Steele, Stacey --- "Lessons (to Be) Learnt from the Opes Prime Insolvency" [2008] MelbULawRw 35; (2008) 32(3) Melbourne University Law Review 1127
[*] BA (UQ), LLB (Hons) (Melb), MA (Monash), LLM (Melb); Lecturer and Associate Director (Japan), Asian Law Centre, Melbourne Law School, The University of Melbourne. Between March 2000 and September 2007, the author worked at a leading commercial law firm for banking and finance clients, including Australia and New Zealand Banking Group Ltd. The author did not work on margin lending matters.
[†] As with the Ansett collapse, this body of literature is likely to include work by lawyers acting for the interested parties: see, eg, Peter Smith et al, Freehills, ‘The Ansett Administration: “Section 447A at Full Throttle”’ (copy on file with author). This article was by employees of Freehills, which acted for Air New Zealand Ltd. See also Leon Zwier, Dany Merkel and Ian Buchanan, ‘Ansett Administration Court‑Approved Websites’ (2002) 76(10) Law Institute Journal 46. Leon Zwier, a partner at Arnold Bloch Leibler, was the administrators’ lawyer.
[‡] For a useful, easily understood guide to margin lending, see the Australian Securities and Investments Commission’s (‘ASIC’) consumer website and, in particular: ASIC, Margin Loans (29 October 2008) Fido: Australian Securities & Investments Commission Financial Tips and Safety Checks <http://www.fido.gov.au/fido/fido.nsf/byHeadline/borrowing%20money%20to%
20invest%20margin%20lending>. The following description of margin loans is based on ASIC’s summary.
[§] Ibid.
[**] For an analysis of whether the shares formed ‘security’ in a legal or commercial sense, see below Part V(A).
[††] RBA, Statement on Monetary Policy (9 May 2008) 49, citing rates as at 6 May 2008. See also Zoë Fielding, ‘Spate of Margin Calls Spooks Investors’, The Weekend Australian Financial Review (Sydney), 10–11 May 2008, 5.
[‡‡] ASIC, Margin Loans, above n 2.
[§§] Ibid.
[***] Ibid.
[†††] Ibid.
[‡‡‡] Ibid. For a discussion of ways that margin lending is supervised in Australia, see Matthew Drummond, ‘No Sheriff Patrolling the Financial Frontier’, The Australian Financial Review (Sydney), 22 May 2008, 77.
[§§§] See comments by Eric Mayne, Chief Markets Supervision Officer of the ASX, and Tony D’Aloisio, Chairman of ASIC, as noted in Matthew Drummond, ‘ASX Warned on Opes’, The Australian Financial Review (Sydney), 23 May 2008, 9; Bryan Frith, ‘Once More unto the Breach: Regulator Moved to Beef Up Supervision on Concerns over ASX’, The Australian (Sydney), 23 May 2008, 22.
[****] Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group Ltd [2008] FCA 594; (2008) 246 ALR 361, 365 (‘Beconwood’).
[††††] Ibid. For more on the Securities and Exchange Commission and its role in administering the Securities Exchange Act of 1934, 15 USC §§ 78a–nn (2006), see US Securities and Exchange Commission, The Laws That Govern the Securities Industry (26 September 2008) <http://www.sec.gov/about/laws.shtml#secexact1934> Securities Industry and Financial Markets Association, Securities Exchange Act of 1934 (2008) <http://www.sifma.org/legislative/
sec_exchange_act_of_1934.html>.
[‡‡‡‡] The calls are in line with federal plans for ASIC to regulate other finance‑related industries, including the mortgage broking industry, which the states currently regulate: see, eg, Mortgage & Finance Association of Australia, M&FB Online (9 April 2008) <http://www.
mfaa.com.au/default.asp?artid=2224> under the heading ‘Commonwealth to Assume Mortgage and Credit Jurisdiction’. Tony D’Aloisio, Chairman of ASIC, is considering the possibility of ASIC expanding its regulatory authority over stockbrokers to include margin lending activities: Matthew Drummond and Patrick Durkin, ‘ASIC Crackdown on Stockbrokers’, The Australian Financial Review (Sydney), 23 May 2008, 1. For academic commentary on unified approaches to financial market regulation, see, eg, V Sundararajan and Barbara Baldwin, ‘Regulation of Financial Conglomerates: Is Unification of Financial Sector Supervision the Answer?’ in T T Ram Mohan, Rupa Rege Nitsure and Mathew Joseph (eds), Regulation of Financial Intermediaries in Emerging Markets (2005) 118. On the potential for issues to ‘fall between the cracks’ where there is more than one regulator involved, see Matthew Drummond and Joanne Gray, ‘Staking Claims in Market Territory’, The Weekend Australian Financial Review (Sydney),
24–25 May 2008, 23. For a commentary on the failures of market regulation, written in the context of the Enron scandal, see, eg, Donald C Langevoort, ‘The Regulators and the Financial Scandals’ in Jay W Lorsch, Leslie Berlowitz and Andy Zelleke (eds), Restoring Trust in American Business (2005) 63.
[§§§§] For the purpose of transparency, margin lenders provide the ASX with calculations in relation to counterparty exposure. According to Eric Mayne, Chief Markets Supervision Officer of the ASX, the information is not provided so that the ASX can ensure that brokers remain solvent. Tony D’Aloisio, Chairman of ASIC, noted that this was a ‘narrowing’ of the interpretation of the ASX’s role. For a report of the comments made by Mayne and D’Aloisio at a Securities & Derivatives Industry Conference held in Melbourne on 22 May 2008, see, eg, Frith, ‘Once More unto the Breach’, above n 11, 22.
ASIC, ‘ASIC Warns Investors over Margin Lending’ (Press Release, 18 January 2000)[.]
