Impact of H. G. Palmers collapse

The Impact of H. G. Palmers collapse

By MICHAEL BAUME, The Bulletin March 19, 1966, Pages 53-54.

'Whether or not debenture holders get paid in full is a relatively unimportant issue compared with the social and economic impact of the H. G. Palmer disaster.
It is the impact on other companies and even on the economy as a whole that makes the latest $25m. increase in losses of H. G. Palmer (Consolidated) Ltd to a staggering $34 million, so important.
The ripples of Palmer will effect not only The MLC Ltd, whose inexplicable involvement in this incompetently managed, self-deluding, chaos creating monster that seriously damaged the fabric of the Australian electrical appliance industry, will cost it millions of dollars and will cost its policy holders millions too.
Apart from The MLC, which has lost the $18m. it invested in Palmers’ capital, the main loss is being suffered by those people who lent Palmer money on deposit or on unsecured notes, with $l3 million going down the drain this way. Another $4 million has been lost by creditors mainly appliance makers who supplied the company with its stock.
The effect of the loss of depositors’ money is most important on such intangibles as investors’ confidence. Coming after so many other disasters, the Palmer loss is a s34m. reason why investors have left the stock exchange and are putting their money back into the savings banks and the building societies. It is frightening to consider the social consequences of the tremendous losses the small investor has suffered in the company crashes of the ’60s.
The industries most heavily hit by the Palmer loss after the appliance makers were newspaper, television and broadcasting companies which together lost hundreds of thousands of dollars in the Palmer crash. They did not only comprise the big metropolitan dailies, who dropped their $40,000 and $60,000 with more aplomb than some of the small country newspapers or radio stations which could not only ill afford to lose a few thousand dollars in Palmer’s bad debts, but who also had relied heavily on regular ads from Palmer’s stores that have now been closed down. 
Those companies that were caught heavily as unsecured creditors will, of course, suffer most; but the whole appliance trade will feel the impact one way or another, even those sections having little at stake in Palmers itself.
For some companies, such as Simpson Pope, the Palmer bad debt of $624,000 is horrifying, particularly in the context of last year’s profit of only $601,000. Kelvinator’s bad debts with Palmer’s of $198,000 is also very large in relation to the group’s total profit last year of $789,000, and even Email’s loss of $141,000 is large against last year’s profit of $1,203,000. And then there were companies like KGH Pty Ltd in Sydney, run by Mr Keith Harris (not the essences man), which had made a very large proportion of the “H. G. Palmer” brand radio and television sets sold through the group. Not only has KGH lost its main customer, it has also lost a bad debt to Palmer’s of $44,638 and all this at a time when the company had been thinking about floating onto the Stock Exchange lists. The Palmer bust-up means that KGH is all but dismembered.
Many other manufacturers will also be suffering from production downturns for quite some time, if only that they won’t be making appliances for people not paying for them. 
Should the receiver continue to keep the company going? He says he must, as a forced realisation would bring even greater losses in assets values than those he revealed last week, which were all based on Palmers as a going concern. 
These figures showed that the value of assets covered debenture claims by $2 million, but it is clear that the very heavy trading losses since June 30 last have more than wiped out that. Not only have unsecured creditors lost all the $17.2 million owing to them, but debenture holders may be losing a bit of their $41.7 million, too. 
There is no guarantee that the receiver will be able to do better by trying to keep trading than by just taking his loss now; he could end up with two losses (on trading as well as on realisation) instead of one. And in addition, if he stopped now, he could have the $4.6 million maintenance charges paid in advance, by customers (an unsecured debt) to use for satisfying debenture holders. By trading on, the receiver is running down this amount that would be available. In effect, the receiver is gambling on getting the best of both worlds; he is slowly winding the company up by selling off its assets as he can. but not in “forced sales”. He stands to gain more this way but also runs the risk of losing more.
For creditors, the sight of the $4.4 million that have been paid in tax over the last 12 years (when the company can now be shown never to have made a real profit in its life) must be galling.
There seems a good case for the Taxation Commissioner actually paying back the tax in such cases so that creditors can benefit, rather than leaving a tax credit with the company that shareholders may eventually exploit (at a discount. if sold) but not creditors.

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