Deficiency Of Currency Broker Put At $15m
Sydney Morning Herald
Thursday December 18, 1986
Currency Brokers (Australia) Pty Ltd, which two years ago was the first leveraged currency broker to set up business in Australia, and which collapsed last October, appears to have left its creditors with a net asset deficiency of almost $15 million.
The figure is between $5 million and $6 million higher than the initial estimate when it collapsed on October 7.
According to a circular to creditors sent by the group's liquidator, Mr John Harkness, a partner in accounting firm KMG Hungerfords, the company has assets estimated by its former company secretary, Mr Garry Lock, at just$214,547, and liabilities of $15,029,835.
The largest contributor to the asset deficiency is an amount of $14.5 million remitted by Currency Brokers Australia (CBA) to an associated company in the US, Currency Brokers (USA) Inc. This amount, Mr Lock believes, is non-recoverable, although Mr Harkness does not accept this and is continuing his inquiries into possible recovery.
Currency Brokers has been on the NSW Corporate Affairs Commission's investigation list for well over a year.
The commission's investigation into the company's affairs has been stepped up in recent months, particularly since the company's collapse, and is nearing completion.
The CAC's interest followed a steady flow of complaints about Currency Brokers' activities from dissatisfied investors, reaching avalanche proportions in the months before its demise.
Currency Brokers' principal director and shareholder, Robert Flickinger, a US citizen, left Australia for Hong Kong earlier this year and has not returned. His entry visa to Australia was cancelled some months ago by Australian immigration authorities.
It is understood Mr Flickinger is still residing in Hong Kong, despite his company's conviction on gaming charges there during April.
The other director of the $2 company is Jennifer McLeod, who also is understood to be living in Hong Kong.
The transfer of the $14.5 million by CBA to the US associate came as a result of an agreement between CBA and Currency Brokers (USA) under which CBA undertook to send 40 per cent of the service and handling fees charged by the company to its Australian clients in respect of leveraged contracts to the US company. This agreement was signed by Robert Flickinger.
In consideration, Currency Brokers (USA) ostensibly provided CBA a guarantee "indemnifying the company for all and any pecuniary or financial loss which it may sustain in the course of or arising out of its business".
Former CBA employees told Harkness that they believed that the monies remitted to the US were used to buy options to purchase currency and commodities to hedge the exposure the company had with its clients in respect of leveraged foreign currency and commodity agreements.
Mr Harkness doubts this and has found no evidence that CBA or its investors derived any benefit from the agreement. It appears, in fact, that the agreement represented one method of transferring funds from CBA offshore.
Indeed, there is no evidence at this stage that CBA ever hedged its foreign currency exposures with anyone.
The largest item among the long list of liabilities is a $7.6 million contingent liability at October 7, 1986, in respect of client contracts which have not crystalised and which are based on the exchange rates and commodity prices at that date.
A further $2,992,660 is owed by the company to clients whose contracts have matured, but who have not been paid.
Assets are precious little, largely as a result of the arrangement between CBA and the US company.
"I have not been able to establish, with certainty, how the funds remitted to Currency Brokers (USA) Inc were applied and whether options for the purchase of foreign currency and commodities were purchased for clients," Mr Harkness said in his circular to creditors.
"However, it appears unlikely that options for the purchase of foreign currency and commodities have been purchased for clients in the client's name or by Currency Brokers (USA) Inc on behalf of the clients."
The assets that remain include $178,500 in bank accounts, $30,000 worth of plant and equipment and $6,000 in other assets, of which $5,000 is subject to specific charges.
The assets available to satisfy creditor demands would be much larger were it not for the zero value placed by Mr Lock on several large items.
These include the $14,546,179 remitted to Currency Brokers (USA), Mr Flickinger's loan account of $117,498, an $8,000 loan to a Mr Hannah and$13,886 in a solicitor's trust account.
Whether the $117,498 owed to CBA by Mr Flickinger is recoverable depends on whether he can be found and pinned down for payment. If Mr Flickinger does manage to return to Australia, Mr Harkness and CAC investigators would fight it out as to who should have access to him first.
It is understood that Mr Hannah worked for Currency Brokers in Hong Kong.
Other liabilities drawn up by Mr Lock include $26,700 in inter- company accounts owed by CBA to Currency Brokers (United Kingdom) Ltd and Currency Brokers (USA), a $1.57 million unremitted guarantee fee owed to the US company and $2.17 million in unremitted indemnity bond monies collected by CBA from clients in respect of the purported insurance provided to clients by Inter-Holdings NV, registered in the Netherlands Antilles.
The amounts unremitted to the US company and to Inter-Holdings, however, while technical liabilities, will require adjudication as to whether they are in fact genuine claims and ought ever to be paid, and certainly would not be given any priority over other creditors.
Mr Harkness has told creditors that the contingent liability figure for existing contracts may alter when the contracts mature or are crystalised, depending on relative currency movements affecting the contracts which have occurred since October 7.
Mr Harkness has requested his solicitors advise him on the interpretation of the agreement between the company and Currency Brokers (USA) and the enforcability of the company's claim against Currency Brokers (USA) as well as the company's liability to that company.
Inter-Holdings purported to provide an indemnity to clients against financial loss which would be suffered by clients in the event that the client was required to make margin calls under the CBA contract.
© 1986 Sydney Morning Herald