A CLOSE reading of last week's historic $53 million settlement between failed miner Sons of Gwalia's administrators and its former directors indicates that the final payout may be less than the headline figure.
A CLOSE reading of last week's historic $53 million settlement between failed miner Sons of Gwalia's administrators and its former directors indicates that the final payout may be less than the headline figure.
The negotiated settlement occurred nearly seven years after the miner's collapse and five years after the administrators commenced legal action against the former directors and the company's former auditor Ernst & Young.
Most of the settlement money is coming from the directors' insurers, which have agreed to pay the full amount of available cover, $49.8 million.
The biggest contributor is American International Group, the giant insurer rescued by US taxpayers last September. AIG will contribute $30 million and the balance is coming from two Lloyd's syndicates.
The four directors - company founders Peter and Chris Lalor, finance director Eardley Ross-Adjie and audit committee chairman Thomas Lang - will contribute $3.05 million without any admissions.
Of the total amount, about $50 million will be paid into a settlement trust.
The former directors can use up to $20 million to pay defence costs for any legal action taken against them by the Australian Securities and Investments Commission or other parties, "or the claim for contribution made by Ernst & Young against the directors".
"If that amount is expended in defence costs, it will not be available to SOG," the administrators' report says.
"It is anticipated that SOG will receive at least the balance of approximately $30 million ... at an undetermined future date".
The report discloses that EY has commenced legal proceedings against the directors, seeking to have the directors contribute to any judgement against EY.
The directors can claim approximately $30 million to cover such a contribution, which the administrators say will flow back to SOG anyway.
The administrators' claims against the directors exceeded $200 million. Their claims against EY total more than $1 billion.
The initial settlement gives the administrators capacity to pursue their claim against EY, but they have left the door open for a settlement.
"At this stage in the proceedings, the deed administrators have not formed a view on an appropriate settlement amount," the report says.
"However settlements often require substantial compromise on all sides. A significant discount may be appropriate for a timely, advantageous settlement."
Creditors will be asked to approve the settlement with the directors at meetings on May 13 2009.
The administrators are Ferrier Hodgson partners Garry Trevor, Andrew Love and Darren Weaver.
