Client Monies: Court Directions Proceedings
Client Monies: Court Directions Proceedings
Court documents relating to the liquidation of BBY.
Court documents relating to the liquidation of BBY.
About BBY Limited (BBYL) holding client funds
In BBYL's business funds received from clients were initially deposited into client segregated accounts (CSAs) on trust for clients. CSAs were held by BBYL 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.
Our investigations indicate there will likely be a significant overall shortfall between available client funds and client claims. BBYL did not maintain comprehensive records that show the client or clients who are entitled to the balance of any particular CSA. We identified transactions between CSAs within and across different product lines and between CSAs and ‘House’ accounts that we consider to be outside of the ordinary course of business and may have led to the depletion of CSAs and shortfalls against client obligations. In these circumstances the legal entitlement of each client to money in the CSAs is not currently clear and there is uncertainty about how client entitlements should be treated in the liquidation of BBYL.
Finding a resolution for returns to clients: Court proceedings and directions
Seeking Court guidance
The unusual circumstances and legal questions means the matter is extremely complex. The outcome for clients within various product pools will be heavily influenced by the manner in which the legal position is resolved. The Liquidators decided that it was necessary to seek guidance of the Court as to how the client monies in the CSAs and other client related recoveries should be dealt with and ultimately distributed. Examples of issues where we sought a determination by the Court include:
- whether or not CSAs should be grouped or pooled, and if so, how
- whether foreign currency held in the CSAs should be converted into Australian Dollars to facilitate distribution
- whether amounts recovered by BBYL since 17 May 2015, when the company went into administration, and amounts that may be recovered by the Liquidators in the future, are beneficially owned by BBYL, or are held on trust for clients
- whether positive client positions should be set-off against negative client positions, including across different product lines in respect of the same client
- whether approximately 1,000 small client entitlements (less than $25) can be disregarded
- whether amounts deposited by clients after 17 May 2015, when the company went into administration, should be returned to clients, or treated as a deposit to the relevant CSA
- whether interest earned on the CSAs is owned beneficially by BBYL or is held on trust for clients
- whether the liquidators' remuneration, costs and expenses should be paid out of trust property.
There are thousands of BBYL clients who potentially have an interest in the CSAs and recoveries. The aim of the Court process was 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. The rules of Court allow for a representative to be appointed to represent members of a class where it is expedient for the purpose of saving expense (having regard to all of the circumstances, including the amount at stake and the degree of difficulty of the issue or issues to be determined). The Liquidators proposed that representative defendants be appointed to represent the respective interests of the different classes of BBYL clients. This would ensure that arguments are presented for and against each position.
13 August 2015
The Liquidators commenced proceedings in the Supreme Court of New South Wales seeking the Court’s guidance as to how the amounts in the CSAs and other recoveries should be dealt with and funds ultimately distributed. The case number is 2015/00237028.
17 August 2015
There was a directions hearing and the Liquidators sought that the Court approve an explanatory notice to clients. The matter was listed for further directions on 24 August 2015.
24 August 2015
There was a further directions hearing and Justice Brereton of the Supreme Court made various orders including joining a group of former options clients, “Mazzetti & others” (who were seeking leave to take proceedings against BBYL and requiring a stay of proceedings pending a compulsory mediation with the Liquidators).
31 August 2015
The Liquidators’ draft client circular was reviewed by Justice Brereton who stood over orders in relation to the wording, to be considered further in chambers. The Court also stood the proceedings over two weeks, at the request of the Mazzetti & Ors group, until 14 September 2015 (this date was subsequently rescheduled to 18 September 2015).
18 September 2015
The Court made a number of orders around emailing the proposed explanatory notice to clients and publishing this on the KPMG BBY web site along with extensive supporting material. The Court requested some amendments to the notice before the final version was to be approved and scheduled another directions hearing for 19 October 2015.
19 October 2015
The Court adjourned the proceedings to 22 March 2016 (provisionally) for a full hearing to determine the client issues and made a number of procedural orders setting out a time table for further steps. The Court appointed three representative defendants for certain categories of clients as per the table below.
- J Mazzetti Pty Ltd ACN 006 705 602 as Trustee for J Mazzetti Pty Ltd Staff Superannuation Fund representing ETO clients with open positions as at 15 May 2015.
- Peter Brian Haywood and Bronwen Menai Haywood in Trust for the Haywood Superannuation Fund representing Equities clients and ETO clients without open positions as at 15 May 2015.
