After four years of complex investigations and legal proceedings, former clients of failed stockbroker BBY Limited (BBY) can now lodge their claims online.
Liquidators, Stephen Vaughan and Ian Hall of KPMG Australia, have commenced a court-ordered process in which former clients can access an online website to verify their claims for money and assets held by BBY at the time of its collapse in 2015.
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.
Stephen Vaughan commented: “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.”
“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,” Mr. Vaughan added.
He continued: “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.”
Clients can visit the BBY information website at KPMG.com/au/bby, where there is a link to the Client Claims Portal.
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.
BBY was placed into administration on 17 May 2015 and then into liquidation on 22 June 2015. Stephen Vaughan and Ian Hall of KPMG were appointed Liquidators.
As part of its business, BBY held client money and financial assets on behalf of clients including in client segregated accounts 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 (CSAs). 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.
In August 2015, the BBY Liquidators, Stephen Vaughan and Ian Hall of KPMG Australia, applied to the Supreme Court of New South Wales for directions in relation to how client monies should be dealt with and ultimately distributed. Representative defendants were appointed by the Court to represent the competing interests of the different classes of BBYL clients across product lines. The Securities Exchanges Guarantee Corporation Limited, as trustee of the National Guarantee Fund, also participated in the proceedings.
In November 2018, the court made 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 (the Distribution Process). A copy of the court orders is available on KPMG’s BBY information website at KPMG.com/au/bby.
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 client claims portal is designed to assist in the process of verifying and adjudicating client claims. The Portal will remain open until 20 September 2019.
Further steps required before distributions can be made include:
- All claims are to be verified and, if necessary, adjudicated.
- If any IB clients make a ‘tracing claim’ to assets, further Court directions will likely be required, which could delay the finalisation and payment of distribution.
- The Liquidators will calculate the quantum of funds to be distributed to clients of each product line. There may be more than one distribution, depending on how these matters are finalised.
- The Liquidators will give notice of the intended date for distribution of funds.
- Distributions will be made via Link Market Services to nominated client bank accounts.
- Where a client has received a compensation payment from the National Guarantee Fund, their corresponding rights are subrogated to the SEGC and any associated distribution will be paid to the SEGC.
Further BBY background information
General information about the liquidation of BBY Limited, including a copy of the Court Orders, reports to creditors and other background documents, can be found at KPMG.com/au/bby.