Townsville-based financial planning group Storm Financial has been placed in voluntary administration after key lender Commonwealth Bank called in a $10 million loan.
Townsville-based financial planning group Storm Financial has been placed in voluntary administration after key lender Commonwealth Bank called in a $10 million loan.
Storm said yesterday it was left with no choice but to enter administration after Commonwealth Bank issued a notice to the group on 8 January, demanding that a loan – believed to be around $10 million – be repaid with 24 hours.
“We were unable to raise the funds in such a short time period and, as a result, the directors of Storm Financial have been forced to appoint administrators,” chief executive and joint managing director Emmanuel Cassimatis said in a statement.
“This is obviously a deeply distressing event and both (wife and co-founder) Julie and myself are devastated.
“Our personal losses are of little consequence to us at this stage; it is the interests of our clients that are at the front of our minds and, given the insolvency issues created by CBA’s extremely aggressive demand, the company was forced to this action.”
But CBA says it issued the notice to Storm on 31 December and the company was fully aware of its obligations.
Worrells Solvency and Forensic Accountants partners Rajendra Khatri and Ivor Worrell have been appointed as administrators.
The administrators have begun a thorough review of the company’s position.
Storm’s collapse places the savings of the company’s 13,000 clients in doubt. The company has grown quickly in the last five years and claimed to have around $4.5 billion in funds under advice. It also had planned a $500 million sharemarket float in 2007, although this was abandoned due to a lack of support from institutional investors.
But the crisis on financial markets hit the company hard, and late last year fund manager Colonial First State (which is owned by CBA) terminated its four Storm-branded index funds and began hitting Storm clients with margin calls.
The relationship between Storm and CBA has deteriorated in recent weeks. On 24 December, Storm went to the Federal Court to apply for an injunction preventing Commonwealth Bank from further communicating with its clients.
Storm argued that letters the bank sent to Storm clients in early December were misleading and may have exacerbated client losses.
Storm Financial’s application also included an application for mandatory corrective advertising, which was dismissed by Justice Greenwood, and the matter is set to return to court this month.
But the judge did say Storm had “demonstrated a sufficient likelihood of success” of proving some of the communication between CBA and Storm clients was “capable of being misleading or deceptive or likely to mislead or deceive”, although Justice Greenwood said the matter would need to be tested at trial.
The Australian Securities and Investments Commission has launched an investigation into Storm and the Financial Planning Association is conducting its own inquiries into the collapse of the company.
The FPA has also a referral service for Storm clients looking for advice.
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See also today’s feature Five lessons from the collapse of Storm Financial
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