BBY was formerly the largest independent stock broker in Australia and New Zealand before its collapse in May 2015, when 10 group companies were placed into external administration.
After going into administration on 17 May 2015, BBY then went into liquidation on 22 June 2015. Stephen Vaughan and Ian Hall of KPMG were appointed liquidators.
In August 2015, the BBY liquidators, Mr Vaughan and Mr Hall, applied to the Supreme Court of New South Wales for directions in relation to how client monies should be dealt with and ultimately distributed, with the court making a number of final orders in relation to the proceedings, including the approval of a process to verify and adjudicate client claims, and make distributions in relation to client entitlements in late 2018.
The orders provided for pooling in relation to the Saxo, Futures, FX and other product lines, and allowed for possible tracing claims in relation to assets held via the Interactive Brokers platform.
In order to facilitate the distribution process, the liquidators created an online client claims portal, in conjunction with Link Market Services, in accordance with court orders. The portal will remain open until 20 September 2019.
Once all client claims have been verified and adjudicated, and various other steps set out in the court orders are completed, cash distributions will be made to clients from available funds. The earliest date for distributions is likely to be late in 2019.
“The unusual circumstances surrounding BBY’s collapse in 2015, and the way client funds were managed, raised complex legal issues impacting the outcome for clients,” Mr Vaughan said.
“The collapse represented the largest failure of an Australian stockbroking firm since the GFC. The liquidation of the company has proven to be one of the most complex since landmark financial services insolvencies such as Lehman Brothers in 2008 and MF Global in 2011.
“Our forensic investigation into the mismanagement and failure of BBY, and the consequential shortfall in client monies, has involved interrogation of over 10 terabytes of company electronic data, 2,500 boxes of records, over 155,000 transactions across over 120 bank accounts, and approximately 30,000 subpoenaed documents.”
As part of its business, BBY held client money and financial assets on behalf of clients including in client-segregated accounts (CSAs) and with counterparties in respect of equities, exchange-traded options, futures contracts and options, foreign exchange contracts, various products offered via Saxo Capital Markets and Interactive Brokers and other products.
BBY did not maintain records showing client entitlements to the balance of client-segregated accounts. The liquidators identified transactions between CSAs, within and across different product lines, and between CSAs and “House” accounts that led to the depletion of CSAs and shortfalls against client obligations. There was uncertainty about how competing client entitlements should be treated in the liquidation, and outcomes for clients in various product pools would be impacted by the manner in which legal issues would be resolved.
There are various classes of former clients and creditors of BBY who have suffered losses as a result of the collapse. To the extent funds and assets were held in trust by BBY on behalf of clients, the net proceeds will be available for distribution to clients as beneficiaries. General creditors are not entitled to be paid from these funds. There are approximately 6,000 former clients of BBYL with claims of $62 million against client assets, with an estimated shortfall to clients of $21 million, before recovery costs.
“This is a positive step forward in the process of returning the available funds to clients who suffered losses as a result of the collapse of BBY. However, there is still a way to go on this journey and we urge clients to remain patient as we work through the remaining process,” Mr Vaughan said.
Jotham Lian is the news editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.