Arena TV – Lessons Learnt
In November 2021, Arena Television went into administration...
In November 2021, Arena Television went into administration. It was reported by the administrators that Arena owed a total of £282 million across 55 funders. It was believed that most of the outstanding debt was irrecoverable due to an alleged fraud.
A Sunday Times report in December 2021 stated: “The scandal is thought to be one of the biggest alleged frauds in the history of asset-based lending.”
Given the scale of the impact following the collapse of Arena Television (with respect to its footprint across the asset finance industry), the extent and sophistication of the alleged fraud and the speed of its collapse, it is expected that many banks and finance companies, whether directly impacted by Arena or not, will look to review their own credit and operational processes and policies.
What are the lessons learnt and how will things change?
The internal reviews will no doubt result in additional pre-financing steps and / or conditions of acceptance for funding. There will also be a tightening of ongoing obligations during the term of any finance facilities put in place.
Increased supplier due diligence and examination of the chain of title
Banks and finance companies should be making further investigations into the background and financial standing of the supplier who will be raising the invoice. Are the assets to be financed being supplied by an OEM, one of their recognised and approved dealers or a well-known and well-established asset reseller / supplier?
It is a well-established common law that the transferor of goods cannot pass a better title than they themselves possess and therefore the emphasis is on the third-party buyer (in this case, the bank or finance company) to check the seller's title. If the assets are used, then it may make sense to have sight of the original invoice and proof of payment as part of checking the chain of title.
A further result of the Arena Television case is that banks and finance companies will require their own staff, brokers or agents to inspect the assets and “touch metal" prior to financing in order to give comfort as to the assets' existence, locations and condition and to confirm that no other financier has a registered mark or interest on the assets to be financed.
Ongoing and annual review audits
Banks and finance companies may also place more focus on carrying out inspections or annual audits during the term of the financing and as part of annual reviews to ensure that financed assets remain in existence and any labelling or nameplates remain attached thereto. If the assets are out on hire, then a more detailed Sub-Hire audit may be required where further checks are undertaken on the supporting documentation, hire systems and controls in place to verify and evidence the existence of the assets.
Notification and recording of interest in the financed equipment
Although it is a standard provision in most asset finance agreements that a bank or finance company can attach a nameplate or label to an asset to give it a unique identifier and denote it is subject to third party financing, the reality is that historically this has not always been strictly enforced. Following the Arena Television case, it may be expected that this may change, with banks and finance companies placing more focus on nameplate/labelling requirements and looking at ways of recording their interest on registers such as Hpi.
Applying a nameplate or label to an item of equipment or registering it on Hpi does not in itself establish title to an asset, but it may help evidence title and provide protection to a funder against any subsequent third-party interest in the asset if that third-party subsequently inspected the assets or searched the Hpi register. Of course, it must be noted that nameplates or labels can be changed or removed and as such they may just act as a deterrent.
Increased obligations on brokers and other intermediaries
The Arena Television case has highlighted to banks and finance companies the need to be close to the detail in terms of the assets they are financing. In many cases, the opportunity to provide finance has come via a broker or intermediary and, as such, it is vital that the banks and finance companies have rigorous approval and onboarding processes in place to make sure the broker or intermediary is fully aware of their obligations to the funder. This is especially important when it comes to making sure that the assets to be financed do, in fact, exist and that the funder can gain clean title prior to funding.
None of the aforementioned pre-funding steps or conditions are new for asset finance customers. However, considering the Arena Television case, banks and finance companies will be adopting a more comprehensive approach to title issues.
How can VAS help?
Before the Arena Television administration, we at VAS were already providing Sub-Hire audits to our clients to verify the existence, location and condition of the assets on finance through physical inspections and the auditing of supporting documentation, systems and controls.
Following the failure of Arena Television, VAS has been able to provide both existing and new clients with asset inspections and Sub-Hire audits by utilising our national team of 115 auditors and our digital SMART system.
We can provide:
Pre-pay out asset inspections
In-life asset inspections
Annual review asset inspections
For more details on how VAS can assist you with your Risk Management and Audit requirements, please contact Grant West: email@example.com