BDO told to stop intermeddling in Mossgreen client goods

BDO told to stop intermeddling in Mossgreen client goods
BDO told to stop intermeddling in Mossgreen client goods

BDO, the besieged administrators for Mossgreen, have lost their expensive court case seeking to charge clients of the collapsed auction house for the return of their goods.

Clients were furious at BDO's attempts to charge a fee – levied at $353 per lot – to have their own property returned.

Some lots were going to cost more for their return that their actual value.

The judgement this morning savaged the accountancy firm.

Federal Court judge Nye Perram ruled the administrators were "intermeddling" in other people's goods in circumstances "where they had not been invited to do so, were not performing their statuatory functions and had not been appointed receivers."

"Accordingly, they are not justified in requiring the consignors to pay a levy for the return of their goods," he ruled.

"In reaching this conclusion I have not disregarded what is sometimes referred to as the 'salvage' nature of the work done by external administrators or the concomitant need to ensure that persons are not deterred from doing such work in the future.

"But that well-founded policy consideration cannot provide cover for external administrators who decide to deal in assets of other persons for no reason relating to the administration of which they are seized," the judgement said.

"I conclude, therefore, that the alleged equitable lien does not arise.

"On the other hand, they are entitled to a lien for disposing of goods which ultimately turn out to be unclaimed and they should be entitled to realise those goods and, subject to any claim, apply the proceeds for the purposes of the administration."

The plantiffs are to present short minutes of order giving effect to these reasons within seven days.

As part of the hearing, BDO Australia has asked the Federal Court to rule that all its court costs be paid out of Mossgreen's limited estate.

BDO's administration has previously been embarrassed in February when incomplete official documents were lodged with ASIC, requiring the lodgement of replacement paperwork after Property Observer pointed out the need for the accountancy firm to lodge the full Report as to Affairs from Administrator document.

ASIC was given a 21 page Report as to Affairs from Administrator to upload for public disclosure, not the full 45 page report.

"We lodge what the director provides us with. It is the director’s RATA, not BDO’s," BDO spokeswoman Rosey McGrath advised.

"A RATA with all attachments was subsequently received and lodged yesterday afternoon," she subsequently advised.

The besieged administrator of collapsed auction house Mossgreen had told clients and buyers it would continue to hold onto the artwork and collectibles until payment of the fee was made subject to court orders.

BDO administrator James White had previously said the amount of the levy was "not negotiable". ASIC has reportedly not yet raised any concerns in relation to the administrators' conduct.

Clients were also furious that the Sydney administrators took the issue to the Sydney Federal Court, and inconvenienced the mostly Melbourne clients.

The administrators meet quick initial resistance when they told the first meeting of creditors in January that were exploring court judgements on whether a constructive trust arrangement existed.

They indicated BDO would likely approach the courts to rule on the matter.

However this course was challenged by Minter Ellison lawyer Lindsay Powers, on behalf of art collector Michele Asprey, who suggested "this was the clearest case of a trust relationship he has encountered." 

The chairman advised that initial legal advice had been obtained and it was considered necessary to obtain directions from the court "due to the various classes of creditors, the estimated shortfall to creditors and the overall complexity of the matter."

The chairman, James White from BDO, however indicated his personal view was that unsold goods held on consignment remained the property of the vendors. 

Michelle Asprey was among those who presented their argument regarding the $353 levy in the actioned court case over the desired BDO fee.

The Australian Financial Review recently revealed that Paul Sumner's Mossgreen lost money for five years before it went under last December.

At its peak in early 2017, Mossgreen had 55 staff.

Sumner started Mossgreen in 2004 by briefly selling artworks from the walls of his rented Macleay Regis, Potts Point apartment, the same building as the Sydney society family, the Copplesons’ who were among his final auction content vendors. The Coppleson family also made representations to Judge Perram.

Documents obtained by Property Observer indicated Paul Sumner's auction house owes its auction vendors $6.8 million, which is $1 million more than administrators calculated ahead of the first creditors' meeting.

There has not been a second creditors meeting yet held, which is another source of bewilderment by the many auction house vendors.

Toorak businessman Jack Gringlas​ remains the biggest secured creditor, being owed $6 million. 

The administration came December 21 following failed fundraising attempts.

Sumner, who did not attend the first meeting, blamed the current circumstance on growing "a little bit fast."

There were 330 creditors initially identified at the meeting who were told no law required trust accounts for the auction proceeds.

The names of the creditors are a who's who from across Australia, ranging from passionate collectors, socialites, low key business tycoons to deceased estates.The biggest unsecured creditor stemmed from the auction of a book collection.

Some $1.75 million is owed to the family of the late wealthy insurance underwriter Martin Copley who auctioned off the books in October.

His auction items included John Gould's monumental The Birds of Australia, a large folio in eight volumes with 681 hand-coloured lithographed plates, bound in dark green morocco by Riviere, an original subscriber's set, which sold at $446,400 including premium.

The second biggest client was another deceased estate, that of the late South Australian building industry icon Alan Hickinbotham and his late wife Margaret. 

It was billed as the highest value collection ever to be sold in Adelaide when auctioned in May by Mossgreen's chief, Paul Sumner.

Sydney's society Coppleson family were listed as owed $465,000, the third highest-owed creditor.

It followed the sale of the contents of the Macleay Regis penthouse, home of the late esteemed gynaecologist Professor Malcolm Coppleson and his late wife, Patricia, who was Vogue Living’s editor-at-large.

The 172 lots included the sale of a $192,200 Ian Fairweather work which had an $80,000 to $120,000 price guidance. A Tim Maguire fetched $117,800.

Mossgreen's last auction on December 7 last year was the contents of the Sheehy family with just 274 of the 438 lots being sold. The family, who are owed $45,000, inquired at the meeting whether Sumner's passport would be surrendered.

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

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