RBA, Bulletin Statistical Tables: Explanatory Notes to Tables (10 December 2008) 23 <http://
www[.]rba.gov.au/Statistics/Bulletin/NotesToTables.rtf>. The RBA collects the data from ‘banks and brokerage firms offering margin lending facilities.’
RBA, Bulletin Statistical Tables: Margin Lending — D10 (10 December 2008) <http://
www[.]rba.gov.au/Statistics/Bulletin/D10hist.xls>.
Ibid[. The ]RBA has been collecting data on a quarterly basis since the end of June 1999, although its data on some items, such as the number of client accounts and the average number of margin calls, commences from the end of September 2000.
Ibid[. ]See also RBA, Statement on Monetary Policy (9 May 2008) 50.
RBA, Bulletin Statistical Tables: Margin Lending — D10, above n [.].
For a discussion of Loan-to-Value Ratios[, ]see above Part II(A) and below Part III(A).
Personal credit increased by 13[.]1 per cent over 2007. According to the RBA, this was ‘around the average pace of growth over the past decade’, but a major difference was that a ‘significant contribution to this growth came from margin lending, which grew by 40 per cent’: RBA, Statement on Monetary Policy (11 February 2008) 44.
Australian Broadcasting Corporation, ‘Super Scare: Superannuation Minister Says Prepare for the Worst’, The 7:30 Report, 31 March 2008 <http://www[.]abc.net.au/7.30/content/2007/
s2203968.htm>; Alison Bell, ‘ANZ Personnel Being Sued over Opes Prime’, The Sydney Morning Herald (online), 31 December 2008 <http://news.smh.com.au/business/anz-personnel-being-sued-over-opes-prime-20081231-77v9.html> . The following account of Opes Prime’s origins is based on newspaper reports: see, eg, Rebecca Urban, ‘A Tale of Woe: How Little-Known Stockbroker Opes Prime Became a Spectacular Failure’, The Weekend Australian (Sydney), 5–6 April 2008, 39.
Opes Prime purchased some of Tricom Securities’ loan book: Adele Ferguson, ‘Tricom Duo to List Opes Prime’, The Australian (Sydney), 7 March 2008, 19 (erroneously referring to Julian Smith as ‘Julian King’)[. ]On the transactions between Opes Prime and Tricom, both of which were bankrolled by ANZ, see Michael West, ‘More than Meets the Eye when Large Lines of Opes Prime Stock Crosses Market’, BusinessDay, The Age (Melbourne), 1 April 2008, 10.
Urban, above n 24[.], 39. For further discussion of the ASLA, see below Part IV(B).
Ian Ramsay[, ]‘Opes Prime: Who Understood?’, BusinessDay, The Age (Melbourne), 1 April 2008, 10. Ramsay does not elaborate on which companies’ shares were involved, but securities outside of the S&P/ASX 300 might be regarded as speculative and illiquid.
The RBA noted in May 2008 that the small brokers suffering difficulties ‘did not restrict their lending to just the larger listed companies but lent against a wide range of smaller, less liquid listed entities, often at high loan to valuation ratios[. ]Further, some of their clients had substantial holdings in some small companies’: RBA, Statement on Monetary Policy (9 May 2008) 51.
Andrew Main, ‘Logic of Assessment Turned on Its Head’, The Australian (Sydney), 11 April 2008, 6[.]
Ibid[.]
Ibid[.]
Sally Patten and Andrew White, ‘ANZ Forces Opes Prime Share Sale’, The Australian Financial Review (Sydney), 31 March 2[0]08, 1, 59.
See Beconwood [2008] FCA 594; (2008) 246 ALR 361, 366–7 (Finkelstein J)[.]
According to the administrators’ preliminary review, issued in late March 2008, ‘[i]nitial investigations indicate that the solvency of the business was under pressure due to a number of major clients not meeting significant margin calls’: Ferrier Hodgson, ‘Opes Prime Group Placed in Administration’ (Press Release, 28 March 2008)[.]
See ibid[. ]See also John Lindholm, Adrian Brown and Peter McCluskey, Opes Prime Stockbroking Ltd (Administrators Appointed) (Receivers and Managers Appointed) ACN 086 294 028: Interim Report by Administrators (24 April 2008) 8. Media reports about what went on during this period are conflicting. Based on one report, ANZ may have been in discussions with Opes Prime from early March: Patten and White, above n 32, 59. Another report, quoting Minter Ellison partner Brendon Watkins, suggests that ANZ was surprised when directors asked for $95 000 000 worth of additional financial support on 19 March 2008: Michael Pelly, ‘Claims Pile Up “Just Like the Old Days”’, The Australian (Sydney), 11 April 2008, 6.
Lindholm, Brown and McCluskey, Interim Report by Administrators, above n 36<[.], 2. The term ‘Opes Prime Group’ is used here to refer to the Opes Prime companies placed into administration under Ferrier Hodgson on 27–28 March 2008. Opes Prime Group Ltd, Opes Prime Stockbroking Ltd, Leveraged Capital Pty Ltd, Hawkswood Investments Pty Ltd, Opes Prime Global Securities Pty Ltd and Trader Dealer Pty Ltd were placed into administration on 27 March 2008, while administrators were appointed to OP Hedged Strategies Pty Ltd on 28 March 2008: at annexure 1; Ferrier Hodgson, Opes Prime Stockbroking Ltd (8 January 2009) <http://
www.ferrierhodgson.com/Current%20Matters/Corporate%20Recovery%20Matters/Opes%20Prime%20Stockbroking%20Ltd.aspx>.
