Liquidating liquidators?

On several occasions during my years in private legal practice, I observed the phenomenon of a company liquidator and his solicitors whose main goal appeared to be transferring the company’s assets into their respective office accounts as quickly as possible.

Of course, it’s one thing to apprehend or suspect such a motivation, and quite another to allege it publicly in a specific case, let alone prove it.   That’s why I was fascinated to read the decision in Melbourne University Student Union Inc (in liq) v Ray and others, decided last  week in the Supreme Court of Victoria.   The case concerned attempts by the MUSU liquidator Dean McVeigh  to seek an injunction to restrain an alleged contempt of court on the part of Benjamin Cass,  the former President of MUSU.   Cass’s alleged contempt consisted of (supposedly) attempting to intimidate the liquidator into settling  claims against Cass and others on favourable terms.   Cass’s intimidatory acts were to make a series of inflammatory allegations against McVeigh, both in a circular letter to MUSU creditors and on Cass’s blog called Make McVeigh Pay.

Cass’s allegations included claims that McVeigh was  a “crook”, “incompetent” and “less concerned about creditors than he is about the financial benefit of himself and his lawyers”.

The remarkable thing about the case is that the judge, Justice Hollingworth, seems to think at least the last of those claims is pretty fair and reasonable on the factual material before her!

The liquidator seeks to prevent the publication of any allegation that he is not or was not interested in achieving a financial return for MUSU creditors.

In a circular to creditors dated 16 December 2005, regarding “The Man Who Stole Christmas”, Mr Cass made various assertions including the following: that the MUSU liquidation involved “schemes, the rorts and the gross mismanagement” and had gone “from bad to worse”; that the Madgwicks partner, Mr Levy, was Mr McVeigh’s “Partner-in-Crime” in spending millions of dollars on fees; that Mr McVeigh’s conduct was under investigation by “a number of MPs”; that Mr McVeigh is incompetent; and that Mr McVeigh is not interested in maximising the financial return for creditors.

Enclosed with the circular was a copy of the liquidator’s Form 524 report to ASIC dated 5 September 2005, annotated with Mr Cass’s comments. The ASIC report showed that the liquidator had received amounts totalling about $5.28M, made payments totalling about $4.65M, had about $628,000 available but not distributed out of which he would be claiming about $495,000 for his own fees and expenses, and had received proofs of debt totalling about $4.48M. Next to those items, Mr Cass made comments such as: “McVeigh spends $4M. This is how much money McVeigh has paid out during the liquidation. Most of it went to lawyers and other professional hangers on.” and “Only $600K left! This is how much money McVeigh had left as at 5 September 2005. Remember creditors haven’t been paid yet!” Next to an item showing contingent assets estimated to produce $2M, Mr Cass had written “Only $2M from court cases? This is how much McVeigh reckons he will get out of suing bankrupts, near bankrupts, insolvent companies and 20 year olds!” The enclosure ends with the following words: “Creditors deserve better. Sack McVeigh now: Pay creditors what little is left.”

Mr Cass has made allegations on his website to a similar effect, namely that Mr McVeigh is less concerned about creditors than he is about the financial benefit of himself and his lawyers.

Mr Cass’s statements clearly give the impression that Mr McVeigh is not discharging his duties to creditors. The liquidator’s counsel conceded that it was not improper for Mr Cass to express an opinion about whether or not the liquidation has been handled competently. However, he sought to draw a distinction between alleging that Mr McVeigh is incompetent and alleging that Mr McVeigh is not, or was not, interested in achieving a financial return for MUSU creditors. The distinction does not seem to have merit to me.

These particular comments by Mr Cass appear to be reasonable and factually based, as far as the material before me is concerned. It is difficult to see how they might have the relevant tendency. As far as the balance of convenience is concerned, if Mr McVeigh has a simple explanation for the figures in the ASIC return, no doubt he can give it to the creditors and others interested in the MUSU liquidation.

Not surprisingly in the circumstances, Hollingworth J declined to grant an injunction to the liquidator.

