I asked Andrew Love why the opportunity had not been taken. Of course ASIC says it will play a straight bat and take it one game at a time, but the founders of this company, Peter and Chris Lalor, are looking a bit like their famous ancestor, Peter's namesake, as he waited inside his Eureka stockade 151 years ago listening for the sound of approaching hoofbeats. A serious fire in January 1921 destroyed half of the mine and about 400 men (nearly the entire workforce) were laid off. Unfortunately for them, the Sons of Gwalia administrators have opened a new chapter. The situation is similar for Ross-Adjie, Sons of Gwalia director Thomas Lang and auditor Ernst & Young. When the Lalors left Sons of Gwalia in April last year, a chapter was closed in the company's long history. Sons of Gwalia was Australia's third-largest gold producer and also controlled more than half the world's production of tantalum, before entering administration in August 2004 following a financial collapse. He did, however, reveal that Ernst & Young "from time to time provided services to the company in addition". Just better. When the Lalors left Sons of Gwalia in April last year, a chapter was closed in the company's long history. The mine gave its name to the adjacent town of Gwalia. ASIC, meanwhile, has issued warrants against the pair and after the criticisms levelled at ASIC for going soft on Steve Vizard, it's easy to feel a bit sorry for them. The original, Sons of Gwalia G. M. Co. was formed in 1897 by George William Hall, major investor William Pritchard Morgan and others to own and operate the Sons of Gwalia mine, which had been discovered in March 1896 by prospectors A. Glendinning, Jack Carlson and Frank White, who had named it after the Welsh homeland of the syndicate funder, Coolgardie storekeeper Thomas Tobias. Sons of Gwalia was a Western Australian mining company that mined gold, tantalum, spodumene, lithium and tin. Once the world’s third biggest gold producer, and owner of the historic Leonora mine, Sons of Gwalia, collapsed in 2004 under the weight of $US800 million in debt, heavy hedging losses from complex gold option trading and falling gold reserves. The mining company the Lalors founded in 1981 built its fortune reviving one of WA's most famous mines, the old Sons of Gwalia mine near Leonora, north of Kalgoorlie. All this helped to make the collapse of Sons of Gwalia last year so spectacular. Sons of Gwalia went into administration on 30 August 2004, following a financial collapse, with debts exceeding $800 million after suffering from falling gold reserves and hedging losses. In April, the company’s directors, led by brothers Peter and Chris Lalor, agreed to a landmark $53 million settlement over their role in the … The report says the Lalors' possible breaches include failing to install effective internal controls over the company's treasury operations; failing to supervise those operations; failing to ensure Ross-Adjie abided by the trading limits set by the board; and failing to tell the board how those treasury operations were being conducted. That was best reflected in Peter Lalor's resume. Sons of Gwalia was Australia's third-largest gold producer and also controlled more than half the world's production of … THE administrators' report into the collapse of Sons of Gwalia is an astounding document, detailing many years of stupidity and deception that will provide a welcome outlet for a securities regulator looking to recover its reputation and display its ferocity after the Steve Vizard fiasco. Put options are assets (because you get to a sell at a pre-determined price) but call options are obligations (because the other party has the right to buy). He declined to comment beyond saying that this event forms a significant part of his lawsuit for breach of duty against directors. Hargovan and Harris, ‘Sons of Gwalia and Statutory Debt Subordination’, above n 78; Jason Harris and Anil Hargovan, ‘Sons of Gwalia: Navigating the Line between Membership and Creditor Rights in Corporate Insolvencies’ (2007) 25 Company and Securities Law Journal 7; Hargovan and Harris, ‘Sons of Gwalia: Policy Issues Raised’, above n 94. It is in the nature of the collapse of such companies that many such claims are likely to emerge. Sons of Gwalia Limited was a gold mining company that collapsed in 2004 with over $850 million of debt. Sons of Gwalia. The administrators say an independent expert arrived at the preliminary conclusion that if the proper accounting treatment of the losses arising from the unauthorised trading had been applied, Sons of Gwalia would have reported a loss for the 2000 financial year rather than the $83.6 million profit it announced. Ask the Lalor brothers. With a reputation for conservatism, the Lalors only appeared to become confrontational when stockbrokers put a sell recommendation on their stock or the financial press portrayed Sons of … For example, as at June 2007, some 5,344 shareholder claims had been made in the Sons of Gwalia administration, claiming a total of $250.5 million.9 The administrators of a deed of … Pyramid, Geelong and Countrywide Building Societies in the . Investigating those trading activities led the administrators to believe that executive chairman Peter Lalor and commercial and legal director Chris Lalor were also at fault. September 13, 2004 – Last week Sons of Gwalia, one of Australia’s largest gold mining companies, declared bankruptcy. The claim was brought by Mr Margaretic who purchased shares in the company only 11 days prior to its collapse. MAR-2005: mine purchased from Sons of Gwalia by St Barbara with a 3 year plan to reopen it. The long-running saga of the Sons of Gwalia collapse has reached another milestone with the former mining company's auditor Ernst & Young agreeing to pay $125 million. Quite the same Wikipedia. Ernst & Young - Wikipedia Australian mining company Sons of Gwalia once produced half the world's tantalum but went into administration in 2004. THE administrators' report into the collapse of Sons of Gwalia is an astounding document, detailing many years of stupidity and deception that will provide a welcome outlet for a securities regulator looking to recover its reputation and display its ferocity after the Steve Vizard fiasco. In particular, the administrators say that unauthorised gold and foreign exchange trading activities by Ross-Adjie in the year to June 30, 2000, ended up costing Sons of Gwalia more than $190 million. The directors of Sons of Gwalia appear to have been running a sort of movie-set township, with painted facades of profitability propped up by rickety hedging deals that were destined to fall. Well-known ones include Oroton and Quintis. According to the administrators' report, there was an opportunity in August 1999 to "close out the commitments attached to the (options) for a cost of $74 million that would have left Sons of Gwalia in a significant net positive position from the transactions. Perhaps sometimes that's true, and their failure to smell the smoke coming under the door — as Colin Carter of Boston Consulting Group puts it — is not blameworthy. In addition, the administrators say the Lalors may have breached the corporations law by failing to keep adequate financial records in the six years to 2003; failed to ensure those financial reports complied with accounting standards; failed to meet the stock exchange's continuous disclosure obligations and failed to understand the nature of the financial derivative products being traded and the imprudent financial risk associated with them. This almost always comes up after companies collapse and the auditors complain that too much is expected of them and that they don't have eyes in the back of their heads, you know. Market darling disappears in a year Margaretic alleged that Sons of Gwalia had engaged in misleading or deceptive Leonora Gwalia Historical Museum Ltd. founded which replaced the association. The case involved an examination of section 563A Corporations Act 2001 (Cth) which currently provides: What's more, more losses would have followed. With a reputation for conservatism, the Lalors only appeared to become confrontational when stockbrokers put a sell recommendation on their stock or the press portrayed Sons of Gwalia in a negative light. Over the next few years a new shaft was sunk, but ore grades were decreasing and by 1910 most other mines in the Leonora district had closed. Like their company, the Lalors were steeped in mining history. It is being labeled as an $800 million collapse, but the betting is that the company’s liabilities will top $1 billion when the debt on its balance sheet … When Sons of Gwalia shares traded above $10 in 2001, the Lalors' company had broken into the $1 billion league. Unfortunately for them, the Sons of Gwalia administrators have opened a new chapter. To date, Sons of Gwalia Limited and Ion Limited are the two failed companies where there is a class action that involves shareholders seeking to claim as creditors of the companies in administration.5In June 2007 the administrators of Sons of Gwalia estimated a return of 12 cents in the dollar for all creditors, including shareholder claims of $250 million. 