September 21, 2020

Nightcap Village: the Phoenix in Flight

The phoenixing of companies for private profit is inspired by the fabulous phoenix bird. According to legend, when this bird's life draws to a close she builds a funeral pyre, commits to the flames and dies on the fiery altar. Out of self-immolation a new phoenix emerges like an eagle with feathers of red and gold.

In modern commerce the phoenix bird is iconic, inspiring businesses burned by debts to rise from the ashes of destruction and continue trading under a different name, leaving their creditors behind. 

In a 2018 case before Qld Federal Court - Staatz v Berry - two defendants, aggrieved creditors whose evidence was suppressed, alleged that phoenixing of the company Wollumbin Horizons Pty Ltd was facilitated by Vincents' liquidator Steven Staatz to divest liability to creditors. 

Fourteen creditors requesting joinder as proposed cross-claimants in the Federal Court case, were not allowed to proceed by Judge Derrington. The creditors' cross-claim was suppressed when they warned of phoenixing in process, with land title expected to fly from the liquidated company to a related company continuing the same business of selling dwelling sites on rural properties without development consent.

The company in liquidation owns property that is advertised as part of a proposed land-share development. With marketing by Richard Moate as "Nightcap Realty", the venture is run by sovereignty activists who have "gifted" the land to a "sacred" aboriginal tribe. Aborigines have occupied the property since 2017 and now claim tribal ownership.

In September 2020, a notice from receiver Steven Staatz informed creditors and interested persons who are waiting with hands outstretched to receive a crumb from sale of the property, that the purchaser was unable to complete the sale. An additional deposit of $100,000 was paid and the purchaser is allowed until October 19 to seal the deal. 

3222 Kyogle Rd, Mt Burrell

Nightcap Landshare Communities

The venture, which began in 2015 as "Bhula Bhula Village Community" is now called "Nightcap Rural Land-sharing Communities"

In 2014-2016, investors paid more than $2 million to the Trust Account of Mullumbimby lawyer Wroth Wall, as intended co-owners of property at 3222 Kyogle Rd, Mt Burrell, with total failure of marketing promises.

In 2017, project directors drove purchase money creditors off the land without restitution, mortgaged the property and pushed for liquidation of the company owning the asset.

One month prior to initiating wind-up of the company Wollumbin Horizons, the director executed an unregistered mortgage over the company's only asset, the land. The mortgage funds were loaned to an associate to buy back the land. Conditions of repayment default in the mortgage document return land title to the company director.

In 2018, liquidator Steven Staatz requested Qld Federal Court for authorisation to sell the asset. From 2018-2020, evidence was suppressed in Qld Federal Court indicating that intended transfer of the land asset from Wollumbin Horizons to a related company would divest liability to creditors and facilitate continuation of the company's business of selling "pre-DA" dwelling sites.

Judge Derrington refused to hear evidence of phoenixing and alleged fraud,  slapped a suppression order on a class action by investors requesting justice and allowed the sale, granting the liquidator a lien over the property as first priority.

In May, 2020, an application by investors to appeal the 2019 decision permitting the anticipated phoenix move, was summarily dismissed in Qld Federal Court of Appeal without hearing evidence. Darke J allowed the sale to proceed despite investors' concerns that the main beneficiaries of the sale would be the liquidator and the lawyers, while the internal transfer would clearly divest company liability to creditors.
Auction 3222 Kyogle Rd
Ray White with Christies Prestige, Auction 3222 Kyogle Rd, Mt Burrell

Auction of the property was conducted by Ray White with boutique agency Christies Prestige. Executive consultant to Christies Prestige is Eamon Lowe, a close associate of the developers involved in the land-share scheme, whose wife, Mikala Lyell Lowe is selling dwelling sites in the prospective Nightcap Village, and has been a director of the company Nightcap Village Holdings Pty Ltd since 2018.

Wollumbin Horizons and Yidaki companies - joined at the hip!

Derek Zillman,  Yidaki Developments 

Promoted globally by celebrity chef Pete Evens, health coach Tyler Tolman and sovereignty activist Max Igan, the land-share scheme  is run by Mark McMurtrie, Derek Zillman and Eamon Lowe, in shareholder agreement with landowner Peter van Lieshout, brother of John van Lieshout, Queensland's top billionaire

The company Wollumbin Horizons (in liquidation) owns title to property purchased in 2015 with investors' funds that were provided for a proposed land-share project

The director of Wollumbin Horizons is also sole shareholder, controlling the company with a single $1 share. He initiated voluntary administration in July 2017 on a presumption of insolvency, with creditor claims over $2.6 million.

