Embattled agricultural services company Allied Farmers says $500,000 hit might force it into default on its lending agreements

Embattled agricultural services company Allied Farmers (ALF) might be forced into default on its lending facilities after being hit by a statutory demand for repayment of a $500,000 loan.

Sharemarket listed ALF, which bought the lending book of failed property financier Hanover in December 2009, announced to the NZX today that it was "very surprised" by the action being taken today by the unnamed lender.

The company previously announced on October 8 last year that it had received a request for payment of a the loan.

ALF directors said the loan had been scheduled to be repaid to the lender from the proceeds of an "underlying asset due to ALF in November 2012".

However, ALF had requested an extension of time for payment because the proceeds had not been received.

"ALF and the Lender have been working co-operatively in an attempt to reach a conclusion that is sensible for both ALF and the lender. However, the lender has advised that it will today serve on ALF and its wholly owned subsidiary, Allied Farmers Investments Limited, a statutory demand for payment of the loan plus interest (being a total of $540,000), and has said it is unwilling to delay further in enforcing its rights to repayment of the loan," directors said.

"The receipt of the statutory demand is an enforceable event of default under ALF's secured loan facility. ALF's secured lender has indicated that it reserves its rights in that regard. The statutory demand requires payment within 15 working days. ALF would be unable to meet that obligation without the support of its secured lender, who at this stage has not indicated its position."

ALF said it has been seeking information and assessing the position of a number of parties to determine the value of the "underlying asset" for the purpose of ALF's half year financial statements.

"Whilst there is some way to go in this process and the board has insufficient information with which to form a decision, it is likely that partly as a result of this potential action by the lender the position of a number of parties may change, and the underlying asset may need to be substantially if not completely written down. The carrying value of the underlying asset is NZ$3.75 million."