Frequently asked questions about the BBY companies in liquidation and under deed administration.
FAQs about the BBY companies in liquidation and under deed administration.
On 17 May 2015 Stephen Vaughan and Ian Hall of KPMG were appointed, pursuant to section 436A of the Corporations Act, as Administrators of ten BBY companies, listed below, by their directors, following resolutions that each company is likely to become insolvent at some future time:
Following the appointment of Administrators on 17 May 2015, St George Bank appointed Receivers & Managers from PPB Advisory on 18 May 2015 and took possession of the business and assets to recover its secured debt.
ASX Clear, the ASX clearing house for all shares, structured products, warrants and ASX Equity Derivatives, declared an event of default and BBY’s participation in the ASX market, ASX Clear and Austraclear (the settlement facility used by BBY for cash settlements) was suspended.
The Australian Securities and Investments Commission suspended the Australian financial services licences (AFSLs) held by BBY, BAS and STL. BBY effectively ceased trading shortly after the Receivers’ appointment.
ASX Clear carried out a process to close out open derivatives positions and unsettled cash market transactions other than open derivatives positions transferred to another participant or which proceeded to expiry. In some cases ASX Clear liquidated clients’ non-cash collateral to recover associated costs. ASX’s web page refers former clients with losses to the National Guarantee Fund.
The Receivers attended to various requests for transfers to other brokers of CHESS sponsored holdings (HINs), in conjunction with settling of any client debts, as well as transferring any other remaining open positions.
The ASX have also responded to requests from the Holders of financial products on the CHESS Subregister controlled by BBY in its capacity as Sponsoring Participant to effect a change of Controlling Participant or convert holdings to Issuer Sponsored Holdings. Refer to the ASX website for further details at www.asx.com.au/about/information-regarding-bby.htm.
Other counterparties have also chosen to close out positions in relation to futures and FX.
Please visit the ASX website: www.asx.com.au/about/information-regarding-bby.htm.
Client money accounts (CMAs) broadly fall into five product groups covering approximately 5,800 clients.
The position of BBY clients is different to that of general creditors. Clients who have an entitlement to money held on trust in a CMA will have a direct claim as beneficiary of a trust, not as a creditor of BBY.
However, to the extent that there are not funds available in the relevant CMA to pay out a client's entitlement in full, affected clients may have a contractual claim against BBY for the amount of any shortfall. This contractual claim would be an unsecured creditor claim.
Clients may also have a claim as a creditor in respect to any losses suffered as a consequence of BBY ceasing to trade, or open market positions being closed out by various counterparties.
To the extent that clients may be reimbursed by schemes such as the NGF then that party would step into their shoes as a subrogated creditor.
The CMAs were frozen upon our appointment except for receipts of counter party funds. They remain segregated for the purposes of subsequent adjudications on client entitlements and distributions pending any court directions. The Receivers may claim various 'house' monies not subject to trust.
Potential reasons for the shortfall in client monies include:
The precise entitlement of each client to money in the CMAs is not currently clear and the position is made more complex due to these issues above. Our preliminary investigations, which are still continuing, are outlined in the Notice to Creditors – Court Directions regarding Client Monies (PDF 90KB) dated 6 November 2015.
Corporations regulations provide that in an insolvency client money in a CMA is to be paid to each client out of the CMA in accordance with their ‘entitlement’, and if there are insufficient funds in the CMA to do so, then in proportion to their entitlement. No funds would flow to other creditors out of the CMAs unless all valid client entitlement claims have been paid out in full.
Based on our preliminary investigations there appears to be evidence of transfers of funds between CMAs which may have resulted in CMAs having a lower or higher balance than would otherwise be the case. One approach in this case is that affected CMAs could be ‘pooled’ together, so that no group of clients is unfairly advantaged or disadvantaged. Foreign currencies may also need to be converted into Australian dollars.
There is an argument to the effect that the entitlement of all clients should be valued as at the time the administrators were appointed, with open positions valued on a mark-to-market basis at that time, disregarding the price at which positions may have subsequently been closed out.
To the extent that there are not funds available in the relevant CMA(s) to pay out a client's entitlement in full, affected clients may also have a contractual claim against BBY for any shortfall which will be treated as an unsecured creditor claim.
Given these circumstances, the liquidators commenced proceedings on 13 August 2015 in the Supreme Court of New South Wales seeking a number of directions and declarations in relation to the distribution of client funds. The liquidators are seeking the Court’s guidance as to how the amounts in the CMAs and other recoveries should be dealt with. The aim of the court process is to resolve these issues in one set of proceedings and avoid unnecessary time and cost of dealing with various separate legal challenges by clients, creditors or other interested parties.
On 19 October 2015, the Court made a number of procedural orders, the important ones of which are outlined in our Notice to Creditors – Court Directions regarding Client Monies (PDF 90KB) dated 6 November 2015, and adjourned the proceedings to 15 February 2016 for directions and 22 March 2016 (provisionally) for hearing.
Clients and creditors have been advised of the court application and the orders being sought. We intend to communicate regularly with clients via email and our dedicated website at http://www.kpmg.com/AU/bby on the Court process.
The court will determine the matter with all information and the benefit of argument from all relevant stakeholders.
Employees normally have a priority entitlement to proceeds from realisation of circulating (‘floating charge’) assets (such as debtor receipts). This is complicated in the case of BBY because assets did not sit within the employment company, Broker Services Australia Pty Ltd (BSA).
