Plaintiffs v Defendants

1. On 2 July 2025, I heard and granted an application for the appointment of provisional liquidators to the corporate defendants to this proceeding. I gave oral reasons ex tempore at the hearing. I consider it appropriate to publish my reasons, which I have revised so as to more fulsomely set out the background to this proceeding and the application.

1. This proceeding was commenced on 17 February 2025 by originating process by three plaintiffs at that point in time, with several supporting affidavits. The originating process was subsequently amended on 13 May 2025 (AOP), including to add a number of plaintiffs to the proceeding, such that there are now some 27 plaintiffs to this proceeding and there are 28 defendants.
2. The plaintiffs are investors in property development projects operated by the defendants.
3. The defendants are the Lion Property Group Pty Ltd (LPG Head Co), another entity called Lion Property Group Sales Pty Ltd (LPG Sales Co), John Sader and Garry Pesochinsky and several other defendants. Those remaining defendants are what have been described as special purchase vehicles (SPVs, each a SPV) that have been established for the purpose of individual projects, primarily for the purchase of land, development of the land into several apartments, houses or townhouses, and then sale of those properties. Mr Sader and Mr Pesochinsky are directors and shareholders of LPG Head Co and LPG Sales Co. One or the other, or both of them, are also directors and shareholders of the SPVs.

1. The plaintiffs filed a statement of claim on 14 April 2025 (in accordance with orders made by me on 7 March 2025) and an amended statement of claim on 14 May 2025 (ASOC).
2. It suffices for the purpose of this ruling to summarise the claims made by the plaintiffs in the ASOC at a general level. The allegations are complex, as are the arrangements for investing in the individual projects. It is unnecessary at this stage for me to describe that in detail. In essence, the plaintiffs allege (amongst other things) that:

(a) the 'Lion Property Group' of companies (the Lion Property Group) is and was a group of companies under the common ownership and control of its founders, which included Mr Sader and Mr Pesochinsky and since December 2020, their sole control and ownership. The Lion Property Group comprises LPG Head Co, LPG Sales Co, the SPVs, and other entities which are not named as defendants in this proceeding;

(b) the Lion Property Group offers two primary services, being opportunities to invest in property development projects, and property sales;

(c) investors contribute cash for the projects, subject to an investment agreement, usually in return for shares in the SPV or where the SPV is the trustee of a unit trust, units in the unit trust. There were various arrangements for returns to be paid to investors: some of these involved monthly payments; return of the capital invested; and a share of profits;

(d) LPG Head Co entered into management agreements with some or all of the SPVs, by which LPG Head Co and the relevant SPG entered into a joint venture for the acquisition and development of the property. LPG Head Co was to undertake the management of the project and receive an agreed management fee in an amount specified, to be paid from the net proceeds of the sale of the developed residences;

(e) LPG Head Co entered into loan agreements with some or all of the SPVs, by which the relevant SPV made loans to LPG Head Co or another entity within the Lion Property Group;

(f) the management agreements and the loan agreements were not disclosed to investors prior to them making their investments;

(g) in respect of most, if not all of the projects, one or more mortgages are registered on the titles to the properties. These seem to be in respect of financing for the acquisition of the properties and for construction finance, amongst other things;

(h) management fees have been paid by some SPVs to LPG Head Co before those fees are required to be paid and in amounts in excess of the specified fees;

(i) a number of mortgagees in respect of specific projects have taken enforcement action;

(j) the terms of the plaintiffs' investment agreements have been breached by the SPV failing to pay monthly payments due since around October and November 2024; failing to apply the invested funds solely for carrying out the project; failing to maintain proper accounts and records in respect of the expenditure and income of the project or provide investors with yearly reports; and failing to manage the invested funds so as to ensure there is sufficient funds available to carry out the project and pay all related costs and expenses;

(k) by reason of those breaches, the SPVs are indebted to the investors or the investors have suffered or are likely to suffer loss and damage;

(l) for the SPVs who are trustees of unit trusts for the projects, those SPVs have breached their duties as trustees;

