For those who deal in the world of insolvency, certainly the liquidators, but I am actually including all the lawyers, accountants, finance brokers, advisers and other players of all sizes as well; then there are some salutary lessons that have come out of the largest insolvency cases that came into play during 2018. In many ways it is potentially a watershed year for corporate insolvency that could well significantly influence activity moving forward.
In 1993, around 27 years ago, the Harmer Report was published and some of the most significant changes, up to that time, were made to the Corporations Act, most notably the introduction of the Voluntary Administration regime. This heralded in a new era of rescue and recovery with much discussion going on about saving jobs, avoiding liquidation, preserving value, and building a stronger and better economy.
One of the first impacts that this new era had was that it edged into the traditional ‘receivership’ market, commonly referred to as the “Creditor Market” moving initially some, and then many, appointments away from the traditional “Creditor” firms; essentially because a much wider range of solutions could now be employed.
Right or wrong at that time the perception of those creditor appointments was – receivers in, business for sale, fix the secured creditor and damn the unsecured creditors and owners. Many would seek answers but the walls of the big accounting firms, the big legal firms and the fact that they surrounded the secured creditors pretty much always meant that free and open information was never forthcoming. Certainly sounds of these sorts and/or actual current issues were still ringing at the start of the recent Royal Commission.
One of the key features of these early appointments was that, working under a fairly tough timetable, the directors and the insolvency practitioner could work together to endeavour to design some form of workable solution that would see a maximum return to Creditors built on the back of the preservation of as much of the business as possible. Even if this was not possible it was still possible that more typical liquidation style methods could also be employed. One noticeable change though was that it was no longer automatic that the director was considered to be “the guilty bastard!” Mind you some certainly were and were treated accordingly by most.
Much of the work in that period excluded the very large matters as it was not considered practical to deal with the complexities of large matters within the confines of the VA Regime. It remained evident that a more preferred US Chapter 11 system was still sought for these. Lots of lawyers and lots of accountants.
Time has certainly moved on.
However in the 2018 cases there were situations where the directors have called in the professional insolvency advisers who are now allowed to run up considerable fees beforehand provided they are not offering advice. It must be a very expensive and lengthy data collection process then! What is worth of note last year though are the Channel 10 and the RCR Tomlinson matters, both large and both director appointments (no doubt with secured creditor overtones). In each case it is interesting to consider what the original directors and shareholder intentions might have been.
Did they truly walk into these situations with a high expectation that the business could highly likely end up in the hands of a major competitor, or the adviser would stand idly by the sideline and watch as the directors did a public float that the advisers will no doubt later treat as a potential breach of their duties? I suspect not.
Did the introduction of experts really assist the problem, or did they simply complicate the issue? Can a director be getting advice from an underwriter and an insolvency practitioner at the same time? And if they can, who is meant to point out the absurdity of the situation and the potential existence conflicting solutions? What it really means is that we all face a real quandary.
Yes this is a problem for the practitioners, as they will need to sort out whether something is not only legal, but also how it may be viewed by those who seek to oversee the application of the law. Thus the issue becomes, that a solution is legal in the eyes of the law, but not desired in the eyes of the regulators, then what is the next step. It’s highly likely that the solution is quite likely to be practical and beneficial, but still undesirable to some! So what does society really want from this process? In my experience, at the bottom of everything is getting as much back as they can, financially.
Notwithstanding the issues for practitioners though it is the organisations that support commerce in this country, directors associations, professional bodies, industry groups and the like that should be focusing on this predicament. It is their members who will be impacted the most. As indicated earlier, there was cheering and applause in 1993 when the Harmer Report produced change because it gave directors options. Slowly but surely those options have been whittled away.
So what will the solutions of the future look like? Practical, commercial, expedient, with better returns or long and protracted with relentless visits to court?
Only the future will truly know.