- Clive Riseam representing Futures, FX, Saxo and Other Products clients.
In addition the Court granted leave for a ‘non representative’ defendant to participate in the Proceedings – the Securities Exchange Guarantee Corp Ltd (the ASX fidelity fund) as trustee on behalf of the National Guarantee Fund (the fourth defendant).
Also, on 19 October 2015, the Court made orders in relation to the payment of costs and expenses to the effect that:
- the Liquidators' remuneration, costs and expenses, and the second (Haywood) and third (Riseam) representative defendants' legal costs be paid out of certain recovered amounts and the CSAs of BBYL other than an amount of $5.8 million, made up of $2.4 million in withdrawals by BBYL relating to margin calls and the $3.4 million returned from the ASX, referrable to the ETO product line;
- the legal costs of the first representative defendant (Mazzetti) be paid out of the $5.8 million; and
- the legal costs of each of the representative defendants, and the legal costs, expenses and remuneration of the Liquidators will be examined and approved by a Registrar of the Court before they are paid.
The Court ordered that the Liquidators file, serve and publish on the KPMG BBY website any affidavits on which they intend to rely by 27 November 2015. This refers to evidence that the Liquidators will put to Court to assist the Court in determination of issues in the proceedings.
6 November 2015
The Court authorised that the Liquidators circulate, in an approved form, an explanatory notice to clients and creditors of BBYL regarding the proceedings). A copy of that notice, dated 6 November 2015, can be found at Notice to Creditors – Court Directions regarding Client Monies (PDF 90KB). The primary intention of the notice was to provide clients with information regarding the nature of the Proceedings and illustrative scenarios of possible returns to assist them to consider their own legal position based on information available at that time. It was not intended to provide a definitive estimate of overall returns to clients.
26 November 2015
In response to a request by the Liquidators, and with consent of the representative defendants, the Supreme Court of New South Wales made orders extending the date for the Liquidators’ filing of evidence in the Proceedings to 21 December 2015. This extension provided time for the Liquidators to pursue additional inquiries that are integral to the Liquidators’ investigations and findings.
22 December 2015
The Liquidators filed a report dated 22 December 2015, along with supporting documents including an affidavit, detailing the findings of our investigations into the operation of the CSAs maintained by BBYL and its dealings with client monies. This report, dated 22 December 2015, can be found at BBY Client Monies Investigation Report and supporting documents.
23 February 2016
In February 2016 the Court appointed a fifth defendant, David Nadin to represent former BBY clients who utilised the online trading platform maintained by Interactive Brokers LLC (“IB”).
7 March 2016
At a directions hearing on 7 March 2016, the Court ordered that certain of the matters in the directions proceedings issues be heard on 22 March before further directions for the remainder of the proceedings. The certain matters the Court outlined it would hear on 22 March included:
- matters in relation to $2.4 million in post appointment margin receipts by the Receivers (termed the ‘erroneous withdrawals’); and
- matters in relation to $3.4 million in ASX surplus realisations from ETO margin collateral paid over by the ASX (termed ‘returned collateral’).
The Court ordered that the following question (the ‘Separate Question’) be considered separately on 22 March 2016 in relation to the above: “Whether the first defendants are entitled to the returned collateral and the erroneous withdrawals in priority to any other claims on those funds other than liquidator’s charge and costs”.
Sealed orders (PDF 54KB) made by the Court on 7 March 2016 are available.
22 March 2016
On 22 March 2016, the hearing of the Separate Question occurred. All parties were heard and the Court will deliver its judgement at a later date.
23 March 2016
On 23 March 2016 the Court heard two applications made by the Liquidators:
- For directions about the Liquidators' entitlement to close out open derivative positions (warrants, equity and index options, futures, options on futures and FX products) held with Interactive Brokers LLC after terminating the Online Account Terms with the corresponding clients. The Fifth Defendant, representing IB clients of BBYL, did not oppose the direction sought by the Liquidators.
- For directions about whether monies received on and from 18 May 2015 into BBYL's client segregated accounts from clients who paid without any obligation to pay should be returned in full to those clients in as amounts "paid into the account in error" within the meaning of the Corporations Regulations 2001 (Cth).
The Court will deliver its judgment on both applications at a later date. The directions proceedings were adjourned to 18 April 2016.
