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Expert Blog

Experts at Experts Direct: Removing the Veil

Piercing-the-corporate-veil

This post is the second of a series illustrating the utility of expert witnesses in a number of Australian cases. In the first post of the series, ‘Closing the Gap’ the role of a computer forensic expert Nigel Carson and handwriting examiner, Dr. Steven Strach were explained. This week we will look at two topical and complex cases on the effects of corporate restructuring and the risk of collaterised debt obligations. Traditionally, it has been difficult for courts to look beyond the separate legal personalities of the corporation to attribute blame to the shareholders themselves. What can be understood from these cases is that within the increasingly complex world of corporate litigation, expert witnesses are playing a larger role in explaining details of corporate structures and their implications for questions of the law. This knowledge can assist the courts in their ability to pierce the corporate veil.

The two experts below played a significant role in informing the courts knowledge on specific issues of fact:

  1. Tamara Lindsay in the topical litigation of the Bell Group Limited v Westpac Banking Corporation[1];
  2. Ronald Bewley on the risk of CDOs in Wingecarribee Shire Council v Lehman Brothers Australia.[2]

Tamara Lindsay in Bell Group Limited v Westpac Banking Corporation

This case was a part of one of the longest running litigation in Australian history. The primary issue in the case was whether transactions between Bell Group and the Banks were valid. These transactions had the effect of granting the Banks security over net assets of the Bell Group and thus reducing what was available to creditors. The liquidators commenced proceedings in 1995 to recover the realization of securities on the basis that, amongst other issues, at the time of the transaction the directors of Bell Groups knew or ought to have the known the main companies were insolvent and thus breached the Corporations Act.[3] This would determine whether the banks could claim priority to other creditors and whether the Banks were liable as accessories to breaches of director duties.  The case was recently brought up on appeal in the High Court of Australia but settled out of court prior to the hearing.

Tamara Lindsay currently runs Forensic Accounting, a specialized forensic practice dealing with dispute resolution, financial investigation and loss quantification. Ms Lindsay acted for the liquidators in this case by providing expert testimony and a substantial report on factual issues. Though later issues were raised in appeals over the role and priority of the Banks, Ms Linday’s testimony was most relevant to the original consideration of whether the Bell Group had engaged in insolvent trading which it was held it had.  In particular, she focuses on the interpretation of the accounting and commercial effect of a number of restructuring proposals. In such a long and complex case, expert witnesses were invaluable in providing clarity over important but complex details of the corporate structure.

Ronald Bewley in Wingecarribee Shire Council v Lehman Bros

This case was an extremely topical class action for three local Australian councils. The councils sought damages against Lehman Bros claiming they had suffered losses arising out of their acquisition of synthetic collaterised debt obligations (SCDOs). These are forms of collaterised debt obligations that invest in non-cash assets to gain exposure to fixed income assets. There were a number of issues of contention in these proceedings.

Ronald Bewley, is an expert in finance, trade practices and general statistics. His past experience includes a term as the Chief Investment Officer at the Commonwealth Bank of Australia and a professorship in econometrics at the University of New South Wales. He was consulted in these proceedings to discuss the risks of collaterised debt obligations. Mr Bewley’s expert evidence in this case was central in conveying to the court the complicated nature of the risks of SCDOs and the difficulty in grasping these concepts by financially unsophisticated individuals. The court held that Grange Securities, as acquired by Lehman Bros, ‘preyed on that lack of expertise and the trusts the Councils placed in its expert advice’.[4]

This post highlighted the importance of expert knowledge in the complex sphere of corporate law. In a time of financial insecurity where the risks of corporate structures have been exposed, there is bound to be an influx of litigation over issues of debt obligations and piercing the corporate veil. To inform this process, experts will continue to be relied upon to explain the intricacies of the corporate structure. Tamara Lindsay and Ronald Bewley are two such experts which may be found at Experts Direct as their profiles below:

Tamara Lindsay

Ronald Bewley

This article was prepared in conjunction with Susan Flynn

[1] The Bell Group Ltd (In liq) v Westpac Banking Corporation [No 10] [2009] WASC 107

[2] Wingecarribee Shire Council v Lehman Bros Australia Ltd [2009] FCA 503

[3] 2001 (Cth) s 588V

[4] Wingecarribee Shire Council v Lehman Bros Australia Ltd [2009] FCA 503, 410