Snapshots
News from the industry.
BRW. 21 October 2004

Going for broke

Voluntary administrations are on the rise, but fewer companies are
entering arrangements with creditors to continue trading. This is
because directors have realised they are not protected from legal
action by the Australian Securities & Investments Commission, says
the chief executive of Insolvency Notices, Paul Fordyce. Voluntary
administrations in the September quarter were up 14% year on year,
to 884, but deeds of company arrangement were down 17% nationally to
161.

Fordyce says the Victorian Supreme Court's finding against John
Elliott in the Water Wheel case in May last year is largely
responsible for directors opting for liquidation rather than a deed
of arrangement.

Elliott was ordered to pay a share of $1.4 million, with Water
Wheel's other directors, for breaching the Corporations Act by
allowing the company to trade while it was insolvent. Fordyce
says: "The result of the Water Wheel case is that [directors] may do
a deed of company arrangement but that may not clear their liability
as a director."

Fordyce also believes that the fall in deeds of arrangement is due
to increasing cynicism about them by creditors. "They are getting a
little less willing to accept them. There may be a feeling that
directors are getting off too easily and that the creditors would
prefer to have a liquidation and an investigation into the affairs
of the company."

Also in the September quarter, receiverships were up 74% year on
year, to 141, and appointed controllers were up 49%, to 67. Fordyce
says this is a strong sign that Australia's economy is buoyant.

He says: "Secured creditors will often support or nurture a customer
who is in difficulty because if the economy is bad, and you put in a
receiver and try to sell the business, there are not going to be
many buyers for it and then you crystallise your loss at a much
greater loss."

- Bruce Andrews

This is from the same URL as the previous story
http://www.brw.com.au/fearticle.aspx?docId=28738