See Corporations Act ss 436A–436C[. ]Cf Michael West, ‘Opes Paper Trail on Trial’, BusinessDay, The Sydney Morning Herald (online), 2 June 2008 <http://business.smh.com.au/
business/opes-paper-trail-on-trial-20080602-2kqb.html>, which suggests that unsecured creditors should appoint their ‘own administrator’.
There is no empirical data available to support this claim, but it is supported b[y a]necdotal evidence: Colin Anderson and David Morrison, ‘Part 5.3A: The Impact of Changes to the Australian Corporate Rescue Regime’ (2007) 15 Insolvency Law Journal 243, 245, 245 fn 13.
Deloitte, ‘Receivers and Managers Appointed to Opes Prime’ (Press Release, 28 March 2008); Lindholm, Brown and McCluskey, Interim Report by Administrators, above n 36<[. ], 8. Specifically, receivers were appointed to four of the companies of the Opes Prime Group to which administrators had also been appointed — Opes Prime Stockbroking Ltd, Opes Prime Group Ltd, Leveraged Capital Pty Ltd and Hawkswood Investments Pty Ltd: Lindholm, Brown and McCluskey, Interim Report by Administrators, above n 36, annexure 1.
Deloitte, above n [.].
See Law Reform Commission, General Insolvency Inquiry, Report No 45 (1988) 29 (‘Harmer Report’)[.]
John Ross Lindholm, Adrian Lawrence Brown and Peter Damien McCluskey, Opes Prime Group Ltd (Administrators Appointed) (Receivers and Managers Appointed) ACN 120 372 223: Report by Administrators Pursuant to Section 439A(4)(a) of the Corporations Act 2001 (22 April 2008) 14 <http://www[.]ferrierhodgson.com/Current%20Matters/Corporate%20Recovery%20
Matters/~/media/Files/Matters/2008/Opes%20Prime/Opes%20Prime%20Group%20%202204
2008.ashx>.
[2003] VSC 123; (2003) 175 FLR 124.
See also Michael Murray, Keay’s Insolvency: Personal and Corporate Law and Practice (6th ed, 2008) 403[.]
Michael West, ‘Bank Was Warned of Fraud Risk’, The Sydney Morning Herald Weekend Edition (Sydney), 31 May – 1 June 2008, 1[.]
Ferrier Hodgson, Opes Prime Stockbroking Limited (‘OPSL’) (Administrators Appointed) (Receivers and Managers Appointed) ACN 086 294 028: Creditors Meeting 8 April 2008 (2008) <http://www[.]ferrierhodgson.com/Current%20Matters/Corporate%20Recovery%20Matters/~/
media/Files/Matters/2008/Opes%20Prime/Opes%20Prime%20Stockbroking%20%20Creditors%
20Meeting%20%2008042008.ashx>.
Corporations Act ss 436E(2)–(3)[.]
The role of the voluntary administrator is ‘critical’: Anderson and Morrison, ‘Part 5[.]3A’, above n 39, 246.
See, eg, ibid[.]
Ibid.
West, ‘Opes Paper Trail on Trial’, above n [.].
Anderson and Morrison, ‘Part 5[.]3A’, above n 39, 246.
Corporation[s] Amendment (Insolvency) Act 2007 (Cth), amending the Corporations Act.
The ‘Harmer Report’, which was the result of a major review of Australia’s insolvency law regime at the end of the 1980s, acknowledged the importance of the independence of administrators: Harmer Report, above n 44, 38&#[.]9.
Corporations Act ss 9, 60(1), 436DA[. ]A declaration requirement was one of the mechanisms recommended by the Harmer Report, but it was not included in the original 1992–93 legislation: Anderson and Morrison, ‘Part 5.3A’, above n 39, 251; ibid app A, cl VA10.
Corporations Act s 436DA(5)[. ]The Opes Prime administrators confirmed that there was no change to their Declaration of Independence, Relevant Relationships and Indemnities in their reports to creditors: see, eg, Lindholm, Brown and McCluskey, Interim Report by Administrators, above n 36, 3.
Ferrier Hodgson, Creditors Meeting 8 April 2008, above n 52, 3&#[.]4.
Ibid 4. The administrators noted that at that time Minter Ellison was representing ANZ. The bank is now also represented by Allens Arthur Robinson: Matthew Drummond and Joanne Gray, [̵]ANZ Swaps Lawyers amid Conflict Concern’, The Weekend Australian Financial Review (Sydney), 31 May – 1 June 2008, 3.
Anderson and Morrison, ‘Part 5[.]3A’, above n 39, 251–2. The authors do not provide any empirical evidence.
Ibid[. ]See also at 247, 247 fn 24.
Corporations Act ss 448B–448C[.]
Corporations Act s 436E[. ]As most administrators are appointed by the directors of the company in administration, the usual concern is that the administrators will be too close to the directors and may not pursue voidable transaction claims against them.
Corporations Act s 449A[. ]For a discussion of other ways that the recent amendments to the Corporations Act have addressed the issue of the independence of an administrator, see Explanatory Memorandum, Corporations Amendment (Insolvency) Bill 2007 (Cth).
Anderson and Morrison, [̵]Part 5.3A’, above n 39, 252.
However, the recent use of the courts in voluntary administrations such as that of Ansett show that administrators do sometimes rely heavily (perhaps too much) on the courts to confirm novel solutions in very complex and lengthy administrations under s 447A of the Corporations Act[. ]For a detailed review of the use of s 447A by the administrators in Ansett, see Smith et al, above n 1.
Corporations Act s 447A(1) gives the court power to ‘make such order as it thinks appropriate’ in relation to the operation of the voluntary administration[.]
Corporations Act ss 439A(1[)], 439A(5)(b).