(m) in marketing the projects to investors and procuring the plaintiffs to invest in them, the defendants engaged in conduct which was misleading or deceptive or likely to mislead or deceive, which has caused loss and damage to the plaintiffs;

(n) the individual projects are managed investment schemes within the meaning of s 9 of the Corporations Act 2001 (Cth) (the Act), which were required to be registered under s 601EB(1) of the Act but were not so registered (Project Schemes);

(o) further or alternatively, the Lion Property Group comprised a scheme (Group Scheme) which was also a managed investment scheme required to be, but not, registered under the Act; and

(p) Mr Sader and Mr Pesochinsky were involved in the conduct of the corporate defendants and are liable to the plaintiffs.

1. By the AOP and the ASOC, the plaintiffs seek relief including that:

(a) the monies owing to them by the SPV be paid;

(b) damages for breach of the investment agreements;

(c) equitable compensation and other relief for breach of trust;

(d) orders for damages and/or compensation under the Act;

(e) orders for the winding up of each Project Scheme, further or alternatively the Group Scheme, pursuant to s 601EE(1) of the Act; and

(f) further or alternatively, each of the corporate defendants be wound up pursuant to s 461(1) of the Act.

The interlocutory application for the appointment of receivers or provisional liquidators

1. At the time of filing the originating process, the plaintiffs also filed an interlocutory process (Interlocutory Process) seeking interim relief, primarily in the form of appointing receivers and managers, or alternatively provisional liquidators, to the corporate defendants. That interlocutory process has been amended since then, with the relevant amendment being the one filed on 13 May 2025.
2. There was a directions hearing in respect of the Interlocutory Process held on 7 March 2025 before me and I have been managing the proceeding since then. Orders were made for the provision of further materials by the plaintiffs, for affidavits by the defendants, for pleadings to be filed, and for the Interlocutory Process to be listed for hearing on 21 May 2025.
3. On 11 April 2025, upon the application of the defendants, the dates by which they were to file their affidavits and defence were extended, and the date for the hearing of the Interlocutory Process was changed to 10 June 2025. Orders were also made for the plaintiffs to amend the originating process and the Interlocutory Process.
4. On 27 May 2025, at the parties' request, the Court convened so that the parties could provide me with proposed consent orders for the resolution of the Interlocutory Process, which I made on that day (Consent Orders).
5. In essence, by the Consent Orders, orders were made:

(a) appointing an independent accountant (being John Lindholm of KPMG and Matthew Hutton of McGrathNicol, jointly) to investigate and report on the financial position of the projects and the corporate defendants, in particular:

(i) the identification of the assets and liabilities of the projects and the corporate defendants;

(ii) opinion as to the solvency of the projects and the corporate defendants;

(iii) the flow of funds within the projects and between the corporate defendants, including any payments to related parties or entities;

(iv) an assessment of the current and future cashflow of the projects and the corporate defendants until completion of the projects; and

(v) any other information necessary to assess the financial position of the projects and the corporate defendants;

(b) setting a deadline of 30 days (that is, 26 June 2025), for the provision of the independent accountant's report;

(c) requiring the defendants to forthwith provide the independent accountant with documents specified in the orders and any other documents or information requested by the independent accountant to prepare their report;

(d) requiring the defendants to pay the independent accountant for their remuneration and expenses properly incurred in performing their duties, capped to the sum of $100,000, to be paid in three instalments ($20,000 by 28 May; $40,000 by 3 June; and, $40,000 by 17 June);

(e) striking out the Interlocutory Process with a right of reinstatement reserved to the plaintiffs, such right to be exercisable after provision of the independent accountant's report or a failure by the defendants to comply with the Consent Orders, on five working days written notice to the defendants;

(f) striking out certain paragraphs of the ASOC and AOP, being those in connection with seeking the winding up of the Project Schemes, the Group Scheme, and the corporate defendants;

(g) extending to 10 June 2025 the date by which the defendants must file their defence; and

(h) vacating the hearing of the Interlocutory Process listed for 10 June 2025.

