- The royal commission was told KordaMentha ripped out chandeliers worth $180,000 when appointed receivers to the Hadleys Hotel development in Tasmania.
- The developer, Michael Doherty, was bankrupted after Commonwealth Bank-owned Bankwest went on what he called a “cash grab”.
- He says he was asked to sign, under duress, a document saying the bank had done no wrong.
Receivers KordaMentha started ripping out chandeliers worth $180,000 when appointed to the Hadleys Hotel development in Hobart, the royal commission into financial services was told today.
They also ordered the cafe fitout, which had cost $450,000, be changed.
The royal commission is looking at the case study of developer Michael Doherty who borrowed from the Commonwealth bank-owned Bankwest to finance the project only to find that the bank kept changing the parameters of the loans.
Evidence was given that Bankwest misunderstood the nature of the project, had increased the interest rate in 2009, had required expensive reports from accountants and didn’t respond to requests to explain why the bank was changing the loan agreement.
“It was drawing our cash flow down and down,” says Doherty. “It was a cash grab.”
Receivers were appointed in January 2012.
“That’s when it gets more bizarre,” Doherty told the royal commission.
“The building was built to a Peppers [a hotel management group] standard. There was over $180,000 worth of chandeliers on the ground and conference areas. They pulled all the chandeliers out and embarked on a refurbishing campaign.
“For some reason the receivers decided they didn’t like the decor.
“The hotel had not traded yet but yet was going through a major refurbish. I believe the works they did took them five or six months.”
Doherty took court action to try to stop the receivers but failed.
He said KordaMentha partner David Winterbottom then barred him from the hotel, calling him a “distraction”.
Bankwest called in Doherty’s loans from other businesses. He had borrowed $50 million for the Hadleys Hotel project, including residential apartments, a hotel, and a public car park, which was valued at $80 million.
The property was then sold. Doherty wasn’t told the sale price.
He was asked to sign a document acknowledging the bank had done no wrong and had always acted in a proper manner.
“We thought it was done totally under duress. We were very stressed by it. We sent copies of that to Senator (John) Williams and to Senator Bob Brown (former Greens leader).
“The feedback from them was: ‘You have nowhere to turn. You are being blackmailed, Michael. Just take it and hope that sometime in the future it will come up in another forum.’
“We were totally bankrupted. Lost houses, the whole scenario.”
Later at the royal commission, Commonwealth Bank chief credit officer Peter Clark was asked about Project Magellan, a review of valuations for 1200 Bankwest loans started after the CBA took over the bank in 2008.
“I think it was is common knowledge within the bank, and banking generally, that post GFC, there were concerns about the property books of all banks, and Bankwest was heavily invested in property,” he said.
The bank eventually sold the Hadleys Hotel development, including apartments, for $33.2 million, after around a year of operation.
Clark said Bankwest made a “very significant loss”, about $38 million.
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