AUDITOR negligence and conflicts of interest are at the heart of ongoing investigations into the failure of rural lender Banksia, receivers have told debenture holders.
In particular, receivers McGrathNichol are looking into why investors' money was siphoned into a stand-alone entity called Banksia Mortgage Fund, in a close relationship with Banksia management.
Speaking at an information session in the town of 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 fund.
"[Banksia] 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."
Receivers are 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 turn 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 receivers were evaluating, but that more information was needed in order to establish whether legal action would be worthwhile for investors.
Mr McGrath reinstated to debenture holders that the most they would likely recover from the collapse 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, they told investors on Friday.
"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A report by the receivers already released revealed that Banksia may have been trading insolvent for some time due to outdated and lazy valuations of its mortgage portfolio.
It also revealed the corporate regulator had raised concerns about Banksia as early as May - five months before the board and trustees froze more than $660 million in assets and appointed receivers.