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Parliamentary Joint Committee on Corporations and Financial Services
19/11/2015
Impairment of customer loans

BOMAN, Mr Tim, Private capacity

[12:25]

CHAIR: The committee now welcomes Mr Boman. Thanks for attending today's hearing. Do you have anything to say about the capacity in which you appear today?

Mr Boman : I am the former director of Boman Properties.

CHAIR: Thank you. We do not have a submission from you, but would you like to make a short opening statement before we move to questions?

Mr Boman : Sure. On 11 October 2006, we put in an application for refinancing with Bankwest from St George Bank and Westpac Bank. An offer was received of $20.8 million and $1.8 million respectively. Bankwest signed and accepted that offer. An additional offer was received at $2.8 million for our other property trust, and the total facility approved was around $24 million as at May 2007. An additional offer was received at $3.875 million, so the total facility was around $30 million. We had valuations on our properties at around $31.4 million and $7.6 million, with LVRs running at around 61 per cent. We had a facility of about $2.8 million that was there ready to draw down, so we were well under the 75 per cent LVR covenant imposed on the loan facility.

We had some issues in relation to cash flow and wanted to draw down on that facility, and we had some discussions with Bankwest regarding that. It was at the time when the takeover of Bankwest by Commonwealth was happening, and I was surprised to see in those meetings that representatives from the asset management section of the Commonwealth Bank were there, even though I do not believe that at the time the settlement had formally happened.

It all happened pretty quickly from there. They appointed receivers on 24 May 2009, claiming default, even though they did not allow us to draw down on that approved facility. The receivers, PPB, then sold the major property for around $11 million and the smaller property for $2.6 million, which was one-third of the bank valuation. It was a family company developed over 50 years of very hard work by my parents, brothers and sisters. We also had around $20 million worth of other property. I was the personal guarantor for all the loans, and as a result of the receivers selling the properties so quickly—I do not believe they were marketed correctly—I was forced into bankruptcy, owing more than $20 million.

Prior to the appointment of the receivers, as I said we controlled as a family company various assets worth around $60 million. We believe the actions of Bankwest have caused a personal net financial loss of around $40 million for the family.

We believe the bank did not allow us enough time for the issues to be resolved—considering we had approved the 2.85 to draw down and they would not release that money. There was also the GFC at the time. It created a massive problem in our family and it just basically created a knock-on effect; every member of our family has actually gone bankrupt. There has been massive emotional strain. We did not talk—we just recently started talking again, but that took five or six years for us all to get back together again.

The difficulty also is starting again from bankruptcy and without any financial resources. It is just very difficult to get back on track. Obviously we were very successful. I have had significant problems with the ATO because I was recognised as a high net-worth individual at the time the receivers were appointed. It has been five years of hell really trying to justify the fact that this has happened. There are no resources to fight. It basically makes it a very traumatic experience that my family and I have gone through. That is my statement.

CHAIR: Could you clarify for us what sector you were developing properties in?

Mr Boman : Yes, it was investment property. We—

CHAIR: Residential, industrial, tourism?

Mr Boman : Commercial, retail—and it was more—we had a very large fitness business where we had fitness centres, gymnasiums and properties related to those businesses in some instances; some did not, but some did. It was mainly commercial; some residential.

CHAIR: So were you developing and leasing; you had a cash flow from established businesses? Or were you developing and selling?

Mr Boman : We were basically buying and holding for our core businesses, and then having external tenants. One of them was a shopping centre where our head office was. But we had another 15 or 20 tenants that were in the property as well.

CHAIR: So when you talk about the fact that you were having cash-flow problems was that to do with people who were building, like subcontractors? Or was it a lack of tenants in the shopping centre, for example?

Mr Boman : It was because as I said some of our own businesses were within the properties, so when it got tight in relation to funding, the businesses were affected as well. Because the finance facilities were joined, the bank acting as they did created that cash-flow pressure.

CHAIR: Did they explain why they would not release the cash from the facility that they had already approved?

Mr Boman : No, they did not really. It was basically that they were saying the LVR was not stacking up. But from my calculations we were well within that LVR.

CHAIR: Did you have to pay for a valuation that was done at the request of the bank on the various properties?

Mr Boman : What actually happened prior to the appointment was that they did bring a valuer in. I was never shown that valuation. It was done by CBRE, who had done the previous valuation at about $31 million. Yes, I did request that valuation, but it all happened so quickly. The receivers were appointed and there was no opportunity to see what that was. Obviously, it must have been significantly lower.

Senator WILLIAMS: Thank you, Mr Boman. Did you have an investigative accountant come into your business? Did the bank send one in?

Mr Boman : From the bank? Yes, there was.

Senator WILLIAMS: Did that investigative accountant end up being the receiver?

