VAs ousted after backing doubtful DoCA

Two Sydney practitioners who tried to stall a winding up so they could put a DoCA proposal to creditors have lost the application and the gig after a court refused to adjourn the hearing and sided with the petitioning creditor’s preferred nominee as liquidator.

The bid for an adjournment in the matter of The Deputy Commissioner of Taxation (DCoT) V AJB Diesel Mechanical Services Pty Ltd came before the Federal Court’s National Judicial Registrar Phil Allaway yesterday morning.

“Your proposition is that the director be given a chance to vote at the meeting in favour of his own DoCA, is that your submission?” National Judicial Registrar Phillip Allaway.

Bringing the application were two of Mackay Goodwin’s finest – founder Domenic Calabretta and Edwin Narayan, whose title as Director – Asia Pacific Region, gives some clue as to the scale of Calabretta’s ambitions.

Opposing the adjournment was the Deputy Commissioner of Taxation (DCoT), in its usual capacity as an administration’s highest ranking unrelated unsecured.

Narayan and Calabretta got off to a bad start by filing Narayan’s affidavit in support on Monday, which the Registrar said was so late as to be “unsatisfactory”.

Their lawyer Luke Hyland however tried his best, arguing that the return being proposed via the deed – $10,000 up front – followed by a further $192,00 paid in 24 monthly instalments of $8,000 per month was superior to what might be recovered in a liquidation scenario.

Further, Hyland said that a major unsecured creditor would be denied the opportunity to vote on the proposal if Allaway ordered that the company be wound up.

The Registrar however had done his homework. The creditor demanding procedural fairness was the company’s director and the deed proponent.

“Your proposition is that the director be given a chance to vote at the meeting in favour of his own DoCA, is that your submission,” Allaway asked.

This led the DCoT’s solicitor, (recently promoted Serena Tong of Mills Oakley), to point out that the director’s claims comprised alleged loans to the company which Tong said required investigation by a liquidator, as did the possibility of a claim for insolvent trading.

When Hyland tried to insert the director’s overseas trip to deal with a family emergency as a possible explanation for insolvent trading Allaway gave it short shrift, commenting that a trip in April this year was hardly likely to impact on an insolvent trading claim against a director who appointed the administrators on May 24.

In their S439A Report Narayan and Calabretta stated that the business had been temporarily closed, “as the Director was overseas due to a family emergency. However, we advise creditors that he has since returned and has executed a License Agreement to recommence trading”.

In her submissions Tong told the court that the license agreement would consume half of the $8,000 per month in forecast future profits proposed to be paid to creditors via the DoCA.

She argued that a liquidator pursuing insolvent trading claims, other director-related transactions and the alleged loan to the company by the director represented a better potential outcome for creditors than the DoCA.

Allaway agreed and the question turned to the identity of the liquidator.

Hyland said his clients were ready and prepared to take on the role if the court declined to consent to an adjournment.

Tong was equally adamant that the DCoT’s preferred nominee, tax office favourite Robyn Duggan of EY, should be appointed. Allaway agreed.

All is not wasted for the Mackay Goodwin duo however. According to their DIRRI the director, one Andrew Jacobus Beeke, provided them with $120,000 in indemnity funding up front so their efforts, whilst unsuccessful as they ultimately were, won’t go unrewarded.

Interestingly, the DIRRI also lists AVA Systems, a Crows Nest-based accounting software firm as the administrators’ referrer and a search of the AVA website includes a complimentary review by none of than Calabretta, who waxes lyrical in a typographically-challenged tribute.