INVESTORS in failed securities firm Banksia fear not enough regulation has been put in place to prevent similar financial collapses in the future.
Kyabram-based Banksia Securities collapsed in 2012, owing $660 million to 16,000 investors in mainly regional Victoria.
Former Banksia managing director Patrick John Godfrey was fined $25,000 by the Federal Court last month and was disqualified from managing corporations for five years.
Investors can now expect up to 93 cents in the dollar returned after strong lobbying and legal action instigated by the Kyabram Banksia Debenture Holders Action Group.
They just won back $64 million and predict a further eight cents in the dollar will be awarded in March as final legal action against Banksia insurers winds up. The final payout is expected in June.
The 93 cents in the dollar is far above the originally-forecast return from receiver McGrathNicol, who were replaced by the courts after the company refused to take action against the Trustees due to a conflict of interest.
Kyabram Banksia Debenture Holders Action Group member Don McKenzie said it took “a lot of pressure” to achieve a positive outcome for investors, but was concerned there were not enough safeguards to prevent similar financial collapses from occurring.
“The frightening thing is the lack of proper regulation of some of these lending firms-come-banks,” he said.
“These has been no regulatory changes since the collapse of Banksia to prevent another situation like this, and there is no appetite for any changes.
“It’s like a flood – everyone forgets about it until the next one hits.”
Mr McKenzie said a lack of oversight of auditing practices was a key reason why Banksia became unsustainable – an opinion backed up by the Federal Court.
“These audits are done to a price, not to a standard,” he said.
“The average punter has no knowledge of what’s going on in these audits.”
In the court ruling in relation to Banksia managing director Patrick John Godfrey, Justice Mark Moshinsky found that audit plans issued to Banksia each year stated the audit profile risk was “moderate”.
The audit plans stated that Banksia “has strong systems and procedures in place, with staff having excellent experience and knowledge of the business”.
When it collapsed, Banksia had $67.2 million of past due loans, $24.2 million of impaired loans and net assets of just $24.2 million.
Justice Moshinsky found the auditing had focused on the “reasonableness of the recommendations of management” and the robustness of Banksia’s systems and processes, rather than detailed discussions about the recoverability and assumptions of non-performing loans.