The A$2.8bn (£1.5bn) turnover group, which is traded on the Australian stock exchange, requested the ‘trading halt’ itself, with the suspension effective from the beginning of today’s trading in Australia.
It cited a possible breach of banking covenant as the reason.
In a statement, Paperlinx company secretary Michelle Wong said: “The trading halt is necessary as a subsidiary of the Company is in discussions with one of its European financiers in relation to whether there is a likely breach of a banking covenant.”
The share price was just A$0.017 prior to the suspension, giving the business a market capitalisation of A$11.31m.
GF Smith announced this morning that, with immediate effect, its products would no longer be available through Paperlinx.
Joint managing director John Haslam said concerns over continuity of supply for customers had driven the move: “Despite having a long-term relationship with the Paperlinx group, we have made this tough decision to ensure that the end users and specifiers of our products are assured continuity of supply.
“We are now in a position to work even more closely with our valued merchant partners and look forward to growing with them in new and existing markets.”
Haslam added: "Anyone who has placed an order for GF Smith products through Paperlinx within the past two days should contact GF Smith directly immediately."
It remains to be seen whether GF Smith’s move will have a knock-on effect.
Industry speculation about the situation at Paperlinx reaching a crunch point has intensified over the past week.
Last month Paperlinx admitted that its cash position was “under pressure” due to a reduction in demand for paper in Europe, combined with the effects of some mills opting to sell direct in the UK and Benelux.
The UK is Paperlinx’s largest operation.
PrintWeek understands its cashflow has been further squeezed due to the withdrawal of credit insurance by one of the industry’s major insurers, resulting in some mills demanding upfront payments.
Uncertainty about the situation at the business is causing concern among customers, suppliers, and rival merchants.
One merchant told PrintWeek: "If it [Paperlinx] went, I can't imagine what would happen. The disruption would be incredible right across Europe.
“Even though Paperlinx is smaller than it was, the volumes are still huge. The other merchants won't be able to cope with it. It's an extremely unusual set of circumstances," he added.
The managing director at a large printer was also concerned about the potential ramifications for the industry. He said: “It was a major topic in our latest board meeting regarding continuity of supply. Even though Paperlinx isn’t a key supplier to us anymore, we don’t want a run on paper with everyone running around like crazy.”
Paperlinx lost A$87.4m in the first six months of its financial year, including an A$63m impairment charge relating to goodwill write-downs.
Losses in Europe increased by 13% to A$14.9m, primarily because of the reduction in sales in the UK and Benelux.
Paperlinx is part-way through a 90-day review process involving the possible sale or restructuring of its A$2bn turnover European business.
However, obstacles to any potential sale include the liabilities attached to the operation, which include a large pension deficit related to its UK business.
The former Robert Horne pension scheme has a deficit of £76.5m, and the deficit in the former Howard Smith scheme is £6.8m.
There has also been speculation that Asia Pulp & Paper (APP) could be a potential buyer for the European operation via some sort of pre-pack sale.
Paperlinx axed chief executive Andrew Price last month, subsequently replacing him with Andy Preece.
The suspension of its shares will continue until Paperlinx makes a further announcement, or until the start of trading on Monday (30 March).
Paperlinx was unavailable for further comment at the time of writing, and PrintWeek was unable to reach APP for comment.