itsa figures for oct to dec 2011, page-17

Good posts. Realised I didn't properly understand the debt agreements. After investigation, everything hinges around the change in legislation on 1 July 2007. The changes impacted as follows:

Agreement before 1 July 2007 (type 1 contract)
- Unsecured but had priority payment (of our fees, before all creditor distributions)
- Admin fees were received in advance
- "Net cash payments for institutional creditor distributions" in C/flow, shows the net cash movement on these agreements.

Agreement after 1 July 2007 (type 2 contract)
- Unsecured and no priority to payment of fees
- Fees paid in arrears (so we accrue)

The change in legislation created a barrier to entry. That's true, but I'm now somewhat less bullish. The legislation discouraged competitors because the above changes make payment less uncertain for the administrator.

As time moves on, the type 2 contract dominates, so we now accrue significant fees with accounts receivable ballooning to $77m (gross). That's why accounts receivable has ballooned (it's from the change in the mix, not primarily from growth). In fact, once the majority of creditors approve an agreement, we immediately accrue the full fees due over the term of the agreement.

This type of debt still involves a fair amount of work and cost. Current year collection cost are accrued, but not the run-out years. In my opinion, this overstates NTA. It's not like a normal sale where you accrue the revenue and the money comes in without much further time and effort.

A debtor who proposes a debt agreement must be insolvent. Their debts are typically consumer debts - credit cards, personal loans. DA's don't cover secured debts - which must still be repaid in full. Given that, it's not surprising that 90% of Debt Agreement debtors don't have their own home.

The market shuns us somewhat for working the lower end of the pool. I suspect there's concern that they're poor quality debtors to be an unsecured creditor for - which is what we are for all of our fees accrual (we post an impairment estimating 16% of agreements won't be honoured, which gets the total down to $65m). There'll be concern about the size of the accrual in relation to the size of the company.

DYOR but the newish legislation forced this less secure position on us. Anyone else arrive at a similar conclusion.