The Federal Court has ordered that a company associated with Melbourne business figure “Diamond” Joe Gutnick be wound up and declared insolvent amid allegations of millions of dollars of dishonest related party transactions.
The Federal Court on Wednesday appointed liquidators to the publicly traded mining company Merlin Diamonds Limited after a provisional liquidators’ report showed it had just $1331 in the bank and liabilities of $13 million.
Judge Michael O’Bryan said a liquidator would allow for investigations into a number of inter-company loans, related party transactions and “round robin” payments that “have the appearance of uncommercial and dishonest transactions”.
The Australian Securities and Investments Commission’s had requested a liquidator to be appointed after an investigation into Mr Gutnick, one of Australia’s best-known business figures. The ordained Rabbi was once a regular on the BRW Rich 200 list and a benefactor to many Jewish charities. As president of a stricken Melbourne Football Club during the 1990s, his financial support kept the club alive.
However, The Age and The Sydney Morning Heraldrevealed in a series of stories in 2019 that ASIC was investigating what happened to $18 million in loans that allegedly saw money flow from publicly listed companies controlled by Mr Gutnick to a private company that he was also closely involved with.
In a scathing judgment on Wednesday, Justice O’Bryan said Merlin “does not appear to take its legal obligations seriously,” had expressed “no contrition” for various corporate transgressions and faced a “strong prima facie case” that it had contravened the Corporations Act, particularly when it came to two related companies called Chabad and Axis.
Australia’s corporate watchdog has sought Federal Court approval to wind up Joseph Gutnick’s publicly-listed company, Merlin Diamonds, and flagged an inquiry into whether the colourful Melbourne businessman has breached his director’s duties.
The Australian Securities and Investments Commission’s (ASIC) move against the man known as “Diamond Joe” due to his appetite for outback diamond and gold deposits confirms the worst fears of Merlin Diamonds’ shareholders, who have already endured a seven-month trading ban on the company’s stock.
Joe Gutnick. CREDIT:JOHN WOUDSTRA
Court filings released to The Age and Sydney Morning Herald on Tuesday show ASIC is seeking an order to appoint Deloitte as liquidators of Merlin Diamonds, which had a market capitalisation of just $20 million when its stock was banned from trading last October.
ASIC has for months been probing how Merlin Diamonds has loaned $13 million of investor money to a private company, AXIS Consultants, which has long been associated with Mr Gutnick.
“The loans have been used to fund private companies associated with Joseph Gutnick and provide no discernible benefit to Merlin Diamonds,” ASIC said in a statement on Tuesday evening.
In one example cited by ASIC, it alleges Merlin Diamonds in October 2016 received $900,000 from a Mr Gutnick-linked company, Chabad Properties, for convertible notes and options issued to Chabad.
“The ultimate source of the $900,000 paid by Chabad, through a series of transactions involving related companies, was Merlin Diamonds. Mr Gutnick is a former director of Chabad,” ASIC’s media statement revealed.
Mr Gutnick, who resumed the chairmanship of Merlin Diamonds after emerging from a self-imposed bankruptcy last year, and his wife, Stera Gutnick, are also named in the ASIC’s court filing to wind up Merlin Diamonds. Mrs Gutnick is not a director of Merlin Diamonds and is not understood to be personally under investigation.
ASIC has asked the liquidators to examine and provide an opinion on whether Mr Gutnick and other past and present Merlin Diamonds directors and officers, have breached the Corporations Act.
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ASIC has applied to the Federal Court of Australia to wind up ASX-listed public company Merlin Diamonds Limited (ACN 009 153 119) (Merlin Diamonds) and for the appointment of provisional liquidators to report to the court pending hearing of its application for final relief.
