Home insulation fiasco’s lingering victims: small businesses

By: Hedley Thomas From: The Australian  July 02, 2015

 

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Matthew Hannam at his factory yesterday. Picture: Peter Wallis. Source: News Corp Australia

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Kevin Rudd leaves the Brisbane inquiry in 2014. Picture: Jack Tran. Source: News Corp Australia

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Tony Abbott in 2013 promised an insulation inquiry. Picture: Gary Ramage. Source: News Corp Australia

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Royal commissioner Ian Hanger in the hearings.

Matthew Hannam wrote a letter to Tony Abbott a fortnight ago. The tone is more one of sorrow than anger. He does not know if it was seen by the Prime Minister. But the Brisbane small-business owner needed to get it off his chest.

Hannam still bears crippling fin­ancial losses from the Rudd government’s disastrous home insulation program. In his letter, he recalled a key meeting a few weeks before the 2013 federal election. The election campaign had many fronts: one saw Abbott, with Greg Hunt as his opposition environment spokesman, going after the reinstated PM, Kevin Rudd, over the deadly insulation program. The focus on the Rudd government’s recklessness in endangering lives, wasting public funds and destroying the small businesses of installers played well before voters went to the polls.

“In August 2013 during the federal election campaign you came to my factory at Coorparoo in Queensland to speak with me about the devastation caused to my business, family and health by the Rudd government’s home insulation program,’’ Hannam’s letter reminded Abbott.

“My wife Suzanne and I spent over 20 minutes with you and Greg Hunt. It was a private meeting in which we discussed how a hardworking entrepreneurial family, which had built a group of great small businesses, had been betrayed by the former Labor government. It turned its back on us and left our businesses destroyed through its ill-conceived and defectively managed program.

“I was so grateful to learn that an incoming Coalition government intended to announce a judicial inquiry into the (program). When (the royal commissioner, Ian Hanger QC) recommended payment of compensation, I believed that finally we would be compensated for our heartache and losses.”

Hannam says he has “hung on these past two years fighting with the tax office and trying to scrape by and I thought we could see the light at the of the tunnel”.

But today, after Hanger’s $20 million royal commission, after reams of evidence of bureaucratic bungling that destroyed businesses and drained the assets of the families running them, and after repeated pledges by Abbott and Hunt to implement Hanger’s recommendations to compensate those people who were financially ruined and lost their livelihoods, Hannam and many others say they are being shafted again.

Some insulation installers, led by the indefatigable Peter Stewart, now suspect they were moved like chess pieces in a political game of shaming Rudd and co. They say the Abbott government has failed to keep its promises after extracting great political capital from the public kicking of Labor before the election, and then during the hearings of the royal commission. These installers question if they were wheeled out for the television cameras and given assur­ances because they were political gold.

“Our members described the hijacking and destruction of an industry, they described the sheer recklessness of the Rudd government and the complicity of its ministers,’’ says Stewart. “I believe that the government’s current actions are at best comparable to the total disregard shown by the previous Labor government, but made worse by the complete betrayal of our good faith and trust that they now seem to have (done) simply for political purposes.

“Mr Abbott has often said he does not want himself or his government to be likened to Mr Rudd or the previous Labor government. At this point I see little difference.”

It was at Hannam’s factory that Abbott and Hunt announced the Coalition’s pre-election commitment to a public inquiry, a royal commission, with media fanfare. “He was a useful pawn at the time,’’ Stewart says of Hannam.

Hannam wrote: “I now learn that none of my businesses are eligible for compensation. There are dozens of family businesses just like mine that were ruined by the (home insulation program). Mr Abbott, I can’t believe that you intended this.”

The reasons for the angst after two years of optimism are simple: these small-business owners, whose losses are estimated to run at between $100m and $200m, say the Abbott government and their advisers moved the goalposts. They say that since about February this year, when Ian Macfarlane took charge in his role as Industry Minister, there has been scant regard for all the earlier promises and the recommendations of the commission. The word compensation, which has a legal definition and regularly was used by Abbott and Hunt in their ­pledges, is specifically no longer in play.

Hannam, who says his losses run to millions, tells The Australian: “I’m not going to get squat. The businesses that were most severely damaged will not be helped because the design of the scheme is not practical, it is not affordable and it is not compensation. There will be just more money for lawyers, liquidators and the tax office. I cannot for the life of me work out why the government would want to run it this way.”

Hanger’s recommendations, including that there should be a transparent compensation program run independently of government, largely have been dis­regarded. Instead of compen­sa­tion there is a “payment scheme” run by Macfarlane’s department. Insulation businesses that failed and went into liquidation must be re-registered to be eligible for the payment scheme, which means there will be a new financial burden of an estimated $8000 in costs.

But on re-registration, the creditors (in many cases the Australian Taxation Office) will be able to lay first claim to any payments. Hannam says installers will be responsible for 100 per cent of the debts of their reinstated companies, with no guarantees they will receive anything under the payment scheme after liquidators and other creditors have taken their cut.

Despite written undertakings by Hunt, there is no independent mediator in Macfarlane’s payment scheme, which opened for applications on June 1 and closes on July 13. There will be no publicly funded legal representation to help installers press claims.

And in what is believed to be a first, Hanger, whose office of the royal commission received $8m in public funds during his $20m inquiry, has been signed up as a paid contractor for Macfarlane and his department. In this new role, Hanger is acting on behalf of the minister to unveil to business owners the assessment of their payments. Hanger has been recast as a presenter, not an independent mediator, as was first proposed.

A team of Deloitte Touche overseas projects staff in India, where the financial documents of consenting installers are being sent, will handle data processing, and in Australia their Deloitte counterparts advising Macfarlane will determine a proposed payment figure.

