Australian Securities and Investments Commission v Merlin Diamonds Limited (No 3)

The Australian Securities and Investments Commission (ASIC) filed an originating process on 14 May 2019, seeking an order for the winding up of Merlin Diamonds Limited pursuant to section 461(1)(e) and/or (k) of the Corporations Act 2001 (Cth). ASIC also sought the appointment of a provisional liquidator. The application was opposed by Merlin and a group of shareholders. On 20 September 2019, the Court appointed Messrs Algeri and Norman of Deloitte Financial Advisory Pty Ltd as joint and several provisional liquidators. ASIC subsequently sought final relief by way of winding up orders and the appointment of liquidators, which Merlin opposed. The Interested Parties wished to appoint an administrator instead of proceeding with the winding up to provide an opportunity for a deed of company arrangement.

The court was required to decide whether compelling reasons existed not to order the winding up of Merlin. The court also needed to determine whether the Interested Parties had established a basis for appointing a different liquidator instead of Messrs Algeri and Norman. The primary legal issue was whether the Court should make a winding up order given Merlin's insolvency and its state of affairs.

The court found that ASIC had established a strong prima facie case that Merlin had contravened various provisions of the Act, including failing to appoint a company secretary, failing to lodge its half-yearly report, and making loans to related parties on uncommercial terms. These contraventions created a justifiable lack of confidence in the conduct and management of Merlin's affairs. The court was satisfied that there was a reasonable prospect of a winding up order being made on the final hearing and that there were sufficient reasons for the appointment of a provisional liquidator. The Interested Parties had not established any basis for the Court to choose to appoint Mr Shepard as liquidator instead of Messrs Algeri and Norman. The appointment of Mr Shepard at that stage would inevitably result in a duplication of costs, to the detriment of creditors and shareholders.

The court ordered that Merlin be wound up in insolvency pursuant to section 459B of the Act, and that Messrs Algeri and Norman be appointed joint and several liquidators of the defendant. The court also ordered that written submissions on the question of costs be filed by the parties and any person who was given leave to appear at the interlocutory hearing on 2 and 3 September 2019 or the final hearing on 10 March 2019. The court would determine the question of costs on the papers unless any person that had filed a submission notified the court that they sought an oral hearing.