Court hears KM trio can’t be DCA ProvLiqs

KordaMentha’s Scott Langdon.
KordaMentha partner
Jennifer Nettleton.

The Federal Court has heard that three KordaMentha partners are in breach of the Corporations Act (The Act) because they consented to be appointed as provisional liquidators (ProvLiqs) of companies, the property of which they already controlled as receiver managers.

Acting for a group of investor/creditors of DCA Capital Pty Ltd and Digital Commodity Assets Pty Ltd (DCA), barrister Hugh Somerville told Federal Court judge Brigitte Markovic yesterday that Scott Langdon, Jennifer Nettleton and John Mouawad had breached Section 532 (2) c (i) of The Act, which says that a person must not consent to be appointed as a liquidator, including as a provisional liquidator “if the person is an officer or employee of the company”.

KordaMentha partner
John Mouawad.

Instructed by Bridges Lawyers, Somerville said the KordaMentha trio were officers of the companies by virtue of their appointments as receiver managers of the property of the DCA entities on April 4, 2024.

He told the court that as receiver managers the KordaMentha trio were disqualified under Section 532 from even consenting to act as ProvLiqs. The three were appointed ProvLiqs by order of the Federal Court on April 10.

Their appointments came about after investor/creditors of the DCA Group Peter Brennan, Melody-Ann Hasse, Marcelle Bernard, PBG Pty Ltd and Broadview Investments Pty Ltd made application on April 4 to appoint receivers managers to the assets and property of the companies and a related fund.

The following day, April 5, DCA director Ashod Ohan Balanian appointed Salea Advisory’s Sule Arnautovic as voluntary administrator (VA) of the companies. Arnautovic subsequently retired as VA on April 10.

But Somerville’s clients are seeking to rely on two sets of winding up proceedings commenced in the NSW Supreme Court against the companies on January 16, 2024.

This he said would preserve an earlier relation back date which was critical because Brennan, one of the plaintiffs in the Federal Court proceedings, allegedly received a payment of $550,000 from the DCA Group in September 2023.

If Somerville’s clients’ application for a winding up order was made the relation back date would extend back six months from January 16, 2024 he said, potentially allowing a liquidator to claw back the half million allegedly paid to Brennan as an unfair preference.

On Monday NSW Supreme Court judge Anthony McGrath declined Somerville’s bid to have the winding up application heard on that day, noting that the applicants wanted Simon Cathro and Andrew Blundell appointed as general purpose liquidators (GPLs).

On Wednesday Justice McGrath transferred the Supreme Court proceedings to the Federal Court. See: In the matter of DCA Capital Pty Ltd; In the matter of Digital Commodity Assets Pty Ltd [2024] NSWSC 407

Justice Markovic similarly declined to hear the winding up application yesterday, having heard that Somerville’s clients don’t want the KordaMentha trio – who intervened in the Supreme Court proceedings on Monday to oppose a winding up that could see them punted in favour Cathro and Blundell – because they see them as the preferred choice of Brennan.

Nor did her honour seemed pleased that a third set of insolvency practitioners was being proposed, telling Somerville she would need to be persuaded “as to why continuity is not appropriate”.

Complicating matters are various freezing, asset preservation and other orders already made by her honour upon the application of the ProvLiqs. If their appointments are found to be invalid then those will be extinguished.

The ProvLiqs have also obtained orders for the issue of examination summonses and for the production of documents. Public examinations of Balanian and former director John Alexander Ellison are already scheduled for May 1 and May 2.

Acting for the ProvLiqs and on instruction from ERA Legal, Ralphed Notely told Justice Markovic that the ProvLiqs opposed the winding up sought by Somerville and that even if the ProvLiqs were in breach of Section 532 the court had power to make curative orders which would validate the appointments.

That however won’t deal with the issue of a relation back date based on the April 5 appointment of the VA that would potentially put the alleged payment to Brennan out of the KordaMentha trio’s reach in circumstances where they consented to act in an application brought by Brennan.

In telling the parties to come back on Friday April 26 – assuming everyone hadn’t already pencilled in a day off – Justice Markovic said she would need to consider the caselaw Somerville had referred to in respect of S 532 and that his clients would need to consider making an application to terminate the provisional liquidation.

That is certain to be opposed by the incumbents, who declined to comment when contacted.

Further reading:

KordaMentha Provliqs intervene to repel rival

1 Comment on "Court hears KM trio can’t be DCA ProvLiqs"

  1. james Johnson | 19 April 2024 at 9:32 am | Reply

    It is forever surprising that people continue to ignore the provisions of s 532 of teh Corporations Act 2001. Absent leave of the Court relevant officers cannot consent or be appointed liquidators of a company. That involves the exercise of judicial discretion by the Court.

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