One of Australia’s most prominent (and possibly most accident-prone) non-executive directors, Sir Rod “Teflon” Eddington, has finally spoken out about his troubles at Allco and decision to withdraw from assuming the chairmanship of ANZ Bank.
The Financial Review this morning reported that the difficulties at Allco, which last year collapsed under a mountain of debt amid many suspicious, related party transactions, was “one of the things that had made it difficult” for Eddington to accept the ANZ position.
Commenting on the global financial crisis and its effect on Allco, Eddington noted that “we were in a period the like of which we have never seen before, people thought the capital system we knew, it was going to collapse. Some companies got themselves in trouble.”
One of those companies that got itself into trouble was Allco, of which Eddington was a senior, non-executive director and a member of the “Related Party Committee”. (Another was Rio Tinto, of which Eddington also happened to be a non-executive director). It was the job of Eddington, and fellow directors Barbara Ward and “Aussie” Bob Mansfield, to represent the interests of minority shareholders, that was largely because former Allco chairman, David Coe, owned a direct 6% holding in Allco, while the Allco Principals Trust (of which Coe owned 28%) held a further 13% of the company.
In that regard, it could be said that Eddington, Mansfield and Ward did not excel. While the house of cards that was Allco may well have collapsed in any event (the company had accumulated $7 billion in debt and far less valuable assets), the three directors approved the acquisition of property manager, Rubicon by Allco, in late 2007. The acquisition of the doomed company (even before the purchase, the auditors of several of Rubicon’s managed funds warned that the entities may be insolvent) transferred more than $12 million cash into Coe’s pockets and almost $30 million to Rubicon founder and Allco director Gordon Fell.
Not only that, but the independent directors (including Eddington) also approved of the provision of a “line of credit” to the Allco Principals Trust (of which Coe owned a 28% stake). The $50 million credit line allowed the Trust to avoid being margin-called out of its stake in the Allco headstock. Exactly what benefit Allco shareholders received from Allco’s generosity remains to be seen. However, it is understood that ASIC is investigating the matter closely.
To Eddington’s credit, he and Mansfield remained on the Allco board, unlike fellow director and former Keating adviser Barbara Ward, who resigned from Allco and fled to the relative safety of the Qantas boardroom only weeks after approving the infamous Rubicon acquisition. As Eddington noted, “it might’ve been in my interests [to resign] but … if you’re going to be a non-executive director, I don’t think you should run for cover at the sound of gunfire.”