Catriona Lowe, a consumer advocate appointed by KordaMentha in December 2014 to help negotiate "compassionate" deals for debt-laden victims facing financial ruin, has written to hundreds of burned investors warning them she may quit running the much-trumpeted scheme due to "strong" disagreements with the liquidator. Kordamentha launched the hardship program with fanfare in late 2014 amid a slew of negative publicity, which had targeted the liquidator over the pursuit of Timbercorp victims who had borrowed to invest, and ANZ Bank over its bankrolling of Timbercorp finance, the failed company’s lending arm.
As late as last year, Kordamentha partner, Mark Korda was spruiking the hardship program in parliament saying “Ms. Lowe was fiercely independent.” In her letter obtained by BusinessDay, Ms. Lowe said she had disagreed with Kordamentha over whether being the victim of dishonest financial advice – as was the case with many Timbercorp investors – was grounds for receiving a more lenient settlement. Other conflicts centred on the ‘'”degree of hardship” being experienced by some investors and significant gaps between what some investors said they could pay and what Kordamentha would accept.
The letter makes clear that some investors were experiencing significant emotional distress as well s financial hardship. It said that settlements were taking longer to process than expected, because more people than expected had sought to access the program. “I initially accepted the engagement because I believed I could assist people in hardship to make arrangements that would make a real difference to their situation, Ms. Lowe told BusinessDay.
“However it would be unacceptable for the program to provide the appearance of a solution if it is not delivering.” For this reason I have stated publicly that I do not agree with the outcomes promoted by [Kordamentha] in all cases. Indeed, in some cases I strongly disagree. She said discussions to clear the “roadblock” were continuing, “I would much prefer to stay and obtain outcomes for clients, however it is critical for me that the outcomes do alleviate financial hardship” she said.
Kordamentha’s Craig Shepherd confirmed a disagreement over “resolving a number of hardship claims” and said it was driven by an “expectation gap” between what Ms. Lowe and investors expected from the hardship program and what liquidators “could agree to without breaching their duties to creditors and shareholders”
Timbercorp which flogged managed investment schemes linked to plantations and orchards, collapsed in April 2009 with company debts of $750 million. ANZ Bank was the major backer of Timbercorp’s lending arm, Timbercorp finance, which securitised and sold its loans to ANZ. Thousands of people had taken out huge loan to invest in the schemes, often on the basis od dodgy advice by financial planners and accountants who pocketed generous sales commissions.
Timbercorp’s demise left 7500 borrowers personally owing $478 million, with many left with almost nothing to show for their investments. But Kordamentha, as it worked to recoup funds for creditors including ANZ, insisted burned investors still had to repay the loans, despite many pleading that they would be forced to sell their homes or into bankruptcy as a result.
Many investors joined a class action that advised them not to repay the loans. When the class action was lost, the liquidators started issuing writs with the size of the loan far in excess of the original loan due to accrued interest and penalty rates. Kordamentha, which has earned millions of dollars in fees from the Timbercorp collapse, has so far launched 1495 court proceedings against investors. More than two thirds of investors left with debts when Timbercorp collapsed have since paid their loans but the dollar value outstanding is a massive $355 million, due to accrued interest and penalty rates.
An estimated 598 borrowers have applied to the hardship program, representing $113 million of the remaining loan book, according to Mr. Shepherd. Kordamentha has offered a 15 percent discount on the loans outstanding but Mr. Shepherd told BusinessDay he was reviewing that option and was “likely to withdraw it shortly”. He said it was unlikely to affect borrowers settling through the hardship program.
He said 147 borrowers who made an application to the hardship program had been rejected from the program. Of those who entered the program, 205 had settled. Mr. Shepherd said Kordamentha would be disappointed if Ms. Lowe resigned from her role “as there are over 150 borrowers that her etam is currently assessing through various stages of the program”.