Tearing Down The House

The recent voluntary appointment of administrators at the debt collector Collection House should serve as a warning to debt collection firms that still push the boundaries of the guidelines and legislation that govern the industry.

Last week Collection House appointed FTI Consulting as voluntary administrators to develop a plan to save the business which was discredited by a 2019 report prepared by Financial Counselling Australia, Consumer Action Law Centre and Financial Rights Legal Centre.

The report highlighted Collection House and subsidiary Lion Finance as the debt collection agency with the highest number of court applications to put vulnerable debtors into bankruptcy.

The 2019 report on debt collection practices said:

“A few debt collectors are regularly and persistently making people bankrupt. This is clearly a deliberate policy decision. Such a decision is inconsistent with a best practice approach to working with people in financial hardship. Using bankruptcy as an enforcement mechanism is particularly problematic for people on low incomes who own their homes. It is poor public policy when people become homeless over relatively small debts.”

The report had an immediate impact. Financial institutions and other creditors stopped or threatened to stop using Collection House and Lion Finance because they did not want to be associated with such poor practices.

Enforced changes to the company’s collection practices affected the accounting value of its purchased debt ledger (PDL) assets by deferring or reducing collection cash flows. It wrote off $89.9 million of the value of its PDL assets in the December 2019 half-year and made a loss of $47.3 million.

The recent administration came after Collection House attempted but failed on multiple occasions to recapitalise and restructure the business, including by selling off its debt ledger book to Credit Corp Group.

Voluntary administrators are currently conducting an independent assessment of the business, engaging with stakeholders regarding funding options and running an expedited sale and recapitalisation process for the company.

At the beginning of 2020, shares in Collection House were trading at around $1.10 per share. Though the company is currently suspended from trading, its last price on 28 June was just $0.07 per share.