First Guardian liquidation continues to eat up recovered funds

First Guardian liquidators want to “temper expectations” over the return of funds to investors as the cost of the liquidation continues to pace the amount recovered of the approximately $500 million managed investment scheme.

FTI Consulting, the liquidator for First Guardian responsible entity Falcon Capital, delivered an update on Friday stating total recoveries have reached $6.2 million, while total payments for liquidation and legal fees have been $3.8 million leaving $2.4 million in cash available.

However, there is still $690,000 in unpaid remuneration for the liquidators and $75,000 in disbursements which are yet to be approved by the court. There is also another $785,000 due in legal fees, leaving estimated net cash of $326,000 after expenses.

The liquidators announced last December that only $1.6 million had been recovered, and  a timeline of mid-2027 before distributions would be made to creditors or unitholders, a schedule maintained in the current report.

“Whilst the liquidators’ view regarding a return for creditors and unitholders remains unchanged, the liquidators continue to temper expectations as to the quantum and timing of a return to unitholders and consider that only a partial return of unredeemed funds may eventuate and will take some time, and is heavily dependent on achieving material further asset recoveries,” the report said.

Asset realisation included $370,100 for a Lamborghini Urus; $492,000 for Fox Friday Brewing, one of the alleged pet projects of Falcon Capital director David Anderson ($28.7 million book value); $3 million for Kanun Capital, a 100 per cent property developer with a book value of ($33 million); $91,865 for Archer Cast Capital (book value of $90,000); $14,995 for Kool Global Solutions; and $4,574 for a realised Interactive Brokers portfolio.

First Guardian investors had been expected to recover less than their peers in the Shield Master Fund, due to much of the funds being moved offshore and therefore harder to reclaim.

The report said the liquidation isn’t complete and investigations are ongoing to recover more funds.  

Netwealth has remediated First Guardian investors $100 million, bringing those clients back to their initial starting investment position before being rolled into the fund.

Diversa Trustees and Equity Trustees, each the trustee for multiple platforms holding the fund, are fighting allegations of wrongdoing and due diligence failures in court.

All three trustees have seen additional license conditions imposed by APRA, including an independent review of how high-risk investment products are onboarded.

Netwealth has since updated its terms and conditions to allow it to directly correspond with advisers’ clients without necessarily needing to inform the adviser or licensee, as part of regulator-enforced governance uplift across the wealth platform sector.

Diversa has applied to the government for a $239 million bailout of First Guardian investors, and Equity Trustees is expected to follow suit.

Equity Trustees is also planning to divest its trustee-for-hire business arm, as the government considers banning the trustee-for-hire model.

Investments in Shield and First Guardian grew due to a sophisticated network of lead generators that contacted people who used online “superannuation health check” advertisements before utilising high-pressure sales tactics to refer them to financial advisers.

ASIC acted against the funds over concerns investor money was being misused on high-risk investments, pet projects of directors and personal expenses, leading to the $1 billion collapse of retirement savings.

Financial adviser Ferras Merhi, who ASIC has treated as central to the investigation, is in court over allegations he failed to act in the best interests of clients and had a conflicted relationship with the fund managers.

ASIC has alleged Merhi used marketing companies to push potential clients to his financial advice businesses while receiving nearly $18 million in upfront advice fees and $19 million from entities associated with the funds to market them.

“I don’t talk to anyone from First Guardian anymore, they really upset me in the way that they lied to me,” Merhi told Professional Planner last month.