One.Tel 'bad blood' troubles judge

'There is a liquidator who has animosity towards his creditors.' Justice Patricia Bergin

By InvestSMART · 6 Mar 2012

By InvestSMART ·
6 Mar 2012

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THE animosity displayed by One.Tel's special purpose liquidator in correspondence to creditors of the failed phone company was troubling, regardless of the reasons for it, a senior NSW Supreme Court judge said yesterday.

After hearing evidence from executives of Optus and Telstra, the chief judge in equity Justice Patricia Bergin told the liquidator's barrister she was "really troubled" by the fractured relationships.

Optus, out of pocket by $65 million because of the 2001 collapse, wants Justice Bergin to replace the liquidator, Paul Weston, or order an inquiry into his conduct.

Justice Bergin told Mr Weston's barrister, Nigel Cotman, SC, that the "lack of faith" raised questions of Mr Weston's role as an officer of the court and as trustee of the interests of One.Tel's 535 creditors owed $325 million.

She said this was "irrespective of the merits of people's opinions or their personalities, that they may not get on with each other, or one is truculent and the other isn't".

Mr Cotman said the bad blood arose partly because in 2008 the committee of inspection, representing creditors, "sought to usurp a significant part of the liquidator's role" by conducting negotiations to settle the case with Publishing and Broadcasting Ltd (PBL) and News.

"Yes I understand that, but the fact that that infection is there is worrying me, that there is a liquidator who has animosity towards his creditors," Justice Bergin said.

Creditors passed a no-confidence motion in Mr Weston at their annual meeting in 2009, and another asking him to resign the following year.

"This has been going on for so long and the lack of confidence has been present for so long," the judge said.

The court appointed Mr Weston, a partner of the accounting firm Pitcher Partners, in 2003 to investigate suing the former One.Tel directors including James Packer and Lachlan Murdoch for $132 million plus interest, now about $120 million.

The rest of the liquidation is under the control of the insolvency firm Ferrier Hodgson.

Mr Weston filed a suit against Mr Packer and Mr Murdoch and companies associated with them, including PBL and News Ltd, in 2007 and activated it by serving it on the defendants in 2010.

Pending the outcome of an appeal, that case has been dismissed under the statute of limitations and Mr Weston is considering bringing replacement claims not subject to time constraints.

Optus's chief complaint is that Mr Weston has spent more than $13 million, including his own remuneration and legal fees, without producing a result in the case against PBL and News.

Optus's barrister, John Sheahan, SC, said some of the expenses were for matters creditors should not have to pay for, such as investigations of commercial links between Optus and PBL. It was not clear what Mr Weston intended to achieve by having a lawyer review the long C7 decision jointly defended by Optus and PBL, Mr Sheahan said.

The case continues.

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Frequently Asked Questions about this Article…

What is the One.Tel liquidation dispute about?

The dispute centers on tension between One.Tel's special purpose liquidator, Paul Weston, and the company's creditors (535 creditors owed about $325 million). A senior NSW Supreme Court judge, Justice Patricia Bergin, expressed concern about fractured relationships and whether the liquidator is fulfilling his role properly, while major creditor Optus has asked the court to replace Weston or hold an inquiry into his conduct.

Who is Paul Weston and why is his conduct being questioned in the One.Tel case?

Paul Weston is the court-appointed special purpose liquidator (a partner at Pitcher Partners) tasked in 2003 with investigating claims against former One.Tel directors. His conduct is questioned because creditors have expressed a prolonged lack of confidence, Optus says he spent more than $13 million (including his own remuneration and legal fees) without producing results in the case against PBL and News Ltd, and the court has heard about strained relationships between him and creditors.

How much did Optus lose as a result of One.Tel’s collapse and what is Optus seeking?

Optus is reported to be out of pocket by $65 million because of One.Tel’s 2001 collapse. Optus wants Justice Bergin to either replace the special purpose liquidator Paul Weston or order an inquiry into his conduct, arguing that some expenses were inappropriate for creditors to fund.

What is the status of the lawsuit against James Packer, Lachlan Murdoch, PBL and News Ltd?

Weston filed a suit in 2007 and served the defendants in 2010. That case has been dismissed under the statute of limitations pending the outcome of an appeal. Weston is reported to be considering bringing replacement claims that would not be subject to the same time constraints.

How has the court reacted to the 'bad blood' between the liquidator and creditors?

Justice Patricia Bergin told the liquidator’s barrister she was 'really troubled' by the fractured relationships and said the 'lack of faith' raised questions about Weston’s role as an officer of the court and trustee of creditors' interests. The judge highlighted that long-standing animosity and lack of confidence were worrying regardless of personalities or the merits of opinions.

What role did the committee of inspection and creditors play in the One.Tel dispute?

The article says a committee of inspection representing creditors in 2008 tried to negotiate settlements with PBL and News, which the liquidator’s barrister described as an attempt to usurp part of the liquidator’s role. Creditors passed a no-confidence motion in Weston at their 2009 meeting and asked him to resign the following year.

Who controls the rest of the One.Tel liquidation and what claims was Weston originally investigating?

The broader One.Tel liquidation is under the insolvency firm Ferrier Hodgson. The court appointed Weston in 2003 to investigate suing former One.Tel directors — including James Packer and Lachlan Murdoch — for about $132 million plus interest (noted in the article as now about $120 million).

What lessons for everyday investors about creditor rights and liquidation oversight does the One.Tel case illustrate?

The One.Tel case highlights that liquidator conduct, fees and communication can become major points of contention; creditors can pass no-confidence motions and seek a liquidator’s removal; and courts can scrutinize liquidators and order inquiries. It also shows how long legal disputes (including statute of limitations issues) can affect recoveries for creditors.