'Restructuring Works in the News'

Patrick Stafford | smartcompany.com.au

The number of businesses being put into administration could increase if the Government ramps up its distribution of director penalty notices, experts have warned.

The warning comes as new figures from the Australian Securities and Investments Commission show the number of corporate collapses increased by 4% during 2009 as businesses struggled with the global financial crisis.

The figures show the number of businesses being put into some form of administration in 2009 rose to 9,437 from 9,113, while there were 28,277 personal bankruptcies compared to 26,706 the year before.

New South Wales recorded the largest number of collapses with 4,124, with Victoria following at 2,418 and Queensland rounding out the top three with 1,798.

But experts, including Sydney liquidator Nicholas Crouch, are warning the number of businesses being placed into administration could jump if the ATO decides to start increasing the number of director penalty notices its sends out.

Insolvency experts say the ATO has been sparing in its use of director penalty notices (which make a director personally liable for unpaid company tax) during the downturn.

Cliff Sanderson, managing director of business consultancy Restructuring Works, says the number of penalty notices being sent is increasing.

“I’ve been banging this drum for quite awhile. They virtually stopped sending them since April, but I’ve seen a couple towards the end of last year.”

“The number of companies in administration could increase when these notices are sent out.”

Jim Downey of JP Downey and Co. says an increase in the number of these notices could prompt company directors into calling in administrators, boosting the number of corporate collapses.

“In these notices, a letter is given to the director of a company when they haven’t paid a certain tax, including PAYG. They say they haven’t paid a certain tax, and they have the following options including payment, administration, liquidation or a payment plan.”

Downey says suggestions that the ATO is considering ramping up the use of penalty notices doesn’t come as a surprise.

“It’s likely to have directors coming screaming into our arms again. This report doesn’t surprise me at all, the Government tends to have purges from time to time.”

“Ordinarily you do hear announcements about this sort of thing. They normally couple that purge with a direct tax through the front door of the company by also serving a statutory demand, which gives the companies about three weeks to pay outstanding tax.”

www.busnews.com.au

Australian Banks are taking possession of assets in record numbers and conducting more insolvency work ‘in-house’ as a result of increasingly high debt costs, according to a corporate restructuring firm.

Restructuring Works’ latest Business Stress Report reveals the annual cost of All Bank New Asset Impairment Charges (bad debts) by Australian Banks for the year to September 2009 has increased to $33.1 billion.

This compares to an average of around $4.4 billion per year between 1995 and 2008.

Meanwhile, the number of companies entering some form of insolvency administration was 9,544 for the year to November 2009.

Restructuring Works Director Cliff Sanderson admits corporate insolvency numbers have increased post-GFC, but says the increase has been less than expected.

“Hence, there has been a lot of discussion in the insolvency world about Banks ‘nursing’ their problem loans and mention of the lenient attitude of the ATO during the last year,” Sanderson says.

“Our analysis shows that whilst it may be true that Banks are nursing many bad debts, at the same time, Banks have been taking possession of assets far more often than they used to,” he says.

According to the Business Stress Report, the number of times Banks have moved to take possession of assets has increased to 1,342 for the year to November 2009.

This is almost triple the average of 523 from the previous five years.

While banks are appointing external Receivers in a majority of these cases, there is a trend for Banks for conduct a far higher proportion of the management of their bad debts ‘in-house’.

Data out this week shows the number of in-house Bank appointments has increased five-fold to 505 in the year to November 2009.

Similarly, Directors have been initiating appointments more often.

As pointed out by Sanderson, the number of insolvencies which have been initiated by Unsecured Creditors is virtually unchanged when comparing pre and post GFC.

“So the group that has been tolerant and helping nurse companies that are in financial difficulty is in fact the Unsecured Creditors – Trade Creditors and the ATO – whilst the Banks have been very active in pursuing debts and have not been backward in taking possession of assets,” he says.

The number of companies entering some form of insolvency administration in the month of November 2009 was 747.

While this figure is a slight drop from the previous month, it has been relatively stable around 750 to 850 since the peak of 1,095 in March, 2009.

Source:  www.qbr.com.au/news/articleid/61850.aspx

Australian banks are taking possession of assets in record numbers and conducting more insolvency work ‘in-house’ as a result of increasingly high debt costs, according to a corporate restructuring firm.

Restructuring Works‘ latest Business Stress Report reveals the annual cost of All Bank New Asset Impairment Charges (bad debts) by Australian banks for the year to September 2009 has increased to $33.1 billion.

