Babcock and Brown shareholders warned against legal action

Shareholders in failed investment company Babcock and Brown have been warned against signing up for further legal action with a litigation funder.

Babcock and Brown was placed into voluntary administration in March, 2009 and liquidation later that year. Picture: Jeremy Piper/Bloomberg News

Shareholders in the failed investment company, Babcock and Brown, have been warned by the company’s liquidator against signing up for legal action with litigation funder, Bookarelli.

In a recent circular issued to shareholders, the liquidator, Deloitte’s David Lombe, has warned that he will be seeking to recover legal costs awarded as a result of a fifth failed attempt to launch legal action against Babcock and Brown by shareholders backed by Bookarelli.

“Any non payment of costs from Bookarelli in relation to the lump sum costs awards may result in cost awards against the relevant shareholders individually,” Mr Lombe warned in the circular.

“This risk is to all shareholders who sign over their rights to Bookarelli to pursue claims against the company in future.”

Listed on the ASX in 2004, with supporters arguing that it could rival the Macquarie Group, Babcock and Brown’s market capitalization peaked at above $9bn in 2007.

With significant debts, it was hit by the global financial crisis of 2008, and was placed into voluntary administration in March 2009 and liquidation later that year.

Mr Lombe’s circular is the latest move in a long running series of legal actions since 2012 involving different groups of Babcock and Brown shareholders backed by Bookarelli.

His latest letter to shareholders follows a decision in the Federal Court in November last year which made orders to permanently stay the fifth attempted legal action.

The action was launched in 2018 by Malcolm Davis Pain and 312 other shareholders alleging that the company had failed to disclose material information to the ASX at the time they bought their shares.

David Lombe said Bookarelli had lodged six new individual claims via proof of debt forms in October, 2024. Picture: Chris McKeen

In the Federal Court, in November last year, Mr Justice Halley permanently stayed the proceedings, declaring they were “an abuse of process” and ordered the applicants to pay the costs incurred by the Babcock and Brown liquidators.

Bookarelli has signalled that it will be appealing that judgement to the Full Bench of the Federal Court.

In his judgement in November, Justice Halley referred to four earlier cases against Babcock and Brown with similar allegations – one launched in 2012 involving 78 shareholders, a second in 2013 involving 100 shareholders, a third in 2014 involving 887 shareholders and a fourth in 2015 involving 234 shareholders.

Outlining his decision, Justice Halley said that if the latest proceedings, which were launched in 2018 by a group of 313 Babcock and Brown shareholders backed by Bookarelli, were not permanently stayed, it would have “serious adverse impacts” on the liquidation of Babcock and Brown.

He said the liquidator had already spent more than $4.2m in legal costs in all five proceedings.

He said the liquidator had only been able to recover 44 per cent of his costs in the first case, launched in 2012.

He said it was not possible to estimate the total costs which could be clocked up by the liquidator in defending the latest proceedings but said they were “likely to be substantial.”

“If the proceeding is not stayed, it will in all likelihood further delay by some years the finalization of a liquidation that commenced more than 15 years ago,” he said.

In his letter to shareholders, Mr Lombe, said a lump sum cost in the cases of the three actions launched in 2013, 2014 and 2015, had been ordered by the Federal Court in November last year.

“I intend to prosecute and collect those costs for the benefit of creditors of the company,” he said.

He said Bookarelli had lodged six new individual claims via proof of debt forms in October 2024, which he said indicated that the firm would continue to launch more claims against the liquidators.

The liquidator warned shareholders that there were “risks in signing” over any authority to Bookarelli to pursue claims against the company on their behalf in the future.

He said the proceedings in all five cases launched since 2012 were “virtually identical”.

Mr Lombe said Bookarelli had lost all the shareholder proceedings against the Babcock and Brown liquidator it had funded so far.

“Costs have been awarded against all the shareholders in each of the proceedings,” he said.

“To the extent that Bookarelli has not or does not satisfy those costs, I intend to pursue the costs against individual shareholder applicants,” he said.

“In my view there is a risk to shareholders that if Bookarelli cannot afford or does not pay extent costs orders the shareholder applicants could be required to pay those costs.”

“That risk arises in respect to (the last four cases already launched) as well as any fresh proceedings which Bookarelli seek to fund and bring,” he said.

Originally published as Babcock and Brown shareholders warned against legal action