tag:theconversation.com,2011:/africa/topics/queensland-nickel-26484/articlesQueensland Nickel – The Conversation2016-07-26T01:18:57Ztag:theconversation.com,2011:article/619122016-07-26T01:18:57Z2016-07-26T01:18:57ZSave or salvage: the real role administrators play in troubled businesses<figure><img src="https://images.theconversation.com/files/131881/original/image-20160726-31178-1w16clk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Successful rescue of a company is the ideal rather than the reality.</span> <span class="attribution"><span class="source">Image sourced from www.shutterstock.com</span></span></figcaption></figure><p>News that Australia’s third-largest pizza chain Eagle Boys <a href="http://www.svpartners.com.au/eagle-boys-voluntary-administration">has been placed in administration</a> suggests a bleak future may lie ahead for the company. </p>
<p>Administrators have indicated they “are in the process of identifying restructuring measures”. But <a href="http://www.arita.com.au/docs/default-source/tts/tts-2013-wellard-final-report-for-arita-website.pdf?sfvrsn=0">research</a> by ARITA’s Mark Wellard (formerly from QUT) on the effectiveness of voluntary administration indicates that a sustainable rescue is generally achievable in only a minority of cases. </p>
<p>Indeed ASIC has <a href="http://www.pc.gov.au/inquiries/completed/business/report">reported</a> that failure rates of companies entering into voluntary administration are high, with 78% of companies being de-registered within five years.</p>
<p>The <a href="http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s435a.html">Corporations Act 2001 (Cth)</a> makes it clear that the main objective of voluntary administration is to rescue an insolvent company, or as much of its business as possible. </p>
<p>Successful rescue of the company or its business is in the interests of a wide range of stakeholders, including the company’s employees, creditors, shareholders as well as the community in general.</p>
<p>If a company or its business cannot be rescued, then the voluntary administration regime is designed to achieve better outcomes for the company’s stakeholders than would otherwise be achieved if the company was immediately wound up.</p>
<p>The notion of rescue is commendable. But the second objective of voluntary administration of salvaging better outcomes for all stakeholders is more achievable. </p>
<p>Wellard suggests that the weighted average dividend paid to unsecured creditors is generally much higher than would otherwise have been achieved if the company was wound up. </p>
<p>When tested on a sample of <a href="http://asic.gov.au/regulatory-resources/insolvency/insolvency-for-creditors/creditors-deed-of-company-arrangement/">Deed of Company Arrangements</a> (DOCAs), the average dollar median dividend return was 5.4 cents in the dollar, compared to an expected dividend of zero had the companies surveyed been wound up. It is not surprising, therefore, that most voluntary administrations appear to be of a <a href="http://www.arita.com.au/docs/default-source/tts/mark-wellard-aij-doca-review.pdf?sfvrsn=0">“quasi-liquidation”</a> nature.</p>
<p>Within the insolvency profession there is a <a href="http://www.pc.gov.au/inquiries/completed/business/report">view</a> that Australia’s insolvency regime tends to punish and stigmatise corporate failure, resulting in a lack of restructuring culture in Australia. This is exacerbated by companies waiting too long before entering into voluntary administration, meaning there is little remaining of a company’s trading or income-producing business to rescue.</p>
<p><a href="http://www.pc.gov.au/inquiries/completed/business/report">Additional factors </a> that also put at risk the successful rescue of a company or its business include the actions of receivers in enforcing priority debt claims by selling key company assets, the company’s inability to access financial support to trade out of corporate insolvency, and the risk of personal financial liability in attempting corporate or business rescue.</p>
<p>The fate of two recent high profile voluntary administrations give us some insight into how these factors interrelate.</p>
<h2>Dick Smith Holdings Ltd</h2>
<p>Dick Smith was <a href="http://www.mcgrathnicol.com/app/uploads/Media-Release-5-January-2016.pdf">placed into voluntary administration</a> on 4 January 2016. Shortly after this, Ferrier Hodgson was appointed as <a href="http://www.ferrierhodgson.com/au/creditors/dick-smith-holdings-limited-and-associated-entities">receiver and manager</a> by the company’s secured creditors with the aim of selling the business as a going concern.</p>
<p>By 25 February 2016, Ferrier Hodgson <a href="http://www.asx.com.au/asxpdf/20160225/pdf/435c73y138nrst.pdf">announced</a> the closure of all remaining Dick Smith stores in Australia and New Zealand as the business sale process had resulted in no acceptable offers. The closure of Dick Smith stores meant job losses for 3,300 employees and effectively ended any opportunity for the voluntary administration to achieve any corporate rescue objectives.</p>