30-AUG-2004: after a financial collapse Sons of Gwalia was insolvent. A federal committee has endorsed a High Court decision related to the collapse of WA miner Sons of Gwalia that allows certain shareholders to rank equally with creditors. The resulting corporate collapse cost Mr Margaretic $26,288. The situation is similar for Ross-Adjie, Sons of Gwalia director Thomas Lang and auditor Ernst & Young. The problems of Sons of Gwalia date back to the same period during which HIH and Enron were sowing the seeds of their destruction, so it is not a test of the new rules covering audit conflicts, but it certainly supports their need. "It is noted that no public announcement was made in respect of the unauthorised trading positions and the potential consequences for the company, Ross-Adjie's suspension by the board or the reasons for it, the trading book losses, the off balance sheet monies or the steps taken by the company to remedy the problem caused by the unauthorised trading.". Sons of Gwalia – proposal to reverse the effect of the decision The High Court decision In 2007 the High Court delivered its decision in Sons of Gwalia Ltd v Margaretic (2007) 231 CLR 160. All went bust with significant market capitalisations and that money evaporated in a day. The High Court determined in Sons of Gwalia Ltd v Margaretic, that a compensation claim by a shareholder against a company was not subordinated by section 563A of the Corporations Act. This went against the commonly understood meaning prior to the High Court’s decision. The little settlement that grew up around the Sons of Gwalia Mine in the late 1890s thrived until the final whistle blew on 28 December 1963, closing the mine and putting 250 men out of work. At least the other Peter Lalor had a stockade. So what did bring Sons of Gwalia down? How sons of Lalor built, then sank, Sons of Gwalia. But perhaps the most astounding thing about the report is that the auditor, Ernst & Young, missed everything. In 1900 work on the Sons of Gwalia mine was completed with a 50-head mill, and production soared to more than 90,000oz of gold. www.alankohler.com mail@alankohler.com, Why did Gwalia fail? After the HIH and Enron collapses there was talk of accounting firms having to divide up into specialist audit and consulting groups in response to the outrage and legislative crackdown over audit conflicts of interest, but it hasn't happened — beyond the hiving off of some insolvency practices. Sons of Gwalia creditors receive payment. Other memorable disappearances include Sons of Gwalia, OneTel, Mirabela Nickel, Babcock & Brown. It is also why the conclusions drawn by the Sons of Gwalia administrators, after almost a year of investigations, are so explosive. Over 67 years, the mine had yielded 2.5 million ounces of gold before its closure in 1963 turned the Gwalia settlement into a ghost town. The founders of the company, Peter and Chris Lalor, have disputed the administrators' version of events, but have not answered the allegations in detail. Sons of Gwalia was Australia's third-largest gold producer and also controlled more than half the world's production of … Essentially the company used a hedging operation that involved selling gold forward using put options. The living ghost town of Gwalia is the doorway to a unique experience of Western Australia’s rich mining history. "At the time the directors considered that the extent of the potential losses threatened the company's existence," the report says. The idea that the deception was too clever and the problems too deeply hidden does not wash because Ferrier Hodgson seems to have found them pretty quickly — and they're just another firm of accountants. The chairman of the Australian Securities and Investment Commission (ASIC) says a report into the collapse of the Perth-based gold mining company, Sons of Gwalia, contains major issues of concern. A reconciliation of the trading accounts revealed Sons of Gwalia was exposed to losses of $125 million. As their Gwalia empire grew over two decades through a series of takeovers and mergers, so too did the stature of the Lalor brothers in the gold industry and the broader community. In yesterday's press briefing the lead administrator, Andrew Love, from Ferrier Hodgson, refused to comment on the role of the auditor, beyond referring to the writ that has been lodged. Sons of Gwalia was a Western Australian mining company that mined gold, tantalum, spodumene, lithium and tin. 23 likes. 