Receivers and investigative accountants
This chapter discusses the evidence received by the committee about
receivers and investigative accountants and their role in relation to loans.
After summarising the issues raised by submitters, the current arrangements for
receivers and investigative accountants are then discussed.
Issues raised by submitters
Submitters to the inquiry raised a number issues and allegations
relating to receivers and investigative accountants including:
use of single organisations for investigative accountant and
receivers selling properties and assets under value;
receivers not considering or taking up sale options put forward
the level of receiver's fees;
harm to businesses caused by receivers lacking relevant
experience or poorly administering businesses;
lack of information provided to borrowers by receivers;
lack of effective dispute resolution for the above issues.
The committee wishes to acknowledge the many accounts it has received
from people who have been subject to receivership and suffered dire financial
consequences as a result. The circumstances being faced by people in those
situations goes beyond pure financial hardship and creates many other
stressors. Those impacts occur even if a receiver does their job in a highly
professional and empathetic way. However the committee has heard accounts in
which receivers have not behaved in a professional manner, which compounds the
impacts on individuals and their families. Multiple allegations were raised
with the committee about potentially illegal or unethical practices, with no
dispute resolution mechanism available for borrowers' disputes to be heard.
Examples of some of the concerns
raised by submitters
This section provides examples of some of the issues raised by
submitters. During the inquiry, the committee heard about some of the
difficulties faced by clients of an accountancy practice in Queensland:
Repossessed properties have caretakers appointed when clients are
evicted. The fees for these caretakers often run between $200 and $300 per day
which is paid by the receivers, and ultimately comes from any residual proceeds
should the property be sold.
Calculations done by this office with negotiation with some insolvency
practitioners generally has shown that a standard receiver’s fee from a
property sale will run at approximately $500,000 for a 6 month period.
There is no provision for the landholder to remain on their
properties, have the caretaking fee be applied against their debts, or pay them
for that work.
We have had a number of receiver’s sales in the Central West.
These sales generally have seen prices between 40 and 50% below normal market
sales. There are a number of reasons for this with a major one being a lack of
understanding of local markets by the receivers or their agents and a
resistance to engage suitably qualified locals.
...the potential for multiple forced sales when the current drought
breaks is a very real threat. Changes must be made to how this process is
carried out or there will be a very real risk of a general property market
collapse. This would therefore have a potential for significant other
properties to be deemed in default from a LVR position.
One witness expressed concerns about the lack of information from his
bank on the role and cost of an investigative accountant:
...we had no understanding of what it was that the bank wanted
us to do or who this person was. There were difficulties in his engagement,
with costs to the tune of $15,000 a month and no outline whatsoever of what he
was going to do that would bring any solid results or milestones to work
Submitters also raised concerns about properties being sold for much
less than they were valued. In some case the properties were soon sold again
for prices substantially higher than the price achieved by receivers. The
committee also heard of cases in which existing contracts for the sale of units
may not have been pursued appropriately.
Section 420A of the Corporations Act requires a receiver to take
reasonable care to sell a property for market value or the best price
reasonably obtainable under the circumstances.
The committee heard that there are concerns that this provision of the
Corporations Act is not being met in some circumstances. A submitter informed
the committee of his view on section 420A based his experience:
It needs to be strengthened, with greater accountability
placed on the receiver to ensure that the market value in compliance with
section 420A is not justified by an auction process alone. Put a few ads in the
paper and put it up for auction. At an auction on a receiver's sale, generally,
people expect to get it cheap.
By this time, we had had a valuation for the St George Bank
and we had one for the ANZ bank earlier. The NAB used another valuer, so we had
three valuations, plus two previously from Bankwest. Both came up to about $11
million; they sold the properties for $4½ million.
What I am saying here is that you could not justify a 45 per
cent sale when the valuation is only four months old.
Complaints received by ASIC regarding receivers
ASIC informed the committee that it receives and assesses reports of
misconduct about receivers. ASIC can consider the conduct of receivers
appointed under a security instrument by a secured lender, including a
receiver's conduct in relation to the sale of any secured asset. However, ASIC
(and the courts) generally do not intervene in a receiver’s commercial decision
making under their appointment.