<p>Arguably the most <a href="http://www.abc.net.au/news/2016-01-06/dick-smith-workers-deserve-answers-nick-xenophon/7071740">controversial aspect </a> of the Dick Smith saga was the post-Christmas <a href="http://www.ferrierhodgson.com/au/-/media/ferrier/files/documents/corp-recovery-matters/dick-smith-holdings-limited-and-associated-entities/press-release--ferrier-hodgson--dick-smith-holdings-january-2016.pdf">announcement</a> that pre-purchased gift cards could not be honoured by the Dick Smith stores. Unfortunately, the <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Dick_Smith">Senate inquiry</a> established to examine the issue lapsed due the federal election’s double dissolution. However, as the Turnaround Management Association Australia Ltd noted in its <a href="https://www.turnaround.org.au/documents/Sub4_Turnaround_Management_Association_18.03.16_2.pdf">submission</a> to that inquiry, the most effective way of protecting the holders of gift cards, and indeed all stakeholders of distressed companies, is to maximise the possibility of business rescue.</p>
<h2>Queensland Nickel</h2>
<p>Queensland Nickel was placed into voluntary administration on 18 January 2016. At that time QN was insolvent and its administrators determined the company had been so since at least 27 November 2015. This was the date that QN’s key logistics supplier withdrew from debt negotiation arrangements and issued a demand for payment of its total debt of $11.9 million.</p>
<p>Delay in entering voluntary administration impacted QN’s ability to access financial support. This led to QN’s administrators recommending that it was in the interests of creditors for QN to be liquidated.</p>
<p>Placing QN into liquidation ensured that a number of questionable transactions made by QN with related parties could be investigated. It also meant that <a href="http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s588h.html">insolvent trading provisions</a> could be pursued against the company’s directors (which include former politician Clive Palmer). With the benefit of hindsight, liquidation was the more efficient outcome for QN creditors than voluntary administration.</p>
<p>The <a href="http://www.pc.gov.au/inquiries/completed/business/report">Productivity Commission</a> recently recommended that Administrators <em>must</em> convert a voluntary administration to a liquidation if, within a month of their appointment, the Administrators do not reasonably believe that the company or a significant part of its business is viable. </p>
<p>This recommendation is meant to encourage directors to enter into voluntary administration sooner when corporate rescue is more achievable. In the interests of achieving sustainable company or business rescue early adoption of this recommendation should be considered.</p>
<p>As for Eagle Boys, the <a href="https://insolvencynotices.asic.gov.au/browsesearch-notices/notice-details/Eagle-Boys-Dial-A-Pizza-Australia-Pty-Limited-003169391/e1fb0bd0-456b-4572-b60e-dc50c777bcb4">first creditors meeting</a> will be held later this week. Until then, it is far too early to predict with any certainty as to whether voluntary administration will result in a successful business restructure.</p><img src="https://counter.theconversation.com/content/61912/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The appointment of administrators too often leads to the demise of a company anyway. Salvaging rather than saving might be best.Jennifer Dickfos, Lecturer in Business Law and Corporations Law, Griffith UniversityCatherine Brown, Lecturer, Business Law, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/578792016-04-15T02:51:42Z2016-04-15T02:51:42ZVIDEO: Michelle Grattan on Clive Palmer<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/3DQcM5AbOgE?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
</figure>
<p>An administrator’s report into Queensland Nickel released earlier this week suggests that Clive Palmer may have acted as a shadow director of the company before hundreds of workers were sacked. </p>
<p>University of Canberra Deputy Vice-Chancellor of Education Nick Klomp and Michelle Grattan discuss how it all went wrong for the businessman-turned-politician. Meanwhile, as parliament prepares to return next week, the government has been dropping hints about what can be expected in the May budget.</p><img src="https://counter.theconversation.com/content/57879/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>University of Canberra Deputy Vice-Chancellor of Education Nick Klomp and Michelle Grattan discuss how it all went wrong for Clive Palmer.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/576422016-04-12T20:11:54Z2016-04-12T20:11:54ZWas Clive Palmer a ‘shadow’ director of Queensland Nickel?<p>As Clive Palmer disputes his involvement in recent money-making decisions of Queensland Nickel, the administrators of the business <a href="http://www.abc.net.au/news/2016-04-12/clive-palmer-queensland-nickel-liquidation-administrators-credit/7318586">have released a report</a> which implicates Palmer as a “shadow” director. </p>
<p>The report, which recommends the business be placed in liquidation, asserts that directors in the company may have contravened sections of the Corporations Act and the report has been referred to the Australian Securities and Investment Commission (ASIC), with the possibility Palmer may have committed criminal offences.</p>
