APP was named best ingredient at the 2024 Hive Awards for excellence in the Australian food and beverage business sector, with co-founders and directors Brendan McKeegan and Phil McFarlane pictured in the slide. Photo: Phil McFarlane/LinkedIn

THE ADMINISTRATOR overseeing insolvent isolates manufacturer Australian Plant Proteins has recommended the company be liquidated, citing limited chances of resolving the issue of $15.89-million owed to secured creditors.

Victorian-based APP entered voluntary administration in June.

As one of the few commercial-scale plant-protein fractionation businesses in Australia, there were hopes an investor or buyer would step in to keep APP operational.

Founded by Brendan McKeegan and Phil McFarlane in 2016, the company operated two sites in Victoria, a research-and-development facility at Werribee near Melbourne, and a commercial fractionation plant at Horsham in the Wimmera district.

Horsham currently produces 1200 tonnes of plant-protein isolates per annum, mostly from faba beans.

Isolates are sold directly to plant-protein businesses and food-ingredient distributors domestically and overseas to be used in retail products such as meat and dairy alternatives, bakery goods, snack and convenience foods, and pet food.

In a report presented to creditors at a September 30 meeting, administrator Manuel Hanna of Romanis Cant said the best outcome for creditors would be for “the company to be wound up” and assets sold under a liquidation process.

According to the report, APP had “incurred material trading losses” from the end of the 2021 financial year until entering voluntary administration.

It said shareholders had provided additional funding throughout those three years to sustain business operations.

Possible asset sale

Mr Hanna said he was in talks with a party interested in purchasing APP property as a “straight asset sale”, and not a bid for the company as a going concern.

“I have since continued to liaise with the interested parties and have now received a binding offer for the sale of the company’s assets,” Mr Hanna said in his report to creditors.

“I am advised that the offer will be finalised and submitted shortly.”

He noted that any asset sales would still leave “a material shortfall” in the $15.89M debt to secured creditor, Commonwealth Bank of Australia.

Federal Agriculture Minister David Littleproud and local member Dr Anne Webster with APP co-founder and director Phil McFarlane (right) at APP’s Horsham site in 2022. Photo: Brendan McKeegan/LinkedIn

Other outstanding unsecured debts include: $303,734 owed to employees; $557,453 to unnamed unsecured creditors, and $23,228 to statutory creditors, such as government charges and taxes.

Since taking control of the company, the administrator has continued to operate APP “in a limited capacity” focused on selling down its remaining stocks.

Since July, a “material portion” has been sold to a related entity for $630,202.

Other options

Liquidation was one of three options presented to creditors during the meeting.

The others involved ending the voluntary administration, or executing a deed of company arrangement (DOCA), an agreement aimed at restructuring the company’s debts to enable operations to continue.

A DOCA was put forward by company directors proposing to pay the debts via funds from asset sales and other monies in the administration bank account.

Australian Securities & Investments Commission documents list Mr McKeegan, Mr McFarlane, Michael Scalzo and Christine Gilbertson as directors of APP.

The DOCA would allow for control of the company to revert to the directors after implementation, as well as the preservation of its patents and operating licences.

Mr Hanna recommended that the DOCA proposed would not be “in the interests of creditors”.

He also advised against ending the administration process as “the company appears to be insolvent”.

Allegations against directors

In the report, Mr Hanna addressed claims raised by an unnamed APP creditor and shareholder alleging the directors breached their duties to the company.

The allegations relate to an investment made by global grain trader and agrifood company, Bunge, in 2021.

Bunge paid A$45.7M for a minority stake in APP as well as signing on as the exclusive product distributor in the Americas.

Under the arrangement, about $24.9M was paid to APP, while $20.79M went to Evans Agribusiness Trading (EAT Group), a related entity of Messrs McFarlane and McKeegan, in exchange for shares in the company.

“The correspondence further asserts that the funds of approximately $21M transferred to the EAT Group resulted in [APP] having insufficient funds to meet the company’s financial requirements and that the conduct of the directors in relation to approving the structure of the Bunge investment constitutes a breach of their duties to the company.”

The directors have denied the allegations, asserting that the arrangement was made on the basis that Bunge required at least a 22-percent share in APP as a condition of the deal which gave shareholders the opportunity to sell their stakes.

They say shareholders have been “kept fully informed” about the deal at the time, with no objections made until now.

“The due diligence materials provided to all shareholders at the time of the Bunge investment showed that the capital expenditure expected to be required to complete the processing facility did not exceed $22.5M and that the expected profits were such that no further capital was expected to be required,” the report said.

“The increase in production was in accordance with information and forecasts provided to the directors by Bunge and production was reduced once it was apparent that Bunge was not able to meet its forecasted sales.”

In his report, Mr Hanna said his “initial position following legal advice” was that the claim was “not made out” but the allegations “may warrant further investigation if the company is placed into liquidation”.

The allegations come under the Corporations Act 2001, which includes provisions that directors should act with care and diligence and in good faith, keep accurate financial records, and not operate when a company is insolvent.

A potential breach of this act could result in a range of penalties such as, criminal charges, civil proceedings or disqualification from managing a company.

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