Love for Life

The McMinns had for decades run a successful motor vehicle dealership in rural Victoria. In 1995, in semi-retirement on the Gold Coast, they decided to invest in a childcare business.

In 1995, the McMinns were introduced to a local NAB commercial manager by a mutual friend. After discussions with the manager, the McMinns liked his proposals for their business and his promotion of the NAB’s services and financial expertise. They consequently switched banks and became clients of the NAB.

The McMinns came to the NAB with a ‘triple A’ rating, a label given to them by their previous ANZ bank manager. They negotiated new business loans that were well within the NAB’s lending ratio and, with the manager’s help, they put together a business plan and began implementing this business plan in October 1995. The purchased childcare centre catered to children but not babies. The plan was to erect an adjacent childcare centre for babies, complementary to the existing centre and the vehicle for building a stable and loyal client base.

Throughout 1996, the business was enhancing its profitability, product of expansion from 85% to 100% of capacity, and was ready to expand with the construction of the second, adjoining childcare centre.

This period of pending expansion coincided with the commencement of major NAB internal restructuring, resulting in a sustained period of downsizing with the closing of branches and retrenchment of staff. The McMinn’s trusted commercial manager was a casualty in this downsizing. They were never assured that his original business advice would be followed through with the new manager.

The McMinns had four different managers in quick succession handling their account. In August 1996, a fifth manager re-endorsed the soundness of the original business plan (jointly developed by the NAB and Alan McMinn) and agreed that the business expansion should proceed as planned.

At the critical point when the expansion had to commence to be ready for the commencement of the school year in 1997, in September 1996 the new manager reported to Mr McMinn that “head office was in a mess due to ongoing restructuring and staff changes, but the loan would be OK so go ahead with planning while he prepared and completed NAB paperwork”. On this basis, the McMinns believed him to be speaking on behalf of the NAB, and they proceeded with preparing to build. Timing was critical for the building to commence by November 1996 and be ready for trading by end January 1997, as this is when parents make childcare decisions for the year.

Suddenly in December 1996, at some senior level of the NAB it was ordered that building work stopped on-site, and a senior officer was sent to appraise the project. Despite McMinn’s efforts to ascertain the reason for the bank’s delay and to organise its immediate resolution, no reasons were given by the bank, and the delay continued. Approval to restart building was not granted by the NAB until March 1997. This unnecessary delay dramatically undermined the business plan, and caused irreparable damage to the previously strong company. Trading during 1997 was below business plan projections because the new development missed the start of the school year. Families in need of the baby centre (some had even planned their babies in expectation of the centre’s availability) moved their children from the existing centre, and capacity declined.

McMinn believes that, during 1997-2000, the NAB was culpable both because of mismanagement of his account as well as mismanagement resulting from NAB’s own internal restructuring. As a reflection of the dysfunctionality associated with bank restructuring, in the 3 ½ year period to mid-2000, eleven people filled in for the manager with whom the McMinns had re-established a viable relationship with in late 1996.

As a consequence of the delayed completion, debt repayments ran into difficulty and the McMinns sought a restructuring of their loan commitments. The bank declined and moved the McMinns from bills to an overdraft and a penalty interest rate of 13%, up from 7%. The bank soon foreclosed on the business.

The bank sold the McMinn business property at a significantly undervalued price. The property was purchased in October 1995 for $1,200,000. There was a valuation in 1996 by Herron Todd White of the expected value of the two businesses (with the expected completion of the baby care centre) of $2,050,000.

With the McMinns under pressure to sell the property following foreclosure, they obtained a contract for $1,700,000, the same day that the bank appointed Arthur Anderson as receiver. The offerers heard about the receivership, and made a reduced offer of $1.51m. The receiver claimed that the offer was not genuine, although no contact was made with the offerer. However, the offerer subsequently purchased three child-care centres for $3m., giving substance to the McMinn offer.

The bank sold the property for $1,180,000, in July 2000 with settlement in September. The property was sold rapidly and by tender, not by auction.

The McMinns have now lost all their assets, including the family home.