The controversial diamond company owned by a bankrupt former president of the Melbourne Football Club has been declared insolvent after breaching the law.
The controversial diamond company owned by a bankrupt former president of the Melbourne Football Club has been declared insolvent after breaching the law.

Mining magnate ordered to shut business

Mining magnate Joe Gutnick has been ordered to shut down his controversial Merlin Diamonds company.

Federal Court judge Michael O'Bryan this week granted an application by ASIC to appoint liquidators to wind up the diamond company, declaring it insolvent.

The corporate watchdog launched court action amid allegations Merlin Diamonds made $13 million in loans to companies linked to Mr Gutnick.

Judge O'Bryan outlined in his judgment how ASIC had established "a strong prima facie case" of multiple breaches of the Corporations Act by the company.

"The nature of those contraventions is such as to lead to a justifiable lack of confidence in the conduct and management of Merlin's affairs," Judge O'Bryan said.

He said "the most concerning aspect" is more than $9 million was loaned from Merlin to Brocho, a private company controlled by the Gutnick family.

Advanced loans were also made to Axis Consultants Pty Ltd, which Mr Gutnick was a director, in each of the financial years from 2012 to 2018.

As of June 30, 2018 the loan value outstanding was almost $14,000.

The court heard the company also made uncommercial and dishonest "round-robin transactions" totalling $900,000 associated with the issue of convertible notes to another Merlin-related company, Chabad Properties Pty Ltd in June 2016.

Other breaches included the company had no secretary from January 8, 2019 to August 27, 2019, and it failed to lodge any half-yearly report for the period ending December 31, 2018.

Mr Gutnick, the president of the Melbourne Football Club from 1996 to 2001, resigned as a Merlin director in November.

He was declared bankrupt in 2016.

Two years earlier he was listed on the BRW Rich List with an estimated wealth of $250 million.

rebekah.cavanagh@news.com.au

Originally published as Mining magnate Joe Gutnick ordered to shut Merlin Diamonds