Learning that former bankrupt Edward Johnston had wrangled a $100,000 concession out of secured creditors claiming rights to his forestry investment, Wayne Matthew McKenna said he had first claim having lost out when Mr Johnstone’s bankruptcy left him with a worthless $212,000 guarantee.
Mr McKenna claimed Mr Johnston guaranteed repayment of $212,000 he loaned to Sentinel 35 Trustee Company Ltd in January 2012. Ten months later, Mr Johnston was bankrupt.
The High Court was told a major asset in Mr Johnston’s bankruptcy was his one-fifth share in a forestry partnership. It was heavily mortgaged. Insolvency Service disclaimed any interest in the asset. Nine years after being bankrupted, Mr Johnston’s one-fifth share had a cash value of about $843,000: his share of the forested land ($34,000); cutting rights ($754,200); and carbon credits ($54,700). Two creditors had security over his partnership interest: FAI Money Ltd having advanced $300,000 and a private lender making a $72,000 loan. With more than a decade’s interest running on these secured loans, plus a legal question over the extent to which FAI’s security included cutting rights and carbon credits, a three-way deal was struck: Mr Johnston would receive $100,000 as reward for keeping up partnership payments, protecting the asset; the $72,000 private loan would be repaid with no interest; and FAI would take the balance.
Mr McKenna objected. He had been left out of pocket as an unsecured creditor in Mr Johnston’s bankruptcy. He should be entitled to the $100,000 now coming available from a bankruptcy asset, he claimed. Justice Peters dismissed his claim. Paper work failed to prove Mr McKenna was an unsecured creditor. The court was provided with a copy of the $212,000 supposedly guaranteed loan. A written contract provided to the court was not signed by Sentinel as the supposed borrower; signature of the un-named guarantor was indecipherable.
FAI Money Ltd v. McKenna & Johnston – High Court (31.08.21)
21.146