Australian Renewable Fuels enters into voluntary administration

The board of directors of Australian Renewable Fuels (ARFuels), the country’s largest biodiesel producer, has placed the company into voluntary administration.

Under Australian law, voluntary administration is a form of insolvency arrangement, which creates an opportunity for flexible approaches to bring about a better outcome for stakeholders than may otherwise occur in liquidation.

The company cites the recent rapidly declining oil prices and the resultant increasing prices of feedstock, in ARFuels’ case used oils and fats, as the main reason behind the decision.

According to a statement from the company, there has historically been a “relatively short time lag” between falling prices and a reduction in feedstock prices.

“At this time, feedstock pricing has increased and the historical long-term correlation between the barrel price of oil and the cost price of feedstock has broken down,” the company board said.

The situation has been made worse by the dramatic extent of the fall in oil price, which has dragged the price of biodiesel down with it and had a major negative impact on ARFuels’ margins.

According to the board, the continued uncertainty around the Australian government’s biodiesel policy over the recent years has further caused the company “significant financial distress” and increased its reliance on its debt providers.

No way out

Prior to declaring voluntary administration, ARFuels examined a number of options to restart operations when its gross margins would climb up again.

The considered options included seeking price increases from customers, pursuing more profitable export sales opportunities to the US, as well as idling production facilities and reducing corporate activities.

“Unfortunately the debt providers have considered their position and have rejected these proposals, leaving the board with no alternative but to appoint a voluntary administration,” the board of directors said.

ARFuels has appointed David McEvoy and Nick Martin of PPB Advisory, a corporate advisory, restructuring and insolvency services provider, to act as voluntary administrators.

The company’s board of directors and senior management intend to work with PPB Advisory to explore all options to maximise the value for ARFuels’ shareholders.

This article was written by Ilari Kauppila, deputy editor at Biofuels International