THE creditors of Babcock & Brown, the failed investment bank, have been asked to fund a campaign to have liquidators forensically examine whether directors acted solely in their own personal interests instead of their shareholders’ during the final months as the empire crumbled.
Creditors yesterday officially voted to liquidate B&B, the former high-flying investment group that failed in March after it was worth nearly $10 billion at the height of the bull market.
B&B collapsed under debt of up to $40bn across the group and liquidators from Deloitte are now keen to further investigate the motives of the board in the final few months when the company, started as a private investment group by Jim Babcock and Phil Green, started to unwind.
The deeper probe, however, will be funded by creditors despite the expectation that potential returns will be close to zero.
The return to B&B’s subordinated noteholders is expected to be just 1.5c in the dollar while shareholders will receive nothing.
The 8000 noteholders and creditors, which could be up to 30,000, were yesterday asked by Deloitte to voluntarily contribute $400 in a bid to raise up to $600,000 to finance the more in-depth forensic examinations of the company’s intricate debt-laden structure.
The closing date for contributions is September 15 and Deloitte confirmed a number of major litigation funders could become involved in the process.
The request came at a meeting of just a few B&B noteholders at a creditors meeting in Sydney.
Deloitte liquidator David Lombe said he was keen to investigate further the potential conflicts of interest between the directors on the B&B board, and the board of Babcock & Brown International, the main trading entity of the complex group of companies.
The probe will examine whether B&B traded while insolvent as it battled to stay alive, and whether troubled assets were not officially impaired by the board when they should have been.
“In particular, we are interested to further investigate a key question, at what stage did the B&B directors have regard to the interest of noteholders and creditors in making their decisions about the conduct of the group’s business,” Mr Lombe said. The official liquidation of B&B will grant Deloitte greater powers, but could prove embarrassing for the former board of the group which could be forced to publicly defend allegations of impropriety.
“Liquidation will allow us to investigate the matter in greater depth, conduct public examinations and, as a liquidator, receive increased powers to commence recovery actions,” Mr Lombe said. The collapse of B&B came after the bank built a “mini-Macquarie” model in which it would buy assets, create separately listed funds and implement high gearing levels.
It listed in 2004 at $5 a share and soared to a peak of $34.78 a share which gave it a market capitalisation of $10bn, with assets under management reaching $70bn globally.
An initial report from Deloitte found that B&B became insolvent in November last year, more than three months before it was tipped into administration after noteholders voted against a last-ditch bid to restructure B&B’s debt.
The run-down of B&B has resulted in a number of asset sales held by the main company, while the surviving satellite funds have cut ties with the Babcock name.
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