Case Study: iProsperity collapse

Restructuring Insights

Luxury waterview properties, $3,000 bottles of wine, a collection of sports cars, and casino high-rolling Michael Gu, appeared to have it all until his iProsperity group collapsed in 2020, and his whereabouts became unknown.

Founded in Sydney in 2005, iProsperity was a composite investment group licensed to operate in the financial sector in Australia.iProsperity group collapsed in 2020.

The group was one of the biggest players in Australia’s significant investor visa scheme, a government-run program that fast tracks residency visas for offshore citizens popular with wealthy Chinese people.  

It’s alleged Gu, now dubbed an ‘accused corporate crook and fugitive’ by the Sydney Morning Herald, used iProsperity investor funds to finance his lavish lifestyle resulting in creditors collectively finding themselves out of pocket circa $81M.

Image credit: Australian Financial News

RSM’s role in recovering funds for creditors

David Kerr, Richard Stone, and Mark Giallourakis of the RSM Restructuring and Recovery team were appointed to become involved in this high-profile case in late 2021, to assist creditors to regain a portion of their invested funds.

Upon David Kerr being appointed trustee of Mr. Gu’s bankrupt estate, the RSM team was made aware of legal proceedings on foot in the Supreme Court of New South Wales in which several parties were claiming to be entitled to the surplus funds of over $5M generated from the sale by receivers of a Mosman property owned by Gu.

Peter Hegarty of Hegarty Legal was appointed to act on behalf of the trustee in these proceedings. Despite the tight timetable, the RSM and Hegarty Legal team were able to identify claims available to the trustee against thIn 2017, provisions under The Bankruptcy Act were introduced to allow a Bankruptcy Trustee to assign any right to sue.e parties claiming to be entitled to the surplus. After notifying the parties of the claims the RSM and Hegarty Legal team participated in an unsuccessful mediation of the claims to the surplus.

No litigation is without risk and the estate was without funds. The RSM and Hegarty Legal team then sought funding and an indemnity for adverse costs from the petitioning creditor to prosecute the identified claims. No agreement was reached for funding or indemnity with any party.

Experience counts: Leveraging Provisions under the Bankruptcy Act

Shortly after the mediation, the trustee was approached by one of the parties with an offer to acquire the trustee’s right to sue the various parties identified. 

In 2017, provisions under The Bankruptcy Act were introduced to allow a Bankruptcy Trustee to assign any right to sue.

The RSM team, in consultation with Mr. Hegarty of Hegarty Legal, made use of these provisions and ultimately sold and assigned the trustee’s rights to sue third parties involved in the Supreme Court proceedings. The claims assigned included voidable claims that before these amendments could only be prosecuted by the trustee.

The outcomes of this approach included:

  • Avoiding being involved in protracted, costly legal proceedings
  • Preventing a potential Adverse Costs Order if the proceedings were unsuccessful
  • A dividend being paid to creditors.

A good outcome, in a bad situation

David Kerr RSM Partner of Restructuring and Recovery said, “It is satisfying to be able to deliver an outcome to creditors by making use of the new bankruptcy provisions.”

Peter Hegarty of Hegarty Legal said,

“This was a great outcome given the factual and legal complexity of the matter which involved multiple parties.  It was only possible due to the detailed investigations undertaken by the RSM team over an abbreviated timeframe which enabled us to identify the available claims”.

Where is Michael Gu now?

Mr. Gu’s whereabouts remains unknown.

Got a complex insolvency matter on your hands?

We are here to help you explore your options, contact the RSM Restructuring and Recovery team or call us today on 1300 263 816. 

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