Catholic asset-stripping coming unstuck
Leaving crumbs for victims didn't work for James Hardie – will it work for the Christian Brothers?
It's standing room only in courtroom eight of the Supreme Court of Victoria on Friday morning, where an audacious plan to limit the cost to the Catholic Church of decades of sexual abuse by some of its worst offfenders is about to collide with state laws designed to keep the church on the hook.
At stake are payouts for decades of victims of abuse at the hands of the Christian Brothers, a lay order – they're not priests – notorious for both the extreme cruelty it meted out to boys at its schools and institutions and for the extreme wealth of their landholdings.
But in a corporate restructuring of the Christian Brothers, likened by furious lawyers and victims' advocates to the infamous gutting of James Hardie, the order has since 2013 spun much of its school land off to another entity, which paid as little as $1 per property.
Its remaining assets have been drained by the pressing weight of sex abuse claims – it is estimated that as many as one in five boys who passed through the Brothers' clutches were abused – and last week it proposed putting seven entities into a scheme of arrangement that, given the order's grim financial situation, would pay creditors much less than 100c in the dollar.
Victims' lawyers know the payouts they secure in court are draining the coffers of formerly rich orders. The Salesians, who are trying to sell a valuable plot of land in Melbourne's north, are said to be the next domino to fall, and there are also whispers the Marist Brothers are in financial trouble.
Proxy advisor Dean Paatsch of Ownership Matters, who has also campaigned for sex abuse victims, estimates that at the current burn rate of $1.7 million per week the Christian Brothers have less than six months – 21 weeks – before they run out of cash.
The order's latest move, piloted by insolvency experts David Hardy and George Georges at scandal-ridden big four consultancy KPMG, caught lawyers for victims by surprise when it emerged last week.
In courtroom eight last week, it became clear the shifting of hundreds of millions of dollars of Christian Brothers assets to related body Edmund Rice Education Australia could be vulnerable to Victoria's Legal Identity of Defendants Act.
Lawyers filled the court for Justice Stephen O'Meara's regular Friday institutional abuse callover list. There were 11 cases on the list, the smaller of two lists happening simultaneously – across the road at the far more modern William Cooper Justice Centre, a judicial registrar whips through 50 cases. There, the cases are further away from trial than the ones before O'Meara.
From the bench, his Honour complained that keeping the list on track is thinning his grey hair. "If there's a problem with the trial date, raise it early, don't raise it late," he warned one set of parties. "Certainly don't raise it on the day of the trial, it leads to judicial Rambo behaviour that we don't like."
One case that has definitely gone off the rails involves two men who are suing the Christian Brothers for abuse. The order has admitted the facts of the abuse and the question of how much the order should pay was supposed to go to trial on Monday, but the date has to be vacated because lawyers for the victims have only just found out about the proposed scheme of arrangement.
Counsel for the abuse victims Tim Hammond, instructed by Laird Macdonald of Rightside Legal, told O'Meara that if the scheme is approved by the Supreme Court of NSW as expected this Thursday, it will automatically stay the trial in Victoria due to provisions in the Corporations Act that shut down litigation against insolvent companies.
Hammond urged the judge to substitute the beneficiary of those $1 transfers – a trust called Edmund Rice Education Australia (EREA) – as the defendant, using a provision in Victorian law designed to overcome the "Ellis defence".
The Ellis defence protected the Catholic Church and church bodies from legal liability because under Australian law these entities lacked what is called "legal personality" – being the ability to sue and be sued. In legal terms, they didn't exist.
EREA, however, definitely exists. It has land and other assets of more than $2 billion, and oversees more than 60 private schools. These include some of the more expensive in the Catholic education system, such as St Kevin's College in Melbourne's Toorak, as well as less pricey offerings like St Bernard's in Essendon (a favourite of footy players and gangsters).
Pointing to the Christian Brothers' dwindling assets and rising sex abuse payouts – it has $216m in remaining assets and paid out $66m to victims last financial year – Hammond told the court KPMG's scheme was "second class" for his clients. "It is clearly not designed to give them like-for-like rights," he said.
Despite his best efforts, Justice O'Meara refused to bring EREA off the bench and into defence. The judge pointed out that EREA wasn't represented at the hearing and that there could be an argument as to whether it was a suitable replacement defendant under Victorian law.
"Just proceeding boldly like Captain Kirk out into the stars is a bit optimistic, isn't it?" he asked Hammond.
But the showdown did produce one major concession from the Christian Brothers' ruling body, the grandly named Oceania Province.
"The province will nominate someone that is both associated with it and has powder and shot to pay," counsel for the order, Stephen Moloney, told the court.
The Salesians are next
Meanwhile, another abuse-riddled order, the Salesians of Don Bosco, is also at death's door financially.
Workers at its Don Bosco Youth Centre, which occupies a massive block of land on Sydney Road in Melbourne's inner-north suburb of Brunswick, have been told the facility won't be operating next year. It's said to be set for redevelopment.
Last year, the Salesians held $100 million in land set to be redeveloped and another $100 million of school land on its balance sheet, though no cash from the land redevelopment is expected until "at least 2027", its accounts said.
But while the land is worth lots, paying the bills – particularly for sex abuse cases – has been draining the Salesians. Cash is flowing out the door at about $10 million a year and its auditor called out the cost of future abuse payouts as a key risk and said there was material uncertainty the order was a going concern.
