FAQs on CBA settlement

Document history

Last updated 8 March 2013.

Date Changes made
8 March 2013 Added new question 37 to address some inaccuracies in an "Information Bulletin" distributed by Levitt Robinson Solicitors in February 2013
27 February 2013 Amended Question 19 to provide information on the sending of offer letters and eligibility for compensation
29 November 2012 Amended Question 28 to provide a link to the ATO's information sheet Taxation issues for Storm Financial investors benefiting from the ASIC-CBA settlement
19 November 2012 Added new Question 36 to address some further matters raised by the "Information Bulletin" distributed by Levitt Robinson Solicitors in October 2012
31 October 2012 Added new Question 35 to address some questions raised by an "Information Bulletin" distributed by Levitt Robinson Solicitors in October 2012; Corrected a typographical error in Question 12.
16 October 2012 Amended paragraph 31.2; Added new questions and answers 33 and 34.
4 October 2012 Corrected some typographical errors in paragraph 9 of question and answer 12; Added new questions and answers 30, 31 and 32, to provide further explanation and clarification of the ASIC Compensation Model.
26 September 2012 Added new question and answer 29, in relation to who investors should contact if they have changed address since they last had contact with the CBA.
19 September 2012 Document reissued

Overview

ASIC has entered into an agreement with the Commonwealth Bank of Australia (CBA) for CBA to make available up to $136 million as compensation for losses suffered on investments made through Storm Financial Limited (Receivers and Managers Appointed) (In Liquidation) (Storm).

The compensation will be available to many CBA customers who borrowed from the bank to invest through Storm, including CBA customers who are members of the Sherwood class action that has been brought against CBA. The $136 million is in addition to payments of approximately $132 million, and other benefits, CBA has already provided to Storm investors under its CBA Resolution Scheme. ASIC believes the compensation deal is a timely, fair and certain outcome for Storm investors who borrowed from CBA. Storm investors can be confident we would not have agreed to a settlement unless we thought the compensation was appropriate. ASIC has developed a compensation model (in conjunction with external forensic accountants) to calculate Storm investors’ loss. That model has calculated the estimated loss for each investor (or investor group, where two or more investors invested jointly in the Storm model). It has also allocated each investor’s loss between the banks who funded investments in the Storm model.

More information about the agreement and compensation arrangements with CBA follow below. This agreement will bring to a close the legal action against CBA in ASIC’s unregistered managed investment scheme (UMIS) proceeding (the ASIC UMIS Proceeding) which was also brought against Storm, Bank of Queensland Limited (BoQ) and Macquarie Bank Limited (Macquarie) in the Federal Court of Australia in Brisbane in December 2010.

ASIC will continue the ASIC UMIS Proceeding against Storm, BoQ and Macquarie, scheduled to start on Monday 17 September 2012. ASIC estimates the total loss suffered by all investors who borrowed monies from financiers to invest through Storm to be approximately $830 million.

Frequently asked questions

View FAQs as PDF

1 What compensation will CBA provide?

2 Why is ASIC settling with CBA now?

3 Has CBA admitted liability?

4 Is ASIC continuing proceedings against CBA?

5 Does this settlement mean that ASIC will not be bringing any action against CBA along the lines of the action ASIC has brought on behalf of Mr and Mrs Doyle in the Doyle Proceeding? Will ASIC be taking any other action against CBA, including regulatory action?

6 Has ASIC consulted investors and their action groups about the settlement with CBA?

7 How has this further amount of compensation offered by CBA been calculated?

8 What if an investor has already obtained compensation from CBA under the CBA Resolution Scheme?

9 Will investors who borrowed from CBA to fund investments through Storm, and also from BOQ and/or Macquarie, obtain compensation under the agreement reached between ASIC and CBA?

10 Will investors who did not borrow from CBA to fund investments through Storm, but did borrow from BOQ and/or Macquarie, obtain compensation under the agreement reached between ASIC and CBA?

11 Who are 'Excluded Persons'?

12 How was the settlement amount for each investor calculated? If an investor used monies from CBA and monies from BOQ and/or Macquarie to invest, how is their compensation amount determined?

