The major issue preventing complete finalisation of the bankruptcy was an outstanding potential lawsuit against Fitch Ratings Agency.  LBA decided not to fund the prosecution of this claim itself (with creditors funds) due to the risks involved, but rather to either look for a funder to bear the legal costs and downside risk of an unsuccessful claim in return for a share of the upside if the claim proved to be successful. LBA also considered the option of simply selling the claim rights to a third party for an upfront fee and was open to offers on this basis or a combination of immediate and deferred fees depending on outcomes. 

This situation has not changed over the last eight months with negotiations with various parties being ongoing. It is now also possible LBA will decide to discontinue with the process if no acceptable offers are received from either funders or buyers. Depending on which of these routes is pursued (when a final decision is made) the bankruptcy may be completed relatively quickly (within the next year) or could extend for the length of the lawsuit against Fitch (an indeterminate length of time and almost certainly longer than one year). 

In all scenarios, Amicus expects any final dividend made to be “small” (although absolute quantities will likely vary substantially between a simple wind-up of the estate and a successful claim against Fitch).  The total accepted claims by the LBA estate exceeds $400 million and therefore while monies being held back or potentially realised from a successful claim against Fitch (including an out of court settlement as has happened in similar cases) may seem substantial in absolute terms, simple maths indicates each $1 million generated and made available to all creditors for distribution amounts to only 0.25c/$ (or 0.25%) of their individual claim amounts. The previous dividend payment in December was “substantial” only because the Liquidator had over $60 million of funds to distribute.

Please feel free to contact Moray Vincent on an ongoing basis with any questions you may have on the LBA bankruptcy.

One of the reasons for the delayed reaction was, although there was great damage, many investors and traders initially saw opportunities and a bright future for companies that would be involved in the rebuilding.  It was believed the Japanese government would need to provide funds for the rebuilding of Kobe through fiscal stimulus and the resultant growth in GDP would almost exactly offset the economic damage caused.  This argument lost out to the obvious refutation that if natural disasters were good for economic growth why did governments not simply create them with a “bomb their own cities” as a policy to stimulate growth?

A similar economic logic appears to have been applied to the COVID pandemic.  While there was a global recession as economies locked down, the bounce back in global GDP growth caused by government stimulus returned many economies to more or less where they were economically before the pandemic with no loss of trend growth.  There was a widespread belief the economic damage caused by lockdowns and other measures to limit the health impacts had been largely ameliorated by the stimulus measures with minimal side effects. 

The graph below shows the massive impact (in historical terms) on the Australian economy of the pandemic, but then the equally spectacular recovery with seemingly no permanent loss of GDP over the period, with the previous growth trend appearing to be maintained.

In a similar vein to the “bomb your own cities” argument, if government stimulus could completely offset the economic damage why not manufacture deadly pandemic viruses in labs and release them every few years to stimulate economic growth? Alternatively, to avoid any negative health consequences why not simply give the population an extended holiday on “Jobkeeper” every couple of years and watch the economy roar back with a vengeance when you re-opened businesses and everyone had money in their pockets ready to spend after a relaxing and refreshing few months sitting on the couch watching Netflix?  Where does the money come from?  No problem; fund the “stimulus cheques” by simply printing the money through Quantitative Easing.

The reason this policy was never pursued in the absence of the pandemic (apart from being clearly “mad”) was because of what is currently occurring now in the “hangover period the morning after the economic party the night before”. Excess stimulus (or at least the after effects of the necessary stimulus) has caused the current inflationary pressures, both directly through funding pent up demand and indirectly through disruptions that have limited supplies of goods and services which has become a global problem. Interest rates are now rising to combat rising inflation with the resultant slowdown in global GDP and likely recessions to follow in the UK, Europe, USA and possibly Australia.

The policy responses to the pandemic almost certainly minimised the overall economic damage and to implement them was good policy, but the consequence of avoiding immediate pain has simply been to push the problem further into the future.  Using a simple analogy, if you wreck your uninsured car you can take out a large loan to buy a replacement vehicle so you can still get around. In the short term, your life is unaffected or possibly even enhanced with a newer and better car, but it is only in the medium to long term when you need to divert funds you would have otherwise used elsewhere to repay the loan that you suffer any lifestyle pain.  

