Keystone Asset Management - Case Update

Lucica Palaghia and Jason Tracy of Deloitte, the joint administrators of Keystone Asset Management, have released their report recommending that the Melbourne-based private investment fund be wound up despite three DOCA proposals having been received.

Keystone Asset Management, the responsible entity for the Shield Master Fund, entered voluntary administration on 28 August, one day after Mr Tracy and Ms Palaghia were appointed as receivers and managers. Initially, Keystone’s directors appointed Scott Langdon, John Mouawad, Michael Korda of KordaMentha as voluntary administrators. However, following an application by ASIC, which argued it didn’t make sense to have two sets of insolvency practitioners involved, Mr Tracy and Ms Palaghia took over as voluntary administrators.

Since their appointment, the voluntary administrators have been working to take control of the company’s assets, liaising with stakeholders and engaging with parties who may be interested in proposing a DOCA. They have also conducted preliminary investigations into the company’s downfall and concluded that the company’s financial records may not have been maintained in accordance with s286 of the Corporations Act 2001. In addition, they have identified a number of potential breaches of the Act and director duties by the directors of the company, concluding that the directors may have acted dishonestly and/or fraudulently in the discharge of their duties, as well as director-related party transactions that require further investigation.

The administrators have also revealed that three DOCA proposals have been received, but are currently recommending that the company be wound up. The first DOCA proposal is from Arbitrium Capital Partners and purports to provide full repayment of Keystone’s creditors through the assumption of liabilities. However, the administrators are concerned that creditors will not be able to be repaid through the DOCA since full repayment relies on the realisation of certain Shield Master Fund assets to be applied to this (and other) purposes. The use of scheme or trust property to satisfy non-scheme/non-trust debts constitutes a misappropriation of scheme/trust property. Moreover, there are significant legal impediments to effectuating the Arbitrium DOCA, including various conditions precedent that likely cannot be achieved.

The second DOCA proposal is from Paul Chiodo, Keystone’s former director. However, Mr Chiodo has declined to provide the additional information sought by the administrators to allow the proposal to be considered and presented to creditors.

The third DOCA proposal is from Roberto Filippini, a director of Melbourne builder City Built, which is accused of receiving $160 million of investor funds. The proposal was received shortly before the administrators’ report was published, so the administrators have not had sufficient time to give it proper consideration. They intend to present a supplementary report on his proposal prior to the second meeting, which is scheduled to be held on 2 December.

Read the report here.