MENU

Why CBL Corporation just entered voluntary administration; liquidators appointed

Things don’t look good for CBL CORP FPO NZX (ASX: CBL), with the company placed in administration over the weekend. CBL’s shares have been suspended since 6 February 2018, after entering a trading halt four days prior to that.

I wrote on the 5 February that the company had shocked shareholders by announcing it would take a $100 million hit to its future claims expenses, as well as writing off $44 million in receivables following its acquisition of broker SFS in 2017.

At the time I said that I thought the claims would cause CBL Insurance (CBL insurance is a subsidiary company owned by CBL Corp) to fall below its minimum required solvency capital.  That would have required a capital raising, and reading between the lines of ASX announcements, it seems CBL tried to raise capital but failed.

Following this, CBL announced that it would sell its French construction business, its primary breadwinner. It’s not clear what happened between then and now, but CBL Corporation announced this morning that it had entered voluntary administration. Liquidators have been appointed to both entities.

CBL Corporation-controlled foreign companies are unaffected, including Assetinsure, DepositPower, and Europe-based PfP, SFS, and European Insurance Services (EIS).

There is not a lot of information provided so it is hard to know the ultimate outcome to the process. In any event it seems as though the major business, CBL Insurance, could be close to worthless. With the core business gutted, CBL’s shares are likely to be worth close to zero if the company ever returns to trade.

From my perspective as a shareholder, and one who wrote positively about the company less than a year ago, the unraveling of CBL has been quite a surprise. More so considering Peter Harris, managing director of CBL, was named Ernst & Young’s Entrepreneur of the Year in 2017. While the business is opaque, there are likely several lessons here, namely that perhaps I should have viewed CBL Insurance’s high margins as a warning sign rather than something attractive.

It also looks as though shareholders have been thrown under a bus, given that the Reserve Bank of New Zealand (RBNZ) has been talking with CBL since July 2017. Management are also likely to take considerable losses, given they still hold almost half of the company. The RBNZ discussions were under strict confidentiality orders, which is why they were not disclosed to the market.

We will have further coverage as CBL updates the market. I do not expect the process to have a quick outcome.

Don't Buy A SINGLE Stock Until You Read This

While conflict overseas is all media talking-heads seem to mention these days, the billionaire founder of Tesla is losing sleep over what he sees as a far bigger threat.

Elon Musk Warns: This has "vastly more risk than North Korea"

If you missed your opportunity to get in on Google, Microsoft, or Amazon in their early days, don't let it happen again. This emerging technology trend could offer a second chance for anyone who wishes they took part in these millionaire-maker stocks.

Click here to discover more!

Motley Fool contributor Sean O'Neill owns shares of CBL Limited. The Motley Fool Australia owns shares of CBL Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.