Full article Cookie:MFS fall a goldmine for liquidators by: Lisa...

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MFS fall a goldmine for liquidators

by: Lisa Allen
From:The Australian
December 06, 201212:00AM

http://www.theaustralian.com.au/business/property/mfs-fall-a-goldmine-for-liquidators/story-fn9656lz-1226530807285

LIQUIDATORS and lawyers associated with collapsed Gold Coast property and financial services group MFS have collected $44.733 million in fees, including millions of dollars in legal fees, $1.53m in disbursements, and a further $308,012 for media consultancy services, according to a secret report.

The confidential summary of costs, prepared by Ferrier Hodgson, reveals MFS liquidator Bentleys collected $15.69m plus expenses since its appointment in September 2009, while lawyers Henry Davis York have reaped more than $20m in fees even though the two central pieces of MFS litigation involving KPMG and the Fortress Liquidation are continuing.

MFS, which has since been renamed Octaviar, collapsed in January 2008 owing more than $2.7 billion to creditors including the Australian Taxation Office, Queensland's Public Trustee -- which is claiming $350m -- Challenger, Octaviar Investment Notes, and thousands of mums and dads who had invested in the MFS Premium Income Fund, which is claiming $202m.

The five major creditors sit on the MFS creditors committee, with insolvency firm Ferrier Hodgson representing Octaviar Investment Notes, which has a claim of more than $300m.

Ferrier Hodgson liquidator Will Colwell said in a letter to Bill Fletcher of Bentleys, obtained by The Australian, that he is concerned by the "significant levels of costs incurred".

"These levels of costs are of serious concern . . . to the public trustee himself and to the noteholders he represents," Mr Colwell said.

"As discussed yesterday, after $44m and three years, the (MFS creditors) committee is none the wiser as to whether both (legal) actions should be proceeded with," Mr Colwell said.

The legal actions relate to a class action against KPMG, auditor of the MFS compliance plan, and also to New York investment house Fortress, which had almost $190m worth of its Australian assets frozen after a complaint by the MFS liquidators.

The Supreme Court of Queensland ruled in favour of the MFS liquidators, who argued that Fortress had received preferential payments from MFS while it was insolvent. But Fortress recently failed in a bid to have the freezing order thrown out in the NSW Supreme Court, arguing it had been "prejudiced" by the terms of the liquidators' lawsuit.

In his November 22 letter to Bentleys, Mr Colwell demanded a full cost-benefit analysis to pursue the KPMG and Fortress claims, adding that "going forward, the (MFS creditors) committee, needs to have a further discussion about reining in costs, and ensuring creditors are getting value for money, as the costs to date have been significant". The creditors committee should receive a "detailed fee budget on a three-month rolling basis with a very specific scope of work".

"Alternatively, the committee could consider fixed fee caps for some or all of your future work . . . at the moment, all the work you are seeking to be paid for is effectively open-ended."

Mr Colwell invited Bentleys on July 30 this year to advise how much time had been written off since the start of the litigation, but he noted that Bentleys had not answered that query.

There has been little cost relief.

Lawyers Henry Davis York agreed in August to a 10 per cent fee discount from March 1, 2012. But Mr Colwell told Bentleys: "This is not satisfactory and you need to revisit the position with them."

Once the full analysis of the KPMG and Fortress claims is received, the creditors committee will consider whether to proceed with either or both claims, "or cease them and call for the remaining funds to be distributed and the liquidation brought to an end", Mr Colwell said.

Henry Davis York partner Scott Atkins said the MFS-Octaviar litigation is one of Australia's most complex in financial and legal terms.

"The fees incurred throughout the liquidation by both the liquidators and their legal advisers (including Henry Davis York, US attorneys, other Australian legal advisers, senior counsel, junior counsel and experts retained by the liquidators) reflects the necessary, extensive and complex nature of the issues which the liquidators have dealt with and continue to deal with," Mr Atkins said yesterday.

Mr Atkins said more than $140m had already been recovered. "There are further claims by the liquidators pending against various parties which, if successful, will result in additional recoveries for creditors in excess of $200 million."

But one of MFS's thousands of creditors was outraged by the $44.733m figure yesterday.

"There is no mechanism in the country to control the expenditure of liquidators. The system has failed to protect the people it was built to serve," he said.

The MFS-Octaviar administration is not the only example of significant liquidator expense.

The collapse of fertiliser king Pankaj Oswal's Burrup Holdings has so far reaped creditors $56m. They include PPB, which has reportedly been paid $19m in fees from the collapse, and Freehills, which has garnered $13.8m.