“Fixing” Section 420A

Earlier posts (Receivers: are “crooks”?  and Receivers: are “inhuman”?)  have noted that receivers have been the subject of strident criticism in many of the nine public hearings of the Senate Select Committee Inquiry into Lending to Primary Production Customers.

One of the areas of specific and regular complaint has been the sale of assets at – it is claimed – a significant discount to their reported value.

However, none of the valuations referenced in the evidence appear to have been tabled, and so it is difficult for outsiders to understand whether the reference is to sworn valuations conducted by independent valuers, or whether the reference is to something less structured and formal.  Likewise it is also unclear to outsiders whether those reported valuations reflect the seasonal and market conditions at the time of the sale, or whether they are framed against different conditions present at an earlier time.

Nonetheless it seems that at least one of the committee members is concerned about the effectiveness of section 420A – which imposes an obligation upon receivers to:

“take all reasonable care to sell [mortgaged] property for:

(a)  if, when it is sold, it has a market value–not less than that market value; or

(b)  otherwise–the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold.”

At the 18 September hearing (transcript available here) a bank was asked to comment on a proposal that would require receivers to take a fresh valuation on appointment, and prevent them from selling ‘for less than 80 per cent of that current valuation.’

It was not clear whether the hypothetical requirement would apply only where the sale was other than by public auction, or whether it would apply to all sales.

Regardless, the response (admittedly, off the cuff) did not raise concerns about the proposal – which suggests a greater degree of confidence in the sales programs conducted by receivers, and the outcomes they deliver, than some of the borrowers who gave evidence may have expected.