ASIC indicated that in the five years from 1 July 2010 it had received
45 reports of alleged misconduct from borrowers about receivers appointed by
banks or non-bank financial institutions.
ASIC’s inquiries into these matters identified common concerns in the reports
the validity and timing of the default and the receiver’s
the level of receiver’s fees and their accountability for fees;
receivers not providing updates to borrowers;
secured properties being sold through open processes, such as by
invitation, tender, or auction;
receivers taking advice from independent, third party, real
estate agents and property valuers regarding the sale process and sale price of
allegations that property valuers were conflicted, though further
inquiry by ASIC did not indicate any corresponding misconduct by the receiver
with respect to this allegation;
decisions on the sale process being taken by the receivers in
consultation with the secured creditors;
concerns that the receivers sold the secured property for less
than market value, or sold the property to a third party who then on-sold the
property for a higher value; and
allegations that receivers would not accept offers for the
secured property from parties connected with the debtor, which they believe
resulted in the receiver accepting lower offers from unrelated third parties.
ASIC conducted further inquiries into five of the above matters and
subsequently determined not to pursue regulatory action against the receiver.
ASIC informed the committee that its inquiries did not reveal sufficient
grounds to pursue the receiver for a breach of their statutory duties or to
consider further disciplinary action. ASIC
did not identify systemic concerns about any particular receiver in these
matters, and ASIC’s assessment and inquiries could not substantiate breaches of
section 420A of the Corporations Act which warranted further regulatory action.
Views of industry bodies and banks
This section discusses the views put forward by industry bodies and
banks regarding issues about receivers.
The Australian Restructuring Insolvency and Turnaround Association (ARITA)
submitted that it considers that the law imposes high standards in relation to
the sale of property by receivers under section 420A of the Corporations Act. ARITA
also informed the committee about the history of this provision:
By way of background, the history of the section is that the
duty of receivers under Australian case law was based in negligence only. The
1988 Harmer Report considered that this was not adequate and that there should
be a specific obligation imposed to secure the best price in the circumstances
of the sale. Thus section 420A was introduced. The purpose behind the
introduction of section 420A was stated in the Explanatory Memorandum to the
relevant Bill: “It is sometimes said of receivers that they are prepared to
sell property at a price less than the best obtainable, so long as it is
sufficient to cover the debt of the charge holder who appointed them. Proposed
s420A makes it clear, that in selling company property, a controller must take
all reasonable care to sell the property for the best price that is reasonably
obtainable having regard to the circumstances existing when the property is
ARITA indicated that it was not aware of concerns about the operation of
that section, but noted concerns had been raised by the Productivity Commission
in its inquiry into business set-up, transfer and closure. ARITA also informed
the committee that in court challenges by borrowers under section 420A, the
courts have generally upheld the conduct of the receiver. Complaints to ARITA
about receiver sales are generally dismissed on the basis that the established
process to ensure market value is obtained was followed.
ARITA indicated that section 420A has been in operation for over 20
years and that it was not aware of any issues about the standard that section
420A imposes. ARITA argued that section 420A been the subject of a number of
decisions from the courts in relation to the process of obtaining market value:
Many of these cases raise complex and difficult issues.
However as a general statement, the history of court decisions has supported
the receiver in relation to their compliance with the section. In other words,
challenges to section 420A sale are generally unsuccessful. A receiver is also
subject to other controls and responsibilities under Part 5.2 and elsewhere in
the Act. They are officers of the company and are therefore subject to the
significant duties of care and diligence, good faith, and other duties under s
180-184 of the Act.
The ABA informed the committee that it considers that receivers are
appointed by a bank to take control of the assets under the bank’s security after
all other options for workout, or a voluntary recovery have been exhausted. The
ABA suggested that:
The appointment of receivers may be necessary where early action
is needed to protect the bank’s position, if a voluntary administrator has been
appointed, or liquidator has been appointed by court order;
receivership is the least preferred option as it tends to incur
additional costs and may result in a lower net return; and
receiverships often arise where both the customer and the bank
may incur a loss, so it is clearly in the bank’s interests to ensure that
property is sold at market value and that the receiver's and other costs are as
reasonable as possible.
