Algeri, in the matter of Gem Management Group Pty Ltd (in liq)

Gem Management Group Pty Ltd (in liquidation) was a company that appeared to have operated an unregistered managed investment scheme whereby investors funded the purchase of a property. The liquidators, appointed by ASIC, sought orders to justify their proposed course of action in determining the interests of various investors in the trust. The matter was heard by the Federal Court of Australia. The primary legal issue before the Court was whether the proposed pro rata distribution method was the fairest method to distribute the net sale proceeds of the property to the investors. The Court found that, due to the complexity of the task, the liquidators could not be certain of their conclusions and thus, the pro rata distribution method was the fairest approach in the circumstances.

The Court held that the proposed pro rata distribution method was the fairest approach, as it would distribute the net sale proceeds of the property to the investors in proportion to their claims as assessed by the liquidators. The Court also found that all those who intended to invest in the scheme, regardless of their method of investment, should be included in the distribution method. The liquidators were justified and acting reasonably in paying the liquidators’ remuneration, disbursements, and legal costs, as well as the current unsecured trade creditors in full to the extent that their claims were admitted by the liquidators. The balance of the funds was to be paid into a bank account held in the name of the liquidators and designated as the “Common Fund” account. The liquidators were also justified and acting reasonably in making distributions out of the funds in the Common Fund Account to the claimants, rateably, in amounts determined by the liquidators to be the amount of their respective claims.

In conclusion, the Court accepted that the pro rata distribution method was the fairest in the circumstances, and orders were made substantially in the terms sought by the liquidators. The liquidators were justified and acting reasonably in paying the liquidators’ remuneration, disbursements, and legal costs, as well as the current unsecured trade creditors in full. The balance of the funds was to be paid into the Common Fund Account and distributed to the claimants in proportion to their claims as assessed by the liquidators. All those who intended to invest in the scheme, regardless of their method of investment, were included in the distribution method. The liquidators were granted liberty to apply for further orders as necessary.