Monday 27 August 2012

Streetscape DOCA open to challenge

Ozem Kassem:
Cor Cordis
TIME is running out for City of Sydney Council to reverse the deed of company arrangement (DOCA) approved at a recent meeting of creditors for the Moses Obeid-controlled firm Streetscape.

Under section 444B of the Corporations Law, a DOCA must be signed by the firm's directors within 15 business days. 

That makes Thursday, August 30 the deadline and Streetscape's voluntary administrators (VAs) have to sign it shortly afterwards. 

At the August 9 creditors meeting, VA Ozem Kassem used his casting vote to endorse the DOCA after creditors were left deadlocked.

Kassem's sanctioning of the deed meant the council, which is pursuing a $16.6 million debt from Streetscape and Obeid, was frustrated in its desire to have the firm wound up and a liquidator appointed.

That outcome would have opened the way for a more probing examination of Streetscape's financial affairs.

Kassam, the Sydney head of chartered accounting firm Cor Cordis, is one of two VAs of Streetscape. The other is Robert Kite, who said he didn't attend the meeting.

Robert Kite: Cor Cordis
Kassem did not respond to SiN's enquiries about why he backed the deed.

Because the council held the majority in dollar terms its vote counted as equivalent to the numerically-superior coterie of Obeid-associated creditors supporting the DOCA.

This meant Kassem had to use his deciding vote to break the deadlock but he was not obligated to favour the council.

Under rule 24.7.4 of the insolvency practitioner's code: "there is no presumption in favour of the majority in value, although any large disproportion between the values of the debts of the numerical minority and the numerical majority will be a factor to be taken into account".

The code also requires that a VA who uses his or her casting vote must declare their reasons and those reasons must be minuted.

Despite the outcome the council is not without options but it must move quickly.

Section 600B of the Corporations Law allows creditors to apply to a court for a review of resolutions passed by any person presiding over a creditors' meeting.

Alternatively, section 445D provides creditors with the opportunity to ask a court to terminate a deed.

Such applications however risk being rejected unless they are filed with the courts promptly. 

The council has refused to rule out a challenge but won't be drawn on whether it will test either the DOCA or Kassem's casting vote in the courts.

"No further comment can be made at this stage about the result, however the City of Sydney will continue to pursue Moses Obeid personally for payment of the $12 million in damages plus costs awarded by the Supreme Court for the unauthorised use of its Smartpoles", the council said in a statement.

"The City of Sydney is disappointed that a liquidator has not been appointed to Streetscape to enable a thorough review of the company's finances, assets and recent transactions.

".... a majority of Streetscape's creditors (including creditors with close associations with the Obeid family) voted to accept a Deed of Company Arrangement that will pay between 1 cent and 3 cents in the dollar to each of the company's creditors.

"The process by an administrator using his casting vote to accept the Deed is authorised by the Corporations Act, when agreement is not reached between a majority of creditors by both number of creditors and amount owed.

"While the majority of creditors agreed with the arrangement, that majority were only owed relatively small amounts compared with the City, which was by far the largest creditor."

In 2011 the Supreme Court found Streetscape's international arm had breached an agreement with City of Sydney Council when it sold "Smart pole" street signage systems to foreign governments. The council was awarded more than $12 million in damages.

Penalty interest and costs will keep accumulating while the parties await the outcome of Obeid's appeal against the judgement, due to be heard between November 26 and 28, 2012.

The appeal however does not prevent the council's lawyers Holding Redlich from challenging the DOCA or Kassem's decision to support it.

Meanwhile, bankruptcy proceedings the council launched against 41 year old Obeid have been adjourned until February 2013, by which time it's expected that the Court of Appeal will have handed down its judgement.

Contact SiN

1 comment:

  1. Has anyone looked at the relationship between Ozem and Eddie. I heard that they are old friends.


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