An insolvency practice specialising in
effectlng recoveries for creditoG from
inso vencies by idefltilication and
managemertof legal claims.
PARTNERS
John Sheahan FCA
lan Lock BEng(Hons), FCA(ICAEW) SHEAHAN LOCK PARTT{ERS
Level 8, 26 Flinder StreelADELAIDE SA 5OOO
Telephoner (08)82310077Facsimile: (08)82310370
GPo Box 1173
ADELAIDE SA 5OO1
www.sJp.net.au
Level 2, 234 Georue SlfeetSYDNEY NSW 2OOO
Telephone: (02)92414488Facsimib: (02)92520854
STRICTLY PRJVATE & CONFIDENTIAL
1 8 January 2012
Mr John Sheahan
LiquidatorThe Duke Group Limited (In Liquidation)C/- Sheahan Lock PartnersLevel 8, 26 Flinders StreetADELAIDE SA 5OOO
EMAIL ADDRESS: [email protected]
Dear John,
TIIE DUKE GROUP LIMITED (IN LIOUIDATION) f'DUKE")Australian Companv Number: 007 554 690
I refer to my most recent report to the Committee of Inspection ('Committee') dated 20 June 201 1.
I am now pleased to provide you with an updated report on my administration ofDuke.
The next meeting of the Committee will be held at my Sydney offices at 11.00 am on Tuesday,
24 Januuy 2072.
This report contains a discussion of various communications between my soiicitors, counsel and
me. As before, this material is provided on the basis that it is for the use of Members solely inconnection with their deliberations as Members of the Committee. No waiver of legal professionalprivilege is made in relation to ary opinions received from my legal advisers.
INDEX
DUKIOlAIFI3Ol 12
ESTIMATED FINANCIAL POSITION
Set out below is an updated summary ofDuke's financial position:
Cash at bank 10101112
Cash on deposit: ANZFunds presently availableLess:Unpaid costs - solicitors, counsel &
professional fees to 17 l0lll2Unpaid liquidator's fees to 31/l2l11inc GSTTotal
MINUTES OF PRXVIOUS MEETING
217,337 .13
9.848.761.8510,066,098.98
(86,683.36)
__11p414.80)__J811360.82
Enclosed for your review as annexure l are the minutes of the previous meeting of the Committee
held on 29 June 201 1 . I propose to seek formal approval of these minutes during our meeting on
24 Ianuary 2011 artd look forward to discussing any appropriate amendments or arurotations withMembers on that occasion.
SHARXHOLDER CLAIMS
Claims under subsection 438(1)
As discussed in previous reports, in accordance with orders made in 2010 in the Supreme Court ofSouth Australia, notices were published and sent to curent and former shareholders ofthecompany inviting them to lodge claims, on or before 1 8 May 201 1, as creditors of the company. Inresponse to the distribution of that notice. more than a thousand enquiries were received, by
telephone, email and letter, from shareholders seeking furlher information in relation to theirshareholdings and the meaning ofthe notice. A considerable amount of time has been spent by mystaff in responding to those enquiries.
As at the date ofthis repo(, 1.044 proofs ofdebt have been received from shareholders. The vast
majority ofthose proofs were received by the advertised deadline. A small number have been
received since that deadline. In several cases, those late claims have been received by mail fromshareholders resident overseas, some of which were posted well before 18 May 201 1.
As previously advised, I received enquiries from two shareholders (including lawyers acting on
behalf of Michael Frankau's deceased and insolvent estate) with substantial holdings collectively
exceeding 2.5 million shares and correspondence from ANZ Nominees Limited, the registered
owner of nearly 26 million shares, held on behalf of various customers. ANZ Nominees Limitedadvised that it sold its Custodian Services business to .IP Morsan Chase in 2009. to whom I then
DUKEO]rNF]3()II2
sent tlre shareholder notice. it remains the case that no claim has been received from any of those
parties.
The proofs received to date vary widely in the manner in which the claims are expressed, the
degree ofdetail ofany reliance on misleading information in relation to the company's position
and the level of supporting documentation provided by the claimants,
Members will recail that I have received advice from my solicitors in relation to the admissibility
of claims.
Oniy a portion of the claims received include a claim for a monetary amount, and those that do
range from very small sums to quite extravagant claims equivalent to hundreds and even thousands
of dollars per share. Accordingly, the monetary value of claims is better estimated by
consideration ofthe underlying shareholdings and applying the losses per share referred to above.
