Wickham Securities investors win access to internal collapse financial documents

Investors who lost a total of about $27 million when the investment fund Wickham Securities collapsed have gained access to internal financial documents that will assist in determining whether to pursue any class action against Wickham’s trustee company Sandhurst Trustees.

The Federal Court recently ruled the investors should have access to hard copy documents contained in 11 lever arch folders along with an electronic folder of documents with 561MB of data.

On 21 December 2012, Grant Sparks and David Leigh of PPB Advisory were appointed joint administrators of Wickham by a resolution of the directors.

Mostly self-funded retirees had invested around $27 million in the mortgage lender through $1 unsecured deposit notes promising returns of 9.25% prior to its collapse.

Wickham had raised $38,848,471 through the issue of notes under its first five prospectuses.

The aggregate principal amount of notes outstanding was $22,096,890.

The profit for the year ending 30 June 2010 was given as $3,245. The 30 June 2009 profit was $157,711.

In January 2013, the first meeting of creditors of Wickham was held. Sandhurst, representing the noteholders, attended the first meeting of creditors.

The preliminary investigations by the administrators identified a number of “significant issues”.

Firstly the directors had “not accurately [reported] the position and quality of [Wickham’s] loan portfolio” to Sandhurst since at least August 2010 when receivers and managers were appointed to a borrower called WLP Pty Ltd.

Secondly Wickham provided Sandhurst with an “Account Balance Confirmation letter” advising that the balance of Wickham’s “Application Account” was $10,779,835.00 as at 30 November 2012 when the actual balance at that date was $264,892.

The balance of the Application Account was overstated by $10,514,943.00.

The administrators expressed this view: “It is our view that this confirmation letter has been fabricated”.

The administrators also say that their investigations indicate that an account balance of $10,779,835.00 did not exist at any time in the 12 month period prior to Wickham’s letter to Sandhurst confirming that account balance.

Thirdly although the prospectus issued by Wickham dated 15 December 2010 was open for 13 months, Wickham’s records indicate that it continued to accept amounts from noteholders after the closing date of 14 January 2012. The contributions beyond the closing date amount to $1,962,500.

The administrators observed that their investigations revealed that Wickham provided Sandhurst with a schedule disclosing 21 loans totalling $28,181,010 as at 30 June 2012.

The administrators say that they have identified another loan file where the debt was not reported to Sandhurst as at 30 June 2012.

The administrators estimated in their preliminary report a range of “gross realisations” that might occur from the loan portfolio as $1,738,000.00 as the low estimate and $6,265,500.00 as the upper estimate with the book value of the loan portfolio recorded as $28,180,010.00 in respect of 22 loans.

The administrators set out a schedule which said that of those loans, three were supported by first mortgage  security; five by second mortgage security; three loans were not supported by any available loan file; seven of the loans were made to entities in respect of which receivers and managers had been appointed to the borrower, and in respect of four loans, the borrower was in liquidation or had become a deregistered company.

The administrators also noted aspects of the loan criteria. They note that loan terms for loans made prior to 9 July 2006 were to be no more than 12 months and loan terms after that date no more than 24 months. The maximum loan to valuation ratio was to be 85% with valuations less than six months old at the time of a loan approval.

Wickham recorded total noteholder liabilities of $27,671,014.

The estimated gross return on the loan portfolio was 6c to 22c in each dollar before taking account of the costs of recovering the loans, legal fees and the costs and expenses of the administrators.

The majority of Wickham investors are from Queensland, many knowing two of Wickham’s directors, Brad Sherwin and his brother-in-law Peter Siemons.

In 2013 ASIC took action in the Federal Court against Sherwin and entities related to him for freezing orders.

ASIC cancelled the registration of Wickham Securities auditor Brian Kingston for undertaking "inferior work" and "failing ins his job" and banned him for life.