Insolvency experts lock horns

A HEATED creditors meeting in Perth last week shone a bright light on the tension between receivers and administrators of failed companies.

There has been a simmering tension between the insolvency experts involved in property developer Luke Saraceni’s Westgem Investments that finally boiled over at the meeting.

KordaMentha partners Mark Mentha and Cliff Rocke and Pitcher Partners’ Bryan Hughes were respectively appointed receivers and administrator of Westgem in January last year.

At the meeting, Norton Rose partner David Porter, acting for KordaMentha, claimed Mr Hughes was in a position of conflict and urged creditors to replace him with Grant Thornton partner Matthew Donnelly.

Mr Porter accused Mr Hughes of being more interested in protecting Mr Saraceni than in securing a return for creditors, describing his investigations into Mr Saraceni’s company as “insufficient” and “deeply flawed.”

A majority of creditors voted to place Westgem into liquidation and to appoint Mr Hughes as liquidator, despite the objections of the receivers.

Mr Hughes in turn accused KordaMentha of accruing Westgem debt in order to increase its voting power in creditor resolutions.

An administrator’s report distributed at the meeting states that KordaMentha provided notice of the assignment of 14 ‘debts’ to itself, totalling $680,000.

“It is extremely unusual, uncommercial, it smells of a sham and it requires additional investigation,” Mr Hughes said.

Mr Saraceni has fought bitterly against the insolvency proceedings against him, launching a $200 million damages claim against Bankwest, the financier and major tenant of the Raine Square project, in the Supreme Court last week for an alleged breach of obligations of his financing agreement.

He claims Bankwest seized control of the development in order to secure favourable tenancy conditions, telling WA Business News last year the bank’s conflict of interest had “blinded rational decision making”.

Lavan Legal partner Alison Robertson said there was often a “natural tension” between administrators and receivers in insolvency matters, a product of their contrasting aims.

“The receivers’ primary obligation is to secured creditors, to sell assets and do whatever they need to do to secure a favourable outcome for them,” Ms Robertson told II.'I Business News.

“On the other side of the coin, the administrator’s job is to ensure a return for unsecured creditors.”

Ms Robertson said it was rare, however, for such disputes to be brought before the courts in the early stages of a receivership.

Representatives of KordaMentha alleged last year that Mr Hughes had a conflict of interest as a result of his extensive dealings with Mr Saraceni, including receiving payment from the same litigation funder, IMF, set to bankroll the property developer’s legal action against Bankwest.

The Supreme Court ruled in favour of Mr Hughes retaining his role earlier this month in response to an attempt by KordaMentha to have a special purpose administrator appointed in his place.

Mr Saraceni had earlier unsuccessfully applied through the courts to have KordaMentha removed as receivers on the basis that their appointment was invalid and unnecessary.

The Supreme Court ordered the return last month of a $1.3 million tax refund that Mr Saraceni withdrew from a Westgem bank account just days before receivers were appointed to the company.

KordaMentha plans to put Raine Square up for sale in 2013, with the asking price believed to be around $500 million.