One.Tel collapsed in 2001 after billing failures and a cash crisis. How its legal fallout led to a $40 million settlement in 2014

One.Tel’s collapse in 2001 followed years of trading losses, problems with its billing system and mounting pressure on its cash flow. The Australian telecommunications company struggled to bill customers correctly and collect payments, faced tighter credit terms from European carriers and suffered a computer-system failure that created a reported $20 million cash-flow shortfall.

The company appointed administrators in May 2001 before its creditors voted to wind it up in July. The collapse also triggered a prolonged legal dispute involving former non-executive directors James Packer and Lachlan Murdoch. In 2014, companies associated with the two men agreed to pay $40 million to resolve litigation arising from One.Tel’s failure.

One.Tel’s Billing Problems Added to Its Financial Difficulties

One.Tel appointed Ferrier Hodgson as external administrators on May 30, 2001, after two days of crisis meetings over its dwindling cash reserves. The company initially said it would continue trading while the administrators reviewed its operations and liaised with creditors.


However, a proposed $132 million capital raising was cancelled after auditors indicated that it would not be sufficient to keep the company solvent. One.Tel’s shares were also suspended from trading.

A report released by Ferrier Hodgson on July 17 identified several problems affecting the company. Its billing system was a major concern, with difficulties in billing customers and collecting payments. The cash-strapped company had failed to invest in core technology, leaving some customers incorrectly billed and others not billed at all, as per The Australian Financial Review report.

These problems contributed to credit difficulties and increased customer churn as subscribers moved to other carriers when their contracts expired. The implementation of Australia’s goods and services tax also added to the challenges involving billing, collections and cash flow.

Delays by Telstra in switching from manual tapes to electronic inputs into One.Tel’s billing system were another factor identified in the administrator’s report.

European Credit Terms Tightened as One.Tel’s Cash Position Deteriorated

One.Tel’s difficulties extended beyond its Australian operations. In mid-April 2001, European carriers shortened their credit terms from 120 days to 30 days and One.Tel attributed the change to a high incidence of telecommunications related bankruptcies in Europe during the first quarter of that year.

The company also suffered a failure of its British and European computer system in mid April after a crucial component was stolen. The incident created a reported $20 million hole in cash flow.

The development of One.Tel’s Next Generation mobile network was another factor identified in Ferrier Hodgson’s report and the administrator said the company had recorded trading losses since July 1998, while the net drain on cash flow from operating activities exceeded $400 million through March 31, 2001.

These findings outlined several operational and financial pressures facing One.Tel before its collapse. They did not establish that any single factor was solely responsible for the company’s failure.

One.Tel Creditors Faced the Prospect of Receiving Just 11 Cents per Dollar

One.Tel’s unsecured creditors had prepared to meet on July 24, 2001 to decide whether to wind up the company. Ferrier Hodgson had recommended liquidation and warned that unsecured creditors could receive about 11 cents for every dollar owed.

The administrators had asked One.Tel directors including former joint managing directors Jodee Rich and Brad Keeling to explain the financial difficulties affecting the company and its subsidiaries.

Lucent Technologies, which built One.Tel’s mobile network, told the administrator it could pursue the company for $957 million over alleged misleading and deceptive conduct, misrepresentation and negligence. This was a potential claim reported at the time, not a confirmed payment or a court finding.

On July 24, creditors voted overwhelmingly to wind up One.Tel and its subsidiaries. As per ABC report the company had debts exceeding $600 million.

The liquidation decision also brought better news about expected creditor recoveries. Ferrier Hodgson said the average return could be between 20 and 50 cents for every dollar owed compared with the earlier warning that unsecured creditors might receive as little as 11 cents. Former employees were also told they could expect to receive their outstanding entitlements, totalling $17.1 million.

The liquidation gave the liquidator greater powers to investigate possible claims involving former directors, including Packer and Murdoch. Any potential breaches of corporations law remained matters for investigation rather than established findings.

James Packer and Lachlan Murdoch Said They Had Been Misled

Packer and Murdoch backed One.Tel through their associated businesses. As per the ABC report in May 2001, they had invested more than $900 million to build a 41% stake in the company.

The two investors declined to provide further funding through the proposed $132 million capital raising after concerns that the money would not be enough to keep One.Tel solvent. In a joint statement, they said they had been profoundly misled about the company’s financial position.

The cancelled fundraising became part of the subsequent legal dispute. Companies associated with Packer and Murdoch had been due to underwrite the proposed rights issue, but it was abandoned on the day One.Tel entered administration because the company’s directors believed the funds would not be sufficient to keep the business operating.

Both men had served as non-executive directors of One.Tel. The existence of potential legal claims and investigations did not, by itself, establish that either man had breached the law.

One.Tel’s Collapse Led to a $40 Million Settlement in 2014

The legal fallout continued for years after One.Tel’s operations ended. On April 18, 2014, *The Guardian*, citing Australian Associated Press, reported that entities associated with Packer and Murdoch had agreed to a $40 million settlement covering litigation arising from the company’s collapse.

The agreement involved three payments:

Consolidated Press Holdings: $14.93 million

Crown Resorts: $11.77 million

News Corp: $13.3 million

The three payments totalled $39.99 million, rounded to $40 million. One.Tel liquidator Stephen Parbery said the entities had resolved all litigation arising from the company’s collapse in May 2001. The Supreme Court of New South Wales approved the settlement.

The agreement resolved the litigation covered by the settlement. It was not a court finding that Packer or Murdoch had committed wrongdoing.

From a Cash Crisis to a Long Legal Aftermath

One.Tel’s collapse followed a combination of operational and financial difficulties, including billing failures, years of trading losses, tighter credit terms in Europe and a costly computer-system failure. The company entered administration in May 2001 and its creditors voted to liquidate it two months later.

The collapse left creditors uncertain about their recoveries. And prompted investigations into potential claims involving former directors. The subsequent legal disputes continued long after the company ceased operating.

In 2014, entities associated with Packer and Murdoch agreed to the $40 million settlement, resolving the litigation covered by the agreement and marking a significant development in the aftermath of One.Tel’s failure.