More than 5000 "mum and dad" investors who lost money in Fincorp Investments' 2007 collapse will share in a $29 million class action settlement approved by the Federal Court of Australia today (20 May).
Negotiated by Slater & Gordon, which commenced the class action in August 2009, the settlement comes after the firm pursued compensation on behalf of the investors from Sandhurst Trustees Ltd, the appointed trustees of Fincorp.
In the first time the Corporations Act has been used to recover compensation from a trustee, Slater & Gordon alleged in the Federal Court that, under the legislation, Sandhurst had breached its duties as a trustee for investors.
"These laws mean that when a company like Sandhurst acts as trustee for a company that raises money from the public, and when the fund-raising company involved folds, there might still be an avenue for justice for investors," said Slater & Gordon litigation lawyer Odette McDonald.
McDonald said the settlement was vindication for the mostly "mum and dad and retiree investors" roped into purchasing a product they mistakenly believed was as safe as investing in a bank due to "clever marketing tactics".
"The collapse of Fincorp in 2007 came as a horrific shock to the many, mainly older, investors who thought they had invested in a low-risk company," she said.
The money investors will receive under the settlement is in addition to funds already recovered by secured investors through the liquidation process, but this is the first time unsecured investors have been able to recover any money since the collapse of Fincorp.
Slater & Gordon confirmed that the settlement covers investment in both secured and unsecured notes issued by Fincorp on or after 7 December 2004 and held as at 23 March 2007, as well as investors who purchased notes prior to 7 December 2004 and rolled the investment over after that date.
The firm was authorised by the court in late March 2011 to notify investors of the proposed settlement.
Lead representative applicants in the class action included Queenslanders Mark and Rhonda Harrison, who together lost $330,000. Today's settlement will see them recover a total of $293,983 (including funds already recovered from Fincorp administrators).
When Fincorp collapsed in March 2007, more than $200 million invested by around 8000 small investors was placed at risk. It was the second major Australian fixed-interest investment scheme to collapse behind Westpoint.