By Elisabeth Sexton
THE Sydney property developers Nati Stoliar and Gabriel Lorentz picked the wrong opponent in the Melbourne construction baron Daniel Grollo.
Things looked bad for the pair last year when the global financial crisis extinguished hopes their Kimberley Securities could sell properties to stay afloat.
They looked worse yesterday as Mr Grollo won a lawsuit over their abuse of Kimberley's creditors.
Mr Stoliar, who in happier days owned a $21 million home in Point Piper after selling the Elizabeth Bay waterfront Boomerang, and Mr Lorentz, who has been a director of listed companies for decades, came undone over their dealings with a little company called Mushroom Catering Pty Ltd.
The NSW Supreme Court found that Kimberley's directors had "cornered the voting power" at a meeting held to decide Kimberley's fate by "buying" the votes of five crucial creditors.
Justice Reg Barrett yesterday overturned a deed of company arrangement agreed at the March creditors' meeting and ordered the liquidation of Kimberley.
The yet-to-be-appointed liquidator will be able to examine "potentially very fertile lines of inquiry" about transactions involving Mr Stoliar and Mr Lorentz, Justice Barrett said.
Kimberley's third director, Peter Scown, could also find his conduct under the microscope.
At a time when insolvency practitioners are being rushed off their feet, the case is a sharp reminder of the power of courts to intervene in cosy arrangements to resuscitate companies proposed by those with most to lose from liquidation.
The deed would have given arm's-length creditors a return of less than 4c for every dollar owed, and no future rights.
Debts of creditors related to Kimberley's directors would not have been extinguished, leaving them positioned for full repayment in future.
Justice Barrett said: "The transactions involving the five external creditors and the five assignees were, in short, an artifice to give an air of arm's-length independence to a device by which voting power at any meeting of creditors was put into the hands of the Kimberley directors, with mere nominees being made to appear to possess the voting power."
Grocon Constructors, a member of Mr Grollo's Grocon Pty Ltd construction group, felt strongly enough about the $1.8 million it is owed to take the matter to court.
Others outvoted at the meeting were the Building Insurance Guarantee Corporation, which sent its lawyers to support Grocon (owed $1.6 million), the Tax Office (owed $1.7 million) and two smaller creditors. They were outweighed by companies associated with Kimberley's directors both by value and by number of creditors.
Kimberley, which now owes its creditors $19 million, responded to trading difficulties as a listed company by returning to private ownership in 2005. By then it had made two large investments that caused its recent troubles, the Redfern commercial landmark, the twin TNT towers, and the Hurstville Central shopping centre.
Kimberley's three directors called in voluntary administrators on December 19. Justice Barrett learned that in the previous 10 days a company called Selwan Properties had paid debts Kimberley owed to five small trade creditors. Selwan's three directors are Mr Stoliar, Mr Lorentz and Mr Scown.
On December 9 Kimberley received a $1210 bill for construction work from Taren Constructions. The following day Selwan said it would pay if Taren signed a letter that said: "In consideration of the payment by Selwan of the sum of $1,210 we hereby assign to Mushroom Catering Pty Limited the debt in the same amount that is owing to us by Kimberley Securities Limited."
At the first creditors meeting, on New Year's Eve, Mushroom Catering duly appeared as a creditor of Kimberley, along with four other creditors who dealt with Selwan.
"Selwan had no thoughts other than those housed in the heads of Kimberley officers who were its directors," Justice Barrett said.
The result was that the meeting was under "the actual influence of a related entity masquerading as the influence of arm's length parties", he said. "The passing of the resolution for the adoption of the deed of company arrangement entailed clear prejudice to the five creditors who voted against the resolution."
The vote in favour of the deed also prevented creditors pursuing potential recoveries from lawsuits only open to a liquidator, the judge said. One such suit could be against a company called Opportune Pty Ltd, owned and controlled by Mr Stoliar and Mr Lorentz.
Justice Barrett said a "potentially very fertile" line of inquiry would be pursuing Opportune over a letter assuring financial support relied on by Kimberley's auditors.
A second line of inquiry would be whether Kimberley's directors had fulfilled their duties to the company. Justice Barrett said this question would "arise in its starkest form if the undertakings are determined not to be the source of any useful recovery by Kimberley".