Banksia insolvent 'for years'

The mortgage fund operated by Banksia Securities Limited was probably insolvent some years before the trustees called in receivers in late October, a report from the receivers shows.

The report, from McGrath Nicol, was released on Friday. It says that the key operational weaknesses in the business were a concentration of loans made to regional properties, a reliance on council valuations in assessing applications for loans, and inadequate provisions.

McGrath Nicol said that Banksia was thinly capitalised throughout the three years to 2012 "with an equity ratio of approximately 3.5 per cent."

The receivers said that "from our analysis of BSL's loan book... it is clear that the company is insolvent and may have been insolvent for some time prior to our appointment."

McGrath Nicol said that at the date of its appointment six weeks ago, 28 per cent of Banksia's A$520 million loan book was in arrears.

The receiver said it planned to make an immediate distribution of 20 cents in the dollar to investors of $663 million in debentures, and eventually hoped to return as much as 65 cents in the dollar.

The receivers' report also sheds some light on the chronology of events leading up the closure of Banksia.

This includes the actions of the Australian and Securities and Investments Commission and the trustee (Trust Company Nominee). They queried Banksia's disclosure in May 2012, and later challenged a replacement prospectus based on the audited 2012 financial statements.