It is alleged by disenfranchised investors that the intended transfer of the land asset would be  a phoenix move, divesting liability to creditors of the company Wollumbin Horizons.

Evidence shows that through a network of co-directorships, the project directors have, from 2014 until the present, 2020, continued to profit from sale of shareholdings in shell companies and trusts, by marketing dwelling sites without development approval on property they do not own, where multiple occupancy is currently prohibited by zoning restrictions.  

From 2017 until the present, Nightcap Realty has been selling "Native Title" to the property under the changing auspices of "Bhula Bhula  Village Community", "Mt Burrell Commercial", "Mt Warning Eco Village", "Nightcap Village", "Nightcap on Minjungbal" and "Nightcap Rural Land-sharing Communities".

After auction of the property, Richard Moate as Nightcap Realty published a newsletter announcing: 

"The team are now also extremely proud to announce the successful purchase on Friday of last week of a parcel of land of over 650 acres, further strengthening the future points of access for the Original owners and the community. Needless to say, there was some celebrating to be had both on Country and by members of our community around the world."

Nightcap Realty also posted a video online, showing Yidaki co-director Mark McMurtrie removing the "For Sale" sign, announcing: "We bought it back ourselves!" 

Mark McMurtrie: "We bought it back ourselves"

Phoenixing is illegal, but that's not much of a deterrent, and it's become a booming business for delinquent company directors and their facilitators, insolvency liquidators and legal professionals.

The economic impact of phoenix activity

"Like the mythical bird that dies and then resurrects, phoenixing is the deliberate liquidation of a company to avoid paying creditors.. and then the ‘resurrection’ of the business through a different entity. It is illegal." 
Curbing the Flight of the Phoenix describes how phoenixing is used by companies in insolvency to divest liabilities: 
"The negative impact of insolvency is magnified by phoenixing, which enables a company that owes money to creditors and employees to restart without paying its debts."
Australian courts have absolute authority to stop illegal phoenix activity and to impose penalties on delinquent directors and complicit liquidators. But, usually they don't, as the self-represented defendants in Qld Federal Court discovered.

ARITA slams phoenix moves:

Australian Restructuring Insolvency & Turnaround Association (ARITA) chief executive John Winter told Accountants Daily:

“These unregulated and almost-always unqualified advisers promote their wares to often unsuspecting people who are in financial distress, and what they offer them is generally illegal solutions...

“The message needs to be sent to these so-called advisers and the directors who use them that they will be found out and prosecuted.. They are a scourge on the economy, ripping off creditors, employees and taking advantage of people at their weakest moments.”  
"Phoenix companies arise from the ‘ashes’ of a collapse of a commercial entity, leaving behind a trail of avoided outstanding payments to tax authorities, creditors, businesses, customers and employees." The Economic Impacts of Potential Illegal Phoenix Activity

An Australian Inter-Agency Phoenix Taskforce made up of 29 government agencies aims to reduce the impact of illegal phoenix activity. 

Thirteen Commonwealth government agencies, including ASIC, the ATO and Fair Work Ombudsman have powers to investigate and prosecute "phoenix activity" or "phoenixing". But usually they don't.

"The Federal Court has commenced public examinations on entities connected to a dodgy pre-insolvency adviser, in a move welcomed as shining the light on illegal operators.

"ATO deputy commissioner Will Day has confirmed that more than 45 service providers, clients, employees, and alleged ‘dummy directors’ of phoenix companies connected to pre-insolvency adviser Philip Whiteman will be examined in the Federal Court on the grounds of suspected promotion and facilitation of phoenix activities and tax schemes." 

In July 2018, the Phoenix Taskforce published a report, The Economic Impacts of Potential Illegal Phoenix Activity, that defines illegal phoenix activity as the deliberate and systematic liquidation of a corporate trading entity which occurs with the intention to continue the operation and profit taking of the business through other trading entities, while avoiding liabilities.

According to the report, the annual economic impact of illegal phoenix activity is over $5 billion a year. Until now very little has curbed the rise of the phoenix as companies in default increasingly use liquidation as a means to divest liabilities, but perhaps that's changing?

"Regulators are aware of the problem. ASIC announced in September it will conduct surveillance of 1,400 target companies and approximately 2,500 individuals... Concurrently, the ATO announced it will investigate 2,000 property developers..." Curbing the Flight of the Phoenix

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