The truism is that when an event happens which is economically destructive (and as can be seen from the graph above the pandemic was highly destructive to the Australian economy), fiscal and monetary policy responses can minimise the damage but never completely offset it otherwise artificially creating that event or simply the policy responses to it would be good economic policy regardless of the event occurring.  

Only when explained in terms of “bomb your own cities” or “manufacture and release your own plague” it’s clear these ideas are nonsensical. To paraphrase Paul Keating’s famous 1990 quote after the financial excesses of the late 1980’s “This is the recession we had to have” or at least the economic slowdown now necessary to pay for the lost GDP from the pandemic.

The dividend payment is likely to comprise nearly all the cash left in the LBA estate and therefore should be broadly in line with guidance given previously in March 2022 of a payment of slightly above 14 c/$ of accepted claims; although we expect the Liquidator to update claimants with the exact revised figure prior to payment.

For creditors to receive their monies via electronic funds transfer, the Liquidator previously asked all claimants to supply their bank account details (on a manual basis by completing a paper form verifying their claim amount and filling in their bank account details, scanning it and returning it to the Liquidator).  The second stage of this process which is happening now is to verify the bank account details with a trusted third party provider PayOK.  Apart from matching up the bank account details entered via the PayOK website with those the Liquidator now has on file, PayOK also do their own independent verification checks with the relevant banks to ensure the BSB and account details are held in the name of the claimant organisation. When using PayOK, Amicus recommends clients use the “basic” method of verification that requires scanning in a copy of a bank statement rather than the “express” method which asks for more sensitive information that Amicus thinks is unreasonable to provide.

The Liquidator is not forcing claimants to receive monies in this manner, but if the process is not completed the Liquidator will send a cheque to the mailing address it has on file for the claimant.  In our opinion, this is less secure as contact details, organisation names and addresses change so the possibility the cheque is lost or does not reach the intended recipient in a timely manner (particularly before Christmas and into the January holiday period) is not negligible. Amicus has advised all its clients to supply and verify their bank account details so they can receive monies electronically and is currently helping them with this process.

The Liquidator is not describing this payment as the final dividend for two reasons.  Firstly, Amicus understands there is a small amount of money (withholding tax) that is still to be rebated from HMRC (His Majesty’s Revenue and Customs – the UK equivalent of the ATO), but the Liquidator does not wish to delay the current payment waiting for these monies to be remitted.

Secondly, the Liquidator is still progressing expressions of interest in funding its potential claim against Fitch Ratings which will require a minimal amount of monies to be retained in the estate to cover the cost of the storage of LBA records and other minor expenses for the length of the case. 

Obviously if there are residual monies left over when the issues above are resolved, the Liquidator will pay a final dividend at some point in the distant future.  This could be a nominal one if the Fitch case does not progress or is unsuccessful, but could be another substantive one if the courts find against Fitch or, more likely, a favourable out of court settlement is reached.

Please feel free to contact Amicus if you have any questions regarding the LBA dividend, the process of registering to have it paid electronically (e.g. if you have not received an email from Kroll) or the potential legal case against Fitch.

Performance was poor for a couple of reasons.  Firstly, the LTGF is exposed to growth and other volatile asset classes that seek to make higher returns over the longer term, but with the risk of short-term volatility or negative returns (FY22 was one of those periods of negative returns!).  Secondly, the objective is not the same as a benchmark, and the asset classes in which the LTGF invests are perversely mildly inversely correlated to inflation[1] i.e. when inflation rises the value of the assets in which the LTGF invests tend to fall and vice versa making performance against objective even more volatile than absolute performance!

TCorp strongly argues that investors need to take a long term view when investing in growth assets and should ideally take a 10 year view with the LTGF. As per the graph below, the LTGF has had an excellent performance historically when measured on a 10 year horizon.

In simple terms, the chart above shows for any 10 year period (not including the two years of the financial crisis being 2008 and 2009) the LTGF has exceeded its objective. Further it exceeded its objective in three of the nine years including the 2008 and 2009 period and even its poorest performance (the 10 years to 2010) was above an average annual return of CPI+1.5%[2].

Based on this analysis, it appears the LTGF has performed extremely well on a historical basis even including the very poor FY22 result (which was the second worst one year performance against benchmark in its history being better than FY08 and poorer than FY09).  However 10 years is a much longer time horizon than most investors are seeking (few finance managers want to explain to those higher up in their organisations and their communities it may take another nine years to recover from a single bad investment year).