The scheme permits Hanger an option to try to argue the toss with his employer, Macfarlane; however, Hanger has lost the weight and independence he had as commissioner. The minister’s decision is final. Macfarlane’s office has declined to disclose the amount of money in the payment scheme or the fees being paid to Hanger, while the office of Attorney-­General George Brandis refuses to ­disclose how much of the $8m was paid directly to Hanger for his service as royal commissioner for the eight months to September last year.

According to senior legal and judicial sources, it is unprecedented for a royal commissioner to hand down his report, then return as an adviser on behalf of the government with duties including direct PR with affected installers.

The other oddity is that in Hanger’s advisory role he is going along with a scheme that is distinctly different from the one he recommended as commissioner. Several installers and industry sources interviewed by The Australian insist Hanger must be privately disappointed at the way the new scheme has been set up, and they believe he will help where possible. From the outset they lobbied for him to be involved — but as a truly independent mediator.

Macfarlane, who says Hanger supports the framework, tells The Australian: “The guidelines for the scheme do reflect the recommendation of the royal commission and are based on legal advice by the Australian Solicitor-General and the Attorney-General. Mr Hanger has agreed to the guidelines and the operation of the scheme. Mr Hanger is a ministerial appointment. As an independent expert adviser he brings with him more knowledge of the circumstances of businesses impacted by the (program) than any other person.”

Macfarlane adds that “the Abbott government has advice from the Australian Solicitor-General and the Attorney-General that the government is not legally liable for losses relating to the operation of the Labor government’s (program)”. Based on that advice the payment scheme, he says, “is not a compensation scheme and does not carry the legal liability and framework of a compensation scheme”.

“I have made it clear to the insulation industry that the (payment scheme) is an administered scheme that recognises the government’s moral obligation to provide payments to those businesses that suffered an adverse financial impact as a direct consequence of the (program). (It) does not provide compensation nor does it replace any options for legal redress.”

It is a matter of public record that the businesses that were worst affected were forced to fold. According to Macfarlane, they need to be reinstated as “there is no cap­acity for the government to make a lawful payment to a nonexistent business”.

He says: “A decision to seek reinstatement is one for the former directors of deregistered companies. Not all pre-existing businesses are deregistered companies, nor necessarily do deregistered businesses have outstanding debts, including debts to the ATO. The Corporations Act 2001, the Income Tax Assessment Act 1997 and the Bankruptcy Act 1966 govern the requirements for the repayment of debts to creditors.”

Hannam asks: “Why throw good money after bad and endure more heartache only to be burdened with more debt?”

Hanger has declined to respond to written questions from The Australian, saying: “I understand where you are coming from. I don’t feel conflicted. I’m not prepared to talk about it.”

The home insulation program aimed to achieve a staggering 15-fold increase in the number of installations a year but the policy planning was extraordinarily shoddy.

In Hanger’s 361-page report as royal commissioner, he found the Rudd government in its quest to stimulate the economy amid the global financial crisis had given “numerous clear assurances to industry that the (program) would continue for some considerable time”. The sudden decision to end it after four installers died and more than 200 house fires “brought about the complete collapse in demand for insulation in homes”.

Hanger described a “profound effect on businesses which manufactured insulation and which were engaged in the installation of it. In particular, businesses that had operated quite profitably and stably before the announcement of the (program) were encouraged by the Australian government … to engage workers, increase production of insulation by investing in manufacturing facilities and equipment, and to conduct a very large number of installations in a short space of time. When the (program) was suspended in mid-February 2010, it was without warning to these and other businesses, with the effect that … considerable losses incurred.”

He ruled: “The effect of the losses was to devastate many longstanding businesses — some family companies, in effect — and to cause, as well, personal financial collapse and severe despair and emotional harm. That harm and such circumstances justifies pre-existing businesses being compensated.”

Specifically, Hanger recommended “arrangements be put in place for compensating those pre-existing businesses who suffered loss arising from their reliance upon the assurances given by the Australian government”. Hanger added: “It would be essential, however, for such a scheme to have any realistic prospect of achieving the objects that I consider essential, that it not be one run by the government itself. It has shown itself in the manner I have shown to lack insight into its own shortcomings.”

Hunt responded in September last year: “The government recognised that there was a manifest finding of fault against the then government of Australia. That is a deep moral responsibility. It’s also a legal duty.” Abbott told parliament his government would “develop options for a scheme that will compensate those pre-existing businesses adversely affected”.

Stewart says the turnaround is bewildering: “We were promised compensation and a transparent and independent process, and we are being given the exact opposite.”

He has told Abbott in writing, and in a private meeting in March this year, that the Macfarlane payment scheme represents “a broken promise and a betrayal of our members and the wider insulation industry”.

“Your government expects our financially ruined members to deal directly with the Department of Industry, receive an offer of payment not related to their actual losses caused by the (program) and then sign a deed of release giving away their legal rights.

“Some people have tried to keep their business going because of promises made by your government, and have suffered further losses as a result.”

Stewart points out that two of the senior public servants who were closely tied to the home insulation debacle under Rudd, and who were called to give evidence, are now in charge of Macfarlane’s Industry Department, which is running the payment scheme.

“The scheme is far from open and transparent. In the circumstances, it is impossible for us to believe that it will be equitable,’’ Stewart says.

Karen Stott, a partner at McLaughlin & Riordan lawyers, which has advised the installers since 2010 and may run a class action, says up to one-third of the client base of installers lost their businesses, and are being let down again.

She says: “Why would any former business owner try to (re-register their company and enliven their debts) just to be able to lodge an application if the payment turns out to be token or does not even cover the pre-existing debts and reinstatement costs?”