Jirsch boss in creditor’s sights over DoCA

Bradd Morelli probably wasn’t surprised when served with proceedings aimed at setting aside the LM Futures Pty Ltd Deed of Company Arrangement (DoCA).

The Jirsch Sutherland managing partner had rammed through the DoCA resolution with his casting vote at the virtual second meeting of creditors last year, and those opposed have not forgotten.

Accusations had after all dominated the July 9 second meeting. Accusations regarding the integrity of the deed proponent and sole LM Futures director Lloyd Godfrey; accusations in respect of Godfrey’s capacity to make payments from future trading profits as per the DoCA proposal; accusations around bribery and proxy harvesting; and accusations around the extent of Morelli’s investigations into the company’s affairs.

iNO of course makes no suggestion of wrongdoing. The publicly available meeting Minutes do that, recording a striking degree of dissatisfaction from unrelated parties and the denials and responses of the director and of Morelli in his capacity as chairman at the second meeting, not that the unsecureds’ ire had been absent previously.

At the first meeting in June delegate chairman Tina Battye conceded there appeared to have been “phoenix activity” after a creditor queried why Godfrey had changed the company’s name from LM Projects to LM Structures in February 2024 and a week later incorporated a new entity, also called LM Projects, which took over the business and employees for no discernible consideration and continues to trade.

In the administrators’ report to creditors distributed a week before the second meeting they advised that while no creditor defeating dispositions had been identified, Morelli and joint administrator Emma Mos said that in their opinion the transfer to the new LM Projects could constitute an illegal phoenix transaction.

Battye had also had to dampen creditor suspicions in connection with how Morelli and Mos came to be appointed given Godfrey had approached Jirsch Sutherland on the back of a referral from his mate Kris Lemke.

According to Morelli and Mos’s DIRRI Lemke is a former director of Twin Connect Pty Ltd (Subject
to DoCA) and a former director of TCEMP Pty Ltd (In Liquidation) and Morelli is deed administrator of the former and liquidator of the latter. These creditors however were prepared to view just about anything with incredulity.

The DoCA proposed a return to creditors of around 12 cents in the dollar. The Australian Tax Office (ATO), as the largest unsecured creditor with an admitted proof of almost $450,000, was one of the 23 who voted against the resolution and the value of their claims outweighed the deed’s supporters.

But creditors in favour numbered 30 which was why Morelli was placed in the position of utilising his casting vote and given he’d recommended the DoCA there was no reason for him to vote it down.

The application being brought to terminate the deed and have the company wound up is being driven by a creditor claiming they have evidence that proxies were solicited and paid for ahead of the second meeting.

At the second meeting Godfrey accused the creditor of spreading false and misleading information. He denied paying anyone for their proxy.

Whether the application, which is being run by Lancaster Law can succeed however is an open question.

We understand that while the director has been late paying some instalments the deed administrators have so far not considered the delays fatal.

Nor has an application to the ATO for funding for a winding up been made yet, though Worrells’ Graeme Beattie is in the conversation as a possible liquidator.