Investors seeking to recover millions of dollars in compensation from a Perth financial planning firm have been left marooned because the business was not adequately insured.
Directors of West Perth-based Chambers Investment Planners, led by managing director George Takla, called in administrators from Grant Thornton on July 2 in the face of numerous compensation claims for negligent advice or failed products.
According to Grant Thornton, Chambers' personal indemnity insurance was insufficient to meet the claims, exposing the firm to a "potential multimillion-dollar deficit".
The matter is being examined by the Australian Securities and Investments Commission after complaints by Perth lawyer David Huggins, who is representing several of Chambers' clients.
Under the Corporations Act, any holder of a financial services licence is required to put in place "arrangements" to compensate retail clients for loss or damage resulting from breaches of their obligations.
While the Act cautions that PI insurance is not designed to protect consumers, it obliges financial planning firms to maintain sufficient insurance coverage to meet a "reasonable estimate" of their clients' potential losses.
The appointment of administrators and the likely liquidation of the firm has scuttled actions by nearly 20 disgruntled clients who had launched claims against Chambers through the Financial Ombudsman Service. And the inadequate PI insurance means it will be difficult to seek redress through the courts.
With little prospect of a return to unsecured creditors, Grant Thornton has recommended the firm be liquidated. However, it has adjourned a second creditors meeting to consider a deed of company arrangement proposed by Chambers' directors.
"We don't think that is very likely," joint administrator Matthew Donnelly said.
"Having said that, there is no prejudice to the creditors to wait and hear them out. But the logical outcome is liquidation."ASIC has belatedly acted to cancel Chambers' licence.