13 Does the ASIC Compensation Model calculate interest?

14 What is a set-off of CBA Moratorium Amount?

15 Will interest be paid to CBA Customers?

16 How will the settlement affect CBA Customers who are also group members of the Sherwood Proceedings?

17 How will the settlement affect CBA Customers who have not previously provided a release to CBA and who are not group members of the Sherwood Proceedings?

18 Can a CBA Customer obtain compensation under the agreement between ASIC and CBA and still take part in the Sherwood Proceeding?

19 When will payment be made? How do I find out if I am eligible for compensation?

20 What if a CBA Customer’s margin loan is in negative equity?

21 What if a CBA Customer does not agree with the data held by ASIC which gives rise to the calculation of compensation for that Investor?

22 Can an investor refer a matter to the expert for determination?

23 What releases will CBA Customers have to give to obtain the compensation?

24 Do CBA Customers have to continue to meet loan repayments now that a negotiated outcome has been reached?

25 Does a CBA Customer have to accept an offer? What happens if the Investor does not accept an offer from CBA?

26 How do investors confirm their participation in the compensation arrangements? Do they need to register with ASIC?

27 Who should investors contact for more information about whether to accept the proposal and what options are available to them?

28 What are the tax implications for investors who receive compensation amounts as a result of the settlement?

29 I have changed address since I last had contact with the CBA. Should I contact the CBA, or will the CBA use the contact details on ASIC's database?

30 Is it true that investors will only be compensated for the money they lost that was borrowed from CBA by way of a margin loan, and not money borrowed against their homes?

31 Is it true that investors who already received some compensation from CBA through the CBA Resolution Scheme cannot receive any further compensation under the ASIC settlement?

32 Will investors be compensated for capital losses, such as savings or superannuation?

33 Who should I contact if I am an executor or administrator of a deceased estate of a person who was a Storm investor, or if I invested jointly in Storm with someone who is now deceased?

34 I have read in the media and elsewhere that Storm investors suffered aggregate losses of around $3 billion. Is that true and, if so, why did ASIC settle with CBA for only $136 million?

35 Some questions arising from an "Information Bulletin" distributed by Levitt Robinson Solicitors in October 2012

36 How does the settlement compare with outcomes under CBA's Resolution Scheme

37. Correction of some inaccuracies in an "Information Bulletin" distributed by Levitt Robinson Solicitors in February 2013

 

1 What compensation will CBA provide?

 

1.1 In around July 2009, CBA established the CBA Resolution Scheme ("Resolution Scheme"). Pursuant to (or in some cases prior to or outside) the CBA Resolution Scheme, CBA has reached settlement with approximately 1,200 investor groups (that is, an investor, or two or more investors who invested jointly) who used home and/or margin loans from CBA to invest in the Storm investment model ("CBA Customers"). CBA estimates that the compensation it provided to CBA customers under (or in some cases prior to or outside) its Resolution Scheme totalled approximately $132 million. CBA also provided considerable further hardship assistance via interest waivers, reduced interest rates and flexible payment arrangements.

1.2 Those CBA Customers who accepted settlements with CBA under the CBA Resolution Scheme (or, in some cases, prior to or outside it) provided a release to CBA from any Storm-related claims they may have otherwise had against CBA. However, the release given by most of those CBA Customers to CBA contained what is called an 'ASIC carve-out' clause, which enables those CBA Customers to obtain the benefit of any compensation recovered by ASIC from CBA in relation to those CBA Customers.

1.3 ASIC and CBA have now agreed to a settlement of ASIC’s Proceeding Number QUD 577 of 2010, which ASIC brought in the Federal Court of Australia against Storm, CBA, Bank of Queensland Limited and Macquarie Bank Limited. As part of that settlement, CBA has agreed to provide a further amount of up to $136 million compensation to CBA Customers. This amount is intended to ensure that each CBA Customer who takes part in the settlement will be provided with compensation which will equate to 55% of the total loss which ASIC has calculated:

  1. was suffered by the investor as a result of their investments with Storm; and
  2. should be allocated to CBA

once compensation already provided to CBA Customers under the CBA Resolution Scheme (or prior to our outside of it) has been taken into account.

