Your property now vests in me as your Trustee in Bankruptcy and is available for division amongst your creditors.
Letter to Alan Bond on the day of his bankruptcy, 14 April 1992
Between 1983 and 1991 Bond and his family spent their way through more than a million dollars every seven weeks. Or roughly what the average Australian earns in a working lifetime. Yet when he was eventually made bankrupt in April 1992 there was virtually nothing to show for it.
The assets that Alan declared in his statement of affairs amounted to an $8,000 Hyundai car, a partly completed ocean racer, three paintings by a minor Australian artist called Strawb O’Brien, around $2,600 in cash and shares, and two loans of questionable worth—one of which was to a trust company that had bought a house for his girlfriend, Tracey Tyler.
So how on earth had it come to this?
Well, the Bond family still had money, of course, and had it by the bucketload. Along with cars, houses, horses, boats, jewellery, paintings, farmland, property and bank accounts with lashings of cash. But Alan had made damn sure that his creditors wouldn’t be able to get their hands on any of it.
Even his personal super fund, with its $2.7 million in investments, had a special clause designed to keep the money safe in the event of his bankruptcy. And the other Bond family assets were locked away in family trusts that couldn’t be cracked.
When it comes to keeping your creditors at bay, there’s no substitute for practice. And few people had had more of that than Alan Bond. He had spent the first twenty years of his business life as a land developer in Perth being chased round town by people wanting payment, and had frequently escaped bankruptcy by the skin of his teeth. Then, in 1974, the Australian property market had gone into free fall as interest rates had rocketed, and he had found himself comprehensively broke.
He had kept his head above water on that occasion because his biggest creditor Citibank had been squeamish about sinking him while he was challenging for the America’s Cup, and because he had fought harder than any other entrepreneur to stay afloat. But he had also engineered his business empire to ensure that his private company would be repaid in full before the banks saw any money, so there had been no great incentive for the banks to put him under.
Bond was already an expert back then in how to keep his own money safe while other people lost theirs. But this close shave in the early seventies had made him put his personal assets even further out of reach. And this was why, in the 1990s, he was so well protected. Back in July 1975, months after the property crash had nearly put him out of business, the Alan Bond Family Trust No 1 had been formed to keep his money safe. Its ‘prime beneficiaries’ were supposedly the Bond children, but Alan and Eileen clearly derived substantial benefit too, because the first asset transferred to it was the Bonds’ vast—and vastly expensive—home on the banks of the Swan River, where the Bonds lived, courtesy of the trust, without paying rent.1
The house, which was a magnificent example of a Perth palace, had been built in the midst of the 1974–75 crisis for around $1.5 million, at Bond’s shareholders’ expense. Laid out on four levels, and standing on six blocks of land, it rose from the Swan River like a huge white fortress. There was a cinema, a squash court, seven bedrooms, ten bathrooms and a ten-car garage. There was marble on the floors, gold on the taps, and Jacuzzis everywhere. In the garden was a resort-sized swimming pool that Bond had added in the late 1980s, which was built round a large sunken bar. The palm trees around it had been flown in from Queensland, with labourers to dig the holes, which had pushed the cost above $1.5 million. By 1992, the pool and the house were worth five times that, or around $7.5 million.
And the house wasn’t even the half of it. By the time of his bankruptcy, the Bond Family Trust No 1 also owned 16,500 hectares of prime farmland at Dandaragan, two hours north of Perth, along with 40,000 sheep and a large herd of beef cattle that went with it. There were also some historic farm buildings and modern feedlots that brought the total value to $11 million or more.
And there was much much more that the family could call its own. There were three Perth restaurants, including the famous Mediterranean, which Alan had bought for his son Craig for $2 million in December 1988; there were four bowling alleys worth around $6 million; and a block of land on Adelaide Terrace in central Perth with great potential for development. There was more land on the river at Dalkeith worth close to $1 million; a huge apartment in West Perth with river views, worth around $850,000; and a string of units in Claremont, owned jointly by his daughter Susanne and wife Eileen, which were worth another $1 million. Then there was Craig’s magnificent waterside home in Brisbane, worth $3 million, and his other son John’s house in swanky Peppermint Grove, worth around $2 million, which John’s wife Gemma owned, and a couple of suburban shopping centres worth $6 million or more, which John had bought. And then there were the cars, the boats, the paintings, the sculptures, some $640,000 worth of furniture belonging to Eileen, and finally the jewellery, which was worth $20 million or more.
In January 1990, Bond gave an interview to a British journalist called Teresa Poole from Britain’s Independent newspaper. Looking fit, healthy, unruffled, and certainly not contrite, despite the billions of dollars that his creditors were seeking, he assured her that he would never be destitute. And provided he kept on good terms with his family, this was undoubtedly the case.2
His fun-loving wife Eileen had hardly earned a dollar in her life. Susanne, his elder daughter, likewise. Younger son Craig had typically lost money when trying to make it, and only John had made anything approaching a million for himself. Yet here they all were with their fingers in a pie worth around $80 million gross and perhaps $70 million net, after borrowings had been netted off.3
Almost all this wealth had been derived from Bond Corporation, which at the time of Bond’s bankruptcy owed some $4,500 million. Most of it had come via Alan Bond’s private company Dallhold, which owed some $520 million. And typically it had flowed through the personal bank accounts of Alan Bond, who owed some $600 million. But thanks to Alan’s lawyers, the vast bulk of this fortune would not be available to creditors because it was held in the name of family members or their trusts.