On that basis, the overall position in reiation to claims may be summarised as follorrys.
Total number ofnotices sent 20,1 t3
Notices returned as undeliverable 3,101
Total issued capital ofDuke (excluding DHL, dbectors and associates) 102,542,334
Number of proofs received 1 {\4L
Toral number of shares represented by claims 6.6 millionApproximate number of shares held by claimants prior to WIIL takeover 2.2 millionApproximate number olshares held by claimants at date ofRTO 2.9 millionEstimated claim due to WUL takeover (no of shares x $0.37) $800,000
Estimated claim due to RTO (no of shares x $0.21) $600,000
Total estimated monetary value ofclaims $1,400,000
It was apparent from the encluiries received from shareholders that many of them did not
understand the nature of and reason for the invitation to lodge claims. A number requested that Icomplete their claims for them. Others lodged proofs that were incomplete in that they did not
identii' the claimant, the amount of any claim or number of shares held, or were unsigned. It was
plain that the amount of information provided to them with the notice inviting proofs, consistent
DUKEOIn\lFI3OI I2
with the orders made in 2010, left many shareholders confused as to their rights to make any claimor their obligations in the event that they wished to do so.
In the circumstances, I remained concemed about the extent of my obligations to informshareholders ofthe position and give them an opportunity to make an informed decision as to
whether they wished to make a claim. The contrary view was put by solicitors acting for GRAIL,who maintained that I had discharged all ofmy obligations and that I should declare a dividend
without any fui1her consideration ofthe matter or notice to shareholders.
I sought the advice ofsenior counsel on a number of questions essentially directed to that issue.
The questions asked were:
1. What was the scope of my duties to shareholders who had not lodged proofs or contacted
me?
2. What was the scope of my duties in relation to claims received after 18 May 2011?
3. What was the scope of my duties towards those shareholders who have contacted me but
who have not lodged proofs?
4. What are my duties in relation to the sending of further notices attendant on the declaration
of any dividend to shareholders?
Counsel's opinion is annexure 2. In summary, counsel advised as follows:
1. I had adequately discharged my duty to notifu shareholders of their right to file a clarm.
Accordingly, I had no further duty to correspond with shareholders who had neither lodged
proofs nor made any enquiries in relation to the matter.
2. All claims by shareholders received prior to the declaration of a dividend are eligible for
consideration for inclusion in such distribution. Accordinslv. whether claims were
received befbre or after 18 Mav 201 1 was inelevant.
3. Where shareholders have made enquiries, it is appropriate for me to respond to those
enquiries, providing information sought by shareholders and advising them in relation to
the requirements should they wish to lodge a claim. It is also appropriate to correct any
evident misapprehension under which such enquirers might be labouring. However. the
directions ofthe couft should be sousht on this ouestron.
4. On their terms, the relevant regulations require the sending of a further notice to
shareholders of the company advising them of my intention to declare a dividend and
providing them with a deadline for the lodgement of claims for consideration for inclusion
in the distribution. However, in the light of the earlier orders, the position was not without
doubt and further directions should be souqht on that rssue.
DUK|0l/NFl30l l2
counsel was also asked to consider whether it was appropriate for a representative of the
shareholders to be heard by the Court on any such application for directions. The advice receivedwas that while, in counsel's view. I was able to adequately present the relevant matters forconsideration by the Court, it was appropriate to seek the Court's directions on that matter together
with the other issues discussed above.
On 28 September 2011 an application lbr appropriate directions was filed. A copy oftheapplication and suppofiing affidavit (without exhibits) is annexure 3. In summary, the directions
sought were:
1. That it is appropriate for me to respond to creditors who have contacted me to the extent ofanswering their enquiries and correcting any misapprehension as to the procedure forpressing a claim.
2. Whether it is appropriate for me to advise enquiring shareholders to seek legal advice or
advise them that I am ofthe view that ifthey are able to establish certain matters
(essentially. that they held shares at the times of the WUL takeover and the RTO) that they
would have admissible claims.
3. That I will discharge my duties by proceeding on the basis that any claim by a shareholder
not lodged by way ofa formal proofofdebt by an appropriate date to be specified has not
been and will not be proved in the winding up and that no fufther steps need be taken to
inform shareholders or seek oroofs.
4. That it will be sufficient for me to publish a Notice of Intention to Declare a Dividend inthe Gazette (and thus avoid sending a further circular to shareholders).
5. Whether it is appropriate for me to facilitate and fund legal representation for potential
shareholder claimants at the hearing ofthe application for the above directions.
