SYDNEY, May 8 (IFR) - The state government of Western Australia has broken widely held conventions with the introduction of legislation to seize and distribute A$1.7bn (US$1.3bn) owed to the remaining creditors of the Bell Group of companies.
A government authority has been appointed to prevent further litigation over the liquidation of Bell Group in 1991, a legal case that has dragged on for two decades.
Crucially, the bill enables the Insurance Council of Western Australia to secure a bigger share of the creditor pool than it may otherwise receive from a mediation process between creditors due to begin in Singapore on Tuesday.
The ICWA, formerly the State Government Insurance Commission, has led and financed the 20-year legal case to the tune of A$240m against 20 Australian and international banks to recover money and assets the banks seized following the collapse of Alan Bond’s Bell Group.
The creditors won a court battle against Bell Group’s banks in 2012 before the two sides reached a settlement that was finalised last June and created a pool of A$1.7bn to be distributed to creditors.
The problem for ICWA is that its subordinated bonds may place it below others in the creditor queue, including Dutch distressed-debt specialist Louis Reijtenbagh and a group led by Perth litigation funder Hugh Mcleron.
WA Treasurer Mike Nahan told Parliament this week: “It was hoped that after that settlement, the creditors of Bell Group would work together to bring about a swift and equitable distribution of those funds. That hope has not been realised.”
“After two decades of incredibly expensive litigation, the State Government is not inclined to let a third decade of litigation pass,” Nahan said, adding that legislation provided certainty about the process of distributing funds to creditors.
Anyone attempting to impede the new law faces draconian punishments, including a A$200,000 fine or five-year jail sentence, which may prove a sufficient stick to halt the mediation process in its tracks.
Critics argue that the bill has overridden the Corporations Law and pre-existing agreements and could have negative implications for Western Australia’s ratings and its ability to raise funds in offshore markets, especially in euros.
However, ratings agencies have taken a relaxed view so far, while Western Australia has only accessed the domestic bond market, where demand for semi-government paper is extremely high due to its status as a rare Level 1 high-quality liquid asset for Basel III purposes.
Standard & Poor’s put Western Australia’s AA+ rating on negative outlook in April, citing the impact of slumping iron ore prices on royalty payments. (Reporting By John Weavers, editing by Daniel Stanton, Dharsan Singh and Steve Garton)