Perhaps a better graph to explain the risks is the five year rolling performance as shown below.  This reveals the poor performance in FY22 essentially wiped out the good performance of the previous four years, leading to a slight under-performance against objective over the five year period.

Perhaps the more illustrative example of a plausible worst case scenario is that once the good performance in 2007 was replaced in the rolling five year returns, the LTGF under-performed its objective by -7.0% in 2012, which meant it had a negative five year return on an absolute basis of -0.3% whilst CPI increased by an average 3.2% over the period, leaving performance a cumulative 19% behind CPI over the period and even further behind the alternative of investing in Term Deposits or Bank FRNs.

On the flip side of the 29 five-year periods since its inception in 1989, the LTGF has only under-performed CPI in the periods ending 2011 and 2012 and its average performance has been to exceed its objective by 1.9% for an average return of CPI+5.4% (a performance way in excess of investing in Term Deposits and FRNs).

Overall Amicus conclusion is the LTGF should provide superior returns to alternative investments in Fixed Income products if historical performance is replicated in the future (and obviously there is no guarantee this will be the case).  However, periods of under-performance are likely and it may take many years to recover from one or two years of negative returns.

Amicus has generally supported its NSW council clients in investing in the LTGF to gain exposure to growth assets with a view to mitigating long-term liabilities to which councils are exposed.  However it has also recommended strategies to reduce the volatility of returns both within the investment itself and the overall portfolio.  Collectively, Amicus clients have a positive mark to market on their LTGF exposures measured from inception to the end of October 2022 despite many of them initiating investment in FY22.

[1] Plotting the one year LTGF returns against inflation shows very little relationship, but a best fit line shows a negative relationship as would be expected on a fundamental basis which very simplistically argues high inflation is bad for the economy and therefore bad for both debt, credit, property and equity investments.

[2] The worst performance in the 10 years to 2010 is -1.8% and the fund’s objective is CPI+3.5% so the LTGF exceeded CPI+1.5% in all rolling 10 year periods.

If you are a creditor and have not received these forms, please contact Amicus and we can verify your claim amounts and ensure the appropriate forms are emailed to you and the Liquidator has your updated details (all at no charge).  This is a task we have now completed for each of 36 creditors who engaged us to file their claims.

During March, Amicus attended the creditors’ meeting for the Lehman Brothers Australia (LBA) group of companies.  The Liquidators have been adamant they were unwilling to pay final dividends until the ATO issues a clearance certificate for all the companies within the LBA group.  This is because if the ATO subsequently presents a tax bill and all the assets of the group have been distributed then the Liquidators are personally liable for the debt.  Fortunately, resolutions were passed at the creditors’ meeting that will enable all the companies within the group to be liquidated; a necessary first step in this process.

The Liquidators gave an update on the overall group tax position and their discussions with the ATO. They reported the initial $50 million tax liability has now been resolved and they had received rulings that no tax was payable after an “exhaustive process”.  However, the ATO still needed to make the formal assessment and issue a tax clearance (being a final notice that no tax was payable) before the Liquidators could start the dividend payment process.

The Liquidators flagged that before they could submit the final tax returns to the ATO, there were some “ancillary matters regarding compliance issues” that needed to be addressed.  The Liquidator is in discussions with the ATO regarding the documentation the ATO needs to determine these issues so the Liquidator can complete its outstanding tax returns.

Only when the tax issues are resolved and the tax clearances issued will the Liquidators start the dividend payment process.  This is a process where the Liquidators need to announce the proposed payment of a dividend and call for any final claims to be submitted.  The process can take between 35 and 60 days as a statutory notice period depending on potential creditor responses.

In Amicus’ opinion it is now looking increasingly likely the actual payment of a dividend will not take place until the third quarter of the current calendar year (the first quarter of next financial year), even if the ATO issues are completed in the second quarter of the current calendar year.

Lastly, for any potential claimant out there who thinks they may have a claim, time is running out to submit as once the final dividend is paid there will be no more monies left in the estate.  If you have even the smallest doubt as to whether you may have a claim, please contact Amicus and we can advise you on this issue again for no charge and with no obligation. Amicus has prepared successful claims for 36 clients and is very experienced in this area.

The best choice for each investor comes down to consideration of the “three C’s” being Compliance, Cost and Convenience.  We outline below a cursory and general assessment of these factors without taking any specific investor circumstances into consideration.