Mr Boman : Yes, it was PPB.

Senator WILLIAMS: Do you know what your assets were sold for, roughly?

Mr Boman : Yes, $13 million.

Senator WILLIAMS: What were your total assets valued to be? Were all of your assets sold for $13 million?

Mr Boman : $13 million. They were valued at about $38 million.

Senator WILLIAMS: That is unbelievable. When the assets were put up for sale, were they advertised correctly? Did you see advertisements in the paper, hear anything on the radio or see them in real estate magazines or anything?

Mr Boman : I did not believe there was a strong campaign at all. I guess there was a sign that they put up.

Senator WILLIAMS: A sign on the building?

Mr Boman : Yes, a sign on the property. It was quite a short campaign—30 days.

Senator WILLIAMS: The Corporations Act section 420A—we have raised it with just about every witness we have had this week and last Friday. I have, and so have other members of the committee. The receiver or the liquidator, under corporations law, must make a real effort to get the maximum price for your assets. Do you think they made a real effort to do that?

Mr Boman : Absolutely not. We had a put and call option over the property—the one that was valued at $31.6 million—at $36 million for an acquisition.

Senator WILLIAMS: You have lost me there, sorry. You had an asset value of $31 million.

Mr Boman : We had an offer to purchase the property from an external party under an option contract for $36 million. The day before the option was to be exercised—and I showed this to Bankwest—they appointed a receiver. The day before.

Senator WILLIAMS: Who was this external party that offered $36 million for this asset valued at $31 million?

Mr Boman : It was a consortium headed by Gerard Batt, a solicitor here in Brisbane.

Senator WILLIAMS: It was a genuine offer?

Mr Boman : A genuine offer, yes. Absolutely.

Senator O'NEILL: Do you have any documentation around that, Mr Boman?

Mr Boman : Absolutely, yes.

Senator O'NEILL: Would you be able to provide that?

Mr Boman : Yes, we can.

Senator WILLIAMS: So the receiver got this genuine offer from this solicitor.

Mr Boman : We presented the offer.

Senator WILLIAMS: For this $31 million asset there was an offer of $36 million.

Mr Boman : Yes.

Senator WILLIAMS: And what did the receiver sell it for?

Mr Boman : $11 million. That property alone was $11 million.

Senator WILLIAMS: In your wildest dreams, can you imagine why?

Mr Boman : No, I cannot. I still cannot believe it. It just seemed as though there was some sort of pressure on the means that we had. The Commonwealth Bank representatives were there and seemed to be in the background, kind of running it.

Senator WILLIAMS: Can you expand on that, please—the Commonwealth Bank representatives were there?

Mr Boman : Yes, they were attending meetings with my existing state manager and local manager. They were just present. They did not really say a lot, but they were always there.

Senator WILLIAMS: If you were running the country and what you said tomorrow would actually be put in place, what would you do to address this issue about assets being fire-sold or sold off? Unless the valuer was on the grog big time and there was something wrong when he or she put the valuation at $31 million—or they are just way over market, which you would not expect to be the case, given the people in that professional industry.

Mr Boman : CBRE were the valuers, and, yes, it was a solid—

Senator WILLIAMS: You have seen the valuation?

Mr Boman : Yes, I have copies of the valuation we used for the financing—absolutely.

Senator WILLIAMS: Did Bankwest have it valued after?

Mr Boman : They did, yes.

Senator WILLIAMS: Did you see the valuation?

Mr Boman : No, I did not get to see that one.

Senator WILLIAMS: But you got the bill for it?

Mr Boman : Yes, it would have been deducted from my account, for sure, like the legal fees were.

Senator WILLIAMS: What would you recommend to this committee to make it better, so that when businesses, companies and farms are sold up, a proper effort is made to get the best price possible? We had ARITA in front of us this week. They represent the insolvency practitioners, the liquidators and the receivers, and, in their eyes, they are squeaky clean and perfect. They used to be called the Insolvency Practitioners Association of Australia when I launched an inquiry into this very industry in 2008. They said the inquiry was not necessary.

Mr Boman : It is very necessary.

Senator WILLIAMS: There were huge recommendations from the then chair—I think it was Annette Hurley, a Labor senator from South Australia—and we are only just fine-tuning, six years later, to make the changes to that industry. I believe it needs a good shake-up. What would you do if you were running the country? If I said to you, 'What you say now goes; we're going to put it in place', what would be your best idea to make sure this does not happen again?

Mr Boman : It is time. You have to work—

Senator WILLIAMS: As far as the receivers go, would you have huge fines and jail terms if there is clear evidence of just fire-selling assets—not doing their job properly? What would you do?

Mr Boman : Yes, there definitely needs to be better governing of the insolvency area.

