Without much proof… the Sydney Morning Herald has published accusations the son of a wealthy Chinese businessman had more than $200 million flow through his Australian property development company without any records to show for it
27 August 2020 | Marcus Reubenstein
Like most liquidations the breakup of AXF Group Pty. Ltd., a private company which is an investment vehicle for the son of a Chinese property tycoon, is messy. When the corporate undertakers get involved, and the newspapers jump on the story, lines tend to get a little blurred. In this case, insolvency firm Jirsch Sutherland and the Sydney Morning Herald.
Sydney-based Richard Gu is the son of Gu Qi Liang who owns Shanghai development company Xiang Fu. AXF Group had investments in property as well as substantial holdings in two ongoing businesses, Tasmanian bottled water company Cape Grim and the Gold Ridge gold mine in the Solomon Islands.
The single largest creditor of the AXF Group is Gu Qi Liang.
Richard Gu woke up last Saturday to find his name on the front page of the Sydney Morning Herald (SMH) under the banner of a “mystery $200 million” flowing through his business quoting just one source, sacked Jirsch Sutherland liquidator Malcolm Howell.
The Herald clearly indicated that Howell had been the court appointed liquidator. However, there was scant mention of an important fact – Howell was removed as liquidator after he unsuccessfully challenged the overwhelming majority of creditors in the Supreme Court of Victoria.
One creditor told APAC News:
“The way he ran this liquidation was a disaster, before he even achieved anything of substance Howell racked up a million dollars in legal fees.”
The liquidation is now in the hands of Grant Thornton, which has one of the largest insolvency practices in Australia.
No creditors’ meeting
Sacked liquidator, Howell raised the ire of Gu and a majority of AXF Group creditors because he refused their requests to hold a creditors’ meeting, where he was likely to be removed. He was so adamant that creditors should not meet he took the matter all the way to the Victorian Supreme Court and the lost the case!
The final ten pages of Justice Almond’s judgement deal specifically with Howell’s complaints in relation to Richard Gu and AXF Group. The judge overwhelmingly dismisses or casts doubt over those complaints.
The SMH’s front-page splash duly reported Howell’s version that there had been “a blatant abuse” of insolvency laws and “in this case I was faced with very powerful related parties.”
The article parroted the concerns of a disgruntled ex-liquidator in such way that they appeared to be facts, however, those ‘facts’ had already been rejected by a Supreme Court justice.
When the SMH sub-editors wrote ‘Nothing adds up’ did they realise that phrase could quite easily have been applied to their investigation?
What mystery money?
Without any corroborated evidence, or serious attempts to obtain facts, the SMH casts Gu’s AFX Group as a black hole into which $200 million was thrown. It writes “making the money trail harder” is a lack of records and company books – that is based on the word of Howell, the Supreme Court saw things very differently.
The biggest single source of funding to the AFX Group was a $50 million line of credit and the Supreme Court says, “The arrangement appears to have been comprehensively documented.”
Given Justice Almond’s examination of the facts, it might be perceived as slanderous for the SMH to suggest these funds went missing.
The SMH also regurgitated claims that Gu failed to “provide books, records or company accounts covering the past five years.” Gu’s lawyers say they submitted 3,000 pages of documents pertaining to AFX Group whilst Howell was acting as liquidator. It is believed that the liquidation files, since handed over to Grant Thornton, have now ballooned to more than 6,000 pages.
It’s been reported that prior to his ousting as liquidator, Howell calculated his replacements at Grant Thornton would burn up an estimated $78,000 in consulting fees just reading the files.
This hardly lines up with the ‘no company records’ allegation cast into the SMH newsroom and swallowed hook, line and sinker by Kate McClymont.
Fees pile up
A crucial issue which the SMH article ignores is the matter of the cost of this liquidation. According to Gu’s lawyers, by the time Howell had been removed, not one dollar of creditors’ funds had been recovered.
In the process, they say, Howell managed to rack up $1 million with lawyers and $300,000 of his own fees. The legal fees were accrued fighting off the creditors whose money he was supposed to be recovering.
Those fees were covered by a third-party litigation funder, who would normally assess the situation, determine the risk and set fees accordingly.
Powerful related parties… on both sides
APAC News consulted experts, not associated with this insolvency, they confirmed normal industry practice in seeking litigation funding is that liquidators should invite at least three funders to propose funding arrangements.
Howell went to just one funder, Claims Funding Australia (CFA) which is owned by class action lawyers Maurice Blackburn.
Howell’s solicitor is Lily Nguyen a partner at law firm Lander and Rogers. Previously she’d spent nine years as a solicitor with Maurice Blackburn – the parent company of the funders who stood to make millions out of her client’s hasty appointment.
Richard Gu’s lawyers wrote to Lander and Rogers in May 2020 detailing their concerns over the conduct of Howell. They state Howell signed an agreement with CFA on 28 February, which CFA countersigned two business days later on 3 March 2020.
That agreement would have delivered CFA all of their funding money plus another 15% of any funds recovered in the liquidation – not bad going in a $200 million liquidation.
AXF creditors kept out of the loop
Gu’s lawyers say that Howell sent a report to creditors on 4 March 2020, without informing them a funding arrangement had been entered into on their behalf. To make matters worse, they questioned whether Howell had withheld this information from the court in a sworn affidavit dated just two days before the funding agreement was signed.
In its reporting on this matter, insolvency news website iNO raised the question as to whether the Australian Tax Office (which is claiming $12.9 million) should have provided a supporting affidavit for Howell’s application for court approval of the funding agreement?
