Sunday, June 01, 2008

Sunday Essay - Opes Prime

It is only a week since KVD brought up the matter of Opes Prime in a comment on Saturday Morning Musings - the burden of compliance. That post focused on the general problem created for Australia by, as I saw it, the ever-growing burden of over-regulation.

KVD had a more immediate concern, the failure of compliance including disclosure in the Opes Prime case by, among others, the ANZ Bank. KVD was not an Opes Prime client. Rather, he felt a sense of outrage at what he saw as unethical behaviour, at the failure of our system to prevent it.

I picked up KVD's comment on Monday in Monday Postscripts - Henson, driving licenses, Opes Prime and problems with compliance, if still in a broader context. KVD responded with further comments and an email amplifying the reasons for his outrage. I responded on Saturday in Saturday Morning Musings - blogging, Opes Prime and a flight of swallows. This drew further comments, including one from Legal Eagle. LE is a she, by the way, KVD.

I have given this history for one reason. I had not focused on Opes Prime until KVD's first comment. As the discussion evolved, I began to get a feeling for the issues, but I did not see the real significance of all of KVD's points, including the question of title, in part because I was still coming at the issue in another way.

As I was writing my Saturday Morning Musings, the Sydney Morning Herald was publishing a series of articles on the Opes Prime case. I did not see them until KVD drew my attention to them in the evening. They confirm in graphic fashion the concerns and issues that he had first raised a week before.

The core article, Bank told of fraud risk, was written by Michael West. It traces the chronology of the last days of Opes Prime as the ANZ Bank maneuvered to protect its interests to the apparent detriment of everyone else.

Mr West's long article is very clear and makes for fascinating reading. In another story, Mr West indicates that the ANZ Bank has made an offer to the Opes Prime administrator of 62 cents in the dollar for Opes Prime creditors. I also discovered from this story that there was a suppression order on The Age, Sydney Morning Herald and Mr West regarding leaked documents.

I am not a lawyer, so I think it wise to limit my comments on the detail of the case. However, if Mr West's interpretation in all this is correct, I do not see how the ANZ Bank can easily extricate itself from the mess it has created, even with its existing offer to creditors.

KVD's core suggestion on the case seems to me to be eminently practical, although there may be hooks in it that I am not aware of. He wrote:

It should be illegal to do what ANZ has done, in the simplest, clearest terms.

Upon declaration of insolvency (administration?) the assets of the entity should be frozen until the receiver/administrator issues the first report. No ability by any party to deal (sell) any asset affected, secured, mortgaged, garnisheed – pick a word.

Now one feature of the Opes Prime case is the presence of both administrators and receivers.

At 4.24 in the afternoon of Thursday 27 March the Opes directors appointed John Lindholm from Ferrier Hodgson as voluntary administrator. At 5 pm that same day the Bank appointed Deloitte as the receiver, invoking the $95 million charge entered into a week before. That over-rode the previous appointment. The next day ANZ and Merrill began the sale of Opes clients shares on the stockmarket.

I remain concerned about the growing problems created by over-legalisation and the burden of compliance. I am also old enough to remember the failures at the end of previous booms and the subsequent legal and regulatory responses. Frankly, it is not clear to me that any of those responses had much impact in preventing subsequent collapses. All they did at one level was to shift the goal posts. Greed, one of our most enduring characteristics, will out.

That said, events in the Opes Prime case do suggest that we need to look again at some elements in corporate regulation. Like KVD, I find some aspects of the case quite repellant.

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