NEW YORK Administrators overseeing the bankruptcy of an Australian metals recycler have questioned its sale of two of its U.S. entities in July, claiming they were overvalued.
In a report released in late October, appointed administrators of Sydney, Australia-based CMA Corp. Ltd. claimed that the sale of two of its wholly owned subsidiaries to a U.S. subsidiary of its long-term strategic partner, Scholz AG, may be "voidable transactions" by a liquidator due to "unfair preference."
CMA proposed selling the assets to Scholz US for $12 million in June after the company increased its offer from $7 million (amm.com, Aug. 1).
In a letter dated June 28, CMA chairman Parag-Johannes Bhatt told shareholders of a proposal to sell the companys wholly owned subsidiary, CMA USA Corp. Ltd., together with intellectual property attached to Meretec, CMAs proprietary process for removing zinc from galvanized and coated steel. He said CMA would use proceeds from the sale to repay part of an existing debt owed to Scholz, which is its largest shareholder at 47.48 percent through Scholz Invest GmbH.
In their October report, however, administrators singled out the transaction for further scrutiny.
According to the report, sale documents were executed in July for the sale of shares in two wholly owned subsidiaries of CMA USA: CMA Recycling Corp. Ltd. and CMA Property Corp. Ltd., both based in Chicago.
Administrators said the transaction raised concerns in part because the assets were sold in exchange for a $12-million reduction of unsecured debt owed to Scholz rather than a cash consideration.
In addition, independent valuations of CMA USAs assets in March were between $1.3 million and $4 million, well below the value of the debt written off, administrators said.
"There are inconsistencies between how the actual transaction was carried out and the information presented to shareholders regarding the transaction prior to it occurring," they said.
While the transactions raise concerns, administrators are unsure whether taking legal action would make financial sense, or whether the assets or proceeds of the sale could even be recovered. Their investigation found the transactions had "minimal" value, they said.
A second meeting of creditors to discuss issues related to the companys bankruptcy, including the Scholz transaction, had been scheduled for Nov. 1, but details of that meeting have not been released.
CMAs administrators and a spokesman for Scholz Group did not respond to requests for comment.
Editor's note: This story was updated on Nov. 14. An earlier version of the article misstated the location of CMA Corp Ltd.'s headquarters. The company is based in Sydney, Australia. The article was also updated to clarify that the administrators claimed the sale of CMA's two wholly owned subsidiaries to a U.S. subsidiary of Scholz AG "may" be voidable transactions.