allcos courageous four

It’s not often that I devote a commentary to praising a group of non-executive directors and a chief executive for incredible personal courage.

When the politicians passed legislation which made it possible for directors to be held personally liable if their company traded while insolvent, we all presumed that once a listed corporation got anywhere near going broke, non-executive directors with token shareholdings would jump ship and appoint an official administrator. This would have caused share holders to lose everything and creditors to be beaten up.

Allco Finance has just $21 million in shareholders’ funds, and depending on which balance you use, total assets of either $1.4 billion or $7.5 billion. You can boost the shareholders' funds by about $100 million by using some possible unrealised aviation and shipping contract profits set against unrealised losses. But in essence, the company is incredibly close to the wire. Yet the directors haven’t jumped ship even though they all are prominent people in the community.

Allco director Sir Rod Eddington is spearheading the government infrastructure development projects and is also director of Rio Tinto and News Corporation, yet he stays on the Allco board. Eddington joined the Allco board in 2006, clearly attracted by the aircraft leasing business and the possibility of acquiring Qantas. Like the other directors he didn’t pick the severity of the global crunch and its effect on Allco.

David Clarke is a former chief executive of MLC and BT. He made a terrible mistake in coming to Allco as CEO, but he is also hanging in there. Bob Mansfield has been on the Allco board for a long time and must bear some of the blame for what has taken place but he has not thrown in the sponge. And the fourth director Neil Lewis is a former Babcock & Brown principal.

Clarke told that before every board meeting the directors consult with their solicitors to see whether it is safe to proceed. They are clearly helped by the fact that the banks have, wisely, given them time. However, if Allco goes pear shaped down the track there is an obvious risk that creditors will pursue the directors.

Eddington, Clarke, Mansfield and Lewis expect to rescue Allco, but if they do fail I hope the creditors won’t do silly things. Clarke and his directors have a far better opportunity than an administrator to sell assets at prices which repay the banks and give shareholders a fighting chance.

Nobody has any sympathy for directors who wildly keep trading when a company is in deep trouble, but here is a situation where everybody knows the facts and the annual report could not have been clearer as to how close Allco was to the wire. Nevertheless in situations like Allco it is remarkable that people of repute are prepared to take a clear personal financial risk for the benefit of shareholders and creditors with no commensurate rewards.

Full marks to them.