RECEIVERS have revealed Banksia Securities Limited (BSL) might have been insolvent for some time before the financial firm’s collapse in October.
A report by receivers McGrathNicol has given insights into the demise of the firm which had 10 offices in Victoria, NSW and South Australia, including one in Warrnambool. When it was placed in receivership on October 25, the company had raised $663 million from investors who now face the prospect of only getting back between 50 and 65 cents in the dollar.
After analysing the loans, “it is clear that the company is insolvent and may have been insolvent for some time prior to our appointment”, the receivers said.
They said that while the company’s accounts for 2011-2012 reported a profit, the provisions made for bad loans during the year were “materially insufficient”.
Had greater provisions been made earlier, the firm’s profits may have been reduced and it may have incurred losses.
McGrathNicol said its continuing investigations would focus on a number of issues, including whether the directors of Banksia Securities Limited, and an associated company Cherry Fund (CFL), had traded the companies at a time when they were insolvent or likely to become insolvent.
Under Australian Sec-urities and Investment Commission (ASIC) laws, trading while insolvent can incur civil penalties, compensation proceedings and criminal charges.
The report by McGrathNicol said Banksia Securities was “thinly capitalised” with an equity ratio of only 3.5 per cent. The equity ratio is a buffer against bad loans and measures the proportion of the total assets financed by investors and not creditors.
“This structure exposed BSL to immediate solvency concerns in the event of even minor losses on its loan portfolio,” the report said.
The report revealed that warning bells about Banksia’s position had been ringing in May this year when ASIC and the Trust Company, the trustee for the debentures issued by BSL and CFL, had raised concerns about information in BSL’s financial statements and prospectus.
It said the trustee appointed receivers on October 25 after a preliminary report by BSL found loan impairments were likely to increase from $6.45 million to about $40 million.