Senator WILLIAMS: Should they be scrubbed out of the industry the way a lawyer is? If they do the wrong thing, they get scrubbed out. So, if the receiver does the wrong thing, should they be scrubbed out for life?

Mr Boman : Yes, absolutely. It is a form of bullying, really. It is not a pleasant experience. Funnily enough—or not funnily—I went to university and did my degree in accounting, and my first job was in the insolvency section of Ernst & Whinney, as it was known back in those days.

Senator WILLIAMS: Of who?

Mr Boman : Ernst & Whinney—Ernst & Young now. To be honest, I lasted a year, because of my history—I grew up with my family's family business. All I was doing was nasty things to people who were just trying their best. They were just like my parents, basically. I had to do some bad things. There is a definite psychology within the insolvency area, a bashing mentality. Obviously there is not a lot of money in most insolvencies, so the ones that there is money in get really worked.

Senator WILLIAMS: I will ask you a personal question as my final question, and you do not have to answer it. It obviously took a big toll on your family—did it lead to broken marriages and those sorts of things?

Mr Boman : Absolutely.

Senator WILLIAMS: It did?

Mr Boman : Yes. I lost my marriage; my brother lost his marriage.

Senator WILLIAMS: Was it hard on the kids?

Mr Boman : Yes. I have four children and I could not meet child support payments or DPO orders and I could not travel. It has been devastating. And then, as I said before, trying to get started again is impossible, because you have this black mark against your name and you cannot get finance again. I have a lovely new wife who is now helping and we are trying to rebuild. Actually, one of the businesses that was in one of the properties we have continued on with. We brought it out of administration. It was put into administration and we brought it out and we have been rebuilding that over the last five years. But again, trying to get government funding for it—it is a registered training organisation, and the black mark on the company's history continues to haunt us and we have problems.

Senator WILLIAMS: Do you think Bankwest made any effort at all to allow your businesses to survive or were you just shot dead?

Mr Boman : Yes, I think we were absolutely shot dead—there was not a genuine attempt. There were a lot of staff who lost their jobs. We had 70 people working in that gym. It was a big toll on the family and the community.

Senator O'NEILL: Thank you, Mr Boman, for coming to give us your evidence today. You mentioned one of the things that really was required was a bit of time.

Mr Boman : Yes.

Senator O'NEILL: You said that time really matters, in addition to penalties for the people who are playing heavily in this space. What sorts of time pressures were you under? I want to get a sense of the timing of when you had your CBR evaluation to when Bankwest decided to appoint receivers.

Mr Boman : It was two weeks, from memory.

Senator O'NEILL: When did you get your valuation? You got a valuation of a property at $31 million, was it?

Mr Boman : Yes.

Senator O'NEILL: When was that?

Mr Boman : That was 12 months before.

Senator O'NEILL: What year are we talking—2008?

Mr Boman : That was 2008. It was November 2007, that valuation.

Senator O'NEILL: Right. then the GFC hit and there was an impact there.

Mr Boman : Yes.

Senator O'NEILL: Did you get another independent valuation?

Mr Boman : No, we did not. But the bank did call in a valuer. I never got to see what the valuer—

Senator O'NEILL: And that is the valuation you did not get to see?

Mr Boman : I did not get to see it.

Senator O'NEILL: By Bankwest?

Mr Boman : Yes. It was the same valuer, so it would be very interesting to know what that was.

Senator O'NEILL: I foreshadow some recommendations around people actually being able to see the valuations they are charged for.

Mr Boman : Yes.

Senator O'NEILL: I wonder if when the banks decide to get these valuations that maybe that should be a cost they bear. That is part of what I am thinking. They might be a bit more careful about undertaking them if they were paying for them themselves.

Mr Boman : Yes.

Senator O'NEILL: When you spoke about this process that you went through—assets worth $60 million and Bankwest action leading to a loss of $40 million—in addition to the properties that were part of the business, can you talk about what then happened after the properties were sold?

Mr Boman : What happened after the properties were basically sold?

Senator O'NEILL: Yes.

Mr Boman : It just had a flow-on effect. The businesses were also lost, basically. When the receivers took over they cancelled the leases, so the businesses were basically worthless. They did not have a tenancy. What happened was—surprise, surprise!—the person who bought the properties also ran gyms and just basically started the gym up again.

Senator O'NEILL: Are you aware of how the properties and the businesses themselves were advertised, and how people who came to purchase them knew about their availability?

Mr Boman : Yes. As I said, there was a sign on the property and there may have been one ad in the paper, from memory—from what I saw.

Senator O'NEILL: You spoke about the loan-to-value ratio of 61 per cent. Did you feel under pressure because of that pretty high level of debt?

