PPB Fees - Oswal's expert unwilling to condemn

Pankaj and Radhika Oswal

READ in their entirety, expert witness reports can be turgid affairs. Eye-glazing repetition. Incessant referencing of Acts and Codes. Footnotes even. But when a report's author is cross-examined in open court and the minutiae of their conclusions surveyed, a more engaging narrative may emerge.

Barry Raymond Cooke is one such expert. Cooke was engaged by Pankaj Oswal to produce expert witness reports about PPB Advisory's handling of the receivership of Oswal's Burrup Fertilisers Group (BFG).

In the bitter litigation that's played out between BFG founder Oswal, his lender ANZ Bank and PPB, the Dubai-based fertiliser tycoon has lined up PPB partners Ian Carson, Simon Theobald and David McEvoy for special retribution, motivated by what Oswal claims was flagrant overcharging during the 13 months they were receivers.

Oswal is out for blood. In his statement of relief filed on 1 April 2015, he sought orders which would effectively see Carson, McEvoy and Theobald disqualified from acting as official liquidators or liquidators for seven years.

The alleged excesses are well catalogued. Wives, children and partners accompanying PPB staff as they travelled each week from Melbourne to Perth. Alleged gross inflation of costs - Oswal and his wife Radhika claim the receivers charged almost $20,000 to fill out a form - reclassifying work so that it would be paid for by Burrup Fertilisers Pty Ltd (BFPL), rather than by ANZ or the receivers themselves.

The appointment lasted just 13 months and in that time PPB and legal advisers Herbert Smith Freehills and Minter Ellison reportedly billed almost $34 million. One of the receivers, Melbourne-based partner Carson, has even admitted that things could've been done better, though PPB insists it has at all times acted within the law and in accordance with the applicable professional standards.

Tax Commissioner continues campaign against rogue SMEs

Recent ATO winding up activity
Chart courtesy Insolvency Notices

THE Commissioner of Taxation's campaign to cull recalcitrant non-compliance from the Small-to-Medium Enterprise sector (SME) is continuing at near record levels, with more than 450 company winding up applications lodged with the courts in June.

While less than the record 556 wind-ups filed in May, the June numbers still dwarfed the ATO's previous monthly record of 361 applications - filed in August 2013 - and take total winding up applications initiated by the ATO to more than 1100 in two months. Prior to May 2015, the ATO's monthly average was 92.

"The activity by the ATO is still very substantial," said Jamieson Louttit, who produces analysis based on insolvency notices lodged with the Australian Securities and Investments Commission (ASIC).

"They are way higher than average and I do think it's reflective of the Government being short of cash," he said. "While the ATO winding up notices have come off a bit, there's still significant pressure being applied by the ATO issuing director penalty notices (DPN) and garnishee notices," Louttit said, though he had no hard numbers for DPNs and other actions at the sharp end of enforcement.

"They are not published anywhere," he said. "I tried Freedom of Information and was told I'm wasting my time."

The ATO declined to provide specifics on DPNs and garnishee orders when contacted by SiN. "In 2014-15, we supported small businesses by providing over 500,000 payment arrangements that allowed them to manage their tax debts," the regulator said.

"During the year, there were about 1,000 ATO-initiated small business wind-ups, however, we did have a greater focus on legal action in the second half of the 2014/15 year and filed about 1200 wind up actions in this period."

GE moves to bankrupt Tinkler

Nathan Tinkler outside the NSW
Supreme Court
SiN Images

GE Commercial Australasia has moved to bankrupt former resource properties dealer Nathan Tinkler over $2.803 million in payments owing under a "US$ Aircraft Loan Facility Agreement" dated November 17, 2010.

A creditors petition obtained by Sydney Insolvency News outlines how Tinkler, 39, was served a bankruptcy notice issued by the Official Receiver on June 25. 

He failed to pay or otherwise comply with the requirements of the notice and on July 22 GE filed a creditors petition and affidavits in support of an application for a sequestration order. GE said it has no security over Tinkler's assets.

