Rothwells rescue, October 1987 - Settlement Agreements

19/2/98

Rothwells rescue, October 1987 - Settlement Agreements

As part of the 'rescue' of Rothwells organised immediately following the October 1987 share crash, the then Labor Government gave an indemnity to the National Australia Bank under which the State agreed to meet any loss which might be suffered by NAB by reason of a proposed advance of $150 million by NAB to Rothwells. The State received from Rothwells a fee of $2.6 million for giving this indemnity. $150 million was advanced and repaid by Rothwells in October 1988 as part of the PICL settlement.

Upon Rothwells going into liquidation Rothwells' liquidators sought the return of the $150 million as a preference and NAB in turn sought indemnity from the State in respect of that claim. The disputes between Rothwells and NAB and between NAB and the State were eventually settled on terms which involved the State making a payment of $22.5 million.

In 1990 the State commenced proceedings in the Federal Court seeking recovery of the $22.5 million from Rothwells Ltd, Laurie Connell, Bond Corporation Ltd, Wardley Australia Ltd, Wardley Australia Securities Ltd and a former director of both Wardley companies. As Rothwells and Bond Corporation (now Southern Equities Ltd) are both in liquidation and Laurie Connell has died, the principle respondents to the State's action are the two Wardley companies and the former director.

The claim against the Wardley companies and the former director is, in essence, that the State was induced into entering into the indemnity arrangement with NAB by representations in relation to Rothwells' financial position made by Wardley representatives over the rescue weekend of October 23-24, 1987. Wardleys and the former director denied liability.

Following lengthy and complicated court proceedings (including appeals to the Full Court of the Federal Court and a successful State appeal to the High Court) and delays occasioned by contemporaneous criminal proceedings against Connell and Louis Carter, the person primarily responsible for the auditing of Rothwells' accounts, the parties recently entered into settlement discussions. Those discussions have now concluded in a settlement under which Wardleys and the former director will pay to the State $15.5 million and Rothwells will pay to Wardelys $2 million. Because of a confidentiality clause in the arrangements, the details of the settlement cannot otherwise be disclosed.

The $15.5 million represents a recovery of a significant proportion of the State's $22.5 million payment to the liquidators of Rothwells.