Non-bank lender Liberty Financial is under fire ahead of its $1.8 billion float for failing to tell prospective shareholders about a $82 million loan promise to a senior staffer.
Liberty’s ongoing stoush with the Australian Tax Office over four years of disputed tax returns also has market watchers worried the group’s future earnings will be impacted if the ATO wins the fight.
Liberty is hurtling towards listing on the Australian Securities Exchange on December 15 with one of the biggest floats of the 2020 calendar year after completing the institutional investor component of its $320 million bookbuild.
The company pitches itself as the 10th biggest lender in Australia and has an $11.5 billion loan portfolio. Liberty will conduct a retail offer on Friday to complete its $320 million raising.
While Liberty is a hot float hopeful, market watchers are concerned about some of the group’s disclosures in its prospectus, including its omission of some key legal matters and the number of related party loans, totalling $322 million to related party shareholders.
The Age and The Sydney Morning Herald can reveal that Liberty is involved in a bitter court dispute over the ownership of the second largest mortgage broker in Australia, Macquarie-backed Connective Services, which has not been disclosed in the prospectus.
The Supreme Court of Victoria heard last year Liberty had promised to provide an $81.67 million loan to a company called Slea Pty Ltd, which is owned by a senior Liberty staff member. Slea owns a stake in Connective Services.
Slea is suing Connective Services alleging it was oppressed as a shareholder by having its holding in Connective reduced through a series of transactions. Liberty is not a party to the case but is funding the court action. The court has heard the promised loans are to help Slea buy out the majority owners of Connective Services.
The Slea court case has hampered efforts by the largest mortgage aggregator in Australia, AFG, to buy Connective for $120 million. AFG is waiting for the court matter to be resolved before pressing ahead with its acquisition.
The promised loan is not specifically referenced in the Liberty prospectus nor is the legal matter despite Slea’s case being funded by Liberty to the tune of $13 million so far. Sources who declined to be named due to confidentiality reasons suggested that Liberty had not disclosed the case in its prospectus because it was not a party to the matter.
In October 2019, a senior Liberty executive told the Supreme Court the loan had not been documented by Liberty, but was through a verbal agreement.
A spokesman for Liberty said it was concerned about misinformation based on false assumptions being spread about the company and emphasised that Liberty was not a party to the litigation. He said it was not appropriate to comment on ongoing litigation and that information about the case was available through published judgments.
“We also deny that Liberty has any undocumented loans. Loan contracts that are relevant to the Liberty Group have been thoroughly reviewed. The offer document sets out matters that are required to be disclosed to new investors,” the spokesman said.
Liberty insists the loan was not documented because while it was offered it had not been accepted.
Liberty’s ongoing stoush with the tax office relating to its previous structure is revealed in the prospectus but the group did not explicitly state that it related to four years of tax returns.
According to documents filed by Liberty in the Federal Court, the ATO imposed an income tax and shortfall interest charge on Liberty’s accounts over four years from 2012 to 2015.
Their prospectus also relays the tax office’s concerns about the structure of Liberty, which includes a trust company. Any change to its taxation structure could eat into future dividend payouts. Liberty does relay a range of adverse tax scenarios in its prospectus as part of its key risks in the prospectus.
Liberty says in its offer document that if it loses the tax fight and ends up footing the tax bill, its “founder group” will forgo dividend payments to ensure there is no loss to Liberty.
The group has brushed off concerns about the impact of COVID-19 on loan deferrals that have hurt lender earnings throughout the sector. Its prospectus shows loans in more than 31 days of arrears were 9.55 per cent of customers, or an increase from $373 million in June 2019 to $1.119 billion in June 2020. That said, the percentage of loans over 90 days in arrears across its portfolio is low at 2.27 per cent, including COVID-impacted loans.
Liberty has found itself in other legal tussles before, including a stoush with Macquarie in 2015 that was settled out of court.
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Source: Thanks smh.com