Here is a interesting dilemma and I'm interested in ideas about the legal and humanistic issues rather than the strict legal aspects of liquidation. Person I know paid a deposit on land. They and 20+ buyers encountered a dodgy developer who has literally stalled on completion. Its developed to within 10% of title being given but the banks patience has run dry. An administrator has been appointed to the company. Its assets are greater than liabilities. But its technically insolvent and Directors could be facing penalties. Administrator has secured creditor (Bank) and unsecured creditors incl potential buyers etc. Remaining costs to complete are $400K and the secured creditor has agreed it will lend more $$ to complete subject to a number of conditions. One option is Deed of Company Arrangement for the administrator to do this - They say they dont recommend this. Here is the kicker... The administrator says preferred option is to liquidate. To liiquidate the same outcome occurs - Bank lends more $$ and the project completes. This means all buyers contracts COULD be torn up and property then sold to new buyers. Could the liquidator honour these contracts ?? I belive not. So the bank would appoint liquidator and it would sell the land for MORE value than the present contracts made 2 years or so ago. Bank still only gets its debt paid so the winner is the company shareholders (Director and his entities). Buyers all get deposits back but they lose on the expected value of the land and its replacement ($150K loss to each lets say)....So the bank can basically screw all the contracted buyers and get not a cent more. The only losers are the land buyers - all because of the bank. Question is this - Anyone know if a bank will exercise discretion to NOT liquidate for the interest of other parties or will they just screw the mum and dads and get the exact same $$ they would get if they ensured the administrator completes the development ?? The bank is the major proven creditor and seem it may control all votes.... Its Westpac
Having worked in commercial banking, including credit departments, the bank will have very little concern for either the borrower, or the other parties. They will focus on purely the quickest, safest way to recover their money. Their only concern will be in protecting the interest of their shareholders. Just my experiance. Blacky
Same either way. One is bad publicity other is not. Problem is one of public interest. Timeframe identical. Problem is really whether bank seek to ignore public interest as a moral ethical issue. It wont change shareholders one cent. Do they the F7c$ over the public or their former customer who put them here and in doing so harm the stakeholders ?
They will pick the safest alternative. If, on the face of it, both choices provide the same risk/financial outcome, they would probably choose the 'ethical' option - the decision wont be based on the ethics of it though, but the potential for bad press. However, if the ethical option comes with added risk or time, they will most likely recover their money, and tell the stakeholders to seek damages from the bankrupt party. They have no contractual or legal obligation to the stakeholders. Bad press will be forgotten, and they will counter that its not their fault the the customer defaulted. The other stakeholders will have no claim against the bank, so it probably wont enter their thought process. I may be wrong though, It was a while since Ive been in banking (largely due to the above attitudes)... maybe things have changed. Blacky