Compliance

In practice for those electing to have their own Austraclear account a “proxy” is required as to undergo the compliance regime and training to operate the account themselves is prohibitively expensive.  This introduces a risk in that they are giving a third party full access to trade their holdings. If the third party did anything without the client’s authority that would be a compliance breach, or if it was done covertly to obtain an advantage it would constitute fraud.  The same issue also arises under the safe custody option where the holding bank or broker trades the client’s securities held in safe custody within a segregated account of the bank or broker’s own Austraclear account.

Amicus notes the safe custody method survived the 2008 collapse of Lehman Brothers Australia when all client holdings (which were held safely by the custodian Citibank) were then transferred en masse to ANZ who took over the service with minimal disruption for clients.  Similarly, during the 2013 collapse of Oakvale Capital (as Austraclear proxy services provider) there were also minimal issues arising regarding the safety or security of client holdings. Hence Amicus concludes both methods are broadly equally as safe with the largest risk being one of a rogue employee committing fraud under either method and the employee’s organisation not having the financial capacity to subsequently make the client whole. This is one reason we generally recommend safe custody with a major bank rather than a smaller broker.

Cost

Most of the costs of Austraclear proxy are fixed (and run into thousands of dollars) whereas the costs (if any) of safe custody are variable so smaller holders are nearly always better off with safe custody. For investors with larger holdings, the lowest cost solution typically depends on the safe custody fees charged (if any).

Convenience

After the initial set-up, Austraclear proxy is generally more convenient, particularly for holders of large numbers of securities.

As part of Amicus service to our retained clients, we recently completed a far more in-depth assessment of all these factors our clients should consider when deciding whether safe custody or Austraclear proxy is the best solution for them.  Please call Amicus if you would like to discuss this topic further.    

Once the unemployment rate falls below the NAIRU (Non-Accelerating Inflation Rate of Unemployment) then (by definition), inflation begins to rise.  However, because demand for goods and services produced by businesses is strong these businesses are likely capacity constrained due to a shortage of workers.  Under this theory, wages will rise as businesses compete with each other for labour.  This is “good wage growth” as it is driven by strong business conditions meaning there is a bottleneck in the supply of labour. 

In this scenario, the RBA can lift interest rates to bring the economy back into balance without deleterious effects.  If individual workers are short of money to pay their mortgage and support the lifestyle they desire, they can move to a higher paying job or work more hours because the job market is strong.

The RBA has been hesitant to raise interest rates to date because wage growth has been stagnant despite the economy growing strongly, unemployment falling and inflation rising.  If the RBA were to raise interest rates in this current scenario, it could simply make households “poorer” as workers are not in a position to demand a pay rise, ask for more hours or change jobs to a higher paying one because there is still slack in the labour market and employers are not finding they need to increase wages to source workers.

However, it is not as simple as the RBA simply not raising interest rates until wages start rising as there is another scenario which is far worse. This is where the RBA does nothing about rising inflation which makes workers “poorer” anyway as their wages are not keeping up with the cost of living. If this is allowed to persist these workers will increasingly “demand” higher wages in a scenario where businesses cannot afford to pay higher wages as they are still recovering from the effects of the pandemic and are not constrained by a shortage of labour.  This is “bad wage growth” as there is simply disruption as workers seek pay rises to keep up with inflation without any increase in productivity and businesses are forced to put up their prices to pay for them causing greater inflation and more pay rise demands in a vicious circle. 

This was the scenario in the 1970’s and early 1980’s that led to monetarist policies to control inflation, particularly crushingly high interest rates that purposely plunged many western economies into recession as the only way to break the cycle of workers continuously demanding pay rises because future inflation expectations had been set so high.  In the aftermath, many central banks became “independent” with an inflation targeting mandate as a method of providing credibility that inflation would be contained going forward.  In Australia, the RBA started explicitly began targeting inflation in 1993 after “the recession we had to have” partially caused by high interest rates used to control inflation in the 1980’s.

In the US, inflation is currently worryingly high and perhaps “out of control” with the US Federal Reserve’s credibility as an “inflation fighter” being severely tested.  The Fed has been very slow to raise interest rates despite inflation reaching 8.5% in March 2022, its highest rate since 1981 and massively in excess of the Fed’s target level of 2.0%. 

