GROUP STRUCTURES – PHOENIX ACTIVITIES – TAX AVOIDANCE – PUBLIC EXAMINATIONS – ASSET STRIPPING – CONSTRUCTIVE TRUSTS – FRAUD
Company One was established in the early to mid 1990’s to provide temporary employment placement activities within the states of Victoria and New South Wales. It effectively operated up to the turn of the century as a single entity.
However all was not well. Having incurred significant tax and other statutory liabilities over the first eight years of operation Company One was effectively ‘phoenixed’ to a new entity around 2000 with no evidence that any consideration was ever paid for the business.
At this time the new entity took on the form of a Franchisor with a number of other entities that were created to be Franchisees. The group had effectively been structured as a purported Franchisor and a number of Franchisees, albeit the entire Group was effectively owned and controlled by the one individual. The Franchisees having effectively been established within selected regional areas in which the business conducted its operations. Notwithstanding the effort that had been made to create the above perception there was a complete void of legal documentation to support the Franchise structure, it genuinely appeared more myth rather than fact.
Nothing had been done with the original Company which remained in place but no longer trading.
Trading did not improve and over the ensuing two years the new main entity also accumulated significant tax and other statutory debts. This then resulted in the new ‘Franchisor’ selling the business for a second time again to a new Group entity and again for an apparent NIL consideration.
Operations continued on again for a further two years, again with escalating tax and statutory liabilities whereby the business was then finally sold to an independent Company operated by two former employees. To this time no action had been taken against any of the Group entities.
With the Group no longer operating and there being significant outstanding liabilities the “Director” had finally been advised to take action and we were appointed to certain companies within the Group seven months after the final sale.
Notwithstanding the conscious act of appointment by the Director, the mythical nature of the businesses operations continued to haunt. All of the Reports as to Affairs indicated a complete absence of any real assets belonging to any part of the Group.
It soon became evident that a proportion of the Groups records had been destroyed by one of the employees which left us with no alternative other than to reconstruct the records from what was available, sourcing much from Banks, Government Authorities and the like. It was during this process that it was established that significant Company and Group assets were missing.
It was established that there were significant assets contained within other Corporate Group members to which we had not been appointed. Legal actions were commenced and ultimately we were appointed to the other ‘more valuable’ members of the Group.
Continuing investigations, including the conducting of a series of Public Examinations, repeatedly brought to light the consistent and ongoing diminution of Group assets. In the end we were able to establish:-
- Debts of in excess of $7,000,000 had not been disclosed in the original Reports as to Affairs, the Director purporting that his signature had been forged on the false documents.
- There were amounts in excess of $4,000,000 owing to the initial Companies by other members of the Group.
- Funds had been moved to other entities and parties enabling them to acquire assets in their own names, including various parcels of real estate, and a part interest in an operating hotel.
- The apparent architect of the whole operation was in fact the Director’s son who controlled the Group from a de facto position. Ultimately the son failed to appear at any of the Examinations and was some considerable time later located hidden in a country in South America living under an assumed name.
- There remained amounts owing by the ultimate purchasers of the business that needed recovery.
- Physical Company assets such as cars and the like had been transferred to various parties for no value.
As the process of investigation uncovered asset after asset, legal action for their recovery was commenced using various means. One in particular was the argument of Constructive Trust where the Groups funds had been used to acquire something of value. That item was ultimately deemed Company property and realised for the benefit of creditors.
In the end with the extrapolation of funds and claims actually representing a very small group, viz Government Departments and major utilities it was agreed by all Creditors that the assets and liabilities be pooled into one Fund, resulting in one distribution.
Overall this matter provided a truly beneficial result for the Creditors as a whole. The only disappointment at the end of the day was that with all the fraud and attempts to remove and hide assets no criminal action was eventually taken against anyone.