Printing company’s receivers accuse suppliers of seeking “hostage” payments at expense of employees

Geon Group’s future hangs in the balance as the collapsed printing company’s receivers accuse key paper suppliers of withholding supply of critically needed product.

McGrathNicol were appointed as receivers to Geon last month, but partner Shaun Fraser claims paper inventories at the business are already exhausted.

Without the immediate provision of additional supply, Fraser said he will have to consider immediate “cost reduction strategies” including plant closures and job losses.

Geon employs around 1,000 people and was valued at $320 million when it was formed in 2007.

“Despite indicating to paper suppliers how important it was for Geon to continue to receive supply in order to preserve the company’s value, maintain employment and avoid liquidation; supply has not been forthcoming,” Fraser said in a statement.

He said continuing to supply Geon during the receivership carried “negligible credit risk” for suppliers as they benefit from a “super priority” guarantee of payment provided by the receivers.

Fraser said McGrathNicol is “terribly disappointed” at the actions of the suppliers and he has written to them asking for supply to started again.

Geon’s key suppliers include Visy, Spicers and KW Doggett.

SmartCompany has been provided with a copy of a letter sent by the receivers to Andrew Preece, the chief executive of Spicers.

In the letter, Fraser says Preece has indicated a pre-condition of Spicer’s continued supply is that its pre-appointment debt is paid in full.

“This is not possible. Any such ‘hostage’ payment would be at the expense of employees as that payment could only be made from circulating asset recoveries (against which employees have a priority claim),” the letter states.

“Additionally, that would put you at an advantage to other unsecured creditors.”

Fraser says unless paper is supplied immediately it will be forced to quickly wind down operation and will need to begin liquidating assets causing a shortfall on employee entitlements.

“Your decision not to supply paper to the business is fatal to its ongoing operations,” the letter states.

“This situation is avoidable if suppliers support operations through the receivership and allow us to conduct the sale process.”

The letter asks for a response by midday yesterday and says without a response McGrathNicol has “no option” but to begin the process of winding down operations.

A spokesperson for Visy told SmartCompany it was “working with the receiver” and continuing to supply packaging to Geon.

Angus Urquhart, spokesperson for Spicers, said in a statement that the supplier is currently owed more than $1 million by Geon.

“As a small supplier to Geon and an unsecured creditor, Spicers has determined that it is not in a position, nor is it Spicers’ role to attempt to ensure the financial future of one of our customers,” he said.

“Spicers empathises with the plight of Geon and in particular its employees, but it cannot put its own business and employees at risk by agreeing to supply significant stock with no certainty concerning the future relationship.”

SmartCompany contacted KW Doggett for comment but did not receive a reply prior to publication.

A number of parties have expressed their interest in buying Geon’s business, including a secured creditor.