McInnes Wilson Lawyers recently acted for liquidators Anthony Connelly and Jamie Harris in Federal Court proceedings commenced against parties involved in transactions having the effect of disposing of over $10.3 million of assets from an insolvent corporation, TSK (Qld) Pty Ltd (in liquidation).
The relevant conduct was described in the judgment as:
“an asset-stripping scheme pursuant to which, during 2021, approximately $10.3 million was withdrawn from the account of, or redirected from, and paid variously to TSK’s director… senior management and an external accountant adviser who held himself out as specialising in ‘restructuring’… and their corporate entities”.
The payments were found to have been paid under the “ruse” of a sale agreement whereby the company purportedly sold its business to an entity controlled by the company’s former CEO, and a debt collection scheme pursuant to which various entities purported to collect the company’s accounts receivable.
In respect of that conduct the liquidators claimed the director and a restructuring advisor breached their duties not to procure, induce or encourage the making by the company of a disposition that is a creditor-defeating disposition under section 588GAC of the Corporations Act 2001 (Act).
Those breaches were established, together with alternative claims against the director for breaches of other statutory director’s duties, equitable claims for knowing receipt of trust property and accessorial liability claims against the third-party advisor for involvement in the director’s contraventions and knowing assistance in a dishonest and fraudulent design.
The liquidators obtained judgment against each of the director and restructuring advisor in the sum of $7,293,814.09, being the company’s losses from the scheme, net of benefits received by it as part of the relevant disposition transactions and through later settlements entered into with other defendants.
The case is the first authority in Australia involving an award of compensation under section 588M(2) of the Act for contraventions of the duty not to procure a creditor-defeating disposition.
It is also an example of the relatively infrequent imposition of liability on a third-party restructuring advisor in relation to the implementation of a dishonest design having the effect of stripping an insolvent company of assets.
The judgment is available here
Principal
Senior Associate