Reacon Australia - It's a Pre-Pack: 1st creditors meeting is 1pm today

The first meeting of creditors of the failed Reacon Australia Pty Ltd, incorporating Mail Marketing Works is due today, Tuesday 22nd April at 1pm via MS teams. It is customary at such meetings that a full report of indebtedness is presented, and the liklihood of any returns estimated, and over what time period. It looks 'like a Pre-Pack.'

 This is a company structure diagram of Reacon companies as at end July 2024

Pre-Packs of companies in trouble are legal in Australia - so long as they do not devolve into a provable 'Phoenix' activity. While Pre-Packs may not be popular with all creditors and ASIC has increased its scrutiny of them, but they can sometimes result in better returns for cretitors; a few cents in the dollar anyway. Unfortunately for employees, a FEG claim for entitlements can only be made if a company progresses from administrator, or DOCA, to liquidation.

The reacon Group/Australia Pty scenario looks like a classic Pre-Pack; it ticks the following boxes:

1. Sale Before Formal Insolvency: The sale occurs before an administrator is formally appointed, or very shortly after. TICK 

2. Going Concern: The purchaser typically acquires the business as a going concern, meaning the business continues to operate under the new ownership.  TICK
3. Asset Purchase: The sale focuses on acquiring the company's assets, including key assets like the business name, goodwill, and intellectual property. TICK
4. Debt and Liability Transfer: Debts and liabilities of the company remain with the insolvent company, leaving the purchaser with a business free of these burdens. TICK
5. Possible DoCA (Deed of Company Arrangement): In some cases, a pre-pack may be part of a broader restructuring, such as a Deed of Company Arrangement (DoCA), where the directors might support an administrator and a DoCA.  DOUBLE TICK
6. Shareholder Agreement: Shareholders (often also directors) may agree to sell their shares to the purchaser, contingent on the DoCA being approved. TICK
7. Creditor Agreement: Major creditors often agree to the key DoCA terms and commit to voting for the DoCA. - Won't know until after 2nd creditors meeting, May 3rd.

This is how Reacon looks after April 7th 2025

What makes this first meeting of creditors unusual, is that Reacon Group has already been on-sold by administrators Cathro Partners, to a leading creditor Westman Printing via a related company Innovis Media Group Pty Ltd, a company only registered as recently as March 25th at a Kellyville, NSW address believed to be the private residence of Westman Printing's Vikram Gulati. This begs the questions: was a market valuation sought? Were other parties invited to bid for the company, a higher offer for which may have provided a better return to creditors?

Then there is the issue of the transfer of ACT-based  National Mailing & Marketing on 26^th February 2025, from Reacon Group to aThe curious transfer of National Mailing & Marketing shares from Reacon to Evita Khan newly-registered company owned by Jay Khan's wife -  Riverina Wealth Pty Ltd (ACN 684707524), registered at a North Rocks, Sydney domestic address by Evita Behl Kahn. The North Rocks address is a house which was sold at auction on 12th May - so where is National Mailing & Marketing's registered office now, and is this company an asset that can be clawed back into Reacon to provide a better return to creditors?

Leading corporate Law firm Ashurst has this to say about Pre-Packs:

"The use of pre-packs in Australia is somewhat controversial. Despite the Productivity Commission's recommendation in its Report on the Inquiry into Barriers to Business Entries and Exits that pre-pack sales be permitted, the Commonwealth Government expressly declined to adopt that recommendation. A particular concern was that pre-packs "may facilitate fraudulent phoenix activity".

Reflecting that concern, the Government passed the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth) to amend the Corporations Act 2001 (Cth) (CA). These amendments effectively mean that the anti-phoenixing provisions only apply to pre-packs if the company goes into liquidation following the completion of a pre-pack sale." (thanks and achnowledement to Ashurst)

Reacon's First meeting of creditors is scheduled for Tuesday April 22nd at 1pm, via Microsoft Teams. A login is required. If you believe you are a creditor or past or present employee owed money, contact Cathro Partners to access the login.