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Controversy surrounds Ovato redundancy methodology

For multiple reasons, redundancies and company insolvencies have become a fact of life in the printing industry. Shrinking demand, Covid and an uncertain recessionary environment have impacted high volume web printers most, while labels and packaging and, to some extent, sign and display have found alternative product offerings such as Covid health and wayfinding graphics. However, the way in which Ovato has handled its necessary redundancies has attracted criticism.

 Ovato PMP.png
 Closed - Ovato Clayton site, formerly PMP

Ovato is the ASX-listed (code: OVT) name of Australia's second largest print group, which comprises the merged activities of IPMG, Hannanprint and PMP. Late last year, it closed its remaining Victorian operation at Clayton, resulting in approximately 200 redundancies there and a further 100 in other parts of Ovato's companies.

Ovato has been doing it tough for some time and, given the declining print sectors the company operates in, plus red ink to the tune of $108 million on the balance sheet, had to take action to enable its survival. Its share price has been bouncing around the 1c level and below for months.

The AMWU, to which most Ovato employees belong, acknowledged this and entered into negotiations in 2020, that resulted in pay cuts of around 40% and an approximate halving of redundancy entitlements, in order to keep the company viable.

The AMWU issued a statetement saying: "The workers have bent over backwards to support their company and their co-workers. When the pandemic hit, they took a 40 per cent pay cut to try and keep the company afloat. In an agreement that was approved on 6 November (2020) they agreed to limit their redundancy pay so that the company could afford to pay them their entitlements while still remaining viable."

However, it subsequently emerged that the employees' payroll was with four companies that are now being liquidated, thereby removing them as direct Ovato employees. In the restructure document by McGrath Nichol, the author wrote that after the restructure about 300 workers would be employed by four Ovato companies with 'few assets' and an estimated $18.3 million owing in workers' entitlements. It added: "(The companies)... will have no ongoing business or purpose and as a result in my opinion... will be insolvent."

These four Ovato companies are now being liquidated by Marcus Ayres and Stephen Parbery of Duff & Phelps, an international New-York headquartered corporate financial advisory firm with revenues in excess of AUD$1 billion and 4,000 employees. It appears that the employees were on the books of companies that for which there developed no intention of 'carrying on a business' and that became vehicles for the purpose of becoming 'zombie companies' - insolvent with insufficient funds to cover the already discounted employee entitlements....thereby forcing the liability onto FEGS and the taxpayer.

Marcus Ayres, in a report by David Ross of The Australian on January 2nd is quoted as saying the employees will have to take action to receive their redundancy payouts from the federal government's Fair Entitlement Guarantee Scheme (FEG) after Ovato left the four corporate entities without enough funds to cover payouts.

That Ovato was able to accomplish this came within days after a NSW Supreme Court ruling that approved its restructuring and capital raising of $40 million, which is coming in from Hannan company sources and Mercury Capital, the private equity concern that controls the old Bauer Media (now 'ARE') - Ovato's largest customer.

A terrible precedent?

LorraineCassin
The AMWU's Lorraine Cassin "It's a disgrace"

In response, the AMWU's Lorraine Cassin said: "In my career of 23 years, I've never seen such behaviour. The taxpayer is footing the bill - that's not what FEG was put there for. It's a terrible precedent in the corporate world."

In an earlier statement just before Christmas, when it was apparent that workers would receive no payouts for many weeks, Cassin said:

“It’s a total disgrace that these workers who’ve been dedicated and hard working during a pandemic have been tossed aside just before Christmas and now get no pay and are left cashless at a crucial time of year.

“Ovato have backed out of all the commitments they made to these workers... this is nothing less than a snatch and grab attempt, getting out of paying these workers what they are owed.

“We can’t sit by and watch the abuse the FEG which is meant to protect workers, not be a tool exploited by big business to get out of paying workers their entitlements.

“The FEG was created to ensure that workers did not miss out when a company collapses. It was not designed as a fund to underwrite corporate restructures at the taxpayers’ expense."

The AMWU and ACTU subsequently bought into the controversy, calling for Attorney-General & Minister for Industrial Relations, Christian Porter, to intervene - with ACTU President Michele O'Neil saying:

“Workers have carried this country through the pandemic. Ovato has obligations to its employees and those should be honoured. This is a clear case of a business trying to use accounting tricks to avoid paying what is owed to its workers, and the fact that this comes over Christmas after an incredibly trying year is incredibly cruel.

“We stand with these workers and the AMWU and call on Minister Porter to do the right thing and protect the rights of these workers.”

Commentary by Publisher Andy McCourt

It's a vexed situation. On the one hand you have a company with obligations to its shareholders and ASX regulators to get back into the black, while on the other hand there are families, livliehoods and much-needed entitelment payouts on the line.

Unfortunately, redundancies will continue to be a fact of life but, there are ways of handling them fairly and ways that, well let's say stretch the principles under which worker agreements are operated. I do not think, if the credible McGrath Nichol and Duff & Phelps assesments are right, that it can be anywhere near correct and honourable to lure employees into taking pay and entitlement cuts and then shifting responsibility onto 'zombie' companies used for the purpose of going into liquidation and denying them the entitlements - making taxpayers pick up the tab. For an ASX-listed company to do this is especially vexing. I always though companies were for 'carrying on a business.'

The survival instinct is just as strong with Boards under pressure as it is in the jungle - and justifiably so. Faced with continued existence and protection of remaining investments and jobs, they may do desperate things. I am sure those involved would not have done this willingly - serious 'print royalty' reputations are at stake. That cut-backs and a restructure needed to happen is quite apparent but I find using workers, some with 30-year careers, as 'sacrificial lambs' financially, is distateful. To lure them into a false sense of security one moment by getting them to take pay cuts and halved redundancy - and, once gained, to shuffle them into 'zombie' companies to be liquidated, may be lawful but, is hardly redolent of the high standards of corporate governence demanded by the ASX and ASIC.

To say it was to protect 800 other jobs and the company does not add up. The redundancies could have happened anyway, the cash injection could have been upped by a paltry $15-$17 million and 300 former Ovato/PMP/IPMG/Hannanprint workers - not to mention the Government and FEG - would have been more understanding and forgiving of the circumstances.

And it would have been a sweeter Christmas for around 300 families in the printing and allied industry.