The application arises from ASIC’s concerns which include:
since 2012, Merlin Diamonds has advanced substantial funds to Axis Consultants Pty Ltd (Axis), a related management services company, without shareholder approval ($13,752,124 owing as at 30 June 2018) (Loans);
the Loans have been used to fund private companies associated with Mr Joseph Gutnick (a current and former director of Merlin Diamonds and Axis respectively) and provide no discernible benefit to Merlin Diamonds;
the terms of the Loans appear to be unreasonable, uncommercial and non-arm’s length. No security for the Loans has been provided by Axis or any third party and the Loans are being fully provisioned (impairment provision) each financial year;
the Merlin Diamonds auditors have been unable to obtain sufficient appropriate audit evidence to be satisfied that Axis is likely to be able to repay the Loans;
in October 2016 Merlin Diamonds received $900,000 from Chabad Properties Pty Ltd (Chabad) for convertible notes and options issued to Chabad. The ultimate source of the $900,000 paid by Chabad, through a series of transactions involving related companies, was Merlin Diamonds. Mr Gutnick is a former director of Chabad;
audited accounts of Merlin Diamonds for the half-year ended 31 December 2018 (due 18 March 2019) have not been lodged with ASIC, a contravention of s320 of the Corporations Act;
the financial position of Merlin Diamonds as at 30 June 2018 raises concerns over the company’s solvency;
there has been no company secretary of Merlin Diamonds since 8 January 2019, a contravention of s204A(2) of the Corporations Act; and
corporate governance of Merlin Diamonds falls far short of the standard expected of an ASX-listed public company.
ASIC seeks from the Court:
the appointment of Mr Salvatore Algeri and Mr Timothy Norman, of Deloitte Financial Advisory Pty Ltd as joint and several provisional liquidators of the company; and
orders requiring the provisional liquidators to provide a detailed report to the Court that sets out, among other things:
the way in which Merlin Diamonds has made the Loans;
the recoverability of the Loans from Axis;
the $900,000 transaction involving Chabad; and
the financial position of Merlin Diamonds
for the Court’s consideration at a later date, orders to wind up the company and appointing Mr Algeri and Mr Norman as liquidators.
ASIC’s application will be heard in the Federal Court of Australia at Melbourne on a date to be fixed.
ASIC’s investigation into the affairs of Merlin Diamonds is continuing.
Background
Merlin Diamonds, a Melbourne-based company listed on ASX, engages in the exploration and development of diamond mining projects. Its flagship project is the Merlin diamond mine in the Northern Territory.
Merlin Diamond’s shares have been suspended from trading since 1 October 2018. Merlin Diamonds has 3.3 billion ordinary shares issued, and last traded at $0.006 per share – resulting in a market capitalisation of approximately $20 million.
Editor’s note:
The matter was listed for the first case management hearing on 4 June 2019 in the Federal Court, Melbourne.
Australia’s corporate watchdog has sought Federal Court approval to wind up Joseph Gutnick’s publicly-listed company, Merlin Diamonds, and flagged an inquiry into whether the colourful Melbourne businessman has breached his director’s duties.
The Australian Securities and Investments Commission’s (ASIC) move against the man known as “Diamond Joe” due to his appetite for outback diamond and gold deposits confirms the worst fears of Merlin Diamonds’ shareholders, who have already endured a seven-month trading ban on the company’s stock.
Court filings released to The Age and Sydney Morning Herald on Tuesday show ASIC is seeking an order to appoint Deloitte as liquidators of Merlin Diamonds, which had a market capitalisation of just $20 million when its stock was banned from trading last October.
ASIC has for months been probing how Merlin Diamonds has loaned $13 million of investor money to a private company, AXIS Consultants, which has long been associated with Mr Gutnick.
“The loans have been used to fund private companies associated with Joseph Gutnick and provide no discernible benefit to Merlin Diamonds,” ASIC said in a statement on Tuesday evening.
In one example cited by ASIC, it alleges Merlin Diamonds in October 2016 received $900,000 from a Mr Gutnick-linked company, Chabad Properties, for convertible notes and options issued to Chabad.
It wants this opinion, as well as advice on the company’s assets, solvency and likely return to creditors, within 42 days of the liquidators being appointed.
Mr Gutnick is one of Australia’s best-known business figures, was once a regular on the BRW richest 200 list and a benefactor to many Jewish charities.
As president of a stricken Melbourne Football Club during the 1990s, the ordained Rabbi’s financial support kept the club alive.
Mr Gutnick said on Tuesday that Merlin Diamonds was reviewing ASIC’s filings.
“It’s been handed to lawyers to examine and defend,” he said.
ASIC has sought an order to release to Deloitte documents it has amassed relevant to Merlin Diamonds, Mr and Mrs Gutnick and a host of Gutnick-controlled or associated private companies.
AXIS, which shares the same Moray Street Southbank office as Merlin Diamonds, has received about $18 million dollars in unsecured loans from publicly-traded companies led by Mr Gutnick, including Merlin Diamonds and the company formerly known as Top End Minerals.
“The ultimate source of the $900,000 paid by Chabad, through a series of transactions involving related companies, was Merlin Diamonds. Mr Gutnick is a former director of Chabad,” ASIC’s media statement revealed.
