Directors of Allied Farmers Ltd (ALF) are confident the company has a future despite saying there are significant uncertainties and the auditors being unable to express an opinion on the annual accounts.
Property and finance assets acquired in the acquisition of Hanover Finance assets were written down to low values, totalling $22 million, and the directors believed the amount would be recovered over the next few years, subject to concern over a couple of small loans, chairman Garry Bluett said.
Sales worth about $2m were expected to settle over the next few months.
Directors were required to take a cautious line in the annual report in describing uncertainties over cash flow forecasts, but believed it was appropriate to prepare the accounts on a going concern basis.
Auditors PricewaterhouseCoopers said they did not have sufficient evidence on the forecast cash flows and continuing support of the secured lender to say whether the going concern assumption was appropriate.
They made a similar comment in the 2010 annual report.
"We've had a lot thrown at us over the last three years, and we're just working very hard to keep things going,'' Bluett said.
A request last week for a $500,000 loan repayment put further pressure on ALF.
Bluett said the company was trying to negotiate an extension from the lender so that repayment of the loan can be made from the sale of the asset being financed, due for settlement in November.
If an extension could not be gained, the result would be an enforceable event of default.
The group had defaulted on loans previously and the lender involved had just "reserved their rights'' rather than taking direct action against the company, he said.
In this latest case, he believed solicitors for the two parties were getting closer to an agreement.
There had been a "timing mismatch'' between the loan demand and the settlement date for the sale of the ex-Hanover asset.
The ALF group had negative shareholders funds of $2.7m at its June 30 balance date.
The loan repayment request is a second financing setback since the June 30 balance date. ALF's bank required repayment of a $250,000 overdraft facility.
It had been repaid, and the company was in the process of seeking a replacement facility but the outcome of the process was uncertain, ALF said in a statement to the NZX.
ALF was late presenting its annual report and only just avoided having its shares suspended from NZX trading, after a warning from the exchange.
The annual report said the company's cash flow forecasts showed there was a reasonable expectation that the group had adequate resources to continue operations for the foreseeable future.
This involved continued realisations of the (ex Hanover Finance) financial and property assets, agreements with creditors over repayments due in the next 24 months and continued support from the first ranking secured creditor.
This creditor was Allied Nationwide Finance (in receivership), which had loaned ALF $17m. Note 15 of the accounts says that all assets under the control of the receivership entity were transferred to Crown Asset Management Ltd (CAML) on August 1.
The main $15.3m loan facility has a July 1, 2013 maturity date. The balance of funds owed is due on March 31 next year, and Bluett expects this to be repaid. For the July maturity, ALF would talk to CAML about an extension closer to the time.
CAML is involved because the Allied Nationwide Finance subsidiary was covered by the Crown guarantee when it went into receivership.
Bluett said it was possible that CAML might be a more patient manager of the assets than a typical commercial receivership would be.
Of the $22m of ex-Hanover assets to still be recovered, about 60% was taken up with sections in the Jacks Point residential subdivision in Queenstown.
These sections have an average price of about $200,000 to $220,000 and were selling well, with about 65 sections remaining, he said. He thought values had bottomed and might even be turning upwards.
Of about $3m worth of overseas properties in Australia and Fiji, about $2m worth of sales was expected by the end of this year.
ALF shares were at 2.2c on the NZX at time of writing, as the market waited for an update on the loan extension talks.