Contenu connexe Similaire à PPB Advisory Research The Future Of Liquidation And Bankruptcy Similaire à PPB Advisory Research The Future Of Liquidation And Bankruptcy (20) PPB Advisory Research The Future Of Liquidation And Bankruptcy2. Breakthrough
Creditors will significantly improve their
prospects of recovery by applying PPB
Advisory Screening Processes before
commencing or proceeding with winding
up or bankruptcy proceedings
© PPB Pty Ltd 2011 2
3. PPB Advisory Liquidation Screen
1. Real Property Search on debtor company
2. PPB Advisory Bankruptcy Scorecard for each director of the
debtor company
3. Substantial Trading Enterprise test on debtor company
PPB Advisory Official Liquidation Decision Tree is annexed.
PPB Advisory’s Statutory Recovery Team has created these tests
by researching the source of all dividends it has paid in liquidations
since 1 July 2008.
© PPB Pty Ltd 2011 3
4. PPB Advisory Bankruptcy Scorecard
1. Real Property Assets
2. Income Contributions
3. Business Plant and Equipment
4. Other Known Assets
PPB Advisory has successfully applied the annexed Bankruptcy
Scorecard since September 2010.
© PPB Pty Ltd 2011 4
5. Results of the Bankruptcy Scorecard
Process
Data* October 2009 to April 2010 October 2010 to April 2011 Result
Matters 189 47 A decrease of 142
Appointed matters
Recoverable 38% 57% Increase in recoverable
Matters matters
Consents 280 57 Decrease in 223
Consents
The Bankruptcy Scorecard has significantly reduced the average write off for
matters in bankruptcy by an average of approximately $8,500.
Recoverability of matters has increased by nearly 20% since the implementation
of the Scorecard.
*Data compared for the periods October 2009 to April 2010 & October 2010 to April 2011
© PPB Pty Ltd 2011 5
6. Benefits of Screening
Informed decision making for a portfolio of debts resulting in fewer
petitions for winding up and bankruptcy
Decreased expenditure on petitions. Savings can be redeployed for
more complex matters such as policing non-compliance and phoenix
activity
Returns to creditors from a higher percentage of appointments
Stronger relationships between creditors, advisors and IPs due to
better value for money
© PPB Pty Ltd 2011 6
9. Summary of 2010 Sharing Sessions
Implications for a future without screening
More assetless matters with higher costs
Poor value for money in appointing a liquidator or trustee with
limited likelihood of recovery
Reluctance by IPs to take on appointments due to increased costs
of compliance
Public concern about the high costs of compliance
Relationships strained between Creditors, Advisors and IPs
© PPB Pty Ltd 2011 9
10. Current Trends
Trends Effect
Increase focus on compliance with privacy rules Increased costs of compliance and investigations for
Compulsory mediations Insolvency Practitioner (“IP”)
Social
Costs of dealing with impecunious and self- represented Scope limitation on investigations
Increased scrutiny by Courts and Regulators Costs borne by creditors and IP’s for vexatious litigants
Less trust in professionals Unjustified complaints
Less cooperation from debtors
Increase in filing fees Fewer appointments (particularly bankruptcy)
Legislation
Changes in collection policies More applications for Bankruptcy or Winding up due to
Legislation changes on trustee reporting costs
Increase in bankruptcy notice threshold Expensive to complete administrations
National credit code Increase costs incurred by creditors in complying with
Alternative dispute resolution legislation
Economic
Focus on business case for winding up More decisions not to proceed with IP appointment
Increases in sales of debtor books Limited ability to refinance property to settle IP claims
Reduction in borrowing capacity Fewer appointments with assets and likelihood of return
Over geared from GFC – more shortfalls to creditors
Disclosure requirements around remuneration and Time focused on compliance rather than adding
Regulation
independence value/results
Senate committee licensing and flying squads Small matters uneconomical for IPs
Black letter bankruptcy regulation reviews IPs leaving market
Court decisions in One.tel1 and Maxwell Smith2 Government concern about high costs3
1 Onefone Australia Pty Limited v One.Tel Ltd [2010] NSWSC 1120 (1October 2010)
2 Donnelly v Maxwell‐Smith [2010] FCAFC 154
3 IPA Submission to Treasury 27 April 2011
© PPB Pty Ltd 2011 10
11. Further Evidence
• Strike rate4 for administrations for the year ended 30 June 2010 has fallen to 32% from
44% for the year ended 30 June 2009.
• Average fees taken drawn by private trustees for the 5 years ended 30 June 2010 has
reduced to approximately $10,000 per estate5 despite upward pressure on costs and
increases in charge out rates over the same period.
• 40% of liquidations are totally assetless, 61% have estimated assets less than $10,000.
93% have estimated dividends of zero6.