I should emphasise that neither the merits of Cass’s claims nor those of the liquidator against Cass and others (including another right wing  “bovver boy” blogger named Andrew Landeryou) have been substantively determined.   A judge on an injunction application is  merely determining whether there is a “serious question to be tried” and where the “balance of convenience” lies as to whether an injunction ought to be granted until trial (in this case to restrain Cass from continuing to publish derogatory comments about the liquidator on his blog and to MUSU creditors directly).

Moreover, there is another possibly salient fact:

The plaintiff justifies having commenced this litigation by asserting that $1M[illion] had gone overseas through the tenth defendant, Marbain Pty Ltd, a company controlled by Mr Landeryou and Mr Cass, but now in liquidation.

The judgment doesn’t explain whether the liquidator alleges that this $1 million was unlawfully appropriated by Cass and Landeryou’s company  from MUSU, or what happened to it after it was shipped overseas, or what prospects (if any) there might now be of recovery.   We can’t therefore eliminate the possibility that Cass and Landeryou are indeed attempting to create an elaborate smokescreen to coerce or bluff the liquidator into settling so that efforts to trace the allegedly missing $1 million are discontinued.   The judgment seems implicitly to assume that the $1 million (if it ever existed) is irrecoverable, but no clear explanation is given.

In more general terms, this case brings into sharp focus the whole area of corporate liquidations.   Leaving aside the specific facts of this case, I’ve always thought that there is a massive conflict between a company liquidator’s duty to maximise recovery in the interests of creditors (and in rare cases, shareholders) and the liquidator’s self-interest in maximising his own  fees.   Of course, that conflict exists for lawyers as well in matters generally.   But lawyers are subject to the inherent discipline of having a client who will usually be reasonably diligent in ensuring that  he isn’t charged utterly  exorbitant fees, and clients can always insist on having their lawyer’s bill “taxed” by the Supreme Court.

Company liquidators generally don’t have a client in any meaningful sense, at least not one with any  real vested interest in ensuring that the liquidator doesn’t overcharge or pursue  unlikely avenues of possible recovery mostly in order to maximise fee income.   Generally the  company’s shareholders have no expectation of ever recovering anything in the liquidation and therefore don’t give a stuff what the liquidator does; the directors are inherently suspect because they were the people who sent the  company broke in the first place; and very commonly no single creditor is owed a large enough sum to create a  strong vested interest in closely overseeing the liquidator’s activities.  

Moreover, creditors commonly  (and mostly correctly) assume that they have little or no chance of ever seeing a substantial payment from the liquidator, and so are reluctant to throw good money after bad by paying lawyers to scrutinise the liquidator’s conduct.   And, even in the rare case where someone does bother to attempt to make the liquidator accountable, he only has to justify his fees before a Supreme Court or Federal Court Master or Registrar, who is invariably a lawyer with at best a hazy idea of what an accountant/liquidator actually does and how long it should take to do it.

I’m not in any sense suggesting that all or even  most liquidators are  crooks or incompetent  or more interested in enriching themselves than recovering money for creditors.   But I have no doubt that such liquidators exist, and the current system contains few real safeguards against abuse.

Given the lack of any effective market forces/disciplines, I’ve always thought that there is a strong case to be made for liquidations to be  handled by a specially created division of ASIC rather than by private sector accountants.   Maybe it’s my residual socialist instincts, but I’d be pretty certain that the cost of  insolvency administration would drop dramatically with little or no reduction in the effectiveness of recovery for creditors.   I’d be most interested in reader reactions, especially from the legal eagles amongst the Troppo readership. This isn’t in any sense my area of  professional specialisation, so I’m qute prepared to be told that  I don’t know what I’m talking about.   But it’s at least worth discussing, I think.

