Forge settlement fodder for ‘Improving Outcomes’ Bill

Forge
Banton Group CEO Amanda Banton.
Forge
KPMG’s Martin Jones.

If the Federal Government wanted a recent example of why the litigation funding industry should submit to the regulatory cosh as is envisaged in the Government’s Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill 2021 then it might like to look at the latest update for creditors of the Forge Pooled Group (FPG).

“The fact that the settlement does not provide for any return to unsecured creditors does not indicate that the settlement terms are unreasonable. But rather this outcome is a consequence of the significant risk that pertains to complex litigation.” Forge Group GPL Martin Jones.

Dated January 17, 2022 the report is authored by FPG’s general-purpose liquidator (GPL) and KPMG WA partner Martin Jones.

It discloses that in mid-2021 Jones recommended that the members of Forge’s Committee of Inspection (COI) endorse a settlement in respect of litigation he had been running against Forge’s directors and its auditors from Grant Thornton.

This particular limb of Jones’ litigation strategy for Forge was being funded by International Litigation Partners (ILP) and the claims were due to be tested at a trial set down to run for 10 weeks beginning on July 26, 2021.

But in June 2021, the parties “held a reconvened mediation at which an in-principle settlement agreement was achieved”.

Negotiations were held in respect of the settlement deed’s terms, it was signed by the parties on July 8 and ratified by resolution of the COI’s two members – Damien Gorman of AssetInsure and Scott Allan of QVB – on July 9.

Those two members represent two of Forge’s three secured creditors, the other being ANZ.

As an aside, how FEG, which tipped in millions of taxpayers’ hard earned to cover wages and entitlements for Forge’s 3,000 or so out of work employees, wasn’t represented on the COI is puzzling.

Also curious is what prompted this sudden flourish of cooperation, after years of painstaking conflict, each inch hard won by high priced lawyers?

Surely the fact that in May 2021 Grant Thornton won the right to bring a cross claim against Forge Group had nothing to do with the parties’ decision to “reconvene” that mediation?

Claims for legal fees in the aftermath of the trial may also have influenced the decisions arrived at at that mediation.

Inevitably though, every settlement has a downside for somebody, as Jones explained.

“Having regard to the waterfall of payments under the funding deed, this settlement unfortunately does not provide for any surplus for creditors,” he said.

In FPG’s case that absence of surplus meant priority employee creditors owed $31 million and FEG owed $14 million got zilch, though Jones did indicate that one of his other irons in the fire could still deliver.

“Based on our investigations to date, we are of the view that subject to successful litigation recoveries, there may be sufficient funds in the liquidation to permit the payment of a dividend to priority creditors.

That litigation involves insider trading claims against Clough Limited, Clough Operations Pty Ltd, Kevin Gallagher and Neil Siford (collectively, the Clough Parties). And because in West Australia the pool of professionals is more a puddle it so happens that the litigation funder for the Clough proceedings is Omni Bridgeway, whose CEO is none other than Andrew Saker, a former partner with Jones at Ferrier Hodgson and a former liquidator along with Jones and Ben Johnson of Forge.

So we know who missed out. Who didn’t?

Well funder, International Litigation Partners (ILP) and the seven law firms including ILP favourite Banton Group would appear to have have been paid.

According to Jones’ report ILP was in line to receive as much as $54.160 million calculated by doubling legal fees the parties incurred of $24.590 million and adding $4.98 million for security for costs.

The table below from Jones’ report shows how ILP’s investment return was to be calculated.

Sources close to the deal said on condition of anonymity that ILP received nothing like that amount and that the potential funds available were drained by the defendants and their law firms.

Inevitably, Jones told creditors: “The fact that the settlement does not provide for any return to unsecured creditors does not indicate that the settlement terms are unreasonable. But rather this outcome is a consequence of the significant risk that pertains to complex litigation.”

That might well be right but it’s also one of the reasons why the Federal Government thinks its proposed amendment to the Corporation Act to restrict funders’ cuts to 30% of a settlement is a winner.

The only question is whether imposing such a curb on the capacity of litigation funders and their lawyers to potentially earn super profits might send the industry packing?

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