Mr Gutnick, who resumed the chairmanship of Merlin Diamonds after emerging from a self-imposed bankruptcy last year, and his wife, Stera Gutnick, are also named in the ASIC’s court filing to wind up Merlin Diamonds. Mrs Gutnick is not a director of Merlin Diamonds and is not understood to be personally under investigation.
ASIC has asked the liquidators to examine and provide an opinion on whether Mr Gutnick and other past and present Merlin Diamonds directors and officers, have breached the Corporations Act.
(Newswire.net — March 1, 2019) — Chabad-Lubavitch, also known simply as Chabad, is one of the most well-known and fastest growing Hasidic movements and the closest approximation to evangelism in Judaism. Their primary mission is to promote and revive the Jewish faith, while supporting Jewish communities around the globe. Their most visible presence are Chabad houses that can be found in cities of all sizes around the world.
What is Chabad?
Chabad local organizations provide for Jewish communities through outreach activities serving the needs of the community and advancing the renewal of the Jewish faith. Chabad centers often provide religious services, child care, education and organized activities for all ages.
While Chabad is an Orthodox Hasidic movement its practice blends traditional values with modern day techniques. Chabad advocate a policy of openness, accepting Jews from all levels of religious commitment and practice. They promote cooperation and non-judgment, while maintaining a positive outlook on life and helping those in need. Chabad supports the integration of the Jewish faith in all aspects of life, family and community.
Philanthropy and service are part of the Chabad movement’s commitment to the Jewish Community. They pride themselves on providing a home away from home for Jews anywhere in the world. The doors of Chabad Houses are open and accepting to every single Jew regardless of affiliation, background or religious commitment.
Today there are over 4,000 official Chabad emissary families operating 3,500 institutions in 81 countries with additional affiliated activities occurring in many more. The Chabad network also includes a group of rabbis and Jewish educators prominently featured on college campuses worldwide.
The Wealthy Donors of Chabad
Chabad relies heavily on donors to effectively carry out their activities. The organization has become an attractive pursuit to donors big and small. Most of the donations made to Chabad Houses and institutions across the world are made in small sums by private individuals, but there are an increasing number of notorious high-profile donors who give large donations to the movement.
Many of the world’s most successful businessmen and industry leaders have identified ties to the Chabad organization. Chabad has attracted top Israeli business leaders including Nochi Dankner, Israel’s richest woman Shari Arison through the Ted Arison Foundation, and venture capitalist Shlomo Kalish. Lev Leviev known as the “King of Diamonds” has been a major patron to the Chabad movement in the former Soviet Union and Eastern Europe.
Chabad is hugely popular In Russia and across Eastern Europe. One of the most sacred sites of the movement, the graves of spiritual leaders Rabbi Menachem Mendel Schneerson and Shmuel Schneersohn, is in Lyubavichi, Russia. Chabad Rabbi Berel Lazar has been recognized by the Russian government as the Chief Rabbi of Russia.
Many former Soviet oligarchs, some who have been drawn back to Judaism through Chabad, have become supporters and donors including Mikhail Mirilashvili of Georgia, Ukrainian billionaire Gennadiy Bogolyubov, Alexander Granovsky from Ukraine and Alexander Mashkevich. Although he is not Jewish, Tevfik Arif, a Kazak-Turkish real estate investor and partner in Doyen Group, has become one of the largest single donors to the Chabad Center of Port Washington in Long Island, the community where he owns a residence.
The religious movement has also found supporters among the most successful American business leaders. Ronald Perelman, American billionaire and philanthropist of Revlon fame, has become a close friend and follower of Rabbi Avrohom Shemtov, the director of the Philadelphia Lubavitcher Center. Perelman has made numerous donations to Chabad and has a building dedicated in his name at the University of Pennsylvania, the Ronald O. Perelman Center for Jewish Life-Lubavitch House. Other prominent American Chabad donors include: American investor and billionaire Michael Steinhardt, heir to Estee Lauder Companies Ronald Lauder and Shaya Boymelgreen.
Globally, Australian tycoon Joseph Gutnick, South African billionaire Nathan Kirsh, and Eduardo Elsztain, Argentina’s largest real-estate developer, are all well-known supporters of Chabad.
Australia’s corporate watchdog is investigating what happened to $18 million in loans that saw money flow from publicly listed companies controlled by mining magnate Joseph Gutnick to a private company that he was also closely involved with.