This compares to an average of around $4.4 billion per year between 1995 and 2008.

Meanwhile, the number of companies entering some form of insolvency administration was 9,544 for the year to November 2009.

Restructuring Works Director Cliff Sanderson admits corporate insolvency numbers have increased post-GFC, but says the increase has been less than expected.

“Hence, there has been a lot of discussion in the insolvency world about banks ‘nursing’ their problem loans and mention of the lenient attitude of the ATO during the last year,” Sanderson says.

“Our analysis shows that whilst it may be true that banks are nursing many bad debts, at the same time, banks have been taking possession of assets far more often than they used to,” he says.

According to the Business Stress Report, the number of times banks have moved to take possession of assets has increased to 1,342 for the year to November 2009.

This is almost triple the average of 523 from the previous five years.

While banks are appointing external Receivers in a majority of these cases, there is a trend for banks for conduct a far higher proportion of the management of their bad debts ‘in-house’.

Data out this week shows the number of in-house bank appointments has increased five-fold to 505 in the year to November 2009.

Similarly, directors have been initiating appointments more often.

As pointed out by Sanderson, the number of insolvencies which have been initiated by unsecured creditors is virtually unchanged when comparing pre and post GFC.

“So the group that has been tolerant and helping nurse companies that are in financial difficulty is in fact the Unsecured Creditors – Trade Creditors and the ATO – whilst the banks have been very active in pursuing debts and have not been backward in taking possession of assets,” he says.

The number of companies entering some form of insolvency administration in the month of November 2009 was 747.

While this figure is a slight drop from the previous month, it has been relatively stable around 750 to 850 since the peak of 1,095 in March, 2009.

James Thomson | smartcompany.com.au

The entrepreneur behind a large company has started negotiations about rolling over his company’s loan facility. He’s been a loyal customer of the bank for a long time and the business is travelling well. Should be a piece of cake.

Not quite. The bank manager is happy to rollover the loan facility, but there’s a cost – a big, one-off rollover fee. Nice doing business with you.

Across town, a property developer walks into his bank manager’s office to talk about rolling over funding on one of his projects. It’s 90% completed, it’s a bit behind (which property development isn’t?) but it’s all gone pretty well, considering.

But the bank manager has a different view. There won’t be any rollover. In fact, he says that the bank is worried about this project and considering its options, including receivership. The developer was told his best option was to put in more equity – hardly an easy thing to do.

These are just two of the stories told to me this morning by Cliff Sanderson, managing director of Restructuring Works, a consultancy that helps battling companies get back on the right track.

He’s just released a slew of figures showing that bad debts remain a huge problem for our banks and any suggestion that the banks might try and nurse struggling customers through is just not true.

The GFC might be over, but don’t for a minute think that the credit squeeze is over for small business.

In the last 12 months we’ve seen risk premiums raised, covenants being reviewed and rate cuts not being passed on. You can now add these rollover fees to the list of horrors.

The worst part of this is the fact that SMEs generally have to just sit there and take it. As Sanderson said to me this morning, what’s the alternative? All of the banks are taking the same hardline stance and there appears to be very little real competition in the small business end of the market.

The problem is, what can be done? While business groups have been urging both sides of politics to intervene, and we’ve seen summits and talkfests to address the issue, very little has changed. That list of horrors is just getting longer.

And the Government needs to realise this is a threat to the economic recovery.

A survey by the Master Builders Association of Victoria found more than half of its members have had projects fall over because clients couldn’t get funding.

That impact spreads to hundreds of workers, hundreds of suppliers, hundreds of property investors, hundreds of developers and, for the Government, hundreds of millions of dollars in lost tax revenue.

If the Government can’t force the banks to change their attitude (which they probably can’t) then it’s time to do more to foster competition in this marketplace.

James Thomson | 4 December 2009

Article from:  smartcompany.com.au

James Dunn | October 07, 2009

Article from: The Australian

Coverage on Restructuring Works’ sister site www.Dissolve.com.au

Click here for the follow up roudtable discussion featuring Dissolve’s Rod Grosvenor.

SOMETHING is happening in the staid world of listed investment companies.

Known as the tortoises of the sharemarket, LICs compound share price rises and dividend income to generate long-term capital growth.

But activist investors are taking aim at LICs that persistently trade at a discount to their net tangible assets (NTA) figure, the dollar amount that each share would be worth if the portfolio were liquidated.

