GSI directors under investigation

The news comes as directors of GSI are set to appear in court to answer questions about liability in February.

On July 19, 2013, GSI placed a freeze on trading and its 3800 account holders were left with no access to their funds with many accounts individual's superannuation funds.

Since September 2013, GSI has been in receivership, under the stewardship of Ernst & Young's Adam Nikitins and Simon Cathro.

They moved quickly to realise GSI's assets, in an effort to return funds to account holders.

To date, account (also known as note) holders have received 85 cents in the dollar.

"I believe we will achieve a return of 87-92c in the dollar," Mr Nikitins told Stock & Land this week.

"Until accounts were frozen by its directors in July 2013, GSI managed an investment portfolio of about $143 million.

"There will be a further, possible final, payment to account holders as funds from final asset sales are realised in the next few months.

Farmers and other self-employed people have been affected, along with retirees and a range of community groups which had invested in GSI.

"A lot of people had their life savings in GSI, so there's always going to be a degree of disappointment in the settlement, given they won't receive 100 per cent back," Mr Nikitins said.

This week the settlement of a sale of industrial land at Warragul was completed and further settlements of a massive land auction, held at Metung in February last year, will be completed in coming weeks.

Mr Nikitins also said settlement of a sale of waterfront properties at Paynesville to be completed in April. A shares portfolio held by GSI has also been divested and the loan book was sold in March last year to Deutsche Bank AG.

"The only other asset left to realise is the outcome of the realisation of our proof of debt against Lehman Bros," Mr Nikitins said.

"I hope we'll know something in four to six weeks, but I'm not in control of the liquidation of Lehman Bros."

Mr Nikitins was referring to an Australian class action against Lehman Bros, a United States investment bank that collapsed in September 2008, at the beginning of the global financial crisis.

"If the claim is admitted, the only other avenues of recovery we have are against the auditor and directors for misconduct – deliberate, negligent or otherwise," Mr Nikitins said.

On December 18 last year, ASIC announced it had deregistered GSI auditor, Joanne Keng Yee Loh of Morwell, Victoria. Ms Loh was the lead auditor responsible for the audits of GSI for the 2011 and 2012 financial years.

"Ms Loh failed to properly carry out her work as auditor," ASIC Commissioner John Price said.

"Auditors need to be at the top of their game and apply the appropriate standards to ensure that the investing public can have confidence in the financial reports of public companies and debenture issuers.

ASIC formed the view that, among other things, Ms Loh failed to obtain sufficient appropriate audit evidence to reduce the risk of material mis-statement in the financial reports to an acceptably low level and failed to display an appropriate level of professional scepticism when auditing the provision for impairment of loans receivable and when assessing related party transactions and GSI's ability to continue as a going concern.

"We undertook public examination of the auditor in December," Mr Nikitins said.

"Our barrister had a day of cross-examination of the auditor and we got some useful insights into the reasons and directions behind some of the auditor's actions.

"We are now waiting for our barrister's written advice about the prospects of a successful claim against the auditor.

"However, we also got useful information from her that we will use in prosecuting public examination of the directors of GSI in the Supreme Court in February and March.

"We will undertake public examination of the directors to gather information and make a fully informed decision about undertaking recovery action against the directors."