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On Tuesday morning, Westpac’s general manager of commercial banking, Alastair Welsh, appeared in the witness box, where he gave evidence about a case study involving disabled pensioner Carolyn Flanagan.
Ms Flanagan sought legal advice after being told by Westpac that her home would be sold to recoup losses incurred by the bank after her daughter failed to repay a business loan in which she was signed to as a guarantor.
Westpac’s Mr Welsh told the commission that he had reviewed the loan including all supporting documentation such as the business plan, franchise agreement and profit and loss statement. He confirmed that he was satisfied that Westpac followed its process and that the requisite level of care and skill was exercised to satisfy the bank’s obligations under the Banking Code of Practice.
The loan applicants were Ms Flanagan’s daughter and her partner, whose identities have been suppressed by the commission.
The commission heard that the couple had $5,000 of their own money and required an additional $160,000 from the bank, for the purpose of acquiring a Poolwerx franchise business in the Glenmore Park area of Western Sydney.
The partner had previously been an employee of a Poolwerx store in Penrith. However, following the closure of that franchise, the partner decided to open a mobile service under the Poolwerx franchise but would not be opening a store.
The Westpac business loan for this purpose was applied for on 23 September 2010.
A franchise agreement signed on 6 August, and submitted as evidence to the commission, shows a deposit for the sum of $10,000 was to be paid immediately and the balance of $75,409.09 plus GST to be paid by no later than 31 August 2010.
The business loan was therefore applied for almost a month after the franchise had to be purchased.
“Would the date that the franchising fee has to be paid be a relevant matter to assessing whether credit should be provided?” asked senior counsel assisting Michael Hodge QC.
“You would want to know the cash flows,” Westpac’s general manager of commercial banking replied.
“If a borrower is borrowing money in order to buy a franchise, wouldn’t it be relevant to know whether or not they’ve already bought the franchise?” Mr Hodge continued. “This application is being made on 23 September 2010. The franchise agreement that the borrower has provided to your bank shows that the entire price for the franchise or the initial franchising fee was to be paid by 31 August 2010. Is that something that you would expect to raise a red flag within Westpac?”
“No,” Mr Welsh said.
Mr Hodge then asked what the $160,000 was being used for.
“Well, the — that’s what a document — this document you’re — on the facts of it is right, and that — I’m not doubting that that’s what the money was, but there would have had to be a payment, and as I tried to explain a little earlier, that would have been going through a set process. So, you know, the monies would have had to come from somewhere and he was seeking money to buy it, so the loan — he didn’t sign the agreements until December. So, you know, sorry, I didn’t — I didn’t explore this at great depth,” the Westpac banker replied.
“Are you saying if he had already paid the $85,409.09 by 31 August 2010, he must still have obtained the money from somewhere to do that? Not from you but from somewhere?” Mr Hodge asked.
“Hypothetically, yes,” Mr Welsh said.
“And, therefore, perhaps he was taking out the loan in order to reimburse whatever source he had used to pay for it. Is that your speculation?”
Mr Welsh replied: “On — on this read of the facts, you know, I suppose — I suppose that could be the case.”
“Well, you just have no idea, do you?” Mr Hodge asked.
“No, I don’t. Sorry, that’s why I’m struggling,” the Westpac general manager replied.
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