18 April 2016
On 18 April 2016, the Court made the following orders:
- The Representative Defendants to serve any final requests for information on the Liquidators (Plaintiffs) by 26 April 2016; and
- The Liquidators to file, serve and publish on the KPMG website any further affidavits (evidence) on which they intend to rely by 23 May 2016.
The proceedings were adjourned to 30 May 2016 for further directions. See here for a copy of the Sealed orders (PDF 55KB) made by the Court on 18 April 2016.
In relation to an application by the Receivers for payment from the Equities/ETO client segregated account of approximately $700,000 in debtor proceeds that had been deposited to that CSA the Court ordered:
- by 2 May 2016, the Receivers file and serve a statement of facts and contentions regarding their position; and
- by 23 May 2016, the Liquidators and any Representative Defendant who wishes to oppose the Receivers’ application file and serve a statement of facts and contentions.
The Receivers’ application was also adjourned to 30 May 2016.
27 May 2016
The Court ordered that the Liquidators file, serve and publish on the KPMG website any further affidavits on which they intend to rely by 14 June 2016 and that the proceeding be adjourned to 22 June 2016 for further directions. A copy of the orders dated 27 May 2016 can be found here: Sealed orders (PDF 54KB).
30 May 2016
On 30 May 2016, in relation to the Receivers' application, the Court ordered that the proceeding be adjourned to 22 June 2016 and that the Receivers serve any further affidavit evidence by 15 June 2016.
15 June 2016
The Liquidators’ finalised a supplementary report to the Client Monies Investigations Report (“the CSA Report”) that was published on 22 December 2015. The supplementary report provides findings from investigations conducted by the Liquidators since publishing the CSA Report in December, with a view to providing further information to the Court and for the benefit of representative defendants in the proceeding.
22 June 2016
The directions hearing scheduled for 22 June 2016, to set out a timetable for further hearings, was adjourned to 20 July 2016 at the request of a representative defendant in order for more time to consider the Liquidators supplementary investigation report. The Receivers also sought an additional 2 weeks to file and serve further affidavit evidence in relation to their application, which was also adjourned to to 20 July 2016.
20 July 2016
At the directions hearing on 20 July 2016 Justice Brereton made the following procedural orders – Sealed orders (PDF 55KB).
- By 3 August 2016, each party file and serve on the other a summary of its contentions setting out the basis or alternative bases upon which that party says distribution shall be made, such summary not to exceed five pages in length.
- By 17 August 2016, the Liquidators model to the extent that they have not already done so, and to the extent that they are able to do so, each of those scenarios and provide to the parties with the distributions under them.
- By 31 August 2016, each party lodge with my Associate and file and serve a consolidated response to the other parties’ summary of contentions.
- This proceeding 2016/77316 (Receivers’ application) and proceeding 2015/237028 (Liquidators’ directions application) be heard together, with evidence in one be evidence in the other.
- The defendants not be entitled to rely in the hearing without the leave of the court on any affidavit evidence, including expert evidence, which has not been served by 12 October 2016 (Note there is an error in order 5 of the attached sealed orders – date should be 12 October not 12 August).
- Any party who wishes to rely on evidence in reply to evidence served by 12 October 2016 not be entitled to rely on such evidence unless served by 9 November 2016.
- Proceedings be adjourned to 16 November 2016 for pre-trial directions before me at 9:45.
- Proceedings be fixed for hearing commencing 31 January 2017 with a 4 day estimate on the basis that the estimate and time reserved will be reviewed at the pre-trial directions hearing.
Justice Brereton also noted that, at the pre-trial hearing on 16 November, he would likely set a timetable for ‘submissions in chief’ around the end of November and replies by mid-December.
The key point to note from the orders on 20 July is that the substantive hearing of the client monies issues will now not be held until the end of January 2017. It is also likely, given the complexity of the issues, that a further period of time will be required for the Court to make a final determination and hand down orders in relation to how client monies in the CSAs and other client related recoveries should be dealt with and ultimately distributed.
The Court will provide guidance in relation to calculation and dealing with claims of clients however an adjudication process will still ultimately be required to confirm accuracy of records of the thousands of individual claims as correct and provide for resolution of any disputed claims prior to distribution of funds.
At a later stage in the liquidation, assuming there have been sufficient general (non-client trust related) recoveries, there could also be a wider creditor related process for submission and adjudication of claims. Clients would be entitled to participate to claim as general creditors in relation to shortfalls in return of client funds. They would not need to prove debts again in respect to shortfalls and they would participate equally with other creditors in any additional general creditor dividends.
