NewSat’s satellite dream to be officially liquidated

NewSat's dream of becoming Australia's first independently-owned satellite operator
is set to be officially extinguished on August 7, when administrators of the bankrupt
company will recommend to creditors that the entire group be liquidated. It will be
an ignominious end for a company that came so close to launching its Jabiru-1 satellite; it will also be a costly one for shareholders and creditors, including many satellite and telco players.

Administrators Marcus Ayres and Stephen Parbery of PPB Advisory, in their second and final report to creditors, have stated that shareholders are not expected to receive any returns and that creditors other than secured lenders are not expected to see any of their debt repaid. There is also a substantial shortfall on amounts owing to the secured lenders.

Some shareholders will be forced to write off many millions of dollars, such as Singaporean property developer Chiat Kwong Ching, NewSat's largest shareholder, and fellow Singaporean businessman Bryan Yap. However, hundreds of small Australian retail investors will also feel the pain of the company's collapse, with one shareholder telling CommsDay that the majority of their extended family's superannuation had been invested in the company. Company founder and CEO Adrian Ballintine also stands to lose a considerable sum.

The outstanding creditors list for the various companies in the NewSat group contains a crosssection of the satellite and wider telecommunications industry. As well as the largest creditors launch provider Arianespace and satellite builder Lockheed Martin – companies impacted include satellite firms such as Intelsat, Eutelsat, New Skies Satellites, SES, Measat and Viasat. Other creditors include Gilbert & Tobin, PWC, Allen & Overy, Telstra and one of the largest creditors: the Australian Taxation Office.

In its preliminary finding PPB Advisory said it believed that the directors of the company did not trade while insolvent, a relevant factor if any recent transactions can be unwound. However, it has also told creditors that it believes a liquidator would have cause to require further investigation into the company's activities after 16 December 2014 – the date Lockheed Martin issued a default notice in respect of the Jabiru-1 satellite construction contract.

“We consider at this date it would have become apparent to the board that the Jabiru-1 project (and the state of the group) was in serious jeopardy. In order to progress an investigation into the solvency of the group, we anticipate a need for public examinations to take place of key individuals, including the CEO, Adrian Ballintine, and potentially certain other directors. This level of investigation will require funding in view of the lack of assets available,” the administrators wrote.

PPB Advisory told creditors that the default notice issued by Lockheed Martin should have caused the directors to reconsider whether there were realistic prospects of rectifying the contractual default and whether there were realistic prospects of meeting the secured lenders' requirements to restore project funding.

“Importantly, there may have been countervailing factors at the various points in time causing the directors to not be concerned about that state of the group during that period,” the administrators wrote. “Such factors are best uncovered by interview with the directors and other officeholders (potentially through public examination) along with interviews of other key parties such as suppliers.”

However it also noted that insolvent trading claims are difficult and costly to pursue, and even if successful might not generate an additional return for creditors.

The administrators also addressed well-publicised concerns raised around the corporate governance of the group, highlighted in a governance review report entitled the Lancaster Report. Separately, former BHP Billiton Finance VP Brendan Rudd was engaged by independent directors to review the corporate governance and performance of directors. The administrators noted that they were currently undertaking further investigations with respect to the allegations raised both in the Lancaster Report
and by Rudd, with certain allegations potentially in breach of director obligations and responsibilities.

CRASH TRIGGERS: The administrators were appointed in April this year and immediately attempted to keep the company viable through appeals to the US bankruptcy court. In their report they said the problems started to mount when the group experienced significant cash flow problems and a weakening balance sheet from FY14. This was driven by a decline in the teleport business performance, costs
associated with unutilised Jabiru-2 capacity and the group’s inability to draw on debt to pay Jabiru 1 satellite construction costs.

In FY14 the group raised mezzanine debt to fund working capital for the teleport business in contravention of its credit agreement, which triggered a default on the existing debt with its lenders. According to the administrators, this default, coupled with cost overruns on the Jabiru-1 satellite programme and other corporate management issues, led to the suspension of debt funding despite several wavier attempts.

However, it seems the “catastrophic” event that led to the final collapse of the company occurred in the US bankruptcy court. The company's receivers had been attempting to pursue a restructure of the company while it had temporary restraining orders against major creditors. When these expired, the restructuring efforts were lost. In particular the receivers were unable to come to terms with Lockheed Martin and MEASAT, which had a significant contract undertaking for the new satellite, before expiration of the temporary restraining order. As a result, Lockheed Martin terminated the construction contract.

“As Lockheed Martin retained ownership rights in the satellite until it was paid for in full, there remained no residual value in that asset after that point. This in turn had a catastrophic impact on the restructure,” the administrators noted.

As previously reported in CommsDay, the receivers have since sold NewSat's Perth and Adelaide teleports to SpeedCast for A$12 million. They are also continuing to look for a purchaser for the launch services agreement with Arianespace.

Beyond the teleports and launch agreements, there are very few assets that can be used to recoup money or even fund an investigation by liquidators. The administrators have also reported that they have received no deed proposals from any parties that would keep any of the company's structures intact.

As a result, the most likely result will be that liquidators will be appointed at the creditor meeting next Friday, officially ending NewSat and its shareholders’ dream of launching the Jabiru-1 satellite.

Geoff Long, Commsday