As a result of BSA being placed into liquidation on 22 June 2015, former employees are eligible to lodge a claim for entitlements with FEG, the Fair Entitlements Guarantee scheme including for wages, annual leave, long service leave, payment in lieu of notice and redundancy pay. FEG has established a dedicated email contact – email@example.com.
We have provided FEG with information regarding your employee entitlements as at 17 May 2015 as they appear in the Company records. For more information on the FEG process, please visit the FEG website at http://employment.gov.au/feg. The preferred way to lodge your claim for FEG assistance is online at https://extranet.deewr.gov.au/feg.
The liquidators have prepared and issued the following PAYG Payment Summaries to employees (as appropriate):
Please refer to PPB Advisory in relation to PAYG Payment Summaries for the period 18 May 2015 to 20 May 2015.
We are unable to provide statements to clients.
We understand that system generated statements were issued by BBY Limited after the date of the Administration whilst the business was under the control of the Receivers and Managers, Stephen Parbery and Brett Lord of PPB Advisory. Given there are shortfalls in the CMAs and uncertainty around precise entitlements, any information in those statements may not reflect the value of ultimate distributions to clients from the CMAs.
Respective entitlements of individual clients will depend on the outcome of the application to court for directions and ultimate returns will be influenced by the outcome of various recovery initiatives by the Liquidators to increase the available funds.
Due to limitations in information and the uncertainty in outcomes, we cannot provide any specific information or advice in relation to year end portfolio valuations, nor provide annual statements for the year ended 30 June 2015.
We recommend that former clients seek their own independent advice in relation to tax and audit matters.
We will email further circulars to clients and update our website when there are developments to report.
If you wish to submit a Proof of Debt form, use this blank template: Informal Proof of Debt for voting purposes only (PDF 203KB). A completed Proof of Debt may be returned to firstname.lastname@example.org with supporting documentation.
BBY Nominees apparently acted as a trustee and nominated custodian for clients of the BBY business in respect of domestic and international accounts as well as holding ‘house accounts’. At the time of administration, the records available to the Administrators were inadequate to determine the identity of BBY Nominees clients and creditors, the extent of assets the Company held and whether assets were owned by the Company or held on trust for others. Therefore, on 12 June 2015, the Administrators obtained orders from the Supreme Court of New South Wales to extend the convening period for a statutory second meeting of the creditors to allow time to carry out further investigations into the assets and liabilities and to assess a proposal received for a Deed of Company Arrangement.
We issued a report to clients and creditors of BBY Nominees on 29 September 2015 (refer to BBY Nominees 439A Report to Creditors (PDF 1.05MB) setting out the results of our investigations. We identified listed and unlisted domestic and international shares and options in relation to 224 investments that appear to be held in a nominee capacity on behalf of approximately 600 clients. We consider that all custodian arrangements should be terminated and unwound as quickly as possible. Our intention is that all trust assets will be transferred or otherwise dealt with in accordance with any instructions received from those beneficially entitled to them as quickly as the circumstances allow.
We have written to each former client of BBY Nominees to explain next steps in the process. In many cases we are seeking that clients provide responses to a short questionnaire and further substantiating documentation where this is not available in the company records. Given the large number of holdings and clients with individual circumstances that need to be addressed we expect this process will take some months to complete.
As there are currently no funds in the administrations to cover our costs we are offering clients the choice of:
Administrators and liquidators can only draw remuneration for the work they perform once remuneration has been approved.
The administrators and liquidators have not drawn any remuneration to date.
The client monies issues need to be managed and resolved, any additional funds recovered and ultimately funds paid to clients. To the extent that other funds are available to facilitate the reconciliation of the CMAs and any necessary Court application, we would intend to use those funds to do so. However there are minimal funds on hand to meet our costs.
We intend to seek court directions in relation to our costs and expenses in relation to recovery, preservation and ultimate distribution of client monies so that these can, if necessary, be drawn from client funds.
The quantum of total costs will depend on a variety of factors and the extent of actions taken to deal with these issues and pursue any causes of action.
A secured creditor has a priority in respect to realisation of assets in order to repay its debt. It is possible, however appears unlikely, that the secured creditor, St George Bank, will be repaid in full from realisations of company assets.
Liquidators have powers to pursue recovery in respect of certain types of ‘insolvent’ transactions on behalf of unsecured creditors including:
For a transaction to be voidable it must have been entered into when the company was insolvent or became insolvent as a consequence of the transaction.
We have identified transactions of interest and investigations are continuing to determine whether they may form a basis for a recovery action.
Generally a liquidator is not required to incur an expense in relation to a winding up unless there is sufficient available property. We have incurred expenses that may not be paid unless there are further recoveries.
In considering the merits of proceeding with any recovery action, a liquidator must have regard to the relative costs and benefits together with the prospects of success and the financial ability of defendants to meet claims. Recovery actions are often expensive and can involve lengthy delays if court proceedings are required.
There are a number of potential avenues to fund further action, including:
The liquidators have been exploring various avenues outlined above and, where possible, will provide updates to creditors on this process.
The liquidation process including recovery actions and resolving issues relating to the client monies is complex. It is expected that directions in relation to the client monies will be provided by the Court following a hearing in March 2016.
The timing of initial distributions will be dependent upon the orders made by the Court.
There are currently no funds available for distribution to unsecured creditors.
Future information will be provided via updates to this website, along with emails, circulars and market announcements.
We recommend that you refer to this website from time to time. The website includes the date of the last update.