Judge calls for auction

Commonwealth Bank and St George Bank, which are owed about $122 million, want the board-appointed administrator, Tom Fernandez, replaced by Craig Crosbie and Ian Carson of PPB.

The banks, the Australian Securities and Investments Commission and a group of the 6300 investors who sank funds into Willmott's tree plantation schemes claim Mr Fernandez does not have the resources to manage a large and complex insolvency such as Willmott, where $400 million of growers' funds are at stake.

But the court heard that Willmott's former chief executive, Marcus Derham, its external auditor, David Armstrong of Armstrong Partners, and a different faction of grower/investors have joined forces and thrown their support behind Mr Fernandez.

During a lengthy hearing in Melbourne yesterday, counsel for the banks Philip Crutchfield, SC, told Justice Ray Finkelstein there had been "an unhealthy level of proxy solicitation by Willmott insiders", especially Mr Derham who, he said, had used his corporate email account to solicit proxies and to communicate with Mr Fernandez about shoring up proxies to support Mr Fernandez.

Mr Crutchfield also said Mr Fernandez would be "consumed" by the administration task and "will not be able to cope".

CBA's total exposure to Willmott runs to almost $300 million. It lent the bulk of the $122 million joint debt facility with St George, and in 2006 it paid $60 million, or face value, for Willmott's loan book.

In the past four years CBA has lent a further $140 million to investors in Willmott's tree plantation schemes; these are individual loans, however, and are not necessarily in default.

Justice Finkelstein yesterday revealed his own concerns about the influence of banks and other significant creditors in an insolvency as he directed CBA to draw up a list of all the insolvency appointments CBA has given to PPB over the years.

"I have, for some years, had a growing sense of unease about the power and influence that large creditors have over large insolvency administrations," the judge said. "It is not beyond a large creditor, and it does not have to be just secured creditors I am talking about . . . if he has got an insolvency administrator who is not 'playing the ball', to say 'I'm going to vote you out'."

His comment drew protest from Mr Crutchfield.

But Justice Finkelstein has suggested one answer may be to auction the administrator's role via a court-supervised process a proposal that mirrors his suggestion in the Centro class action where two firms of lawyers turned up to represent aggrieved Centro shareholders. Those two firms still represent different sets of Centro shareholders, but a different judge is now hearing the case.

ASIC's lawyers have told the court the regulator would support a competitive bidding process. But ASIC wants a new administrator to be independent, backed by sufficient financial, physical and human resources, with sufficient professional indemnity and capable IT systems for a big insolvency.

It also had to be based in Victoria with offices in other states, and it had to be a practitioner with experience in handling insolvent managed investment schemes.

The hearing continues tomorrow.