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:
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.
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 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:
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:
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 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:
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).
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:
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:
On the First Plaintiffs’ Interlocutory Process filed 8 March 2016, the Court orders that:
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.
On Wednesday, 12 October 2016 further orders (PDF 65KB) were made by the Court that:
This website will be updated as further information becomes available.