When facing bankruptcy or insolvency, companies have the option of going into voluntary administration. This is when an independent and qualified person (a voluntary administrator) takes over a company's assets and business operations in an attempt to salvage the company 1.
While no company wants to find itself in a state of voluntary administration, it is a stark reality faced by the Australian-based fund manager Blue Sky Alternative Investments Limited. The company is currently undergoing administration, following years of challenging circumstances starting as early as 2017. The future of a company that was once named one of Brisbane's top companies is now uncertain 2 after US-based short-seller Glaucus reported that the company had overstated its valuation and disregarded some of its key business obligations 3.
Despite Blue Sky's former Chief Executive Officer Robert Shand's claims that the company had grown by 50 per cent across key performance metrics, Glaucus expressed skepticism regarding the credibility of Blue Sky's valuations 4. The research company's analysis showed that Blue Sky's real fee earning asset under management was valued at maximum AUD 1.5 billion, which was 63 per cent short of the AUD 3.9 billion that Blue Sky had reported 5. The inflated representation of figures may have helped with boosting share prices and more access to capital. Blue Sky was also criticized for allegedly overcharging its clients with inflated management fees.
Shortly after the release of the Glaucus report, Blue Sky suspended its trading to review the claims of the short-seller hedge fund 6. Just one week later, the company's share prices dropped by 41 per cent by April 5, 2018 7. Despite its free falling share prices, Blue Sky's response in the face of such accusations was to call on the Australian Investments and Securities Commission (ASIC) to investigate and question the integrity of Glaucus rather than to refute the latter's claims with evidence, fostering even more pessimistic investor sentiments.
Even in the midst of battling to keep themselves afloat and avoiding more trade suspensions, Blue Sky nonetheless remained optimistic. This was until September 2018, when it confirmed that a US-based investment firm, Oaktree Capital, would be providing the Australian company with a seven-year-loan facility of AUD 50 million to facilitate the recovery of the company 8. However, not long after the loan agreement, Blue Sky announced it will fail to...