ASIC applies for Keystone liquidation

ASIC has applied for Keystone Asset Management to be liquidated, as the Federal Court requests a report detailing the potential returns for any victims who have suffered losses. 

Last week, the Federal Court appointed Jason Tracy and Lucica Palaghia of Deloitte Financial Advisory Pty Ltd as receivers of the property of Keystone Asset Management, which ran the managed investment scheme Shield Master Fund (SMF).

In Federal Court documents shared on 3 September, Justice Moshinsky requested a report be prepared within 28 days detailing whether it should be wound up. It would also detail whether investors who lost money in the SMF could see any return. 

Investors’ assets in the fund are currently frozen after ASIC obtained interim orders in June 2024, but Justice Moshinsky did not refer to specific sums as this “disclosure could adversely affect the funds and thus the interest of investors”. 

He said: “This report will deal with the steps that the receivers take in their receivership, and will set out opinions and information that will be relevant to deciding whether Keystone and the SMF should continue in operation or be wound up. 

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“Among other things, the report is to include information about the likely returns to creditors and investors in the event that Keystone and the SMF are wound up. The information in the report will be valuable to ASIC, the court, SMF unitholders and investors, in determining what further steps should be taken in relation to Keystone and the SMF.”

Keystone proposed an alternative of an independent person acting as an agent, tasked with the responsibility of winding up the SMF. However, the judge said this was not a viable option as Keystone had not yet appointed an agent to the role. 

“The proposal cannot be implemented now because no person has yet agreed to act in the agent role. Senior counsel for Keystone submitted that the court should defer appointing a receiver for two weeks to enable the Keystone proposal to be developed. However, on the material before the court, I do not consider it realistic that this could be achieved in two weeks. I therefore do not consider the proposal put forward by Keystone to be a realistic one in the near future.”

Subsequently, on 30 August, ASIC filed an application seeking orders that this voluntary administration end, and that Tracy and Palaghia be appointed as provisional liquidators instead. Alternatively, Scott Langdon, John Mouawad and Michael Korda of KordaMentha, who have been appointed as voluntary administrators of Keystone, should be replaced by Tracy and Palaghia. 

Rather than winding up, a liquidation would mean the company assets are sold off in order to pay creditors.

Based on ASIC guidance, if the company does not have enough assets, one or more creditors may agree to reimburse a liquidator’s costs and expenses to undertake investigations and act to recover further assets. 

If the liquidator recovers additional assets, the liquidator or a creditor can apply to the court to compensate the creditor from funds recovered for funding the liquidator’s recovery action. Compensation is usually paid before other creditors are paid.