Finance company St Laurence has admitted it is in trouble, and says it will be placed in receivership unless investors agree to swap their debt for equity in a new company.
The company says the effects of the global financial crisis and the property downturn have been worse than expected and its capital has been badly eroded.
In 2008, St Laurence's 9000 investors overwhelmingly approved a recapitalisation plan aimed at repaying them 70% of the $250 million they were owed within five years.
Now the firm's board says it will soon run out of equity and won't be able to meet some of its obligations to investors under the plan.
The company wants investors to swap their debenture stock and capital notes for shares in a holding company, which has been set up to acquire St Laurence's assets. Unless investors approve the deal the company will be placed in receivership.
'Best way' to get money back
St Laurence's managing director, Kevin Podmore, says it's not the outcome the company had hoped for, but swapping debt for equity is the best way for investors to get their money back.
The company's directors have commissioned an independent report from Grant Samuel to analyse the merits of the deal, and investors will vote on the proposal in late June or early July.
St Laurence says it's unlikely to make a repayment to investors scheduled for July.
The company's trustee, Perpetual, says that although the company's trust deed requires it to get approval before providing any update to investors, a letter sent out on Wednesday wasn't approved.
Perpetual's Matthew Lancaster says he specifically asked that the letter not be sent, and will be meeting with the finance firm on Thursday to discuss the issue.
Mr Podmore told Morning Report that suggestions he defied the company trustee are incorrect. He says he took legal advice before the letter was sent.