Tinkler has had a long battle with GE over a Dassault Falcon 900C executive jet and an Augusta A109S helicopter which were seized by receiver Nathan Landrey of FTI Consulting on behalf of GE in 2012. Landrey subsequently placed the aircraft for sale. Whatever he was able to recoup has left a substantial shortfall. GE's petition refers to Tinkler owning property in Newcastle.

The bankruptcy notice and creditors petition followed a judgement debt handed down in favour of GE in the Supreme Court of NSW on May 19 this year. The judgement sum was $2.252 million. It's assumed the additional $551,000 approximate is interest. The matter is due to return to the Federal Court on September 2, 2015.

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Weston secures right of subrogation ruling

Pitcher Partners' Paul Weston

HOT on the heels of the Federal Government's plan to pursue receivers and secured creditors that fail to pay employee entitlements comes yesterday's Federal Court decision awarding priority to a secured creditor whose interest was diminished by employee payments.

As liquidator of 7 Steel Distribution, Pitcher Partners' Paul Weston applied to the Federal Court after secured creditor HSBC lodged a proof of debt for $7.322 million on May 15, 2015.

HSBC's claim comprised two components. The bulk - $5.547 million - represented the shortfall following the realisation of its security by receivers Peter Marsden and David Kerr of RSM Bird Cameron. The bank claimed it as an unsecured debt in the winding up of 7 Steel.

An additional $1.785 million however represented the sum the receivers paid to employees of 7 Steel in accordance with their obligations to priority creditors under Section 433 of the Corporations Act. HSBC argued it was entitled to claim this sum as a priority debt in the liquidation. (You can read the judgement here).

Men dominating personal insolvency stats: AFSA

AFSA's latests stats on the distribution of gender in personal insolvencies

STATISTICS on gender released by the Australian Financial Security Authority (AFSA) today indicate that males continue to dominate the ranks of the insolvent.

According to AFSA, in 2014, 58% of people who entered into a personal insolvency were male, the highest proportion in this category of insolvent debtors in six years. Further:

• 54% of debt agreement debtors were male;
• 70% of personal insolvency agreement debtors were male;

AFSA also found that males are more likely than females to enter a business related personal insolvency. The proportion of debtors who entered a business related personal insolvency has increased compared to 2008:

• From 18% of male debtors in 2008 to 22% in 2014;
• From 9% of female debtors in 2008 to 13% in 2014.

The most common causes of personal insolvency were the same for both males and females in 2014. Where their insolvency was business related, most debtors of either gender attributed their personal insolvency to difficult economic circumstances.

For the detailed statistics see: Gender of Insolvent Debtors.

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Debt fossilising as Australia ages

Personal insolvency professionals will have to
develop strategies for dealing with ageing debtors

THE latest statistics on bankruptcy suggest that relatively speaking, its smooth sailing. Squalls may loom but they've yet to manifest in the numbers published this week by the Australian Financial Security Authority (AFSA).

Personal insolvencies were down in 2014/15, an overall drop of 4.2 per cent. There were 7.7 per cent fewer bankruptcies and only negligible increases in debt and personal insolvency agreements. On seeing AFSA's stats, trustees in bankruptcy would've slept untroubled by concerns about whether they have sufficient staff.

There is another issue on the insolvency horizon though, one more complex and challenging than a scarcity of appointments or uncertain economic cycles, and that is the increasing age of bankrupts and the maturing of their debts.

AFSA touched on the issue in May. In its report - Ages of bankrupts since 2008 - the regulator detailed how the "most common age" of bankrupts rose from 37 in 2008 to 43 in 2014. 

"Where we could identify the age of bankrupts .... (T)he proportion of bankrupts aged between 50 and 64 years increased from 22% in 2008 to 26% in 2014," AFSA said.

"There were increases in all age groups in this range. The largest increase was in bankrupts aged between 50 and 54 years."