8 August 2016
The Court orders made on 20 July 2016 required that each party file and serve on the other a summary of its contentions setting out the basis or alternative bases upon which that party says distribution shall be made. The following Summary Contentions were filed:
- Liquidators (PDF 161KB)
- Second Defendant (PDF 461KB)
- Third Defendant (PDF 639KB)
- Fourth Defendant (PDF 2.3MB)
- Fifth Defendant (PDF 65KB)
The First Defendant did not file any contentions.
10 August 2016
The pre-trial hearing scheduled for 16 November 2016 has been rescheduled to 9 November 2016.
27 September 2016
On 27 September 2016, Justice Brereton of the Supreme Court delivered his judgement on the following matters:
On the separate question, the Court orders:
- the separate question be answered in the negative in respect of the Returned Collateral and in the affirmative in respect of the Erroneous Withdrawals
- the First Defendants bring in short minutes of consequential orders on a date to be fixed.
On the First Plaintiffs’ Interlocutory Process filed 8 March 2016, the Court orders that:
- the First Plaintiffs would be justified in closing out open derivative positions held by the Second Plaintiff through Interactive Brokers LLC (IBL) upon termination of the contracts constituted by the “Online Account Terms” with the clients to whom those positions are referable
- the First Plaintiffs would be justified in treating securities held by the Second Plaintiff through IBL and Saxo Capital Markets (Australia) Pty Ltd as “Transactions” that are not “Open Transactions” within the meaning of the Online Account Terms.
The balance (being prayers 2, 3 and 4) of the Interlocutory Process are adjourned to the final hearing of the proceedings, this relates to the sale of securities and conversion and set off of foreign currencies.
- Supreme Court Judgement (PDF 376KB) 27 September 2016
12 October 2016
On Wednesday, 12 October 2016 further orders (PDF 65KB) were made by the Court that:
- Orders that the First Plaintiffs (the Liquidators) would be justified, in the case of the Erroneous Withdrawals and Post-appointment Erroneous Deposits, in treating clients, in respect of payments of $100 or less, as having no entitlement to receive a distribution in respect of that payment.
- Orders that the First Plaintiffs:
(a) are justified in converting into Australian dollars (if necessary) and paying Post-appointment Erroneous Deposits from the CSAs into a separate trust account for the purpose of distributing those amounts (after deduction of a proportionate amount of the costs, expenses and remuneration);
(b) pay Erroneous Withdrawals from the CSA into a separate trust account for the purpose of distributing those amounts (after deduction of a proportionate amount of the costs, expenses and remuneration). - Orders that the liquidators' remuneration, costs and expenses, and BBYL's costs and expenses, reasonably incurred in connection with:
(a) distributing the Post-appointment Erroneous Deposits, be paid out of the ED Distribution Account on an indemnity basis in accordance with order 4;
(b) distributing the Erroneous Withdrawals, be paid out of the EW Distribution Account on an indemnity basis in accordance with order 4. - For the purpose of order 3, the matter be referred to a Registrar for examination and approval of the liquidators' remuneration, costs and expenses and BBYL's costs and expenses, and the Registrar's decision be subject to review in the same manner as a Registrar's decision approving the remuneration of a liquidator.
- Orders that the plaintiffs are justified in paying the liquidators' remuneration, costs and expenses, and BBYL's costs and expenses in connection with:
(a) distributing the Post-appointment Erroneous Deposits, as determined in accordance with order 4, from the ED Distribution Account;
(b) distributing the Erroneous Withdrawals, as determined in accordance with order 4, from the EW Distribution Account. - Orders that the First Plaintiffs:
(a) are justified in paying Post-appointment Erroneous Deposits from the ED Distribution Account to the clients from whom the Post-appointment Erroneous Deposits were received (after deduction of a proportionate amount of the costs, expenses and remuneration);
(b) pay Erroneous Withdrawals from the EW Distribution Account to the clients from whom the Erroneous Withdrawals were received (after deduction of a proportionate amount of the costs, expenses and remuneration).
9 November 2016
On 9 November 2016 the Supreme Court made orders in the client monies court directions proceedings – Court Orders (PDF 57KB).
5 December 2016
On 5 December 2016 the Supreme Court made orders in the client monies court directions proceedings – Court Orders (PDF 59KB).