Within Australia, the RBA is beginning to face the same dilemma between raising interest rates too early and stunting nascent GDP growth and potential wages rises or raising interest rates too late and having to deal with an inflationary problem caused by workers demanding higher wages because of changed expectations regarding future inflation.  This latter scenario of “bad wage growth” is by far the worse of the two outcomes because, if history is a guide, the only solution will be high unemployment and a recession to force wage pressures down to control inflation.  With so much household debt in the Australian economy and many very low paid workers, such a scenario would cause a great deal of social suffering.  One of the reasons we believe the market is pricing in far higher interest rates than predicted by economists and the RBA is because the market is not discounting this scenario as heavily. The RBA certainly does not wish to crush consumer and business confidence by alluding to such a possibility and potentially stalling economic growth as consumers and businesses reduce spending and investment, thus making a recession more likely.

How severe the inflation problem becomes in the US and how the RBA manages the low wage growth / rising inflation situation domestically will be a large determinant of Australia’s social and economic future in the medium term. Hopefully the RBA does not make the same policy mistakes as the Federal Reserve appears to have made (or different policy mistakes).

In parallel the Banton Group continues to try to put together a group of former holders without LBA as the cornerstone complainant.  Banton Group has been attempting to assemble a sufficient volume of former holders to file a claim since its founding in 2020.  Amanda Banton, the group’s managing partner, and her team also tried to build this case or similar at her former employer Squire Patton Boggs (SPB) as per our article from June 2019.

In early December, the Banton Group circulated another note to former Fitch rated SCDO holders encouraging them to join its group by signing a litigation funding agreement.  Amicus has two concerns regarding former holders committing to the proposed funding agreement being:

• When and if an alternative lawsuit emerges, it may offer better terms than the Banton lawsuit.  While it is currently unknown which lawsuit will offer former holders the better terms, it would seem prudent for former holders to wait and compare terms before deciding on the most appropriate group for them.

• Given the Banton lawsuit has not been filed, there is no guarantee it will ever be filed if there are insufficient former holders within the group to attract a funder.  We see this as a significant concern as Banton Group and its predecessor SPB has been trying to form a sufficiently large group to file a claim for over two years now in which time their claim does not seem to have progressed.  The major concern is if the Banton claim is not progressed and former holders have signed a funding agreement that makes the former holders liable to pay the funder a percentage of any recoveries made regardless of whether the Banton lawsuit ever eventuates. The rationale as to why the funder is entitled to monies in these circumstances is that sometimes the mere threat of a lawsuit provokes the defendant into an out of court settlement without the need to formally file a claim and this is a standard term in most funding agreements to cover this situation.

In contrast to immediately signing up with the Banton Group, Amicus recommends former holders wait to see if the prospective LBA lawsuit is expanded to include former holders of the Fitch rated SCDOs. 

It seems to Amicus there is little urgency to sign up to the Banton lawsuit as there are few incentives for the Banton Group to close access to this lawsuit anytime soon given it has been open for over two years and the Banton Group appears to still be seeking additional plaintiffs and the case has still not been filed as yet.

We strongly encourage all former holders who purchased Fitch rated SCDOs to keep abreast of developments in these matters and when all the options available to them become clearer to make a decision only then.

Amicus would likely recommend former holders eventually sign up to one of the potential lawsuits if the funding agreements offered shielded them from any downside financial risk (caused by the case not being successful or being discontinued once started) in return for a share of any monies paid if the case is successful (either through court judgement or an out of court settlement) which is the basis of most funding agreements. However, all former holders should read the specific terms of any funding agreement carefully before committing themselves.

Please feel free to call or email Amicus (moray@amicusadvisory.com.au) if you have held any of the following Fitch rated SCDOs (Esperance, Newport, Kakadu, Henley, Coolangatta, Merimbula or Miami) and Amicus can keep you updated directly with any developments going forward.

Firstly, due to its greater transmissibility, Omicron is now widespread across the globe and unlike prior variants (such as Beta) it appears highly adaptable to many individual country conditions meaning it is likely to replace Delta as the dominant strain worldwide.  Omicron is already the dominant strain in South Africa and is predicted to be the dominant strain in the UK before the end of the year.  Early indications are that it may become the dominant strain in Australia[1]. The fear is that even if Omicron proves less deadly than Delta, its greater transmissibility will result in more cases leading to more hospitalisations and deaths; particularly if the hospital system becomes overwhelmed with cases. 