ANZ submitted its view, noting that the right of a lender/mortgagee to
exercise a power of sale or appoint a receiver is usually provided by the loan
and security (e.g. mortgage or charge) document. ANZ indicated that lenders'
rights are also conferred by property legislation (e.g. s77 of the Transfer of Land Act
(Vic), s109 of the Conveyancing Act (NSW)) and in respect of
receivers, the Corporations Act 2001.
NAB cited similar provisions in its submission:
Where NAB, or a Receiver/Controller appointed by NAB,
exercises a power of sale there are strict legal obligations which they each
are required to comply with. Where property is owned by a company, NAB, or a
Receiver/Controller appointed by NAB, (under section 420A of the Corporations
Act) is required to take all reasonable care to sell that property for not less
than its market value, or otherwise (where there is no market value), to sell
the property at the best price reasonably obtainable, having regard to the
circumstances existing when the property is sold.
The ANZ informed the committee that:
To be clear, receivers have no role in the valuation of
security. We do not needlessly appoint receivers. Such action is costly and
distressing for all parties. As at March 2015, 116 commercial customers, or
less than one 10th of one per cent of our 140,000 commercial customer base were
in some form of ANZ enforced administration. However, it is
important to note that the appointment of a receiver can be essential in
arresting losses and erosion of equity, protecting suppliers—in other words,
unsecured creditors—and protecting directors from trading while insolvent.
Post-GFC banking inquiry
The Senate Economics References Committee inquiry into the post-GFC
banking sector made a number of recommendations for improving banking practices
relating to the enforcement of security interests and the conduct of receivers.
These recommendations included that:
a secured party be prevented from appointing a receiver unless
the 14 day period specified in the notice of demand has expired and, if the
secured party is a member of Financial Ombudsman Service (FOS), advising the
borrower that they may apply to FOS to determine a dispute, if any, between the
borrower and the secured lender;
receivers be required to cooperate with all requests from the
Financial Ombudsman Service (FOS) that relate to a dispute between the bank and
the borrower that FOS is considering;
receivers be required to cooperate with any reasonable requests
for information made by the borrower that would assist the borrower secure
the secured party regularly inform the borrower about the costs
and fees associated with the receivership and take reasonable care to ensure
that those costs and expenses are reasonable; and
the receiver demonstrate to the borrower that they have
considered all unconditional offers when exercising the power of sale.
This section summarises requirements relating to the appointment of
receivers, including the requirement for receivers to satisfy themselves that
the appointment is appropriate.
There are a number of formalities imposed on the appointer and the
a person cannot be appointed as a receiver unless they are a registered liquidator;
a person may be restricted from accepting an appointment if the
appointment might create a lack of independence;
the appointer must file notice of the appointment of the receiver
with ASIC within 7 days and the receiver must do so within 14 days;
the receiver must also serve notice of the appointment on the
company as soon as practicable; and
the receiver is not obliged to inform creditors of the
ASIC informed the committee that before accepting appointment as
receiver and entering into possession or taking control of a company’s
property, the receiver should satisfy themselves that:
the security interest under which they are being appointed is
valid and properly registered;
an event of default within the terms of the security document has
the requirements of the security document as conditions precedent
to the appointment (including the making of a demand for the secured money and
providing reasonable notice to the company of the intention to terminate the
loan facility) have been strictly complied with; and
other relevant statutory requirements have been complied with.
ASIC suggested that a prudent receiver would not accept appointment as a
receiver on the basis of a monetary or other default except with clear evidence
that the default has occurred. If an appointment is based solely on a
non-monetary default (e.g. a loan-to-value ratio default), a prudent receiver
would generally make further inquiries into the client’s loan history before
accepting the appointment.