About Ken Parish

Ken Parish is a legal academic, with research areas in public law (constitutional and administrative law), civil procedure and teaching & learning theory and practice. He has been a legal academic for almost 20 years. Before that he ran a legal practice in Darwin for 15 years and was a Member of the NT Legislative Assembly for almost 4 years in the early 1990s.
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Chris Lloyd
Chris Lloyd
15 years ago

I had always assumed, apparently wrongly, that administrators were appointed by some government body and were at arms length from the remaining swill in the trough. Silly me! Are you saying they are appointed by the board who sunk the company!?

qm
qm
15 years ago

Snap. Your post summarises my thesis topic (at least in relation to voluntary administrations). Thanks for the ideas – will attend to stealing them. Or at least “informing my thinking”.

meika
15 years ago

Locally there is a Liquator whose single minded and passionate pursuit of money is such that his own mother is reputed to have said to her daughter, “What have I done to deserve him.?” in tears.

Power corrupts. Absolute power attracts the absolutely corruptible.

In my limted experience they definitely need sorting out, their vague status as officers of the court is not good enough to redeem them currently. Excellent post.

Nicholas Gruen
Admin
15 years ago

Thx for the post Ken.

Patrick
Patrick
15 years ago

In France that is the case, but all part of a much more draconian insolvency system where, among other things, it was revolutionary when the Cour de Cassation decided a couple of years ago that you could sack people in anticipation of financial difficulties and not only after registering as potentially insolvent.

Obviously, ours works best for large companies with well-heeled creditors. After all the genius of our law is the efficient harnessing of individual self-interest as a proxy for ‘fairness’. In any situation where there is no effectively counter-weighting self-interest, I’d agree that there is a prima facie problem.

One possible cure? Contingency fees for suing them – but again, the actual amounts are often not going to interest lawyers. Another would be making the first creditor’s meeting compulsorily appoint a new liquidator in small liquidations, and pay a fixed statutory amount to the provisional liquidator who first takes over. It loses on efficiency, or so they will say, but maybe it gains a teeny bit on accountability.

One possible solution that will appeal to your socialism is work out the average return in small (say

Thomas the Tout
Thomas the Tout
15 years ago

Bingo!
My firm has recently been involved with two people who had tangled with insolvency practitioners (Generic for liquidators, Trustees in Bankruptcy, and others). I thought that we lawyers charged like a petrol pump, but I was astounded by the large fees of the ‘insolvency specialists’.

I was gearing up to challenge one of them, but a learned colleague told me that his experience is that the Court does not wish to scrutinise the fees charged by the Trustee in Bankruptcy. Plus my client accepted a deal, so end of fight.

In the other, I am now a creditor, but with a deal of sympathy for the debtor, and I would like him to keep running his business. But another creditor ‘went for the throat’. The insolvency firm now has a claim for fees that exceed the total debts, so probably end of the road for that business. But, whichever way my colleagues and I look at it, we cannot understand the size of the fees, unless insolvency firms charge one hours fee for licking a stamp.

The insolvency practitioners are accountable to whomever or whatever appoints them, but those people/bodies seldom, if ever, hold the practitioner responsible. The reason/mechanics of that are articulately put by KP.

A directive by a Chief Justice that the taxing Masters are to carefully scrutinise the practitioners fees would be a good start. Followed by a taxation of fees-if need be, funded and run by legal aid. The tools to correct the problem are there, but no-one has the both the desire and the ability to use them.

Paul Watson
15 years ago

“We can’t therefore eliminate the possibility that Cass and Landeryou are indeed attempting to create an elaborate smokescreen to coerce or bluff the liquidator into settling so that efforts to trace the allegedly missing $1 million [via Marbain Pty Ltd, a company controlled by Landeryou and Cass] are discontinued.”

Indeed, and such seems to be clearly the case, IMO. While McVeigh is plainly doing little, or worse, for MUSU creditors, to style him as the (main) bad guy is a travesty.

Here, my suss-ometer scale reading went to “eleven” upon reading this exculpatory attempt by Cass: “$2M … is how much McVeigh reckons he will get out of suing bankrupts, near bankrupts, insolvent companies and 20 year olds!”