As a simple example using UK and USA statistics and data sources[2], 14% of people who are unvaccinated and who contract COVID will be hospitalised and of these 10% will die.  Vaccination reduces these statistics by approximately 90%.  If we assume 90% of the population is vaccinated then out of 10,000 cases there will be 266 hospitalisations and 27 deaths. Assuming there are 1,000 new cases a day, then 27 new people will be admitted to hospital daily of which three will subsequently die (which is broadly what is being observed in Australia currently).

Assuming hospitalisation and death rates for Omicron are half those of Delta then hospitalisation per 10,000 infections will fall to 133 and deaths 13.  However, if Omircon is far more transmissible and case numbers are allowed to explode then instead of being 1,000 new cases a day there could be 25,000 new cases a day (as recently predicted for NSW if no control measures are taken[3]). In this case we should expect 332 new hospitalisations and 33 new deaths per day.  Adding to this if the hospital system is then overloaded at these case levels and cannot provide the care needed to newly sick patients as all the beds are full, then the death rate will rise and perhaps 30% of those who cannot get treatment will die rather than the current 10%.  This would then take the death rate from 33 to close to 100 per day.  These numbers while largely illustrative outline the problem countries in Europe are currently fearing and that Australia could face in the furture if cases are allowed to explode.

Apart from health considerations, investors will also be interested in how this scenario or the measures taken to prevent it could affect markets and particularly interest rates.

Amicus thinks it is safe to assume Australian state and federal governments are not going to intentionally allow the domestic hospital system to be overwhelmed and if this does occur it will only happen due to a policy mistake (highly possible of course but from an economic perspective it does not alter the conclusions as the response will be the sames as those measures for prevention but even more severe).  Hence, it is likely Australia will initially seek to learn from the experience overseas where Omicron is spreading rapidly and domestic cases will be closely monitored and restrictions re-imposed wherever necessary to limit the spread if case numbers begin to rise too quickly.  While NSW Premier, Dominic Perrottet, has publicly stated he is only concerned with hospitalisations and not case numbers, this stance is unlikely to hold up under stress as it is obvious greater case numbers presage greater numbers of hospitalisations.

Initial indications are that Australia while well protected from Delta may be far more susceptible to Omicron due to the population’s previous levels of low infections and lack of booster shots as per the graph below from The Economist indicates. If accurate it would suggest Australia and China will be hit much harder by Omicron that the USA, UK and other European countries that are currently suffering and are increasing restrictions in response.

The question will then become by how much do cases need to be suppressed to prevent the hospital system becoming overloaded and whether this can be achieved simply by measures that have little economic impact such as mask wearing, ones that have moderate impact such as advice to work from home or ones that have greater impact such as lockdowns of hospitality venues and other business closures.  The possible effectiveness of booster shots in reducing transmissibility is also unknown and if booster shots make an impact how quickly can they be administered so that lockdowns can be avoided.

If there are any health restrictions implemented that limit economic activity, then this is likely to lengthen the time before interest rates rise since the purpose of interest rate rises is to stop the economy from over-heating which it won’t be doing if it is being suppressed due to COVID restrictions.  If the economic effects are minimal then there will probably be no change to the current predicted path of interest rates, but if the effects are major then interest rate rises will almost certainly be deferred.

The Australian interest rate outlook will be affected not just by domestic impacts, but also the potential international ones in that if economic activity slows in Europe or the USA then this will push back interest rate rises in these economies that will have a knock-on effect domestically through the exchange rates, overseas demand for Australian exports and the levels of overseas inflation. Possibly the largest potential economic effect and the one of greatest concern is if Omicron enters China and cannot be contained.  Official cases in China are currently stable and running at an average of around 75 a day which is very small within a population of close to 1.5 billion people.  However if lockdowns need to be imposed to contain an explosion of Omicron cases and this stalls the Chinese economy this will have a multiplier effect for Australia as a major trading partner and commodity supplier.

Most of the risks outlined above appear to be skewed towards an extension of the time before interest rates rise in Australia, but an alternative narrative is restrictions imposed to combat the spread of Omicron cause further supply chain disruptions leading to price rises and greater inflation that prompts the RBA to raise interest rates faster than it would do otherwise. Amicus thinks this scenario is unlikely as the RBA has stated it is focused on “sustainable” inflation through wage rises rather than “temporary” inflation caused by supply chain disruptions.  Such a situation may even have the opposite effect in that supply chain disruptions will hinder economic activity which in turn will lead to businesses investing less and hiring fewer workers and therefore putting less pressure to pay higher wages to attract workers thus suppressing wage inflation.

