Opinion
There’s certainly been a bit said about the myriad relationships existing between insolvent aviator Virgin Australia and Deloitte, the big four professional services firm to which Virgin’s four voluntary administrators (VA) belong.
The DIRRI lodged by the Deloitte four detailed the extent of the relevant relationships, none of which at this stage appears sufficiently problematic as to compel ASIC to intervene.
ARITA similarly appears unperturbed by the disclosures, though that certitude may have been buffeted by revelations published on Saturday.
In a front page exclusive the Australian Financial Review reported that the trust charged with ensuring Virgin’s Velocity Frequent Flyer subsidiary has liquidity sufficient to cover redemptions had supposedly lent Virgin as much as $200 million.
The conclusion was that the solvent points-for-miles subsidiary was a secured creditor of its stricken parent.
Deloitte in turn sub-leases floor space in its Sydney HQ to Velocity and all four VAs have disclosed that they are Velocity members. Honestly, you could not make this stuff up.
In the end though none of the Deloitte foursome’s disclosures would seem material enough to justify their disqualification as VAs on the basis it might give rise to an apprehension of a lack of independence. And in the end would it even matter?
While we’ll have to wait till tomorrow to be sure Mark Korda or some dark horse doesn’t spill Avgas on Deloitte’s tarmac, the reality is that there are few firms in Australia with the resources to manage an insolvency of Virgin’s magnitude.
Of those few, KPMG, which would certainly have the grunt following its acquisition of Ferrier Hodgson, is excluded because it’s Virgin’s auditor.
PwC, which would likewise have adequate restructuring muscle after bulking up on PPB, can’t take the gig because outgoing ceo Luke Sayer is advising potential suitor BGH Capital.
Apart from Deloitte, which other firms have the capacity to tackle an insolvency the size of Virgin, which owes $6.9 billion to more than 10,000 creditors?
KordaMentha, McGrathNicol, FTI and Grant Thornton? Any others?
To think that any of these few would have a perfectly clean slate in respect of past dealings with the insolvent is to ignore the laws of probability.
The best that can be done isn’t perfect, there’s just no alternative. Support INO’s continued chronicling of the insolvency sector.
Further reading:
FTI would not have the capacity near to the same extent as Deloitte or KordaMentha in my view. International (even national) jobs really only come down to the duopoly of Deloitte and KordaMentha. Nothing against FTI Consulting – they’ve got a few headlines (and headaches) out of QLD Nickel, but they’re in little league.
A real issue in Australia in dealing with large administrations is the small pool of appropriately qualified and staffed Insolvency Practitioners (External Administrators). In this circumstances issues required to be disclosed in the DIRRI become important but must be considered in the circumstances of what is in the best interests of the stakeholders
Standard practice is that if perceived conflict of interest is as important as actual conflict when assessing the appropriateness of accepting an external administration engagement. I seriously doubt one can reasonably say that the Virgin administration satisfies the perception test, any maybe not the actual test. However, it appears ASIC and ARITA do not care, possibly because Deloitte is a behemoth. Agree with John S. regarding FTI Consulting being an overreach as a contender.
John is right.No disrespect to Deloitte but it’s obvious that there‘s an issue of perceived conflict.The same applies to the VA’s legal advisors Clayton,a very large firm,which advised Virgin prior to the VA.We shouldn’t turn a blind eye to what’s happening,because the question of conflict can bring the profession into disrepute.My two cents.