UPDATE 9.35am: The bankers to Alan Bond’s collapsed Bell Group have won the right to appeal to the High Court over a substantial part of a $2.7 billion-plus judgment.
The nation’s top court gave a group of 20 banks, led by Westpac and Lloyds, special leave to appeal against a ruling they should pay compound interest on money plucked out of Bell when it collapsed in April, 1991.
They have also been given leave to appeal on the related issue of whether the banks benefitted from a breach of duties by Bell directors when they took sweeping mortgages over group assets about 15 months before it collapsed.
The banks last year applied to the High Court for leave to appeal against the WA Court of Appeal ruling that significantly hiked the interest the banks should pay on about $347 million wrongfully pulled out of Bell.
Bell liquidators have successfully argued that Bell was already insolvent when directors granted charges over the group’s assets in early 1990 amid financial woes within Mr Bond’s empire and an economic downturn.
But the banks and directors claimed the impugned mortgage deals gave them time to realise value from the group’s assets, which included WA Newspapers.
The banks' counsel argued in the High Court yesterday that the existing judgment would likely make directors and financiers more risk averse in future.
The court was told that rather than trying to put in place rescue plans to support businesses, directors and financiers would find it safer to move earlier to insolvency.
Bank appointed receiver floated WA Newspapers, the publisher of The West Australian, as the economy recovered in late 1991 and the company enjoyed a rapid rise on the stock exchange.
The bank’s moves to take the WAN float proceeds and other cash from Bell asset realisations left nothing to pay other creditors.
Creditors included the State Government Insurance Commission, which held Bell junk bonds as the result of dealings that formed part of the WA Inc saga.
Successive State Governments of both political persuasions have supported decision by the Insurance Commission of WA to fund the complex litigation against the banks.
As reward for spending an estimated $300 million in this long and highly risky battle, ICWA stands to get a significant part of any winnings.
Based on other litigation funding agreements, ICWA could get 25 per cent or more of the proceeds.
A payout of $1 billion is not inconceivable considering litigation funding agreements, which have become part of the legal mainstream over the past two decades.
This gives WA taxpayers a significant interest in the litigation and the outcome of the appeal.
The banks late last year agreed to deposit $900 million in a trust account pending the outcome of the High Court appeal.Bank lawyers have estimated the court’s decision to use a compound interest formula could have added as much as $1.2 billon to the judgment sum.
The final judgment, if the banks fail, could be in excess of $3 billion because of the compounding interest.
It is expected the distribution of the litigation proceeds could also be time consuming, particularly with the courts likely to have to rule on the cut of winnings to go to funders.
The banks will stand to be significant recipients of the balance because of their status as major unsecured creditors.
Before the deal with directors in early 1990, the banks had been unsecured creditors under a 1980s-style security arrangement known as negative pledge.
This basically meant the company’s directors promised to not give anyone else security over assets ahead of the bankers.
Most of the financing structures, including the junk bonds, had been set up by the late corporate raider Robert Holmes a Court ahead of Mr Bond taking control of Bell after the October 1987 sharemarket crash.A High Court directions hearing will take place before the appeal is heard in Canberra at a later date.
'The West Australian' is a trademark of West Australian Newspapers Limited 2013.
All rights reserved.
Select your state to see news for your area.