1.4 The agreement brings other benefits to CBA Storm investors:

  1. After compensation is applied to investors’ outstanding CBA margin loans, any investors still in negative equity on their Storm-related margin loans will have the balance of those loans written off; and
  2. Investors granted a loan interest-payment moratorium by CBA will have that moratorium interest written off.


1.5 ASIC calculates the total loss suffered by all investors who borrowed monies from various banks to invest through Storm to be approximately $832 million.

[Current 19 September 2012.]


2 Why is ASIC settling with CBA now?

 

2.1 ASIC recognises that CBA’s Resolution Scheme was a constructive response by CBA to the financial hardship faced by some of CBA’s customers arising from their investment with Storm.

2.2 The provision of additional compensation by CBA under the agreement reached between ASIC and CBA resulted from continuing negotiations between CBA and ASIC about whether it was appropriate to provide additional compensation for some CBA customers who borrowed to invest through Storm, over and above that already provided under the CBA Resolution Scheme.

2.3 The provision of the additional compensation obtained pursuant to the settlement agreement reached between ASIC and CBA is positive for Storm investors who borrowed from CBA to invest in Storm and, recognizing the compensation already provided under the CBA Resolution Scheme, produces a timely, fair and certain outcome for CBA customers.

2.4 ASIC welcomes CBA’s approach to resolving this matter and sees it as an example of a responsible approach by a bank to dealing with its customers.

2.5 ASIC’s end objective in commencing the legal proceedings has always been to obtain compensation for investors for losses incurred as a result of investment through Storm. This has been achieved without the need for a long, drawn out legal process. Legal proceedings can often be uncertain. Investors can be confident that we would not have agreed to a settlement of this matter unless we regarded the amount of compensation to be appropriate.

[Current 19 September 2012.]


3. Has CBA admitted liability?


3.1 CBA has always denied that:

  1. Storm operated an unregistered managed investment scheme; and
  2. CBA was knowingly concerned in the operation by Storm of an unregistered managed investment scheme.


3.2 By settling the ASIC UMIS Proceeding brought against it by ASIC, CBA admits no liability in relation to ASIC’s allegations and the terms of the agreement reached between ASIC and CBA reflect this.

3.3 The decision of CBA to pay additional compensation to CBA Customers was reached after continuing negotiations between CBA and ASIC having regard to the need for finality for all parties involved, particularly CBA’s customers.

[Current 19 September 2012.]


4 Is ASIC continuing proceedings against CBA?


4.1 As part of the settlement reached between ASIC and CBA, the Court has dismissed the ASIC UMIS Proceeding as against CBA, with no orders made regarding the legal costs incurred by ASIC or CBA in the ASIC UMIS Proceeding. This means that ASIC and CBA will each pay for their own costs incurred in the ASIC UMIS Proceeding.

4.2 The settlement reached between ASIC and CBA does not include any settlement of ASIC’s claims against BOQ and Macquarie in the ASIC UMIS Proceeding. ASIC will proceed with its case against BOQ and Macquarie in the ASIC UMIS Proceeding.

4.3 The settlement also will not affect the proceeding ASIC has brought in the Federal Court of Australia against MBL, BOQ and Senrac Pty Limited on behalf of Barry and Deanna Doyle (being Proceeding No NSW 1797 of 2010), or the civil penalty claims being brought by ASIC against Julie and Emmanuel Cassimatis.

[Current 19 September 2012.]


5 Does this settlement mean that ASIC will not be bringing any action against CBA along the lines of the action ASIC has brought on behalf of Mr and Mrs Doyle in the Doyle Proceeding? Will ASIC be taking any other action against CBA, including regulatory action?

 

5.1 The settlement reached between ASIC and CBA means that ASIC will not bring any action against CBA along the lines of the action ASIC has brought on behalf of Mr and Mrs Doyle in the Doyle Proceeding. ASIC will not be taking any other action against CBA.

[Current 19 September 2012.]


6 Has ASIC consulted investors and their action groups about the settlement with CBA?

 

6.1 ASIC informed investors and their action groups of the agreement reached between ASIC and CBA as soon as the agreement was reached. It was not possible to do so beforehand.

[Current 19 September 2012.]



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Last updated: 01/10/2014 03:14