In 1981, a phalanx of trusts had been set up for the Bond family, with John, Craig, Susanne, Jody and Eileen each acquiring a trading trust, an investment trust, and a trustee company to run them, making a total of ten new trusts in all. Various others were added later to bring the grand total for the Bond family to seventeen. And even though it was Alan’s millions that had been poured into these various entities, the millions were now out of reach of the people who had lost their savings by backing Bond.
To the ordinary person, this may seem like an outrage, especially since Alan had no intention of living like a pauper. But it was hardly news to those who knew anything about the ways of entrepreneurs and high finance.
The famous Costigan Inquiry into the Painters and Dockers Union in 1984 uncovered a whole bunch of bankrupts who kept their assets in trusts or parked them with friends who could later return them. Despite being officially broke, they lived in big houses, drove fast cars, and cruised the coast in flashy yachts, in the knowledge that neither their creditors nor the taxman could ever confiscate the loot.
In an attempt to deal with the problem, the Hawke Labor Government passed tough new legislation in 1988 that gave trustees in bankruptcy far greater power to inquire into who the real owners of the assets were. But while this doubtless made it harder for people to park assets with their mates, it made far less difference where trusts were concerned, because it did not attack the fundamentals of trust law, which dated back to eleventh-century Norman England.
The entirely legitimate purpose of trusts, way back then, was to hold money on behalf of someone who was incompetent to handle it, either because they were too young, too reckless, too stupid, or simply insane. It was to stop money being wasted.
But in modern times, and in the last thirty years in particular, trusts have been adopted by clever lawyers and accountants as the number one way of protecting assets from the taxman and creditors. In fact, the discretionary trust in particular is now de rigueur for cheats, crooks, crims and bankrupt businessmen, because it allows them to hang on to their ill-gotten gains, while denying, quite legally, that they own them.
The legal fiction of such an arrangement is that assets are handed over to an independent trustee who has absolute discretion to pass them on to anyone he or she thinks fit. But in practice, of course, the wealth is not given away to charity. And woe betide the trustee who runs off with it. Typically, there is a ‘letter of wishes’ that gives the trustee a very short list of people to consider when handing out money, and often there is someone they are required to consult beforehand. But once again, the legal fiction is that the trustee is entirely at liberty to ignore advice.4
There is little question that such trusts can make a mockery of the bankruptcy laws, by making it easy for bankrupts and their families to park assets legally out of reach of creditors. But few politicians or public servants would be game to abolish them, since this would involve overturning 800 years of English property law. And many Australian politicians have benefited from the shelter they provide.5
So in the meantime, lawmakers have struggled to find other ways to tackle the problem, either by catching the money as it goes into the trusts, or grabbing it on the way out. And their efforts had an impact on the way in which Bond went bankrupt, or at least on the determination with which he resisted it.
As Bond revealed in his statement of affairs in April 1992, he had indulged in an absolute orgy of gift-giving in the previous six years. Jewellery, paintings, land, restaurants, cars, apartments and cash had rained out of the Bond firmament like manna into the desert. Multi-million-dollar debts had been forgiven with ne’er a cross word. When it was all totted up, Alan had given away $32 million to his family and friends, including $13 million worth of jewellery to his wife Eileen.6
Christmas 1988 had been the climax. At a time when the financial wizards at Lonrho, a UK company that Bond was trying to take over, were suggesting that the Bond Group was insolvent, Alan embarked on a massive spending spree, buying a $350,000 bracelet for his daughter Susanne, lavishing $4.3 million on diamonds for Eileen, and throwing in a brand new Bentley Turbo for her Christmas stocking. The following week, he forked out another $300,000 in cash, and couldn’t even remember whom he had paid it to.
The bankruptcy laws, as they stood in the early 1990s, allowed creditors to claw back gifts like these, but only if the debtor had made them in the two years before bankruptcy. In Bond’s case, this meant anything he’d given away after 14 April 1990. But by an extraordinary stroke of luck, his great glut of giving had come to an abrupt halt exactly one month before that.
It seemed like a remarkable coincidence that Alan had given away his fortune just in time. And so unlucky for his creditors. But it was really no such thing, because Bond had fought like mad to delay his bankruptcy, so that these gifts would not be clawed back, and had succeeded in keeping the bailiffs at bay for more than a year.
The process of sending him broke began officially in March 1991, and would normally have been complete by June or July, but Bond’s lawyers managed to spin out the process so that it was not until 26 September 1991 that the first bankruptcy notice was issued. And this only marked the start of the fun and games.
Over in Perth, a process server called Kevin Munns was given the job of finding Bond and handing him the papers. He called Bond’s solicitors and offered to serve them by appointment, so it could all be done quietly and without fuss, but he was told he would have to catch Bond himself.
Munns had no idea, of course, that Alan had good reason to avoid him. Or should one say five million good reasons. For the Bond family would hang on to another $5 million if Alan could stave off bankruptcy for another six months.