If you’re appointed administrator of a company subject to a creditor’s statutory demand and indicate a preparedness to have adjourned the winding up application on foot, it makes sense to turn up with your boxes ticked. Last Friday a court dealt with a practitioner who didn’t.
“At the risk of stating the blindingly obvious if I assume I’m gong to win the lottery I can be generous … but saying it’s a generous deed proposal goes nowhere if there’s no share sale and no DoCA and no deed fund.” NSW Supreme Court judge Ashley Black.
The venue for this administrator’s execution was court 8C of the NSW Supreme Court, where Corporations List judge Ashley Black presides with an approach that might be based on US President Theodore Roosevelt’s foreign policy dictum about speaking softly whilst carrying a big stick.
Despite the administrator filing his adjournment application the day before the winding up application was to be heard his honour resisted the temptation to raise his voice, declaring in a curt murmur that he would hear the adjournment application first.
Seeking that adjournment was Sydney liquidator David “The Rabbi” Levi, acting in his capacity as administrator of Rio Dorado Pty Ltd, a company said to control corporate entities purportedly holding valuable mining concessions in Ecuador.
Supporting Levi’s bid to having the winding up hearing adjourned were Rio Dorado’s directors, including Terry Cuthbertson, Nicholas Lindsay and the colourful, Caymans Islands’-domiciled Gary Mares.
The adjournment was being sought to give Levi time to prepare a report to creditors and allow a second meeting at which a proposed share sale agreement via a Deed of Company Arrangement (DoCA) was to be put to creditors for a vote.
Early on the day of the hearing the judge advised the parties that he required Levi to attend the court in person, as there were “several matters” the judge wished to raise.
Levi was appointed administrator on October 23, well after the winding up proceedings were commenced on July 25 and well after he commenced negotiations with the directors about a possible appointment following a referral in August from HWL Ebsworth partner Alastair Little.
Putting aside the 11th hour application, the big problem Levi had in persuading the judge to agree to adjourn was the near total absence of any information about what returns might look like in a liquidation scenario.
The court heard that Levi had spent his time assessing the proposed share sale, which would realise in excess of $10 million. But there were shall we say, some issues.
Describing the proposal as “generous” Levi’s counsel Martin Rosenblatt detailed how it provided for unsecured creditors to receive 100 cents in the dollar whilst so-called Series II convertible note holders – of which the petitioning creditor was one and Mares the other – would receive repayment of their principal investment plus 45 per cent of their accrued interest.
The share sale agreement – executed by Rio Dorado’s directors on the same day as Levi’s appointment – had come about after a potential joint venture with another party had collapsed.
The court heard that following the termination of the JV proposal the principal of the prospective JV partner had proposed purchasing the assets via a share sale of Rio Dorado and its subsidiaries.
But despite inquiries from Levi the prospective purchaser had refused to provide proof it could complete the sale.
During cross-examination Levi confirmed he had considered terminating the agreement and taken legal advice in respect of such but had not pulled the trigger.
The judge however was more concerned with how an administrator could recommend a DoCA proposal when he hadn’t provided creditors with an estimate of likely recoveries in a liquidation scenario.
This he said was particularly the case given the terms of the Series II Notes which meant Mares, who would be entitled to more than $10 million on his investment given the Notes’ 20 per cent per month interest rate, might be open to investigation in respect of voidable transactions if Rio Dorado was wound up.
“The circumstances of the entry into the Series II Notes subscription warrants serious consideration by a liquidator,” the judge said.
Levi told the court that the counter-factual assessment of potential returns in a liquidation would be provided in his report ahead of the second meeting but his honour was unconvinced.
Dismissing the adjournment application he moved to the hear the winding up application, in which Levi sought to have himself appointed liquidator on the basis, Rosenblatt told the court, that he would have an “informational advantage” over any newly installed appointee.
His honour however saw Levi’s extended involvement with the company and its directors as a potential disadvantage, given the execution of the share sale agreement on the day of his appointment and his “relatively extended” engagement with the directors.
Making the point that he was in no way criticising Levi’s conduct the judge said “the appearance of impartiality is also important and it is necessary that Mr Levi is not exposed to any inquiries that might arise from inquiries into the share sale agreement at the same time as his appointment as administrator”.
Given that and the fact that courts will generally accept the petitioning creditor’s nominated liquidator his honour ordered that Rio Dorado be wound up and Aston Chace principal Ian Niccol be appointed liquidator.
That wasn’t the end of it though with the plaintiff’s barrister Michael Rose indicating his client would seek to have Levi and Rio Dorado’s directors pay its costs.
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Further reading:
The manner in which David Levi is referred by Peter Gosnell as ‘David “The Rabbi” Levi’ are anti semitic, and inappropriate. David Levi.
David, your nickname has been widely known in the industry since you were at PKF and if you’re prepared to provide a cogent and rational argument as to how quotation of your nickname can be construed by any reasonable person as inappropriate or anti-semetic I’ll publish it here. I might also note that you are not known among registered liquidators for having a thin skin.
The Editor.
Peter, referring to a Jewish person, like myself, as ‘David “the Rabbi” Levi’ based solely on religious or cultural background is inappropriate and is offensive. No-one has previously used that language of me. You do not reference or characterise other persons in your article, or generally, by their race religion or beliefs. The manner in which you reference me in your article is anti-semitic; it reflects your own prejudice, discrimination, and sterotyping. David Levi
David, the reference wasn’t on religious or cultural background, as was made clear to you in my previous comment. It’s a nickname and the media is well within its rights to report on such. However I am not at all bothered by your attempts to smear me and mischaracterise the use of your nickname by the advancement of a false premise. Perhaps journalists’ skins are thicker than liquidators.