Babcock & Brown directors accused of breaching duties, report
Directors of failed investment bank Babcock & Brown Ltd have reportedly been accused of breaching their duties and corporations law, inadequate disclosure, conflicts of interest and risk management weakness.
A 110-page report prepared by administrator Deloitte, to be made available to creditors on August 17 and obtained by The Australian newspaper, has also questioned why the Sydney-based financier once dubbed the 'Mini Macquarie' did not ask for shareholder approval for a $40 million loan to collapsed broker Tricom Equities.
According to The Australian, the administrator report alleges Babcock & Brown became insolvent at the latest on November 29 last year, more than three months before administrators were called in on March 13 this year.
The report suggests Babcock & Brown faced serious liquidity issues before the onset of the global financial crisis.
"The administrators believe that the collapse may have been brought about by a combination of weaknesses that the group carried into the GFC, and the responses of management, the BBL (Babcock & Brown) board and the BBIPL (Babcock & Brown International) board to the GFC during the course of 2008," the report says, according to The Australian.
BBL holds 99.8 per BBIPL, the main operating and asset-owning entity of the Babcock & Brown group.
The report, which recommends Babcock & Brown be placed in liquidation, says for two years about 50 per cent of profits were used to fund remuneration.
"The remuneration policies put in place by the board served to encourage a culture of risk taking and rewarded short-term performance," the report says.
On the question of possible legal action, the report says: "To the extent that the conduct of previous BBL directors may be actionable, parties who have suffered damage may be able to claim against the directors' and officers' insurance policy."
Babcock & Brown, which was once worth $10 billion, had a strong retail shareholder following. According to the last filed annual accounts for 2007, Babcock & Brown had 51,600 shareholders and about 33,000 had holdings of 1,000 shares or less and 16,000 had holdings of 5,000 shares or less.
The group collapsed with about $3.2 billion in debt after more than 58 per cent of New Zealand investors holding $600 million of unsecured subordinated notes voted against a debt restructure plan.
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