ASIC informed the committee that remuneration of a receiver is
supervised by the courts. ASIC argued that when courts assess the
reasonableness of a receiver’s remuneration they should have regard to
proportionality—that is, the reasonableness of remuneration compared to the
benefits realised. Recent court decisions have considered the issue of
proportionality. ASIC informed the committee that:
In Australian Securities and Investments Commission v Letten (No 23)  FCA 985,
Justice Gordon was required to determine among other things, the reasonableness
of receivers’ remuneration claimed in relation to work undertaken in the
adjudication of investors’ claims. One factor her Honour relied on in applying
a 20% discount (on top of a voluntary 10% reduction) to the remuneration to be
allowed, was that the claimed remuneration ‘appeared large’ ($4 million) when
compared to the amount anticipated to be made available for distribution to the
investors ($10 million). On appeal, ASIC made submissions concerning the issue
of proportionality. This matter has been appealed, and we await the decision of
the Full Court of the Federal Court.
ASIC submitted that the concept of ‘proportionality’ is not expressly
dealt with under the Corporations Act. However, the list of matters for a court
to consider in assessing the reasonableness of a receiver’s remuneration
include the time properly taken in completing work, the necessity of the work,
the complexity of the work performed by the receiver and the value and nature
of the property dealt with by the receiver.
ASIC informed the committee that subject to the terms of the agreement,
the company will usually bear the cost of the receiver’s remuneration and the
receiver will draw their remuneration during the course of the receivership by
submitting an account for their remuneration to the secured party (generally,
those costs will then be added to the company’s outstanding debt). The secured
creditor will normally scrutinise the account and approve it for payment.
Commonly, the receiver will secure an indemnity for remuneration and expenses
from the secured party. The secured party has a significant degree of influence
over the level of remuneration of the receiver, due to the direct nature of the
appointment. In some situations, this position can result in the receiver
charging less than their standard hourly rates.
ASIC also informed the committee that the Corporations Act provides for
a review process regarding the remuneration payable to receivers. The court
retains wide powers to set and vary the remuneration of receivers. Applications
to fix or vary a receiver’s remuneration may be made in certain circumstances
by ASIC, a liquidator, voluntary administrator or deed administrator of the
company. The 2007 reforms to the Corporations Act introduced amendments that
require the court, when reviewing or setting a receiver’s remuneration, to have
regard to whether the remuneration is reasonable, taking into account various
matters, including whether the work performed was reasonably necessary.
ASIC also noted that often in receiverships, the secured party may suffer
a significant deficit on the recovery of the debt owed by the company. If there
are insufficient assets, the secured party pays the receiver’s remuneration out
of their own funds.
The Commonwealth Bank noted that in many cases the costs of the receiver's
remuneration is borne by the bank because the borrower does not have sufficient
financial resources or assets:
It is in a financial institution’s interest to monitor and
minimise all costs of receiverships, including the fees charged by receivers
and managers, in part because it is common for the bank to suffer a shortfall
on loans where a receiver is appointed. In such instances, some if not all of
the cost is borne by the bank itself. As a result, the costs of the
receivership, including fees, are reported to the bank and discussed regularly
with the receiver. Of the seven customer matters named above where a receiver
was appointed, Commonwealth Bank or Bankwest wrote off amounts owed in all
cases. At least some, if not all, of the receiver’s costs were borne by the
bank and its shareholders, not the customer. We have also reviewed 36
submissions to the Parliamentary Joint Committee which relate to customers of
Bankwest. Of those 36 customers, a receiver was appointed to 28. Of those 28,
Commonwealth Bank wrote off amounts owed in 25 instances. Therefore in more
than 80 per cent of cases, some if not all of the cost of the receivership was
ultimately borne by the bank and its shareholders rather than the customer.
This section summarises the reforms recently introduced by the Insolvency
Law Reform Bill 2015
which amended the Corporations Act, the ASIC Act and the Bankruptcy Act 1966
(Bankruptcy Act) to create common rules that:
remove some costs and are designed to increase efficiency in
align the registration and disciplinary frameworks that apply to
registered liquidators and registered trustees;
align a range of specific rules relating to the handling of
personal bankruptcies and corporate external administrations;
enhance communication and transparency between stakeholders;
promote market competition on price and quality;
improve the powers available to the corporate regulator to
regulate the corporate insolvency market and the ability for both regulators to
communicate in relation to insolvency practitioners operating in both the
personal and corporate insolvency markets; and
improve overall confidence in the professionalism and competence
of insolvency practitioners.
