Solar farm developers that hired RCR Tomlinson are calling on the company’s bank guarantees and insurance bonds, potentially forcing banks and insurers to pay out tens of millions of dollars, after the engineering group went into administration last week.
RCR, which was working on nine Australian solar farm projects worth more than $1 billion dollars before it collapsed, had a $295 million bank guarantee facility and a $250 million insurance bonding facility to guarantee obligations to clients. As of June 30, $157 million of the bank guarantee and $196 million of the insurance bond had been drawn.
Solar developers say they have submitted claims on RCR’s bank guarantees. Contractors who supplied materials and workers to RCR have also been putting in claims with their own insurers.
The collapse of RCR, which has 3400 employees, has hurt thousands of people around Australia, with staff uncertain as to whether they will still have jobs at Christmas. RCR has 41 subsidiaries in Australia, three subsidiaries in New Zealand and five in Asia, including businesses in Malaysia, Indonesia, Hong Kong, Vietnam and India.
Employees have been directed by administrators McGrathNicol to continue with their normal duties, but their contracts have not been adopted by McGrathNicol and they have been told that any approved leave must be taken as unpaid leave.
Suppliers have been told the administrators cannot approve any purchases by RCR until short-term funds are provided by the company’s banks, which include CBA.
McGrathNicol is understood to be trying to keep other parts of RCR – such as its energy and resources and rail businesses – operating ahead of a creditor’s meeting on December 3.
‘Not a great outcome’
Perth-based legal firm Kott Gunning is holding an “emergency boardroom briefing” for clients on Wednesday to discuss the impact of RCR’s demise, claiming it could be the biggest corporate collapse in Western Australian since mining services provider Forge Group went into administration in March 2014.
The WA government is a big client of RCR, with the state’s Water Corporation having sold its engineering and construction business to the engineering group for $10.4 million in 2015.
Trent Barnett, head of research for Perth-based stockbroker Hartleys, said RCR’s collapse was “not a great outcome” for WA’s mining industry because it was likely to reduce competition for engineering contracts. RCR’s mining clients include Fortescue Metals and it has worked on some of the state’s biggest oil and gas projects for clients such as Woodside, Chevron and QGC.
The administration of RCR also makes it more difficult for a class action lawsuit brought by Quinn Emanuel Urquhart & Sullivan to succeed, because there may not be enough money left over to return to investors after solar farm developers, banks, suppliers and employees are paid.
Quinn Emanuel is alleging that RCR breached continuous disclosure laws because its senior management team either was aware or should have been aware of the solar farm problems before announcing them to the market on August 28.
Institutional investors are furious that RCR chairman Rod Brown reassured investors at its annual general meeting on October 30 that the company was reducing “potential project risks” and had “significant opportunities” ahead of it without giving any indication of systemic financial problems.
With the exception of Mr Brown, who had been an RCR director since 2005 and chairman since 2008, and former WA Water Corporation chairwoman Eva Skira, most of RCR’s board members had served relatively short terms of less than five years. Ms Skira, who had been a director for 10 years, stepped down on October 3. She left RCR holding no shares.
RCR’s remaining directors hold stock in the company, with Mr Brown holding the most at 234,044 shares.
Independent directors include former Transfield Services executive Bruce James with 22,847 shares; former Alcoa executive Lloyd Jones with 63,831 shares; former Thiess chief financial officer Sue Palmer, who was chairwoman of RCR’s audit and risk committee, with 50,000 shares acquired after on October 12, and former McConnell Dowell chief executive David Robinson, who joined the board in March 2018 and was chairman of its tender review committee, with 41,000 shares.