AUDITOR negligence and conflicts of interest are at the heart of continuing investigations into the failure of rural lender Banksia, the receiver has told debenture holders.
In particular, receiver McGrathNichol is looking into why investors' money was siphoned into a stand-alone entity called Banksia Mortgage Fund, which maintained a close relationship with Banksia management.
Speaking at an information session in Kyabram, in northern Victoria, where many of the investors live, partner Tony McGrath said he was investigating potential corporate mismanagement relating to a conflict of interest between Banksia and the separate fund.
"[Banksia management] have used money they've raised, designed to be lent to third parties, to lend to an internal vehicle," he said. "When they lent that, they didn't always maintain a priority position."
The receiver is also investigating potential breaches of the law by auditors, who approved of the lender's accounts just weeks before its collapse.
"There were a set of accounts that were signed off in September that said the company was in a surplus position to the tune of $24 million," Mr McGrath said. "Today, we are telling debenture holders that they are in deficit of around $200-$300 million - that's quite a significant change."
Mr McGrath said there was a "whole raft of law" around auditor negligence that the receiver was evaluating, but that more information was needed in order to establish whether legal action would be worthwhile for investors.
Mr McGrath reiterated to debenture holders that the most they would likely recover was 50¢ to 65¢ for every dollar they invested in Banksia. They have already been issued with 20¢.
A return of 65¢ could take up to three years.
"The people who were exposed to the company were hard-working country people who effectively dealt with Banksia as if it was their local bank," Mr McGrath said.
A report by the receiver, released earlier in the month, revealed Banksia may have been trading insolvent for some time before the lender collapsed due to "outdated" and "lazy" valuations of its mortgage portfolio. It also revealed the corporate regulator had raised concerns about Banksia's position as early as May - five months before the board and trustees froze more than $660 million in assets and appointed a receiver.