Ferrier Ho[d]gson, ‘Opes Prime Companies in Liquidation’ (Press Release, 2 May 2008) <http://www.ferrierhodgson.com/Current%20Matters/Corporate%20Recovery%20Matters/~/media/Files/Matters/2008/Opes%20Prime/PressRelease%20%2002052008.ashx> . Ferrier Hodgson refers to these companies as the ‘smallest entities within the Opes Prime Group’.
Accordi[n]g to ASIC’s free company search information, ‘509DA Notice under S.446a of Special Resolution to Wind Up Company’ forms were filed in relation to Opes Prime Group Ltd, Hawkswood Investments Pty Ltd, Opes Prime Global Securities Pty Ltd, Trader Dealer Pty Ltd and OP Hedged Strategies Pty Ltd on 5 May 2008: ASIC, Free Company Name Search (2008) <http://www.search.asic.gov.au/gns001.html> .
See, eg, Lindholm, Brown and McCluskey, Report by Administrators Pursuant to Section 439A(4)(a), above n 46[. ], 19. The reports for the other companies contain similar recommendations that they be placed into liquidation: see, eg, John Ross Lindholm, Adrian Lawrence Brown and Peter Damien McCluskey, OP Hedged Strategies Pty Ltd (Administrators Appointed) ACN 122 146 034: Report by Administrators Pursuant to Section 439A(4)(a) of the Corporations Act 2001 (22 April 2008) 9 <http://www.ferrierhodgson.com/Current%20Matters/Corporate%20Recovery%20Matters/~/media/Files/Matters/2008/Opes%20Prime/OP%20
Hedged%20Strategies%20%2022042008.ashx>.
Lindholm, Brown and McCluskey, Interim Report by Administrators, above n 36[.], 3.
U[n]der Corporations Act s 439A(6).
See, eg, Lindholm, Brown and McCluskey, Interim Report by Administrators, above n 36[. ], 3. Media reports at the time suggested that the administrators expected to hold the second meeting on 23 June 2008: see, eg, Michael West, ‘ANZ Gives Nod to Talks on Opes Deal’, BusinessDay, The Age (Melbourne), 23 May 2008, 1, 2; Mathew Dunckley, ‘ANZ, Opes Head for Mediation’, The Australian Financial Review (Sydney), 23 May 2008, 65.
Lindholm, Brown and McCluskey, Interim Report by Administrators, above n 36[.], 3.
John Lindholm[, ]Circular to Creditors (30 June 2008) 1 <http://www.ferrierhodgson.
com/Current%20Matters/Corporate%20Recovery%20Matters/~/media/Files/Matters/2008/Opes%20Prime/Circular%20to%20creditors%2030062008.ashx>.
John Lindholm, Circular to Creditors (18 September 2008) 1 <http://www[.]ferrierhodgson.
com/Current%20Matters/Corporate%20Recovery%20Matters/~/media/Files/Matters/2008/Opes%20Prime/Circular%20to%20creditors%20%2018092008.ashx>.
Ferrier Hodgson, ‘Creditors Vote to Place Opes Prime Stockbroking in Liquidation’ (Press Release, 15 October 2008); John Lindholm, Circular to Creditors (27 October 2008) 1 <http://www [.] ferrierhodgson.com/Current%20Matters/Corporate%20Recovery%20Matters/~/media/Files/Matters/2008/Opes%20Prime/Circular%20to%20creditors%2027102008.ashx> .
Note that under the [s]ecurities lending agreements these people are the ‘lenders’ who transferred their securities to Opes Prime.
West, ‘Bank Was Warned of Fraud Risk’, above n 51, 2, based on an estimate by De[.]oitte.
See Ferrier Hodgson, ‘Opes Prime Group Placed in Administration’, above n [.].
The term [̵]Equivalent Securities’ was expressly defined in the securities lending agreements between the clients and Opes Prime and between Opes Prime and ANZ: see below Part IV(B).
For a discussion of the legal effect of the securities lending agreements, see below Part IV(B)[.]
See the administrators’ presentation at the first creditors meeting on 8 April 2008: Ferrier Hodgson, Creditors Meeting 8 April 2008, above n 52[. ], 18. This estimate was based on recovery from ‘problem clients’ and Riqueza BVI, as well as potential recoveries from actions by a liquidator. More recent reports suggest that there may be no possible recoveries for unsecured creditors other than from actions by a liquidator: see, eg, Andrew White and Joanne Gray, ‘Running for the Opes Prime Exits’, The Weekend Australian Financial Review (Sydney), 31 May – 1 June 2008, 29. White and Gray cited an affidavit by the administrators’ lawyer.
Ferrier Hodgson, Creditors Meeting 8 April 2008, above n 52[.], 15.
(2008) 246 ALR 361, 365[.]
Leonie Wood, ‘Federal Court Fast-Tracks Hearing to Determine Who Owns What’, BusinessDay, The Age (Melbourne), 11 April 2008, 1[. ]It would appear that the case was equally applicable to the construction of the agreement used by Merrill Lynch, but Beconwood’s shares had been sold by ANZ and it was ANZ against which this case was brought.
Beconwood [2008] FCA 594; (2008) 246 ALR 361, 363. He also said [̵]I propose also to apply the rule that a commercial contract should be construed having regard to its purpose, which requires an understanding of the genesis of the transaction, its background, its context, and the market in which the parties are operating’: at 371. Nevertheless, he conceded that ‘[t]he controversy here is in identifying what is the appropriate context and what is the relevant market.’
