After the collapse of the Bond financial empire a joke went around about Alan Bond. It was said that if Bond had been captain of the Titanic he would have come over the public address system with the message: “”Passengers. There is no cause for alarm. We have just stopped a moment to take on some ice.”
The joke tells more about the character of the man than the fate of financial empire. It is one of irrepressible optimism in the face of overwhelming odds, and one of being able to persuade people to trust him _ which is the foundation skill of the deal-maker.
Occasionally, it comes off. As it did with the America’s Cup and sundry other early financial adventures. Other times it looks like more like delusion than optimism.
This week he was at it again. He appears to have reached a settlement with the creditors of his family company and is likely to reach a settlement over his personal bankruptcy and therefore be discharged from it very soon.
“”I think it is important for Australia that we stop looking backwards and get on looking at the future, and put the past behind these issues, and let’s see if we can’t go out there and create some jobs for people,” he said.
That was the delusionary optimism. But it indicates that Bond wants to go back into business. How can this be?
It can be explained partly by the man’s skill in persuading people to travel his way. He has clearly done this with the creditors of his family company Dallhold Investments, and he is about to do it with his personal creditors. It can also be explained partly by the way bankruptcy law works in Australia.
The very policy of the bankruptcy laws is to enable the bankrupt to get a clean slate so he can go back into business.
Broadly what happens is as follows. If a debtor, such as Bond, cannot pay his debts as they fall due a creditor can petition for bankruptcy. Upon the court making an order the “”estate” of the bankrupt is “”sequestered”. That means the trustee in bankruptcy becomes the legal owner of all Bond’s assets. The trustee usually liquidates the assets and pays the creditors in equal proportion to the amount each is owed. In Bond’s case this looks like being as low as one cent in the dollar.
The debtor is entitled to keep clothes, a modest car and furniture, tools of trade and some life-insurance policies (this is important in the Bond case).
In most small-time bankruptcies the assets are easily identified. In Bond’s case, however, they were not.
Often, debtors see the writing on the wall early and start giving assets to relatives and mates, or selling assets to them at hugley discounted rates, in the hope that they will look after the debtor later on _ a bit like the parable of the unjust steward.
Under bankruptcy law, however, the trustee can sometimes get hold of assets the debtor has attempted to spirit away. This is called the doctrine of relation back.
It means that unless you are what lawyers call “”a bona fide purchaser for value without notice”, the trustee can say, “”Hoy, we’ll have that BMW the debtor sold you for $500 back here to be applied for the benefit of the creditors. And if you want your $500 back you can form an orderly queue with all the other creditors and get a few cents in the dollar.”
This doctrine of relation back can go back a long way, especially with gifts to family. To keep a gift the family member has to show that at the time the debtor could pay his debts and that the transaction was genuine.
It is fairly well known that Bond was a generous man to his family: wife, Eileen, and sons Craig and John. He gave them several million dollars worth.
Of course, their natural love an affection would dictate that after all this nasty financial collapse is over they would help the head of the family _ much to the creditors’ chagrin.
The question for the trustee and the creditors is whether it is worthwhile chasing these assets. They would get legal resistance from the Bond family.
Would it be worthwhile for the trustee and creditors in the personal bankruptcy to chase all of Bond’s superannuation and life-insurance policies? Bond would offer a legal fight.
So in steps Bond the deal-maker to make the best of the sinking Titanic. But how can a bankrupt be in a position to make a deal?
Bond has only one thing going for him. He can be a spoiler. He can legally fight until there are no assets left. The creditors know this. So he offers $7 million in family “”relation-back” assets to the family company creditors who are owed $500 million and he offers about $4 million in superannuation and other assets to his personal creditors whom he owes about $600 million. The former have accepted. The latter will vote today.
To be accepted 75 per cent in value and 75 per cent in number of creditors have to be in favour. (It pays to have a few big creditors rather than a lot of little ones.)
And Bond will walk away discharged from bankruptcy and with all liability for the old debts expunged _ even if he wins Tattslotto the next day. But Bond does not have to win Tattlotto to bounce back. His family can look after him with the remaining money they have accumulated over the years through Bond’s generosity.
You have to wonder about the bankruptcy law.
Every business cycle, the bankruptcy law is changed with the same broad principles in mind: debtors should pay as much as they can without being so crippled they can never start a new life; procedures should enable the quick gathering together of the debtors property to make it available to creditors; creditors should be treated equally; debtors who behave decently should have their debts expunged and be given the chance to start again from scratch.
Every business cycle, there are always some who end up not quite having to start again from scratch _ like Bond.
It has been an infuriating week for many Australians who have struggled through the recession _ a recession they have good grounds for believing was caused or at least made worst by the flying entrepreneur. They cannot fathom how people who have borrowed huge sums can get away not only with not repaying them, but to be seen on television driving expensive cars, or climbing into the passenger seats of a mate’s Rolls Royce, or returning respirator-free to the Majorca mansion.
It is especially galling when some of those people have been thrown out of their ordinary suburban homes because they cannot repay the debt caused by the high interest rates these high fliers contributed to.
In Bond’s case part of the reason is that bankruptcy is administered in a commercial climate not a moral one.
One of the corporate creditors was quoted as saying: “”We will be taking a totally commercial approach in the best interests of all our shareholders. There has been a huge amount of money spent already. There hasn’t been any great return.”
Indeed, $3.5 million has been spent on the Bond bankruptcy so far.
Bond appears to have cleverly played on creditors’ fears of losing what is left in legal fees. He knows that in the commercial environment, few will want to throw away even one cent in the dollar just to have the moral satisfaction of making sure Bond does not get away with it _ that will not help the bottom line.
The trustee, Robert Ramsay, however, will tell the personal creditors that he thinks there are some more Bond assets out there to be gathered in. Earlier this year, Ramsay filed a creditors’ resolution that Swiss banker Jurg Bollag should be pursued to see if he has any Bond assets. The ABC’s Four Corners asserted that Bollag had helped bankroll Bond’s legal fees in his bankruptcy fight.
Presumably, Bond will try to persuade creditors that the pursuit would be a fruitless waste of money. If his performance with the Dallhold creditors is anything to go by, he will succeed.
You have to question whether 75 per cent of creditors should be allowed to settle a bankruptcy. There is an over-riding public interest in whether a debtor should be forgiven debts (for that is what it amounts to) that transcends the creditors’ interest. There are some public-interest protections in the law that enable the trustee to reimpose the bankruptcy in some circumstances, but maybe a trustee should have a veto in some cases where he suspects, as in this case, there are further assets available to the debtor. The trustee highlighted that suspicion in an application to the Federal Court earlier this year.
Maybe, however, no amount of law or trustee power will be a match for irrepressibly optimistic, skilled deal-makers like Bond.
The optimism and deal-making seem to go hand in hand. If a deal falls through he can make another deal later.
They feed on each other: he just keeps on making deals in the knowledge that sooner or later one will come off.
He has optimism where other have despair. Bond wrote a circular letter from jail in 1992 saying, “You can be assured my spirit is strong and my determination is not diminished.”
He was serving a sentence for concealing a $16 million success fee paid by the failed Rothwell’s merchant bank, but the conviction was quashed after he served 90 days. Bond still faces trial over the 1989 purchase of a $5 million Monet painting.
But he has said he is not concerned about it. The charmed life of the optimist cannot be repressed. The question of whether it is right or not doesn’t come into it.