The Insolvency Law Reform Bill implemented new rules regarding the
remuneration of receivers, so that creditors may set a receiver's remuneration
through a remuneration determination. Where there is no determination the
receiver will be able to receive a reasonable amount for the work conducted up
to $5000 (exclusive of GST and indexed). In addition the new rules ensure that
receivers must not:
employ a related entity, unless certain requirements are met; or
purchase any assets of the estate; or
get any other benefits or profits from the administration of the
As discussed at the beginning of this chapter, a common concern raised
during the inquiry is poor access to information from receivers in some cases.
The Insolvency Law Reform Bill 2015 has enabled the following rules to be implemented,
so that receivers must:
give annual reports of the administration of the estate (called
annual administrative returns) to the Inspector‑General; and
keep books of meetings and other affairs of the estate; and
allow those books to be audited if required to do so; and
allow access to those books by creditors; and
give creditors and others requested information, documents and
reports relating to the administration;
In the case of a receiver of a regulated debtor’s estate, she or he must
have regard to directions given to the receiver by the creditors of the estate
but is not obliged to comply with those directions.
The Insolvency Law Reform Bill 2015 put in place new requirements for
disputes relating to the conduct of receivers including provisions for reviews
by the courts, the Inspector-General and creditors:
The Court may inquire into the administration of a regulated
debtor’s estate either on its own initiative or on the application of the
Inspector‑General or a person with a financial interest in the
administration of the regulated debtor’s estate.
The Court has wide powers to make orders, including orders
replacing the trustee or dealing with losses resulting from a breach of duty by
The Inspector‑General may review a decision of the
trustee of a regulated debtor’s estate to withdraw funds from the estate for
payment for the trustee’s remuneration.
The Insolvency Practice Rules may set the powers and duties
of the Inspector‑General in conducting such a review and may deal with
issues relating to the review process.
The creditors of a regulated debtor’s estate may remove the
trustee of the estate and appoint another. However, the trustee may apply to
the Court to be reappointed.
The Inspector-General may review the remuneration of receivers on their
own initiative or following application by the regulated debtor or a creditor.
The ineffectiveness of section 420A of the Corporations Act was a
significant issue for many submitters and witnesses who had concerns about
properties being sold below value.
Borrowers are often unable to make use of section 420A to pursue
complaints against a receiver, because the borrower has lost control of their
financial assets and therefore cannot fund a legal case.
ASIC informed the committee that the Corporations Act imposes certain
requirements on receivers when exercising the power of sale, including that
they take reasonable care to sell the property for not less than market value.
This obligation is not breached simply because market value (where it exists)
or the best price reasonably obtainable is not achieved, but where the receiver
has not taken all reasonable care.
The dominant view is that s420A does not confer a right to
damages or any other remedy. Section 420A is not an offence or civil penalty
provision. ASIC can take action against the receiver for a breach of s420A,
under s423 for failing to observe a requirement under the Corporations Act or
for a breach of the receivers duties as an ‘officer’ under the Corporations
Act. ASIC will assess the circumstances of each case in light of the statutory
requirements and relevant case law.
The Consumer Credit Legal Service (WA) noted that while there is no
consumer equivalent to section 420A of the Corporations Act good industry practice
requires that a financial services provider must exercise reasonable care to
sell a property for its market value or best possible price. The accepted
industry practice for the sale of a property at auction requires:
A minimum marketing period of four weeks, including suitable
advertising in local and national newspapers, and reputable online real estate
An independent sworn valuation and a market appraisal prior to
the setting of an adequate reserve;
General maintenance of the property; and
The property to be sold in a timely manner. However, a mortgagee
is not required to delay the sale of a property if there are concerns about
ANZ suggested that the committee might consider whether a formal ASIC approved
EDR process should be established in relation to insolvency practitioners.
However, ANZ also made the following observations:
...there are examples of where 420A cases have been taken to
court and liquidators have been accused of not selling at the right price...there
have been one or two occasions when...the customer has been compensated. But
there are very few that really go through...That could be just because of an
imbalance to get those things before the courts, but overall our view would be
that it generally works quite well and it is in the interests of both the bank
and the customer to get the most for any value when you are being sold up.
