's The 7.30 Report, he hammered the point, ``It is in everybody's interest that the deed of arrangement be supported so that the $7 million can be realised and begin to flow."
In his Sydney office, Scottish Pacific's chief, Clive Isenberg, was furious. Two days later, Howard found himself in the centre of a political storm over his handling of the affair. The dispute between Scottish Pacific and National Textiles is central to understanding the current controversy surrounding Howard's decision to help the workers at National Textile, which at first looked like a winning political move.
Throughout last year, National Textiles, chaired by Stan Howard, had been trying to merge with Bruck Textiles, a company owned by long-time rag trade boss Joseph Brender. National Textiles' key director and shareholder, Philip Bart, was an old business associate of Brender. Despite months of effort the merger had failed.
As John Howard later disclosed, Bart and Brender had met him over a year ago to discuss the merger because they wanted assistance from the Federal Government. Howard, appropriately, referred them on. But after an assessment of the request, for $30 million, the Government knocked them back, offering less than $6 million.
They then tried to raise the money on the market for the merger, at this stage valued at more than $60 million. At this time, the company went through a restructure, paying out its old banker, the National Australia Bank, and taking out a new loan with a Sydney-based small business financier, Scottish Pacific on October 1 last year.
As it would later be clear, National Textiles was delivered its death blow the day Isenberg, the South African-born head of Scottish Pacific, signed the cheque for $6.6 million and handed it to the company.
To Isenberg's subsequent irritation a sizable chunk of his cheque would be diverted not to help National Textiles run its business but to one of the directors, Philip Bart, and the National Australia Bank. A few hours after Scottish Pacfic's money rolled into National Textiles, $450,000 was paid to Bart and a further $220,000 was sent to the NAB.
Bart's money was a fee for helping organise bridging finance between the two loans. The NAB's fee was a penalty for repaying its loan early.
National Textiles had encountered difficulties during the previous 18 months but had moved back into the black. In the previous year, it had reduced its loan with NAB from $20 million to somewhere in the vicinity of $12 million. Its refinancing with Scottish Pacific for $6.6 million was at a lower rate of interest than that charged by NAB. The future held promise.
Isenberg had been led to believe the shortfall between his loan and the remaining debt to NAB would be provided by Bart, who was to inject $3.7 million. But the two fee payments, totalling $670,000, exacerbating the company's cash flow problems,.
Apart from this, one of the companies in the group was in serious trouble. The company, National Bartex, was formerly owned by the Bart family and sold into National Textiles in 1997. Another looming problem was the end of the textiles import subsidy scheme, due to wind up in June this year, which had put significant money into the group.
Despite these problems, on paper National Textiles had a strong December and was looking at moving into a period of profitability. According to some insiders, Isenberg was stunned when he was approached by several directors and John Star, on January 20 and told that Star had been appointed voluntary administrator.
Isenberg had researched the company and negotiated the loan over an 18-month period although he did not conduct an extensive search into the backgrounds of the directors because, as one associate this week put it, ``he was impressed at the credentials of the chairman".
On the day Star was appointed administrator, the sale agreement that now forms the basis of the contentious deed of arrangement was already drawn up. An angry Isenberg apparently looked over the agreement, quickly calculated he would lose about $2 million on his loan if the sale went ahead in that form, and refused to deal.
Despite the Prime Minister's advocacy of the deed, along with many of the parties involved, Isenberg so far he has stood his ground, refusing to take a loss on what he considers as a fully secured loan.
A few days after Star's appointment, Isenberg appointed Barrilla as receiver, to protect his position, and a war of words broke out between the Scottish Pacific camp and Bart. That was January 27.
But it was the decision of Cabinet on February 8 to give a special package to help the Rutherford workers that created enormous problems for Isenberg. Cabinet's support was conditional on the deed of arrangement being accepted and central to that was the sales contract with Bruck.
Under the sale agreement Joseph Brender who with partner Sam Moss owns Bruck Textiles would buy the business and machinery of National Textiles for a fraction of its book value, while Bart would inject a further $1.5 million and end up controlling the Tasmanian company Australian Weaving Mills.
For Bruck, it was a good deal. It would end up with a business that just a few months ago had net assets of $21 million for a fraction of the price with the added benefits of not being burdened by employee entitlements. And much less than the $60 million merger deal being proposed just three months before.
Bart's deal is not quite as sweet as Bruck's, although rag trade sources say Australian Weaving Mills is an excellent operation.
Bart was adamant this week there was no alternative to the appointment of an administrator.
``When the merger [with Bruck] did not proceed we were left with no other course than to call in an administrator," he told the Herald.
As Star makes clear in his report this week, in late January there was another key impediment to the proposed deed. The scheme would give the workers only $7 million of their entitlements worth $11 million. The textile workers' union baulked and put up a fight. As Star reported, ``Unless payment in full was made of [workers'] entitlements both the proposed sale to Bruck and approval of the deed of company arrangement was in question as the unions indicated they would not permit access to [National Textiles'] stock, plant and equipment".
At this stage, the workers had written to Howard asking for a meeting during his regional tour but had been refused and were referred on to the Workplace Relations Minister, Peter Reith.