From 22 per cent to 26 per cent represents an increase of 18 per cent in six years. Within this age group are many preparing for retirement. How bankrupts within this group endure their three years shackled to a trustee will contribute to trends in bankruptcy as the overall population ages.

FEG Scheme to target banks on Section 433

WHILE it's good news that the Department of Employment will fund liquidators' recovery actions against directors and companies where an insolvency has left employee entitlements unpaid, more interesting still is the revelation that banks and receivers are also to be the subject of a renewed focus.

On July 1 the Federal Department of Employment, which administers FEG, or the Fair Entitlements Guarantee Scheme, resurrected the Active Creditor Pilot (ACP) program, phoenix like, after it was shut down without explanation in 2009. The new bird is called the Fair Entitlements Guarantee Recovery Program.

It's architect, Henry Carr is eager to again put money into the pockets of liquidators with strong cases for recovering FEG funds from directors who left companies with unpaid employee obligations. But he's not stopping there.

"One of the issues that is within the scope of the FEG Recovery programme is ensuring that receivers and controllers have fulfilled their statutory duty to pay employee entitlements out of floating charge assets, before paying proceeds of the secured property to their appointer," Carr told SiN.

"In circumstances of a breach of their statutory duties, the receiver/controller may be personally liable to pay damages; or the bank that had knowledge that certain preferential creditors remained unpaid, may be found to hold the proceeds of the charged assets on constructive trust for the Commonwealth," he said.

"Obviously a lot of the insolvency profession look the other way when I bring up this topic but I'm very interested in looking at whether all of the banks have lived up to their obligations in respect of their floating charge assets."

At its core, Carr said the issue is whether a bank can have a fixed charge over highly liquid assets like debtors and cash at bank.

Octaviar liquidators bill $22 mill as Fortress claims settled

ANY insolvency that burns through five liquidators deserves special mention. When tens of millions of dollars - which might have been deployed beefing up creditor dividends - is instead spent pursuing a well-resourced, recalcitrant and foreign domecilled defendant, then the topic which so reliably provokes palpitations must be revisited.

Fees and expenses should be kept in the limelight. Like mushrooms they flourish in the dark. PPB Advisory's charges as receiver of Burrup Fertilisers - which became the focus of a judicial inquiry that wrapped up only last week - have again raised the question of whether creditors should focus more attention on liquidators' decisions to fund complex litigation from the coffers of companies in their control.

While there is no suggestion that the criticisms that led to PPB's expenses being scrutinised by Justice Antony Siopsis of the Federal Court apply in any way to the liquidators of failed property group MSF/Octaviar, there's also no doubt that given the modest settlements that recently concluded hostilities between Octaviar and US hedge fund Fortress Credit Corporation, scrutiny is justified.

Those settlements saw all proceedings mounted by Octaviar's liquidators against all Fortress subsidiaries dismissed by order of Queensland Supreme Court Justice Peter Applegarth on May 25, 2015. 

By good fortune, a large spreadsheet and a bundle of statements of accounts for Octaviar Administration (OA) recently unfolded on SiN's desk. Whilst some settlement terms have been kept confidential, the documents still make for illuminating reading.

To March 2015, Bentleys Bill Fletcher and Kate Barnett have racked up $22.75 million in remuneration since being appointed general purpose liquidators of OA and Octaviar Limited (OL). 

As at December 2012, they'd charged $15.7 million, meaning they've charged an additional $7 million in less than three years. The documents also show expenses incurred and disbursements paid in great detail.

In the most recent statement of accounts for example, expenses attributed to the liquidation included $7,981.79c for airfares, $5,542.87c for travel and $14,432.43 for "miscellaneous", spent during the period from September 2014 to March 2015.

In the same period $672,811.35c was paid to RSM Bird Cameron, under the terms of the "Funding Agreement Line of Credit". Law firm Henry Davis York (HDY) meanwhile raked in approximately $4.5 million.

When contacted, Barnett would say only that the liquidators' commercial arrangements are confidential and that Octaviar's committee of inspection "is responsible for approval of our fees".

