A commercial borrower has defended a bank’s $1.9 million re-fi loan default lawsuit on the basis that it had also promised to provide an additional facility the offer of which was later withdrawn.
Peter and Catherine Scott gave Bank of Queensland a chattel mortgage over their company’s two magazine preses in February 2010.
The arrangement was essentially a refinance of the residual and arrears owing under a lease of the equipment originally acquired in 2003 and financed by Go Boating Publications P/L through BOQ for the first time in 2006.
The short term re-fi was to give time to the boating magazine publishers to find a buyer for their business after an ever so slow negotiation for an additional $600k debtor finance facility, stalled.
Through 2009 – as the equipment leases fell into arrears – BOQ’s Palm Beach franchise owner Trent Williams – became concerned and pressed for the accounts to be regularised.
Despite concerns that the business “needs to be re-capitalised” for example by way of “sale and leaseback of the business premises, introduction of an equity partner or injection of cash from other sources” and that “it was difficult to see the business being able to trade out of its deteriorating position”, in November Williams supported a “rewrite” of the two equipment leases over a new 36 month term.
The issues underlying those concerns – age of debtors, tax liabilities and deteriorating cash flow – proved however to be too much of an obstacle to bank extending the lifeline that a $600k factoring facility would have allowed.
That facility was required to payout a similar $450k facility from NAB, whose take was 20% of the business’s income.
At the same time, the borrowers were exploring “an alternate strategy”, the sale of the business and their building.
They notified Williams in December – in response to a request for a “fairly big chunk to be cleared to keep good faith with the credit dept” – of a pending sale of the building at $1.85 mil and their business at $5.5 mil to settle in February 2010.
When that sale fell through, they that month accepted the 5 month “rewrite” chattel mortgage loan – to allow sufficient time to sell – but only because Williams allegedly promised that if you “sign these and you will get the $600k facility.”
When no significant payments were made under the new loan, Williams in April asked GBP if it was “in a position to pop some funds in immediately…and if so how much?”
The Scotts replied that they were in negotiation with a China buyer who was – like 13,000 other business visa applicants daily – awaiting an interview with the Australian Embassy in Shanghai.
They also pleaded once again for the debtor facility: given the company “continued to take hits to clean up our ledger” – by writing off many debtors in excess of 30 days – “which was now returning to strength”.
The bank began its recovery action in June 2011 but failed on an application made then for summary judgment, resulting in it being put to an eight day trial to test the company’s defence.
Throughout the Brisbane Supreme Court trial, the Scotts maintained had the debtor finance facility not been promised, they would never have agreed to enter into the new arrangement.
Williams also represented – they claimed – they need not pay the scheduled lease instalments as their expiry date approached; and that they could do likewise after the re-fi was in place “unless and until the bank provides the debtor finance facility”.
The court agreed that the first representation had been made but accepted Williams’ evidence that he explained any decision on a debtor facility – which he would nevertheless support – was entirely that of the credit department.
GBP was deregistered in May 2014.
BOQ was granted judgment against the Scotts – as guarantors for GBP – for $1.9 million.
The judgment does not make clear whether any of the company’s magazine titles were able to be salvaged.