As part of the liquidation process, a report as to affairs (RATA) of the company’s financial position was written by AAAFI’s directors and provided to the appointed liquidator, Bradley Tonks of Lawler Partners, according to a 68-page communication to creditors obtained by InvestorDaily.
The RATA provided an initial explanation of the company’s failure, pointing to “rogue advisers within the AAA Shares business [an entity wholly owned by AAA FI] engaging in products that were not on the approved product list”, which resulted in “significant claims action against the company”.
This claim action led to the “continuous rising cost of professional indemnity” and costs associated with defending itself against “legal activity in respect of debts held against AAA Shares”.
However, in his communication to creditors, the liquidator said that while he does not “disagree with the directors’ explanation”, other key factors included “poor strategic management of the business and poor economic conditions”.
Speaking to InvestorDaily yesterday, Mr Tonks said the RATA needed to be read within the context of the company’s history.
“Obviously the ASIC [Australian Securities and Investments Commission] attention and cancellation of the licence was a significant issue in the company having to enter administration,” he said.
“But if you look at the concerns raised by ASIC and the allegation of ‘rogue’ advisers, it should be pointed out this is something that actually goes back some time - perhaps five or six years ago,” he added.
“This is when a lot of those issues occurred but they didn’t surface or become apparent until later in the piece. So I suppose in terms of the conduct of the directors, it is not necessarily the directors who were left at the time of the company’s failure who are to blame.”
However, Mr Tonks also said that “in general terms, we have the same areas of focus at this stage” and that “there are some important questions that still need to be answered”.
One of the most pressing concerns still to be addressed in the liquidation process is the distribution of outstanding adviser commissions to former authorised representatives.
One former AAAFI adviser, who has since joined an institutional licensee and spoke to InvestorDaily on condition of anonymity, estimated the total claims value of outstanding commission and brokerage payments by former advisers is as high as $900,000.
Mr Tonks said he had heard the $900,000 figure being referred to, but said this was a preliminary estimate that does not reflect the reality of the claims being filed.
“We are anticipating that claims for outstanding commissions will be in the order of half a million dollars, perhaps a little more,” he said.
At the same time, the liquidator confirmed that some advisers will not be receiving their full claim amounts.
“We currently hold around $170,000 in funds, so if there is $500,000 in claims then obviously we will be in a position where we will have to adjudicate those claims,” he said.
“But while those claims are limited, we hope to be in a position to make distributions in the near future,” he added, calling on aggrieved former advisers to get in touch with the liquidator immediately regarding outstanding commissions if they have not already done so.
The company’s licence was cancelled in January due to findings of non-compliance with the terms of its Australian Financial Services Licence (AFSL) by the corporate regulator, including “inadequate technological, human and financial resources, deficiencies in tracking and monitoring advisers, and failure to comply with the obligation to ensure that advisers were appropriately trained and compliant with financial services laws”.
