Two weeks on from the collapse of the soon-to-be-delisted Forge Group (ASX: FGE) and investors are no more knowledgeable about the cause of the collapse than they were when the profit write-downs began in November last year.
The most recent announcement on the ASX, a request for a trading halt on 11 February, simply states that the group's financiers had withdrawn support for the company and that Forge had appointed administrators.
Recent news coverage indicates that Forge's debts now add up to over $700 million; a sharp increase from the $500 million estimate of two weeks ago and an even sharper decline from the company's position of $80 million in cash last year. The Australian also outlined claims regarding questionable spending decisions on the behalf of management – including stamp duty of $70,000 on the purchase of a new house and a one-year lease paid in advance, after the profit write-downs on Forge's power station projects were announced.
This writer also attempted to contact both Forge's investor relations hotlines and the administrators, however my emails went unanswered. Of particular interest to me were the three following questions:
1) Why did Forge's financiers withdraw from their agreement to finance Forge? This isn't made clear in the ASX announcements.
2) Are Forge's debts really at $500 (now $700) million as stated by the Australian Financial Review? If so, how did they become so large so rapidly compared to the most recent annual report?
3) Was the profit write-down largely the result of Forge mismanagement, or was the rot already there before acquisition of CTEC and not discovered during due diligence?
Unfortunately these questions may never be answered, although they may come out in a potential class action that could be funded by Bentham IMF (ASX: IMF). Over 150 investors have made inquiries to Bentham so far, with the actual class action to be conducted by legal firm Slater and Gordon (ASX: SGH). Fellow Forge investors interested in the IMF action should visit this website and look at the information about the class action. Anyone who is signing up must fill out and complete a couple of forms by Friday, 14 March.
Foolish takeaway
It's pretty tough to lose an entire shareholding, but it's only a complete loss if you learn nothing from it. In this particular instance I (and a lot of other shareholders) apparently struggled with identifying both the right time to sell, the risks associated with the business, and the signs that all was not as it seemed in the Forge boardroom.
Fellow contributor Claude Walker wrote an insightful article about problems with Forge here. It's an unpleasant decision to sell at a loss, particularly when the losses were over 80% (I bought Forge at $5.20); however, 'your first loss is your best loss' isn't a hoary old investing cliché for no reason. Sometimes it's simply better to sell out, forget about it, and try again next time.