Ibid 361[.] For commentary on the case, see Scott Farrell, Australian Court Confirms Absolute Transfer — 2 May 2008 (May 2008) Mallesons Stephen Jaques <http://www.mallesons.com/
publications/2008/Apr/9407953w.htm>. Clifford Chance, a leading United Kingdom firm, also published a client briefing on the case. The briefing reflected on the significance of the Federal Court’s decision beyond the margin lending industry, such as with respect to transactions involving true sales: Clifford Chance, Securities Lending: Title Transfer Upheld Down Under (May 2008) <http://www.cliffordchance.com/showimage/showimage.aspx?LangID=UK&binaryname
=/securities%20lending.pdf>.
Beconwood [2008] FCA 594; (2008) 246 ALR 361, 366–7 (Finkelstein J)[.]
More precisely, the shares were initially transferred by Beconwood to Green Frog Nominees Pty Ltd (‘Green Frog’), a company related to Opes Prime, and Green Frog transferred the shares to ANZ Nominees: ibid 362, 366–7[.]
Ibid 371 (Finkelstein J)[.]
Ibid 368, citing cl 22 of the Australian Master Securities Lending Agreement (‘AMSLA’)[.]
According to Finkelstein J, this issue would have had to have been dealt with separately (ibid 362) (citations omitted):
If it is successful on either count [that is, on either argument that it has a residual equitable interest] Beconwood says that its interest as mortgagor or chargee (as the case may be) has priority over ANZ’s legal title. Whether Beconwood’s claimed equitable estate has priority over ANZ’s legal estate will, if necessary, be decided on another day.
Ibid 371, 373[. ]See also Finkelstein J’s comments at 376–7.
Ibid 370.
Ibid 366 (Finkelstein J)[. ]The OSLA was superseded by the Global Master Securities Lending Agreement.
Ibid (Finkelstein J)[.]
Ibid[.]
As described by Finkelstein J, Beconwood’s specific claim was that ‘the true character of the SLA is that of a mortgage pursuant to which it borrowed money from OPS and put up its shares by way of security[. ]It follows, so the argument goes, that Beconwood has an equity of redemption in respect of those shares’: ibid 369.
Ibid 370[.]
Ibid 373[.]
Ibid 367[.] For the precise terms of all of the clauses of the AMSLA which Finkelstein J considered important, see at 367–9.
Ibid 375[.]
As an alternative to its argument that it had simply given a mortgage over its shares, Beconwood argued that it had a charge over the equivalent securities, enforceable in equity, thus giving it priority over ANZ’s subsequent interest (whatever that may be): see ibid 369, 374–5[.]
Ibid 371[.] See also his comments at 373.
Ibid 372[.]
Letter from Deloitte to Opes Prime Clients, 1 April 2008 <http://www[.]deloitte.com.au/media/
docs/OpesPrime_groupcircular.pdf>.
Ibid 3[R]4.
Ibid 4[. ]The letter urges retail clients to consider giving a notice of default and provides a pro forma notice.
Ibid[.]
Lindholm, Brown and McCluskey, Interim Report by Administrators, above n 36, 9R[.]11.
In relation to further individual and/or collective claims by unsecured creditors, see below Part VII(A)[.]
Beconwood [2008] FCA 594; (2008) 246 ALR 361, 376–8, especially 376[.]
Ibid 376, citing the United States cases of: Granite Partners LP v Bear, Stearns & Co Inc, 17 F Supp 2d 275, 302–3 (Sweet J) (SDNY, 1998); Re County of Orange, 31 F Supp 2d 768, 778 (Taylor J) (CDCal, 1998); Re Bevill, Bresler & Schulman Asset Management Corp, 67 BR 557, 597–8 (Debevoise J) (DNJ, 1986)[.]
ASLA, About Securities Lending [&]http://www.asla.com.au/securitieslending.php> under the heading ‘Legal Title of Securities Owned’. There is also a warning in the introduction to the ALSA, ALSA Code of Guidance (December 1997) <http://www.asla.com.au/aslacode.php> :
Please note that the words ‘lending’, ‘borrowing’, ‘collateral’ and related expressions used in this code reflect market terminology only. Under Australian law, full title to securities ‘borrowed’ or ‘lent’ or ‘collateral’ provided passes from one party to another, the party obtaining title being obliged to deliver back equivalent securities/collateral.
ALSA, Welcome to ALSA [&]http://www.asla.com.au/index.php>.
ASLA, The ASLA Committee & Members (2008) <http://www [.] asla.com.au/businesslist.php> .
See, eg, Leonie Wood, ‘Shares Claim Granted Leave’, BusinessDay, The Age (Melbourne), 8 May 2008, 1; Matthew Drummond and Andrew White, ‘Opes Client Gets Reprieve on Shares’, The Australian Financial Review (Sydney), 8 May 2008, 22[.]
Drummond and White, above n 127[.], 22.
Ibid[.]
Ibid; Wood[, ]‘Shares Claim Granted Leave’, above n 127, 1.
According to ASIC, a ‘505J Notification of Appointment of Liquidator (Creditors’ Voluntary Winding Up)’ form was lodged on 22 May 2008 and a ‘205M Notification of Resolution Winding Up the Company’ form was lodged on 28 May 2008: ASIC, Free Company Name Search, above n [.].
Lindholm, Brown and McCluskey, Interim Report by Administrators, above n 36[. ] 11. Dresdner Bank AG (‘DB’) was also a lender to Opes Prime, but for the much lesser amount of $67 000 000. DB has escaped the vitriol heaped on ANZ and, to a lesser extent, on Merrill Lynch.
See, eg, Tim Blue, ‘Ope[s ]Prime Clients Could Lose Millions’, The Australian (Sydney), 2 April 2008, 24. Blue notes that the banks’ loans were ‘secured against the assets of the broking firm’. See also Matthew Stevens, ‘Opes Prime’s Going for Broke Looks to Have Been an Aspiration Too Far’, The Weekend Australian (Sydney), 29–30 March 2008, 33. Stevens notes that ANZ’s ‘security’ remains sound.
