This article is from the Australian Property Journal archive
The appointed receivers to Westpoint Corporation and the Australia Securities and Investments Commissions’ investigators have labelled transactions within Westpoint as “irregular” “runaround” and “Round Robin”.
Sworn affidavits from Oren Zohar, one of the receivers of Westpoint Corportion, showed a colour-coded Corporate Structure of the Westpoint Group which comprised 157 corporate and trust entities.
Zohar’s affidavit also exhibited a report as to the affairs of Westpoint Corporation submitted to ASIC and dated February 23, 2006.
In the report 35 intercompany loans were identified as owing to Westpoint Corporation, totalling $148.76 million, only $23.77 million was estimated to be realisable.
A further 20 related party loan accounts were disclosed under which Westpoint Corporation owed a total of $71.17 million.
From Zohar’s review of the Westpoint Corporation records, he found 62 related party loans which he had identified during the course of the receivership to and from Westpoint Corporation as requiring further investigation.
These included 38 loans owing from related entities totalling $143.76 million, of which only $22.38 million was estimated by Carey as realisable in the report as to affairs.
In addition, there were 25 loans owing to related entities totalling $75.02 million of which Carey admitted $71.17 million in the report.
His affidavit also refers to transactions which he describes as the “Renaissance Mezzanine loan transfer”, “the Bowesco option” and attempts to avoid GST liability for Westpoint Realty Pty Ltd.
Zohar described the transactions as, “which appear to be designed to remove assets from Westpoint Corporation or other entities …”, including assignments of loans to Richstar Enterprises Pty Ltd, and a transaction which he describes as a “$2 million runaround” by Bowesco Pty Ltd.
Meanwhile, Richard Gomm an investigator with ASIC’s enforcement directorate, referred to the dealing in funds received by Mezzanine Companies from investors, which he described as “round robin transactions” and the results of various accounting entries made and cheques drawn on companies in the group.
In addition, Gomm said it was his opinion that the transactions have had the effect of reducing the assets of the Westpoint Group available to meet the claims of third party creditors and of benefiting persons formerly in control of the Group.
He said it was a matter of particular concern was the treatment of investor rollovers.
Gomm deposed that investors were regularly “rolled over” into other projects being undertaken by the Westpoint Group when their promissory notes or debentures expired or were approaching expiry dates.
“Where investors were rolled over from one project to another they were issued with a new promissory note relating to the second project. There was no corresponding payment of money however from entities involved with project A to entities involved with project B. The rollovers were simply accounted for by a series of journal entries…” his said in his affidavit.
Gomm’s affidavit then went into detail about the transactions.
He described first the passing of cash from Mezzanine Companies through Westpoint Corporation to ongoing operational entities.
· On November 24, 2005 Westpoint Corporation paid $1 million to Renaissance Mezzanine and $1.15 million to Bowesco.
· It paid $1.37 million to Richstar Enterprises on November 25, 2005.
· These three payments appear to have had the direct effect of reducing the cash assets available to the unsecured creditors of Westpoint Corporation by $3.52 million.
· Cash was passed to entities undertaking the ongoing operations of persons formerly in control of the Westpoint Group. That is said to have been done as follows:
- Through on-payment of the $1 million received by Renaissance Mezzanine on 24 November 2005 to Rold Corporation Pty Ltd (Rold Corporation) on 25 November 2005.
- Through the passing of $1,150,000 of cash to Bowesco as trustee for the Dyson Family Trust.
- By passing $1,370,000 of cash previously held by Westpoint Corporation to Richstar Enterprises as trustee for the Richstar Enterprises Trust.
At the time that these transactions occurred ASIC had filed its application on November 22, 2005 for orders to wind up York Street Mezzanine. Voluntary administrators were appointed to that company on 23 November 2005.
York Street Mezzanine’s liabilities are guaranteed by Westpoint Corporation. Monthly interest payments for the month of November 2005, which were due for payment at the end of that month, were not made by various of the Westpoint Group Mezzanine Companies to the holders of promissory notes and debentures that they had issued.
The three payments outlined above, according to Gomm, appeared in large part to have been funded by payments to Westpoint Corporation from various of the Westpoint Group Mezzanine Companies.
Gomm pointed to evidence indicating that the three payments referred to were funded from investor moneys.
The opening balance of the Westpoint Corporation bank account on November 21, 2005 was $2.73 million. Immediately following its payment of $1.37 million to the Richstar Enterprises Trust on November 25, the balance of the bank account was $1.04 million.
He referred to records of money movements supporting the conclusion that from November 21, 2005 to November 25, 2005, deposits totalling $3.67 million were made into the Westpoint Corporation bank account by various of the Westpoint Group Mezzanine Companies which had issued promissory notes and debentures to the public. The deposits were as follows:
(a) $700,000 deposited by Mount Street Mezzanine Pty Ltd (now in liquidation) on November 21, 2005;
(b) $1,100,000 deposited by Bayshore Mezzanine Pty Ltd (now in liquidation) on November 21, 2005;
(c) $45,000 deposited by Bayview Heritage Mezzanine Pty Ltd (now in liquidation) on November 24, 2005;
(d) $95,000 deposited by Market Street Mezzanine No 2 Pty Ltd (now in liquidation) on November 24, 2005;
(e) $150,000 deposited by Ann Street Mezzanine Pty Ltd (now in liquidation) on November 24, 2005;
(f) $640,000 deposited by Mount Street Mezzanine on November 24, 2005;
(g) $945,000 deposited by Bayshore Mezzanine on November 21, 2005.
(b) $1,100,000 deposited by Bayshore Mezzanine Pty Ltd (now in liquidation) on November 21, 2005;
(c) $45,000 deposited by Bayview Heritage Mezzanine Pty Ltd (now in liquidation) on November 24, 2005;
(d) $95,000 deposited by Market Street Mezzanine No 2 Pty Ltd (now in liquidation) on November 24, 2005;
(e) $150,000 deposited by Ann Street Mezzanine Pty Ltd (now in liquidation) on November 24, 2005;
(f) $640,000 deposited by Mount Street Mezzanine on November 24, 2005;
(g) $945,000 deposited by Bayshore Mezzanine on November 21, 2005.
The Court also exhibited an affidavit of John Dixon sworn on April 11, 2006.
Dixondenies the allegation that he acted in accordance with instructions from Carey and Rundle. He denies that he has taken any steps to hide or move any of his assets or those of any other person or entity out of reach of the creditors as a result of the collapse of the Westpoint Group.
He proffers undertakings and is prepared to surrender his passport to the Court and to apply for its release in the event that he wished to travel overseas. He also gives details of his financial position.
The ASIC investigations continue.
By Nelson Yap
