The receivers of Dairy Nutraceuticals appointed by the Bank of China say the company’s accounts “appear inaccurate”.
However, they have signed a deal to sell its fixed assets.
After the business breached its lending agreements with the New Zealand arm of the Chinese bank, Grant Thornton’s Russell Moore and Stephanie Jeffreys were appointed to manage the affairs of the dairy products manufacturer, which exported mainly to China.
Their appointment came after the landlord re-entered its premises in Penrose, Auckland, for non-payment of rent at the end of May – at which point the company stopped trading and staff were let go. The site is currently being marketed for lease by Bayleys.
Founded in 2016, Dairy Nutraceuticals produced a range of dairy products, including infant formula, from its 6500 square-metre factory. Its website markets products from cow, sheep and goat’s milk.
Hong Kong-based Health Dairy International Limited has a 51% stake in the company, and Winnerwells Group, also of Hong Kong, holds 12%. NZ’s Health & Nutrition Dairy Trust Limited owns 37%.
According to Moore and Jeffreys’ first report, the shareholders invested heavily in the plant and machinery – including a specialist fit-out to meet Ministry for Primary Industries requirements.
However, due to the pandemic restrictions, the company could not export its products to China. During that time, it continued to receive funding from its shareholders and other parties.
“The directors were looking for investors prior to the receivership; however, they were unsuccessful, and the funds introduced were insufficient for the company to continue,” the report says.
It goes on to state the company has assets of $16.6 million and total liabilities of $23.47m – leaving a shortfall of $6.87m.
However, because of the apparent inaccuracies in the accounts, the book value of the assets and liabilities “may differ to actual values”.
After their appointment, Moore and Jeffrey brought in two valuers to undertake valuations of Dairy Nutraceuticals’ fixed assets and approached 46 potential purchasers. According to their report, they carried a book value of $13.7m.
That saw “a number of parties” express interest, leading to non-disclosure agreements being entered into with nine parties, and numerous site visits.
Eventually, three offers were received, and the highest bidder entered into a sale and purchase agreement.
Settlement is expected at the start of October, but the receivers won’t disclose the sale price due to commercial sensitivity and confidentiality restrictions.
While the amount owed to the Bank of China had an “inaccurate” value of $1.47m in Dairy Nutraceuticals’ books, the realisable value in the loan statement provided to the receivers by the bank is a little more than $2m.
Roughly $13m is owed to shareholders who funded the company’s operations. Dairy Nutraceuticals also owes $7.36m in accounts payable and $1.56m in employee loans.
Eleven unsecured creditors had made claims for $1.13m. “It is unlikely that the unsecured creditors will be repaid in part or in full,” the report says.
The accounts showed that 15 debtors, with a balance of $1.6m, are outstanding in accounts receivables.
The receivers have managed to contact 11 of those debtors. They could not locate contact details for the other four, totalling $206,000.
Two of the debtors, totalling $346,000, had a right to set off as they are creditors with amounts greater than they owe to it.
Meanwhile, seven debtors, totalling a little more than $1m, had disputed the debts and claimed they were actually creditors for deposits paid with no finished goods.
The four uncontactable debtors are based in China, and the company’s directors hadn’t provided them with contact details “despite numerous requests”, said the report.
“Based on discussions with the general manager and our review of the available information, it is likely the remaining debtors are, in fact, creditors, as balances owing were to be paid upon completion of the finished goods. It is unlikely that we will make any recoveries from debtors.”
Dairy Nutraceuticals has a 12% share in Melody Dairies GP: a joint venture alongside state-owned farmer Landcorp Farming (which trades as Pāmu); Nu-Mega Ingredients (NZ), owned by Australian Securities Exchange-listed Clover Corporation; and NZ Food Innovation (Waikato), trading as FoodWaikato.
In 2018, that partnership financed a second nutritional spray dryer to be built at Waikato Innovation Park in Hamilton in preparation for rapid growth in the sheep milk industry.
According to Clover Corporation’s half-year result from earlier this year, as of January 31, the venture was in breach of its banking covenant with Bank of NZ to the tune of $21.7m.