USGFX Administrator BFI Ferrier Releases a Report to Creditors

​According to the latest news, BRI Ferrier, Special Administrator of Union Standard International Group Pty Limited (“the Company or USG”), has released a creditor report with 53 pages. According to the updated content in the report, there are four aspects that ou need your attention:

The key points of this update are as follows:

Historical Financial Information

1. Balance sheet

The cash position, including clients trust funds, deteriorated significantly from $66M as at 30 June 2019 to $26M as at 30 June 2020, reflective of significant cash outflows due to a combination of factors including reduced trading activity and increased client withdrawals.

The Trade & Other Receivables also includes the balances held in overseas “money processor” accounts totalling $15.6M at 30 June 2020.

Other Assets increased from $182K at 30 June 2018 to $8M at 30 June 2019 and $12M at 30 June 2020.

Client Trust Liabilities declined significantly from $66M as at 31 December 2019 to $5M as at June 2020 as trading volumes declined significantly amplified by client withdrawals.

The Company's records disclose an alleged loan owed to the Shareholder, increasing from $750K as at 30 June 2018 to $5.5M as at 30 June 2019 and $13.5M as at June 2020. However, as mentioned above, our investigations indicate that the funds held in “UPay” may actually be controlled by the Shareholder, and as such, the validity of this loan account is questionable.

During this administration, we have identified there may be significant “investor” claims totalling at least $157M, which have not historically been reported as a liability of the Company, nor any corresponding asset in respect of the “investor” funds.

2. Profit&Loss Statements

The major expenditure item was agents commission, paid to Introductory Brokers (“IB”). The agents commission steadily increased year-on-year relative to sales revenue, from approximately 80% of sales revenue in FY2016 to almost 95% of sales revenue in FY2020, significantly reducing the Company's profit margin.

The insurance expense increased substantially from $166K in FY2019 to $650K in FY2020, which appears to be indicative of the increasing risk profile of the business and expansion of the business operations with the CARs.

The Company's legal expense also increased substantially from $400K in FY2019 to $1.2M in FY2020, as a result of dealing with the legal proceedings with ASIC.

The increasing Client Support expense appears to reflect the growth of the Company's client base. However, in FY2016 and FY2017, the Company incurred significant call centre expenses, which were recorded in Other Expenses, totalling $1.6M and $4.2M respectively. Further, the Company incurred $550K and $1.4M in Back Office Expenses and Website Maintenance in FY2016 and FY2017 that were also recorded in Other Expenses. Accordingly, there appears to have been an overall reduction in client support costs, which appears to relate to the Company entering into service agreements with entities that appear to be associated with the Shareholder.

The increase in Other Expenses in FY2019 relates to the Sheffield United Football Club sponsorship agreement expenses of $14M, which includes an amount of $2M in foreign exchange gains.

The Company generated significant profits from FY2017 to FY 2019, which excludes the associated profit and loss impacts of the substantial historical unreported liabilities form “investor” claims.

Financial Position of the Company

The report gives the financial position information of USG, covering assets, total assets, liabilities,total liabilities and estimated net assert. More detailed information is shown in the below form.

Client Close-out Application

While all trading clients were advised that they were to close out their open positions by 7 August 2020, they could not withdraw funds. All clients were also advised that no further contracts were to be entered into or trading was to occur. Whilst many clients did close their open positions, there were clients who failed to do so.

The Liquidators do not have access to the Company's Platforms to enable them to perform the close out of the open positions, identify those client positions that remain open, or identify the balance of any open client positions. The Liquidators have made extensive attempts to gain access to the Company's trading platform software and servers, including through several applications to the Federal Court of Australia. Despite orders made by the Court, we have been thwarted in that task by the Shareholder of the Company and other related parties. The Liquidators have formed the view that further attempts to gain access to the trading platform software and servers would be futile or not economically justifiable.

When the Company's AFSL was cancelled, ASIC provided limited conditions for the continuation of financial services until 18 December 2020. This included the close-out of open positions. It is our intention to deal with client claims prior to this deadline.

We have therefore formed the view that it is necessary to seek directions from the Court as to how best to deal with any client positions that have not been closed out, including whether the Liquidators are justified in taking no further action in respect of those open positions.

The application is largely complete and is expected to be filed shortly. We will request that the application be heard and determined by the Courts urgently, such that any remaining open client positions can be resolved prior to the 18 December 2020 deadline. We note that we have written to ASIC to inform them of this application and invited their comment or submission.

We also note that if there are delays in this application being heard, we may request ASIC to extend the AFSL cancellation deadline, however it is unlikely that such a request would be granted.

Assessment and Distribution of Trust Monies Application

The Liquidators have identified a number of pools of funds which they consider may have been held by the Company on trust for its clients. Those pools of funds include cash held in designated client accounts at the date of our appointment. The Liquidators have also identified multiple categories of clients which may have an interest in the funds.

It is appropriate that we take a neutral approach in respect of the controversial issues in question in the application, including what pools of funds were in fact held on trust by the Company, from what date the client claims should be assessed, which categories of creditors have claims to the funds held on trust, and in what priority should those funds be distributed to each category of clients.

Using the extracted MT4/5 data set obtained on 6 August 2020 (and opening client data from 8 July 2020), we have been able to identify four main categories of clients, which can be summarised as follows: Trading clients - being those clients of the Company at 8 July 2020 that did not transfer their accounts out of the Company; Transferred clients - being those clients of the Company at 8 July 2020 that elected to transfer their accounts to other USG entities, such as USG Vanuatu; DMA Clients - being clients who invested in equity margin products; Investor clients - are not covered under the Product Disclosure Statement or AFSL.

There could be real credit risks associated with the financial capacity of the Shareholder, USG UK and/or USG Vanuatu to discharge those claims upon withdrawal, given the conduct of the group in the months leading to our appointment and recently. Therefore the investors may, quite reasonably, refuse any form of assignment, and simply pursue their claims in the Liquidation.