Concluding in an decision that signals a clear judicial green light to phoenixing with impunity, an application by liquidator Steven Staatz for payment of remuneration for liquidation of the company Wollumbin Horizons and sale of property in a phoenix action, was heard on February 2 in Qld Federal Court.
Six years have now passed since the Liquidator made promises of completion and distribution to beneficiaries in six months. Proposed costs topped at $150,000 have blown out to over $1,500,000. Even so, the application was considered by Judge Derrington in favour of the liquidator. Judgement is deferred, but when formalised in orders, the verbal conclusions will enable a creditor-defeating phoenix action.
This will unfortunately result in the only beneficiaries being the company director, the liquidator, the lying lawyers and other associates who helped enable the phoenix activity.
Request for Investigation of Liquidator
I am the second defendant and sole judgement creditor in this matter. At this hearing I objected to the liquidator's application and requested orders for an inquiry pursuant to s 423(1)(b) of the Corporations Act, since omissions and acts indicate that as a Court official, the liquidator of the property at Mt Burrell, NSW, has not faithfully performed the proper functions of a controller with powers as administrator, liquidator and receiver.
I contend that the conduct of this proceeding has involved misdirection with errors of fact resulting in errors of law and a civil miscarriage of justice, causing profound disadvantage to defendants.
The Federal Court matter, QUD 32/2018, followed a request for winding up of the company Wollumbin Horizons by the company director in 2017.
The liquidator reports in his application that the property was sold at public auction on 6 June 2020 for $2,000,000.00. It was listed for sale with Ray White Rural and Christie’s Prestige. The executive director of Christie’s Prestige, Eamon Lowe, is known to be a close associate of Wollumbin Horizons' director, who was convicted at Southport District Court in 2019 for attempting to mislead the Court. The Federal Court ignored warnings of conflict of interest.
The liquidator informed the Court that payment for the property was not made until 18 November 2020, and that, apart from highly elevated sales costs, no payments or disbursements have been made for more than two years, because he "has been unfunded” and that no funds are currently available to him.
A central issue in this matter involves phoenix activity, facilitated by the liquidator. This was also addressed in my cross-claim of May 2018, which Judge Derrington, at an administrative hearing for joinder of parties, summarily dismissed and suppressed as “scurrilous”.
Intentional phoenixing takes its name from the mythical phoenix bird that rises from its own ashes after self-immolation. Phoenixing is intended to transfer assets from an insolvent company to a related company operating the same business. ASIC determines that such asset disposal is permissible if creditors are not disadvantaged, but phoenixing is deemed illegal if transfer of assets is intended to defeat creditor claims.
In 2017, the liquidator had advised contingent creditors that the best possible outcome involved a phoenix move in which property title would be transferred from the company Wollumbin Horizons to a related company, NCV Enterprises, run by the same people, carrying out the same business of selling residential lots devoid of development consent.
The liquidator promised that the proposed asset transfer would be completed in less than six months at minimal cost and would provide sufficient funds to repay some of those who had invested in purchase of the property.
In 2020, the phoenix move was completed, but not under the terms offered to creditors.
The protracted delay and exorbitant costs were falsely blamed by the liquidator on "oppositions," which the Judge defined as "defendants who believed they were doing the right things, but were just running up costs for no good reason."
I find it deeply troubling that Judge Derrington does not consider pursuit of justice to be a "good reason" for opposing an illegal phoenix move.
The Judge recognised that the company Wollumbin Horizons "was engaged in unlawful activities" involving construction of residences without development consent, and "as a consequence they wanted to keep the illegal scheme alive." But since the company director had declared himself bankrupt, the Judge commented that he could see no financial benefit in bringing justice to unlawful activities by the company director: "why chase someone who has no money?"
The Judge commiserated with the victims of the "unlawful activities" that had left so many people bereft of life savings and destitute, which he said was a "tragedy". But, he said, because the matter is complex and purchase money creditors are querulous, the best outcome for the victims, two years after the sale, is that the lion's share of proceeds from the property should be given to the liquidator and his lawyers.
I responded that the real tragedy is that this Federal Court has helped to ensure that the "illegal scheme" may be kept alive with impunity.
Even worse, Judge Derrington has now established a glaring precedent that will expand a notorious legal loophole by giving a nod from the Court to the unjust trampling of phoenix victims in favour of dominant commercial interests that practice misdirection.