Mark Korda.
The co-founder of Australia’s most prominent insolvency firm took to the witness box on Monday to explain his role in the 2019 assignment to Cleanaway Waste Management (Cleanaway) of a $60 million debt its rival SKM Group (SKM) owed to the Commonwealth Bank of Australia (CBA).
But as the court heard, even an industry titan’s recollection isn’t immune to the predations of time.
“It’s not an expression I would use. That’s investment banking parlance, not insolvency parlance.” KordaMentha co-founder Mark Korda responding to a question about the strategy known as loan-to-own.
Troubled by a bad cough Mark Korda was appearing in response to examination summonses and notices to produce issued by PKF partners Glenn Franklin and Jason Stone in their capacities as liquidators of SKM.
The PKF pair are investigating the events of 2019, which began in March of that year with CBA engaging KordaMentha (KM) to undertake an Independent Business Review (IBR) of SKM.
The period ended with the CBA agreeing to assign SKM’s debt to rival Cleanaway via a loan-to-own strategy recommended to the Cleanaway board by Korda and 333 Capital CEO Alan Murray on August 12 which called for the appointment of Korda and colleague Bryan Webster as receiver managers.
Although they’ve declined to comment for this story Franklin and Stone appear to be seeking to determine whether any potential breaches of confidentiality KM owed to CBA and SKM as a consequence of its IBR engagement can translate into claims of up to $200 million they can pursue on behalf of SMK’s creditors.
That figure is based on a $240 million valuation of SKM spruiked by Deloitte Corporate Finance, which ran an unsuccessful sale campaign for SKM on behalf its owners shortly after KM completed the IBR in May 2019.
Despite having recourse to extensive email records obtained through notices to produce the liquidators’ interlocutor Mark Hoffmann KC was frequently unable to gain assistance from Korda, who would frequently respond by telling the court that while he couldn’t recall circumstances even when he was one of the parties to the correspondence, this should not be construed as a denial.
Hoffman asked Korda if he knew whether or not the confidentiality protocols that applied to KM staff engaged on the IBR were followed.
“Privilege no,” Korda replied.
The question was prompted by the discovery that a receivership plan former KM director James Bowes drew up as part of the IBR found its way into the slide deck and high level modelling presentation Korda and Murray used to present the debt assignment proposal to the Cleanaway board.
“Did you ask any of persons in the employ of KM or 333 Capital of the sources of information used in the slide decade or the high level model?
“No that I recall,” Korda replied.
Hoffman told the court that the proposals for Cleanaway – Codenamed Project Perisher – “were described as ‘Per Deloitte Model’ and prepared on a confidential basis by Deloitte Corporate Finance for SKM’s owners, the Italiano Family”.
“Did you review this model prior to presenting this information to the Cleanaway board in respect of the proposal to acquire the CBA debt,” Hoffman said?
“Privilege I can’t recall,” Korda replied.
The court heard that as part of the assignment a receivership engagement would be required along with some $6 million in funding. In addition a $500,000 success fee was to be paid by Cleanaway to 333 Capital if the transaction proceeded.
This was subsequently relinquished when Korda and Webster as receivers rightly terminated 333 Capital’s engagement with Cleanaway. Not all conflicts are defensible.
Among the names the court heard were interested in SKM’s assets were Anchorage Capital’s Merrick Howes and Cleanaway boss Vik Bansal, who these days helms Boral as group chief executive and managing director.
But of overriding interest to Franklin and Stone is whether information the KordaMentha team obtained during the confidential IBR process found its way into the extensive buy side dealings various KordaMentha officers had prior to the CBA and Cleanaway concluding the assignment.
The court heard that at the same time as the IBR – codenamed Project Oscar – was underway SKM owners the Italiano family had engaged Deloitte Corporate Finance to run a two prong sales campaign, which during questioning Korda helpfully described as “failed” when confirming he had instructed KM personnel to approach those parties Deloitte had sought to entice.
It all makes the $155,000 fee for the IBR a mere courtesy macaroon, paper weighting the bill for the degustation KM served up on the buy side.
On July 21 SKM director Robert Italiano contacted CBA distressed client specialist Sam Barbagallo, alleging that KordaMentha was actively wooing suitors for SKM.
He sent Barbagallo a screenshot of text messages allegedly from a potential purchaser confirming that KordaMentha had approached them.
So concerned was Barbagallo about KordaMentha having a conflict if the bank chose to appoint them as external administrators that he argued KPMG’s Brendan Richards and Peter McClusky should take the receivership.
The same day Barbagallo rang Craig Shepard who’d led Project Oscar to tell him that the bank was terminating its engagement with KordaMentha.
The court heard that Shepard rejected outright any suggestion that KM had breached its confidentiality obligations in respect of the IBR engagement.
But five days later Mark Korda contacted Barbagallo’s boss, general manager – group credit structuring Mark Wlossak – telling him that Cleanaway was interested.
Wlossak was open to assigning SKM’s debt but wanted an indemnity from the buyer against any possible claims from the Italiano family.
In an email exchange with Korda read in open court Wlossak he said: “Quite concerned about litigation with the Italianos. Said to be quite difficult individuals. Said by some to be rogues.”
iNO makes no suggestion that Wlossak’s characterisation of the Italiano family is accurate.
Within three days Korda had sent Wlossack a receivership plan the liquidators allege was prepared during the course of the IBR which allowed for Korda and Webster to be appointed receiver managers.
A week later Cleanaway entered into an agreement with 333 Capital.
From there the only hurdle was the indemnity, which CBA insisted must cover any and all claims brought by the Italianos or related parties against the bank, commencing from March 15, 2019, the date KM was engaged for the IBR.
Despite the timeline provided by the liquidators’ Korda was unable to recall much if any detail of the events, though he was less restrained when provided the with opportunity to opine.
“It’s not an expression I would use. That’s investment banking parlance, not insolvency parlance,” he told the court when Hoffman asked him about the loan-to-own proposal Cleanaway ultimately adopted.
Loan-to-own was nevertheless used in the slide deck Korda himself took to a presentation to the Cleanaway board.
Korda was asked if Bowes, who’d had day to day carriage of the IBR along with KM senior analyst Natalie Chin, had used information from the IBR or from Deloitte’s information memorandum to inform the loan-to-own stratagem and the receivership plan but Korda couldn’t recall.
“I don’t know what information he used,” Korda replied, not that anyone should infer he was chucking an employee under the bus. Bowes didn’t leave KM until last month and Chin has since ascended to the position of director.
Bowes meanwhile will be given an opportunity to enlighten the liquidators when he takes to the witness box on Friday.
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