The National Australia Bank has been accused of covering its “backside” while allowing subcontractors and small businesses to go to the wall after construction firm Walton failed in late 2013.
NAB faced a grilling on Wednesday before the Senate’s economic references committee, with Labor senator Doug Cameron declaring the bank had moved to protect its own interests while thousands of subcontractors and small businesses had “lost their arse”.
The Walton company operated in several states, and oversaw large construction projects, including a $100m refurbishment of the David Jones store in Melbourne. When the company failed in October 2013, more than 1,000 subcontractors were left unpaid.
NAB executive Geoff Green confirmed on Wednesday the bank’s gross exposure to Walton was in the order of $20m, but said all that money would be recouped, with a small amount left over for other creditors.
“But the unsecured creditors are going to do their dough pretty badly aren’t they?” Cameron put to Green during the committee hearing.
“Yes,” Green replied.
Cameron said by moving to protect its exposure to Walton, the NAB had, in essence, said: “Oh shit there’s a problem here. We better protect our backside, and subbies and contractors do their arse. They hit the wall and NAB lose nothing.”
“That’s the problem here,” Cameron declared.
Green told the committee from the bank’s perspective Walton developed a liquidity problem – prompting the bank to eventually engage Deloitte to ensure it was getting accurate financial information – but the company did not exhibit tangible signs of “stress” because all the company’s accounts were operating within their terms.
“We had no signs of any difficulties,” the NAB executive said Wednesday. “We knew liquidity was tight but we saw no problems in terms of account conduct.”
Green acknowledged NAB had moved to “register a charge” in the lead up to the Walton collapse, a practice protecting the bank’s exposure.
“The step you took was to protect your money, wasn’t it?” Cameron asked Green. The NAB executive acknowledged that was the case, but he said the bank had not enforced the charge “and we haven’t relied on it to get paid”.
Green said the Deloitte report did not indicate to NAB Walton was trading while insolvent.
The NAB executive said he had done a word search of the report to be certain and it did not contain the words “solvent” or “insolvent”.
The economics references committee has heard previous testimony the company was trading while insolvent.
The NAB executive suggested it was possible trading while insolvent was a judgement being applied to Walton in hindsight, rather than a judgment that could be applied categorically at the time.
Cameron asked Green to table the Deloitte report. He said NAB was very happy to table the report but the liquidator wanted the report to be tabled “in camera” – a practice which prevents the report being made available to the public.
The committee agreed to accept the report in camera but senators expressed confusion why the liquidator wanted to keep the report confidential.
During the hearing Cameron pointed to an email a former auditor of Walton sent to another employee of NAB many months before the collapse which appeared to put a question mark over the validity of the company’s financial information.
The email from the auditor referred to “enhancing” figures.
“This is the auditor telling NAB you can’t trust the figures from this company,” Cameron said.
Green told the committee he “had that email referred to me” but he was unsure how the bank responded to it at the time.
“I’m happy to take that on notice,” Green told the committee. “We were aware that the CFO or financial controller had left the business in circumstances we didn’t understand.”
Green said the word enhancement could have implied improvement. “That is not necessarily the same thing as cooking the books,” the NAB executive said.
Asked why the bank did not put Walton into receivership if there were problems, Green told the committee NAB was very slow to do that as a general principle, because quite often that locked in “worst outcomes”, and in the case of Walton, it did not have the requisite power to appoint a receiver.
Green said NAB had very limited options in the Walton case, and it was the bank’s understanding Walton had a wealth of professional advice about its obligations and how it should proceed.
