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.