News Room

One of the interesting features of the recent economic speed bump we have experienced in Australia is that the banks have called in receivers on their distressed clients much less than was anticipated (compared to the early 90s, that is).

This could be attributed to a number of factors, but I will put forward two. One is that in the early 90s we did not have 'voluntary administration' as an option available to businesses in distress. The insolvency laws changed dramatically in 1993 and businesses could, for the first time, avail themselves of our version of what the US calls Chapter 11 (yes, very different here I know, but you know what I mean).

So, this time around, the owners of distressed businesses brought on their own insolvencies in order to give them a chance of surviving and rebuilding. Less opportunity, then, for banks to appoint their own insolvency people.

Another factor has been that the banks have been inclined to bring the management of acute business distress in-house. Banks got into the habit several years ago of employing insolvency practitioners in their work-out departments in an effort to better manage their distressed exposures.

What has caught my eye recently, though, has been the CBA’s advertisement for “Senior Opportunities – Corporate Turnaround/ Recovery.”

That the bank is using this language (ie, the word "turnaround”) is surely a triumph for the Turnaround Management Association – a not-for-profit that has been actively engaging with the banking community over the past decade in an effort foster a “turnaround management” culture in Australia, replicating the tolerance and support for corporate rescue that exists in the US and parts of Europe.

Regardless of whether or not that is the case, it is interesting that the CBA should nail its colours to the mast in this regard, seeking the appointment of professionals who will presumably facilitate and champion corporate turnarounds.

It would be fair, I think, to say that of all the banks – the NAB have really led the way in this area, according to my anecdotal sources and based on my own experiences in dealing with work-out departments.

Typically, the asset management areas of banks (also known as 'bad bank' departments) are split into two – 'rehabilitation' and 'exit'. The rehab teams aim to manage the client in the hope of returning the file back to the branch from where it came. The exit teams typically seek to exit 'relationships' by whatever means are legally available to them.

Historically, 'exit' has been the focus for banks who are reluctant to throw good money after bad through failed rehabilitation efforts.

I did speak to one insolvency practitioner who challenged my theory on the reduced number of receiverships and all but told me to take off my rose tinted glasses. He said "the thing banks are doing is suggesting to companies to appoint a voluntary administration instead of them appointing a receiver". The bank then gives the company a short list of practitioners they should approach.

My contact then went on to say that "in the main they achieve a winding up of the company with their interests 'taken care of' without any bad publicity. Look at Timbercorp".

Regardless, it is good to see the CBA acquiring resources in its rehab (turnaround?) area, and hopefully a sign of things to come.