There are some benefits of having a receiver declare status but there is also a major responsibility which would make you wonder why anyone would take on such a significant risk. If CEOs were aware of the potential for multi-million dollar liabilities then it is doubtful that they would allow their company to operate as a receiver declare.
It would also be concerning for pallet hire companies if a company they have granted receiver declare status to is seen to be unable to fulfil their responsibilities. Pallet hire companies do not grant receiver declare status to any company - you would have to meet the pallet hire company's requirements.
What is a receiver declare account? It is one where the receiver takes on the responsibility of notifying pallet hire companies of transfers on to their accounts. If they fail in this responsibility then their company stands to make significant benefits at the expense of others.
This is where they could face sizeable penalties for "unjust enrichment" from the Australian Competition and Consumer Commission. In addition to this they could also face having to accept transfers going back to the original transfer date. This could be millions of dollars exposure.
The often used 6 month limit on claims would not be much of a defence. A receiver declare account could be exposed to claims going back 6 years. If in doubt get legal advice.
The following is a fictional story from Palletland - its about receiver declare accounts. The setting is at the head office of Alco Big Shop, a major retailer.
Pallet manager, Daphne Brooks, was having a good day. Her annual appraisal had gone well but her contented frame of mind was interrupted by the phone ringing.
"Good morning, Daphne. Its Gerald Dawson here. We have a new risk manager who has just joined us and he wants to find out how we manage pallets. His name is William Sharp. Can you put aside an hour at 2.00pm and he will come to your office?"
When the company's all powerful Chief Financial Officer gives you a call you take it seriously and Daphne affirmed that she would be available. I wonder what he wants, she thought. I haven't come across a risk manager before but nobody in the company knows much about pallets so he'll have to rely on me filling him in.
William Sharp arrived at her office exactly at 2.00pm. "Hello, you must be Daphne," he said as he shook her hand. "Yes, and you must be William. Tell me what does a risk manager want to know about pallets?" as she invited him to sit in one of the visitor chairs.
"First let me tell a little bit about myself. I have come from the banking industry so I know absolutely nothing about pallets. My role is to ensure that Alco is not exposed to any risk so I am visiting all parts of the company to make sure that the Board are made aware of any areas for concern. Another important part of my role is to remove or minimise that risk".
"OK, well you won't find any risk in my area. We are what's called a receiver declare which means that nothing can come on to our pallet accounts unless we put it there. We also have no financial liability as our account is normally in credit and we delay the transfer of hire by 32 days so we don't pay anything for our pallets. If anybody does make a claim on us they've got to do it within 6 months otherwise they will be too late - its all in our policy. There is the odd time when someone may threaten us with legal action but we normally have it fixed before it goes any further. There's not much more to it and I don't think I've missed anything", Daphne looked inquiringly at the risk manager who had made a neat list of bullet points on his leather bound notepad.
"Thank you, Daphne. You'll have to forgive me if I ask some obvious questions as you'll appreciate that this is all new to me. I also have to be thorough and if I'm not clear I will keep asking questions until I get it".
"Sounds good," Daphne replied. A slight frown had appeared on her brow. She didn't expect too many questions given the overview she had given. She didn't like the look of the bullet list which appeared to be quite lengthy but she didn't have a choice. Anyone who had a leather bound notebook was quite senior but when you have your name embossed in gold letters on it then this was not someone to trifle with.
"Can you explain more about receiver declare? How does it work?"
"We have an agreement with the pallet hire companies that they will only process transfers on to our accounts if we notify them. They will not process a transfer if the other party tries to notify them. When we get a delivery to one of our DCs - that means a distribution centre - the driver, let's say Tom the Trucky, gives our staff two copies of a pallet transfer docket. We sign it, give the driver back a copy and the other copy is given to the DC pallet controller who will enter it into our pallet control system. This information is exported to the pallet hire companies every night. It then appears on the next pallet hire invoice".
