“Non-mainstream advisers”

The Senate Select Committee Inquiry into Lending to Primary Production Customers began with an obvious focus on lenders.

However, as the hearings proceeded, that focus seemed to shift.  One member’s view was that ‘when you look at what’s come before this committee, the big banks have come out pretty well.’  By contrast, as the chair noted, ‘the number one area…standing out for complaints is the receivers’ (more background here).

To those following the hearings it was therefore no surprise that the 20 October hearing was dedicated to evidence from restructuring and turnaround professionals and their professional association, ARITA.

Those giving evidence (listed below) did a tremendous job in explaining the extensive regulation to which they are subject, the duties and reporting obligations imposed by the Corporations Act, and the challenges of dealing with farmers and small business operators in moments of greatest stress and difficulty.

Through the course of evidence on 20 October, the beginnings of a new line of inquiry appeared: those described by one witness as ‘non-mainstream advisers,’ often without appropriate qualifications, whose involvement was a ‘consistent element of matters which become protracted and difficult to resolve.’

The witness referred to the use of ‘arguments, which have no legal substance,’ as well a routine by which a ‘promissory note’ is tendered purportedly in satisfaction of the debt. Other devices (albeit not the subject of evidence) include the promise of offshore refinance or funding, and of evidence purporting to show that a loan has been ‘securitised’ (which is somehow said to invalidate the loan), both of which seem to require a significant and non-refundable up-front fee.

As another witness explained, those purported ‘strategies’ provide borrowers with false hope, when more realistic advice would lead them to negotiate with creditors.

One of the committee members noted his personal experience with non-mainstream advisers, one ‘pretty good’ – but others ‘not so good,’ and raised the question of whether they should be regulated.  The committee chair also raised concerns: ‘we can see the damage of non main-stream advisers.’

Another hearing has been scheduled for 17 November.  It will be interesting to see whether there is further exploration of the problems caused by non-mainstream advisers, and what can be done to mitigate the damage caused by the worst of them.

Update: Some of the relevant footage of the committee proceedings have been made available via youtube.

Witnesses who represented the turnaround and restructuring profession, in my view with great distinction, at the 20 October 2016 hearing:

• Justin Walsh of Ernst & Young
• Stephen Longley and David Leigh of PPB Advisory
• Ross McClymont, Narelle Ferrier, and John Winter of ARITA
• Jamie Harris, Rob Kirman, Matthew Caddy, and Anthony Connelly of McGrathNicol
• Will Colwell, Stewart McCallum, Tim Michael and Mark Perkins of Ferrier Hodgson

For comment on some other problematic advisers: Wanted: Regulation of pre-insolvency advisers