Is 2019 going to be a year of chain reactions? Industries to watch - Ivan Glavas MIPA AFA Partner, Worrells Solvency & Forensic Accountants
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Is 2019 going to be a year
of chain reactions?
Industries to watch
Ivan Glavas MIPA AFA
Partner, Worrells Solvency &
Forensic Accountants
1
Disclaimer
All material contained in this paper is written by way of general comment.
No material (including the use of dad jokes) should be accepted as authorative
advice and any reader wishing to act upon material contained in this paper should
first contact Worrells for properly considered professional advice, which take into
account specific situations.
Four themes which could determine the course of Australia’s
economy in 2019
Housing
Financial modelling is pointing to price declines ranging between 10-40%, which would mark
the biggest downturn since the great depression. Australia’s household savings rate is also
historically low, officially reported at just 1%, which doesn’t leave much room to move if
households refocus on paying down debt.
Banks
Australia’s banks have been hit hard, Structurally, Australia’s 25-year mortgage bull market has
come to an end which means less profit for banks as credit growth slows.
.
Source: Business Insider Australia: The 4 Themes Morgan Stanley thinks will determine the course of Australia’s economy in 2019, 4 December
2018; and News.com.au: ‘Let the bloodbath begin’: House prices in Sydney and Melbourne ‘could halve’ in worst crash since 1890s, 20
February 2019
2
Four themes which could determine the course of Australia’s
economy in 2019
Politics
Federal election to be called by May 2019. Tipped to be the most important election for
markets in a decade, “given the substantial policy divergence between the major parties”. Key
debates around negative gearing, capital gains tax and dividend imputation” are creating
uncertainty.
Trade
The US and China have suspended tariffs against each other for now. Will this affect
Australia’s trade with our major trading partner, China?
Source: Business Insider Australia: The 4 Themes Morgan Stanley thinks will determine the course of Australia’s economy in 2019, 4 December
2018; and News.com.au: ‘Let the bloodbath begin’: House prices in Sydney and Melbourne ‘could halve’ in worst crash since 1890s, 20
February 2019
The Banking
Royal
Commission
3
The Banking Royal Commission
• The Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry, also known as the
“Banking Royal Commission” and the “Hayne Royal Commission”.
• Established on 14 December 2017 by the Federal government to
inquire into and report on misconduct in the banking,
superannuation and financial services industry.
Source: Sydney Morning Herald, 4 February 2019
The Banking Royal Commission
• Media reveals a culture of greed within several Australian financial
institutions.
• Parliamentary inquiry recommended a royal commission, noting the
lack of regulatory intervention by the relevant government authorities.
• Claims made that financial institutions were involved in money
laundering for drug syndicates, turned a blind eye to terrorism
financing, and ignored statutory reporting responsibilities and
impropriety in foreign exchange trading.
Source: Sydney Morning Herald, 4 February 2019
4
The Banking Royal Commission
• The Royal Commission conducted seven rounds of public hearings
over 68 days, called more than 130 witnesses and reviewed over
10,000 public submissions.
• Commissioner Hayne submitted a final report to the Governor-
General on 1 February 2019 with 76 separate recommendations.
The final report and the government's response to the report were
made public on 4 February 2019.
Source: Sydney Morning Herald, 4 February 2019
Key recommendations
The Banks:
• Require mortgage brokers to act in the best interests of the
intending borrower, not the bank providing the loan. Breaching this
law would result in a fine.
• Borrowers rather than lenders should pay the mortgage broker for
their services.
Source: Sydney Morning Herald, 4 February 2019
5
Key recommendations
The Banks:
• Lenders would be banned from paying trail commissions to
mortgage brokers for new loans.
• Expand the Banking Executive Accountability Regime laws to track
those responsible for any breach of lending laws.
Source: Sydney Morning Herald, 4 February 2019
Key recommendations
The Banks treatment of farmers and those with poor English skills:
• Establish a national scheme to mediate farm debts.
• Banks would be barred from charging dishonour fees on basic
accounts.
• Amend the banking code of conduct so people in remote areas or those
with poor English skills can access and conduct banking.
• Require banks not to charge default interest on loans secured by farm
land in an area declared to be in drought or subject to other natural
disasters.
Source: Sydney Morning Herald, 4 February 2019
6Key recommendations
The Banks treatment of farmers and those with poor English skills:
• Have banks ensure managers of distressed farm loans are
experienced agricultural bankers. Recognise that appointment of
receivers on a farm loan is a "remedy of last resort".
• Car dealers should no longer be exempt from national consumer
credit protection laws.
Source: Sydney Morning Herald, 4 February 2019
Key recommendations
Financial Advice:
• Create a new disciplinary system for financial advisers, with all
advisers required to be registered. A single disciplinary body would
oversee the system.
• Grandfathered provisions of conflicted remuneration should be
repealed as soon as possible.
• The current cap on commissions for life risk-insurance products
should be reduced and ultimately set at zero.
Source: Sydney Morning Herald, 4 February 2019
7Key recommendations
Financial Advice:
• All remaining conflicted remuneration exemptions should be
referred with a view to banning them outright.
