Another day, another tax default, another phoenix?

And here we are again. Directors who don’t pay tax when it’s due, ignore a statutory demand, direct debtors to pay monies into a different bank account and fail to provide books, records and RoCAP to the liquidator inevitably appointed. Sound familiar?

If not, how about if at least one of the directors appears to have acted as a de facto controller of the corporation and appears to own multiple properties?

“As I have said, I have considerable reservations about a number of aspects of the first defendant’s evidence, including his evidence with respect to this matter.” Justice Anthony Besanko.

Or that the business continues to operate under the auspices of a newly established family trust and the most recently appointed sole director and secretary moved home to India shortly after being appointed? Enough red flags, ASIC?

This litany of alleged corps law abuses comes courtesy of a recent report to creditors of H&B Professional Tiling Pty Limited prepared by Adelaide-based liquidator Leigh Prior who, in investigating the alleged breaches, identified the possibility of a phoenix transaction.

Further detail is provided by Federal Court judge Anthony Besanko in H&B Professional Tiling Pty Limited (In Liq) v Haidari, in the matter of H&B Professional Tiling Pty Limited [2024] FCA 207 who in February was asked to vary freezing orders obtained by Prior in December 2023 in respect of an ANZ Bank account. Last week the judge published his reasons.

Prior and one of H&B’s former directors are at odds over which monies in the account rightfully belong to H&B and its creditors and which monies belong to the family trust established only weeks before the company was placed into liquidation and which is now carrying on a tiling business indistinguishable from H&B’s former enterprise.

As the freezing orders started to squeeze one of H&B’s former directors sought to vary them so that a lump sum could be paid out of the ANZ account.

The amount sought – $263,894.42 – was required to pay sub-contractor invoices, personal loans, suppliers and mortgages the court heard.

But Prior, who was appointed by the courts on a winding up application filed by the Deputy Commissioner of Taxation (DCoT) convinced Justice Besanko that his claims for equitable compensation and damages against the directors will likely increase such that the quantifiable amount would exceed what was currently languishing in the account.

It’s not unreasonable for the defendant director to claim that he requires funds for ordinary living expenses and ordinary business expenses, Justice Besanko said.

“However, for the reasons given, I am not satisfied that the amount claimed by the first defendant fairly reflects those expenses.

“Not the least of the deficiencies in the first defendant’s evidence is the lack of any firm and clear evidence of the performance and resources of the Family Trust business.

“Furthermore, the evidence, at least on a prima facie basis, is that the plaintiff (Prior) may be entitled to recover a reasonably substantial amount by way of compensation or damages,” he said.

All well and good. But the reality is that this is a case where an effective regulator should be throwing money at the appointee to ensure creditor’s interests are served and laws are enforced. Yet at present Prior’s pursuing this case on spec.

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