The FOS informed the committee that in relation to the appointment of
receivers there is a small but growing trend amongst some financial services
providers to appoint receivers over residential properties mortgaged by
individuals who guarantee business loans. FOS noted that as a receiver acts as
an agent for the borrower, even though appointed by the lender, this has the
potential to reduce avenues for address when there is a concern about, for
example, the under-sale of a property.
FOS expanded further on this issue, suggesting the receivers in such
circumstances may need to be subject to an external dispute resolution scheme:
Say, for example, that the receiver undersold the property
and you wanted to complain about that—and we do deal with those sorts of
complaints—we could not consider it because the receiver is not part of the
Financial Ombudsman Service scheme. That is my concern.
As I said, this could be a state matter, so maybe this is not
the right place to raise it. But it seems to me that what receivers in those
circumstances are doing is acting as an agent for the bank or acting as an
agent for the mortgagee, and that should be recognised as such so that if a
person wishes to lodge a complaint about whatever it is they are or are not
doing they can still have redress through our service by lodging a complaint
against the bank, because the bank is responsible for its agents.
The committee welcomes the new provisions relating to remuneration of
receivers, including maximum default remuneration, capacity for creditors to
set remuneration and powers for the Inspector-General to review the remuneration
of receivers. The committee also welcomes the new rules relating to the
independence of receivers and the sharing of information with creditors and
However, the committee remains concerned that there is no clearly
established requirement for receivers to be part of an industry-wide
independent external dispute resolution scheme supported by internal dispute
resolution procedures. While disputes can be heard by a court, this inquiry
concluded in chapter 4 that court processes are often inaccessible to borrowers
who have lost control of their financial resources due the appointment of a
receiver. While ASIC is able to review practices of receivers under the new
insolvency laws, ASIC has clearly stated on many occasions that it only has resources
to pursue selected matters that are in the wider public interest.
Investigative accountants subsequently appointed as receivers
A number of submitters raised concerns about the practice of single
companies being appointed as the investigative accountant and then subsequently
as the receiver. This was perceived by some submitters as creating a conflict
ASIC informed the committee that prior to exercising its contractual
rights to appoint a receiver, a secured party would ordinarily assess its
security position. In the first instance, a secured party might engage the
prospective receiver as an ‘investigating accountant’ prior to a formal
appointment as external administrator. The investigating accountant would then
assess the debtor’s financial circumstances and the options available to the
secured party. However, a person does not necessarily need to be a registered
liquidator to act as an investigating accountant. The investigating
accountant’s report will not usually recommend a specific course of action but
provide information to enable the secured party to decide future steps. An
insolvency practitioner conducting such an investigation on behalf of the
secured party owes a duty to the secured party to protect the interests of that
party, even if the company pays for the cost of the investigation.
The committee was advised that the Corporations Act
does not prohibit an insolvency practitioner who has acted as investigating
accountant from subsequently accepting an appointment as a receiver or
liquidator of the company. However, the insolvency practitioner must have
regard to how their investigating accountant’s report may affect their
independence or the perception of their independence. If appointed, the
court may remove them if there is an actual or distinct possibility of a
conflict of interest.
NAB informed the committee of its view, suggesting that it would be
common practice in Australia that the person who does the initial investigation
becomes the receiver. NAB argued that the person who has done the investigation
has a fair degree of familiarity with the business; they understand its
operations, its people and what it is doing. It therefore makes it easier for
the receiver to step into a strange business and take it on, as well as
avoiding additional costs.
We have investigating accountants do reviews on somewhere
between two-thirds and three-quarters of the files that we look after. As we
said, only about 15 per cent of them end up in formal insolvency. We see that
the majority are helped to stay out of insolvency, but, yes, some go the other
ASIC suggested that to address concerns that receivers may act without
regard to the debtor’s or guarantor’s interests, consideration could be given
to law reform to require a receiver to prepare and serve on the company a
declaration of relevant relationships or a declaration of indemnities that
the nature and extent of their relationship with the secured
the services provided concerning the company prior to the
details of any indemnity provided.
ASIC noted that insolvency practitioners are not required to complete a
declaration of relevant relationships or indemnities when they are appointed.