• All banking licence holders be required to report "serious
compliance concerns" about individual financial advisers to ASIC on
a quarterly basis.
Source: Sydney Morning Herald, 4 February 2019
Key recommendations
Superannuation:
• Create A single default super fund for all workers. People would be
"stapled" to a single default account.
• Ban on advice fees deducted from MySuper accounts.
• Advice fees for non-MySuper accounts would be prohibited in most
cases.
• Heavy handed selling of superannuation to be abolished.
Source: Sydney Morning Herald, 4 February 2019
8Key recommendations
Referral to ASIC and APRA for possible action:
• Justice Hayne has referred to regulators a long list of companies
for possible criminal or civil action. The 24 companies include
Suncorp, ANZ, NAB, CommInsure, Allianz, AMP and ClearView.
Source: Sydney Morning Herald, 4 February 2019
Key recommendations
Insurance:
• Heavy-handed selling of insurance products would be banned.
• Funeral expense insurance policies would be defined as a financial
product, bringing it under the oversight of ASIC.
Source: Sydney Morning Herald, 4 February 2019
9Key recommendations
Insurance:
• Impose a cap on the commission that can be paid to car sellers for
add-on insurance products.
• Handling and settlement of insurance claims would be defined as a
financial service.
Source: Sydney Morning Herald, 4 February 2019
Key recommendations
Culture and governance:
• All financial service companies would review at least once a year the
design and features of their remuneration systems for frontline staff.
• All financial companies should assess their own culture and
governance.
Source: Sydney Morning Herald, 4 February 2019
10Key recommendations
The regulators:
• Retain ASIC and APRA but have them overseen by a new
independent authority that would assess the two regulators to
ensure they are carrying out their responsibilities.
• ASIC overhauls its approach to enforcement, with a focus on court
action rather than infringement notices.
• ASIC should continue its annual reporting of breaches of financial
service regulations but in future name the companies rather than just
the type of breach.
Source: Sydney Morning Herald, 4 February 2019
Key recommendations
For those hurt by the finance sector:
• There should be a change to the way community legal groups
helping those with financial complaints are funded, moving it to a
more "predictable and stable" system.
• Compensation scheme of last resort for those unable to receive
financial recompense from their institution.
Source: Sydney Morning Herald, 4 February 2019
11So … who will be affected by the Banking
Royal Commission findings?
THE PERSONAL
INVESTORS
THE FINANCIAL THE RETAILERS
PLANNERS THE HOME
SELLERS
THE INSURERS
THE BUILDERS THE FARMERS
SUPERFUNDS
THE REAL ESTATE
AGENTS
THE BANKS
THE SUB
CONTRACTORS THE SERVICE
THE HOME BUYERS THE MORTGAGE PROVIDERS
BROKERS
THE REGULATORS
THE LAWYERS
12Asset
Protection
Strategies
Asset Protection Strategies
• Know and understand how their business / personal structure
works – have a strong discipline about the manner in which the
structure is administered.
• Carefully read and understand all contractual documentation such
as terms of loans, lease and supply agreements etc – and negotiate
before agreeing to them.
• Limit any personal guarantees – keep a register and put a maximum
limit on any guarantee given.
13Asset Protection Strategies
• Never own assets – transfer any assets you do own as soon as
possible and before taking on any potential risk and have a good
reason for the transfer other than “asset protection”.
• Ensure any asset transfers are for full market value and actual real
consideration (not via journal entries).
• Ensure the at-risk person does not make any direct financial
contributions to assets or servicing of debt – the non-at-risk-person
holding assets needs their own income to service the debt.
How to get the
best results for
your client
14Get the best result for your client
• Clients get themselves in trouble, they come to you after the fact for
help
• Use your relationship with your IP to your clients’ advantage
• Not every conversation with an IP has to result in an insolvency
administration
Get the best result for your client
• Advisors have to help management recognise the need for change
• Advisors have to coach good management practice
• Assist with implementing controls and procedures
• Try to reinforce good practice
• Technology is your friend
15Get the best result for your client
What can your IP do to help?
• The “Crucial Conversation”
• Preliminary advice, assistance and direction
• Distressed refinancing
• Informal consulting arrangements
• Formal insolvency appointments
Keeping your client
• Your most troublesome clients could be your most valuable clients
• If a formal insolvency appointment is necessary, it does not
necessarily result in the loss of your client
• Many clients will be back in business within twelve months
16Keeping your client
• Be pro-active
• Provide options and solutions
• Be realistic
• Manage expectations
• Timing of contact
• Pre appointment meeting
• Structuring advice
• Ask questions if unsure
Protecting your fees
• For substantial clients take a charge over business assets – if
possible
• Get Personal Guarantees from Directors and they take form of an
Equitable Charge over their property
• Get paid up front
17Protecting your fees
• Get paid by a 3rd Party
• Structure your clients payments so that monies are paid in regular
monthly intervals for services yet to be provided (i.e. aim to spread
the annual service fee)
• Get the money any way possible (legally) – then negotiate any
Preference Claim later (if it becomes an issue)
1819
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