Liquidator forced to appoint bank’s VAs before ousting

Those few independent insolvency firms that operate at the top end of the market – McGrathNicol and KordaMentha specifically – can have a hard time clearing the conflict bar.

Secureds are forever knocking on their doors, begging to avail themselves of their forensic expertise and often they’ll come knocking again once the investigating accountant (IA) reports have been digested, seeking consents so as to formally appoint.

Back in 2017 KordaMentha co-founder and co-owner Mark Korda famously spent months inside the Ten Network before accepting a joint appointment as voluntary administrator (VA) with two of his firm’s partners.

That acceptance precipitated a court challenge which, while not successful in removing the incumbents, saw the curious appointment of a special purpose administrator in the form of KPMG partner Peter Gothard to confirm that there was nothing to see.

In that case, the pre-appointment engagement came to KordaMentha not from the Ten Network but from its legal advisor, Gilbert + Tobin.

Recently iNO came across another situation where KordaMentha’s involvement commenced at the pre-appointment stage, but in this example the results of their internal investigation of the affairs of fashion house The Daily Edit (TDE. Pty Ltd) didn’t just lead to the appointment of two KordaMentha partners as administrators. Following an application to the Federal Court they’re the liquidators too.

So, TDE’s IAs – KordaMentha. VAs – KordaMentha. Liquidators – KordaMentha.

Liquidators? Yes, Kate Conneely and Rahul Goyal are TDE’s administrators and its liquidators, having replaced Chifley Advisory’s principal Gavin Moss who consented to being replaced after TDE’s senior secured creditor the ANZ Bank refused to fund him or the company unless Conneely and Goyal were in control.

Moss was appointed liquidator of TDE on September 30 via a creditors voluntary resolution (CVL) executed by sole director Tania Liu, following a referral from pre-insolvency advisor Andrew Purcell of Rebuild Now Pty Ltd.

According to Conneely and Goyal’s DIRRI, ANZ engaged KordaMentha as IAs on October 19 to review and comment on the financial position and performance of the TDE; on certain transactions the company entered which occurred prior to the appointment of the liquidator on 30 September 2022 and on ANZ’s options along with and any other relevant matters.

It’s likely that the focus of those investigations were the transactions entered into before Moss was appointed and which are referred to in the minutes of the first meeting of creditors chaired by Conneely on November 9.

They reveal that TDE had entered into a business sale agreement with Jazave Investments Pty Ltd, a company incorporated by the director’s father-in-law on July 17, 2022.

Conneely told creditors “the director did not seek prior consent of the secured creditors of the Company, and at the date of appointment of the Administrators, agreements including employee agreements, leases and IP agreements had not been transferred to Jazave but were still sitting with the Company.”

When contacted by iNO yesterday Moss denied that ANZ had pressured him to relinquish the gig but the reality is that the bank wouldn’t fund a sale of the business without the KordaMentha couple installed.

So by a special resolution Moss in his capacity as liquidator resolved to appoint Conneely and Goyal as administrators who could trade the business with while they prepared it for sale.

iNO understands ANZ is bankrolling TDE with a non-recourse loan of $500,000 to keep the company afloat which is a neat way of assuring the administrators they’ll get paid without providing them with personal indemnities, which their DIRRI indicates haven’t been granted.

Once installed as VAs Conneely and Goyal told creditors they would apply to have the liquidation terminated but that’s not how it turned out.

According to orders made in the Federal Court on November 18, Moss was removed as liquidator and the VAs were appointed, jointly and severally in his place.

The orders removing Moss were made in the course of an application for an extension of the convening period for the second meeting to February 2023 so Conneely and Goyal, who did not respond to questions by deadline, have seemingly cleared the conflict bar despite being VAs and liquidators simultaneously.

This story is published for the benefit of iNO Priority holders and must not be shared, copied, reproduced or otherwise distributed without the written permission of the publisher.