<p>The issue of whether Palmer can be defined as a “shadow” director in Queensland Nickel is important as it goes to his personal liability for the debts arising from trading while insolvent. Administrators state in the report Queensland Nickel became insolvent on November 29 and remained that way until their appointment in January this year. Sacked staff are owed A$73.9 million while unsecured creditors are owed A$151.2 million and party related creditors A$546 million.</p>
<p>Palmer has strenuously denied he was a director in the company, although he has admitted to being part of a committee that approved expenditures. He has also admitted to the use of email alias when communicating with the company, but denied it was used to disguise his involvement with Queensland Nickel.</p>
<p><a href="http://www.austlii.edu.au/au/cases/cth/FCAFC/2012/6.html">In the eyes of the law</a>, there is no difference between a director formally appointed, shadow director and a de facto director. A company director, whether formally appointed or not, has the duty to act in good faith; in the best interests of the company; to exercise care and diligence; and to avoid all conflicts of interests. </p>
<p>Australia’s insolvent trading laws, applicable to directors (including de facto or shadow directors), are widely regarded as one of <a href="http://www.supremecourt.wa.gov.au/_files/Insolvency_Practitioners_Assoc_National_Conference_28May09.pdf">the most stringent in the world</a>. As part of the deterrence regime, directors may incur civil or criminal liability. </p>
<p>Directors are potentially liable to a fine, a disqualification order leading to being banned from management and compensation orders for corporate loss. Criminal proceedings are reserved for offences linked to fraud and dishonesty and may lead to prison terms for up to five years. </p>
<p>So the stakes are high and it hinges upon the basic, but fundamental question – who is a company director?</p>
<p>The term “director” is defined under section 9 of <a href="http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s588g.html">the Corporations Act</a> which defines a director as a person who:</p>
<blockquote>
<p>“is appointed to the position of a director; or unless the contrary intention appears, a person who is not validly appointed as a director if:
(i) they act in the position of a director (de facto director); or
(ii) the directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes (shadow director)”</p>
</blockquote>
<p>Thus, a person may be a director even without any appointment to that position. The reason for such an expansive definition was given in the case of <a href="http://www.austlii.edu.au/au/cases/cth/FCAFC/2012/6.html">Grimaldi v Chameleon Mining NL</a>:</p>
<blockquote>
<p>“…contrived so as to enlarge the classes of persons concerned in the management and affairs of a company, upon whom legislative standards and liabilities ought to be imposed.”</p>
</blockquote>
<p>So the net for potential liability as a director is deliberately cast very wide.</p>
<p>In unlocking the definition of director, the Court in the Grimaldi case held that the definition applies as much to a person who is a true usurper of the functions of a director in a company. </p>
<p>By law, when considering whether someone is a director, the court considers whether the person has been acting in a role (or roles) within the company and performing functions that would usually be performed by a director of that company given its circumstances. It takes into account that the roles and functions performed will vary with the commercial context, operations and governance structure of the company. </p>
<p>This means the way in which Palmer ran his operations at Queensland Nickel may determine whether or not he is defined as a shadow director. The law shows that the critical focus in the case of Clive Palmer and Queensland Nickel is likely to be on his conduct in the company, not his title.</p>
<p>For a court to conclude that Clive Palmer’s involvement in Queensland Nickel falls within the following description of shadow director, <a href="http://swarb.co.uk/in-re-hydrodam-corby-limited-chd-1994/">it will have to show that:</a></p>
<blockquote>
<p>“He [or she] lurks in the shadows, sheltering behind others who, he [or she] claims, are the only directors of the company to the exclusion of himself [or herself].”</p>
</blockquote>
<p>If the evidence shows that an outside person, such as Clive Palmer, called the shots at Queensland Nickel and that management was accustomed to acting to his instructions and will, the court is more likely to decide he was a shadow director. Judicial precedent shows that there must be a causal connection between the instructions or the wish of the shadow director and others acting on it.</p><img src="https://counter.theconversation.com/content/57642/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anil Hargovan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Clive Palmer denies being a shadow director of Queensland Nickel, but in eyes of the law, it will be his involvement in business decisions that matters.Anil Hargovan, Associate Professor, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/576002016-04-11T14:09:53Z2016-04-11T14:09:53ZPalmer’s antics over Four Corners reinforce the message about how he operates<p>In his typical blustering manner, Clive Palmer, having refused every attempt to persuade him to participate in Monday’s ABC Four Corners – an expose of his controversial business affairs and overbearing political style – then demanded to appear live on the program.</p>
