ABC’s bankers face funds clawback

Horror movie aficionados and followers of ABC Learning may recall that, a few months before the childcare company blew to smithereens in November 2008, its bankers took a charge over its assets and ripped out a quick $500 million repayment.

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This charge, at first, was apparently just an oral charge of the “Yes, big bank lender Sir, we promise to fix you up” variety. But it soon apparently transformed into written security.

Lucky that, it was just as the shares were getting pummelled and the ABC jig was almost up. And it was also just as Eddy Groves had got back from his trip to the ‘States where he had sold half of ABC America.

The banks got most of that $400 million from the ABC America sale, and since the demise of Eddy Groves’s plaything have managed to get back roughly $700 million. We are talking the Big Four banks led by Commonwealth, plus Citibank, Bank of America and Mizuho.

But now the bankers are getting tapped on the shoulder for queue-jumping by litigation funder IMF Australia in the Federal Court.

IMF reckons the banks knew ABC was wobbly – probably even insolvent at the time – and wrongly improved their security over the company and jumped ahead of other unsecured creditors.

Commonsense would suggest that this is correct. Around the time the charge was taken ABC’s market cap of $300 million was one-sixth of its debt.

IMF is shaping up for a $700 million class action to get the money back. ABC went down owing $1.6 billion.

For their part, the bankers are doing their darndest to keep their documents away from the prying eyes of Ferrier and IMF.

The matter is in court today and the liquidators are looking for documents relating to how credit ratings are determined.

Commonwealth Bank is in a hot spot. It was both one of the biggest bankers and biggest shareholders to ABC too, via Colonial.