Government accused of turning its back on elderly victims of collapsed housing scheme
The federal government is being accused of turning its back on elderly victims of a failed housing scheme that has left them with heavy financial losses and has seen one couple evicted.
Most of the 100 victims of the Sterling First collapse have been excluded from a federal government proposal for a long-awaited compensation scheme for victims of companies that go broke.
Queensland retirees Pam and Michael Hellen said they were devastated to find out they would not be eligible.
“You feel powerless. It’s something that is completely beyond your control,” Mr Hellen said.
Ms Hellen added: “The rest of our years are going to be a big struggle, a big struggle.”
“I really think they need to reassess [the compensation scheme] and just be a little bit more compassionate to the fact that we’re all elderly people,” she said.
The scheme — known as the compensation scheme of last resort — was a key recommendation of the banking royal commission because it would provide a crucial safety net for people who won an ombudsman decision at the Australian Financial Complaints Authority (AFCA) against companies that were unable to pay because they were insolvent.
While the federal government has delayed the scheme’s implementation multiple times, in July it released draft legislation for public consultation.
The scheme will cover financial advice, which accounts for the bulk of unpaid ombudsman determinations, mortgage and finance broking, securities dealing, credit provision and insurance broking.
Compensation will be capped at $150,000 each, far less than what the Australian Financial Complaints Authority currently covers, and be funded by industry.
However, it will exclude managed investment schemes and, therefore, leave out many of the Sterling First victims.
Minister for Financial Services Jane Hume declined to be interviewed, instead issued a statement:
“The compensation scheme of last resort (CSLR) will ensure individuals and small business consumers have confidence that when a dispute is determined in their favour, that compensation will be awarded.
By value, 92 per cent of unpaid … determinations were from financial advice.
For this reason, the CSLR will not include managed investment schemes.
Whether a Sterling Group customer will be covered … will depend on the nature of the relationship and contracts that individual customers entered into.”
Claim backlog piles up
The lengthy delays have resulted in the number of unpaid claims against insolvent companies doubling in the past year, ABC’s 7.30 can reveal.
There are currently 1,300 complaints on hold with the Australian Financial Complaints Authority, which is up from 620 at around the same time last year.
AFCA says it is waiting until legislation for the compensation scheme passes Parliament before it starts considering those complaints.
More than 200 complaints relate to the Sterling Group, including one from Pam and Michael Hellen.
‘Lots of tears’ as couple evicted
The Perth-based company Sterling First marketed its housing brand, Sterling New Life, as the “smart way to retire” and enlisted former star cricketer Mitchell Johnson to front its advertising campaign.
Before its collapse, the Sterling New Life product involved people paying large, up-front sums — usually hundreds of thousands of dollars — to secure long-term leases over properties for up to 40 years.
Elderly customers across the country signed up in droves, paying in total more than $18.5 million.
Most of their money went into a managed investment scheme called the Sterling Income Trust, which was meant to generate returns large enough to cover their rent.
However, in June 2019, the Sterling Group was put into liquidation, leaving customers in a precarious situation.
Lou and Laurie Thomas were evicted from their Sterling home in Perth’s south-east, despite paying more than $240,000 to secure it.
In June, they were forced to move out after losing a Supreme Court case brought by their landlord.
“There were lots of tears, lots of sleepless nights,” Ms Thomas said.
“Lots of me waking up in the middle of the night hearing her crying,” Mr Thomas said.
Another Sterling couple has a case pending before the Supreme Court and could suffer a similar fate.
The Thomases fear they have lost their life savings, which they earned after decades of hard work at a local supermarket.
They are now living in insecure accommodation where they could be asked to leave at any time.
“We’ve still got to try and get our money back. We can’t afford rent for the next 20 years,” Mr Thomas said.
Pam and Michael Hellen are not waiting to be evicted.
They have already paid $210,000 to secure a long-term lease over a Sterling property in south-east Queensland but have stopped paying rent.
They are urgently negotiating with their landlord to stay.
“We’re still here, but we still don’t know for how long,” Mr Hellen said.
“They keep demanding back rent. We will not pay it because, as far as we’re concerned, we paid it because of the substantial amount we’ve already put forward to do just that.”
