Linc Energy shares, the BBYN Account and the Underlying Shareholders
- Due to inadequacies in the records maintained by BBYL and BBYN, the BBYN Liquidators have undertaken extensive investigations in order to identify (inter alia) BBYN's assets and liabilities and ascertain whether and for whom its assets were held on trust. The work has included: [6]
1. issuing questionnaires to clients and seeking supporting documentation to ascertain any claims they may have to particular assets of BBYN, and reviewing responses and documentation received against the books and records of BBYL and BBYN and any other relevant records available (including, in the case of the IB product lines, documents of IB); and
2. where possible, terminating custodial arrangements and transferring or dealing with the relevant assets in accordance with the instructions of the BBYN client beneficially entitled to those assets.
- In relation to the BBYN Account, the BBYN Liquidators' investigations since their appointment on 8 October 2015 have included: [7]
1. reviewing the terms that applied as between IB and BBYL, and as between BBYL and/or BBYN and clients of BBYL, in relation to the trading of financial products on behalf of BBYL clients through the IB platform;
2. reviewing account statements issued in respect of the BBYN Account to ascertain the balance of the account at relevant times;
3. corresponding extensively with:
1. the CEO and Managing Director Linc Energy;
2. the Senior Legal Counsel of Linc Energy;
3. the third party share registrar for Linc Energy (both when it was listed on the Australian Stock Exchange during the period from May 2006 until December 2013 and when it was listed on the SGX from December 2013); and
4. ABN Amro Clearing Bank N.V., Singapore Branch (ABN Amro), which was the central depository participant through which Linc Energy shares were traded on the SGX; and
1. reviewing spreadsheets maintained by BBYL purporting to record details of the Underlying Shareholders, investigating the reliability of those spreadsheets and cross-checking them against and updating them with other sources of information from within BBYL and BBYN, and information provided by Linc Energy and its share registrar.
- The salient information revealed by the BBYN Liquidators' investigations in relation to the BBYN Account may be summarised as follows: [8]
1. for listed and unlisted shares in jurisdictions outside Australia, BBYL used the services of an international broker and an international custodian to trade and hold shares in behalf of BBYL's clients;
2. this typically occurred in circumstances where the BBYL client had entered into a nominee agreement or similar document with BBYN, neither BBYL nor BBYN were licensed to deal in securities or provide custodial services in the relevant foreign jurisdiction and BBYL and BBYN had a referral relationship and agreements in place with third parties who held the requisite licences in that jurisdiction;
3. in this context, BBYL's client would give instructions to BBYN and BBYN would then give instructions via BBYL to the relevant international broker and the relevant international custodian (or, in some instances, the international custodian would receive instructions from the international broker rather than from BBYL);
4. these practices are broadly consistent with BBYL's "ASX and International Trading Terms" issued to clients, which contained provisions to the effect that:
1. BBYL will provide a service to the client for trading, clearing and settlement of international securities; [9]
2. BBYL will purchase international securities on instructions from the client and procure that those securities are held on the client's behalf; [10]
3. BBYL will sell international securities on the client's instructions and arrange collection of sale proceeds for the client; [11]
4. the custody of international securities will be undertaken by third parties appointed by BBYL; [12]
5. subject to completion of the relevant application form by or on behalf of the client, BBYL will arrange for BBYN or another nominee appointed by BBYL to hold securities and other financial products nominated by the client as bare trustee and nominee for the client; [13]
6. where BBYN acts as nominee in respect of any financial product for a client, BBYN will be registered as the holder of those financial products; [14] and
7. the client must give all instructions in relation to financial products held by BBYN or another nominee to BBYL, and authorises BBYL to accept and act on those instructions; [15]
1. as I have mentioned earlier in these reasons, IB operated the white label securities trading platform which facilitated BBYL's clients trading in foreign securities;
2. Linc Energy was listed on the SGX from 18 December 2013 (after delisting from the Australian Stock Exchange);
3. Central Depository Pte Limited, a subsidiary company of SGX, operated as the clearing house for SGX, trading on the SGX had to be conducted through a central depository participant (or CDP) and shares traded were registered in the name of the CDP; [16]
4. upon Linc Energy listing on the SGX, ABN Amro became the CDP for Linc Energy shares. To trade in those shares on the SGX, a party had to hold an account with ABN Amro;
5. IB had an account with ABN Amro, and Linc Energy shares traded through that account by IB on instructions from BBYL were held in the BBYN Account established by IB as a sub-account under one of the two BBYL master accounts that IB created for the purpose of BBYL effecting transactions on behalf of its clients; [17]
6. Linc Energy's share register showed ABN Amro (the CDP account holder) as the shareholder, but it was Linc Energy's understanding that the shares were held by BBYN and that BBYN in turn held the shares as bare trustee for clients of BBYL on whose behalf BBYL facilitated trading in those shares in the manner described above; and
7. the spreadsheet maintained by BBYL and information provided by Linc Energy and its share registrar, referred to at [22] above, indicate that the Linc Energy shares were held and traded on behalf of the Underlying Shareholders and not by BBYN on its own account or on behalf of BBYL. BBYN did not trade on its own account, as referred to at [5] above.
- Inconsistences within the BBYL spreadsheet, discrepancies between that spreadsheet and information provided by Linc Energy, and interviews with former BBYL staff indicate that neither the BBYL spreadsheet nor the Linc Energy records are a complete and accurate record of the identity of the Underlying Shareholders and the number of Linc Energy shares held on their behalf. However, all sources of information consistently record that the BBYN Account held 14,973,816 Linc Energy shares as at 15 May 2015 and at all times thereafter, until a share consolidation undertaken by Linc Energy in March 2016 reduced the number of those shares to 2,328,875 shortly before Linc Energy entered into administration on 15 April 2016.
- Linc Energy subsequently went into liquidation on 23 May 2016. It had not paid a dividend to shareholders since October 2010 and its liquidators published a declaration on 27 May 2016 in accordance with s 104-145 of the Income Tax Assessment Act 1997 (Cth) stating that they had reasonable grounds to believe that there was no likelihood that its shareholders would receive any distribution in the course of the winding up of the company.
- On the publication of that declaration, the Linc Energy shares in the BBYN Account that had been valued at $3,671,058.77 on BBYL's last trading day became essentially worthless, and this occurred before the BBYN Liquidators had been able to complete the work of identifying the Underlying Shareholders and their beneficial entitlements to the Linc Energy shares in the BBYN Account with a view to arranging in specie distributions of those Linc Energy shares.