<p>Ahead of the airing both Palmer and Four Corners took to social media – in his case to complain, in its case to explain.</p>
<p>Palmer knew the program only did pre-recorded interviews. His outburst was just his latest attempt at bluff and bombast. But he did score an invitation to appear on Lateline immediately following Four Corners.</p>
<p>The Palmer story is one of the most remarkable in recent federal politics.</p>
<p>In the space of months in 2013 he built his Palmer United Party (PUP) from nothing. It won a Senate seat in each of Queensland, Tasmania and Western Australia, as well as his own House of Representatives Queensland seat of Fairfax. A negotiated alliance also promised to bring Australian Motoring Enthusiast Party senator Ricky Muir into Palmer’s orbit.</p>
<p>Palmer’s electoral surge came from the combination of a huge spend on blitzkrieg advertising, and a larger-than-life personality who was a magnet for the media. Although he had been around politics all his life, Palmer was seen as the colourful, outspoken, frequently outrageous outsider.</p>
<p>When the new Senate commenced in July 2014, PUP had a commanding position within the eight-strong non-Green crossbench. It quickly made its voice felt in opposition to key measures from the 2014 Hockey budget. In October 2014 Palmer did a deal with the government to support its Direct Action climate policy in which the quid pro quo was the preservation of the Climate Change Authority.</p>
<p>But as suddenly as Palmer’s political empire appeared, it fell away. Jacqui Lambie and Glenn Lazarus became independents, in November 2014 and March 2015 respectively. The Muir alliance came to nothing. Only WA’s Dio Wang remains a PUP senator. Palmer, if he stands there again, will lose Fairfax. He is now seen in political terms as a joke or worse.</p>
<p>It’s little wonder Palmer wanted to create a diversion around Monday’s Four Corners, which documented his activities reaching back to the 1980s, with interviews that portrayed a man who has used and abused, courted and trashed, many of those he has dealt with in business and politics.</p>
<p>The most recent, and rawest, episode in his tumultuous business career is the collapse of Queensland Nickel, with the sacking of hundreds of workers. Palmer’s attempt to distance himself from responsibility, and the fact that more than A$20 million had been donated to PUP have increased the anger and rancour of former workers.</p>
<p>Four Corners said Palmer approved purchases worth millions of dollars while he was not a listed director of the company. The Australian Securities and Investments Commission is investigating whether he was a “shadow director” – someone who has the same obligations as a formal director. </p>
<p>The administrators’ report into Queensland Nickel is imminent.</p>
<p>Palmer told Lateline that he was not acting as a shadow director. He said Queensland Nickel was manager of a joint venture made up of two companies of which he owned 100%, and he was on the six-person joint venture management committee that approved expenditures. “We are talking about buying things over $500. We are not talking about the running of the company,” he said.</p>
<p>Despite his early insistence that he was retiring from business when he entered politics, Palmer never did so. And anyway, the controversies from his earlier business past would inevitably continue to dog him, put under a brighter spotlight when he became a national political figure.</p>
<p>Palmer brought his capricious business style to his political operations.</p>
<p>Lazarus told Four Corners that Palmer would “rant and rave”, berating and yelling, which amounted to “a form of bullying”. “It was Clive’s way or the highway.”</p>
<p>He treated his tyro senators as vassals. Dealing with personalities like Lambie and Lazarus, this was always likely to end in tears.</p>
<p>Politically, the disintegration of Palmer’s power is a tale of overreach containing the seeds of its own destruction.</p>
<p>But, though PUP may be a busted flush now, its spectacular rise is a salutary story about the way that enough money and publicity can make an extraordinarily potent political cocktail, at least for a while.</p>
<iframe id="audio_iframe" src="https://www.podbean.com/media/player/7nrs8-5e34b0?from=yiiadmin" data-link="http://www.podbean.com/media/player/7nrs8-5e34b0?from=yiiadmin" height="100" width="100%" frameborder="0" scrolling="no" data-name="pb-iframe-player"></iframe><img src="https://counter.theconversation.com/content/57600/count.gif" alt="The Conversation" width="1" height="1" />
In his typical blustering manner, Clive Palmer, having refused every attempt to persuade him to participate in Monday’s ABC Four Corners – an expose of his controversial business affairs and overbearing…Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.