We lost Cubby Station, can we keep the 94 companies of Arrium?

THE MAGIC word of the prevailing business age seems to be innovation – but are we desperately guilty in Australia of chasing innovation rainbows, believing in ever-more elusive pots of gold?

A very successful media sales manager who once worked for Business Acumen was fond of saying “a bird in the hand is worth much more than two in the bush”. It was his way of saying that an existing client is more valuable than an apparently attractive and apparently more lucrative potential client on the horizon. 

In other words, look after the clients and assets you have – do what you can to secure them with you – before you expend energy chasing rainbows.

In his practical manner, Business Acumen’s long lost sales manager – he left the industry, with regret, for he wanted to pursue his lifestyle dreams – put solid numbers to his ‘bird in the hand’ ethos.

If the cost of sales is about 20 percent of income, which it so often works out to be, then an existing client is already a 20 percent better bet than acquiring the next client. By our sales manager’s reckoning, practically, you could afford to discount up to 20 percent to keep an existing client.

The reality is, rarely do you have to discount – if you are treating your clients well and keeping their best interests at heart.

BEST INTERESTS AT HEART: The Cases of Arrium and Cubby Station

The same business philosophy should apply to Australia’s major business assets – but there is a problem.
Perhaps Australia’s liquidation and administration provisions under the Corporations Act have the right intentions. Perhaps, though, they have also been watered down by precedents and more recent business practices.

Cubby Station is a case in point. Moved into voluntary administration owing about $300 million when it ran into cashflow difficulties – any wonder as Cubby, with Australia’s largest private water holdings, was constructed during the longest drought in Queensland history. The vast potential cotton fields were parched.

Three months after Cubby moved into administration, it rained. And rained. The largest water holding in the country was a wet dream come true.

The directors of the Australian founding company asked to take Cubby Station back, seeing that it was now clear there would be many years of profitable growth and harvests ahead. The administrators, McGrathNicol (and banks) respectfully refused …

The administrators decided the best course of action – and the directors would question, for whom? – was to sell to a combined China-Japan-Australian group, at a knock-down price of $240 million, far less than its establishment costs, funded from offshore.

There can never be another Cubby Station created in Australia, because its location and the deals for water and land that created it were unique.

Of course, Cubby Station is still here and it’s great for Australia that it is now thriving. But where are those thriving profits going today? Largely offshore.

One thing is for certain, the liquidators – who can charge upwards of $500 an hour per executive for certain types of work – had a very profitable time.


We can only hope that a similar fate does not befall the multi-faceted steel manufacturing conglomerate, Arrium.

The 94 companies that make up Arrium – whose best known brand is probably OneSteel – are currently in the voluntary administration hands of KordaMentha.

Arrium’s board was obliged to take this move early this year when cashflow was badly hit by a set of unfortunate circumstances – the most highlighted of which was the fall in resources prices, affecting mines the company had acquired in an earlier era of high prices.

But the rest of the group was trading reasonably well and there seemed to be good prospects for recovery.

However, one of the factors that can play havoc with a company in administration in Australia is the sheer costs of being in administration.

Business Acumen has reported on one case of a Queensland mining equipment company which came out of administration to find that in less than a month the administrators’ fees had run to almost $400,000, extracted from the company’s bank accounts. The loss of this cash soon forced the directors to liquidate the company.

KordaMentha’s early information for shareholders on Arrium is heartening, however. In its initial information release, KordaMentha stated:

“The role of the voluntary administrator is to maximise the chances of a company, or as much as possible of its business, continuing in existence. In addition, the voluntary administrator will investigate the company’s affairs, prepare and issue a report to creditors and provide a recommendation to creditors as to whether the company should enter into a deed of company arrangement, go into liquidation or be returned to the directors.”

As promising as that sounds, the longer it goes on, the final option of returning the company to directors seems more unlikely. The Cubby Station case is an example, where it took four years of administration before a loss-making sale was made.

With the South Australian Government having thrown Arrium a lifeline in terms of a lucrative long-term rail production contract, and with the Federal Government having ‘donated’ $40 million to assist Arrium already, it would seem there is an increasingly likely option of a break-up of the company into profitable saleable components – with losses to shareholders on the rest.

Again, a major Australian asset would go and jobs would undoubtedly vanish.

There may not be a pot of gold at the end of this rainbow, but surely there should at least be a pot of Australian steel?

Until Australia gets something like the self-administration benefits that the US has in its Chapter 11 bankruptcy provisions – which have been used to great national benefit by General Motors and most American airlines – our major business assets will continue to hang by a precious and precarious thread. 


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