Corporations Regulations 2001 (Cth) reg 5[.]3A.02. See also Colin Anderson and David Morrison, Crutchfield’s Corporate Voluntary Administration (3rd ed, 2003) 47, 110.
The administrators provided information on voidable transactions to creditors of Opes Prime in their reports pursuant to s 439A(4)(a) of the Corporations Act: see, eg, Lindholm, Brown and McCluskey, Report by Administrators Pursuant to Section 439A(4)(a), above n 46, 12[.]13.
Corporations Act s 588FF(1)[. ]On the policy reasons for limiting the power to challenge potentially voidable transactions to liquidators, see, eg, Anderson and Morrison, Crutchfield’s Corporate Voluntary Administration, above n 134, 46–7.
See, eg, Lindholm, Brown and McCluskey, Report by Administrators Pursuant to Section 439A(4)(a), above n 46[.], 19.
The administrators stated at the first creditors meeting that they were seeking advice on the issues from Mallesons Stephen Jaques: Ferrier Hodgson, Creditors Meeting 8 April 2008, above n 52[.], 10. According to one report, the administrators wrote to ANZ requesting that it remove its receivers: Andrew White, ‘ANZ Defies Challenge to Receivers’, The Australian Financial Review (Sydney), 9 May 2008, 65.
John Duns, Insolvency: Law and Policy (2002) 283–4[. ]The administrators’ reports suggest that other voidable transactions may have occurred, including uncommercial transactions, unfair loans and unreasonable director-related transactions: Lindholm, Brown and McCluskey, Report by Administrators Pursuant to Section 439A(4)(a), above n 46, 17.
Searches were purchased for Leveraged Capital Pty Ltd and Opes Prime Group Ltd[. ]Free searches were conducted on the ASIC website for Opes Prime Stockbroking Ltd and Hawkswood Investments Pty Ltd.
The registration was finalise[d ]in respect of Leveraged Capital Pty Ltd, Opes Prime Stockbroking Ltd, Opes Prime Group Ltd and Hawkswood Investments Pty Ltd on 17 July 2008: ASIC, Free Company Name Search, above n 78.
Richard Gluyas, ‘ANZ Confident about Its Last-Ditch Loan in Future Battle with the Administrator’, The Weekend Australian (Sydney), 19–20 April 2008, 32.
One report suggests that the charges were for the whole amount of $800 000 000 owed to ANZ: see Matthew Drummond and Patrick Durkin, ‘Opes Prime Administrator Probes Merrill Mistake’, The Australian Financial Review (Sydney), 21 April 2008, 1, 60[. ]A more recent report puts the secured debt to ANZ at $142 000 000: Colin Kruger, ‘Opes Tidings Worsen for ANZ’, The Sydney Morning Herald (Sydney), 29 May 2008, 29. Kruger was citing a report by ANZ’s receivers.
Corporations Act ss 588FA, 588FG[.]
John Duns notes that ‘[t]here is no reference to the party who bears the onus of proof, but it seems clear that this will be the party seeking the protection of [s 588FG(2)]’[: ]Duns, above n 139, 274.
There is no definition of good faith in the Corporations Act. According to Duns, it is a ‘[;]subjective test of whether a party knew or had reason to suspect that the company was insolvent at the relevant time’: ibid.
Corporations Act s 588FG(2)[.]
Lindholm, Brown and McCluskey, Interim Report by Administrators, above n 36[.], 19.
Ibid[. ]The administrators’ stance is not unusual.
Michael West, ‘Opes: Who Knew What and When?’, BusinessDay, The Age (Melbourne), 9 May 2008, 1, 10[.]
Ibid[.]
Anderson and Morrison suggest that one of the main obstacles to liquidators challenging voidable transactions is the ‘effluxion of time’: Anderson and Morrison, Crutchfield’s Corporate Voluntary Administration, above n 134[.], 47.
S[e]e the discussion in Duns, above n 139, 283–4.
Lack of funding is one of the main reasons that voidable transactions are not pursued by liquidators: Anderson and Morrison, Crutchfield’s Corporate Voluntary Administration, above n 134[. ], 47. With the increased involvement of litigation funders in Australia, however, this may change.
On the potential for discussions between ANZ and Opes Prime’s administrators, see Adele Ferguson, ‘“You Remain the Beneficial Owner of the Securities,” Failed Broker Opes Prime Told Its Clients’, The Weekend Australian (Sydney), 17–18 May 2008, 33, 37[.] See also the report in Dunckley, ‘ANZ, Opes Head for Mediation’, above n 82, 65.
See Drummond and Durkin, ‘Opes Prime Administrator Probes Merrill Mistake’, above n 143,[.]1, 60.
Corporations Act s 266[.]
Ferrier Hodgson, Creditors Meeting 8 April 2008, above n 52[. ], 9. On Merrill Lynch’s position generally, see Drummond and Durkin, ‘Opes Prime Administrator Probes Merrill Mistake’, above n 143, 60.
See Lindholm, Brown and McCluskey, Interim Report by Administrators, above n 36[.], 15.
Ibid[.]
Ferrier Hodgson, Creditors Meeting 8 April 2008, above n 52[. ], 9. See also Drummond and Durkin, ‘Opes Prime Administrator Probes Merrill Mistake’, above n 143, 60.
ASIC[, ]Free Company Name Search, above n 78.
Drummond and Durkin[, ]‘Opes Prime Administrator Probes Merrill Mistake’, above n 143, 60.
One report suggests that ANZ is having difficulty selling securities in small, illiquid companies: West, ‘ANZ Gives Nod to Talks on Opes Deal’, above n 82<[.], 2.