4. Where PPB Advisory has made any recovery
5. Inspector General’s 2010 report on Personal Insolvency
6. ASIC Insolvency Statistics Report 225
© PPB Pty Ltd 2011 11
13. PPB Advisory Dividend Research
Major Source of Funds Number %
1 Real Property 4 7
2 Director Funded1 24 41
3 Business Assets 2 12 21
3 Cash at Bank 13 22
3 Preferences 5 9
Total 58 100
Since 1 July 2008 PPB Advisory has paid 42 dividends to creditors in
Official Liquidations
The sample contains 58 sources of funds because several dividends had
more than 1 major source.
1 Director Funded dividends combine sources of Loan Account Recoveries, Insolvent Trading, Asset buybacks, terminations and voluntary
contributions.
2Business Assets combine Debtors, Plant and Equipment and Inventory.
© PPB Pty Ltd 2011 13
14. PPB Advisory Dividend Research
1. Real Property
Whilst the occurrence of Real Property in Official Liquidations is
rare, its value is so material that the prospect of a dividend is high.
Real Property Searches are quick, affordable and accurate.
2. Director Funded
PPB Advisory successfully settles with directors for insolvent
trading, loan accounts, transfers of business and assets together
with many terminations.
These recoveries combine some or all of the above components so
it is not possible or practical to accurately separate these sources.
In order to generate a return to creditors, directors must have
access to one of three sources of funds:
a. Their own assets
b. Company assets
c. Third party assets.
© PPB Pty Ltd 2011 14
15. PPB Advisory Dividend Research
a. Own Assets
PPB Advisory Bankruptcy Scorecard will predict likely recovery
from directors’ personal assets.
b. Company Assets
Often directors may refinance, pledge or sell company assets
to settle with the liquidator.
The Substantial Trading Enterprise test therefore applies to this
category.
c. Third Parties
Third Parties (often related) may provide funds to directors to
generate a return to creditors.
To predict cases where this behaviour is likely, it is assumed
that the directors behave in self interest and will benefit by
procuring funds from a third party (for example, to preserve
the business or with a genuine prospect of repaying the
third party from future profits).
Therefore the Substantial Trading Enterprise test also applies
to this category.
© PPB Pty Ltd 2011 15
16. Pre-Liquidation Tests
3. Substantial Trading Enterprise
The presence of a Substantial Trading Enterprise is the best
indicator that the following sources of funds may exist.
a. Debtors, Plant & Equipment
Book Debts and Plant and Equipment were the most
commonly recovered business assets which generate a
return.
b. Cash at Bank
Usual sources of Cash at Bank are trade receipts, debtor
receipts and business or asset sales. Increasingly these
funds arrive by EFT.
It is assumed that the low cost of realisation of Cash at Bank
is the reason it features so significantly in dividend returns.
c. Preferences
Preference recoveries require the payment of a creditor
within 6 months of the winding up. A trading enterprise at the
date of the petition increases the likelihood of voidable
payments.
© PPB Pty Ltd 2011 16
17. Substantial Trading Enterprise test
Because of a lack of publicly available searches, there is skill
involved in determining whether a company contains a Substantial
Trading Enterprise.
Indicators of Substantial Business Enterprise include:
• Business Premises
• Number of Employees
• Turnover
• Plant and Equipment
• Major Customers/contracts
• Bank Accounts
• Registered Charges/ PPSA Register
© PPB Pty Ltd 2011 17
18. Substantial Trading Enterprise
Creditors are uniquely placed to possess or access significant
information about the trading activities of a company via:
• Credit Applications
• Sales/purchases
• Payment History
• Day to Day Contact
• Statutory Returns (e.g. declarations, BAS etc.)
• Direct enquiry
A challenge for creditors is to make full use of that information in
their recovery processes to make better-informed decisions about
whether there is a Substantial Trading Enterprise and which
companies to wind up.
© PPB Pty Ltd 2011 18
19. Substantial Trading Enterprise
Certain types of company are not likely to have a Substantial
Trading Enterprise, for example:
• Sole employee companies (tradesmen, couriers etc.)
• Labour hire companies
• Deregistered and/or strike-off in progress
© PPB Pty Ltd 2011 19
21. Suggested Law Reform
To remain viable as a means of dealing with assetless companies PPB Advisory
seeks the following changes to Official Liquidation law and practice (in bold)
Task Current Position Desired Position
Lodgement with ASIC Lodgement with ASIC
Notice of Appointment Advertisement in paper Internet advertisement
Issue demand to officer(s) to lodge Issue demand to officer(s) to lodge
If no reply from initial demand, issue a follow up reminder ASIC to follow up officer(s) with compliance notice.
