Storm Financial (Storm) has a debt of close to $30 million in equity acquisition arrangements to its authorised representatives, company records have revealed.
“Another significant group of creditors are the authorised representatives that entered into the equity acquisition arrangement with Storm,” company records said.
“The company’s records show this debt to be about $28 million.”
The financial advisory firm had around 40 authorised representatives before it collapsed and was forced to close its doors on January 15, 2009.
At the company’s first meeting of creditors of Storm late last month, questions were about the payment of preference dividends to Storm’s existing advisers and ex-authorised representatives.
“Mr Worrell [Worrells Solvency and Forensic Accountants partner and Storm voluntary administrator, Ivor Worrell] stated that it appeared that during the six-month period to December 2008, a dividend was paid to a number of vendors whose businesses had been acquired by Storm,” notes from the meeting said.
“These vendors were authorised representatives that had an agreement with the company for the acquisitions.
“The chairman stated that he understood that the acquisition agreements provided for the vendors to receive shares in the company after its proposed listing on the (then) Australian Stock Exchange, and if that listing did not eventuate a cash payment by June 2010.
“The dividend payment was recorded in the company records as a preferred dividend to vendors in the sum of $3.4 million dollars. It is the administrator’s view that this payment could be regarded as a cost of the business rather than a dividend. Accordingly on that basis a more accurate view of the net loss would be closer to $16 million.
“Mr Worrell said that in comparison the audited accounts for the 12 months ending June 2008 show a profit before tax and dividends of $37.5 million.”
ASIC commenced an investigation into Storm on December 12, 2008, in connection with margin loans and related advice to Storm’s clients. Receivers were appointed to the firm on January 15, 2009.