21 February 2017
On 20 July 2016, the Court set a date of 31 January 2017 for the final hearing of the Liquidators’ application for directions in dealing with the client monies. The matter was heard in the Supreme Court of New South Wales over 4 days between 31 January and 3 February 2017. Key issues before the Court included how client entitlements should be calculated and how funds in client segregated accounts and recoveries should be distributed, including whether or not there should be pooling of some or all funds.
The parties to the proceedings included the Liquidators, four representative defendants appointed by the Court acting on behalf of various groups of former BBY clients and the Securities Exchange Guarantee Corporation Ltd as trustee of the ASX National Guarantee Fund. There were associated proceedings which included the Receivers and Managers. Evidence presented to Court included the two investigation reports prepared by the Liquidators as well as various affidavits and there was cross examination of one of the Liquidators as well as a former BBY manager. The parties made extensive submissions setting out their respective positions on matters before the Court.
The legal and factual issues are complex and we expect that the Court will require time to make a final determination and hand down orders in relation to how client monies in the CSAs and other client related recoveries should be dealt with and ultimately distributed. This process could take a number of months. We will continue to provide updates on this website.
At this stage clients do not need to take any further action and we do not require further documentation from clients. Prior to distribution of funds a claims adjudication process will occur which will include a process for the resolution of any disputed claims and client details will be verified. We will issue an email to clients and update this website when we are in a position to provide further information regarding this process. Further information regarding the court proceedings is set out in our report to creditors (PDF 1.03MB) dated 9 September 2016.
25 May 2017
Clients are reminded that monies in the CSAs and other client related recoveries cannot be distributed until the Court has made its final determination. At this stage clients do not need to take any further action and we do not require further documentation from clients. Refer to our update of 21 February 2017 for more information.
19 March 2018
In August 2015 the BBY Liquidators applied to the Supreme Court of New South Wales for directions in relation to how BBY client assets and monies should be dealt with and ultimately distributed among over 6,000 former BBY clients within the Equities, ETO, Futures, FX, Saxo and IB product lines.
The Liquidators investigated how BBY managed and dealt with client monies, and filed two reports in the directions proceedings, dated 22 December 2015 and 15 June 2016 (both published on our website). The Liquidators' findings were integral evidence in the proceedings.
The proceedings continued throughout 2016 and early 2017, culminating in a 4 day hearing that concluded on 3 February 2017.
A principal matter of contention in the proceedings was whether each of the product lines should be treated separately, or whether the Liquidators should group or pool some, or all, of the client monies and recoveries across different product lines for the purposes of making distributions to former clients of BBY.
On 19 March 2018 Justice Brereton of the Supreme Court handed down his judgment, which is awaiting publication. The Court also invited the parties to consider whether they would make further submissions on certain matters.
Key points from the judgment include:
- BBY bank accounts which contain client monies (Client Segregated Accounts or CSAs) corresponding to the same product line should be pooled for the purpose of making distributions.
- The Equities/ETOs CSAs should not be pooled with other product line CSAs (and therefore the Equities/ETO assets will only be available for distribution to associated clients, after costs).
- As to the question of whether there should be pooling between Saxo, FX and Futures, Justice Brereton suggested that pooling may not be a proportionate response, however invited the parties to make further submissions on this point.
- As to recoveries:
- recoveries from ADM and ABN AMRO are held on trust for clients entitled to money in the Futures CSAs;
- recoveries from Halifax and CMC Markets are held on trust for clients entitled to money in the FX CSAs;
- recoveries from Saxo Bank or SCMA are held on trust for clients entitled to money in the Saxo CSAs; and
- Returned Collateral was received by BBY on behalf of ETO clients with open positions as at 15 May 2015.
- The Liquidators are entitled to set off positive net account balances against negative net account balances in all accounts owned by the same client.
- Interest earned on CSAs and recoveries is held on trust for clients of the respective product lines (with the result that these will add to the available funds for those clients).
- The Liquidators should treat clients who have an entitlement of $100 or less in respect of any account as having no entitlement in respect of each such account.
We note that the Court has previously made orders in December 2016 with respect to client monies and assets in relation to the IB product line.
The Court intends to list the matter for a further hearing on 5 April 2018, at which time it is expected that orders will be made giving effect to the judgment (where possible), and further directions made in relation to ancillary matters in the proceedings.
The Liquidators are considering the practical implications of the judgment and look forward to receiving final Court orders that will provide a basis for the next steps in the liquidation.
