New Opes Prime drama

The Opes Prime story just gets messier. Today’s Australian Financial Review reports that the administrator of Opes Prime, Ferrier Hodgson, is investigating whether Merrill Lynch should be stripped of its status as a secured creditor of the failed broker.

The investigation comes amid claims that Merrill Lynch failed to register a $2 billion charge over the stockbroker’s assets. According to the report, Merrill Lynch took a charge over Opes Prime in March, giving it first rights for up to $2 billion of Opes Prime’s assets. But the charge may be declared void because it was not registered until 28 March, the day after the receivers were appointed.

Merrill Lynch seized and sold $603 million of shares formerly owned by Opes Prime to recover a $500 million loan it made to the broker. ANZ is in the process of selling another parcel of shares to recover around $650 million.

Because Merrill Lynch’s charge was made at the same time Opes Prime was declared insolvent, the shares seized by Merrill could be categorised as an “unfair preference payment”. Such payments are not allowed under insolvency laws, which seek to keep all creditors on a level playing field.

The Merrill Lynch investigation comes as the Federal Court in Melbourne hears a landmark test case between Beaconwood Securities and ANZ Banking Group. The case, before Justice Ray Finkelstein, will test whether shares used by Opes Prime clients as security for margin loans were effectively transferred to Opes financiers, including Merrill Lynch and ANZ.