This is a case where the Liquidators of Forex Trading Capital Pty Limited (Forex)
sought orders for an expedited process for the adjudication and admission of claims
made by former customers of Forex (the Company). Those being, roughly 8600 former customers who claim some $69.8 million in losses as a result on advice from
Forex trading in high-risk financial products.
Relevantly, ASIC proceedings against the Company in 2019 resulted in a decision
that the Company had contravened various provisions of the Corporations Act and
ASIC Act, and had the outcome of pecuniary penalties and the disqualification of
director Shlomo Yoshai.
The holding company of Forex is Invensus Group Limited (Invensus). Invensus
undertook to provide financial support to meet any debts incurred by Forex, with this
offer terminating on 30 June 2022 (the deadline).
The Liquidators sought orders from the Court under s 90-15 of Schedule 2
(Insolvency Practice Schedule (Corporations)) (IPS) to the Corporations Act:
1. The Court may make such orders as it thinks fit in relation to the external
administration of a company.
The estimated process for the claims to be individually assessed prior to the
deadline (30 June 2022) included the location and temporary employment of 52 staff
and the cost of $6.2 million. For the proposed expedited process, costs were
estimated to be $573,200 – $860,000.
The expedited process
The Liquidators proposed a system of requesting former customers elect, via pre-
populated form, whether they would like to participate in the expedited process and
claim their net loss with a discount of 15%, as a “quid pro quo” of exemption from
furnishing detailed evidence of causation.
Considerations that supported the proposal
Investigation Report
A sample group of random former customers was examined to support the
Liquidator’s belief that the former customers have claims in misleading and
deceptive conduct, or in the alternative, unconscionable conduct (Investigation
Report). Examples are included in the case. There was also a customer profile
created as an average of the selected former customers, which represented an
income of approximately $92,270; average age of 47; and a vast lack of
trading/investment experience.
Statutory provisions
- S 1041H(1) Corporations Act
- S 12D ASIC Act
- Statutory definition of financial services
- Corporations Act ss 766A(1) and 766B(1); and
- ASIC Act s 12BAB(1).
Examples of application
The Liquidator observed a number of calls and interactions with former customers
which they describe as examples that demonstrate serious misleading and deceptive
conduct. These are contained in the judgment.
Conclusions drawn from the investigation
The Liquidator deposed that he was satisfied, given the behavior of the company’s
agents, the extensive documentation available to the Liquidator, and the
methodology used to extrapolate such findings, that each of the former customers
from the Investigation report would be able to establish the Misleading or Deceptive
Conduct Claims, and the Unconscionable Conduct claims, should they be advanced
in a proof of debt.
Calculation of loss
The company’s booked had been audited, and the Judge in this agreed that
calculations could be readily and accurately made as to each individual loss, and
then filled into the proposed form.
This was referred to as the Net Loss Approach. In ASIC v AGM Markets the net loss
approach was adopted, notwithstanding neither ASIC nor the company had sufficient
records to complete the calculations of deposits for each client, whereas in this case,
the Liquidators had access to more information due to audit.
Other Matters
Further substantiation of claims:
The expedited process does not prevent customers for seeking to substantiate their
claims for larger amount, at some time after the Deadline. This process is an optional
one for the expedition and perk of not requiring provision of further evidence.
Notice to interested parties
ASIC was given reasonable notice of the application for the Expedited Process. It
chose not to participate.
No contradictor
Invensus was also given reasonable notice, notwithstanding the fact that the
Liquidator was not obliged to serve. It chose not to provide any substantial response
or defence. The application was heard ex-parte given the timeline.
Conclusion
Her Honour concluded that the expedited process is “creative” and “efficient”; that
the 15% discount was appropriate given the ease of saving the customers the need
to collate evidence to formally prove individual claims; that the orders sought were
within the scope of s 90-15 and doing so was consistent with their obligations as
Liquidators.
ORDERS (copied and pasted):
87. Order 1 addresses the requirements of reg 5.6.48(2)(b) of the Corporations
Regulations. Regulation 5.6.48(2) requires notice to every person who to the knowledge of the Liquidators claims to be a creditor of the company and whose debt or claim has not been admitted. Given that the Liquidators have limited or incomplete contact details with respect to some former customers, order 1 adjusts the manner in which this requirement is met. I note that the proposed notices as annexed to the orders are comprehensive and appropriately disclose that the Expedited Process does not guarantee payment to former customers.
88. Order 2 provides for all former customers to be provided with a claim form inviting them to submit their claim through the Expedited Process.
89. Order 3 permits the Liquidators to not take any further steps if no response is received from former customers (a similar order was made in ION Limited).
90. Order 4 excuses the Liquidators from the obligations under reg 5.6.54 of
the Corporations Regulations. Ordinarily, where a liquidator rejects a proof of debt, in whole or in part, they are obliged to provide notice to the creditor that their claim has been rejected. In this case the Liquidators propose to admit former customer claims as to 85% without any implication that they have rejected the remainder of such claims and without any need for the Liquidators to give notice as to any apparent rejection. This course leaves open the potential for the former customers to separately pursue claims above the 85% as calculated at a later date.
91. Order 5 excuses the Liquidators from reg 5.6.49(2)(b) of the Corporations
Regulations which requires the proof of debt to be in the form of a Form 535. The claim form in this case (Annexure G to the orders) contains the equivalent information to a Form 535. I note that Section 4 of Annexure G clearly discloses to a reader the alternative 15% discounted adjudication process and the manner in which the relevant customer’s net loss has been calculated.
92. Order 6 preserves the position that those former customers who do not submit a claim form under the Expedited Process may still submit a proof of debt in the future, to avoid the effect of reg 5.6.48(4) of the Corporations Regulations.