The long, slow death of Chemeq

The death knell of Chemeq was sounded yesterday when the West Australian animal biotech was placed in the hands of administrators from Korda Mentha.

Chemeq was unsuccessful in its attempt in front of the Court of Appeal to overturn an earlier decision by the Supreme Court that it had failed to meet a final milestone placed by its bondholders.

Receivers from Ferrier Hodgson have been appointed.

The Supreme Court found earlier this year that Chemeq had failed to achieve gross revenue of at least $4 million for the year ended June 30, 2006. Under its terms with bondholders Stark Trading, this meant Stark was able to attempt to recover $60 million in convertible bonds from Chemeq.

In mid-April, Chemeq seemed to have been thrown a lifeline when it received a refinancing proposal from private investment company International Finance Corporation of Australasia (IFCA). The investors had offered to subscribe for up to $75 million in new equity capital in Chemeq in two stages.

However, this proposal had the proviso that Chemeq's appeal was not decided on or before May 31. It was also subject to shareholder approval and due diligence, and to the bondholders agreeing to accept the $60 million and drop all claims against Chemeq.

The Court of Appeal decision on Wednesday torpedoed that idea.

Chemeq had been fighting a losing battle for the last number of years, despite a change in management structure that it hoped would save the company.

In August last year, founder Graham Melrose retired from the board and a new chairman, John Hopkins, took over.

Chemeq's CEO David Williams widely promoted a new strategy that saw Chemeq lay off half of its workforce and move its whole operation to a factory in Rockingham, giving up its offices in the Perth suburb of Bentley.

It had faced a litany of disasters in the preceding couple of years, including a massive $500,000 fine from the Australian Securities and Investments Commission (ASIC) for breaches of continuous disclosure provisions, trouble receiving regulatory approval for its antimicrobial drug Chemeq 5% from two major markets in Brazil and Thailand and a horrendous performance on the stock market that saw it lose 77 per cent of its market value and $450 million in market capitalisation in 2004.

There is no word yet on what will happen to its customers, the majority of whom are in South Africa, where the company's product is successfully used as a microbial for poultry and pigs.