Legal battles loom over Opes, Lift

A new phrase entered the Australian business lexicon when Perth company directors Rick Crabb and Gillian Swaby lodged substantial shareholder notices with the Australian Securities Exchange this month.

They both referred to the “involuntary sale” of shares pursuant to the “purported exercise of rights” by a secured creditor of failed margin lending firm Lift Capital Partners.

Ms Swaby and Mr Crabb, who work together at emerging uranium miner Paladin Energy, are at risk of being two of the biggest losers from the Lift Capital collapse.

Another Perth executive whose potentially big loss has to date avoided publicity is Equinox Minerals president and chief executive Craig Williams.

All three had margin lending facilities with Lift, and like an estimated 1,600 investors around the country, they thought it was a traditional arrangement.

But the Lift clients have lost control of the shares they pledged as security, just like the hundreds of clients of Opes Prime, which held $1.6 billion worth of shares when it went into administration.

The collapses of Lift and Opes have already triggered legal action, and there is plenty more set to follow as aggrieved investors fight for the recovery of their shares or the payment of damages.

In their sights are the lenders to Lift and Opes Prime, including ANZ Banking Group and Merrill Lynch.

National law firm Slater & Gordon is already acting for unsecured creditors of Opes Prime, including iron ore miner Gindalbie Metals’ major shareholder, Melewar Steel Ventures, and Conquest Mining’s managing director John Terpu.

Litigation funder IMF (Australia) has agreed to fund claims that certain clients of Opes Prime have against ANZ Banking Group.

The clients will seek either damages or the return of equivalent shares held by ANZ.

The stakes in this legal battle are high.

Paladin Energy chairman Rick Crabb had 11.9 million shares in the uranium miner.

This included 6.4 million shares worth $29 million that were subject to margin loan facilities with Lift Capital; Merrill Lynch has sold those shares.

Similarly, Paladin’s company secretary, Gillian Swaby, owned 10.2 million shares, including 7 million shares worth $32 million subject to margin loan facilities.

Ms Swaby’s stake in uranium explorer Deep Yellow is also partially at risk.

Of her total holding, 2.1 million shares have already been sold and a further 12.9 million shares claimed by Ms Swaby are held by the administrators of Lift Capital, pending a decision on who really owns them.

It’s a similar story for Equinox’s Mr Williams, who should be enjoying the start this week of the commissioning of the company’s giant Lumwana copper project in Zambia.

Instead he will be worried about the future of 5.2 million Equinox shares worth $27 million, which were used to secure a $7.6 million margin loan.

In all of these cases, there was no default on the relevant margin loans, the borrowers offered to repay the loans in full and they maintain they have retained beneficial ownership.

Instead, the banks that had been funding Lift Capital and Opes Prime exercised what they believed to be their legal rights as secured creditors to gain control of all of the shares pledged as security by individual borrowers.

In most cases, the banks have belatedly lodged notices of a change in beneficial ownership of the relevant shares.

An exception is Equinox – it said it has not received any such notice, but assumes the shares are under the effective control of Merrill Lynch.

The complexities surrounding these matters were highlighted by NSW Supreme Court’s Justice Windeyer, who heard an application by Melewar and Mr Terpu to block the sale by ANZ Nominees of their shares in Gindalbie and Conquest.

Justice Windeyer rejected their application to continue an injunction but acknowledged that “there is a serious issue to be tried on the question of misleading and deceptive conduct”.

Referring to securities lending agreements, Justice Windeyer said “there is no doubt the documents are difficult to understand and at least so far as the Opes document is concerned, difficult to read because the print is very small”.

“Nevertheless the documents, if read carefully, do state that a transfer of legal title is involved.”

He added that an unsophisticated investor could well be surprised to learn that their shares could be sued for ‘short selling’, which is designed to drive down the share price.

“Such a person would no doubt be even more surprised, if that were possible, to realise that the result of this short selling of his or her lent shares was intended to drive down the price with the inevitable result that a...margin call would result.”

The Federal Court of Victoria is expected to provide the first clear ruling on the Opes matter, based on a case brought by Melbourne businessman Paul Choiselat’s Beconwood Securities.