William had been making some more bullet points and they already had filled the first page. He said, "That sounds like quite a good system so tell me, what could possibly go wrong with it?"
"Hardly anything goes wrong. As I've said nothing can come onto our account unless we do the notification", Daphne sighed. Its hard to explain to people who don't know pallets.
"OK. Do you ever fail to do the notification and if you do what are the ramifications?"
"There are times when some of our suppliers or carriers come back to us claiming that their transfers have not been processed. If they can provide a pallet docket signed by us then we will accept it but only 32 days from when they first notify us. If they try to make a claim which is over 6 months old then we just let them know that we can't accept it as our policy says we can't."
The risk manager stood up and walked to the window. "I'm not sure I got that. Your suppliers and their carriers rely on Alco to process their transfers. Aren't you obligated to ensure that you do it and if you don't surely you need to process the transfer at the original date you was supposed to - regardless of how old it is?"
Daphne reddened, there had been times when she had thought the same. "It's not our responsibility to manage other company's accounts. If they don't reconcile their account every month they deserve to lose their pallets".
William was still taking notes, even standing up. "It sounds a bit harsh. How often does Alco reconcile its pallet accounts?"
"We are too big to reconcile every month so we do it every 6 months".
"If a supplier or carrier can provide a signed pallet docket then that would indicate that something is amiss within Alco as we clearly have received the pallets. How many pallets in a year are claimed due to Alco not processing transfer ons?" William inquired.
Daphne shrugged, "I couldn't put a number on it".
"This is important. Are we speaking hundreds or thousands. Just give me a feel for it".
"Could be around hundred", Daphne said.
"Hundred, oh well, that's acceptable. Everybody can make the odd mistake now and then". William took out a green pen and placed a tick against the first bullet point.
Daphne shook her head, "No, not a hundred. I meant a hundred thousand".
William sat down and shook his head, "What! Are you telling me that we miss notifying 100,000 pallets to the pallet hire companies and does that mean that we gain the use of all these pallets for nothing?"
Daphne felt stressed by the tone of William's voice. It sounded almost hostile. "Dockets do go missing between our forklift truck and our pallet controller. We have quite a few staff who could do with more training. There's nothing I can do if the dockets get lost"
William was now sitting on the edge of her desk. "What I'm seeing here is a significant risk. Tell me if I am wrong. We have taken on the responsibility of notifying the pallet hire companies about transfers on to Alco accounts. We fail to do this in a fairly major way and then we avoid accepting the transfer if the other party doesn't pick it up in 6 months? We gain free use of pallets which remain on hire to the other parties. Surely they don't accept this - what do they do and what is the penalty to them?"
"It's up to them. They could pay compensation for the lost pallets to the pallet hire companies or they could keep on paying their daily hire rate. Like I said it's up to them. We can't be held responsible if they can't manage their pallets properly." Daphne was now getting flustered and didn't like where this was going.
"Daphne, you are the expert in this field but can't you see that this is just plain wrong. The policy is wrong, the ethics are wrong, everything is wrong with this way of working. If you haven't heard of the term 'unjust enrichment' then I suggest you have a look at the ACCC website. Can I see the Alco policy and who wrote it?"
Daphne opened a filing cabinet and pulled out a one page document. "I wrote it." she said as she passed it to the risk manager.
It took William less than a minute to read it. "Has this been checked by legal?"
"Yes, it has been. It has all been approved before I sent it out", Daphne said.
"Well, Daphne, I see this as a serious risk. A considerable risk. A very significant financial risk and a potential public relations disaster. I have never come across anything like this before. I am shocked. I'll have to go direct to the CEO on this."
The risk manager closed his notebook which had red crosses against every bullet point. As he walked from the pallet manager's office he was walking quickly and with purpose. There was not a minute to waste.
Half an hour later, Daphne looked fearfully at the phone as it rang. She could see from the phone display that the call was from the CEO's personal assistant.