Is our Insolvency Industry a Gravy-train Rip-off ?

[Keithw]

They're our corporate doctors. But do receivers and liquidators deliver the right medicine, or just bleed the patient dry? Karyn Scherer reports.

Some receivers and liquidators responsible for improving the financial situation of a business may be hindering rather than helping those companies by seeking high rates but then providing less than competent services.
....
In cases of serious trauma, their initial job is to stem the bleeding of red ink. But in cases where the patient is clearly beyond saving, they might have to put the company out of its misery, leaving grieving creditors to fight over any remaining assets.
Sometimes, the patient may voluntarily check themselves in for rehab. But that might be just the start of their problems.
Witness the public reaction to the voluntary administration of REDgroup, which in New Zealand includes the Whitcoulls and Borders chains: what has really upset some creditors - and even rival practitioners - is the fact that the senior staff of the Australian company brought in to handle the operation are being paid $830 an hour.

....

But the argument over professional rates is a tricky one, given that not all insolvency practitioners in this country are in fact professionals. Across the Tasman, they are required to have a recognised accountancy qualification, several years' experience at a senior level, further training, and good references.
...

In New Zealand there is no requirement for any qualifications at all, nor is there any registration. It is widely believed that in this country, there are ex-plumbers and ex-auto electricians who are working as financial surgeons.
...
Corporate doctors are often called on to sort out terrible messes, which are often of the business owners' making. But inevitably, some business owners and creditors have horror stories of their own to tell about the corporate doctors. The most common complaints are about conflicts of interest, over-charging, and seemingly stupid decisions.
...
In New Zealand, the statutory managers of Equiticorp are still sorting out the disgraced company's affairs almost 22 years after they were initially appointed. And the more recent collapse of a string of finance companies is seen by some as more likely to benefit the insolvency industry than help hapless investors in the long term.

Rest of the story makes very interesting reading at Granny Herald

[ChrisD]

Honestly that's a bit of a nonsense article. This area of accountancy is highly competitive, and if rates charged were significantly above market the practitioner would find himself out of work. The mention of the very high rates being charged to REDgroup reflect the complexity of the job (and therefore the seniority of the practitioners) and the risk being undertaken by engaging in work for a stuggling business.

The bits of the article which describe the ostensibly unregulated industry are nothing short of misleading. Does anyone really want the government regulating yet another area of our lives? If I decide to use a cut-rate practitioner with no industry certification or no qualifications, isn't that my prerogative? It's very easy to chose a qualified practitioner in New Zealand - the Institute of Chartered Accoutants have very high standards, and require you to be qualified and up to date to practice under their banner.

I see absolutely nothing of merit in that article.

edit: By the way, I'll also mention: if someone has a legitimate issue with the rates being charged by the REDgroup administrators, their anger should be directed at the board of REDgroup who engaged the seemingly expensive accountants, rather than at the accountants who were given the job. You can only get away with so-called "overcharging" if someone is willing to pay.

[Ivan McIntosh]

I've run across mostly good, some bad. One of the biggest insolvency practices in the country is led by a person I would never trust or employ for anything, ever.

Some of the smallest are run by smart competent well intentioned people charging reasonable fees....but others are run by people at the bottom end of the competence chain...capable of selling off assets, but no thinking outside the square and not really up to date with latest pratice. Another breed are the mates of the owners, who restructure to suit their friends and normally need to be turfed out and replaced by chargeholders' receivers.

None of which is very helpful. All you can really do is try to avoid the most obvious rogues.

[Perry]

So, Ivan, where's the black book that tells of
one kind or the other, to guide folks choices?

One of the most perplexing practices of recent
times is the strange hand-written sign-offs on
financial statements. I've oft questioned it, got
no satisfactory answer and the practice seems
to be getting pervasive.

I refer to the hand-written name of the company
being scrawled above the accountancy practice's
name. A picture (example) paints a thousand words.
This sort of thing . . .




Instead of this:



In all cases, when I've asked, there is no one person
called Carter Atmore, or Staples Rodway, or Price
Waterhouse Coopers or . . . . .
.

