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Court approves $29 million Fincorp class action

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Media Release

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The Federal Court of Australia has today approved a $29 million class action settlement, negotiated by national law firm Slater and Gordon, on behalf of more than 5,000 investors who lost money when Fincorp Investments Limited collapsed in 2007.

Slater and Gordon pursued compensation for investors from Sandhurst Trustees Limited, the appointed trustees of Fincorp, alleging Sandhurst had breached its duties as trustee for investors under the Corporations Act. The case represents one of the first times that these provisions of the legislation have been used to recover compensation from a trustee.

Slater and Gordon litigation lawyer Odette McDonald said the settlement was significant to the many ‘mum and dad and retiree investors’ who lost their savings in Fincorp.

She said the money that investors would receive under the settlement was in addition to funds already recovered by secured investors through the liquidation process and, for unsecured investors, represented the first time that they have recovered any money since the collapse of Fincorp.

“We are proud to have delivered a result that will see much-needed funds going back into the pockets of thousands of mum and dad and retiree investors,” Ms McDonald said.

“Many small investors, from across Australia, invested in Fincorp because they mistakenly thought that it was as safe as investing in a bank.

“Clever marketing tactics and high profile endorsements were used to rope-in investors.

“The collapse of Fincorp in 2007 came as a horrific shock to the many, mainly older investors who thought they had invested in a low-risk company.”

The class action settlement covers investors who had purchased secured and/or unsecured notes issued by Fincorp on or after 7 December 2004 and held those notes as at 23 March 2007, or who purchased secured and/or unsecured notes prior to 7 December 2004 and rolled the investment over after that date.

Ms McDonald said it was significant that unsecured noteholders were included in the class action settlement as these individuals did not receive any funds from the liquidation of Fincorp.

“Today’s result means that people who thought they had no chance of recovering any part of their investment, will receive a return of some of their lost capital.”

Ms McDonald said the use of the provisions under the Corporations Act was a legal milestone.

“These laws mean that when a company like Sandhurst acts as trustee for a company that raises money from the public, and when the fund raising company involved folds, there might still be an avenue for justice for investors,” she said. 

Slater and Gordon, head of commercial and project litigation, Ken Fowlie, said the result again demonstrated the importance of Australia’s class action system.

“Class actions are by far the most affordable, effective and transparent way of achieving justice when big business fails its customers,” Mr Fowlie said.

Fincorp media background

The collapse of the Fincorp group of companies in March 2007 placed at risk more than $200 million invested by around 8000 'mum and dad' investors. After Westpoint, it was the second major Australian fixed-interest investment scheme to collapse and has since been followed by high profile companies including Bridgecorp, Australian Capital Reserve, Elderslie Finance, and Asset Loans.

The Corporations Act required Fincorp’s trustee, Sandhurst, to "exercise reasonable diligence" to ascertain whether the property of Fincorp would be sufficient to repay Fincorp note holders when their investments became due. It was alleged in the class action that Sandhurst failed to discharge it responsibilities, resulting in fundraising by Fincorp beyond the time when Fincorp was in a position to repay investors.  Sandhurst was appointed trustee to Fincorp in March 2004 pursuant to two Trust Deeds.

On 24 August 2009, a class action was commenced on behalf of Mr and Mrs Mark and Rhonda Harrison in the Federal Court of Australia Melbourne District Registry. Mediation commenced on 1 September 2010.

As part of the Liquidation and Receivership of Fincorp, investors holding secured notes have received 55 cents in every dollar originally invested and are due to receive a further one cent.  Unsecured note holders have received no dividend from the liquidation and receivership of Fincorp.   The proposed settlement will pay between six and 75 cents of outstanding capital on both secured and unsecured notes.  

On March 23 2011, the Federal Court authorised Slater and Gordon to notify investors of the proposed settlement. On 20 May 2011, the Federal Court approved the settlement of the class action.

The class action’s lead representative applicants, Mark and Rhonda Harrison of Queensland, lost $330,000 of savings that they had invested in Fincorp when the company collapsed in 2007. As a result of today’s court approval they will recover a total of $293,983 (this is inclusive of money already recovered from Fincorp administrators).