Banksia Securities - Case Update

The Supreme Court of New South Wales has approved settlements in the liquidation and receivership proceedings of non-bank lender Banksia Securities, which collapsed in 2012, leaving 16,000 investors with losses exceeding $660 million. Banksia raised funds from the public by issuing debentures to retail investors pursuant to prospectuses and product disclosure statements, and advanced funds raised from debenture holders to third-party borrowers for property investment and development purposes.

Banksia’s collapse triggered legal action and class actions, including representative proceedings over misleading statements in prospectuses and subsequent complex litigation known as the "Remitter." In 2021, John Lindholm and Peter McCluskey (who has since retired) of KPMG, the special purpose receivers, obtained a significant judgment (over $11.7 million) against various defendants, including a litigation funder and five lawyers, who were found to have engaged in egregious conduct in connection with a fraudulent scheme intending to claim more than $19 million in purported legal costs and commissions from a settlement sum, but faced challenges in recovering the full amount.

In 2022, the Court ruled that the special purpose receiver was justified in not accepting a global settlement offer made by the defendants to the Remitter litigation. Further negotiations ensued, and late last month the Court heard another application for directions, revisiting the question of whether the settlement was now justified, where the special purpose receiver has now obtained substantially more information, including as to the financial position and the legal structure of companies and trust associated with the late Mark Elliott and his family. Mr Elliott was the solicitor who commenced proceedings on behalf of debenture holders against Banksia and incorporated the litigation funder that backed the proceedings.

The Court approved settlements with several parties, including the Elliott family entities, accepting that they were reasonable in light of the legal complexities, the limited asset pool of the judgment debtors, and the benefit to elderly debenture holders who would receive a substantial distribution sooner rather than face further costly and uncertain litigation. The settlements, if approved, would bring total recoveries to nearly 95 cents in the dollar for debenture holders—a substantial outcome given the circumstances.

Additionally, the Court approved the special purpose receiver's decision not to pursue further claims against insurers or insolvent law firms, finding that the costs, delays, and risks outweighed the likely benefits.

Read the decision HERE.

Professionals involved:

• Jonathan Redwood SC of Banco Chambers and Mitchell Grady of Svenson Barristers (instructed by Maddocks) for the special purpose receiver

• Michael Izzo SC of Eleven Wentworth and Christina Trahanas of Omnia Chambers for the contradictor