When FEG recovery boss Henry Carr walked away from the Federal Court last year licking a fingertip as he peeled bills from the wad he’d won from Jirsch Sutherland pair Malcolm Howell and Liam Bellamy, the losers were likely not in the mood to consider that far from concluding the matter, it was, as Winston Churchill said of the second battle of El Alamein, “the end of the beginning”.
In the aftermath of FEG’s blitzkrieg Howell and Bellamy, who had crossed Carr after mistakenly paying circulating asset proceeds to their appointor Thorn Group instead of to the Commonwealth after FEG bailed out employees of Castel Electronics Pty Ltd, predictably sought indemnification.
Imagine their shock when Thorn said thanks for the $1.7 million but remember that deed of novation you signed transferring the security arrangements to our former subsidiary 1st Cash? Ring them.
The pair subsequently tapped their professional indemnity insurer, which had to cough up $900,000.
The subsequent cluster coitus has been playing out this week in the Federal Court as Howell and Bellamy attempt to pin the burden of indemnification on Thorn Group, Thorn deflects to 1stCash and 1stCash owner Early Pay Pty Ltd points frantically in all directions leading away from itself.
Howell spent some time in the witness box yesterday and this morning being cross examined about the extent of legal advice he and Bellamy obtained prior to choosing to pay the money to Thorn.
Melbourne KC Michael Galvin had suggested to Howell that it would be wise to seek judicial guidance about whether the funds had been realised from circulating or non-circulating assets but it emerged that the receivers were reluctant to incur those costs in circumstances where they weren’t certain they’d be indemnified them for the costs of the application.
Thorn relied on advice from law firm Cornwalls.
The discussions around payment to the secured creditor were taking place several years after Thorn sold 1stCash to Early Pay through a share sale. The court heard that “excluded accounts” of which Castel Electronics was one, stayed with Thorn.
Who ends up holding this incendiary potato is anyone’s guess but the subsequent ruling of Federal Court judge Shaun McElwaine is sure to provide critical insights for security holders, practitioners who accept receivership appointments and their professional indemnity insurers.
Further reading:
FEG prevails in circulating asset stoush
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