Banks liable at the end of the Bell affair

Readers of a literary bent may have reason to welcome aspects of the reasons of Neville Owen in his ruling in favour of the liquidator of the Bell Group of companies, and against Bell's bankers, but also against Bell's bondholders, in the leviathan ruling published yesterday by the Western Australian Supreme Court.

Allusions to Shakespeare and Swift, and to Jewish and Christian tradition leap from the first page. On the second page Owen admits to resorting, for amusement, to testing the vocabulary of readers in the 2600 page judgement; a further punishment to all parties who persecuted more than prosecuted the case.

The background is simple enough. Bell Group, once an acquisitive corporate raider of the iconoclastic yet establishment Robert Holmes a Court, but most recently under the control of the pugnacious and working class Alan Bond, crashed to earth in 1991, one of many failures of the elongated decade known as the 1980s, and also one of many satellites of the corrupt world of "WA Inc".

The liquidators, Geoff Totterdell and Tony Woodings, and the trustee for a gaggle of bondholders, alleged malfeasance on the part of Bell's bankers, who refinanced the company in January 1990 when they knew it was broke, wrongly claimed control of the proceeds of certain Bell asset sales during 1990 and 1991 and sold Bell's assets for arguably less than they were worth in 1992 to recover their debts.

At the time of the January 1990 refinancing Bell owed banks $278 million.

The Liberal and National coalition government of WA in 1995, who were also one of many stranded creditors of Bell through the State Government Insurance Commission, agreed to fund an action by the liquidators against the banks.

The civil trial took until 2003 to start; took three years to hear, and more than two additional years for Owen to resolve his views of the rights and wrongs and to explain his reasons why.

Ninety-eight bank officers from the 20 banks gave evidence in the trial, including executives prominent at the time (such as Ian Payne from CBA and Iain Johnson from Westpac, both long retired), and newer executives obliged to read the files to work out what all the strife was about (such as Stuart Davis from HSBC).

In summary, Owen found that Bell group was insolvent at a critical date in January 1990; that the directors did not necessarily know that but breached director's duties nonetheless; and that the banks did not necessarily know that, but obtained benefits from Bell at the expense of other creditors nonetheless.

Owen ruled that banks were liable, though not as liable as the liquidators might like.

One outcome of his ruling is that banks have standing as unsecured creditors at the time of Bell's insolvency at the beginning of 1990 and rank alongside other unsecured creditors.

The judge also ruled that the bondholders were subordinated to the banks, though there's not much doubt that Bell (and Bond Corp) management at the time thought the bondholders may have had equal standing with the bank. Bell certainly alarmed the banks sufficiently to act as if it were so, and thus triggered the refinancing that is at the centre of the current case.

Observing in his judgement that "neither party has been entirely successful, nor entirely unsuccessful" Owen's judgement is oblique on the issue of relief.

The liquidators are plainly entitled to compensation from the banks, but which banks owe how much to the liquidators is something the judge will leave to the parties to sort out.