This year, financial advisory firm Dixon Advisory has led the shake-up of the LIC sector by taking two of the companies in which its clients had invested to task over discounts.

In the first case, Dixons convinced Premium Investors Limited to buy back some of its shares, which has reduced the discount to NTA.

In the second, Dixon requisitioned an extraordinary general meeting of Van Eyk Three Pillars where it removed the chairman and three directors and replaced them with four Dixon executives. The new board is aiming for a substantial share buyback in an attempt to close the discount.

Alan Dixon, managing director of Dixon Advisory, says the firm understands that discounts to NTA are a fact of life in the LIC sector, but describes them as a “double-edged sword”.

“We understand that if you go into a closed-end fund, you cannot expect it to tick along like clockwork at NTA or at a premium to NTA,” he says.

“A range of 5 per cent either way, even 10 per cent, is a fact of life. If the Australian Foundation Investment Company or Argo Investments (is) trading at a discount, investors love it, because they know they’re buying very well and they’re picking up an enhanced dividend yield.”

If AFIC and Argo were trading at 15per cent discounts, which both have done in the past, Dixon says “our clients and other investors would be licking their lips and that gap wouldn’t last very long, because the market has had a very long time to come to trust the track record and management of AFIC and Argo”.

But if you’re a newer LIC manager, he says, you “have to accept that some people are going to take a large and persistent discount as a very worrying sign”.

In that case, Dixon says, investors would rather know they were getting a fair yield and if they needed their capital, they could get its full value.

Dixon says Premium Investors and Van Eyk Three Pillars were “perennially staying” at double-digit discounts to NTA.

“Van Eyk Three Pillars has traded at an average discount of about 15 per cent to NTA this year, and at one point that widened to 22 per cent.

“Premium at one point blew out to a 30 per cent discount,” Dixon says.

“We think that once a discount to NTA gets over 10 per cent, the board should be thinking about doing something to fix the problem.

“They can be proactive with initiatives like capital management rather than just wait and hope that the market takes the share price back into the black,” he says.

Dominic McCormick, chief investment officer of Select Asset Management, says the stock market “gets LICs wrong more than it gets other investments wrong”, because the companies’ shareholder base is dominated by retail investors.

“Arguably this is a less efficient part of the market, so I don’t think something trading at either a large discount or a premium necessarily reflects the right price.

“Sometimes it is, but more often than not it reflects excessive enthusiasm or disappointment. Some of these deserve to be at a discount; but whether they deserve to be at as large a discount is certainly a valid question.”

McCormick says a discount can work in investors’ favour. “If you’re buying the portfolio at 80c in the dollar and on the dollar it provides a 4 per cent yield, at 80c it provides a 5per cent yield.

“The compounding of reinvestment of that yield will result in a better return, whether the discount narrows or not.”

But the LIC sector “needs a shake-up”, McCormick says.

“In some cases there really needs to be a greater focus on whose money it really is: it’s the shareholders’.

“We’ve been encouraging boards to be more active from a capital management perspective, doing things that are positive in enhancing returns, and buybacks at a discount will do that.

“Hunter Hall Global Value is one, for example, that has been very active in buying its own shares on-market, at a big discount to NTA.”

Whether the buyback narrows the discount or not is not the only game, he says.

“We’ve done some work recently on the effect of on-market buybacks on actual NTA enhancement or out-performance. It can be quite dramatic. The important thing is that a buyback actually enhances returns. It adds 2per cent to 3 per cent a year, or more, depending on how aggressive the buyback is and at what discount they’re buying.”

McCormick says there will be increasing pressure on LIC boards, particularly of the newer companies that have listed in the past couple ofyears.

“Some of them have 20 to 25-year management contracts, and that’s being highlighted,” he says.

“That’s clearly a flawed structure, because if there’s no sunset clause and they’re happy to chug along at a discount accepting management fees, they deserve to be wound up if they’renot prepared to be very active in doing what makes sense for investors. Remember, it is the shareholders’ money.

“In an unlisted fund, you can get your money out at NTA whenever, if you’re unhappy with the fund’s performance.

“In this case, you can’t get your money out at NTA, so it makes sense that this sort of corporate activity is starting to happen. We think there’ll be more of it.”

If an LIC stays persistently at a discount, “it’s not worth being in it”, says Cliff Sanderson, partner at liquidators Dissolve.com.au.

“It’s a simple equation: if an LIC is trading at a 30 per cent discount, sell all the shares, please, and give me back my money,” says Sanderson. “I’ll reinvest it in the same shares,and I’ll make 40 per cent straight away.