Mr Boman : Not really. We had substantial businesses turning over around $10 million and had tenants other than ourselves, which were satisfying the interest. The interest was quite reasonable. We had a one per cent margin, because it was a large facility. At that time, you will probably recall, interest rates were about six or seven per cent. Just as the receivers were appointed and as the property was sold, the GFC created a big adjustment, and our rates dropped to 2½ per cent. If they had given us that time, our interest payment was half of what it was.

Senator O'NEILL: Did you miss any repayments at any stage of this process?

Mr Boman : Yes. In the last two months, we did not have capitalisation of some of the payments, because we knew we had that facility that we could draw down on.

Senator O'NEILL: Which you were not allowed to access?

Mr Boman : No.

Senator O'NEILL: Was your loan capitalising interest?

Mr Boman : No.

Senator O'NEILL: Thank you.

Mrs SUDMALIS: I have just one quick question relating to that. You had approximately $60 million worth of debt. Is that right?

Mr Boman : No.

Mrs SUDMALIS: Sixty million dollars worth of assets and $40 million worth of debt?

Mr Boman : Correct.

Mrs SUDMALIS: In this statement you said you also had between $20 million and $35 million net worth. Is that separate to the—

Mr Boman : That is businesses.

Mrs SUDMALIS: So that was separate.

Mr Boman : Yes, it is separate. The property was valued at $60 million, but we had businesses which were between $10 million and $20 million worth.

Mrs SUDMALIS: You had already negotiated with the bank a $10 million draw-down facility if you needed it?

Mr Boman : It was $2.85 million, which was still available to draw down at the time.

Mrs SUDMALIS: That was still available at the time, and they disallowed you from drawing.

Mr Boman : Correct.

Mrs SUDMALIS: Was any reason given to you in writing as to why you could not draw down on that amount?

Mr Boman : It was an LVR situation, I think, because they had brought in the new valuation. They did a new valuation, which I did not see, and apparently the LVR did not stack up anymore.

Mrs SUDMALIS: Did that come to you in writing?

Mr Boman : I believe it did.

Mrs SUDMALIS: If it is a 75 per cent rule then your other assets should have been taken into account because they were integrated business, so in effect you had about $80 million.

Mr Boman : Yes, of course.

Mrs SUDMALIS: It was just under 50 per cent, so well and truly under the minimum requirement of debt-to-asset ratio.

Mr Boman : Yes.

Mrs SUDMALIS: It would be interesting for us to see a copy of the letter where they denied you the possibility of accessing that, because if you had been able to draw down on that you would have been able to meet the next couple of months.

Mr Boman : Absolutely.

Mrs SUDMALIS: Thank you.

Mr Boman : And we would have got through the interest rate. The interest rate halved and it would have been fine.

Senator WILLIAMS: Why did you leave St George and Westpac? I will put it another way: were you pressured to leave Westpac and St George?

Mr Boman : No. We were offered a great deal from Bankwest. It was a one per cent margin on rates. The other banks could not get anywhere near it. They were minimum two per cent.

Mr RUDDOCK: You may or may not have heard this. I asked an earlier witness and I should have asked every other witness. We are going to hear from the Commonwealth Bank and presumably Bankwest representatives, and they are going to tell us that everything was absolutely fine and they have acted appropriately and negotiated reasonably. The question arises: are we able to discuss your affairs with them, and are they free to brief us as to their view on your affairs?

Mr Boman : Certainly.

Mr RUDDOCK: Did you complain to ASIC about the way in which you were dealt with?

Mr Boman : No, I did not.

Mrs SUDMALIS: Did you know you could?

Mr RUDDOCK: We are going to see ASIC later in the day. The comments that we are receiving suggest that the circumstances surrounding most disputes are where financial circumstances have changed, where changes to values often result in debtors breaching loan-to-value relationships, and alternative banks have determined not to roll over commercial facilities at their discretion, which they were entitled to do. Lenders generally expressed a willingness to negotiate amended repayment arrangements for loans once debtors entered financial difficulty. The regulatory agency has formed that view, but it does not seem to square with the views that we are receiving from witnesses. It may be that they are not getting a representative grouping giving evidence.

Mr Boman : Maybe.

Mr RUDDOCK: But you would find those conclusions quite questionable?

Mr Boman : Yes, I would.

CHAIR: Thank you for your evidence, Mr Bowman. There are a few things that people have asked for you to provide the committee on notice. If you could do that by 27 November, that would be great.

Mr Boman : Certainly. Will I be getting formal notification of those requests?

CHAIR: We can do that.

Mr RUDDOCK: You would be quite happy for us to put your circumstances to ASIC?

Mr Boman : Yes.

CHAIR: Thank you. The committee is now adjourned.

Committee adjourned at 12:56