Bearing the heavy burden for the corporate cure

Mark Korda believes being an independent insolvency practitioner avoids any conflict of interest, writes Rod Myer.

By InvestSMART · 17 Dec 2009

By InvestSMART ·
17 Dec 2009

Mark Korda believes being an independent insolvency practitioner avoids any conflict of interest, writes Rod Myer.

TO SOME, insolvency guru Mark Korda is Dr Death, appearing when all is lost, to profit by picking off the choicer pieces from the corporate carcasses after hard times. His dance card includes recent dalliances with Timbercorp, Westpoint, Centro, Fincorp, Allco and MFS. But Korda says insolvency is not corporate undertaking, it is about getting things back on track or getting the best deal for all concerned.

"Insolvency attracts people like Mark (Mentha, his fellow principal at KordaMentha) and I who are pretty good at business. It's closest you come to being a principal in a business without owning it. You run it, you fix it and you've got the cheque book in your hand. And a lot of time you sell the business so someone else who combines it with theirs gets synergies and capital."

Korda built a career dealing with other people's problems over 24 years as an insolvency practitioner with Arthur Andersen. But it was not until his employer was caught up in the collapse of Enron (Arthur Andersen had been the firm's auditors) that he set out with long-time sidekick Mentha to go into business for himself, hanging out the KordaMentha shingle for the first time on April 15, 2002.

It was a big move but Korda says he chose independence because he could see independent practitioners would have advantages over traditional large accounting firms in the wake of the Enron disaster. That had highlighted the inherent conflict of interest facing auditors of large companies who were charged with making calls on unsustainable or unethical behaviour but who could become addicted to annual fees.

"We considered the conflict of interest issues would be very difficult to manage in large audit firms. Following Sarbanes-Oxley, (US laws passed in response to Enron-like collapses) it proved even more difficult than we thought."

Their step into self-employment was not totally into the cold and dark. Korda and Mentha took with them Australia's biggest insolvency gig, the collapse of Ansett, with its 16,000 employees and debts of more than $1 billion. It's a job that still helps KordaMentha pay the rent. "Last week we made another payment to Ansett employees who have now got back 95? in the dollar of what they are owed," Korda says.

Korda is quick to reject the common perception that insolvency is all care and no responsibility, with creditors carrying the risk of administration. "We're personally liable for all the debts incurred once we take over so we have a very high level of personal exposure."

Then there is the small matter of administrators holding the lives of others in their hands. "We take our responsibilities for saving companies and helping to keep jobs going seriously," he says.

The issue of personal liability was particularly tricky with the administration of Timbercorp, the huge tax-driven forestry and horticultural scheme that went belly up earlier this year. Its 18,500 grower-investors had sunk $2 billion into 120,000 hectares of forests and horticultural projects since 1992, before the credit squeeze and internal management problems claimed it.

Unlike with factories and airlines, administrators of horticultural schemes can't chain the doors and hold liquidation sales to realise money for creditors. To maintain value in horticulture, the trees must be watered and pruned and the fruit harvested.

To ensure a successful harvest of Timbercorp's almond and olive crops for 2010, KordaMentha had to carry the can for $350 million of investment in water, pruning, weeding, picking and pollination.

"It was one of our higher-risk jobs, but we managed the window, got everything sold to new owners before our 30 September deadline. It was a real race against time but it's my pleasure to say we paid the bank back last week," Korda says.

That was the scary bit but now KordaMentha faces the nasty bit. After selling more than $600 million of forests, almond plantations and olive groves, Korda and his team must seek payment of $478 million owed by investors who financed their tree stakes by borrowing from Timbercorp. Some of those are wealthy individuals but some are average punters at the end of their financial limits.

While pointing out that he is usually left chasing business creditors, not personal investors, Korda takes a pragmatic approach. "At the end of the day, the law's the law and we have to operate in it. We'll follow up and people will have to pay. If they have extenuating circumstances, we'll enter agreements with them."

Does business life overwhelm him emotionally? "It can get pretty tough. Ansett was tough with all the people losing their jobs. Hardship stories are always difficult but the firm believes in treating everyone with empathy." Ansett still leaves a bad taste in his mouth as Korda feels a restructure was possible.

He says that, while insolvency work hasn't embittered him, it has made him more realistic. "I'd say 10 per cent of people are totally and absolutely honest, 10 per cent are dishonest and the other 80 per cent, it depends on the circumstances. I see some really good people who get into trouble and it's not necessarily their fault. It's bad advice or a perfect storm. Others are almost psychopathic; they're delusional about what they've done with other people's money."

The Hard Questions

1 Are you a vulture? No. Weve got to

deal with some very difficult issues. No

one likes to lose money, and you have to

pay someone to realise the assets.

2 Do you profit from hard times?

Our share portfolios and our other

businesses (the 333 consulting and

finance operations he is currently

developing) go down and insolvency

work goes up, so were square.

3 What about the job keeps you awake