Drummond and Durkin, ‘Opes Prime Administrator Probes Merrill Mistake’, above n 143[. A]60. According to the authors of this report, Merrill Lynch made more than enough on the sale of $603 000 000 worth of securities it held to recoup its $500 000 000 loan and ANZ held $919 000 000 in return for its liabilities of $650 000 000.
ANZ, ‘ANZ and Opes Prime Group’ (Press Release, 28 March 2008)[.]
ANZ, Half Year 31 March 2008: Consolidated Financial Report Dividend Announcement and Appendix 4D (2008) 94 (Note 22). This is also expressed at 90 (Note 14). A spokeswoman for ANZ confirmed that the bank maintained its view that it did not expect a material loss in relation to the Opes Prime collapse on 28 May 2008: Richard Gluyas, [̵]Failed Opes Prime Was $721m Short’, The Australian (Sydney), 29 May 2008, 19.
Katherine Jimenez and Susannah Moran, ‘ANZ Rapped over Share Dealings’, The Australian (Sydney), 11 April 2008, 6[.]
ANZ, ‘Mike Smith Establishes Securities Lending Review’ (Press Release, 14 April 2008)[.]
For interesting media coverage of this issue, see Bryan Frith, ‘Disclosure Laws Must Be Revamped in the Aftermath of the Opes Prime and Tricom Debacles’, The Australian (Sydney), 15 April 2008, 20; Bryan Frith, ‘Takeovers Panel Puts the Acid on ASIC over ANZ’s Holdings from the Opes Prime Collapse’, The Australian (Sydney), 30 April 2008, 32[. ]See also Matthew Drummond and Marsha Jacobs, ‘Regulator May Act against ANZ’, The Australian Financial Review (Sydney), 20 May 2008; Ferguson, ‘“You Remain the Beneficial Owner of the Securities”’, above n 155, 37.
Corpora[t]ions Act s 608(1) provides:
A person has a relevant interest in securities if they:
(a) are the holder of the securities; or
(b) have power to exercise, or control the exercise of, a right to vote attached to the securities; or
(c) have power to dispose of, or control the exercise of a power to dispose of, the securities.
It does not matter how remote the relevant interest is or how it arises. If 2 or more people can jointly exercise one of these powers, each of them is taken to have that power.
Corporations Act ss 9 (definition of ‘substantial holding’), 671B(1)(a)[. Sec]tion 671B also applies to situations where the person has a substantial holding in the company and there is a movement of at least one per cent in their holding (s 671B(1)(b)), or where the person makes a takeover bid for securities of the company (s 671B(1)(c)).
Corporations Act ss 606(1), 611[. ]A person is similarly prohibited where the transaction increases their relevant interest from a starting point of above 20 per cent and below 90 per cent. The full text of s 606(1) is as follows:
(1) A person must not acquire a relevant interest in issued voting shares in a company if:
(a) the company is:
(i) a listed company; or
(ii) an unlisted company with more than 50 members; and
(b) the person acquiring the interest does so through a transaction in relation to securities entered into by or on behalf of the person; and
(c) because of the transaction, that person’s or someone else’s voting power in the company increases:
(iii) from 20% or below to more than 20%; or
(iv) from a starting point that is above 20% and below 90%.
Frith, ‘Takeovers Panel Puts the Acid on ASIC’, above n 170[.], 32.
(2008) 26 ACLC 356[. ]The Panel’s decision was made on 22 April 2008 and its reasons for its decision were published on 12 May 2008.
Ibid 357–8 (Panel Members McCann, Brenner and Sweetman)[.]
Ibid 358[.]
Ibid[.]
Ibid.
Ibid 359[. ]See also Drummond and Jacobs, above n 170, 54.
See BioProspect (2008) 26 ACLC 356, 359 (Panel Members McCann, Brenner and Sweetman)[. ]ASIC’s power of exemption is set out in Corporations Act s 673.
BioProspect (2008) 26 ACLC 356, 359, 362 (Panel Members McCann, Brenner and Sweetman)[.]
Ibid 359–62[.]
Ibid 360–1[.]
Ibid 362[.]
Ibid[.]
Ibid 363–4[.]
See Drummond and Jacobs, above n 170[.], 54.
Stuart Washington, ‘ANZ Challenged over Share Disclosure’, Business Day, The Age (Melbourne), 15 May 2008, 2[. ]According to this report, the case was brought in the Supreme Court of New South Wales. The report is mainly based on the statement of claim filed by Slater & Gordon. On the Terpu case, see also James Eyers, ‘Opes Fallout: ANZ Sued on Shares’, The Australian Financial Review (Sydney), 15 May 2008, 55.
Washington, above n 190<[.], 2.
Under Corporations Act s 671C(2)[. ]The section also provides that, in determining whether the defence is available, the person’s ignorance of, or a mistake on the person’s part concerning, a matter of law must be disregarded.
Corporations Act s 607[.]
Dunckley, ‘ANZ, Opes Head for Mediation’, above n 82[. ], 65. ANZ continued to support Tricom when it almost collapsed in January 2008, but in the case of Opes Prime there appears to have been irregularities in the management of the companies that ANZ may not overlook.
See, eg, The Prince, ‘ANZ a Moving and a Shaking’, The Weekend Australian Financial Review (Sydney), 24–25 May 2008, 10; Ferrier Hodgson, ‘Opes Prime’ (Press Release, 29 May 2008); Michael West, ANZ Makes Opes Offer (online), 31 May 2008 <http://business[.]smh.com.au/
business/anz-was-warned-of-fraud-risk-20080530-2jwa.html>.
On the effect of a deed of company arrangement on creditors, see Anderson and Morrison, Crutchfield’s Corporate Voluntary Administration, above n 134, 196R[.]202.