Although an investigating accountant's report may not specifically recommend a
formal insolvency appointment, it is possible that other private
representations may be made in favour of such an appointment. ASIC made the
following suggestion to the committee:
To address concerns that the insolvency practitioner may act
without regard to the debtor’s or guarantor’s interests, consideration could be
given to law reform to require a receiver to prepare and serve on the company a
Declaration of Relevant Relationships or a Declaration of Indemnities that
- the nature and
extent of their relationship with the secured party;
- the services
provided concerning the company prior to the appointment; and
- details of any
The committee questioned the Commonwealth Bank on its use of investigative
accountants to examine whether the appointment of an investigative accountant
automatically leads to a receivership. In response the Commonwealth Bank noted
We have performed this task for the 95 cases referred to in
our letter to the Committee of 16 December 2015. These 95 cases consist of: 36
Bankwest customers who have provided a submission or appeared before the
Parliamentary Joint Committee in relation to this inquiry and 59 additional
customers specified in the Ernst & Young Expert Determination Report dated
7 July 2009.
Of these cases, investigative accountants were appointed in
37 of the 95 matters (12 out of 36 submitters to the inquiry, 25 out of 59
Ernst & Young cases).
We asked four of the largest investigative accountants and
receivers (Ferrier Hodgson, Korda Mentha, Grant Thornton and McGrath Nicol) to
provide data for the last two to three years. For each case where they were
engaged as an investigative account, we asked them to identify how often they
were subsequently engaged as a receiver for that business. 
Of the 67 cases where the investigating accountant did not
become the receiver (87 per cent of cases), we advise that:
40 remain existing customers, 25 are managed by Group Credit Structuring;
13 repaid their facilities through
9 refinanced their facilities with
2 were placed into liquidation;
2 entered into voluntary
1 went into bankruptcy.
The committee notes the information from the Commonwealth Bank that the
appointment of an investigative accountant does not inevitably lead to the
appointment of a receiver from the same company. The committee also notes
requirements that now exist under the new insolvency laws regarding the
independence of receivers.
However, the committee remains concerned that use of the same company
for both the investigative accountant role and the receiver role does create
the potential for perceived or actual conflicts of interest. The committee
suggests that it may be possible for banks intending to appoint a receiver to
inform the borrower of the proposed receiver, and to provide the borrower with
the opportunity to request an alternative receiver if the borrower is concerned
that a conflict of interest may arise.
The committee heard arguments by banks that using the same company saves
the borrower money. However the committee notes that if the investigative
accountant's report and files on the case are appropriately thorough, a
different company should be able to quickly understand the state of the
business with minimal additional costs.
The committee recommends that if an authorised deposit taking
institution is intending to appoint a receiver:
- that is from the same company that was engaged as an investigative
accountant, the borrower should be given an opportunity to request an alternate
company if the borrower is concerned about a conflict of interest;
in addition to the requirement to sell assets for fair market
value under section 420A of the Corporations Act 2001, receivers should
be required to sell a business as a going concern where possible–if this will result in a higher return–rather than separately selling the assets
within the business; and
receivers or similar entity selling assets under section 420A be required to take
every reasonable step to ensure those assets are sold at or as close to listed market
value as possible under the following conditions:
- proof of marketing through but
not limited to mainstream media, catalogues and online;
- in cases with no monetary
default, marketing periods consistent with Prudential Standard APS 220;
- in the case where monetary
defaults have occurred, the marketing period can be reduced below the APS 220
standard where a shorter marketing period can be demonstrated to be in the
borrower's best interest; and
- that a strong penalty regime for
breach of section 420A be administered by the Australian Securities and
Another common concern put to the committee was that borrowers were not
always provided with access to the reports of investigative accountants. The
committee considers that providing the investigative accountant's report to
borrowers is unlikely to cause significant additional costs to banks. The
committee has therefore recommended in chapter 2 that banks be required to
provide copies to borrowers of both the instructions to investigative
accountants and the reports by investigative accountants.
The committee recommends that the Parliamentary Joint Committee
on Corporations and Financial Services conduct an inquiry to examine the
remuneration of insolvency practitioners.
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