Parkes Shire is continuing with its fight to secure a higher return for investments lost during the world financial collapse last year.
Parkes Shire General Manager, Alan McCormack believes Parkes’ claims are very strong, but warns “getting our hands on the money is pretty hard”.
At last week’s shire meeting, Mr McCormack provided an update on council’s fortunes in recovering its $30 million investment.
“We are looking for reinstatement of funds lost in products from the Local Government Financial Service (LGFS) and a better distribution from the assets of Lehman Brothers,” he reminded councillors.
“Getting back to our former financial position will stabilise council’s Long Term Plans,” he added.
Mr McCormack said through its legal representation, council continued to pursue a “position of strength” in its fight.
“With nine other councils, we have made a claim in the Federal Court for restitution of losses on the “Rembrandt” product,” he revealed.
“We invested $3 million in this and received just $201,000 when the product failed.
“We have suggested that the product was a “derivative” and so outside the licence of LGFS.
“Our solicitors also believe other relevant issues should be considered, including (the LGFS’s) breach of duty,
and misleading and deceptive conduct.
“In a hearing on December 23, 2009, Judge Jagot ruled against determining the derivatives question separately, meaning that all representations are to be heard at the one time.”
Mr McCormack said LGFS solicitors were requesting details of representations between LGFS employees and council staff.
“This information has been provided but testimony of former employees may still be required.
“The judge has directed that the parties attempt to agree on a timetable for the preparation of defences and discovery.”
Mr McCormack said the LGFS personnel had been “very arrogant” and “non-community” in their dealings and he was shocked that despite the failure of their products, board members had a 37 per cent increase in fees.
He added that local government superannuation had also been affected by the LGFS failure.
“Our claim is very strong but getting our hands on our money is proving pretty hard. We are looking to recover the $2.8 million.
“There is a possibility their (LGFS) insurance company could come to us to negotiate a settlement.
“The matter is also expected to be raised at the E division conference of the Local Government Association in Molong in March.”
The case is expected to be dealt with in August 2010.
Parkes Mayor Ken Keith said Parkes continued to be at the forefront of the fight for recovery of lost investments.
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Mr McCormack also gave a “report card” on the recovery action against Lehman Brothers, both here in Australia and the UK.
“We have our noses in front, but it is not a quick process,” he commented.
“On 11 December, 2009, the High Court of Australia granted Lehman Brothers Holdings (LBH) and Lehman Brothers Asia (LB Asia) leave to appeal to the High Court in Canberra against the decision of the full Federal Court to overturn the Deed of Company Arrangements (DOCA),” he told council.
“The appeal will be heard in February.
“If the court decides the DOCA is void, Lehman Australia will remain in liquidation and the liquidators will adjudicate on the councils’ claims.
“If the court determines the DOCA is valid, distribution of funds should occur.
“Councils’ costs are being funded by a litigation funder IMF, who believes the councils’ case is strong,” Mr McCormack said.
“The objective of this challenge to the DOCA is to obtain a far better deal than the propsed 2.44 per cent of calculated losses which would mean Parkes council would be paid only $224,860.”
Council has seven products from Lehman Brothers involved in this action.
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In a separate matter, council has two Lehman Brothers products, the future of which is subject to court action in the UK.
“The English High Court has rules that the trustee should release the collateral to the note-holders (council holds $3 million in notes) but Lehman Brothers Special Financing (LBSF) have disputed this,” Mr McCormack said.
“A Court of Appeal has dismissed the LBSF challenge and rejected an application to further appeal the judgement to the English Supreme Court, the highest court in England.
“LBSF has now applied directly to the Supreme Court for leave to appeal.
“It may take until the end of February 2010 for the Supreme Court to hand down a decision.”
Mr McCormack added that the English Court of Appeal had ordered that LBSF pay note-holders legal costs, but this could reversed if the English Supreme Court gives judgement in favour of LBSF.
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