The Australian Securities and Investments Commission has confirmed to The Age and Sydney Morning Herald that it is investigating loans involving the Gutnick-chaired Merlin Diamonds, whose shares have been suspended from trading since October, and a private company called AXIS Consultants.
The centrepoint for the loans drama is Mr Gutnick’s level-one office at 42 Moray Street in Melbourne’s Southbank precinct. It is home to both Merlin Diamonds and AXIS.
Since 2001, AXIS has been integral to Mr Gutnick’s financial dealings. Several of his listed mining companies have contracted AXIS to provide administrative, management and geological services.
Filings with the Australian Securities Exchange show listed companies such as Merlin Diamonds, Top End Minerals (now called Myanmar Metals) have over several years advanced unsecured loans of at least $18 million to AXIS.
Another Gutnick-controlled public company, United States-based Legend International, has loaned AXIS at least $5.6 million.
Unfortunately for the shareholders of the Australian companies, AXIS has proved unwilling or incapable of repaying the bulk of the loans. Most of them have been written off as impairments and are, most likely, unrecoverable.
The terms of these AXIS loans have been extremely kind. “No fixed terms for repayment of loans between the parties, no security has been provided and no interest charged,” is how Merlin Diamonds explained the arrangement in its 2015 annual report.
ASIC investigators are trying to determine if there is any justification for publicly listed companies closely associated with Mr Gutnick making such generous loans to AXIS, a private entity also linked to the businessman.
The next question is why AXIS has not repaid the loans?
The conduit
Mr Gutnick was a long-standing director of AXIS until he declared himself bankrupt in July 2016. But it’s still closely tied to him.
His eldest son, Mordechai Gutnick, and long-time business associate Peter Lee are present AXIS directors. Another loyal ally, David Tyrwhitt, who has worked with Mr Gutnick for more than 20 years, was an AXIS director until October 2017.
Mr Gutnick, his son, Mr Lee and Mr Tyrwhitt, the AXIS directors, have also all appeared as either directors or senior executives at publicly listed companies, including Merlin Diamonds, that have loaned AXIS money over the past six years.
So when the ASX began asking questions of Merlin Diamonds about its AXIS loans in October last year, it was reasonable to presume answers would be forthcoming given the crossover in directors and shared office.
Merlin diamonds is closely linked to Gutnick.
But, remarkably, Merlin Diamonds told the ASX it “does not have access to the financial information of AXIS”.
Unlike the Merlin Diamonds board, or the stock exchange regulator, The Age and SMH have been able to access some of AXIS’s confidential financial information.
It shows that AXIS has operated as a conduit for the transfer of huge sums of money from public companies controlled by Mr Gutnick to other businesses strongly linked to his family.
One AXIS balance sheet from 2014 shows that the publicly owned Merlin Diamonds, Top End Minerals and Legend International between them had loaned more than $12 million to AXIS.
Two more private companies associated with Mr Gutnick had also loaned AXIS $2.3 million
Money in, money out
While the loaned money was flowing from the publicly listed companies into AXIS, even more money was going out of the private company.
As of 2014, several other Gutnick-linked companies borrowed more than $15 million from AXIS. The AXIS balance sheet records a net loss in 2014 of $1.79 million and a $2.5 million gap between its current assets and liabilities.
While it is clear there is plenty of financial detective work for ASIC to do, some investors, while grateful for the regulator’s interest, are perplexed as to why it has taken so long for anyone to act.
“This has been hidden in plain sight for years. The loans, the conflicts of interest and the lack of repayment are all there in the ASX filings,” said one former Gutnick associate who asked not to be named for fear of receiving a writ from a businessman who has in the past sued his own family members.
Then rich-lister Rabbi Joseph Gutnick in his Melbourne office in 2013.CREDIT:JESSE MARLOW
Hard times for the chosen one
It is difficult to fathom that the man with two mortgages over his St Kilda East house was just five years ago wealthy enough to be included at the tail end of the BRW richest 200 list with an estimated fortune of $255 million.
Folklore has it that the starting point for Mr Gutnick’s amassing of riches was a prophecy made in the late 1980s by the New York-based spiritual leader of the ultra-orthodox Lubavitch Hasidic movement.
The late Rebbe Menachem Mendel Schneerson foresaw great wealth for Mr Gutnick in the discovery of gold and diamonds in the Australian outback.
The Rebbe’s endorsement of Mr Gutnick’s Australian mining ventures carried enormous weight among ultra-orthodox investors who ploughed money into Gutnick-led ventures. Some won and some lost. Such is the mining game.