Events subsequent to the Consent Orders and listing the proceeding for mention

1. As I indicated earlier, the independent accountant's report was due to be provided to the Court and to the parties by 26 June 2025.
2. The Court received a letter from the independent accountant on that date (Independent Accountant Letter), stating that (amongst other things):

(a) the independent accountant had not been paid all of their fees as required by the Consent Orders, as the third tranche of $40,000 had not been paid by the due date or at all;

(b) they had not been provided with all of the documents that the defendants were required to provide them with, attaching a list of the documents which had been ordered to be provided with an indication of whether those documents had been given to the independent accountant;

(c) they were not in a position to finalise their report; and

(d) the independent accountant had carried out a preliminary review of the documents provided as of that date and had not identified any evidence to suggest that any of the projects and the corporate defendants are not insolvent.

1. Upon receipt of the Independent Accountant Letter, on my instruction my Associates sent an email to the parties' solicitors attaching a copy of that letter and informing them that the proceeding would be listed for a mention at 9.30am on 2 July 2025. My purpose in mentioning the proceeding was to find out why the defendants had not complied with the Consent Orders and then to determine an appropriate way forward.
2. On 16 June 2025, the plaintiffs' solicitors served a notice of reinstatement on the defendants' solicitors based on the defendants' failure to file their defence in accordance with the Consent Orders and that they were exercising their rights to reinstate the Interlocutory Process and the paragraphs of the ASOC and AOP referred to in paragraph 12(f) above.

Reinstatement of the Interlocutory Process, certain paragraphs of the AOP, and appointment of provisional liquidators

1. At the hearing on 2 July 2025, counsel for the defendants stated that they appeared as a courtesy to the Court, indicated that they had very limited instructions for the hearing, and they anticipated that their instructing solicitors would be soon coming off the record. The Court appreciates counsel appearing in those circumstances and the assistance which they provided. As I indicated at the hearing, my criticisms of the defendants were directed at the defendants themselves and not their counsel or solicitors.
2. Counsel for the defendants informed the Court that there was no good explanation for the defendants not having provided all of the documents, that the failure to pay the final $40,000 to the independent accountant was due to there being insufficient funds, and that Mr Sader and Mr Pesochinsky were taking steps to put the corporate defendants into voluntary administration and had been talking with a potential administrator in that regard.
3. Counsel for the plaintiffs first sought the reinstatement of the Interlocutory Process and the struck out paragraphs of the ASOC and AOP. The requisite notice for that having been given, I was satisfied that it was appropriate to order that reinstatement and I made that order.
4. That having been done, the plaintiffs went on to seek the orders in the Interlocutory Process for appointing a provisional liquidator to the corporate defendants. It was proposed that John Lindholm and Emily Seeckts, both of KPMG, be appointed as provisional liquidators of the corporate defendants pursuant to s 472(2) of the Act and that that appointment be to each of the corporate defendants whether in their own right or in their capacity as trustee of any trust. There are various machinery orders associated with that, which I will go through shortly.
5. The Court has power under s 472(2) to appoint a registered liquidator provisionally at any time after the filing of a winding-up application and before the making of a winding-up order is made. The relief sought in the AOP as reinstated includes an order for the winding-up of the corporate defendants and so there is a winding-up application before the Court, and the power to appoint a provisional liquidator is therefore enlivened.
6. The authorities establish that appointing a provisional liquidator pending adjudication of an application for a winding-up is a drastic intrusion into the affairs of a company and is not to be contemplated if other measures would be adequate to preserve the status quo.[1]
7. In Emmacourt Pty Ltd v Jewels of Australia Pty Ltd, the court said:[2]

If the court has no confidence that the affairs of the company are being carried out properly and for the benefit of shareholders it may appoint a provisional liquidator.