“Then if the market goes up 30 per cent from there, I’m getting 30 per cent on my 140 per cent. It seems to me to be pretty compelling maths that they should give the money back in situations like that.

“Anyone who is annoyed with a longstanding discount ought to look at that. If the market doesn’t recognise the value, fine, sell the shares. We would not be surprised if there was more activity on this front.”

Click here for the follow up roudtable discussion featuring Dissolve’s Rod Grosvenor.

Source:  Australasian Transport News – October 1, 2009

The cost of insolvencies on Australian banks in the year to June 2009 has topped $32 billion, with SMEs forecast to contribute to the upward trend albeit with smaller debts.

The fourth Restructuring Works Business Stress report released today reveals the number of appointments of receivers by Australian Banks has increased to 1,320 for the year to July, which is almost triple the average of 468 from the previous five years.

Similarly, the number of companies entering some form of insolvency administration has topped the 10,000 mark for the first time.

According to Restructuring Works spokesperson Cliff Sanderson, the latest numbers show the cost of insolvencies in the banking system has resumed its upward trend and is now hitting new peaks.

“In response, the Banks have been far more active in appointing receivers and taking possession of assets than ever before,” Sanderson says.

He says there are two possible factors at play in relation to skyrocketing figures.

“Firstly, it simply takes a long time for either the directors of a company in financial trouble to deal with the issues or for the creditors to lose patience and take legal action.

“Secondly, the key driver of insolvency numbers in small and medium sized companies is the ATO but in the past six months the ATO has actively encouraged repayment arrangements with businesses rather than pursuing insolvency proceedings.”

Putting these two factors together, Sanderson says there is likely to be a change in the mix of companies facing insolvency.

“We’ve seen large companies with large debts fail. Going forward we are likely to see an increase in the number of companies facing insolvency but they will be small and medium sized companies with correspondingly smaller debts,” he says.

Comparing these latest statistics to the 1987 share market crash, Sanderson says recovery is still in its early phases.

“This time around the number of insolvencies is up around 37 percent, which is in line with post-1987, but the cost of insolvencies has already increased six fold, which is well ahead of post-1987.”

source: Queensland Business Review www.qbr.com.au

Corporate insolvencies are on the rise, but the spike has not been as sharp as expected, according to specialist firm Restructuring Works.

Restructuring Works’ third quarterly Business Stress Report reveals some plateauing in insolvency numbers, resulting in mixed predictions for future activity.

The number of companies entering some form of external administration in May 2009 was a relatively modest 829.

This result marks a 6 percent increase compared with last year, but falls short of a record 1,095 in March.

The value of all bank new asset impairment charges in the March quarter was $7.1 billion, which is a decrease from the December quarter high of $8.1 billion.

However, the rolling year total to March 2009 has increased to $23.5 billion, which is more than five times the average of the previous five years of $4.5 billion.

Restructuring Works Director Cliff Sanderson says the report shows the number of insolvencies and their subsequent values are slightly off their peaks.

“This raises the question as to whether this is another ‘green shoot’ or just a pause on the way to the expected deluge of insolvencies,” he says.

“After 1987, it took four years for insolvencies to peak with the number of insolvencies doubling and the value of those insolvencies up five fold. So far, we are only 18 months or less into this cycle so, if it follows 1987, it is still early days.

“This time around the number of insolvencies is up around 37 percent, which is in line with post-1987, but the value of insolvencies has already gone up five fold, so that is well ahead of post-1987.”

The Business Stress Report saw two possible conclusions from its research.

Firstly, “insolvency numbers have peaked much faster than they did post-1987”, or “if we follow the trends of post-1987, then the number and value of insolvencies will be materially more severe than post-1987”.

“I think the research is showing a pause in the rise in insolvencies and there is worse to come. I say that for two reasons. Firstly, we are seeing a large increase in the number of enquiries from directors of companies in financial distress but those directors are only just now starting to make the decision to actively address their company’s problems,” Sanderson says.

“Secondly, a key driver of insolvency numbers is the ATO, which has publicly stated that it is willing to look at arrangements with businesses rather than pursue insolvency proceedings. In practice, we are finding that the ATO, and the banks, have been very accommodating in restructuring company debts.

“But a reasonable proportion of the companies that are being given some latitude will ultimately fail. So it will take some time but ultimately we will see a further material rise in the number of insolvencies.”

Tim Neary | BrokerNews.com.au | Thursday, 16 July 2009