KordaMentha’s and CBA’s Cleanaway conflict stink

Questions of conflict and confidentiality are at the heart of a $200 million claim being pursued by the liquidators of recycler SKM Group, after its assets were scooped up in 2019 by rival Cleanaway in a malodorous loan-to-own finagle now under the microscope courtesy of public examinations.

Assisting Cleanaway in respect of the acquisition was KordaMentha. The court heard yesterday that the advisory firm charged Cleanaway $158,000 in relation to the transaction which the Cleanaway board approved in August 2019.

But in February 2019 KordaMentha had been engaged by the Commonwealth Bank of Australia (CBA) to undertake an Independent Business Review (IBR) of SKM after its file found its way into CBA’s bad bank division after multiple setbacks choked cashflows.

The court heard today that whilst KordaMentha had produced an IBR Report utilising confidential information belonging to the bank and SKM Group, it had also been approaching potential acquirers in breach of the confidentiality conditions attaching to its engagement to undertake the review.

Examinee and former CBA distressed client specialist Sam Barbagallo told the court that the bank was so concerned about potential litigation from SKM’s owners the Italiano family in respect of perceptions of conflict that it insisted Cleanaway provide it with an indemnity sufficient to cover any such claims.

In exchange Cleanaway would acquire the $60 million debt SKM owed to CBA at par and as part of the loan-to-own strategy KordaMentha’s Mark Korda and Bryan Webster were to be appointed as receiver managers of the SKM Assets, which they ultimately were.

Barbagallo told the court he was so concerned about the conflict issue that he wanted practitioners from KMPG appointed.

But Mark Korda held an ace in the form of his friendship with CBA’s then general manager – group credit structuring Mark Wlossack – and the deal got done.

Barbagallo also told the court that when he raised his concerns with KordaMentha executive director Craig Shepard about the alleged use by KordaMentha of confidential information obtained during the IBR engagement to attract potential purchasers Shepherd denied it absolutely. Shepard’s boss will get to deny it on Monday, when Mark Korda’s due in the witness box to be examined by lawyers acting for SKM liquidators Glenn Franklin and Jason Stone of PKF.