Despite all the bleating by class-action lawyers and the Australian Shareholders’ Association, the decision by the federal government to overturn the Sons of Gwalia High Court decision is no great disaster.
Indeed, it would represent a small step back compared with the large step forward that the government appears likely to take on shareholder rights if it adopts the Productivity Commission’s 17 recommendations on executive pay.
Business Spectator has a good summary today of the media favouritism played by minister Chris Bowen with The AFR, which has possibly driven some of the more adverse commentary elsewhere today.
IMF is the world’s biggest and most successful specialist listed litigation funder and its statement on the Sons of Gwalia decision yesterday seemed fairly relaxed, especially if there isn’t any retrospectivity.
That said, IMF shares did tumble 15% yesterday before recovering 4c to $1.69 this morning, which still leaves it capitalised at more than $200 million.
The Sons of Gwalia decision was certainly useful in terms of being able to spread shareholder activism tactics into insolvency situations.
As the proud owner of 1 share in ABC Learning, I was able to turn up at the first creditors’ meeting in Brisbane 14 months ago and claim to be a “contingent creditor” citing Sons of Gwalia.
Once in the room as a creditor it was then possible to get on the creditors’ committee along with the big banks owed more than $1 billion and various other genuine creditors such as the ATO and staff seeking entitlements.
IMF also got itself on the creditors’ committee and has now agreed to spend more than $1 million funding public examinations of ABC Learning directors in Brisbane and Sydney, with the idea being to overturn the bank charges and security, some of which were registered at the proverbial five minutes to midnight.
I was the person on the creditors’ committee who moved the resolution that we sign up with IMF and the big bank representatives remained silent given the obvious conflict of interest.
The only reason for telling this story is to agree with minister Bowen that debt and equity should be treated separately. What on earth is the owner of one lousy share doing participating in decisions relating to debt and creditors in a major corporate collapse?
The banks are going to write off more than $1 billion on ABC Learning and they should rank unconditionally ahead of shareholders who have lost the lot and should move on.
While Australia does have a punitive big bank cartel that gouges customers mercilessly in providing the world’s most expensive banking system, the answer is not to blur issues of debt and equity.
Given our excessive consumption and massive current account deficit, Australia is acutely depending on foreign capital, debt and equity.
And given that so much of the Aussie farm has already been sold to foreign interests, it is clearly vital that we retain the confidence of foreign lenders who are now owed almost $1 trillion.
Providing lenders with certainty is a perfectly reasonable policy goal of the federal government, especially just after a global financial crisis where debt finance became scarce and expensive.
That said, having drawn a major distinction between debt and equity, Bowen ought to take another major step down that path and start a debate about whether our big banks should also be our biggest equity managers.
When Centro collapsed, CBA was one of its biggest lenders with more than $1 billion on the line, plus its biggest equity investor courtesy of the $600 million stake it managed on behalf of millions of Australian through its Colonial division.
If you truly believe in a church and state separation between debt and equity, then this sort of situation is clearly untenable.
By all means shore up the position of debt providers, but at the same time the federal government should tell the Big Four banks to get completely out of the equity allocation game.