Following the filing of the application I received correspondence from GRAIL's solicitors making
representations to the effect that the application was unnecessary, or at least premature, in that the
directions sought were, a1 least in principle, capable ofresolution by agreement between the PLIcreditors and me . That position failed to take into account the purpose of the application - that itprovide me with protection against any later assertions, whether by the PLI creditors or
shareholders, that I had not me1 my obligations to creditors. Plainly, no agreement with the PLI
creditors would provide an answer to any complaint by shareholders.
I was also requested to consent to GRAIL's intervention on the application. Given GRAIL'sobvious interest in the matter. I indicated that I would not oppose any application to intervene.
Given the complexity ofthe matter, and the potential dollar value of claims at stake, counsel
recommended that I request that the application be dealt with by ajudge rather than a master ofthe
DUKLOI/NF I3c)] 12
Courl. A further reason for making such a request is that" on the current application, it may be
necessary for the Court to consider and review the ramifications ofthe orders made by Master
Bur ley in 2010.
GRAIL's solicitors then advised that they (and LFD) opposed the application for directions at
paragraph 2, above, other than in relation to advising shareholders to seek their own legal advice,
and at paragraph 5 in relation to shareholder representation on the application.
GRAIL's solicitors also sought confirmation of the amount for which I would be prepared to admit
PLI creditors' claims, asserling that that information was relevant to the application for directions.
While I could see no such relevance, I have responded to those requests. That matter is discussed
further in the following section of this report.
The matter came on for hearing before Master Lunn on 1 7 November 201 1 . On that occasion,
GRAIL w'as granted leave to intervene. As foreshadowed, counsel for GRAIL opposed the
making oforders appointing any shareholder representative. Ultimately, the master ordered that I
attempt to facilitate legal representation for a representative ofthe shareholders but reseled any
decision in relation to the funding of such representation. The Master also indicated that the ChiefJustice would make a determination on the request for judge management ofthe application once
all parties were before the Court - that is, after directions had been made in relation to shareholder
repre sentatron.
Members may be aware that, in June 2011 I had written to the Australian Securities & Investments
Commission inviting participation in the process of determining shareholder claims in the winding
up. On that occasion, ASIC declined to participate. Following the orders of Master Lunn made on
17 November 2011, I wrote again to ASIC inviting that organisation to appear in the proceedings
on behalf of shareholders. One ofthe principal benefits of having ASIC accept this role was that
the Crown would presumably absorb an1' related costs from its operating budget. Once again, that
invitation was declined.
I subsequently held discussions with various firms including Johrson Winter & Slattery ("JWS").
A partner ofthat firm, David Proudman, advised that he was prepared to appear in the proceedings
on the next occasion and to arrange for representation for shareholders in the event that the Court
ruled that they should be thus represented.
The matter came back on before the Master on 16 December 201 1. Mark Livesey QC appeared on
instructions from JWS. On 9 January 2012 Master Lunn delivered judgment in which he found
that it was appropriate for the shareholders to be represented at the hearing ofthe balance oftheapplication and ordered that JWS be appointed for that purpose. (I note that the date on the
published judgment 23 December 2011 - is an error.) The costs ofthe shareholder
representative are to be fixed by the Court and paid from funds in the liquidation. The matter was
then adjoumed to 27 Jarlnry 2012. A copy of Master Lunn's judgment is attached as annexure 4.
DUKEoI/NFl30l l2
clearly, the application to court and the further steps that will need to be taken before thatapplication is finally decided has delayed, and will continue to delay, the palirnent of furtherdividends. In my last two repofis to the Committee I canvassed proposals for the expedition of thematter. including the possibility of declaring (with court approval) an interim dividend to pLI
creditors. Members will recall that, at the last meeting of the committee, that possibility was
discussed but ultimately rejected in favour ofdealing first with shareholder claims, the course
which I have since followed. I remain happy to discuss further any proposal for progressing the
palment of dividends and the finalisation of the administration.
Annexure 5 to this reporl is a letter from my solicitors to me daled 18 January 2012. In additionto making obserrations in relation to the role of the Committee, the letter encloses:
1. a detailed report in relation to legal matters, including counsels' opinion and the progress
and status ofthe application for directions; and
2. a schedule of communications with GRAIL and its solicitors.
POST-LIOUIDATION INTEREST CLAIMS
As referred to above, following the filing ofthe application for directions in relation to shareholder
claims, the solicitors for GRAIL sought my advice as to the amount for which I might be prepared
to admit the PLI claims of GRAIL and LFD.