The ATO is the major substantial creditor not related to AXF Group. According to an affidavit filed by Gu’s lawyers on his behalf, creditors representing $152 million of the $204 million owed were not supportive of Howell.
According to Gu, “The funding agreement was only notified to a handful of creditors on the same day as the application to court for its approval.” He says Howell provided no information about the details of the funding required and gave them a day and a half to put together an alternate proposal.
In his application to the Court to set aside the funding agreement, Gu questioned why CFA “a friendly funder” was appointed without Howell having gone to market first.
ATO in the loop?
Howell tells APAC News he stands by the arrangement, saying, “I negotiated a very reasonable agreement with CFA and due to Mr. Gu moving assets, I had to move quickly so the CFA Agreement was entered into.”
Responding to whether he obtained a supporting affidavit from the ATO in relation to ex-parte funding arrangements, he says, “Not an affidavit but they provided an email in support, which was provided to the court.”
Howell did not provide APAC News with a copy of the email in support of his assertion.
According to Gu, that email had nothing to do with the tax office supporting the funding agreement, it simply stated the ATO supported the question of Howell remaining liquidator.
Liquidations gone bad
Malcolm Howell is no stranger to controversial liquidations, in February this year he was removed as the liquidator for Stellar Developments following a ruling in the NSW Supreme Court. In that case the court found that Howell did not conduct a poll on a motion to have him removed, he ruled the motion defeated on ‘voices’.
The creditor who voted to oust Howell was owed $102 million, the court identified the two main creditors who supported Howell were owed a paltry $1,090.90 and $495.00 respectively.
In 2018 he was subject to proceedings in the Victorian Supreme Court where Justice Randall found that, as liquidator of a group of petrol stations he’d entered into a side agreement for which the liquidators’ “motivations… [were] unreasonable” and the process was “flawed from the start.”
Last month, in a case involving his firm Jirsch Sutherland one its liquidators was criminally charged by ASIC for allegedly misappropriating $238,502.23 in funds from four liquidations.
The accused former Jirsch Sutherland liquidator, Ms. Amanda Young now faces potential jail time.
She was banned as a liquidator by ASIC in June 2020 and is no longer with the firm. There is no connection between Mr. Howell and alleged activity of his former colleague.
None of this was reported by the Sydney Morning Herald.
Richard Gu was painted as the villain in this saga without any consideration to the past conduct of those making allegations against him.
The Herald made a significant point of stating that Gu had a drink-driving record and that he’d defaulted on a string of high-priced residential property transactions. However, from all reports he – and not the vendors – was the one left out of pocket from those deals gone bad.
One of the more curious notes of the AXF Group saga is what happened to Richard Gu’s 26 metre motor yacht Fat Fish.
It was reported by the SMH that the luxury yacht was repossessed by the National Australia Bank (NAB) and is now impounded awaiting auction. A simple reading of the Supreme Court judgement against Howell shows that not to be the case.
According to Gu’s lawyer Fat Fish was not impounded by NAB, rather it was ‘nabbed’ by repossession agents hired by Howell.
The lawyers emailed Howell on 12 February 2020 warning him the yacht was not an asset subject to seizure and that he, or his agents, would be committing a “trespass” if they attempted to seize the yacht.
According to Howell there was no trespass, “It was an asset of the company and Mr Gu had transferred the registration days before my appointment. I seized the vessel and subsequently handed it over to NAB.”
When a repo crew arrived at the Sydney marina where Fat Fish was berthed they were refused access and police were called. NSW Police confirms officers “attended Sydney Wharf Marina at 3:00pm on Wednesday 12 February 2020” and they left without the repossession proceeding.
Gu says the agents returned sometime after police they “hot-wired” the motorboat and then sailed it to Newcastle.
According to Gu, Howell was forced to agree to hand the vessel back to him and NAB only got involved after Howell’s possession of the boat was terminated by the Supreme Court.
Where’s the public interest?
While the SMH’s front page headline trumpeted this as an “exclusive” the facts of this case, and Howell’s grievances, had been reported two days earlier by The Australian and the day before that by industry news site iNO.
One of Gu’s creditors says he can be impulsive and “reckless” but “there’s a long way between that and how he was portrayed on the front page of the Herald,” adding, “85 percent of debts are owed to related parties, he didn’t rip off investors or shareholders, most of the financial pain will be felt by his own family.”
There is more than just a whiff that one simple fact propelled this story to the front page of the Sydney Morning Herald. It involved a Chinese-Australian businessman.
As to how the story made it to the Herald in the first place? That may have something to do with the fact that Howell engaged a public relations agent to tell his side of the story.
When contacted by APAC News, Howell’s PR agent strenuously stood by all of the allegations made in the SMH article. Yet when pressed to provide any proof to back up her client’s claim there was no response.
Not only had Gu’s lawyers disputed many of the claims made about their client in this article they’d done so in public proceedings and through documents tendered in courts. The SMH’s top investigative reporter, Kate McClymont failed give any space to their argument nor did she bother to include any quotes from Gu himself.
If the SMH genuinely believed it was in the public interest to splash allegations of gross impropriety against Richard Gu across its pages then it follows there was an obligation to do some basic fact checking before going to print.
Editor’s Note: A spokesperson for Malcolm Howell contacted APAC News after publication, in relation to allegations he’d entered a funding arrangement detrimental to the interests of creditors, stating, “he did seek funding from other commercial funders.” Mr. Howell’s representative declined to provide any proof to support that claim.