The state government is utilising rarely used powers under the Corporations Act to take control of $1.7 billion owed to creditors of the failed Bell Group and ensure a big slice of that money is distributed to Western Australian taxpayers through the Insurance Commission of WA.
The state government is utilising rarely used powers under the Corporations Act to take control of $1.7 billion owed to creditors of the failed Bell Group and ensure a big slice of that money is distributed to Western Australian taxpayers through the Insurance Commission of WA.
As foreshadowed yesterday, Treasurer Mike Nahan has introduced a Bill to dissolve all Bell Group companies and establish the WA Bell Companies Administrator Authority.
The authority will have absolute discretion over the distribution of the $1.7 billion, which was secured by the Bell Group liquidator through 20 years of legal action against a syndicate of 20 banks.
The Bill is designed to ensure the expensive litigation does not extend for a third decade.
It includes powerful provisions to ensure all disputes are wrapped up within 12 months.
Dr Nahan told state parliament that “no moneys will be paid to an entity unless litigation by that party or its associates anywhere in the world is terminated”.
“Upon payments being made to a person, every liability of every Bell company to that person is, by force of the Act, discharged and extinguished,” he said.
Dr Nahan said there were several provisions in the Bill that would have retrospective effect.
“These are penalty provisions that will apply to any party that makes efforts to thwart the application of this legislation before it takes effect,” he said.
The Bill has been introduced just days before mediation was due to commence in Singapore between the four major non-bank creditors fighting over the $1.7 billion.
The Insurance Commission told Business News it was hopeful the introduction of the legislation would provide a good incentive for agreement next week between creditors.
The only other major creditors are the Australian Taxation Office, and two parties described by Dr Nahan as professional litigation funders or distressed asset speculators.
These parties include Dutch billionaire Louis Reijitenbagh, who funds and controls Plaza BV, which in turn funds and controls Bell Group NV (in liquidation). Bell Group NV is a creditor of Bell Group and Bell Group Finance and provided some of the early funding to the liquidator in 1999.
The second group includes Perth-based Hugh McLernon, who is associated with private company WA Glendinning Pty Ltd. WA Glendinning bought a Bell Group debt for a token sum in 1991; on the basis of that debt, it is believed to be seeking a $200 million return.
The Insurance Commission’s original exposure to Bell Group stemmed from the infamous WA Inc rescue. In May 1988, it bought $162 million in shares and $150 million of bonds in Bell Group companies.
There has been speculation in legal circles that the Insurance Commission may rank after other creditors, even though it has subsequently provided nearly $200 million to fund the liquidator’s legal action against the banks.
That is the lion’s share of the $224 million contributed by funding creditors.
The Insurance Commission said "we recognise creditors will pursue strategies to maximise the value of their claims by attempting to undermine the positions of others".
"This is what has made this one of Australia’s longest running litigation cases."
The Insurance Commission and others have provided funding to the liquidator on the basis of section 564 of the Corporations Act, which outlines the advantage gained by those that fund litigation in consideration of the risks assumed by them.
Under the Bill, the assets of the Bell Group companies registered in WA will transfer to the proposed statutory authority, which will be headed by an administrator appointed by the treasurer.
The authority will report to the treasurer on “appropriate payments to be made to creditors of the Bell Group, and appropriate reward to be paid to creditors who indemnified the liquidators with respect to the Bell litigation”.
In this regard, the Bill refers to “appropriate compensation” for creditors who funded the litigation and recognises that without the funding, the other creditors would have gained little if any return.
The distribution process is limited to 12 months, and any assets not distributed in 12 months will forfeit to the state.
Dr Nahan said the bill was intended to be interpreted broadly and pragmatically.
He said the activities of the administrator would be similar in concept to a conventional liquidation but the mechanics would be materially different.
“The authority will have considerably greater discretion in assessing and quantifying liabilities than a liquidator in order to reach an expeditious and pragmatic resolution of questions of liability,” Dr Nahan said.
“The only mechanism for people to receive any money from a Bell company is through a claim against the fund.”
The Bill uses existing provisions in Part 1.1A of the Corporations Act 2001, which preserves the power of state parliaments to pass laws displacing the operation of the Corporations Act, in particular for company insolvencies.
Dr Nahan said NSW used similar powers in 2005 to deal with the winding up of certain companies that were formerly part of asbestos producer James Hardie.
Bell Group was the flagship company of the late Robert Holmes a Court, but after the 1987 stock market crash, it came under the control of another prominent Perth entrepreneur, Alan Bond.
The legal action against the banks was commenced in 1995 by Bell Group liquidator Tony Woodings.
Mr Woodings’ key claim was that two banking syndicates, including Westpac, Lloyds, National and Commonwealth, knew that Bell Group was insolvent when they obtained security over its assets in 1990.
The banks put Bell Group into receivership in 1991 and subsequently recovered $265 million from asset sales, leaving nothing for other creditors, who have been trying ever since to claw back some of that money.
With inflation and interest, the amount in dispute has increased to $1.7 billion.
The case commenced in the Supreme Court in 2003 with the original judgement handed down in 2008, largely finding in favour of the liquidator.
Justice Owen ordered the banks to repay approximately $350 million principal, together with compound interest, resulting in a $1.66 billion award.
In 2012, the Court of Appeal (by majority) confirmed Justice Owen's findings and increased the interest rate applicable, lifting the total payout to $2.7 billion.
The banks subsequently paid $718 million to the liquidator. As creditors of Bell Group, the banks stood to gain some of the funds available for distribution.
In 2013, the matter was due to go to the High Court, but the banks and other parties negotiated a conditional settlement in September of that year.
The litigation was finalised in June 2014 when the conditions of settlement were satisfied.
The effect of the settlement was that the banks relinquished all claims in Bell, leaving $1.7 billion with the liquidator for distribution between the remaining creditors.
The liquidators accepted the figure of $1.7 billion, recognising that the difference between that sum and the judgement sum of $2.7 billion made allowance for the notional dividend the banks would have received as creditors and for a discount to avoid the risk of an adverse judgement in the High Court.