Geoff R
15 years ago

Indeed, indeed, very clearly the case, as anyone with background knowledge would know.

Patrick
Patrick
15 years ago

Huh? I’ll pick up where WordPress left off, then…

One possible solution that will appeal to your socialism is work out the average return in small (say less than $15 million) liquidations, and have ASIC pay this amount plus eg 5 cents in the dollar to all creditors and chase up all debts themselves.

PS I also agree that this is a case of at best pots and kettles. But insolvencies are very tricky, mainly because the whole idea is that people must lose some of their money. Which is in turn on of the reasons for the high fees of liquidators. Another argument they make is that they do a lot where there is simply nothing, and accordingly don’t get paid at all, so they have to charge to reflect this.

woodsy
woodsy
15 years ago

Don’t even suggest that ASIC become involved ! My daily experience with the morons employed by ASIC (it seems that they are almost all ‘special counsels’)is that they have no sense of reality. Trapped as they are in their ivory towers, they seem incapable of understanding that they exist to watch over corprations, not drown them in red tape and legalistic waffle.

An example of ASIC’s uselessness is seeking advice on how to deal with the intestate death of a sole shareholder/director.

No, whatever the solution, and I agree that the whole liquidation process must be examined, the suggestion that ASIC become involved would lead to even more disaster.

Benjamin Cass
Benjamin Cass
15 years ago

Ken, I stumbled across your site and was indeed interested with your post and the comments of your readers. While some of your readers’ “suss o meters” may have been alerted to my comments, it gives me no great pleasure to highlight I am soon to be in a Part X arrangement with creditors and Mr Landeryou is bankrupt.

The point being that there were never any “missing millions”. I only wish. If I did I wouldnt be in this financial position now!

What must be understood about the MUSU farce is the alternate scenario if a Liquidator with any scruples had taken control……MUSU has $6 million in cash and assets. MUSU had $4 million in debts and liabilities. A Liquidator (not McVeigh) realises the assets, pays out a 100c dividend and distributes the balance in favour of the new student organisation. The time to undertake such an excercise? About 2-3 months.

Who would have lost out of this scenario? Creditors? No. They would have received 100c in the dollar. The new student organisation? No. They would have received the balance after MUSU’s assest were realised and MUSU’s debts were paid.

So the only loser than would have been …..(drum roll please) one Dean Royston McVeigh and Graeme Levy of Madgwicks Lawyers. The two firms have billed in excess of $7.2 million in professional fees over three years. This is a mind boggling figure to wind up a solvent student organisation.

The point of course is that without a long winded legal case involving multiple parties and multiple complications (namely that the tabloid headlines of ‘missing millions’ were not reflected in the statement of claim) Dean McVeigh and Graeme Levy would not have walked away with millions, they would have walked away with tens of thousands of dollars.

Greed, and only greed, were the motivations for a lengthy liquidation based on bizarre legal grounds that are routinely the source of humour for any lawyer who has ever taken the time to read the Statement of Claim.

Holding absolutely no prior expertise in this area and without any legal training other than three years of being self represented against the supposed best of the best, I have a number of very firmly held beliefs as to how the system can be reformed to genuinely aid distressed companies and their creditors.

Thank you for the opportunity of posting and I would only be too pleased to answer any questions form either yourself or your readers.

Benjamin Cass

Greg Yates
Greg Yates
15 years ago

Query to Benjamin, please. Are you in a position to assess just how long this MUSU affair will go on for, as I think it began some 3 years ago (?). What insight can you offer as to how a liquidator can keep up this type of activity apparently without being accountable to any visible community? Is this normal behaviour for this profession? Your antipathy to McVeigh is well-known. But does he merely represent the normal/expected conduct of the profession? The question really revolves around just who is accountable to whom. Or can they set their own agendas?

Charles Henderson
Charles Henderson
15 years ago

Many thanks to Ken Parish, legal practitioner, for his post on June 19. I’m only sorry I didn’t come across it sooner, because I was beginning to think no one else in the Australian insolvency profession was questioning the independence of company administrators and liquidators (and bankruptcy trustees) and the abuses that occur.

