Love for Life

Tony and Lorise Goonan had run a successful hardware store in Singleton, New South Wales, since 1993. Tony has an accounting background, and they plucked the hardware business out of the moribund local Cooperative, and built the business up from scratch. They had a good relationship with local builders. In early 2000, they purchased a reputable hardware business in Forster on the New South Wales north coast. The funds were obtained from the Singleton branch of the National Australia Bank, with whom the Goonans had long had a productive relationship.

In late 2000, the stores were hit with declining sales. The implementation of the Goods and Services Tax was clearly a factor, and spending in Forster (a holiday and retirement town) was down due to the Olympic Games. Forster was also hit with heavy rains (knocking local building) and an unconscionable Council road closure lasting six weeks. In early 2001, Tony Goonan sought an extension of his Forster overdraft to assist with what was interpreted as short-term cash flow problems.

In July, the Singleton Manager discussed the business, claimed the application to be reasonable and promised to forward the application to Sydney for ‘rubber stamping’. After five weeks’ silence, Goonan rang the NAB to be told by the Manager’s assistant that the application had been unsuccessful. No reasons were given.

In October, the Singleton manager and his assistant called in unannounced at the Forster store (also secretly checking out the Goonan’s residence at Old Bar), claiming ‘only a social visit as we happened to be in the area’. Two weeks later, Goonan received a call from the Sydney office of Deloitte advising that the NAB had foreclosed on the facilities and that Deloitte was now managing the accounts.

Tony Goonan rang his branch to inquire what was going on, and was told that they knew nothing about it and would call him back to arrange a conference call with relevant parties. The branch did not call him back.

Given the conditions, the Goonans placed their company in voluntary administration in late November with Knights Insolvency of Sydney. The Goonans’ original ambition was to get through the immediate difficulty period and then revive their businesses. Knights led them to believe that they would continue trading for three months (over the important Christmas/Summer period), during which time both shops would be advertised as going concerns. Knights ordered new stock for this period. Yet, at a meeting of creditors on 19 December, the NAB and Knights placed the company into liquidation.

Being unable to pay trade creditors, the Goonans placed themselves into bankruptcy in February 2002. The keys to their residences, for lack of alternatives, were handed over to the NAB in March and June.

The Goonans had overdrafts totalling $365,000 on Singleton and Forster, a fixed term loan of $417,500 (for the Forster purchase) and five vehicle leases (two of which were almost paid off). The loan was being repaid at $6000 per month, and payments were several thousand dollars ahead of schedule. Total payments were roughly $12,000 per month on a previously long-term turnover of $200,000 per month.

The Goonans were not in default, and their payment history was sound. None of the various definitions of default in the loan documents are applicable to the Goonans. No written advice was received from Deloitte. No written advice was received from the NAB advising default in spite of requirement to that effect in the loan documents.

The Goonans’ accountant contacted a sometime NAB branch manager known to him. The accountant was informed that, following the introduction of the GST, small hardware stores and small transport companies were being generally targeted by the NAB, and that the Goonans’ files would be marked ‘red’.

A January 2002 letter from the NAB Asset Structuring Unit claimed that ‘as you are aware, the company is in default by virtue of the appointment of an Administrator (or Liquidator) to it’. This claim bears no relation to bank loan documentation.

The Goonan’s Singleton residence was sold in November 2002 for $235,000. The Goonans estimate that its proper value was about $260-270,000, but the NAB had left the property vacant for 8 months before its sale. The Old Bar property had been valued at $175,000 and was left vacant for seven months before its auction in January 2003 (the Goonans had requested that their children be permitted to purchase Old Bar at market valuation, but the bank refused). Serendipitously, the NAB benefited from the beginning of a local life-style boom, the property selling for $287,000. Blocks in Old Bar now sell for over $200,000, and the Goonan house, 100 yards from the water, would be now worth about $400,000.

The two hardware properties were leased. All the stock, fixtures, fittings and vehicles were auctioned at Singleton in early January for $125,000 – estimated by the liquidator to be less than 20% of total value while trading. A vehicle sold for $31,000, $20,000 less than its market value.

Approximately $1m. of assets has disappeared – some redistributed through lower prices to purchasers of stock, vehicles and residences; substantial goodwill was destroyed, and the rest frittered away in costs of liquidation.

The Forster stock was re-located to Singleton over Christmas at a cost of $41,000. Contemplate the rationality of moving the contents of a hardware store across country for a fire sale, especially in early January. By the liquidator’s estimate, the NAB would only have received about $10-15,000 of the auction proceeds, the bulk going to the liquidator and auctioneer.

The NAB’s net proceeds after foreclosure appear to be negative, with the proceeds of sale of the two residences and the paltry returns from the stock/vehicles sale less than total debt. Interest continued to be charged on the Goonan’s debt, at penalty rates, between the time of bankruptcy and the sale of Old Bar, summing to $60,000, presumably with no expectation of recoupment.

In mid-August 2002, the NAB was reported in the Australian Financial Review as shedding ‘non-performing and marginal borrowers from its $65 billion business loan book to preserve credit quality’ (Lekakis, 2002). In the previous ten months, the NAB had shed $1.3bn worth of business borrowers ‘because those customers either wouldn’t work with us or failed our tests’. The Goonans had over eight years of passing the usual tests of successful businesses for their bank lenders.

The Goonans previously employed up to 16 people. They are now penniless and in receipt of the pension.