By the end of the 1990s, Mr Gutnick was at the peak of his powers. The saviour of his beloved Melbourne Demons, Mr Gutnick and his family travelled by private jet and Rolls-Royce and Bentley cars. They had bodyguards and friends in high places in Australia, the United States and Israel.
No more so than Israeli Prime Minister Benjamin “Bibi” Netanyahu. When Mr Gutnick helped bankroll Mr Netanyahu’s 1996 election campaign, he made an influential friend for life.
Gutnick with Israeli Prime Minister Benjamin Netanyahu in 2001.CREDIT:JOE ARMAO
After experiencing great highs and depressing lows over the next 20 years, everything finally fell apart for Mr Gutnick in 2016 when a $103 million deal between his Legend International company and the Indian Farmers Fertiliser Cooperative came unstuck, resulting in expensive litigation and the businessman’s decision to declare bankruptcy.
Former bankrupt mining tycoon Joseph Gutnick has suffered another setback in his turbulent career after a court tore up a deal to spirit away a mining project worth as much as $174 million from creditors to one of his companies by selling it to his sister for $1.
Liquidators to Legend International chalked up a major win for the mining exploration group against its once mining magnate director Mr Gutnick in the Supreme Court of Victoria late last week.
Joseph Gutnick declared himself bankrupt in July 2016. CREDIT:JESSE MARLOW
The corporate regulator is also believed to be reviewing the matter, and it could lead to regulatory action against the former Melbourne Football Club president.
Late last week, Associate Justice Rodney Randall found the sale of Legend International’s ownership in a potentially lucrative mining project in North Queensland to a company operated by Mr Gutnick’s Sydney-based sister Pnina Feldman and nephew Shalom Feldman “uncommercial”, “insolvent” and “voidable”.
Mrs Feldman, the wife of Bondi’s Yeshiva Centre leader Rabbi Pinchus Feldman, famously took her brother to court in 2003 over a separate loan disagreement.
Pnina Feldman leaving a separate court case with her husband Rabbi Pinchus Feldman that also featured her brother Joseph Gutnick as a defendant. CREDIT:SYDNEY MORNING HERALD
The recent court case brought by liquidators to Legend was part of a wider complex dispute between Mr Gutnick, Legend and the multi-billion dollar company that signed a deal with Legend, the Indian Farmers Fertiliser Cooperative (IFFCO).
The legal battle sparked Mr Gutnick’s shock bankruptcy in June 2016 and led to Mark Korda and Craig Shepherd from KordaMentha acting as liquidators to Legend International that month.
Mr Gutnick was discharged from his bankruptcy in June this year after striking a sweetheart deal with his trustees in bankruptcy to clear his $175 million in debt for less than one cent in the dollar.
Mr Gutnick and Legend’s dispute with IFFCO links back 2008 when Legend inked a $103 million contract with IFFCO to supply phosphate to IFFCO.
Under the deal, IFFCO was to invest the $103 million over two years through shares and options in Legend International Holdings.
An aerial view of Mount Isa. Legend International owned 100 per cent of shares in Paradise Phosphate which owns a major deposit outside of Mount Isa.
However, the deal fell apart when Legend failed to deliver any phosphate, a key ingredient in fertiliser.
In 2015, IFFCO later sought to recoup its investments by suing Legend and Mr Gutnick in Singapore and later in Australia.
The legal stoush culminated in the Supreme Court of Victoria finding on December 21, 2015 that IFFCO was owed more than $80 million by Legend and Mr Gutnick.
But four weeks before Supreme Court of Victoria handed down its decision in IFFCO’s case, Legend executed a new deal that transferred Legend’s main assets – its 100 per cent ownership of one-time ASX hopeful Paradise Phosphate – to entities linked to the Gutnick family. This included a company Queensland Phosphate, that was set up a week earlier.
Queensland Phosphate appointed a receiver over Paradise a few months later when Mr Gutnick lost his appeal. That receiver, Christopher Palmer of O’Brien Palmer, then sold Paradise’s assets to Queensland Phosphate for $1.
Associate Justice Randall is expected to hand down orders that the asset be transferred to liquidators acting on behalf of creditors to Legend in early January.
As a result of the Gutnicks losing the case, Australia’s largest phosphate deposit is expected to come up for sale early next year. Maverick MP Bob Katter testified during the trial that he planned to assist the funding of the development of the mine in Mount Isa.
LOSTMESSIAH 