Complications surrounding letters of credit (L/Cs) and bank guarantees will feature in court hearings in Australia to determine the extent to which non-secured creditors will be paid out of the proceeds of liquidated assets of collapsed engineering group RCR Tomlinson.

The administrators of the failed firm reckon the company has debts totalling up to A$630 million (US$430 million), including up to A$250 million (US$171 million) owed to about 4,000 subcontractors and suppliers.

Employees first

The extent to which RCR Tomlinson's L/C obligations will be met depends on several factors, the first being a determination in a new court case on how much money former employees will be paid. Former employees are top-priority and have the first call on circulating assets.

Employee entitlements excluding redundancy total A$32 million (US$22 million). Under Australian law, employees are paid first, followed by secured creditors, unsecured creditors and shareholders.

L/C complexities

The more money that goes to former employees from circulating assets, the less money is available for secured creditors.

The collapsed engineering firm's liquidation is complicated by the extent to which L/Cs and bank guarantees on leased premises and projects have or will be called by counterparties.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.