Property slump denies receivers a surplus

A year ago it would’ve been a timid receiver indeed who wouldn’t back him or herself to conjure a surplus if given the opportunity to sell apartment 1306 in the record breaking Opera Residences development at Circular Quay.

Further embolden said receiver, or in this case receivers, with hubristic valuations obtained before rate hikes sucked the froth out property prices and you have all the conditions required for the gambler’s instinct to prevail.

Unfortunately like the house, the market always wins and the details of how the receivers’ punt floundered was revealed this week during a hearing of their remuneration application in the NSW Supreme Court.

For creditors of the notorious i-Prosperity Group, which collapsed into liquidation in mid-2020 owing at least $70 million it means they’ll receive no return from the sale of the three bedroom apartment in Bennelong Point’s flashest address, which was the sole asset of Elite Opera Holdings (EOH), a special purpose vehicle incorporated to purchase the apartment in 2016.

Cor Cordis partners Barry Wight and Jeremy Nipps – who’d been appointed as i-Prosperity’s liquidators in mid 2020 – knew monies had been funnelled to EOH from the coffers of those entities to which they’d been appointed to allow the trustee company to pay a $631,000 deposit.

They also knew that if EOH didn’t complete then the deposit would be trousered by Opera Residences’ developer, Macrolink Landream Australia (Macrolink).

But applying to have themselves appointed receivers of EOH held risks from an independence perspective so they instead obtained consents from KordaMentha partners Rahul Goyal and Michael (son of Mark) Korda.

Goyal and Korda were appointed in August 2021 and obtained finance from Macrolink to complete the contract.

In September 2021 Fairfax’s Domain property publication, reporting on sales within the Opera Residences complex, said that “a three-bedroom unit purchased off the plan for $11 million had resold for $13.5 million”.

In December 2021 the receivers’ obtained valuations ahead of a sale campaign and based on those valuations were confident of having a surplus to send the liquidators’ way once the property was sold. That it would seem however, was the point at which their luck soured.

Interest rate rises foster disinterest in high prices, and as NSW Supreme Court judge Ashley Black heard on Monday, that’s what the receivers encountered.

An auction failed to extract an acceptable bid and when the receivers did get a sale away the price was 15 per cent less than that which those bullish valuations from a bygone, negative rate era had forecast.

The court also heard the curious logic that as this had been an “unusual” receivership that that irregularity justified, for reasons not articulated, the attention on the file of smaller group of more senior KordaMentha officers.

This led to one of those unfortunate instances where in taking the risk to engineer a better result, the appointees had succeeded only in ensuring that every cent available would be applied to payment of their own fees and costs.

Despite this justice Black expressed no reservations when approving the application, particularly given the absence of any opposition.

Clearly it shows that the courts will not penalise appointees who roll the dice to try and extract the best possible return, assuming they can justify their efforts and portray themselves as victims of unforeseen circumstance.

Further reading:

Cor Cordis Duo Appoint KM To Preserve Independence