Liquidator invites adverse findings scrutiny

This may be the cautionary tale to top them all.

A registered liquidator, making submissions in respect of costs, has – unwittingly we presume – required a judge of the NSW Supreme Court to consider making adverse findings against him.

The mother of all own goals, scored on the eve of the new year, though we won’t know till after 4:00pm today, earliest.

This tale involves Sydney liquidator David Levi in his role as former administrator of aspiring gold miner Rio Dorado Pty Limited and his efforts to have adjourned the hearing of a winding up application in circumstances where directors had been desperately seeking a deal. iNO makes no suggestion of wrongdoing.

Initially the directors – Terry Cuthbertson, Nicholas Lindsay and the Caymans Islands’-domiciled Gary Mares – were negotiating with a third party to undertake a joint venture to develop the Sabaleta Mining concession, which Rio Dorado controls through shareholdings in two Ecuadorian subsidiaries.

Those negotiations collapsed earlier this year but on October 23, the same day Levi was appointed voluntary administrator (VA) of Rio Dorado – but immediately before the directors’ powers were suspended – the directors executed a share sale agreement with the party with whom they’d been hoping to joint venture.

The share sale agreement and its touted $10 million in proceeds formed the basis for a proposed deed of company arrangement that Levi planned to take to creditors at a second meeting. But first he had to ward off the efforts of one of two note holders intent on having the company wound up.

As iNO’s reported previously, on November 10 Levi’s efforts to have the hearing of the winding up application adjourned so he could prepare a report and convene a second meeting of creditors failed.

NSW Supreme Court judge Ashley Black found too few reasons to justify an adjournment and more than a few reasons why the company might benefit from the appointment of a liquidator.

As is explained In the matter of Rio Dorado Limited [2023] NSWSC 1398 his honour also declined to make an order that Levi be that liquidator.

“I accept that the Administrator has some informational advantage over a newly appointed liquidator, although it seems to me that that advantage is significantly limited by the fact that his (Levi’s) focus has primarily been on a potential Share Sale Agreement, to which I referred above, and the possibility of the DOCA, and it is apparent that he has made very limited, if any, inquiries in identifying the claims which may be available to a liquidator in a liquidation.

“Here, as in Brew Still, it also seems to me that there is reason to think that, where the Administrator had engaged with Rio’s directors, in the period prior to his appointment, over a period of about two months; where he appears to have had at least some engagement with the Share Sale Agreement, which was executed on the day of his appointment; and where issues as to the status of that Share Sale Agreement may now need to be addressed by a liquidator, and investigations of potential claims against Rio’s directors will almost certainly have to be undertaken by a liquidator, then the Administrator’s previous engagement with Rio and its directors is more likely a disadvantage, rather than an advantage.

“I emphasise, in that regard, that I do not form any view that is adverse to the Administrator in respect of his actual impartiality, but this is an area where the appearance of impartiality is also important, and it is preferable that the Administrator not be exposed to any difficulties which may arise in respect of inquiries into the steps taken concerning the entry into the Share Sale Agreement at about the same time as his appointment,” the judge said.

Rio Dorado was formally wound up, Aston Chase principal Ian Niccol was appointed liquidator and the judge ordered that the plaintiff’s costs be costs in the winding up.

But that order as to costs was not to the plaintiff’s liking and through its counsel Michael Rose indicated that it would seek orders requiring Levi and Rio Dorado’s directors to pay its costs personally.

The judge invited submissions on the question from the relevant parties and this week that blew up.

The nature of Levi’s submissions iNO has learned will require the judge to determine matters he wasn’t required to consider when formulating his primary judgment.

Those matters relate to whether or not Justice Black considers that he should make two adverse findings against Levi, an exercise he wouldn’t be undertaking if not for the nature and character of Levi’s submissions.

We understand that Levi’s submissions also stung the directors into action with their lawyers from HWL Ebsworth seeking to counter Levi’s call for the directors to share any personal liability for costs the court might impose upon him.

iNO emailed Levi yesterday seeking comment. No reply was forthcoming by deadline.

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