A NSW court has dismissed loan recovery action by Bendigo and Adelaide Bank against an investor in several Great Southern Plantations schemes. It is not the first time the courts have knocked the bank back over similar recovery action, but more commonly these cases break for the lender.
The District Court of New South Wales decision late last week may encourage the more dogmatic investors in Great Southern schemes who borrowed to make their investments and are still being pursued a decade later for repayment of the loans.
The borrower in this case was Mrs Govindasamy, who purchased 10 "droves" in the 2006 Beef Cattle Managed Investment Scheme, worth A$50,000; seven grovelots in the 2006 Organic Olives MIS, worth $56,000; and 33 woodlots in 2006 Plantation MIS, worth $99,000.
Great Southern Finance arranged term loans for the full cost of the investments, with a Bendigo Bank subsidiary, ABL Nominees, the lender. Govindasamy made loan repayments until November 2009.
It was clear by then that Great Southern was in trouble, and in 2010 Great Southern Management Australia Ltd was declared insolvent and put in the hands of a receiver.
In its loan recovery proceedings, Bendigo and Adelaide said a total of $413,505 was due and payable at 1 January 2016.
The outcome of the case revolved around an interpretation of the loan origination process, with Govindasamy arguing that Bendigo could not establish that the loan funds were advanced by ABL Nominees, rather than Great Southern Finance.
The court agreed, ruling that Bendigo Bank had not established that ABL Nominees was the lender.
In a note to clients on the ruling, Cordato Partners principal Anthony Cordato says "the fatal flaw" in Bendigo's case was that the loans were made before ABL transferred funds.
"So it could not be the case that ABL/Bendigo Bank made the loan advance of the loans it took action to recover," Cordato said.
"The same factual scenario could apply to many loans made for schemes in 2006."
The Supreme Court of New South Wales ruled against Bendigo in a case covering similar ground last year. It involved investor Michael Howard, who borrowed $24,000 to invest in Great Southern schemes.
In both cases, Great Southern Finance used a power of attorney to nominate ABL Nominees as the lender.
In Howard's case, the court found that there were errors in the original loan agreement and in the assignment by ABL to Adelaide Bank. The court found there were no documents from ABL to show that it paid funds for the purchase of Howard's grovelots.
It also found that Great Southern Finance was not authorised under the power of attorney in the finance application to nominate ABL Nominees to enter into a loan deed with Howard, in view of the fact that Howard had selected GSF as the lender in his finance application.
The court rejected Bendigo's argument that Howard's loan selection with GSF was a misnomer and that the court should recognise ABL as the lender. The court found that the loan deed was not validly executed.
Bendigo and Adelaide Bank have mostly succeeded in defending proceedings bought by individual borrowers over Great Southern matters.
It is now more than four years since the bank
reached a settlement in a class action in the Supreme Court of Victoria over a fuss likely to consume its resources for some years yet.
Bendigo's 2018 full year results showed that Great Southern's MIS lending peaked at around $500 million in 2009, a year or so after its takeover of Adelaide Bank.
At June 2018 this portfolio was $71 million of which $50 million the bank treated as "past due 90 days". The bank put loans classified as bad or doubtful at $2.7 million.