Financial services firm Prosperity Advisers in administration after battle with insurer

Editor’s note: This article was published in 2010 and the company is no longer in administration. 

Newcastle-based financial services firm Prosperity Advisers has been placed in the hands of administrators after the company became involved in a battle with its former professional indemnity insurer over legal claims from dissatisfied investors.

Prosperity Advisers, which was founded in 2002 by Allan McKeown, has offices in Sydney and Brisbane, employing about 150 staff across the three offices.

However, McKeown had confirmed this morning to SmartCompany that the Sydney and Brisbane offices are not affected by the appointment of administrators to the Newcastle-based company.

McKeown says the dispute with Prosperity’s former professional indemnity insurer relates to advice given to Prosperity clients back in 2004-05. Some investors lost money after following this advice, and a group of investors made claims against Prosperity.

The firm then referred these claims to its professional indemnity insurer, a company called Dexta.

“Despite initially telling us we had cover and preparing to settle those claims, they suddenly advises they had withdrawn cover on what we believe is a technicality,” McKeown told SmartCompany this morning.

Prosperity paid the claims of the dissatisfied investors and then in late 2009 the firm launched legal action in the NSW Supreme Court to recoup these payments.

However, this legal fight will take some time to run its course, leaving Prosperity in McKeown describes as an “invidious” position.

“It’s a lengthy and very slow process unfortunately,” he says.

The business will continue to operate and McKeown is hopeful the firm can emerge from administration with its staff and client base intact.

“We’ve been in regular contact with our clients and they’ve been incredibly supportive of the position we’re in.”

While the insurance claim fight will take some months to resolve, McKeown hopes to stabilise the business in a matter of weeks.

The company’s administrator, Michael Smith of accounting firm Smith Hancock, advertised the business for sale this morning, as part of his standard administration process.

He says it is too early to judge the likely level of interest in the business at this early stage although Smith says it remains a possibility that the directors of the company will attempt to regain control via a deed of company arrangement.

A first meeting of creditors will take place in Newcastle on Friday.