The financial report of debt buyer Collection House, issued yesterday, reveals that it has not yet come up with a recapitalisation solution, which it has been working on since April when it entered into a standstill agreement with its lenders. The deadline is looming.
In November last year the company changed its operating model in response to sustained criticism of the debt collection practices of its subsidiary, Lion Finance. Lion was revealed in a report as the debt collection agency with the highest number of court applications to put debtors into bankruptcy.
In the post-Hayne environment companies like Lion that took a punitive approach to dealing with debtors were on the nose. Lenders were reported to be refusing to sell their bad debts to Collection House.
The company increased the threshold at which it will consider recovery by bankruptcy, moving from the regulatory limit of A$5000 to $20,000.
Overall it said it was moving to what it calls a more “customer focused” approach to its business.
Changes to collection practices affected the accounting value of its purchased debt ledger assets by deferring or reducing collection cash flows. This, in turn, had an adverse impact on the company’s ability to meet the terms and conditions of its lending arrangements.
The standstill agreement with Commonwealth Bank and Westpac runs out on September 30.
The company said in a statement that it “expects to finalise a refinancing solution and enter into binding contracts with counterparties to achieve that outcome shortly”.
The company reported a loss of $44.3 million for the year to June (compared with a profit of $30.7 million) in 2018/19) after writing off $89.9 million of the value of its purchased debt ledger assets.
Collection services revenue fell from $67.6 million in 2018/19 to $65.3 million and PDL revenue fell from $97.3 million to $80.3 million.
The company said its underlying profit was $16.2 million, compared with $21.7 million the previous year.
It said COVID-19 had a negative impact on collections and on new debt purchasing opportunities, in line with a more conservative approach to debt sales applied by banks and other clients.