Finally, with the number of COVID variants seen so far, it is clear the virus mutates and will continue to do so and any variants that make it “fitter” in a biological sense being more transmissible (and where appropriate more able to evade vaccines that would otherwise limit its transmissibility) are likely to become dominant. This will occur in the same way the Alpha variant replaced the original strain and then was itself replaced by Delta and now Delta looks as if it is being replaced by Omicron. Whether a new variant will be more deadly is unknown and biologically it could go either way as killing ones host before the host’s immune system kills you is not necessarily an unhelpful characteristic for a virus unless it is a limiting factor on transmissibility. This is because transmissibility is ultimately how the virus keeps surviving longer term by continually finding new hosts and continuing to mutate to become more effective at finding new hosts. The risk of a highly transmissible and far more lethal variant emerging remains which would obviously be a disaster both from a health and economic perspective, but equally a highly transmissible virus that was non-lethal and which gave everyone natural immunity against re-infection could be a blessing. This is broadly the state to which other coronaviruses such as the common cold have eventually evolved.

This last scenario is an “unknown known” or a “known unknown” to use Donald Rumsfeld’s classifications in that it is unknown whether there will be further dominant strains emerge beyond Omicron but if they do it is known they will need to be “fitter” in a biological sense to become dominant or equally it is known that the virus will continue to mutate, but it is unknown what effects of this will be. This level of uncertainty (or confusion) can also be applied to the economic effects and so the possibility of “wildcard” economic impacts due to possible future COVID mutations needs to be considered although to do so is very difficult.

[1] Kirby Institute as reported in the Guardian 15 December 2021

[2] BMJ – How is Vaccination affecting hospital admissions and deaths 20 September 2021 and Petersen- KFF Health Tacker COVID-19 Breakthrough hospitalisations 15 December 2021

[3] Brad Hazzard, Health Minister for NSW on 15 December 2021 as reported in SMH

Payment of all the cash to the ATO is extremely unlikely from what we know.  However, our understanding is that under law, the Liquidator would be personally liable if he had previously paid out monies to creditors leaving insufficient monies remaining to pay any debts owed to the ATO.  The Liquidator is therefore unwilling to expose himself to this personal risk however remote; a not unreasonable position.  Once issued, the Rulings effectively absolve the Liquidator of any responsibility to hold back more monies than the ATO is claiming under the Rulings.

The tax issues are highly complex, but it appears in a practical sense the Liquidator has received favourable indications of the ATO’s position on some of the issues where there is disagreement and unfavourable indications on others.  However, the overall position is hopefully deemed to be an acceptable one such that the Liquidator can accept the ATO Rulings in totality and not continue the dispute.  However, this is not as yet a “done deal” so some caution is still warranted. 

Once the Rulings are issued, the Liquidator will need to go through its own procedures to pay out the final dividend.  This is largely a mechanical process and should take only a few months at most.  The final dividend is therefore forecast to comprise the remaining monies left in the estate less any monies claimed by the ATO under its Rulings (and not disputed by the Liquidator). Our expectation is the Liquidator is unlikely to ask for further claims from creditors to be submitted over the Christmas and January holiday period as part of its own process so assuming issues with the ATO are resolved this calendar year, we expect the Liquidator to start the final dividend declaration process early in 2022.

If you or anyone you know (either an organisation or individual) has not made a claim against the Lehman Brothers Australia estate for any losses occurred through investments in any structured products purchased from Lehman Brothers or its predecessor organisation Grange Securities, now is the time to look to lodge such a claim.  Please do no wait for the Liquidator to call for final claims, but rather act now.  Amicus has helped over thirty different for holders of structured products lodge successful claims and will consider helping any potential claimant regardless of size on a success fee only basis; meaning no downside risk to the claimant if the claim were to be rejected. Our experience is understanding the claims process is key and making a claim yourself or via a law firm that has not made successful claims previously is unlikely to lead to a positive outcome. Please call Amicus if you would like to discuss any aspect of making a claim or if you know of another party who may have a potential claim.