Australia Court: Wind Down Hydrodec

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A court last month ordered that transformer oil rerefiner Hydrodec Group’s dormant Australian subsidiary be wound down to insolvency, calling it the best chance for creditors in Australia owed substantial amounts of money – including rerefiner Southern Oil Rerefining – to get the money owed them.

Through court order, a company can be legally forced to wind up by a court order. The company must then appoint a liquidator to manage the sale of assets and distribution of the proceeds to creditors.

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In his June 24 ruling, the New South Wales Supreme Court judge said, “it is relevant to my determination to refuse the stay of the wind up proceedings that there is a material amount owing to creditors in Australia – approximately [Australian] $1.6 million to [Southern Oil Refinery] and approximately $330,000 to the company’s Australian solicitors.”

The Australian court dismissed the application by Hydrodec’s moratorium monitors for recognition in Australia of an insolvency moratorium in the United Kingdom – where Hydrodec is considered based – and a stay of the winding up proceedings. According to the Australian court, Hydrodec commenced a moratorium through filing in courts in England and Wales in May, which took effect on May 21. “The directors of company are of the view that the company is, or is likely, to become unable to pay its debts,” the notice stated, according to the Australian court’s decision document.

The case judgement with the New South Wales Court is titled, “In the matter of Hydrodec Group Plc”

An Australian court in January ruled in favor of Southern Oil Refining in its litigation against Hydrodec Group and its dormant Australian subsidiary. The case stemmed from a commercial dispute over a base oil rerefining joint venture that the companies entered in 2015.

Among other findings, the court concluded that Southern Oil is entitled to a total of A$1.6 million (then U.S. $1.2 million) from Hydrodec Australia, including A$64,685 to cover monthly capital charge payments for June and July 2019; A$1.1 million as a termination payment; and A$417,652 to cover monthly tolling fee payments for June and July 2019.

In the June decision, the court judge noted that Southern Oil served Hydrodec a demand for payment of the judgement debt on March 4. “The company did not comply with that demand within three weeks after service of the demand or at all,” the judge wrote. “Accordingly, the company is presumed to be unable to pay its debts…”

In the January decision, the court denied Hydrodec’s various cross-claims, including its seeking of repayment for previously paid tolling fees and damages it sought over Southern Oil’s alleged mixing of polychlorinated biphenyls-contaminated deliveries of oil feedstock with other feedstock.

The court also ordered Hydrodec to remove a hydrotreater plant – including PCB-contaminated receiving tanks – from the Bomen rerefinery site, adding that Southern Oil can apply for more damages if some or all of those assets are not removed.

In 2015, the two companies announced their partnership with much optimism. At that time, Southern Oil started a used oil rerefinery that it had relocated from Young to Bomen, a northern suburb of Wagga Wagga, New South Wales. Part of the facility was a joint venture with Hydrodec that included a hydrotreater that had a capacity to produce 20,000 liters per day and a footprint of about 120 square meters. Southern Oil operated the plant on a toll basis for Hydrodec.

At that time, Southern Oil had expressed optimism that operating the rerefinery with the hydrotreater would help it prepare the company to enter the API Group II and III base oil market. Southern Oil had two rerefineries that converted used engine oils to Group I base stocks.

That optimism came to an abrupt halt in 2018, when Hydrodec decided to exit Australia following a 2018 business review. As a result of that review, the board decided that several factors – the sub-scale capacity of the Australian plant, the impact of the business on management bandwidth, and the limited and fragmented domestic market – limited prospects for the joint venture. It decided its capital would be better shifted behind U.S. growth plans, so it initiated a formal process to sell the group’s Australian assets and business.

Hydrodec closed its Australian business in 2018 and then announced it was terminating its tolling contract with Southern Oil. Subsequently it sold its plant on Southern Oil’s facility in Bomen to Greenbottle Re-refining (UK) Ltd., a company controlled by Andrew Black, a non-executive director and a substantial shareholder of Hydrodec.

Southern Oil then sought to recover monies it claimed were due under its terms, primarily for capital works carried out to host the Hydrodec plant of approximately U.S. $1.25 million.

The Australian government’s scientific research body, the Commonwealth Scientific and Industrial Research Organization, developed and registered the electrical transformer oil rerefining process under the name Hydrodec.