Investigations into the books of the failed stockbroker BBY have found a $10 million shortfall in client funds.
The administrators, Stephen Vaughan and Ian Hall of KPMG Australia, say there are indications of possible misuse of client trust funds as early as June last year.
And there may not be sufficient funds or value left to give anything to unsecured creditors. The shortfall will also delay, by months, the reconciliation of individual accounts of client trading accounts.
The BBY group may have been insolvent since June 2014, the administrators say.
“Misleading information was being provided to BBY’s lender to support additional funding,” Vaughan and Hall say in a report to creditors.
They are also investigating a number of related party transactions. Some payments made by BBY in the final days before going into administration may be clawed back under the Corporations Act. Under certain circumstances, money can be recovered if it can be shown that unfair preference was given to a creditor.
“We believe there will likely be a shortfall in client monies accounts in the order of $10 million,” the administrators say.
“We believe unsecured creditors of the BBY companies are likely to receive distributions of between zero and 24 cents in the dollar.”
Executive chairman Glenn Rosewall, the son of the tennis great Ken, called in administrators on May 17 under the weight of increasing liabilities from its options trading business.
All 170 staff have been made redundant and are all creditors. Some have been rehired at AIMS Financial which has acquired some of the broker’s assets and has restarted the business under the same name, BBY.
A second meeting of creditors is scheduled for June 22.
Most of the shortfall, according to analysis by the administrators, is in futures trading accounts, as this chart shows:
More than $9 million of the shortfall is in these accounts.
Equities account are showing a surplus of $1.599 million.
The administrators say the potential reasons for the shortfall include: the poor state of financial records; apparent transfers of funds across products; apparent transfers to BBY’s general operating account; and transfers to third parties.
If the BBY companies are liquidated at the next creditors’ meeting, as recommended by the administrators, former employees will need to make a claim via the Fair Entitlements Guarantee for any outstanding pay.