The Inquiry into Small Business Loans report issued by the Australian Small Business & Family Enterprise Ombudsman in December 2016 included specific recommendations concerning restructuring & turnaround professionals:
Recommendation 9 – Every borrower must receive an identical copy of the instructions given to the investigating accountant by the bank and the final report provided by the investigative accountant to the bank.
Recommendation 10 – 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 recommendations led to an invitation to speak at the ARITA National Conference in Melbourne this week, followed by a media release – set out in full below.
The media release included a call for receivers to avoid giving the appearance that they ‘work for the biggest creditor, which is usually a bank.’ Of course, most of those reading this post will know that in fact receivers usually are working specifically for the secured lender.
The comment highlights for me just how difficult it can be for outsiders to understand the technically complex world in which the restructuring and turnaround profession operates, and the need for the profession to engage and educate.
For that reason ARITA should be commended for inviting an apparent critic to speak, and Ms Carnell should be commended too, for her willingness to participate and be involved.
Postscript: Some interesting commentary on the ASBFEO position on EDR, by Michael Murray.
Insolvency sector urged to embrace accountability
The Australian Small Business and Family Enterprise Ombudsman has called on the insolvency sector to improve its accountability and transparency or face louder calls for increased regulation.
Speaking at the Australian Restructuring Insolvency and Turnaround Association (ARITA) conference in Melbourne, Ombudsman Kate Carnell said there should be an external dispute resolution process or tribunal to hear complaints.
“Small business operators are often confused about the role of receivers, how they charge and what their timeframes are,” she said.
“There needs to be greater accountability and a simple way to resolve disputes.”
Ms Carnell said insolvency practitioners were required under legislation to work in the best interests of the business.
“We hear from small business people and farmers the reality is somewhat different; it often appears that the receivers work for the biggest creditor, which is usually a bank,” she said.
“There is sometimes a potential conflict between the interests of a creditor and those of a distressed business.”
Ms Carnell said submissions to the Select Committee on Lending to Primary Production Customers echoed some of those heard by her inquiry.
The business of Queensland prawn farmer Sam Sciacca suffered after Cyclone Larry. Mr Sciacca told the select committee that receivers lacked expertise to manage his aquaculture operation and he was left with substantial debt as a result.
Property and livestock agent Andrew Jensen claimed that receivers often lacked farm management skills and didn’t always achieve the highest possible price.
“What’s disturbing about these accounts and others is the lack of accountability,” Ms Carnell said.
“There’s nowhere for farmers or small business people to go if they’re unhappy with the actions of a receiver.
“In my view there needs to be an external dispute resolution process.”
Ms Carnell said insolvency fees should be clearly stated and explained.
“Going into receivership is a stressful event for any business operator,” she said.
“A good insolvency practitioner can help a struggling business achieve a good outcome.
“The problem is that a bad insolvency practitioner can’t be held to account.”