But Star began to move quickly. On February 1, a meeting was arranged for him with a senior official from Reith's department. There he set out a compelling scenario. If the company was liquidated, the workers would get more from the Government under its safety-net scheme but virtually nothing from the company, a disastrous outcome for them. If the Government put up a special package now, the company could avoid the liquidation. The deed of arrangement would deliver $7 million for the workers. Another $4 million from the Federal and State governments would do the trick. But it was vital the deed of arrangement go through.
The next day he sent a comprehensive letter to the Federal Government with this written advice. It urged speed. ``Any delay in the process may jeopardise the sale of the business to Bruck Textile ... The sale to Bruck is critical to ensure the quantum of benefits received by employees under the purposed deed."
At the same time he set up an urgent meeting with the NSW Government strenuously putting the same advice and urging haste.
About this time, according to Howard, brother Stan rang him during his regional tour. Publicly the plight of the workers was getting massive media coverage. According to Howard, his brother, called, ``just to give me an up-to-date briefing on where he saw things in relation to what was unfolding".
On February 4, Howard, in an about-face, met personally with the workers and expressed his sympathy, but urged them to back the deed of arrangement. Four days later, Cabinet came up with the special package for the workers, based on Star's advice and conditional on the deed of arrangement going ahead.
The Government was between a rock and a hard place. Without the deed, it faced a possible $11million payout to the workers. But by publicly advocating Star's deed of arrangement, Howard walked into a major controversy between Bart and Scottish Pacific.
As Bart saw it this week, ``Working with Mr Star we have since been able to put together a deed of arrangement under which the workers at both Rutherford and Rosebery will receive every cent of their entitlements in a single lump sum."
When the controversy erupted Howard disclosed that Cabinet had given itself some defence. It conveyed to the Australian Securities and Investment Commission, the corporate watchdog, there would be no barriers to a full investigation of National Textiles. This was not revealed until two days later when Howard was under pressure. It answered the charge that a liquidation of the company would have allowed a full investigation of its affairs. ASIC is now investigating.
While the Prime Minister delivered justice for the sacked employees, Isenberg has been put in a vice and the Government has found itself in the middle of a commercial dispute.
For the workers to get their full entitlements, Isenberg would have to agree to a massive loss on a loan he extended just a few months earlier.
As of yesterday, Isenberg had refused to budge. Negotiations reportedly are at a delicate stage and it is believed Isenberg is insisting that Philip Bart must give ground before any deed is signed.
How the PM was briefed
LATE 1998 Stan Howard tells his brother that National Textiles is in difficulty and is seeking government funding.
John Howard later recalls: ``I said, `Look, I don't want to get involved but I will see that the thing is dealt with appropriately'."
EARLY 1999 John Howard meets Philip Bart of National Textiles and Joe Brender of Bruck Textiles to discuss government funding to help their companies merge. Howard recalls: ``I said to Mr Brender and to Mr Bart this issue would be decided by [Industry Minister] Senator Minchin on the merits."
Howard tells Minchin to expect an application from National Textiles, that his brother chairs the company, and that the issue should be dealt with on its merits.
APRIL 1999 Minchin's department rejects the funding request from Brender and Bart.
JUNE 1999 After seeking advice from accounting firm Ernst & Young, department knocks back second proposal.
DECEMBER 1999 Brender and Bart ask for $23 million and are offered $5.7 million. They call off the merger.
JANUARY 19 or 20, 2000: Stan Howard tells his brother that National Textiles has collapsed, and directors have called in voluntary administrator John Star. The brothers do not discuss the $11 million owing to workers.
JANUARY 24: Textile union writes to Howard seeking a meeting no later than January 27. His office writes back that ``the Prime Minister is heavily committed over coming weeks and will be unable to see you".
JANUARY 25: Five Federal and State Labor members write to Howard asking him to guarantee $11 million owed to the workers.
JANUARY 30-FEBRUARY 4: John Howard tours northern NSW. Stan calls him during the trip to ``just give me an up-to-date briefing on where he saw things in relation to what was unfolding". There was no discussion about government assistance. Howard later recalls: ``[Stan] said, `You know there's a bit of to-ing and fro-ing on the deed of arrangement and you may have canvassed the same ground that was appearing in the newspapers about the jockeying between the bank and one of the individual creditors'. I think the individual creditor Bart."
FEBRUARY 1: Star meets officials from the Workplace Relations Department.
FEBRUARY 2: Star writes to the Workplace Relations Department, detailing proposed deed of arrangement which, partly due to purchase of National Textiles assets by Brender, would return $7million to employees. ``The sale to [Brender] is critical to ensuring the quantum of benefits receivable by employees under the proposed deed," Star writes. He seeks government funds for the remaining $4 million owed to workers.
FEBRUARY 4: Details of Star's letter appear in several newspapers. Howard meets workers, promises government help and urges them to support the deed of arrangement. Howard recalls: ``At the time I attended Williamtown there were press reports to the effect that the deed of arrangement might not be supported. It was no secret ... that the unions were not in favour of a deed of arrangement unless they were to get their full entitlements."
Scottish Pacific says the deed of arrangement is unacceptable. Says employees should direct their objections to Bart.
FEBRUARY 8: Cabinet finalises funding for workers. The Workplace Relations Minister, Peter Reith, based on advice put to the Workplace Relations Department by Star, tells Cabinet the payment should be subject to the conclusion of a deed of arrangement.
© 2000 Sydney Morning Herald
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