29 Jan 2009 . While the report prefaces those claims with the term "may have", they are allegations in the writs issued against the Lalors. The administrators say Ross-Adjie used a series of off balance sheet accounts to house the profits and losses from his gold and foreign exchange trading activities. So there you have it: the old additional services trick; accounting firms using audit as a foot in the door to make real money. Marvel Loch Gold Mine. But in order to get a higher price for the forward sales than would have otherwise been available they also sold call options in excess of the puts. Ernst & Young appears to have merely strolled down main street looking at the nice facades; the firm is now being sued by the administrators for breach of duty. The cliff took a long time to arrive — August 2004, when the company collapsed owing about $1 billion, exactly five years after the option book could have been closed out for $74 million. In Australia, the litigation surrounding the collapse of the . When Sons of Gwalia shares traded above $10 in 2001, the Lalors' company had broken into the $1 billion league. In their report, the administrators say they believe Messrs Ernst & Young may have breached their duty to Sons of Gwalia in six ways: they failed to discover or warn adequately about the conduct of the treasury operations, failed to warn that there were insufficient internal controls over treasury operations, failed to report that the company's books and records were insufficient, failed to detect or warn that trading limits were being exceeded, failed to ensure that gold put and call options were adequately reported in the company's accounts and failed to ensure that the financial statement correctly recorded trading profits and losses in the years ended June 1998 to June 2003. But the Sons of Gwalia administrators' report makes one wonder what is the point of having auditors at all. When the mine re-opened in 1923, there was an influx of people into Gwalia. Brothers Peter and Chris Lalor were not so much part of the mining industry establishment in Perth as they built Sons of Gwalia into one of Australia's biggest gold companies. The combined population of Gwalia and Leonora dropped to just over 1,000. DEC-2003: mine placed in care and maintenance after gold resources were exhausted. He claimed he was a victim of misleading and deceptive conduct violating the Trade Practices Act, the Corporations Act and the Australian Securities and Investments Commission Act. Sons of Gwalia was Australia's third-largest gold producer and also controlled more than half the world's production of tantalum, before entering administration in … Boom to Bust. More calls were sold than puts; it seems the puts were recorded as income but the call options were not publicly recorded at all, probably because they were in excess of what was allowed under the company's debt covenants. Sons of Gwalia was a Western Australian mining company that mined gold, tantalum, spodumene, lithium and tin. Gwalia is a former gold-mining town located 233 kilometres north of Kalgoorlie and 828 kilometres east of Perth in Western Australia's Great Victoria Desert.Today, Gwalia is essentially a ghost town, having been largely deserted since the main source of employment, the Sons of Gwalia gold mine, closed in 1963. The opportunity was not taken …" When the gold price rose above $A500 an ounce, which it did soon after, the company's treasury operations got out of control and the company appeared to have been riding a train with no brakes towards a cliff. Alan Kohler also presents finance on ABC TV news and is the host of ABC TV's Inside Business. He was president of the WA Chamber of Minerals & Energy; inaugural director of the World Gold Council; deputy chairman of the Australian Gold Council and chairman of the Federal Government's Action Agenda into mineral exploration. Born in Narrogin in south-western Western Australia, the brothers were descendants of Peter Lalor, leader of the Eureka Stockade rebellion at the Ballarat goldfields in 1854. Sons of Gwalia went into administration on 30 August 2004, following a financial collapse, with debts exceeding $800 million after suffering from falling gold reserves and hedging losses. Mr Margaretic bought 20,000 shares 11 days before Sons of Gwalia went broke in August 2004. Sons of Gwalia was Australia's third-largest gold producer and also controlled more than half the world's production of … The 185-page report centres on the foreign exchange trading and gold hedging activities undertaken by chief financial officer Eardley Ross-Adjie, which, dating back to the mid 1990s, set the company up for its ultimate downfall. Financial Services. Ernst & Young will undoubtedly have a different version of events that will be put in court, but the administrators are alleging that for five years, year after year, the auditors signed books that had been cooked.
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