Jirsch manager receives 'severe reprimand' over Ariff

Tina Battye

TUCKED away in the July edition of Acuity magazine is the news that Jirsch Sutherland senior manager Tina Battye has been severely reprimanded by the Professional Conduct Tribunal of the organisation of Chartered Accountants Australia and New Zealand (CAANZ). 

The conduct hearing took place on February 19. The Tribunal's recently announced decision refers to various breaches "in the course of carrying out her professional duties during her prior employment as evidenced by her testimony during the course of proceedings in the District Court of New South Wales".

Battye has had her membership of the CAANZ cancelled for a period of three years and been billed $2,900 towards the costs of the disciplinary proceedings. The relevant conduct took place almost a decade ago when Battye worked for Stuart Ariff Insolvency Administrators.

After securing an indemnity from prosecution from the Director of Public Prosecutions, Battye became in 2011 the star witness for the criminal prosecution case against struck-off liquidator Stuart Karim Ariff.

During the hearing Battye admitted inserting false information into a balance sheet for a family company, HR Cook Investments, to which Ariff had been appointed administrator.

Battye told the court she did so under duress and on Ariff's instructions. She said she regretted staying at the company after realising Ariff was using funds from HR Cook to fund legal expenses pertaining to a separate administration.

''I had worked with Mr Ariff for a number of years and notwithstanding his actions I still felt some loyalty to him and to his staff,'' Battye told the court.

''With the benefit of hindsight I really wish I had left at that stage,'' she said. ''I think I was just enclosed in this bubble and this environment that I guess I just was not thinking clearly at the time.''

Joe & Joe solicitor sued for $2.9 million

ONE of the shareholders in beleaguered builder Joe & Joe Developments is suing solicitor Farshad Amirbeaggi for alleged professional negligence, six years after the company was placed into voluntary administration in a bid to resolve a rancorous dispute between its members.

When contacted, Amirbeaggi rejected the basis of the $2.9 million complaint and told SiN his lawyers believe the claim, which was filed in the NSW Supreme Court on February 6, 2015, is statute-barred given the time elapsed. 

If the Court disagrees and allows the matter to proceed, his professional indemnity insurer may in turn launch action against Hall Chadwick partners Blair Pleash and Richard Albarran and possibly their law firm, Etienne Lawyers.

The plaintiffs are Joseph and Dolly Kossaifi, co-owners of Joe & Joe Developments, which has been subject to a deed of company arrangement (DoCA) since March 31, 2009.

In a decision handed down last year by Justice Ashley Black Joe & Joe Developments (Subject to a Deed of Company Arrangement) Pleash and Albarran were found to have acted in a manner prejudicial to Joe & Joe's creditors by failing to adequately monitor the invoicing of Etienne, which had acted for the pair in their capacity as Joe & Joe's deed administrators.

"I am satisfied, for the purposes of s 447E of the Corporations Act, that Messrs Albarran and Pleash have managed the Company's business in a way that is prejudicial to the interests of its creditors or members, or have made an omission that is prejudicial, by reason of their failure to undertake appropriate review of the invoices which they had received from their former solicitors, and thereby to supervise the work undertaken by those former solicitors," Justice Black said at paragraph 184 of his 111 page judgement. 

Black qualified his finding by describing Pleash and Albarran's failure as "significant" but "unintentional". He also made multiple references to the difficulties the deed administrators had had in their dealings with the company's shareholders. The action before Black was initiated in October, 2012 by Joe & Joe's other shareholder, the Elias family.

As part of his judgement Black ordered that Pleash and Albarran produce a Scotts Schedule of the work undertaken by Etienne. Once concluded, their reviewed estimates then have to be admitted, reduced or denied by the Elias and Kossaifi families and their advisors.

The Scott's Schedule is yet to be completed. It will ultimately guide the court on ruling how much relief Joe & Joe's shareholders will be entitled to from as much as $770,000 paid to Etienne. In the meantime, the Kossaifis appear to have decided that Amirbeaggi bears some responsibility for their predicament.