Allens' Christmas Eve horror

Remembering the fallout from the Adrian Powles affair ... Seasons greetings as Allens faced receivership in 1992-1993 ... Special bail-out arrangements put in place as the Supreme Court obligingly applied a suppression order to the proceedings ... Department of Deja Vu

Adrian Powles: $16.5 million unaccounted forOn Christmas Eve the mood at the Law Society of NSW was grim. The council had just resolved to apply to the Supreme Court for the appointment of a receiver to the Allen Allen & Hemsley trust accounts.

It was the most momentous decision of the society in decades. The appointment of a receiver to one of Australia's biggest and most venerable firms would have further damaged Australia's international business reputation.

But the Law Society felt that it had to get a full and clear picture on just what was happening at Allens.

It had already applied for a receiver to be appointed to the personal and business assets of recent Allens' partner Adrian Powles.

Needless to say, the decision by the Law Society council had a devastating impact on the morale of the firm.

It made for a very anxious little Christmas for the partners.

However, a task force was quickly assembled to start negotiations with the Law Society in the days between Christmas and New Year.

Allens instructed Blake Dawson Waldron who engaged T. Hughes. J.D. Heydon and J. Allsop of the Sydney bar.

Together with six partners of Allens, who included Hugh Jamieson, John Lehane and John Ljubomir Atanaskovic, they approached the Law Society to try and work a way round the appointment of a receiver.

The Law Society executive engaged Brian Thornton from Freehills to act for it and the meter was well and truly on with B. O'Keefe and G. Lindsay also briefed for the society.

The running of the issue from the Law Society's standpoint had really been left to J. Marsden, whose term as president had just expired.

The meeting between representatives of the Law Society, Allens and their legal advisors ultimately resolved that if Allens had the money available to meet any claim from a client the Law Society would stay its application.

The Law Society was assured that there was no possibility of any other irregularity with Allens' clients' money.

The firm undertook to the Law Society to arrange $20 million security to cover any potential claims made by clients whose funds are part of the $16.5 million still unaccounted for as a result of the Powles' transactions.

The $20 million was by means of a line of credit from Westpac and of that sum, $10 million comes from Westpac directly if needed, while an arrangement attached to the other $10 million whereby it is paid back by the partners themselves over 12 months.

These repayments are in the form of deductions from the pay cheques made to the 69 partners and could reduce partners' individual earnings by up to $150,000 in 1993.

No wonder Allens had to put the chopper through 60 solicitors and staff on January 5.

The executive of the Law Society accepted the financial arrangements put in place by the Allens' task force and did not press for a receiver to be appointed to the firm's trust account when it went before Smart J of the Supreme Court.

The court also approved this arrangement on January 8, 1993.

Suppression orders were applied by Smart prohibiting publication of the evidence, proceedings and orders of the court.

Have a press release or two

Following the hearing before Smart J, Allen Allen & Hemsley and the Law Society issued a unique joint statement, which was designed to reassure everyone that harmony and light reigned.

The Law Society doesn't normally lend its imprimatur to a firm not long after the council had resolved to apply for the appointment of a receiver.

Still this was a special case. So much so that the Law Society broke its long-standing rule of not confirming if a firm or a solicitor is the subject of an investigation.

It did this on December 3 when it put out an earlier statement reassuring everyone that an "investigation was limited to the activities of one former partner of the firm".

The joint January 8 statement following the hearing in the court said:

"The President of the Law Society, John Nelson, and the senior partner of law firm Allen Allen & Hemsley, Hugh Jamieson. Today announced that an agreement has been reached on joint steps to deal with the irregularities discovered in the handling of a number of transactions by former Allens' partner A.R. Powles.

Large sums have already been located and are under the control of Allens. Procedures have now been established for the location of missing funds, for the payment of those funds to their true owners and for the handling of any claims that may be made.

Under the agreement between the Law Society and Allens, security in a substantial sum has been provided by Allens to ensure that any properly established claims for compensation will be met.

The procedures have been approved by the Supreme Court. The court's statement is attached."

Smart's unusual statement was quaintly called 15964/1992 – The Law Society v Powles, and said:

"The Supreme Court has approved the extensive and detailed arrangements proposed by the Law Society as to the management of a small number of matters formerly under the control of Mr R.A. Powles where moneys are outstanding. Mr Powles was a partner of Allen Allen & Hemsley. That firm consented to the arrangements.

The full details of the circumstances have yet to be established. The court has still to receive Mr Powles' explanation and makes no comments as to his position.

About $42 million was involved in overseas transactions handled in the firm's London office for two governmental bodies and about $3 million in local transactions. About $28.5 million has been secured as a result of the speedy actions of Allen Allen & Hemsley.

