ASIC has applied to the Federal Court of Australia to wind up ASX-listed public company Merlin Diamonds Limited (ACN听009听153听119) (Merlin Diamonds) and for the appointment of provisional liquidators to report to the court pending hearing of its application for final relief.
The application arises from ASIC鈥檚 concerns which include:
- since 2012, Merlin Diamonds has advanced听substantial funds to Axis Consultants Pty Ltd (Axis), a related management services company, without shareholder approval ($13,752,124听owing as at 30 June 2018) (Loans);
- the Loans have been used to fund private companies听associated with Mr听Joseph Gutnick (a current and former director of听Merlin Diamonds and Axis respectively) and provide no discernible benefit听to Merlin Diamonds;
- the terms of the Loans appear to be unreasonable,听uncommercial and non-arm's length.听No security for the Loans has been provided听by Axis or any third party and the Loans are being fully provisioned (impairment听provision) each financial year;
- the Merlin Diamonds auditors have been unable to obtain sufficient appropriate audit evidence to be satisfied that Axis is听likely to be able to repay the Loans;
- in October 2016 Merlin Diamonds received $900,000听from Chabad Properties Pty Ltd (Chabad) for convertible notes and options issued to Chabad.听The ultimate source of the $900,000 paid听by Chabad, through a series of transactions involving related companies,听was Merlin Diamonds.听Mr听Gutnick is a former director of听Chabad;
- audited accounts of Merlin Diamonds for the听half-year ended 31听December 2018 (due 18听March听2019) have听not been lodged with ASIC, a contravention of s320 of the Corporations听Act;
- the financial position of Merlin Diamonds as at 30听June 2018 raises concerns over the company鈥檚 solvency;
- there has been no company secretary of Merlin听Diamonds since 8听January 2019, a contravention of s204A(2) of the听Corporations Act; and听
- corporate governance of Merlin Diamonds falls far short of the standard expected of an ASX-listed public company.
ASIC seeks from the Court:
- the appointment of Mr听Salvatore听Algeri and Mr听Timothy Norman, of Deloitte Financial Advisory Pty Ltd听as joint and several provisional 听听听听 liquidators of the company; and
- orders requiring the provisional liquidators to provide a听detailed report to the Court that sets out, among other things:
- the way in which Merlin Diamonds has听made the Loans;
- the recoverability of the Loans from Axis;
- the $900,000 transaction involving听Chabad; and
- the financial position of Merlin听Diamonds
- for the听Court鈥檚 consideration at a later date, orders to wind up the company听and appointing Mr Algeri and Mr Norman as liquidators.
ASIC鈥檚 application will be heard in the Federal Court of Australia at Melbourne on a date to be fixed.
ASIC鈥檚 investigation into the affairs of Merlin Diamonds is continuing.
Background
Merlin Diamonds, a Melbourne-based company listed on ASX, engages in the exploration and development of diamond mining projects. Its flagship project is the Merlin diamond mine in the Northern Territory.听
Merlin Diamond鈥檚 shares have been suspended from trading since 1 October 2018.听Merlin Diamonds has 3.3听billion ordinary shares issued, and last traded at $0.006 per share 鈥� resulting in a market capitalisation of approximately $20听million.
Editor's note:
The matter was listed for the first case management hearing on 4 June 2019 in the Federal Court, Melbourne.
Editor's note 2:
On 4 June 2019, the Federal Court ordered that the hearing of ASIC鈥檚 interlocutory application for the appointment of a provisional liquidator be listed for hearing on 2 September 2019 along with making other orders, including for the filing of any applications by interested parties. The Court made those orders upon the giving of undertakings by the directors of Merlin Diamonds to 听preserve the status quo of the company and refrain from making loans to certain entities.
A copy of the Court鈥檚 orders can be downloaded .
Editor's note 3:
ASIC鈥檚 application for the appointment of a provisional liquidator was
heard by the Federal Court on 2 & 3 September 2019. The Court reserved its decision.
Editor's note 4:
On 16 March 2020, the ASX announced that Merlin Diamonds has been removed from the ASX Official List by the ASX with effect from the commencement of trading on 16 March 2020.
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