1. There are various factors that are taken into account when considering whether to appoint a provisional liquidator and in this regard I refer to paragraphs 11 to 16 of the decision that was referred to by both counsel, being ASIC v ActiveSuper Pty Ltd (No 2).[3] Those considerations are also set out in Constantinidis, to which I referred earlier.
2. Essentially, the applicant for the appointment of a provisional liquidator must show some good reason for intervening prior to the final hearing of the winding up application and must establish, amongst other things, that there is a reasonable prospect that a winding-up order will be made when that application is heard. The fact that the assets of the company may be at risk is also a relevant consideration.
3. In this instance, the Court had the benefit of having heard oral evidence from Mr Lindholm. He gave a high level explanation of his investigations as the independent accountant. I am also very familiar with the proceeding, having managed it since early March and having read all of the affidavits and other materials that have been filed at various points along the way, particularly in respect of the Interlocutory Process, which are extensive.
4. Mr Lindholm's evidence was that his preliminary view is that the companies are currently insolvent and that that situation is unlikely to change. He indicated that he did not have all the documents that he needs in order to be certain of that situation. However, what Mr Lindholm has seen thus far and which he described for the Court led me to be very concerned as to the financial state of the corporate defendants and that the assets of the companies may be at risk.
5. While Mr Lindholm has been able to verify payments coming into the companies, he has not been able to verify all payments going out. The evidence thus far available to him seems to indicate that there is $120m of investor money coming into the SPVs. In terms of payments out, the evidence thus far indicates to him that:

(a) there is about $35m that has been paid in respect of the projects;

(b) there is around $27m in loans out of the SPVs to LPG Head Co and there is also money from some SPVs coming into other SPVs; and

(c) there are various loans to other related parties of the directors for around $10 million.

1. Mr Lindholm said that the money from each of the projects appears to have been inter-mingled. Concerningly, there is no cash in bank and Mr Lindholm said he is not in a position to say at this point where all the money has gone.
2. Mr Lindholm also stated that most of the documents that he has not been provided with are the ones that provide information as to the go-forward position of the projects. His current view is that there are a number of projects that have not commenced construction or are incomplete, where significant funds would be required to complete those projects to enable them to be sold at a profit.
3. All of those matters in my view satisfy the considerations typically given to whether or not to appoint a provisional liquidator.
4. I am fortified in that view by the history of this proceeding, where the defendants have, it seems to me, studiously avoided going on affidavit or even filing a defence in which to set out their response to the allegations that are made against them by the plaintiffs. Previous orders for the provision of affidavits have come and gone without them having been met. The defence was due at various points but most recently due on 10 June. That has not been done and then the independent accountant has not been given everything that they are supposed to have been given and have been unable to finalise their report.
5. Counsel for the plaintiffs asked the rhetorical question 'Why did the defendants consent to the orders that were made on 27 May for the appointment of an independent accountant if they were not going to fully cooperate with that process and comply with the orders?' That rhetorical question is one that is well made.
6. There is no material before me to give me any confidence at this point in time as to the management of these companies. The fact that the explanation for failing to pay the final $40,000 to the independent accountant was said to be a lack of funds sends the alarm bells ringing.
7. For all of these reasons, I am satisfied that it is appropriate to appoint a provisional liquidator to the companies. In many ways, this is a quintessential example of when it is appropriate to appoint a provisional liquidator to the companies.
8. The indications are that:

(a) the corporate defendants may be insolvent;

(b) the winding-up application may be successful; and

(c) there is concern as to how the corporate defendants are being managed in the meantime.

