Trust pushes for Gippsland receiver

Bernard Kellerman
The saga of non-bank local lender Gippsland Secured Investments moved one small step closer to resolution in the Federal Court yesterday, although GSI's fate is still far from certain. This followed an eleventh hour presentation of a scheme of arrangement by a group of investors, led by David Johnston, the previous day.

Central to the dispute has been the demand by The Trust Company, representing the rights of the note-holders who fund GSI's operations, that the lender be placed into receivership as its assets may no longer cover its liabilities.

In court, Alexander Street, barrister for Trust, pushed back against allowing more time for any recapitalisation plan to mature.

He told Justice Kathleen Farrell that further delays and additional court costs would merely eat into funds that should be preserved for distribution if GSI were to be wound up.  

"In essence, the note-holders are funding an action which favours the interests of the directors and share-holders," Street argued.

"The restructure does not guarantee that note-holders will receive 100 cents in the dollar."

Street further asserted that the firm was unable to pay its debts as and when they fell due, and that at least A$13 million was well overdue but could not be collected by Trust on behalf of the note-holders as the dispute was still before the courts.

Trust's case, however, was jolted when the legal representative for David Johnston told the court that if Trust's main objection to his client's recapitalisation plan stemmed from concern over the costs of a restructure his client might be willing to "have some skin in the game".  However, he needed at least one day to check this.

Further, the court was told that, after being contacted by Johnston, the firm's note-holders, who account for at least 16 per cent of the outstanding notes (by nominal value), had registered their agreement in principle to the rescue package with GSI.

This point was picked up by GSI's barrister, Ross Foreman, who countered that if, after just "a quick ring around", Johnson was able to garner this much support for his group's rescue package, GSI should be allowed to call a meeting of all investors "within a reasonable time" to discuss it.

If accepted, Trust would be obliged to implement such a deal.

The Australian Securities and Investments Commission also made an appearance, as a friend of the court.

ASIC's representative, Michael Izzo, said the commission had no view as to whether the request for a recapitalisation should lead to further delays or not - that was for the court to decide.

Further, Izzo said that ASIC had no view on whether or not the current management of GSI should remain in place.

Justice Farrell, taking an active role in the discussion, noted that "GSI has been an important part of regional Australia".

She was therefore unwilling to agree with Trust and put the company into receivership without allowing a couple more days' delay to find out if the investor group was serious in its intent.

Justice Farrell added that it would be "a token of substantial commitment" if GSI was able to pay the $13 million complained about by Trust.

She also suggested that Trust attempt to contact all debenture holders to canvass their views, not just some of those involved in the rescue package, and that the other parties talk more openly to Trust.

"I sense that there is not a good loop," Justice Farrell said.

The case continues on Thursday, when all parties are due back in the Federal Court to report on progress.