Court sides with ASIC in question of who will control Paul Chiodo-linked private investment fund Keystone

The corporate regulator has come out on top in a court stoush over who should be appointed administrators to a private investment fund linked with Melbourne developer Paul Chiodo.

A court has overturned the appointment of administrators picked by directors of a large Melbourne-based private investment fund, amid fears more than a $100m in investor money has been blown including on celebrity boxer appearances.

Federal Court judge Mark Moshinsky sided with the Australian Securities and Investments Commission on Thursday when he ordered Deloitte’s Jason Tracy and Ms Lucica Palaghia be appointed administrators of Keystone Asset Management.

They will replace KordaMentha, who were unexpectedly appointed by Keystone’s directors last week almost immediately after the court appointed Mr Tracy and Ms Palaghia as receivers.

ASIC lost its bid to have Deloitte appointed as provisional liquidators.

The watchdog earlier argued the surprise appointment of voluntary administrators to Keystone by its directors would lead to a duplication of work and unnecessary costs to fund members.

Thursday’s hearing in the matter came one week after ASIC alleged property developer Paul Chiodo, who is linked with Keystone and is a former director of the company, spent $6.8m of investor money on personal expenses and hundreds of thousands of dollars on celebrity boxer appearances.

ASIC chair Joe Longo and deputy chair Sarah Court. Picture: NewsWire / Josie Hayden

As well, ASIC told the court it has fears for about $160m paid by the Chiodo Corporation to a building contractor via only oral agreements.

For ASIC, barrister Michael Rush KC urged Federal Court judge Mark Moshinsky to remove KordaMentha as administrators from the fund.

“We are conscious of (the) reducing pool of available funds. The risk of disagreement between insolvency practitioners and associated delays and costs must be avoided,” he said.

Dr Rush said there should be no question about who has control over the trust property, and said there does not appear to be a dispute that Keystone will be wound up.

He said Justice Moshinsky ordered one “single” set of insolvency practitioners, Mr Tracy and Ms Palaghia, to identify and preserve property including in the Shield Masterfund and the Quantum fund after they were subject to earlier freezing orders.

Mr Tracy is concerned about Deloitte’s ability to execute its functions “if there is an attempt (by the) administrators to take control of property”, Dr Rush said.

Dr Rush said at least 75 per cent of the work an administrator would do to produce a report for the second creditors meeting would be duplicated because Deloitte has already undertaken investigations and analysis.

Keystone did not air concerns about creditors or float appointing administrators at the last court hearing, Dr Rush said.

In response, for Keystone’s directors barrister Christopher Withers SC told the court the two sets of insolvency practitioners had “quite separate” tasks.

He said the administrators, KordaMentha, were tasked with a restructuring proposal and producing and evaluating “whether or not” Keystone could avoid liquidation.

The task of the receivers, Deloitte, was to prepare an opinion as to solvency and an opinion if there could be a likely return to investors and creditors in event Keystone is wound up.

“Concern about duplication is misplaced, It’s not like Deloitte have done this work previously,” he said.

“If there is some sort of turf warfare with respect to assets and the like there is a simple solution to that.”

Justice Moshinsky said he considered there to be “strong reasons in favour” of appointing Mr Tracy and Ms Palaghia ad administrators of Keystone.

“Material before the court demonstrates that there is likely to be duplication between the work already carried out,” he said.

Originally published as Court sides with ASIC in question of who will control Paul Chiodo-linked private investment fund Keystone