This article is from the Australian Property Journal archive
THE Australian Securities and Investments Commission has launched $200 million legal proceedings against KPMG, as part of its half a billion Westpoint Group recovery action.
The action to be heard in the Supreme Court of Victoria comes after ASIC first flagged of the possibility of suing the accountancy firm in November last year when the regulator backed an initial $349.9 million class action against Westpoint directors, financial planners and trustees.
This $200 million action, taken on behalf of eight Westpoint companies, is the next phase of ASIC’s program to obtain compensation for investors in Westpoint which collapsed in early 2006 with losses in excess of $300 million.
The Westpoint companies in whose names ASIC has commenced proceedings are Ann Street Mezzanine Pty Ltd; Bayshore Mezzanine Pty Ltd; Bayview Heritage Mezzanine Pty Ltd; Market Street Mezzanine Ltd (previously Market Street Mezzanine Pty Ltd); Market Street Mezzanine No. 2 Pty Ltd; Mount Street Mezzanine Pty Ltd; North Sydney Finance Ltd; and York Street Mezzanine Pty Ltd.
The civil proceedings have been launched under section 50 of the ASIC Act, which enables ASIC to commence proceedings for damages in the public interest.
ASIC chairman Tony D’Aloisio said the claims are for negligent conduct by KPMG of audits of the financial accounts of various Westpoint companies for the fiscal year of 2002, 2003 and 2004.
The regulator alleged KPMG negligently carried out audits of Westpoint companies by failing to identify issues related to the continuing solvency and failing to qualify audits of the companies.
The claims further alleges KPMG should have notified ASIC that suspected breaches of the Corporations Act were taking place, including breaches of directors’ duties and rules against insolvent trading.
D’Aloisio said ASIC contends that a true understanding of the solvency of companies in the Westpoint Group could only be understood by an analysis of the Westpoint Group as a whole.
“This is because the Westpoint Group used a group ‘treasury model’ which utilised inter-company loans between mezzanine companies and development companies which were guaranteed by Westpoint Corporation Pty Ltd.
“The claim against KPMG has been formulated on the basis that KPMG owed each mezzanine company a duty of care in its capacity as auditor of Westpoint Corporation Pty Ltd, as well as in its capacity as auditor of each mezzanine company,” he continued.
Investors in Westpoint-related financial products had invested a total of $393 million as at January 2006 when the group collapsed. So far, liquidators and administrators of the various entities estimate around $64 million can be recovered.
D’Aloisio said if successful, the action could potentially benefit up to 80% of investors in the Westpoint Group.
“ASIC sees a clear public interest in using its powers in these circumstances to pursue compensation for the benefit of Westpoint investors,” D’Aloisio concluded.
The matter will be heard on a date to be fixed.
