Warning on debentures

Press, 24 June 1986, Page 23

Warning on debentures

A lack of security surrounding floating charge debentures could have serious consequences for commercial development in New Zealand, an insolvency expert has warned.

Mr Fred Watson, a partner in accounting firm Peat, Marwick, Mitchell and Company, told the Waikato-Bay of Plenty branch of the New Zealand Society of Accountants in Auckland that the financing instrument was being battered by bureaucracy.

Until two decades ago the claims a receiver had to meet before claims of the debenture holders were limited to such basic areas as sales tax, wages, holiday pay, the costs of trading on, and the receiver’s fees, said Mr Watson.

Now preferential claims included PAYE tax, unpaid sales tax, union fees, and redundancy pay. And GST would soon join the list. "Such is the potential

weight of preferential claims that future lenders on floating charge debentures could well reduce available funds unless substantial collateral security is available,” he said.

“If the floating charge debenture is to have a future, then representations to the Government from a wide cross-section of the business community are necessary.” He told the meeting that the increase in corporate collapses in the present economic climate was making the receiver’s task increasingly difficult.

Receivers even had to deal with commercial "lawlessness”.

Some members of the commercial community, practising the rule of ."possession is nine points of/he'law,” were doing all they Should to thwart a receiver by using every honest and dishonest means available to get possession of goods.

"By this I mean theft and the use of heavies to threaten management, and in some cases they successfully steal goods to which they have no title.”