Report as to Affairs
Reporting offence to ASIC and seeking their assistance ASIC to prosecute following compliance notice
On receipt of RATA, lodge with ASIC and Court On receipt of RATA, lodge with ASIC
Prepare and lodge report with ASIC within two months of receipt Not required
Section 476 report (Form 564)
Issue demand on officer(s)/external accountants to deliver books Issue demand on officer(s)/external accountants to deliver books and
and records to Liquidator records to Liquidator
If no reply from initial demand, issue a follow up reminder ASIC to follow up officer(s) with compliance notice
Books and records
Reporting offence to ASIC and seeking their assistance ASIC to prosecute following compliance notice
Investigations undertaken to identify assets, voidable transactions Investigations to be limited to identify assets or voidable
Investigations and offences transactions where the Liquidator forms the opinion that there
will be realisations or recoveries
Report to be lodged with ASIC if investigations identify offences The report should be prepared only where the Liquidator has
EX01 report committed by an officer(s) or company is unable to pay a dividend formed a view that serious offences have been committed
of 50 cents or more to unsecured creditors
Reports prepared in situations where ASIC have requested a Report to be prepared only when fully funded by ASIC
EX02/EX03 reports supplementary report
Required to convene a meeting of creditors to approve Whilst to inform/update creditors, minimum remuneration to be
Reports to Creditors remuneration, compromise of debt or enter into to settlement drawn without resolution of creditors
agreements
Send out the Report to all known creditors Email and website
Report to Creditors is prepared and mailed to creditors containing Notice of Meeting by email and website
Creditor’s meetings the Notice of Meeting
Creditor attendance in person or by proxy Meetings to be held by circular resolutions
To be lodged on every six months on all appointments To be lodged only where there have been transactions
Form 524
© PPB Pty Ltd 2011 21
22. Annexures
PPB Advisory Liquidation Screen – Decision Tree
PPB Advisory Bankruptcy Scorecard
IPA Insolvency Reform submissions to Treasury
Important:This information is not advice.Readers should not act solely on the basis of information contained in this document.We recommend that formal or independent advice be sought before acting in the areas covered herein.May 2011
23. PPB Advisory liquidation screen
Decision tree
1. Company LPI Does company
Yes
search own real property?
No
2. PPB Advisory
Do Directors have Proceed with
bankruptcy Yes
assets? winding up
scorecard
No
3. Substantial
Write off debt No
trading enterprise Yes
24. Risk score card
Debtor name
Referral solicitor
Contact at referral solicitor
Please complete all categories – (Please type in answers in whole, eg TRUE not T)
Category A – Real property Answer PPB rating
Number of encumbered properites
Number of unencumbered properties
Number of caveats on the property (Excluding Caveat by Petitioning Creditor)
Number of caveats on the property by Petitioning Creditor
Number of mortgages over the property
Have proceedings been commenced by the mortgagee? (True or False)
Is the property being rented? (True or False)
Total score (accept if > = 5)
Category B – Income Answer PPB rating
Are you aware of the debtors current employment / income / pension status? (True or False)
Is the debtor’s income between $75,000 and $100,000? (True or False)
Is the debtor’s income greater than $100,000? (True or False)
Is the debtor’s employer a related party? (True or False)
Total score (accept if > = 5)
Category C – Business Answer PPB rating
Does the debtor currently operate a business? (True or False)
What is the nature of the business? (Sole trader = True otherwise False)
Are you are aware of whether the business has unencumbered debtors or plant and equipment?
(True or False)
Total score (accept if > = 5)
25. Category D – Other assets / matters Answer PPB rating
Are there any other assets with a value greater than $10,000? (True or False)
Is the debtor a vexacious / litigious person? (True or False)
Is the debtor self represented? (True or False)
Number of companies the debtor holds shareholdings?
Total score (accept if > = 5)
Total Score ( Accept Appointment if any Category is >= 5) Answer PPB rating
Total rating - CAT A
Total rating - CAT B
Total rating - CAT C
Total rating - CAT D
Is consent granted?
Contacts
Scott Pascoe Andrew Scott Simon Theobold
Partner Senior Manager Partner
t: +61 2 8116 3202 t: +61 2 8116 3063 t: +61 8 9382 8933
e: spascoe@ppbadvisory.com e: ascott@ppbadvisory.com e: stheobold@ppbadvisory.com
Geoff Granger Warren White Peter Macks
Director Partner Partner
t: +61 2 8116 3224 t: +61 3 9269 4225 t: +61 8 8211 7800
e: ggranger@ppbadvisory.com e: wwhite@ppbadvisory.com e: pmacks@ppbsa.com.au
Mark Roufeil David Leigh
Director Partner
t: +61 2 8116 3000 t: +61 7 3222 6800
e: mroufeil@ppbadvisory.com e: dleigh@ppbadvisory.com
www.ppbadvisory.com
Important: This information is not advice. Readers should not act solely on the basis of information contained in this document. We recommend that formal or independent advice
be sought before acting in the areas covered herein. 00075STAT. April 2011.