I am a chartered accountant and registered liquidator who has been working in the profession for over 20 years. I have been disgusted by the abuses and the disregard for ethical standards in the profession. Too many insolvency practioners simply pay lip service to the law and to best practice standards. Moreover, their professional association has perfected the art of schmoozing the regulators, ASIC and ITSA.

Obviously something needs to be done. But I don’t think the answer lies in setting up a division of ASIC to take the place of insolvency practitioners in private practice.

Once upon a time, liquidators were appointed by the Court on a rotation system. Such a system would mean that if a creditor puts a company into liquidation, or the company puts itself into liquidation, the liquidator who gets the job is the one who appears next on the court’s list. In this way he or she is more likely to act independently. I think this system should be given serious consideration again, because independence is crucial and obviously cannot be achieved just by official exhortation.

I have published a number of articles on my own blog, which is titled Australian Insolvency Practice and Malpractice and is at http://goingbroke.blogster.com.

Peter Keenan
Peter Keenan
15 years ago

I’ve just discovered your excellent website. As an insolvency practitioner I recently set up a blog to release my papers and submissions on Australian insolvency law and practice and to advocate reforms.

Greg Yates
Greg Yates
15 years ago

Just a note to say that Ben Cass did reply to my question, personally, and I felt the reply sensible. But Ken is quite correct that this is not an appropropriate venue to air aspects which need close reality checking. The matter concerns individual actions, rather than general principles. Hence people further interested in this might want to see Ben’s own blog. This is public domain, its given in Justice Hollingworth’s summations (paragraph 20), and a link exists within Ken’s blog of 19 June.

Gerard K
Gerard K
14 years ago

It seems citizen activism has been taken to a whole new level care of the internet…..makeaggspay.blogspot.com Seems like a copycat of the famous Make McVeigh Pay website by Benjamin Cass which was a catalyst in the downfall of the Melbourne University Student Union liquidator, Dean McVeigh.

Not sure of the details of this particualr matter other than it has only recent been published.

:)

Gerard.

Greg Yates
Greg Yates
14 years ago

Regarding Gerald’s above note, it seems that MakeMcVeighPay has been removed from the Internet. What appears to have occurred is that Mr McVeigh used his legal skills and expenses to initiate yet more proceedings, accusing Mr Cass of stalking. It is thought that Cass decided not to fight, but took down the website, a resolution of sorts. Gerald refers to McVeigh’s ‘downfall’. But surely he is still going strong? Is it not it the absence of any genuine ethical accountability that is still the big issue here?

Benjamin Cass
Benjamin Cass
13 years ago

Remarkably, 2 years on from the discussion above tracking a (then) 3 year liquidation process, the Melbourne University Student Union is still under the control of Dean Royston McVeigh of Foremans Business Advisors.

5 years of fees and counting.

Readers would also be interested to know that there are now no defendants to any litigation commenced by Mr McVeigh after he dropped action against all original named parties to a Statement of Claim regularly the source of much amusement amongst legal circles.

Of the twelve original defendants, eight ‘settled’ for zero and of the remaining four, the highest amount agreed to was the grand sum of $25,000 after consideration of the legal fees involved in defending the matter, however spurious the Claim may have been.

One can only wonder when this sad and disgraceful chapter will end.

Thank you,

Benjamin Cass

Independent Observer
Independent Observer
11 years ago

It should be noted that Mr McVeigh had passed away having died from keart failure. Prior to his death he was found guilty, in another matter, of unprofessional conduct and was suspended from practicing as a liquidator. Not sure as to the status of the MUSU case but it would appear very much that the Lawyers and Liquidation of the Union was not in the interest of meeting the expenses of creditors or its members., The main beneficiary of the liquidation was and is the lawyers and liquidator. A clear response to all this is of course that limits in terms of fees as a percentage of realisable assets and administration should be capped. If as is the case with the MUSU the value of assets exceeded the value owed to creditors then creditors should have beeen paid first before fees are deducted and that creditors should have equal weight to members entitlements in overseeing the administration and liquidation of a company.

