Forge Group may have been trading while insolvent

An initial report into what led to the collapse of Forge Group has found the company may have been trading while insolvent as early as November 2013.

In its first report to creditors, administrator Ferrier Hodgson said an investigation into whether the company was trading while insolvent should take place.

In a copy of the report obtained by The Australian, the abrupt collapse was attributed to a number of factors including a downturn in the resource sector, cost blowouts due to subordinate engineering work and "insufficient process and risk control measures".

It also said it would drill down on the decisions made by Forge’s directors before the collapse, including the payment of bonuses to directors.

It says Forge went into crisis mode in November after posting a market capitalisation of almost $600m a year ago and posting a net profit after tax for FY2013 of $62 million.

In November Forge told investors it expected profits to be well below guidance this financial year, revealing a $127 million write down which it attributed to two power station projects.

At the time the company said an internal review had "identified concerns in relation to the underperformance" in relation to its $420 million Diamantina contract in Queensland and its $150 million contract with Rio Tinto at the West Angelas iron ore mine in Western Australia. 

Forge called in administrators on February 11 after ANZ Bank withdrew its support for the embattled company as revelation s emerged it had amounted debts of about $800 million.

1500 were people sacked as a result of the company’s collapse and did not receive their final pay cheques or any entitlements.

"Based on our preliminary investigations to date, we are of the opinion that the group may have been insolvent as early as November 2013," Ferrier Hodgson said.

"As our investigations are preliminary in nature, the relevant date may change and will be determined when we, or an alternative liquidator is appointed and a further detailed review and investigation is completed."

The administrator said there were defences available to Forge's directors because of efforts to restructure the group and secure capital.

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