The creditors of collapsed margin lender Lift Capital are likely to accept a multi-million dollar settlement offer made by its financier, Merrill Lynch, and liquidator McGrathNicol, according to a source familiar with the matter.
The offer, made via a scheme of arrangement, would see creditors returned with unsold securities in full and an estimated 65 cents in the dollar for any remaining claim.
"A lot of the creditors are feeling very frustrated and certainly we think there's a very strong likelihood that this proposed scheme of arrangement will be supported by creditors," the source said.
"Many people who invested with Lift basically want to put this whole episode behind them and get on with investing for their long-term wealth."
When Lift collapsed in April 2008, Merrill Lynch took possession of the $800 million worth of securities that clients held through Lift accounts. Merrill Lynch sold about $650 million of those securities to recoup its secured loan.
Following a series of creditors' meetings, complex lawsuits and an unsuccessful mediation involving creditors of Lift, McGrathNicol and Merrill Lynch struck the settlement offer in November 2009.
Under the proposed resolution, Merrill Lynch would add $10.3 million cash to the $46 million pool of funds currently waiting to be returned to creditors by the liquidator.
The offer would also exclude the claim of Lift's largest creditor, providing another $13 million to creditors and effectively make Merrill Lynch's contribution to the pool $23 million.
Additionally, another $2 million would be added to the pool in the future after the liquidator recovered outstanding client loans. But $3 million would be subtracted from the pool due to future operational expenses, making total funds of $55 million available for distribution to creditors.
However, under the proposed resolution, Lift clients would relinquish any legal claims against Merrill Lynch and the liquidator cannot obtain further recoveries from Merrill Lynch.
"If the proposal is successful, then the general body of creditors won't be able to take further legal action against Merrill Lynch," the source said.
"The only way to recover our assets in full is via commercial litigation, which would take a long time and would involve litigation funders who would take a big slice from any winnings.
"So pragmatically creditors are assessing that while the estimated 65 cents in the dollar isn't a just outcome, it's probably the best outcome available to us under Australian corporate law."
The estimated return of 65 cents in the dollar under the settlement offer is 66 per cent higher than the estimated 39 cents in the dollar if the offer is rejected and Lift was to be completely liquidated.
Creditors will vote on the settlement offer on 22 December. A court hearing for approval of the schemes will be held on 3 February 2010.