On class action law in Australia generally and the arguments in favour of and against its expansion, see Bernard Murphy and Camille Cameron, ‘Access to Justice and the Evolution of Class Action Litigation in Australia’ (2006) 30 Melbourne University Law Review 399[.] Murphy is a principal at Maurice Blackburn, one of the firms planning to run litigation against ANZ, and Cameron is an academic at the Melbourne Law School. A recent report by the Victorian Law Reform Commission has recommended reforms to the way that class actions are run in Victoria: Victorian Law Reform Commission, Civil Justice Review, Report No 14 (2008). These reforms would arguably work in favour of plaintiffs. Dr Peter Cashman, a former partner at Maurice Blackburn, was central to the research and production of the report — see especially the preface by the Chairperson of the Victorian Law Reform Commission, Neil Rees: at 7.
Beconwood (2008) 246 ALR 361, 373[. ]Finkelstein J was asked to compare the retail market to the institutional market. He concluded that they are the same market: that is, ‘the market for providing funding to intending share purchasers.’
Ibid 366[.]
Ibid 370[.] The commentary on the case does not mention this point.
See, eg, Richard Gluyas, ‘Opes Prime Pitch Appealed to the Posh’, The Australian (Sydney), 3 April 2008, 23[. ]Gluyas notes that ‘[t]he contractual fine print specifie[d] that, if Opes went belly‑up, clients who pledged stock to borrow from the firm would rank as unsecured lenders’, but that the marketing material stated that ‘[t]he investor retains beneficial and economic ownership of the lent stock’. Courts will have to decide issues such as which documentation prevails, whether ANZ knew about any of the documentation and to what extent ANZ knew that the relevant clients received this documentation and relied on it.
Slater & Gordon and IMF (Australia) Ltd have both been quoted as wanting to continue with their respective class actions regardless of the outcome of any negotiation talks between the administrators and ANZ: see, eg, Mathew Dunckley and James Eyers, ‘Opes Prime Clients Unmoved by Mediation Talks’, The Weekend Australian Financial Review (Sydney), 24–25 May 2008, 13[. ]As for Slater & Gordon’s terms, and their competition with the class action sponsored by IMF (Australia) Ltd, see Michael Pelly, ‘New Funding for Broker Class Actions’, The Weekend Australian (Sydney), 17–18 May 2008, 37. See also Slater & Gordon, ‘US Funder Backs ANZ Class Action’ (Press Release, 16 May 2008).
See Michael Pelly, ‘Opes Prime’s Forgotten Victims’, The Australian (Sydney), 16 April 2008, 6[.]
Colin Kruger, ‘Class Action Claims Opes Was Deceptive’, The Sydney Morning Herald (Sydney), 31 May 2008, 40[.]
RBA, Statement on Monetary Policy (9 May 2008) 51[.]
Frith, ‘Once More unto the Breach’, above n 11[.], 22.
Ibid[.]
Ibid[.]
Treasury released a Green Paper on 2 June 2008: The Treasury, Australian Government, Financial Services and Credit Reform: Improving, Simplifying and Standardising Financial Services and Credit Regulation — Green Paper (June 2008)[. ]See also Scott Murdoch, ‘Margin Lenders Brought to Heel’, The Age (online), 3 June 2008 <http://business.theage.com.au/
business/margin-lenders-brought-to-heel-20080603-2l46.html>.
Frith, ‘Once More unto the Breach’, above n 11[.], 22.
ASIC, Fido: Australian Securities & Investments Commission Financial Tips and Safety Checks <http://www [.] fido.gov.au/fido/fido.nsf> .
Pelly, [̵]Claims Pile Up “Just Like the Old Days”’, above n 36, 6.
Slater & Gordon and Maurice Blackburn are not just competing for Opes Prime work[. ]They are also involved in major class actions against Centro, and each firm has tried to prove that they have the more representative case and should therefore lead the attack. It appears that Finkelstein J does not see the need for the cases to be consolidated per se: Mathew Dunckley, ‘Centro Claims Gain Momentum’, The Australian Financial Review (Sydney), 28 May 2008, 65. See also Mathew Dunckley, ‘Centro Action Lawyers Argue’, The Australian Financial Review (Sydney), 27 May 2008, 56. Slater & Gordon became a listed company in May 2007: Slater & Gordon, Investors (2007) <http://www.slatergordon.com.au/pages/investors.aspx> . It had a turnover of approximately $37 million in the first half of the 2008 financial year: Sarah Neill, ‘Public Face of the Law’, BRW (Melbourne), 22 May 2008, 48.
Damien Lynch, ‘On Call: Corporate Doctors in Demand’, The Australian Financial Review (Sydney), 28 May 2008, 1[.]
See, eg, Colin Kruger, ‘Creditors Urged to Back Deal on Opes’, The Sydney Morning Herald (Sydney), 2 June 2008, 21[. ]Kruger refers to a circular sent to clients by the administrators on 30 May 2008: John Lindholm, Urgent Circular to Creditors (30 May 2008) <http://www.ferrierhodgson.com/Current%20Matters/Corporate%20Recovery%20Matters/~/
media/Files/Matters/2008/Opes%20Prime/Circular%20to%20creditors%2030052008.ashx>. See also Leonie Wood, ‘$100m Class Action Raises Heat on Opes Prime Financiers’, BusinessDay, The Age (Melbourne), 31 May 2008, 5. Slater & Gordon criticised the administrators’ letter on the basis that ‘any recovery from the class action would be “over and above” the settlement funds’: Richard Gluyas, ‘Opes Seeks Mediation with Its Financiers’, The Weekend Australian (Sydney), 31 May – 1 June 2008, 32.