Andrew “Twiggy” Forrest’s Fortescue Minerals Group is facing claims it traded during insolvency during last year’s iron ore decline, resulting in lapse of a contract worth more than $8 million.
Senior management at the company will front a liquidator over the claims.
Queensland’s Fuel-Sys Installations, a contractor on Fortescue’s Pilbara iron ore project, allege the miner’s actions cornered the contractor.
Fortescue has to answer back within 10 days.
Australian Mining reported earlier this year FSI blamed the miner's cost cutting measures late last year for its collapse.
FSI held a $17 million lump sum contract including landmark development payments for the Solomon hub diesel storage facility. The facility includes the Fire Tail and Kings mine.
A letter was written to Fortescue’s board yesterday by lawyers for the liquidator to FSI, Richard Albaran of accountants Hall Chadwick, The Australian reported.
It said witnesses, including the previous project manager claimed a Fortescue senior manager said the company would fail on payments for construction of a fuel facility venture at the Solomon project.
FSI alleges Fortescue might have already been insolvent when it said this last September.
Fortescue also faces claims two of its senior managers had agreed to pay $1 million for postponements and contract differences.
They are also accused of making “further false and misleading statements” on progress payments up to late November, which they failed to fulfil.
“In the liquidator’s view those representations made on behalf of FMG were never intended to be fulfilled.”
However the miner has "categorically denied the allegation that it traded while insolvent", in a response to The Australian's article.
Fortescue claims it did not offer to pay $1 million and it had met all payment deadlines.
Fortescue had to cut around 1000 jobs and defer projects in progress to continue making profits last year as iron ore prices dipped.
A Fortescue spokesman said since FSI was not working on the Kings project, the contract was not impacted by the short project deferral in September.
The spokesman said the company had not traded while insolvent and said it would fight the claims.
“We categorically deny the allegation that we unilaterally altered our credit terms to any of our contractors and suppliers in response to iron ore market volatility. We have acted with integrity in this matter and in fact believe that we have behaved as a white knight,” he said.
The liquidator said if Fortescue is ready to negotiate a compromise, he will look to investigate senior management for insolvent trading and start legal action to seek the remaining payment.
Fortescue said FSI communicated with it on November 5 that it was finding it challenging to finish the contract for the lump sum price after Fortescue had paid $14 million under the contract.
FSI asked Fortescue to raise the lump sum by $5.8 million, with $800,000 from that due to scope modifications as called for by Fortescue.
Fortescue agreed to the $800,000 increase.
FSI was asked to formulate a recovery proposal that avoided handing down a cost blowout, the spokesman said.
“On November 10, at the request of FSI, Fortescue made arrangements to directly pay certain subcontractors, on FSI’s behalf, in order to ensure the funds flowed through.
“On November 20, when it became clear FSI could not complete with the contract, Fortescue had stepped in and taken over the remaining work.”