Ella Rouge Beauty founder pleads guilty to misappropriating $2.6 million

Ella Rouge founder Ali Hammoud

Ali Hammoud, the founder of Ella Rouge Beauty Pty Ltd, which operates the NSW chain of ‘Ella Rouge Beauty’ salons, has pleaded guilty to one count of dishonestly misusing his position as a director of ERB International Pty Ltd (ERB) and one count of making a false statement to obtain a financial advantage.

In a statement issued today, the corporate regulator alleged that between 9 August 2007 and 4 March 2008, Mr Hammoud used his position as a director of ERB dishonestly with the intention of gaining a financial advantage for himself, namely by misappropriating $2,609,831.91 from the company for his own use.

ASIC also alleged that between 8 August 2003 and 26 June 2007, Mr Hammoud, with the intent to gain a financial advantage, recklessly made false statements in workers compensation insurance forms by understating the estimated and actual wages of the company. It is estimated that ERB obtained a financial advantage of approximately $338,709.25 as a result of the false statements.

Mr Hammoud was committed to the Sydney District Court where the matter will be mentioned on 5 December 2014.

EXCLUSIVE: Liquidator's fall exposes Ella Rouge founders to phoenix allegations

THE founding directors of the Ella Rouge Beauty chain allegedly engineered a phoenix company transaction in 2008 because demands for unpaid payroll tax, workers compensation and other debts threatened to destroy their business.

According to the recently released findings of a liquidator's disciplinary hearing, in early 2008 Mr Ali Hammoud and his wife Ms Manel Issa-Hammoud completed the transfer of assets worth approximately $4 million from their company Ella Rouge Beauty (ERB) to a second company they controlled, Beauty World International (BWI).

The transfer of ERB's assets to a related party via a Business Sale Agreement took place on or around March 28, 2008 but was subsequently backdated to February 28. At the time of the transaction, BWI was the trustee of the Hammoud's Shanel Family Trust. On March 28, ERB changed its name to ERB International Pty Limited.

On April 2, the directors placed ERB International into liquidation, appointing Pino Fiorentino and Bill Hamilton of Hamiltons Chartered Accountants as joint liquidators, with Fiorentino having primary, day-to-day responsibility. The following day, they registered a new company, Ella Rouge Beauty Pty Ltd. This would go on to replace BWI as trustee of the Shanel Family Trust.

In a visualization of their corporate interests provided by Encompass Corporation Ali Hammoud and Manel Issa (Hammoud) were confirmed as  sole directors and shareholders of ERB and BWI at the time the transfer, name change and liquidation were effected.

The Australian Securities and Investments Commission (ASIC) - which has confirmed to Sydney Insolvency News that its investigation into ERB International is ongoing - has alleged that the Business Sale Agreement amounted to a phoenix transaction, which left an insolvent ERB with no valid claim against BWI and debts of approximately $800,000, owed to the Office of State Revenue (OSR), GIO, and specialist workers compensation claims manager Gallagher Basset.

In spite of the allegations, it should be noted that no findings of wrongdoing have been made against Ali and Manel Hammoud. Neither replied to multiple requests for comment.

The allegations have surfaced following a lengthy investigation by ASIC into the conduct of the company's liquidators.

Federal Court dismisses Fiorentino's CALDB challenge

Pino Fiorentino

PINO Fiorentino is facing cancellation of his liquidator's ticket after Justice Michael Wigney ruled yesterday that the Sydney-based insolvency practitioner had failed to convince the court he was denied procedural fairness by the Companies Auditors Liquidators Disciplinary Board (CALDB).

Fiorentino applied to the Federal Court on February 5 this year after CALDB had two days earlier refused his application to adjourn a hearing brought on by the Australian Securities and Investments Commission (ASIC).

The corporate regulator wants CALDB to cancel Fiorentino's liquidator's registration over his handling of the insolvency of ERB International. Fiorentino has previously rejected ASIC's allegations. (See: Liquidator denies procuring proxies)

CALDB refused Fiorentino's adjournment application on the grounds that it had already adjourned the matter on several occasions since the first scheduled hearing of ASIC's application on October 21, 2013.

Further, Fiorentino wanted the adjournment so he could sue his professional indemnity insurance provider for refusing to fund the legal expenses associated with defending ASIC's application.

CALDB however was unwilling to accept that such an action would be concluded after six months - as was submitted by Fiorentino - or that further adjournments were justified.

"At the end of the day, the timing of hearings before the Board cannot depend on the vicissitudes of a respondent's private funding arrangements," CALDB said.

Page 13 of the Wigney judgement reveals that CALDB "has not yet made a decision in relation to ASIC's substantive application," the hearing of which concluded on February 6, 2014.

Given CALDB's oft-stated commitment to dealing expeditiously with matters brought before it, a decision may not be long in coming now Justice Wigney has published his reasons.

Fiorentino did not respond when contacted by SiN today so we are unable to report his reaction or whether he is considering other avenues of potential appeal. For detailed background see:

Liquidator denies procuring proxies

Insolvency veteran slapped with suspension

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Liquidator denies procuring proxies

SYDNEY liquidator Pino Fiorentino has strenuously denied allegations he procured invalid employee proxies and voted them in support of a resolution to approve his fees. 

"I never procured anything,” the registered and official liquidator told Sydney Insolvency News (SiN) during a break in a hearing before the Federal Court last week.

“I made a mistake. I didn’t check the proxies. There’s no way I told the director, ‘fill out the proxies and sign them yourself’,” he said.

Fiorentino's comments came as the Federal Court heard his application for a judicial review of a hearing held before the Companies Auditors and Liquidators Disciplinary Board (CALDB) last February.

In late January and early February this year CALDB rejected several applications by Fiorentino for an adjournment of a hearing brought before CALDB by the Australian Securities and Investments Commission (ASIC), which is seeking cancellation of Fiorentino’s liquidator’s registration.

The last adjournment application, made on February 2, proceeded without Fiorentino being present for the bulk of the hearing. Nor was he represented by legal counsel.

CALDB went on to refuse the adjournment application and on February 4 heard the ASIC application. Fiorentino is challenging CALDB’s refusal to grant the adjournment and the subsequent hearing of the ASIC application. At time of writing CALDB had not made its determinations and reasons public.

In an outline of Fiorentino’s Federal Court submissions obtained by SiN, the impact of the proceedings currently  before CALDB is described as “grave” because “ …. the orders sought by ASIC amount to no less than causing the permanent end to the career of the Applicant”. 

The ASIC application was formally brought before CALDB in 2013 following an investigation by the regulator into ERB International, which had owned the Ella Rouge Beauty salon chain.