As Members will recall, I have received a number of opinions in relation to the basis on whichGRAIL & LFD's claims for PLI should be assessed. The most recent opinion, from Dick\Vhitington QC and Sam Doyle, was annexed to and discussed at length in m1, report to the
Committee dated 3 November 2010.
Very briefly, the main issue in relation to the adjudication is whether the lodgement ofproofs ofdebt by GRAIL and LFD in 2000 and 2005 has the effect of capitalising interest and whether the
interest is capitalised thereafter (that is, whether the lodgements constitute an ongoing, prospective
election to capitalise). Ifthe interest is not capitalised, then (calculating to 31 December 201 1),
each of GR{IL and LFD's claims would be a little more than $30 million (out of total claims ofapproximately $83 million). If the interest is capitalised at all times after 2000, the claims rise toapproximately S80 million each, out of a total of $180 million.
Ifthe interest is capitalised in 2000 and 2005 but not on an ongoing basis, the claims lall bet\ryeen
those amounts at about $55 million each out of a total of approximately $130 million. On myinstructions, my solicitors wrote to those acting for both GRAIL and LFD on 27 October 201 1,
advising that I propose to admit the claims on that basis and to recommend that course to the
Committee. DMAW has advised me that this settlement proposal fairly reflects the stuength of the
Iegal positions of the respective parties. I look forward to discussing this matter further with the
Committee at the forthcoming meering.DtJKE0lr\Jfl301l2
Members should note that, if my adjudication on the claims by GRAIL & LFD were to be made onthat basis (or any basis which recognises a greater liability to those companies than was reflectedin my adjudication in 2005), they would also be entitled to a catch up dividend on their claims as
at 3 1 December 2004. It is difficult to project with any confidence the likely dividend outcome forPLI creditors. However, on the above basis GRAIL & LFD would each be entitled to a catch up
dividend of approximately $500,000. If we assume that there will ultimately be approximately
$9.5 million available for distribution and (conservatively, I believe) a marimum of $2 millionpaid to shareholders, then the outcome would be something like the following:
Funds available for PLI creditors
Catch up dividend to LFD
Catch up dividend to GRAIL
Balance available for second dividend
Estimated second PLI dividends:
LFD
GRAIL
SCBHK
Greyshield
DAC
Jarden
ATO
Total
$
7,500
530
510
6,460
2,760
2.700
44J
190
165
155
4)
6,460
I stress that the above numbers represent no more than a rough estimate ofthe possible outcome
for PLI creditors on the basis discussed above. Given the uncertainty in relation to the pool offunds available, no more accurate projection is possible at this time.
There have been no other developments in relation to PLI claims since my last report. I remain
hopeful that a sensible commercial resolution can be reached with relevant claimants without the
need to engage in furlher protracted proceedings. If necessary, I am prepared to fast-track related
mediation so that this issue does not delay the payment of further dividends and finalisation of thisadministration.
TNLATION
A1l ofDuke's tax retums up to 30 June 2009 have been lodged. Duke's tax retums for the years to
30 June 20 i 0 and 30 June 201 I are in the process of being finalised and will be lodged shorlly.
DUKEOIiNF] 3() I I2
l0
RECEIPTS AND PAYI\{ENTS
I have attached as annexure d to this report a summary of my receipts and payments in thisadministration up to 1,0 larnary 2012.
Annexare 7to this report is a summary of all fee accounts received from my legal advisers andpaid since 17 May 201r. Ratification of the payment of those fees will be sought at the nextmeeting of the Comrnittee. Annexure 8 is a schedule of my firm's fees and disbursements for theperiod from 1 June 201 1 to 31 December 20rr. Annexure 9 is a remuneration report for thatperiod in the format recommended by the lnsolvency Practitioners Association. Approval forpa]'rnent of my firm's fees will aiso be sought at tle next meeting of the Committee of Inspeclion.
FINALISATION
As will be clear, the payment of a final dividend in this administration has been delayed by theneed to seek court directions. I am hopeful that the court proceedings in that regard will becompleted within the next two months, aithough the timing is not under my contool. I remaincommitted to finalising this administration as soon as possibie.
Please do not hesitate to contact me ifyou wish to discuss any aspect of this report or thisadministration generally.
Yours sincerely,THEDUKE GROUPLIMITEDONLIOUDATION)
4?JOHN SHEAHANLiquidator
Documents attached
DUKEO]NFI3OI I2