23 August 2006
Melbourne, 23 August 2006: A unique and complex situation that called for creative and commercial legal thinking is how two Clayton Utz partners describe their role in helping the Administrators of car parts manufacturer Ajax Fasteners to strike a deal that has ensured the ongoing employment of 10,000 automotive employees in Australia.
Clayton Utz Restructuring and Insolvency partner Paul James and his M&A/Commercial colleague Nick Miller were called on by Stephen Longley of PwC as Administrators to combine their experience to help negotiate a rescue package for Ajax Fasteners.
With a six-month deal being announced in the early hours of Tuesday 22 August, the two partners are now trying to catch their breath.
Paul James describes the situation the pair confronted as "atypical".
"As an 'agreement of necessity', its unique situation not only presented a myriad of typical administration issues but obviously the outcome had far-reaching economic, political and social implications, which really put the pressure on," says Mr James.
"It was never a deal that wasn't going to be done because it was pivotal to the automotive supply chain. If they hadn't got the deal signed on Monday night, it effectively meant that ten-thousand people would be out of work later this week.
"In voluntary administrations, typically the administrator has to weigh up the risk in taking on and running a business. However in this situation, while the Administrators were in a fairly good bargaining position because the agreement reached would be underwritten by the car companies' need to keep the parts flowing, nobody likes writing an open cheque.
"It was our task to provide advice to the Administrators about their risk tolerance and how to achieve the best result for creditors. Effectively what was delivered was an agreement that got all parties across the line in less than five days."
The negotiations involved five separate legal teams with as many as ten lawyers present throughout the five 24-hour days that ensued. While the Administrators worked towards a solution, the car companies were concurrently negotiating between themselves to determine their proportionate commitment.
As the commercial advisor to the Administrators, Nick Miller had a pivotal role to play. "We felt that the Administrators should only be taking minimal personal liability," says Mr Miller. "Essentially they could have closed Ajax down, covered their fees and run an administration that would probably have converted into a liquidation. But we all knew that couldn't be allowed to happen. Because the vehicle manufacturers needed to keep Ajax working they were prepared to pay a premium."
Mr James says from his perspective, the novel element was the fact that the Administrators were in a situation where they knew that the other party actually had to do the deal. "Within that construct, my advice was centred on protecting the Administrators' position and identifying commercial solutions to achieve a signed agreement before time ran out, so that the business could trade on."
Mr Miller says besides its high profile, the distinguishing feature of the deal was the unique combination of legal skills called upon. "We worked together on a whole range of insolvency issues that were really Paul's province but at the end of the day, it was a commercial deal. When an administrator comes in it isn't always necessary to introduce a commercial lawyer such as myself to work with the insolvency people, but what we needed to do was to get an arrangement where they could trade on, and which would be workable from a commercial perspective. Our combination of skills delivered this objective."
