Opes Arrangement May Turn Out To Be A Good Deed, Indeed

Sydney Morning Herald

Thursday April 24, 2008

Michael West

It is understood that ANZ is considering overtures from the Opes administrator, John Lindholm, of Ferrier Hodgson, for a deed of company arrangement to be struck between the creditors of Opes. Were there to be a settlement between the Opes antagonists, a deed of arrangement would be by far the best solution, a lawyer close to the players said.

Any deal between the warring parties would require concessions on both sides - by the banks ANZ and Merrill Lynch and by Opes's unsecured creditors.

Although ANZ and Merrill appear to have solid title over the Opes stock, myriad cracks in their potential defences are beginning to appear, such as the execution of the charges before receivership, the involvement of ANZ employees in Opes before the collapse, the deal to transfer stock to Tricom after the administration had commenced, and the legal arguments around the status of the securities lending contracts.

The bank declined to comment on the deed of arrangement idea, and would not rule it out. A spokesman would say only, "We are in a strong legal position".

While not wanting to prejudice its legal position over the coming weeks, ANZ will have discussions with Lindholm before he writes his second creditors' report. That report is likely to include the option of pursuing the banks legally on behalf of Opes's unsecured creditors. Even if the bank were to take the view that its case was impregnable, it would still have to make a commercial decision based on years of negative publicity and the potential damage to the ANZ brand.

A deed of company arrangement is shaping up as the likely outcome from the Opes fracas rather than an outside chance.

***

Meanwhile, coinciding with the zenith of the biggest bull market in history six months ago, the government changed the laws on gearing super and Lift Capital was right on the spot to slot its clients into leveraged super products. Thankfully, this business was still in start-up phase when the market turned down. Few Lift clients had their super money leveraged.

Ironically, relatives of Nick Sherry, the Minister for Superannuation and Corporate Law, were among the 1600 clients caught up in the Lift collapse.

We'll get to the latest on the Lift insolvency in a moment. First, the super angle.

Last September, at a few seconds to midnight on the Coalition government clock, there was a reversal on a long-time ban on borrowing by self-managed superannuation funds.

The point of this ban was obvious. Borrowing against super is a slippery slope.

Even with property as the underlying asset, using debt to enhance returns is a precarious approach for people's savings, a pool of money that ought to be managed conservatively.

Despite grumbling from a few killjoys at the time, an amendment to the Superannuation Industry (Supervision) Act was made to allow a gearing exception to the ban.

The floodgates were opened.

The likes of Lift had already been working on instalment warrants as an eligible form of gearing for a self-managed superannuation fund.

Now, fund trustees could borrow to buy shares, even boats, cars and property. Lift is unlikely to be the only blow-up before this ridiculous "reform" is undone.

As Lift Capital's administrator, Tony McGrath, revealed at his first creditors' meeting on Tuesday, Lift is in better shape than Opes. No "irregularities" uncovered as yet.

The jumbo lender Merrill Lynch has flogged most of the shares already, pooled under a lending agreement a la Opes, and McGrath expects to claw back about $90 million in surplus from the Merrill Lynch sales.

All up, McGrath has identified about $270 million in equity so far for Lift clients, and he won't rule out legal action to recover more.

Creditors were told the lending agreement with Merrill was similar to the Opes contracts but it was not the same. Lift clients' securities had been pledged to Lift and repledged to Merrill, which pooled them. Of that pooled stock, clients can look forward to getting about 50c in the dollar in returns. Other Lift clients, not exposed to Merrill, may get the lot back.

Lift clients, who are free to pursue legal action along similar lines to the Opes actions, will watch the Opes legal saga unfold, then decide how to move - as will the administrator.

© 2008 Sydney Morning Herald

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