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Australia Investors Sue Over Potential A$300 Million Loss

A group of more than 16,000 Australian investors facing losses exceeding A$300 million ($317 million) from the insolvencies of Banksia Securities Ltd. and Cherry Fund Ltd. sued the lenders and the trustee for the notes in a bid to recoup their money.

Trust Co., a Melbourne-based wealth manager, on Oct. 25 put Banksia in receivership in its capacity as a trustee for debentures issued by the lender. Banksia had outstanding commitments to debenture holders of A$663 million, according to a Dec. 7 report from McGrath Nicol, the receivers.

Investors in Banksia received 20 percent of the money they were owed in the first distribution in December, with the receivers estimating an eventual total repayment of between 50 cents and 65 cents on the dollar. Banksia and Cherry Fund failed to conduct their business properly while Trust Co. didn’t adequately supervise and investigate the lenders’ financial position, the plaintiffs claimed in a Dec. 24 complaint filed in the Supreme Court of Victoria in Melbourne.

Trust Co. “considers this claim made against it to be without basis,” the company said in a statement to the Australia Securities Exchange today. Trust Co. “will continue to act in the best interests of the debenture holders of Banksia throughout the receivership.”

Banksia and Cherry Fund failed because of a drop in Australian property values, difficult credit market conditions, inadequate provisioning in the loan books and a mismatch between the timing of debentures due for repayment and the recoverability of borrowers’ loans, the receivers said in the December report.

Cherry Fund owed debenture holders about A$10 million, according to the receiver and investors should get back between 55 cents and 70 cents on the dollar.

The case is Between Laurence John Bolitho and Banksia Securities Ltd. SCI 2012/7185. Supreme Court of Victoria (Melbourne.)

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