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The compensation scheme of last resort will be crucial for almost 5,000 complaints on hold due to company wind-ups.
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Insolvent financial firms put $692m of claims in limbo, AFCA reveals
05 April 2023
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More than $692 million is being pursued in almost 5,000 open cases involving insolvent companies before the AFCA, the financial complaints body has revealed, with all of the claims in limbo due to the insolvency process.
It said the 4,886 open complaints dated back to November 2018 and related to 53 separate firms, although 1,800 of those referred to the single case of Dixon Advisory and Superannuation Services.
The AFCA paused complaints against Dixon when it went broke in January 2022 and it led a group of 19 insolvent financial planning and advisory firms which are together being chased for more than half the total, $375 million.
Among the others, just two foreign exchange dealers were the cause of 1,162 complaints and more than $253 million in claimed recompense.
The bulk of the remaining compensation was being sought from six fund managers, three derivatives dealers, one corporate adviser and four funeral insurance providers.
The AFCA said individual complaints might – or might not – be eligible for the Compensation Scheme of Last Resort (CSLR) currently before parliament.
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Submissions on the scheme by CPA Australia and CA ANZ recently supported the scheme but warned that too many investors would be left exposed to malpractice and there were issues about how it would be funded.
“We want to see steps to stop poor behaviour from recurring in the first place,” said Jane Rennie of CPA Australia while Tony Negline of CA ANZ said a CSLR levy would add to the increasing burden of ASIC fees.
Complaints can only be made to AFCA while a firm remains a member, which was highlighted last August when ASIC wrote to former clients of Dixon Advisory urging them to make a complaint if they had suffered a loss before the AFCA membership of the firm was cancelled.
ASIC made maintenance of AFCA membership a condition on Dixon Advisory when it cancelled the firm’s AFSL and the complaints body subsequently received a further 100 complaints.
For its part, AFCA advises clients of insolvent firms to contact the receiver, administrator or liquidator with proof of debt so that they can be classed as an unsecured creditor during the wind-up process. The proposed CSLR would be operated by the AFCA.
The complaints body said that in addition to the $692,246,725 outstanding against 53 insolvent financial firms there were also 306 unpaid determinations associated with 28 insolvent financial firms totalling an estimated $14.7 million.
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