NZ refuses to learn the lessons of failure
Court probes Dick Smith collapse — no chance of that happening here
he Australians don’t muck about it comes to publicly probing into the root cause of high- profile company collapses, and neither should we.
As the anatomy of the Dick Smith collapse — being played out in the NSW Supreme Court this week — shows, when it comes to apportioning blame for the destruction of an Australian retail icon, there is no hesitation in grilling managers and directors.
As the ABC reports, the inquiry into Dick Smith has “heard a litany of dodgy accounting, boardroom division and poor strategy”.
The inquiry’s aim is to find whether the directors or senior management of Dick Smith are liable for the stores’ collapse. A secondary aim is to find out if the banks which lent to the company can still recover losses from the insurance of directors and officers.
Dick Smith was placed in voluntary administration on January 4 this year. Ferrier Hodgson was appointed as receiver and manager. An attempt to sell the business came to nothing. On February 25 it was announced that all Dick Smith stores in Australia and New Zealand would close, leading to 3300 job losses.
The interesting point about what is happening in Sydney is that Ferrier Hodgson is using its powers under sections 586A and 597B of the Corporations Act to question the group. The Australian Securities and Investments Commission ( ASIC) is also conducting its own investigation.
Importantly, the company’s collapse is being thrashed out in public within six months of the retail chain going belly- up.
There is zero chance of this happening with a high- profile collapse in New Zealand.
Here, far too many major company collapses — particularly financial institutions — are probed in private but the results are not made public unless a court case ensues. This can take years. A case in point is the high- profile action that the Financial Markets Authority took against the failed Hanover Group of companies.
The FMA settled the claim out of court in exchange for payments totalling $ 18 million on the basis of “no admission of liability”. Neither the public nor the Hanover investors will ever get to know just what went on at board level in the lead- up to Hanover’s failure.
But in Australia it is highly unlikely that either the authorities or the Australian public would have condoned a move to the settlement phase without at least ensuring that the lessons learnt from the failure were made public.
In New Zealand, there have been plenty of other cases led by liquidators. The FMA has powers to lead civil actions on behalf of investors. And the FMA, its predecessor the Securities Commission, and the Serious Fraud Office have launched criminal actions with considerable success, particularly against finance companies following the mid- 2000s sector collapse.
But these are highly targeted affairs.
A Parliamentary inquiry probed the finance company collapses. But it shied away from directly tackling the responsibilities of the Securities Commission and the Reserve Bank. It’s arguable that both these institutions could have been far more proactive and closed down some operations ahead of the bust.
The SFO took action against some of the directors of the failed South Canterbury Finance.
But a public inquiry should have probed the role of Treasury in allowing SCF to continue to operate under a government guarantee when it was in receipt of warnings from the Reserve Bank that SCF was outside its operating agreement.
The Government hopes to get back a large portion of the South Canterbury Finance bailout package. But again, it is not prepared to look for the obvious lessons.
This mindset has been endemic since late 1989.
The collapse of DFC New Zealand in 1989 and the subsequent taxpayerled Bank of New Zealand bailout in 1990 were never publicly probed via royal commissions.
Again in Australia, the State Bank of South Australia collapsed in 1991 and was bailed out by A$ 970 million of taxpayer money.
The parallels with NZ were strong. Both BNZ and State Bank had been profligate with their lending policies.
The difference is that there was a full royal commission into the State Bank collapse.
Here, directors’ reputations — and the decisions by BNZ and DFC senior management — were not exposed to the glare of a public probe. The difference was palpable. When State Bank collapsed investigators came to New Zealand to look at some dodgy loans made here for an Auditor- General of South Australia inquiry to determine the causes of the bank's need for Government support.
As in the NZ bank collapses the level of non- performing assets were critical.
But the Auditor- General also attributed blame: “a contributing cause of the institution's financial failure” was the failure by the bank to adequately manage the debt, capital, and the bank's interest rate and liquidity risk. The report suggested this was because of “policy and procedural inadequacies”, and the lack of effective supervision and control of some of the bank's activities, which contributed to its mismanagement.
No inquiries here. Go figure. Veritas, the listed hospitality company which owns the Mad Butcher franchise and Nosh Food Markets, has agreed a deal with ANZ Bank to reduce debt repayments and reschedule its debt. The board had to weigh up if the business was still a going concern, given the uncertainties around the rescheduling of its debt repayments. The documents revealed that ANZ Bank had agreed to accept a reduction in monthly loan payments from July to September 2016 to $ 200,000 from $ 415,000. Ryman Healthcare has bought a site in Melbourne’s Mornington Peninsula as part of its planned expansion into Australia. New Zealand’s biggest retirement village operator bought the 8.9ha Moondah Estate site in Mt Eliza from Melbourne Business School, it told the NZX. It intends to develop a beachside retirement village with living apartments and aged care. No price was disclosed. The company opened its first Melbourne village, Weary Dunlop Retirement Village in Melbourne’s south- east, in 2014 and Moondah Estate will be its fourth site in Australia. Global asset manager Russell Investments has warned New Zealand needs to have more companies listed on the stock market and more equity managers who actively manage their portfolios due to the large flow of Kiwisaver funds seeking local returns. Russell, which manages $ 342 billion in assets around the globe and is based in Seattle, says Kiwisaver assets amounted to $ 35.6b in June 2016, a figure that it believes will double over the next four years.