Investors in Australia's collapsed Timbercorp group face AU$470M loan repayment bill after Victorian Court of Appeal upholds 2011 ruling that they are not entitled to compensation; decision affects 14,500 investors
October 11, 2013
– THE Victorian Court of Appeal has delivered a crushing blow to investors in the collapsed Timbercorp group, dismissing a class action and ruling that the borrowers had to repay about $480 million in loans.
In a development affecting 14,500 investors and a plethora of other class actions involving managed investment schemes, three judges yesterday upheld a landmark, 2011 decision by the Victorian Supreme Court. On the key issue of whether the Timbercorp product disclosure statements were misleading, they ruled that neither of the plaintiff witnesses had actually relied on the PDSs.
``The appellant faced great difficulty,'' the judges said.
They also said the appeal was rejected because it failed to establish the Timbercorp directors' actual knowledge of the company's risks.
To succeed, this meant the appeal had to establish what the directors should have known.
However, the case failed to clear that hurdle as well. The Timbercorp group collapsed in 2009 and went into liquidation, under the control of insolvency firm KordaMentha.
There were 33 registered MISs at the time of the collapse and three unregistered private scheme offers.
As a result of the group's demise, most of the MISs could not be carried through to completion, meaning the investments were of limited or no value.
KordaMentha started recovery action against investors who had borrowed from Timbercorp Finance, with that entity now owed $477.8m by 14,500 investors.
The money outstanding is roughly the same as in 2009, despite the liquidators recovering well over $100m.
Many borrowers accepted legal advice that they should stop making repayments pending the outcome of the class action.
This meant they were incurring default interest on their loans in a range of 9 to 13 per cent.
KordaMentha said in a statement last night that many borrowers now owed substantially more than they did at the time the class action was started in 2009. ``We will now look at taking appropriate steps against those borrowers,'' liquidator Craig Shepard said.
In the meantime, Mr Shepard reopened a previous settlement offer to borrowers who are group members of the class action.
Borrowers who repay their entire loans will be eligible for a 15 per cent, early repayment discount option, or 10 per cent for part-payment.
``These settlement offers will provide borrowers with an opportunity to avoid further costs, delays and uncertainties associated with possible further litigation,'' Mr Shepard said.
The class action was brought through the law firm Macpherson + Kelley.
KordaMentha said it believed the litigation was funded by cash contributions from the Timbercorp MIS investors and borrowers.
Representatives of the class action law firm could not be reached for comment.
The option remains for the investors to seek leave to appeal to the High Court.
(c) 2013 News Limited