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Soft option grows in popularity

SOFT receiverships, and even soft administrations, are growing as an alternative way of recovering funds in a failing venture.

In a soft receivership the bank or creditors can elect to have the existing management team sell off the assets of a failing venture with the aid of a bank-appointed receiver.

The receiver does not actually take control of the company but ensures that the bank is kept up to date with what is happening.

In traditional receiverships the creditors or financiers simply put the receiver in place and he or she takes over the task of either selling the company or breaking it up and selling its assets.

Similarly with soft administrations a bank employee or bank-appointed administrator would sit with the company’s board while it tried to trade out of its difficulties, keeping the bank up to date with progress at all times.

It is understood that part of the move towards soft receiverships and administrations has come from a cultural change in the approach to bankruptcies.

Newman Partners principal Diana Newman said soft receiverships were becoming increasingly common because people wanted to work things out with the minimum of publicity.

“It’s mainly the banks that are doing it but these days we’re getting some directors looking at it,” she said.

“However, accountants are usually reticent to take on a soft receivership or administration if a director has called for it because they fear they could end up becoming defacto directors them-selves.

“With a bank you know the bank has responsibilities to its other customers and its shareholders. With a director he or she could be a guarantor for the company.”

PricewaterhouseCoopers corporate finance and recovery partner Geoff Totterdell said directors were starting to appoint administrators or receivers of their own choosing as a “soft option”.

“However, it is still a formal proceeding,” he said.

Mr Totterdell said he had not been involved in a soft receivership for some time.

“If the banks decide to allow an extended overdraft, they want to know that it is being used for trading and not to retire debt,” he said.

Norgard Clohessy managing partner Bryan Hughes said he had been involved in a number of soft receiverships.

“Whereby the bank is satisfied that it is receiving adequate information, they will opt to pursue this route,” he said.

“It is usually done when the bank feels it has enough security.

“Banks don’t like putting in receivers. It can also be the case that leaving it in the hands of the existing management can result in a better price.”

Mr Hughes said soft receiver-ships and administrations were not that common.

National Bank spokesman Brandon Philips said the bank did not pursue soft receiverships.

“Our normal process is to fulfil the role of a lending institution,” he said.

“Soft receiverships do not sound like any of our practices at all.”

A BankWest spokesman said the bank did pursue soft receiverships if the evidence indicated that it was warranted.

“We look at things on a case-by-case basis and try to minimise any potential loss,” he said.

“We have to have objective outcomes in place. Sometimes trade outs or soft receiverships are a more viable option.

“We’re always trying to get the best outcome for all involved.”

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