So Jeffrey Knapp suggests the solution to the DSH problem is, among other things, for external administrators to have the company's finance team focus their efforts on preparing financial accounts, on a liquidation basis (because the business was no longer a going concern), and pay $150k+ for Deloitte to review them, to provide historical financial information to relevant stakeholders when:
• the costs of preparing such reports will simply detract from creditor returns
• staff should better focus their time on preparing information for the business sale data room
• the Administrators are without funds - so would need to dip into their own pockets to fund such costs
• the information in the report would likely cap the realisable value of the business assets (as the financials would be based on the Administrators / Receivers opinion of realisable value). There is a reason why Receivers are allowed to not disclose their assessment of business asset values in their report as to affairs lodged with ASIC.
Mr Knapp's collaboration with Michael West earlier this year, when it was suggested after a 2 hour phone call between the two that DSH failed because it overstated the value of inventory two years ago on listing (in comparison to WOW's 'blood bath, first loss is best loss' provision approach prior to the sale), is quite frankly rubbish. http://hotcopper.com.au/threads/media-coverage-suggesting-reasons-for-failure.2695545/#.VuZYrpx96Uk
Mr Knapp is a one trick pony, he has a habit of banging the financial report disclosure drum as a solution to all of society's ills and seek publicity for doing so. He tried last year to join himself to proceeding between Gina Rinehart and ASIC over her failure to lodge financial reports with ASIC on time for some of her companies (in which she was subsequently fined $130k by the Court for not doing so) - the judge threw his request out.
A better fix in the DSH circumstances would have been:
• Better disclosures of financial information in IPO prospectuses (too much focus presently on earnings, not enough on balance sheet and cash flow - including information that would need to have been provided had the business been sold by Anchorage through a trade sale). This would have made the issues with the DSH business more obvious
• More regular financial reporting (say quarterly) to the ASX. This would have made it harder for directors to hide the deterioration in DSH's financial performance from the market during 1H16
• Changing corporations law so that directors can trade a business whilst insolvent, so long as it is not being done recklessly (similar to current UK laws), with a view to restructuring the business under a restructure plan developed in tandem with a qualified professional and protection from ipso facto clauses (i.e. the ability to terminate contracts due to insolvency when no other contract breach has occurred). Existing insolvency laws require directors to put a business in external administration as soon as there is the possibility of the business being insolvent (in DSH's case the banks withdrawing support). A work-out mechanism might have allowed the business to continue to trade and restructure without the stigma which comes with external administration. Such considerations are part of the Coalition government's innovation package.
DSH Price at posting:
35.5¢ Sentiment: None Disclosure: Not Held