1. Appointing a provisional liquidator who has the power to control the corporate defendants and to investigate them, and to report to the Court on those matters, is the appropriate step. The reason why it is appropriate that the liquidator be appointed provisionally is because at the moment those steps need to be taken before the Court can be satisfied as to whether or not a liquidator should be appointed, other than on a provisional basis.
2. For those reasons I made orders appointing Mr Lindholm and Ms Seeckts to the corporate defendants as provisional liquidators. I considered it appropriate to do so on the basis that they not be required to give security or an undertaking, for the reasons submitted by the plaintiffs during the course of the hearing.
3. An interlocutory injunction was also sought to restrain the defendants, including Mr Sader and Mr Pesochinsky, from exercising or purporting to exercise any power under the relevant trust deeds or otherwise to appoint new trustees or co-trustees to the unit trusts in connection with the schemes.
4. For the reasons explored during the course of argument, I was satisfied that that injunction should be made. The provisional liquidators need to have control as the provisional liquidators of the trustees of those trusts and that should not be able to be thwarted by the appointment of new trustees.
5. In my view, it was also appropriate to make orders giving liberty to apply to any person who can demonstrate a sufficient interest to vary or discharge these orders on not less than five business days written notice to the plaintiffs, as there may be strangers to the litigation, for example, who are adversely effected by these orders who may have a genuine reason to bring the matter back before the Court.
6. Insofar as the costs of the Interlocutory Process are concerned, the defendants sought that these be reserved, whereas the plaintiffs sought their costs on an indemnity basis. I heard argument from counsel in this regard.
7. I did not see any reason to reserve those costs to deal with the question on another day. The Court was in a position to make a decision about the costs of the application at the hearing. This is an orthodox example of costs following the event and I was not given any reason to think that the usual course ought not apply.
8. The second question in respect of costs was whether those costs should be payable on an indemnity basis or on the standard basis. An indemnity costs order is an exceptional costs order and is usually reserved for instances where there has been some conduct of the defendants that justifies costs being awarded on that basis.
9. In my view, and taking into account the preliminary opinion of Mr Lindholm as to the financial position of the corporate defendants, much of the defendants' conduct of this Interlocutory Process has been inexplicable. They have not complied with a number of orders that I have made. They insisted on pleadings being provided before any affidavits were provided. They agreed to the Consent Orders and then failed to comply with them. Failing to provide all of the required documents to the independent accountant and failing to make the third payment to the independent accountant is a very serious matter.
10. The plaintiffs have been put to added expense to prosecute the Interlocutory Process by reason of the way the defendants have gone about it. In my view, indemnity costs were justified here and I ordered the defendants to pay the plaintiffs' costs of and incidental to the Interlocutory Process on an indemnity basis.

MARK BERNARD in his own capacity and as trustee of the WITSENKADE SUPER FUND

SHARON ANNE DANZIG in her own capacity and as trustee of the JOHN CRESSWELL GREEN TESTAMENTARY DISCRETIONARY TRUST

(ACN 605 339 268) as trustee for the C&F BARBAYANNIS SUPER FUND

(ACN 619 651 268) as trustee for the GALLIOTT SUPERANNUATION FUND

CAMBREE PTY LTD (ACN 003 484 464) as trustee for the CAMBREE PTY LTD SUPERANNUATION FUND

MATTHEW ROBERT SHEPPARD in his own capacity and as trustee for ANNES TRUST and MATTSSUPER

SAVAGE FAMILY SUPER PTY LTD as trustee for the SAVAGE FAMILY SUPPERANNUATION FUND

TAX GURUS ACCOUNTANTS & ADVISORS PTY LTD (ACN 150 973 827) as trustee for the MILAN FAMILY TRUST

SUPER MILAN PTY LTD (ACN 638 471 511) as trustee for the MILAN SUPERANNUATION FUND

SUNRISE TV PTY LTD (ACN 004 372 909) as trustee for the SUNRISE TELEVISION SUPERANNUATION FUND

SSSD PTY LTD (ACN 101 182 503) as trustee for the HILLSTAD INVESTMENTS TRUST

BRADY DAW in his own capacity and as trustee for the BRADY DAW SUPER FUND

KAREN K NIXON PTY LTD (ACN 152 226 223) as trustee for the KAREN K NIXON SUPERANNUATION FUND

(ACN 623 039 583) atf the EMINENCE CAMBERWELL UNIT TRUST

[1] Zempilas v J N Taylor Holdings Pty Ltd (in prov liq) (No 2) (1990) 55 SASR 103; Constantinidis v JGL Trading Pty Ltd (1995) 17 ACSR 625 (Constantinidis).

[2] [2007] FCA 1483, [12].

[3] [2013] FCA 234.