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 December 16, 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 September 5, 2005, annotated with Mr Cass’s comments. The ASIC report showed that the liquidator had received amounts totalling about $5.28 million, made payments totalling about $4.65 million, 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 $4.48 million.

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.