Australia

How William Buck resurrected Valence as Quantum

Quantum Graphite Ltd – formerly Valence Industries Ltd – is Australia’s only graphite producer and owns the Uley graphite project, one of the largest coarse flake graphite projects in the world.

The challenge

Initially appointed as voluntary administrators by the directors of Valence Industries Ltd. William Buck navigated the process of a restructure, to ultimately reinstate the company on the ASX, while meeting legal and statutory requirements.

William Buck’s process and solution

  • Worked with the secured creditor to develop a Deed of Company Arrangement (‘DOCA’) resulting in the company being restructured with a debt for equity conversion.
  • Protected key asset of mining tenements by complying with environmental and statutory obligations.
  • When appointed as Deed Administrators by the creditors of the company, the deed provided for the company to re-list on the ASX which was achieved following approval by the ASX and ASIC of the debt for equity conversions and all listing documentation and following a final determination by the Takeover Panel.
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Overview Administration
As Australia’s only graphite producer , Quantum has significant export potential to global markets, particularly in Europe, North America and the Asia-Pacific region.

Quantum’s mine had struggled to consistently produce market-quality graphite over a sustained period and in early 2016, the Board of Directors identified the potential for a going-concern risk.

As a cost reduction strategy – and to avoid trading insolvent – the Board placed the mine site into a ‘care and maintenance’ phase. During this period, the company was also suspended from the ASX.

The principle secured creditor stopped providing funding for the project in July 2016, forcing the Board to place the company into voluntary administration andappointing William Buck as Voluntary Administrators.

We quickly identified that the group’s value was inherent in protecting the mining tenements that were highly sought after by competing interests.

We continued the care and maintenance program and negotiated a line of funding with the secured creditor while meeting legal requirements as administrators.

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Strategy 1) Sale

We advertised for expressions of interest (EOIs) for the company and its assets, and through the process of considering the offers, we realised that many raised notable concerns, including insufficient cash, lack of an established management team, and the secured creditor unwillingness to accept equity as consideration in any of the potential purchaser’s companies.

Upon review, we decided that none of the offers were in the best interests of creditors and that a comprehensive restructure would provide the best outcome for creditors.

Strategy 2) Restructure

We worked with the secured creditor to establish an agreement between Quantum and its creditors, setting out how the affairs and assets of the company would be dealt with. This agreement is referred to as a Deed of Company Arrangement (DOCA) or the Agreement and often allows creditors to get a better return on their debt than in the winding up of a company.

As part of the Agreement, it was decided that the secured and unsecured creditors would convert their debt and claims into equity. There would be a working capital injection to secure the Group’s liquidity with shareholders retaining their equity holdings and at the conclusion of the administration, the company would be reinstated to the ASX.

Creditors and shareholders had approved and agreed to these terms by December 2017, however, a challenge to the restructure soon followed. One of the larger shareholders questioned the validity of the Agreement and restructure process.

Overcoming legal challenges

An application was submitted to the Takeovers Panel challenging the Agreement.

We responded with a thorough justification for the Agreement noting compliance with the Corporations Act 2001. We also explained that all resolutions in relation to the Agreement were passed unanimously by the Group’s creditors. Precedent puts the interests of the creditors above that of shareholders of insolvent companies.

The Panel ruled against the application, advising that the material provided by William Buck persuaded them that making a declaration would be against the public interest.

The Agreement was finalised and after a successful restructure, in August 2018, Quantum Graphite Limited was reinstated on the ASX.

Long-term strategy

Quantum Graphite’s Board of Directors intends to continue capital raising initiatives, with the long-term goal of constructing a new state of the art processing plant and recommencing graphite production.

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