In a legal first the Australian auditors of the now-defunct trans-Tasman broking firm Halifax Investment Services were fined a combined A$50,000 last week following convictions for breaching auditing standards.
Robert Evett and EC Audit “are the first auditors in Australia to face criminal charges and to be sentenced” under the Corporations Act, the Australian Securities and Investments Commission (ASIC) said in a release last week.
“The charges relate to audits conducted by Mr Evett, as lead auditor, and EC Audit, as audit company, of the profit and loss statements and balance sheets of Halifax for three consecutive financial years ended 30 June 2016, 30 June 2017 and 30 June 2018,” the ASIC statement says.
According to the court-sentencing summary, the auditing breaches enabled Halifax to continue trade while insolvent prior to falling into administration late in 2018, stranding over A$200 million of client money in still-frozen accounts.
Across Australia and NZ Halifax had about 12,000 clients on its books before the group’s shock collapse in 2018 revealed a A$20 million shortfall and misuse of co-mingled client funds to support the operating business.
In April the fifth Halifax report from NZ liquidator, KPMG, revealed the almost 3,800 local clients were owed over NZ$62 million, of which NZ$60 million was held in cash and equity positions by US firm Interactive Brokers.
The March 2021 KPMG Halifax investor update notes a “deficiency of client moneys” of almost A$45 million across the total Australia and NZ asset pool, which stood at just under A$286 million at the time – or more than A$74 million above the November 2018 amount.
However, with many of the Halifax equity positions still open pending a legal challenge, the asset base continues to fluctuate, falling to A$250 million by the end of April.
KPMG estimates Halifax investors should receive 100 cents in the dollar of their proportionate assets as recorded in November 2018.
But in a further update to investors this month following a court challenge to the assessment process, KPMG says the final payout could be delayed until 2022.
Courts on both sides of the Tasman will rule on a challenge by a Halifax investor alleging the decision to fix proportionate client assets as at the 2018 date was flawed. The appeal, to be heard “by way of a joint hearing between the Courts in Australia and New Zealand on 23 September 2021”, argues for the calculation of Halifax client proportionate rights to the assets be performed close to the actual distribution date.
“We are not able to estimate with any degree of accuracy how long it will take the Courts to determine the Appeal and deliver judgment, however we anticipate that it will take at least 3 months to make a distribution following the resolution of the Appeal,” the KPMG August note says. “That being the case, it is now unlikely that a distribution will be paid to Investors before the end of 2021. It is more likely that Investors will receive a distribution in early 2022.”
KPMG warns, too, of further Halifax hiccups depending on:
- the length of time between the appeal hearing and the respective court judgments;
- a large number of investors disputing their account balance as at the date at which the proportionate entitlements are calculated;
- further court challenges by investors regarding their account balances; and,
- potential problems with the ‘Investor Portal’ including difficulties with verifying the identities of clients.
Halifax NZ was headed by Andrew Gibbs, now head of brokerage services for the Gold Coast-based Australian Investment Education firm.