ASIC taps trustees

ASIC has insisted trustess have a role to play in preventing collapses like Westpoint.

ASIC logo /File

ASIC taps trustees

TRUSTEES' efforts to play down their role in the recent $1 billion-plus failures of debenture companies have failed, with the corporate regulator insisting that trustees have a role to play in preventing collapses.

The Australian Securities and Investments Commission said trustees were required to actively monitor the ``financial position and performance'' of debenture issuers and to take legal action against issuers where necessary.

The statements formed part of ASIC's overhaul of the $8 billion unlisted, unrated debenture sector. The regulator yesterday released guidelines for the revamp of the sector.

Trustees had objected that they were unable to conduct anything more than cursory financial ratio checks for the amount they were paid by debenture issuers.

The watchdog told Australia's three biggest trust companies last year that they had "significantly wide powers'' to police the activities of companies - and were obliged to do so.

ASIC also announced yesterday it would implement its ``if not, why not'' approach to reporting for unlisted, unrated debenture issuers.

Under that rule, issuers would be required to adhere to eight "benchmarks'' -- such as disclosing a minimum level of liquidity - or explain why they have failed to do so.

The benchmarks include requiring issuers to have their debentures rated by an independent ratings agency and to disclose the value of property development assets on both an "as is'' and "as if complete basis''.

Under ``if not, why not'' reporting, issuers lending money to property development will be required to maintain a 70 per cent loan to valuation ratio, calculated on the end value of developments.

All issuers will be required to disclose any loans to related parties. ASIC announced the overhaul of the sector in May, following the collapses of four major property groups - including Fincorp and Westpoint - in the preceding 18 months.

More than 20,000 people had about $1 billion caught up in the collapses.

Sixty individuals and groups made submissions to ASIC regarding the overhaul.

All new debenture issues from December 1 will be required to meet the new guidelines while existing debenture issuers will have until March 1 to meet the guidelines. ASIC has also released a draft guide concerning the standards to be met by issuers when advertising their products.

Under that proposal, debenture advertisements should only quote interest rates if that interest rate is accompanied by a current credit rating of the group -or a statement explaining why the group is unable to do so.

Debenture issuers are restricted from comparing their products to those of banks or stating there is "little or no risk of the investor losing their principal or being repaid''.

The overhaul of the debenture sector represents a huge backflip from the corporate regulator.

In the fallout from the $300 million March collapse of property giant Fincorp, ASIC flatly refused to comment on the collapse for two weeks.

Then chairman Jeff Lucy said the regulator had "seen nothing that would suggest that we need to have an investigation''.

The following month Mr Lucy was replaced by Tony D'Aloisio, who announced an investigation into Fincorp.