‘Make sure people get the money they deserve’
In a joint submission to Treasury, nine consumer groups are calling on the Morrison government to reverse its decision to leave out managed investment schemes.
Choice chief executive Alan Kirkland said the Sterling First victims should be included.
“The Sterling First victims are a classic example of people who should be covered by a scheme like this … people who are just honestly going about trying to protect their security in retirement,” he said.
“We’re calling for a scheme, a safety net that doesn’t have gaping holes in it.”
Consumer groups also say the amount of compensation needs to be dramatically increased, in line with AFCA’s cap, and to include funeral expenses policies and debt-management firms.
If the government does not budge, the consumer groups will take their campaign to the Senate crossbench.
“Create a broad scheme that will be fair and make sure that people get the money they deserve,” Mr Kirkland said.
“We will be calling on senators to push back on the government if they don’t fix these holes in this scheme, because this is a once-in-several-decades opportunity to make the system fairer.”
Many Sterling customers challenge the notion that they were investors because some of them allege the managed investment scheme, and its associated risks, were not clearly explained to them, or they had failed to understand them prior to signing up.
They also point to findings of the Federal Court that product disclosure statements given to Sterling customers were defective.
“We were never investors, all we did was try to secure a property for the rest of our lives and by paying the rent upfront,” Ms Hellen claimed.
The Sterling victims have been pressuring the Morrison government to intervene, but state they have received little response.
Labor senator Louise Pratt is pushing for a Senate inquiry and will seek support from the crossbench.
She wants an inquiry to examine the Sterling collapse and the role of the corporate regulator, ASIC.
“There’s still so much we don’t know about the Sterling matter, in terms of where the money’s gone and how the regulator’s enabled this to happen,” Senator Pratt said.
ASIC has been under intense scrutiny over its handling of the Sterling matter.
ASIC pushed for answers
Last year, 7.30 revealed the financial watchdog had received complaints about Sterling’s conduct for years prior to its collapse, which included detailed information from Western Australia’s Consumer Protection Office.
At a parliamentary committee in March, ASIC was pushed for answers.
Senator Pratt asked why, following an earlier crackdown by the regulator, the Sterling Group had been able to set up a new structure called Silverlink and continue signing up customers to Sterling New Life.
Commissioner Cathie Armour admitted millions of dollars were raised without ASIC knowing.
“Another fundraising mechanism was developed, which was through the sale of redeemable preference shares,” Commissioner Armour told the committee.
“That fundraising was not done through documentation that’s required to be lodged with ASIC and, as a result, ASIC wasn’t aware of that fundraising.
“Around $6.8 million was raised before ASIC became aware of that funding mechanism.”
Senator Pratt is also calling for an internal probe conducted by ASIC’s chief legal office into its handling of the Sterling matter to be released publicly.
ASIC has been refusing to do so, citing legal professional privilege.
Ongoing investigations into the Sterling Group are being conducted by the liquidator, KPMG, with funding being provided by ASIC.
The corporate regulator declined to be interviewed because it said its investigation is ongoing, but provided a written statement:
“ASIC acknowledges the significant losses suffered by Sterling New Life tenants who invested in Silverlink preference shares or in the Sterling Income Trust, and understands the significant hardship these losses have caused.
ASIC has attempted to contact 98 of the 101 Sterling New Life tenants to interview them to gather evidence for possible court proceedings.
While a significant number of investors declined to be interviewed, 49 did agree to be interviewed, and others have provided evidence that has been of great value in our ongoing investigation.”
Sterling First founder Ray Jones and his son and former director Ryan Jones declined to be interviewed by 7.30 and did not answer a list of questions put to them, citing legal advice.
In October 2020 Ray Jones told the ABC: “I am heartbroken for the situation … Sterling New Life customers have found themselves in.
“The directors and former directors of the various companies within the group financially heavily supported these companies,” he said.
“Three of the directors have now had to apply for the full old age pension.
“Furthermore one is bankrupt and another is on unemployment benefits.
“All these parties have extreme empathy for all who have been disadvantaged by this disastrous outcome.”
Watch this story on 7.30 on ABC TV and iview.