Over the coming months remaining counterparty funds should be recovered with the benefit of such orders and, subject to Court approval, the process of verifying and adjudicating client claims will be undertaken before initial distributions are made to clients.
It is too soon yet to estimate a timeframe on this process.
A copy of the judgment will be published in the near future.
11 April 2018
On 19 March 2018 Justice Brereton of the Supreme Court handed down Judgement (PDF 632KB) in the client monies directions proceedings. The Court also issued a short Judgement Summary (PDF 137KB).
A hearing was held on 5 April 2018 to provide further directions in the proceedings and further Orders (PDF 151KB) were made.
The parties have until 28 May to make any submissions regarding a number of issues discussed in the Orders, including:
- whether or not the Saxo, Futures and FX product lines should be treated on a pooled basis;
- whether previous costs orders should be varied to permit a reallocation of costs between the product lines; and
- in relation to a process proposed by the Liquidators to carry out the client verification and claims adjudication steps required prior to distributions to clients.
22 June 2018
As stated in previous updates, on 19 March 2018 Justice Brereton of the Supreme Court of New South Wales handed down judgment in the client monies proceedings. As part of his judgment his Honour invited the parties to make further submissions in relation to a number of issues, including:
- whether the Saxo, Futures and FX product lines should be treated on a pooled basis, or whether this may not be necessary if the Liquidators are able to reverse 6 transactions identified by the Court in the judgment
- what date should be used for the purposes of calculating client entitlements
- a claim by the Receivers & Managers to approximately $160,000 of debtor receipts held in the Equities/ETO funds
- the Liquidators' most recent remuneration application
- the Liquidators' application for approval of a process and associated costs of verifying and adjudicating client claims prior to making distributions to clients; and
- any proposals to vary the current regime for approving the parties' costs of the proceedings and/or reallocate costs between the product lines.
On 5 April 2018 the Court gave directions for the parties to prepare further evidence and submissions (should they wish to do so) in relation to the above outstanding issues, and listed the matter for hearing on 22 June 2018.
At the hearing on 22 June 2018, his Honour heard and considered various evidence and submissions from the parties in relation to the above issues and reserved judgment.
In summary:
- no party put any submission against pooling Saxo, Futures and FX product lines;
- no party objected to the Liquidators adopting a calculation date for client entitlements based on BBY's last trading day (being 15 May 2015), or, for positions traded on 18 or 19 May 2015 relevant close-out data;
- no party objected to the substance of the Liquidators' proposed approval process and associated costs (other than in respect of the allocation of the costs) of verifying and adjudicating client claims, however the Fifth Defendant proposed that the process ought to preserve the ability of IB product line clients to be able to assert a tracing claim over assets should they wish to do so;
- the parties had differing views on the manner in which costs should be reallocated across product lines; and
- the court determined to adjourn the Liquidators' remuneration application, to a date to be determined.
We await judgment from his Honour in respect of the pooling of Saxo, Futures and FX product lines; calculation date for entitlements; approval of the process and costs of verifying and adjudicating client claims; and the reallocation of costs across product lines.
We will provide a further update when available.
22 January 2019
Our report to creditors, dated 21 September 2018, set out the status of the court directions proceedings.
The Supreme Court handed down a Judgment (PDF 2.81MB) on 12 November 2018 in relation to the treatment of client monies and next steps in verifying and adjudicating claims. The Court made Orders (PDF 716KB) on 26 November 2018 giving effect to the Judgment.
The Orders addressed:
- The date at which client entitlements are to be ascertained, being 15 May 2015, with an exception in respect of ETO clients, which will be derived from information provided by the ASX in relation to closed out collateral.
- Pooling of the CSAs in the Saxo, Futures, FX and Other product lines (rather than undertaking a reversal of transactions between any of those CSAs).
- Allocation of costs in connection with administering the CSAs and the proceedings, against each of the product lines on a pro rata basis according to the value of assets in each product line as a proportion of the total value of assets, save that the IB product line, should not bear certain costs referable to the period after 5 December 2016.
- Allocation of the Liquidators' remuneration, costs and expenses in connection with recovering or attempting to recover and administering client recoveries, against the assets of the attributable product lines.
- The legal expenses of the First, Second, Third and Fifth Defendant in connection with the proceeding to be paid out of the assets of the product lines on a pro rata basis according to the value of assets in each product line as a proportion of the total value of assets, save that the assets in the IB product line should not bear certain costs referable to the period after 5 December 2016.
