Debt chaser Collection House goes bust
Collection House, once one of Australia’s biggest debt chasing agencies, has tumbled into administration after a series of spiralling blows in the past couple of years.
The appointment of administrators covers ASX-listed Collection House and not the subsidiaries, raising questions about the future of hundreds of staff members.
“Our intention is to undertake an urgent process seeking options to restructure and recapitalise the Collection House business,” administrator John Park of FTI Consulting said on Thursday morning. He was appointed along with Ben Campbell and Kelly Trenfield.
Brisbane-based Collection House, which had 652 staff as of December, had been desperately selling assets to avoid a cash crunch in the past two years.
But as flagged by The Australian Financial Review on Wednesday evening, it faced even further strain because one of its few remaining assets was hocked – a stake in Volt Bank – and Volt had earlier that day abandoned its banking ambitions.
Collection House over the years chased down debts on behalf of clients including the Australian Taxation Office or power companies. Another division also bought slabs of debt ledgers from institutions such as credit card debt – at a heavy discount from 1¢ to 35¢ in the dollar, for example – and tried to earn profits by recouping greater levels of money.
Industry sources had believed a failure of Collection House could set off negative waves throughout the sector.
One told the Financial Review on Thursday that it could make some businesses reluctant to outsource debt recuperation to agencies. It also raised deeper questions about whether margins were too weak for such “contingent” collection work, especially in recovering any excess debt above a certain level, he said.
“This is a long-time coming,” he said.
Started in 1992, Collection House initially made millionaires of co-founders including John Pearce, once No.1 ticket holder for AFL’s Brisbane Lions. It floated in 2000 and by 2001 was worth more than $500 million.
Its fortunes waxed and waned over the years, with sudden accounting shocks sapping investor faith. By the last half-year accounts, the outfit had posted a loss of $63.7 million and auditors KPMG warned of a “material uncertainty” about the company continuing as a going concern.
The business also had a mixed track record with regulators and consumer advocates. In 2006, it accepted an enforceable undertaking with the Australian Competition and Consumer Commission after trying to reap statute-extinguished debt between 2001 and 2004.
By the mid 2010s, practices had improved and the business was receiving praise from consumer groups.
But by 2019, under then-CEO Anthony Rivas who had worked in debt collection in the US and Mexico, the company was in the limelight for engaging in hardball tactics of both lowering the threshold for bankrupting people and also massively amplifying when it took such legal action.
Consumer group research showed its subsidiary Lion Finance had filed 512 federal court bankruptcy actions in the previous year, whereas rival companies filed no actions or had them in the single or double figures.
The move horrified former staff, who questioned the cultural change, and also alienated banks which are a source of debt for such agencies. NAB even cut off Collection House in 2019.
Mr Rivas resigned suddenly in 2019 and the Financial Review revealed he had subsequently soon sold all of his company stock for between $1.3 million and $1.5 million. Collection House had confirmed he had no restrictions on selling after leaving the organisation.
Collection House had tried to soften practices, including lifting the internal threshold trigger of initiating bankruptcy action to $20,000 from $7500. But it also suffered a series of shocks including taking massive hits to the value of debt ledgers, causing massive red ink.
Collection House had been cutting staff and offloading assets such as debt ledgers to rival Credit Corp in an effort to lessen its own bank borrowings and save cash. By April, it said it had largely reduced its senior bank debt by $52 million, with almost $5 million outstanding and secured against the Volt Bank shares.
Even the investment in assets such as Volt Bank, which cost $8.5 million, had caused head-scratching among former staff of the debt collector.
“It lost its way. It lost its identity,” one said.
Collection House’s last quarterly cash flow statement showed an operational cash burn of $4.2 million for the three months to March.
Chairman Leigh Berkley was not immediately available for comment.