Permanently Burying the Corporate Dead

16 November 2009

Australia’s ability to weather the financial storm of the past 18 months has been nothing short of remarkable, however we should not kid ourselves that the blatant fraud which occurred on the other end of the Pacific has not occurred here.

A high school economics student will tell you that it is impossible for the US and the UK to pay back their debt, they are going to default at some point. We are seeing it now with the devaluing of the dollar and the pound. Infact you look through economic history and governments seem to default on loans more often than they pay them back. All this means that whilst parts of our economy will grow (specifically the resources industry on the back of Asian demand) many businesses will continue to fail, taking down creditors with them .

Remarkably the fines for trading a company whilst insolvent are remarkably small – as little as $1000. And what the company invariably does is declare bankruptcy, do a deal with creditors who will be lucky to see just a small percentage of the money and then create a similar sounding company which owns the same assets. It is called a phoenix company or “to cockroach” and the regulators need to get on top of it.

Dun and Bradstreet research shows that directors who are currently involved in a bankruptcy are 250% more likely to be involved in another in 12 months. The corrupt tour de force taken by some of our directors has been phenomenal. Whether it be directors like David Coe of Allco finance watching the Ashes in England last month with the celebrity Michael Parkinson or the infamous Tim Johnson from Firepower something has to change.

White collar crime needs to be punished hard. These snake oil salesman should never see the corporate light of day again. Sure companies go broke and for legitimate reasons, yet when directors pay themselves huge bonuses and continue to live the high life something is wrong. Something is wrong when Tony Adler and ex cricketer Craig McDermott can park their assets in their wives names after ripping off investors. Something is wrong when you can resign from a directorship due to an ATSIC ruling only to put your wife, mother in law on children in your place.

Our regulatory system is far superior to that of the Americans,  yet improvement is needed. For it was government regulation which bought us this economic mess and if we are to avoid it occurring again better (not more) regulation is required.