- The Liquidators are justified in adopting a variation of a proposed process that we had submitted to Court to verify and adjudicate client claims and to make any distributions of Client entitlements. (This excludes those IB clients who contend and can substantiate that they are entitled to an asset or assets in specie via a tracing claim. If IB tracing claims are made we will need to seek further Court directions to establish a separate IB tracing adjudication and distribution process).
Refer to the Judgment and Orders for further details.
The process that we proposed in relation to verification and adjudication of client claims and subsequent distributions is explained in more detail in our report to creditors of 21 September 2018 along with the variations as noted in the Orders.
We plan to utilise a bespoke online portal, specifically designed, constructed and managed by Link Market Services to our requirements. The portal is being designed to meet the details of the Judgment. We anticipate that it should be completed towards the end of February or early March 2019.
Once preparations are complete we shall contact clients with further details of the verification and adjudication process and explain what you need to do next.
3 July 2019
On 26 November 2018 the Court ordered that the Liquidators are entitled to sell the securities held on the Saxo online trading platform upon termination of the Online Account Terms applicable to the "BBY Online Trader" product offering (the Agreement). Saxo clients with a Saxo position claims will have received a circular from KPMG advising them of the termination of the Agreement (PDF 113KB).
9 April 2020: Latest news on client monies
Client Monies – verification and adjudication
By way of recap, on 19 March 2018 Justice Brereton of the Supreme Court of New South Wales handed down judgment in the client monies directions proceedings and invited the parties to make further submissions in relation to a number of issues impacting clients in each of the product lines including Equities, Exchange Traded Options, Interactive Brokers, Saxo, Futures, Foreign Exchange and all Other products (being a pooled product line). At a hearing on 22 June 2018, his Honour heard and considered various evidence and submissions from the parties in relation to these issues and reserved judgment. On 12 November 2018 the Supreme Court handed down a further judgement in relation to the treatment of client monies and next steps in verifying and adjudicating claims. The Court made Orders on 26 November 2018 giving effect to the Judgment.
An online Client Claims Portal was then developed in conjunction with Link Market Services to meet complexities of the judgments in relation to the client verification, adjudication and distribution processes. Clients were able to submit claim details through the Portal between May and September 2019. Where client claims did not agree with company records we reviewed and adjudicated each claim. We also worked with the National Guarantee Fund in reviewing claims made against the Fund in respect of Australian exchange-traded securities. Where your claim has been paid by the Fund it has made a subrogated claim in the liquidation. The adjudication process is largely complete.
Interactive Brokers (IB) clients
As part of the adjudication process, former BBY clients with claims in respect of the IB product line administered by Interactive Brokers were, in accordance with Court orders, provided an opportunity to seek the return of IB assets in their present form (eg as a share or option), rather than sharing in sale proceeds of the IB product line assets. These clients are required to pay for a proportionate amount of the Liquidators' remuneration, cost and expenses and the legal expenses of the representative defendants incurred in relation to the Court proceedings as well as various transfer costs before IB assets are conveyed to them. An indication of the estimated costs was provided in December 2019 to those seeking the return of assets so they could consider whether they still wished to have stocks returned or alternatively participate in a cash distribution. The final costs are still to be confirmed. We will advise those clients of the final costs calculation prior to commencing the transfer process.
Those IB clients with online viewing access to the IB platform may have noticed that there have been transfers from their account. Once we confirmed which IB stocks were subject to requests to be returned we instructed IB to sell the remaining stock and to forward cash holdings to the Liquidators. This was necessary as part of the process of creating a pool of funds for distribution. The assets on the IB platform have been progressively realised and the cash proceeds deposited to IB Client Segregated Accounts under the control of the Liquidators, with the exception of those assets subject to requests for return to IB clients. The majority of assets on the IB platform have been successfully recovered however stock sales have taken longer than expected due to circumstances related to COVID-19 including the disruption in financial markets and higher market volatility and trading volume. Interactive Brokers has also experienced an increase in the volume of service inquires which have apparently led to longer processing times.
Client distributions
We anticipate making an initial distribution to clients in all product lines around July 2020. We shall provide more information on this website as updates are available.
There are a number of steps to be completed prior to the distribution including completing Court ordered cost reallocations between product lines, calculating available funds after provision for remaining costs and providing a statutory notice period prior to the distribution. We shall publish a copy of the notice on this website when it is issued.
We expect there will be a second, hopefully final, distribution in early 2021.
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