The order says it is also dependent on the continued support of its lender, another church entity called the Catholic Development Fund, to keep operating.
More broadly, the explosion in abuse claims over the past five years has put the Catholic Church's Australian financial infrastructure under severe pressure.
The Salesians cannot claim on the professional standards insurance policy it long held with Catholic Church Insurance. This is because it traded the policy in for a cash payout from CCI in March 2025 and "assumed direct responsibility for managing and settling future claims", the accounts show. The Salesians didn't respond to a request for comment.
The Christian Brothers appear to be in the same boat when it comes to insurance – their accounts show a large payment of $120 million in 2022 that is described in its accounts as "other income" but is believed to be a similar commutation of their policy.
In any case, CCI is itself in run-off under a scheme administered by Stephen Longley and Martin Ford of Teneo (the home of the former PwC insolvency business) after realising in 2023 that abuse payouts would eventually send it broke.
The insurer is currently paying 100c in the dollar on policy claims, but reserves the right to trigger a "reserving period" where it will pay less as money runs short – an event which Rampart understands may not be far off.
Go-away money
For decades, Catholic Church entities got away with paying little to the victims of paedophile priests and brothers. The intense shame felt by victims meant many cases were never litigated. Cases that were filed were often settled for what victim lawyers nowadays derisively call "go-away money".
And, from 2007, the Ellis defence gave the Church and many other community groups an absolute let-out from paying a cent. But, just as with James Hardie and asbestos, the suffering never went away and the bill came due in the end.
A royal commission into the response of the church and other institutions to abuse was announced by prime minister Julia Gillard in 2012 and by the following year it was underway.
Five years and countless tears later, the commission recommended abolishing the Ellis defence and removing limitation periods preventing victims going to court over abuse that happened decades ago.
Most states now have laws forcing entities that were formerly untouchable to nominate a "proper defendant" – a person or organisation that can be sued and has the financial means to pay any resulting judgments.
No amount of church spending on Corrs Chambers Westgarth partners could stop the resulting torrent of litigation – and payouts that can climb north of $1 million per victim.
It was also too much for Corrs, which dumped the church as a client on abuse cases in 2023, causing partner Richard Leder and his lucrative stream of work to decamp to mid-tier rival Wotton + Kearney. The order is also represented by Colin Biggers & Paisley and Carroll & O'Dea.
Joe Aston
But even as the royal commission process was getting underway, the Christian Brothers were moving assets to EREA.
According to Paatsch's analysis, in 2013 the Christian Brothers moved $85 million in land and buildings to EREA, where due to the magic of revaluation it appeared on the EREA books as worth $352 million. EREA has continued to receive land from the order since.
Land title records show the Christian Brothers transferred at least six pieces of school land in New South Wales to EREA for a dollar each.
On May 7, 2013, it sent EREA the Edmund Rice College in Wollongong and The Pines retreat, just off the main beach at Tuross Heads on the NSW South Coast, for a buck a pop.
St Dominic's in Penrith went over in 2017 while St Patrick's in Strathfield and St Pius X in Chatswood on Sydney's Lower North Shore, were transferred in 2018.
By 2024, EREA's accounts show the value of real estate gifted by the Christian Brothers had swelled to $891 million. This is almost certainly much less than it would fetch if sold, given the general increase in land prices in the meantime.
On Friday, Hammond, for the two men suing the Christian Brothers, told Justice O'Meara the links between the order and EREA were so strong it was "overwhelmingly clear" EREA would qualify as an associated entity, capable of taking the order's place as proper defendant. "And this is simply on the basis of the publicly available documents," he said.
Hammond pointed to provisions in the EREA constitution that allow the head of the Oceania Province to nominate the ruling council of EREA, saying these meant the Christian Brothers had the level of control over it required to make it a suitable proper defendant under Victorian law.
"Our concern is that if they nominate another defendant to be the proper defendant, we're back in the situation we're in now," he said.
Moloney, for the Christian Brothers, accepted that EREA might be a suitable defendant, but said the order's lawyer needed time to go through the paperwork and figure it out.
Justice O'Meara was sceptical. "What does he need to review, honestly?" he asked.
His Honour also asked why the order hadn't considered the issue previously, when cooking up the scheme of arrangement. "There are frequently answered questions which are in great detail about everything else but this," his Honour said.
The judge gave the Christian Brothers until next Tuesday to nominate a proper defendant. If it doesn't, the fight will be had in court.
Rampart put detailed questions to both the Christian Brothers and EREA.
In a statement responding to both sets of questions, the Oceania Province said "the proposed scheme of arrangement and the liquidation scenario are not intended to prevent any future civil claim being brought against Edmund Rice Education Australia (EREA) and or other Catholic institutions by victims and survivors of abuse".
It said the Christian Brothers "requested financial support from EREA, and the broader Catholic Church, however no such support has been provided".
"Under a scheme of arrangement or liquidation, there will be scrutiny of the property transfers to EREA, and the parties involved in those transactions."
"EREA is an independent entity with its own board and governance and owns the properties on which schools are located. These are not owned by the Province or the Province entities, and those properties are not part of the proposed scheme."
Ben Butler
