Poles & Underground

One of the issues raised in the Carnell Report – or more correctly, the ASBFEO Small Business Loans Inquiry Report – was a concern about a perceived conflict of interest arising from investigating accountants being subsequently appointed as receivers.

The report noted that “Some, who submitted to the Inquiry, are concerned about the investigating accountant’s ability to recommend a course of action, such as a receivership, and then being appointed by a creditor to that role.”

To address the concern the report recommended:

(R10) “Banks must implement procedures to reduce the perceived conflict of interest of investigating accountants subsequently appointed as receivers. This can be achieved through a competitive process to source potential receivers and by instigating a policy of not appointing a receiver who has been the investigating accountant to the business.”

Those whose responses to R10 argued against the mandatory appointment of a ‘stranger’ because of the additional costs and disruption to the management of the business will be interested in a recent decision of the Federal Court: Walley, in the matter of Poles & Underground Pty Ltd (Administrators Appointed).

It appears (it is not completely clear from the judgement) that it was the directors of a company who appointed as administrators two restructuring & turnaround practitioners that had previously conducted an independent business review for the company’s bank.

Prompted by a question at a creditors meeting the administrators (by then the liquidators) had recognised a potential conflict of interest, and quite properly applied to Court for directions, at their expense.

Noting that the liquidators had already repaid their fees for the IBR engagement, and that no creditor had raised any objection, the Court allowed the liquidators to continue in that role because the liquidators’ ‘substantial knowledge’ of the affairs of the company was ‘likely to assist in the efficient conduct of the liquidation’ and would be a benefit to creditors as a whole.

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