Receiver PPB Advisory to chase former directors of collapsed debenture firm Provident Capital

THE recriminations over the failure of debenture firm Provident Capital are set to begin in the Federal Court.

Michael O’Sullivan, a former director of collapsed debenture firm Provident Capital.

THE recriminations over the failure of debenture firm Provident Capital are set to begin with the group’s receiver, PPB Advisory, to pursue the company’s former dir­ectors in court.

Long-suffering investors, who have lost hundreds of millions of dollars, also could be looking for compensation, with two class-­action lawsuits to be filed against Provident’s trustees, Australian Executor Trustees.

Provident collapsed in late 2012, months after telling its 3500 investors it was confident it could stay afloat despite more than 90 per cent of its loan book being many months in arrears.

The Weekend Australian understands that the company’s receivers, Phil Carter and Marcus Ayres of PPB Advisory, will seek to pursue Provident’s directors in the Federal Court for damages.

A claim was filed earlier to protect the statute of limitations but will be amended to allow broader action. Pre-hearings began this month, with the matter next listed for next Friday.

When it collapsed, Provident, which lent money against residential and commercial property, had 138 loans outstanding totalling $176 million. At the time, many of the assets that secured these loans had no recoverable value, including one that was held against a deferred tax asset.

There were also questions about inconsistencies in the investor information booklets circul­ated by Provident, with loans that were more than 180 days in ­arrears jumping $12m in just three months from January to April 2012, with no explanation ­provided.

It later emerged through court hearings that one of Provident’s directors, Michael O’Sullivan, had applied for an Australian Financial Services Licence through Provident Funds Management, a separate company. If granted by the Australian Securities & Investments Commission, the lic­ence would have meant the new company would become responsible for Provident’s high-yielding and monthly income funds.

Later, a court heard Mr O’Sullivan had not told Australian Executor Trustees about the application and later warned Philip Joseph, the trustee’s chief executive, not to report the company’s financial difficulties because it would “be the end of the business”.

Two separate class actions are also likely to be launched against the trustee, with Slater & Gordon to argue Australian Executor Trustees failed in its duty to exercise reasonable diligence in making sure Provident had sufficient property available to pay debenture holders once their investments came due.

Odette McDonald, a senior class-action lawyer at Slater & Gordon, said the firm had been approached by hundreds of investors, many of whom were retirees.

The class action will be brought on behalf of investors who acquired new debentures issued by Provident on or after December 22, 2010, and who have not been repaid the amount that they invested in full.

Sydney-based Meridian Lawyers also is considering a class action on behalf of debenture holders regardless of when they invested, with lawyers to question directors and officers of the trustee under oath in the NSW Supreme Court in early December.

It is expected that the production of documents in that inquiry will enable Meridian to begin formal proceedings.

Douglas Raftesath, the principal of Meridian, confirmed there had been “strong support from debenture holders” to proceed.

An Australian Executor Trustees spokeswoman said the company had complied with its duties and had no further comment.

The latest report prepared by PPB forecast debenture holders should expect a return of only up to 19c for every dollar in a fixed-term investment, which is at most $23.5m. PPB reported it had paid about $11m to date.

PPB expects a significant capital loss to be made on three of the largest loans remaining in the portfolio, covering a Queensland residential development site, and a cattle yard and vineyard in NSW, with a combined carrying value of about $39m.