http://business.theage.com.au/opes-clients-legal-tangle-a-dilemma...

http://business.theage.com.au/opes-clients-legal-tangle-a-dilemma-for-the-courts/20080423-27ws.html

IT'S blunt but it has to be said: Opes Prime Stockbroking clients should not set their hopes too high. There is no simple way forward in the Opes collapse, no prospect of a reasonably swift end, and no likelihood that the firm's financiers will suddenly capitulate and return $1.6 billion of shares to clients of the failed stockbroking company.
Right now, the clients will be lucky to get back 30% of the $514 million they were owed when Opes sank into receivership on March 27, and suggestions that they might get 70% if this bank or that person were sued are merely theoretical, pie-in-the-sky calculations.

In truth, the administrators acting for Opes' clients, John Lindholm and Adrian Brown of Ferrier Hodgson, are facing a long haul and they know it.

Justice Ray Finkelstein in the Federal Court highlighted the problem yesterday when he approved a brief application for the administrators to postpone the second creditors' meeting. There is enormous uncertainty about the outcome for creditors and the administrators are fully aware that any legal challenges over the creditors' status might drag on for years.

Strangely enough, what is troubling the administrators is the possibility that unsecured creditors, the clients, might get a "win" in a test case heard earlier this week before the same judge.

The judge is pondering whether clients, such as Beconwood Securities' Paul Choiselat, who deposited their shares with Opes in return for funds to buy more shares, in fact retained an interest in the shares.

Opes pooled the clients' shares and then, under the cover of securities lending transactions, lent the shares to its financiers ANZ, Merrill Lynch and Dresdner Kleinwort.
ANZ has argued before Justice Finkelstein that the words of the agreements Opes used in dealing with its clients are abundantly clear: the clients surrendered all rights, title and beneficial interest in the shares immediately they handed the stock to Opes. And that is the basis for the three financiers seizing the clients' share portfolios: they claim they already owned the shares, without a shadow of doubt.

Maybe they did. Maybe the claims of Choiselat, and the hopes of some 1200 others queuing behind him, are merely ambitious and ultimately hopeless. Or maybe the whole scramble for shares by the financiers will have to be unravelled.

There are some tough decisions ahead for Opes clients. If the judge rules in favour of the Choiselat interests (that is, the Opes clients) in the test case, then the appointment of a liquidator to Opes could jeopardise their new-found, but highly provisional, claim. It is provisional because someone first has to prove that the clients' claims have priority over the financiers.

The administrators would like to have the powers of a liquidator — the power, for example, to pursue anyone that they deemed received a preferential payment in the six months before Opes collapsed or any company that struck uncommercial transactions with Opes. But the appointment of a liquidator over Opes would trigger so-called netting-off provisions. In the netting-off scenario, if a client had vested say, $500,000 of shares with the company in return for borrowing $200,000 to buy more shares, they would only be able to claim $300,000; based on a 30% distribution, they would get only $100,000 back. If they could pursue their claim directly against ANZ or Merrill Lynch, they might — and only might — get 100% back. What the administrators are now considering, depending on the outcome of the test case, is formulating a deed of company arrangement (DoCA), a very flexible agreement that is usually struck with the owners or directors of a company.
Don't expect the Opes directors, Lirim "Laurie" Emini, Julian Smith and Anthony Blumberg, to stump up towards a DoCA. But the administrators might want to open negotiations towards a DoCA with parties that, in a liquidation, might find themselves the target of potentially costly, lengthy and highly publicised litigation — namely, anyone who received preferential payments or financiers that entered into (arguably) uncommercial transactions.

The task ahead then becomes a calculation of potential returns available in a liquidation versus what the creditors might get by way of a DoCA.
All this is predicated on what Justice Finkelstein decides. And as the judge highlighted yesterday, anyone who feels aggrieved by his decision is likely to appeal against it, firstly to the Full Court and, perhaps, to the High Court.
It could go on for years. Part of the calculation for the administrators, then, is the time-cost of money: they have to consider the tortuous path ahead, how long it might take to fully resolve everyone's issues in this, and ask the simple question: should creditors cut their losses early and take what they know they can get?