Court throws out Willmott forestry scheme class-action settlement

VicForests has been left without a market for hundreds of thousands of tonnes of residual timber. Photo: Andrew QuiltyThe Federal Court has refused to approve a piecemeal class-action settlement for victims in the Willmott Forests managed investment schemes after finding it was not fair and that returns to investors did not match the millions they had paid to fund the law firm running the case.
Nanjing Night Net

More than 3500 investors were caught up in the collapse of Willmott Forests which went under in 2010 owing its banks, most notably the Commonwealth Bank, about $200 million. Investors had ploughed $400 million into Willmott Forests schemes.

The settlement offer was put forward by Macpherson and Kelley Lawyers (also known as M+K), which were representing some of the investors in the four separate class actions. The four class actions were heard together by Federal Court judge Bernard Murphy.

The court’s refusal of the Willmott settlement comes after the court approved a highly controversial deal put forward by M+K in 2014 in relation to the Great Southern schemes, which saw the law firm take $20 million of the $23 million compensation in legal fees.

M+K was recently criticised over its handling of the Great Southern class action in a recent Senate Inquiry report on the failure of managed investments schemes that focused on the 2009 collapses of Timbercorp and Great Southern.

On Monday, Justice Murphy found the Willmott settlement gave preference to M+K clients over those who had chosen not to be represented by the law firm in the matter.

“The Court will not approve a settlement unless it is satisfied that the settlement is fair and reasonable having regard to the interests of the class members who will be bound to it, including by not preferring one group of class members over another,” Justice Murphy said.

Justice Murphy also found the settlement offer put forward by M+K gave preference to investors who had participated in M+K and even then the payout dwarfed the legal fees paid by investors to M+K Lawyers.

“Class members who are or were M+K’s clients in the proceedings paid costs and disbursements to the firm totalling approximately $7.835 million. The applications (M+K Lawyers) seek orders that $4.1 million to be paid by the respondents in the proceedings be expended on the pro rata reimbursement of class members who are or were M+K’s clients and paid legal costs,” Justice Murphy said.

Justice Murphy said that for some of M+K’s clients, the payout represented 51 per cent of the money they had stumped up to fund the case and for other investors 57 per cent.

Justice Murphy also raised concerns about the settlement agreement put forward by M+K included an admission by investors the loan agreements with lenders were valid and enforceable.

Like the Timbercorp and Great Southern schemes, investors took on large loans on top of their investments based on the provision returns would be sufficient and the schemes would provide a tax break for investors.

However, many investors disputed whether the loans were enforceable and such an admission could have had an effect on other investors also in dispute with their lenders over the loans.

M+K have been contacted for comment.

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