[Ivan McIntosh]

How interesting.....I haven't seen it done like that before. Clearly I need to read more Annual Reports.......

Under s22 of the Electronic Transactions Act, an electronic signature is ok if it:

...adequately identifies the signatory and adequately indicates the signatory's approval of the information to which the signature relates....

I guess the signature is identifying the signatory as a company or partnership and signifying their agreement.

That's wthout looking into it. Signing in that matter simply isn't an issue that has ever cropped up for me.

[Winston001]

Perry makes a good point. I thought a Receiver was a personal appointment but perhaps that has changed?

[Keithw]

I would have thought more often a Bank appointment rather than personal appointment

[Perry]

It matters not who gets appointed by whom.

This odd-ball sign-off scrawled by a real per-
son purporting to be some bizarre non-person
notion is unfathomable. Does anyone sign their
checks as National Bank, because the cheque
book is issued by that bank?

IMNSHO, financial statements should be signed
off by a real person, as the authorised agent for
the auditor/whoever. It should be something like:

A E Neuman
Bean Counters Ltd.


'Picking' on Price Waterhouse Coopers, does
anyone at all imagine it's likely that one would
be transferred to a real person if a phone call
was made requesting to speak with . . .
Mr Price Waterhouse Cooper?

[CJ]

Why does it matter.

Where the firm is a partnership, each partner is joint and severally liable - this applies to all audit firms and lawyers. Some accounting firms incorporate as a company which can apply to non audit engagements (I assume for limited liability).

Indemnity insurance still applies regardless of who signs or how.

I am not aware of any firm that doesn't use a real person to answer phones. If you state why the job is, the telephonist will most likely put you thorugh to the Manager in charge of the job who will have a much more detailed know of the issue than the partner.

Some jobs have multiple partners working on it and even if they dont, many major issues will be reviewed by a second partner.

So again, why does it matter who puts ink to the paper when in all likelyhood, you couldn't read their signature anyway.

[Perry]

Because a non-signature, the scrawled
name of a company, is not a real person
and is, in essence, mis-representation
in that it identifies no one.

But, let's turn that around. Why is the
person responsible not signing off the
report? And having a name printed be-
neath an illegible signature is common.

Are such reports 'legal documents' in
some sense?
.

[Ivan McIntosh]

A company is a person in legal terms. The company, by affixing its name, is giving notice to the world that it intends to be identified as the entity that signed off the report. A partnership is also a legal entity of sorts...for tax purposes if not much else.

I have trouble seeing signing this way as any less valid than someone signing on behalf of the company or partnership but using their own signature. They're still signing with the intent of binding that entity, not themselves personally. It won't qualify as execution of a Deed, because that has specific requirements, but short of that might be ok.

Notwithstanding that I wouldn't sign something that way, if the reports signed in that fashion were not legal I can't see that they would have gotten past the Companies Office when they are included in prospectuses, as the Companies Office in my experience read prospectuses pretty carefully for legislative shortcomings.

[Ivan McIntosh]

I would have thought more often a Bank appointment rather than personal appointment

Yes, but most business owners will have a second ranking charge over the business in favour of their own interests. So they use these to appoint a receiver. Either that, or they place the company in liquidation with their own accountant doing the liquidation & restructuring.

[Perry]

That leads very nicely to why
bother with a signature at all?

Maybe I should try signing my
next cheque AC Holder? As in
'account holder.'

[Ivan McIntosh]

It's just a mark, you pedantic fellow There is nothing special about it. It could be a "X" and often was. Is a stylised rendering of the organisation name really that much different?

If you change your name to "Andrew Cussedly-argumentative Holder" then you'd be quite within your rights to sign that way


As long as its a mark you chose, and you intend it to indicate to the world that you as an entity have signed something, then I fail to see the philosophical objection. Should a partnership, for example, not be allowed to sign something?

[Perry]

Yes. But only if the partners are all
holding the pen, simultaneously?