Jarrah McKenzie
Jarrah McKenzie
9 years ago

Administrator liquidated for 18 months
Mark Hawthorne, The Age
February 10, 2010

AN INVESTIGATION by the corporate plod has resulted in high-profile accountant Dean McVeigh of Foremans Business Advisors being banned from acting as a voluntary administrator or liquidator for 18 months.

The Companies Auditors and Liquidators Disciplinary Board found that McVeigh ”failed to carry out or perform adequately and properly the duties of a liquidator” during the administration of 10 companies between 2001 and 2007.

The board adjudicates on registered auditors and liquidators who are reported by the Australian Securities and Investments Commission or the Australian Prudential Regulation Authority.

In its 227-page report, CALDB found McVeigh failed to disclose to creditors his relationships with companies, company directors and professional advisers while involved in liquidations.

The board found that McVeigh should not have accepted several liquidations because of such conflicts.

He ”failed adequately and properly to investigate the business, property, affairs and financial circumstances” of several companies after being appointed liquidator.

Of the 52 breaches alleged by ASIC, the CALDB panel found 48 were established ”to our satisfaction”.

The name Dean Royston McVeigh has popped up several times over the years.

In 2005, he was liquidator of the Melbourne University Student Union Inc and issued a writ against former MUSU presidents Andrew Landeryou and Ben Cass.

McVeigh claimed a ”conspiracy in relation to the alleged diversion of profit from the union bar and food outlets to Landeryou and Cass” through various firms.

McVeigh also took action against Cass for contempt of court over comments he published about the MUSU liquidation in a blog.

Justice Elizabeth Hollingworth found the blog comments had a ”strong degree of factual accuracy”. It was a remarkable court victory for Cass, a part-time student who represented himself in the proceedings.

”At the heart of [Cass’] concerns is his assertion that the liquidator started with about $6 million in assets and $4 million in liabilities, but instead of simply paying out creditors has spent millions of dollars on professional fees pursuing this litigation against impoverished or impecunious defendants,” Justice Hollingworth said.

In 2008, McVeigh’s name appeared in the papers after Carlton’s Rathdowne Tavern went bust. Creditors from Laanecoorie Vineyard noted that the owners, Nicholas and Jody Harvey, were trading in the same business, using the same name, in the same building, and were ”driving around in a very fancy black Mercedes”.

McVeigh was the liquidator of the business.

According to yesterday’s CALDB decision, several of the private companies that McVeigh liquidated faced bills from the Tax Office. One, called IDKF, faced legal action from the NSW Minister for Commerce over a claimed $2.8 million debt.

ASIC raised questions about fund transfers out of the companies before they were wound up.

The panel, in its explanation of its decision, found that several of McVeigh’s actions were ”contrary to the applicable professional standards and to law”.

In addition to his 18-month ban, McVeigh was ordered to complete additional ”continuing professional development”. When his suspension has ended, he will be subject to peer reviews of his next five voluntary administrations and next five creditors voluntary liquidations.

McVeigh, who has denied any wrongdoing, runs a business called McVeigh Corporate Advisory.

Read more: http://www.theage.com.au/business/administrator-liquidated-for-18-months-20100209-npvx.html#ixzz1fFiiCkJO

Tel
Tel
9 years ago

But another creditor ‘went for the throat’. The insolvency firm now has a claim for fees that exceed the total debts, so probably end of the road for that business. But, whichever way my colleagues and I look at it, we cannot understand the size of the fees, unless insolvency firms charge one hours fee for licking a stamp.

Surely this creditor just destroyed any chance they had of getting paid. One would conclude that if they did this out of spite then the liquidator offered them good value, but if they were genuinely expecting to recover their losses they might have learnt a lesson.

Most of the legal system seems either directly or indirectly built around mutually assured destruction, so this seems to fit with the scheme reasonably well.