The extensive co-operation between the Law Society and Allen Allen & Hemsley is to continue as action is taken to recover outstanding moneys not yet secured and to deal promptly with any losses and claims. Due to the complexity of some of the transactions and the transfers of money from country to country some of the actions may take time to finalise. Courts of other countries are exercising control over some parts of the matters.

In the approved arrangements Allen Allen & Hemsley may be authorised to act as delegates and be retained as solicitors in the recovery of outstanding moneys. The court approves these arrangements because they are likely to provide the cheapest, most expeditious and an effective means of recovery. Further, the Law Society has full confidence in the firm, which has provided substantial safeguards.

The Law Society intends to ensure that all outstanding moneys which can be recovered are obtained, any pecuniary losses are resolved and all matters concluded as soon as possible.

As further court proceedings will eventuate it is inappropriate for the court to embark upon a more detailed statement. Pursuant to the Legal Profession Act 1987 an order has been made prohibiting publication of the evidence, proceedings and orders of the court."

Of course, if you didn't know about the Christmas Eve resolutions of the council of the Law Society much of these statements would be gobbledegook.

But now we can see these statements in context, which is always preferable.

When your correspondent telephoned Smart's chambers to get a copy of his little attachment to the joint press release his honour passed on the message: "Get it from the registry."

Not the sort of charming treatment Allens would expect, to be sure.

Conspiracy theories run riot

The partners at Allen Allen & Hemsley are livid. They are lashing out in all directions.

Some of them are saying: "Well I never liked Powles. He never came to lunch in the partner's dining room, you know. He had some sort of manic depressive psychosis."

Lovely, isn't it?

The firm has said in a press release that Powles had been shipped off to the psychiatric unit at Royal North Short Hospital.

Some partners also peddled a furphy that Powles had paid a handsome contribution to Richard Ackland's defamation fighting fund in 1984, and that he was even chairman of the fund committee. Consequently, they said, Ackland owed him one and this explained why he was being critical of Allens' management of the affair in Financial Review articles.

Our records for the fighting fund show that we banked a cheque on June 6, 1984 from R.A. and A.K. Powles for $85 to attend the Night of Defamation at Kinselas, and that Allen Allen & Hemsley had also contributed $100 towards the fund with a cheque which presumably was not drawn on the trust account.

Understandably partners are upset because their drawings from the firm this year might will be substantially less in order to refund $10 million in cash to Westpac.

It is highly likely that if all the missing $16.5 million is not recovered then there can be no claim against the fidelity fund.

There could be a number of reasons for this.

The London-based movements of clients' funds, that have been the cause of most of the heartburn, involved currency swap transactions with agencies of Nauru and, it is believed, Croatia.

One view of these transactions is that Powles had instructions for them from the clients and that the funds disappeared as a result of fraudsters in other places. If it was not as a result of Powles' fraud that the money disappeared can the Fidelity Fund fork out? I think not.

Indeed, there must be a view in the firm that Powles was merely negligent, because why else would there be a claim on the firm's own insurers.

Also, if these funds were part of a business deal that had been entered into between Powles and the clients, but outside normal solicitor-client arrangements, then that too would be beyond the brief of the Fidelity Fund to cover.

The 69 partners of the law firm stand to cover the losses. That's why there is so much anger and such a rich concoction of strange theories.

One serious proposition that has been put to us by an Allen's partner was that if Powles was the only one who knew about the trust account in London, then the rest of the partners of the firm cannot be liable for its shortfalls.

As to the local money that went missing, and anything up to $3 million could be involved, this apparently belongs to an elderly client, who is the widow of a client for whom Powles had previously acted.

Kevin McCann: in horse owning partnership with PowlesThe complaint here is that the client was provided with false epitomes of mortgage in an endeavour to show that her investments were in order, while Adrian engaged in a mini-Ponzi scheme.

This had been going on since 1982-83. There is also talk in this context that Adrian was a bit of a gambler.

One of the firm's London cheques has been traced to Ladbrokes, and it is known that Adrian loved the ponies. Indeed, he used to own a horse jointly with fellow partner Kevin McCann, a distinguished Vice President of the Liberal Party.

If gambling was one of the problems then losses on that account could be picked up the Fidelity Fund.

But, there's always a sting in the tail of the Fidelity Fund. If the Law Society council believes that a partner or partners of the firm did not act reasonably or honestly, then the society has a right of subrogation, and can sue to get the money back from the fund.

Allens engaged top notch damage control strategists John Connolly & Partners to help guide them through its troubles.

Possibly a good strategy to account for the disappearance of the clients' funds may have been to hire Neddy Smith to snatch a bag alleged to be crammed with money as Adrian strolled along the Strand.

And then everyone could have lived happily every after.