Litigation funder battles to stave off insolvency

Given the directors of GT Capital were sucking $30,000 a month out of the company in the form of advances on future dividends, it’s perhaps no wonder that a pair of provisional liquidators are now installed at the litigation funder ahead of a winding up hearing next week.

Add in unpaid bills, investors desperate for redemptions and pending criminal charges aimed at one of the directors in respect of his alleged theft of funds while a director of a separate litigation funder and you have the narrative for a Netflix series.

“Serious allegations were made by each of Mr Turco and Mr Graham as against the other. Each sought to respond to the serious allegations made against them.” Justice Larissa Strk.

The enormity of the imbroglio engulfing GT Capital can be measured by a reading of the judgment of her honour Larissa Strk in M2 Assets Pty Ltd -v- GT Capital Partners Pty Ltd [2022] WASC 331.

The two directors – accountant Mace Turco and lawyer and GT CEO James Graham – have fallen out big time.

In support of his application for the appointment of ProvLiqs Turco alleged that Graham has taken almost $900,000 out of the company presumably without his knowledge or consent.

He also alleged that Graham has been using an American Express (AMEX) card intended to pay for reasonable company expenditures to pay for personal expenses and that more than $50,000 was due and payable on September 7, 2022 and the company had no funds with which to pay.

Graham denied that he had taken any funds from GT Capital to which he was not entitled.

He deposed that as chief executive officer of GT Capital, he was entitled to a salary; that he had contributed a significant amount of capital to GT Capital; and that he had on occasion used his personal accounts to pay GT Capital’s expenses.

Graham also alleged that Turco procured the transfer of $1,128,000 on 1 April 2021 from GT Capital to an account connected to Turco or his company M2 Assets.

M2 is the company which holds Turco’s 20 per cent stake in GT Capital.

According to her honour “Mr Graham deposed that he did not believe that Mr Turco or M2 Assets was entitled to retain those funds.”

Graham also deposed to the court that he expected that the criminal charges against him would be dismissed on the basis he has no case to answer.

While the directors each seek access to the other’s jugular, demands from investors in the special purpose vehicles GT Capital uses to structure its litigation funding arrangements are queuing up, with some alleging that their funds have been intermingled with GT company funds in contravention of the investor agreements.

Despite Graham arguing before her honour that the appointment of ProvLiqs would hinder his ability to raise future capital and impair its ability to complete the five cases it was currently funding, the judge had read and heard enough to decide that intervention was warranted.

“In the circumstances, I was satisfied that a winding up order may be necessary to ensure investor protection or because GT Capital has not carried on its business candidly and in a straightforward manner with the public,” she said.

“It might also be justified to prevent and condemn potential repeated breaches of the law.

“The fact that GT Capital may prove to be solvent would not negate that justification nor be an automatic bar to the appointment of a liquidator on the just and equitable ground,” her honour concluded.

Stepping into the breach were RSM Australia Partners’ Greg Dudley and Jerome Mohen who might find their appointments as ProvLiqs morph to those of general purpose liquidators courtesy of a court order delivered as early as next week.