Receivership should be 'last resort'

Recently-arrived British insolvency specialist, Mike Lamacraft, says when it comes to insolvencies, New Zealand banks are more reticent than their British counterparts.

Mr Lamacraft has spent 20 years in insolvency practices in Britain, and has joined Auckland-based Meltzer Mason Heath as senior insolvency specialist.

New Zealand banks do not put firms into receivership as much as those in Britain, and he says that is a good thing. He puts the difference down to philosophy: in Britain, receivership is a common way for a bank to get its money back; here, it is used more as a last resort. That, he thinks, is a more positive attitude.

"I'm told that the banks here are much keener to try to work out problems, and I think that's the right approach. I don't think banks should be too quick to appoint receivers - a receivership should be a last resort, when there's no other way out."

Nevertheless, Mr Lamacraft believes that we will see more insolvencies as part of an international trend.
Although he has not been here long enough to recognise all the signs, he believes financial indicators, such as rising interest rates, point to more companies getting into difficulties, very often for reasons beyond their control.

While bad management is a common cause of insolvencies, bad luck is also common, especially where a substantial debtor defaults and creates serious flow-on consequences for the business and its directors.

The problem is common in the building industry, both here and in Britain, Mr Lamacraft says. Quite often the main contractor will be paid, but it will be a while before the bricklayer or the carpenter gets paid at the end of the line, which he thinks is wrong.

But putting it right is not easy, and he does not believe legislation will succeed.

A working party set up to address the issue of security of payment, after problems in the construction industry, delivered its report to the Government last month. It included representatives of the Registered Master Builders Federation, Contractors' and Building Subcontractors' Federations and trade unions.

As a consequence of the report, Cabinet is expected to consider a paper next month which recommends legislation based on the New South Wales Building and Construction Industry Security of Payment Act.

Mr Lamacraft is dubious: "In the UK, the prompt payment of debt is quite an issue. The Government there thought about legislating, but I don't think it's practical. It's difficult to force people to pay their debts - all you can do is encourage them to recognise their responsibilities."

Before coming to New Zealand, Mr Lamacraft spent five years in the insolvency department of Stoy Hayward and a further 15 years in the corporate recovery division of Ernst & Young in London.

He has experience in all areas of corporate recovery and has been involved in a number of major receiverships in Britain, several of which traded under his management until being sold.