Investment firm Lazard Carnegie Wylie will invest $1.65 million in a bid to gain control of collapsed automotive servicing chain Midas, but unsecured creditors of the group will only receive between 2c and 4c in the dollar under the deal.
LCW has proposed a deed of company arrangement to regain control of Midas, which was placed in administration in late December 2008 with debts of around $10 million. It has good reason to want to try and resurrect the ailing chain - LCW bought into Midas in March 2008, and has invested around $10 million in the business.
Under the DOCA, LCW will invest $1.65 million for control of the business. The company's unsecured creditors (led by National Australia Bank) have agreed to support LCW's deal.
While the administrators have closed 16 stores and cut 55 staff in order to get the business back on track, LCW's deal will secure all remaining jobs and the 75 remaining Midas outlets (including 40 franchised outlets).
But administrator George Georges of Ferrier Hodgson admits the deal is a disappointment for unsecured creditors. They are owed a total of $7.56 million, but are likely to get a maximum of $327,000 - a return of just 4c in the dollar.
But Georges has recommended the DOCA on the basis that it is still the best option for unsecured creditors. Under a wind-up of the company unsecured creditors would have received nothing, while three offers to buy the business would have provided next to nothing for unsecured creditors.
Georges points out that on top of the $1.65 million LCW will invest it has also pumped in $300,000 to keep Midas trading through the administration and says the investment firm is committed to Midas' success.
"They are going to be a lot more focused on driving the business to make profit," Georges says. "They have always believed in the model. It's just that up until now they haven't controlled the model."
A key part of LCW's DOCA is the removal of former Midas boss and major shareholder, Philip Bonney. Georges says Bonney's employment contract has been terminated. As a result, Bonney has a claim against Midas for breach of contract (as well as claims for other debts arising from personal loans he provided to Midas). Georges says Bonney will stand with other unsecured creditors. Under corporate law, the most he can receive for the breach of his employment contract is $3500.
Data provided to creditors shows Midas' trading position has improved significantly since the administrators have shut the unprofitable stores, reduced labour costs and relocated some equipment to ensure all stores are working with up-to-date technology.
Between 23 December 2008 and 18 May 2009 the business lost a total of $158,000, but is expected to make $326,000 in between 19 May and 19 June, taking the total profit between 23 December 2008 and 19 June to $168,000.
"There has been a significant turn around in the business since we've been there and that's because we've reduced the negativity in the business," Georges says.
He will speak to franchisees in a conference call in the coming days, but says there should be little change for them at a day-to-day level.
"We've got some stability in the organisation. It's a good result in terms that we have a Midas operation going forward."
