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Refund’s entry into voluntary administration shocked the industry and stirred up a healthy amount of controversy in the third party distribution space
AS MANY would already know, Refund Home Loans went into voluntary administration at 5pm on Wednesday 12 October.
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According to a statement from the administrator, SV Partners, increasing pressure from creditors forced Refund Home Loans into administration. Up until the end of 2010, all costs for the growth of the company had been met out of cash flow.
It then became essential for Refund Home Loans to source additional funding from somewhere, but the Queensland floods kept banks sitting on the sidelines. Eventually, Refund Home Loans was forced to take drastic action and enter voluntary administration.
Initially, Refund had hoped the administrator would be able to swoop in and complete a clean, quick sale of the business.
Just days after Refund’s announcement, a company spokesperson told The Adviser that a number of aggregation groups had put their hand up to buy the franchise.
“As far as I am aware, there have been a number of companies that have expressed interest in buying the Refund Home Loans business, but they are waiting for the administrators to give them the green light,” the spokesperson said.
“The administrators are currently looking for the right buyer, someone that will look to keep the franchise model intact.”
But while the company remained confident it would sell the business to one aggregation group, two months on and the Refund Home Loans business is still up for grabs. Why?
It seems many aggregators have gotten cold feet as more and more news emerges of franchisees serving the aggregator with “breach of contract notices”.
On November 14, The Adviser noted that Refund Home Loans could be set for collapse after reports emerged that up to 50 franchisees had taken legal action against the company.
A source close to the aggregation group told The Adviser that Refund franchisees are, understandably, very disgruntled by the whole situation, and are currently on the verge of walking out – not only from Refund, but the industry altogether.
“Refund has handled the whole situation very badly,” the source said.
According to the source, Refund has failed to meets its contractual obligations in five or six ways – including failure to pay any commissions. Franchisees were expecting to receive commission payments on 15 October and 14 November, however, both payments currently remain outstanding.
SV Partners was quick to shoot down suggestions that it was deliberately failing to pay commissions.
David Stimpson, one of the administrator’s directors, says brokers have to understand that the company currently doesn’t have the funds to pay the outstanding commissions.
“We don’t have one dollar,” he says.
“They [franchisees] want commitments from me that I can’t give.”
Refund’s inability to pay outstanding commissions has consequently brought the overall safety of Australia’s aggregators into question.
First Point NB director Troy Phillips says this situation would not have arisen had Refund and Australia’s other aggregators been regulated like brokers.
“We need some transparency when it comes to our aggregation groups. At the moment, 40 per cent of the aggregation market is controlled by the NAB, which is heavily regulated by APRA. However, 60 per cent remains unregulated. Aggregators process cheques – in essence, they are high volume, low margin businesses. A lot of brokers that aggregator through some of the smaller players believe they have trail for life, but is this really the case?” he asks.
A lot of brokers agree with Mr Phillips and believe aggregators should be forced to show their financials to every prospective new broker member – an idea AFG welcomes.
While AFG’s general manager Mark Hewitt says it is unnecessary for aggregators to be regulated, given that they already have to abide by certain laws, aggregators should be clear and transparent when in talks with potential new recruits.
“All brokers need to complete a thorough background check on their aggregator,” he says.
