Court approves liquidators’ decision to disavow

Liquidators who identified claims against directors have persuaded a court to green light their decision to walk away without pursuing the claims, and they’ve made sure the public can’t know why.

“In all the circumstances I accept that it would be just and beneficial to the liquidation process to afford the Liquidators protection against any allegations that might be made that they have acted unreasonably or inappropriately or in breach of their duties in taking their proposed course.” Justice Tim McEvoy.

Deloitte duo Robert Woods and Sal Algeri filed their application in the Federal Court back in April this year seeking the court’s approval to distribute the liquidation fund in the administration of GEM Management Group Pty Ltd (GEM) and finalise the winding up.

Critically, the pair needed the court to approve the orders sought so as to provide protection from liability for their decision to abandon claims they’d identified against the directors for breaches of duty and loss incurred by investors.

A confidential affidavit Woods filed in support of the application explains why the liquidators chose not pursue the claims but no one can access it without leave of the court.

GEM was wound up on the just and equitable ground in 2018 following an application by ASIC.

After a three year investigation the corporate regulator concluded that the individuals controlling the company and underlying trusts were operating an unregistered managed investment scheme.

According to Federal Court judge Tim McEvoy in Algeri, in the matter of Gem Management Group Pty Ltd (in liq) (No 2) [2024] FCA 940 , most of the investors were of the unsophisticated kind and unable to speak much if any English. In other words, sitting ducks.

“The Liquidators’ application for these directions is made in circumstances where the investors are largely unsophisticated and vulnerable,” the judge said.

“They may regard themselves as victims of the Company’s misconduct and feel aggrieved by their losses, and they may not appreciate the reasoning behind the Liquidators’ decision.

“In all the circumstances I accept that it would be just and beneficial to the liquidation process to afford the Liquidators protection against any allegations that might be made that they have acted unreasonably or inappropriately or in breach of their duties in taking their proposed course,” the judge said.

Woods and Algeri were no doubt mindful that some investors might take a dim view of their decision and redirect their resentment away from the scheme promoters who took their money and towards the restructuring and insolvency specialists who got most if not all of it back, hence their request for an order preventing them being put off the hook for their decision.

But as to why they chose not to pursue the claims they identified, well apparently no one can be allowed to know and the judge agreed.

“The Liquidators have explained in the Confidential Affidavit the reasons they have decided not to pursue the Possible Claims, and they have exhibited an opinion they received from senior counsel in that respect.

“I accept that in the circumstances set out in that affidavit and in the opinion from senior counsel, the Liquidators’ decision is reasonable,” he said.

One could understand why they made the choice they did if they’d returned 100 cents in the dollar as their earlier reports to creditors anticipated.

But Justice McEvoy’s judgment gives no indication of the amount to be distributed after the appointee fees and expenses are extracted in circumstances where Deloitte staff would’ve accrued a multitude of billable hours reconstructing the books and records so as to verify who invested and how much.