Frozen in the moments before disaster, the sun is shining on the happy young couples who beam out from the pages of the RAMS prospectus.

In its pages, investors were promised their own slice of blue sky, a stake in a mortgage business that chairman John Kinghorn said ”offers the potential for substantial ongoing growth in the medium term”.

But the float was doomed. The storm clouds gathered over RAMS less than a month after the prospectus was filed with the stock exchange in July 2007.

The next month, just over a year before the looming global financial crisis would culminate in the collapse of Lehman Brothers, RAMS was forced to admit to a $6 billion debt crisis caused by the freezing of short-term credit markets.

While the speed of RAMS’ downfall earned it a special place in Australian corporate history, at about $735 million in lost shareholder funds it is among the smaller collapses to result from the crisis.

The Australian Securities and Investments Commission estimates that about $66 billion was lost in global financial crisis-related collapses and near-collapses including childcare group ABC Learning, investment groups Babcock & Brown and Allco, shopping centre operator Centro and managed investment scheme operator Timbercorp.

The disaster also called into question the adequacy of Australia’s system of corporate regulation, which since the Wallis Inquiry in 1997 had been based on ”light touch” principles endorsed by both sides of politics.

Despite tough laws against trading while insolvent, many of the key players escaped sanction.

And those same tough insolvent trading rules may also have provoked some of the era’s collapses, according to leading corporate lawyer Leon Zwier.

Zwier, a partner at Melbourne law firm Arnold Bloch Leibler, says the near-collapse of Centro was the most complex of the corporate crises he has been involved in.

It began in December 2007, when Centro revealed it could not roll over $1.3 billion in short-term loans, and ended with a complete restructure, court findings that directors had breached duties and a $200 million class action settlement.

”First of all the structure, with MIS, funds-of-funds, a stapled security, Australian entities, US entities, complex banking facilities at different levels through the structure, bilateral funding, a mixture of external investors – because remember there was joint venture investing and a structure designed to go in drive only and not reverse,” Zwier says.

”Coupled with the fact of regulatory breaches – all the accounts were misstated so you had a quasi-criminal prosecution running at the same time as the work out – a class proceeding by aggrieved shareholders, the debt traded to 80 different hedge funds who we had to manage together with some par lenders. How do you get instructions from 80 different creditors when each one has strong views and different goals? You want global complexity – Centro.”

While many of those who ran or invested in global financial crisis-era failures have moved on, ASIC continues its investigations.

The corporate watchdog is still pursuing civil proceedings in which it is trying to ban Queensland couple Emmanuel and Julie Cassimatis from the financial industry over the collapse of Storm Financial in 2009.

Earlier this month a jury found Opes Prime director Julian Smith not guilty of ASIC charges over his dealings with the ANZ as the stock lender teetered in March 2008. That trial came more than two years after Smith’s fellow directors, Laurie Emini and Anthony Blumberg, pleaded guilty to similar offences.

Charges against ABC Learning founder Eddy Groves were dropped last year. While the fallout from the childcare centre chain’s debt-fuelled collapse led to Groves being declared bankrupt in January, other executives involved in high-profile collapses managed to walk away with much of their personal fortunes intact.

No one from ASIC was available to talk about the regulator’s record and what it has learnt since the crisis.

Former chairman Tony D’Aloisio defended ASIC’s record in a 2010 speech, saying it ”was able to make sound judgments because we went into the GFC well prepared”.

But under his successor, Greg Medcraft, ASIC has increased its powers to take in market supervision, previously the domain of the stock exchange, and clamped down on auditors and other ”gatekeepers”.

In response to concerns that it is too slow to investigate major collapses, the regulator this week said it would ”continue to raise with government law reform concerning our investigation powers and more flexible enforcement tools”.

But for Zwier, there is too much focus apportioning blame after the collapse and not enough on taking measures to save companies – and jobs – at the moment of crisis.

”In Australia there is always this element in corporate failure of pointing the finger at someone for the failure. Often we publicly examine the directors. We hold [them] up to ridicule and contempt in the media for the failure. All of that is part of the cultural problem with our insolvency administrations: they are perceived to reflect failure and not rehabilitation.”

He says insolvency laws have the capacity to paralyse boards faced with the possibility of collapse, putting them in an ”impossible position of conflict because what might be best for the creditors .hs.. might not be best for the directors”.

”The minute they get into financial difficulty and they have short-term obligations that they may not be able to meet, solvency becomes the biggest single issue which the board focuses on,” he says.

”The definition in the Corporations Act is wholly inadequate – it’s something like this: if the company is not solvent then it is insolvent.

”Our insolvent trading laws are so draconian that some workouts might have failed because of those laws.’


Henry Sapiecha

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