ARITA committee member’s re-election bid wobbling

O’Brien Palmer partner Liam Bailey‘s campaign for re-election to the ARITA NSW/ACT Divisional Committee was dealt a blow this week following the release of a detailed and potentially prejudicial report to creditors of McCorkell & Associates.

Authored by Michael Hogan, who replaced Bailey as liquidator of the ad agency in 2023, the Hogan Sprowles partner says he’s identified potential causes of action ” …. against the Director (Scott McCorkell) and each of the “Advisors” being Mr (Liam) Bailey (the Former Liquidator) and Messrs (Andrew) Whittingham, (Andrew) Fraser and (Kyle) Macmillan.

While iNO makes no suggestion of wrongdoing the potential causes of action identified by Hogan include alleged breaches of Sections 180 and 183 of the Corporations Act by Scott McCorkell in his capacity as sole director and secretary of McCorkell & Associates. And according to Hogan, McCorkell didn’t act alone.

“Such a cause of action would also include a potential claim against the Advisors as persons involved in the contravention of the Corporations Act by them being aiding, abetting, counselling or procuring the Director’s breaches within the meaning of section 79 of the Corporations Act or knowingly involved in the Director’s breaches of this fiduciary duties to the Company owed at general law,” he said.

A further headache for Bailey relates to his decision to accept the appointment as liquidator of McCorkell & Associates after providing advice to the sole director, particularly given Bailey admitted in public examinations conducted by Hogan that some of that advice should have been but was not included in his DIRRI.

The advice Hogan is seeking to impugn relates in part to a loan agreement covering $560,000 paid to the company by the director.

According to Hogan, when the director, his accountant Fraser and Bailey met on November 23, 2022 for the first time, Bailey mentioned that “the assignment of any secured debts from the Company to the new entity could be used as a setoff to the purchase price of the business of the Company”.

Immediately after the meeting Hogan claims “a security interest in relation to the Loan in favour
of Mr McCorkell was registered on the PPSR purportedly in respect of the assets of the Company”.

The Report also details how on December 6, 2022 Fraser sent a copy of the executed loan agreement to Bailey’s personal email address and Bailey responded via telephone text messages with comments in respect of potential clauses required to secure any further funding advanced by the Director to the company.

According to Hogan Bailey admitted during his public examination that:” the existence, nature and contents of that correspondence ought to have been included in his declaration of independence”.

The Report also states that Bailey admitted that he was giving advice to the Director about how he might further protect his position in relation to a company over which he might be appointed as liquidator; and that Fraser was seeking his approval in relation to the terms of the Loan Agreement on the possibility that Bailey would be appointed as liquidator of the Company.

“Mr Fraser has conceded that he sent the Loan Agreement to the Former Liquidator prior to his
appointment as liquidator of the Company to make sure that “he was happy with the transaction as it
had been prepared,” Hogan said.

In an email response to questions from iNO Bailey said that he made it clear to the director “that payment of good consideration was an essential element of a legitimate transaction.

“Such transactions are not illegal if conducted properly and I don’t see any reason not to include them as part of a discussion of the options available to a director of an insolvent entity.

“In fact, discussion of the pre-pack model and legitimate pre-pack transactions can prevent fraudulent phoenix activity,” Bailey said.

According to Hogan the price paid was less than $30,000. It’s been reported in AdNews that in 2019 Japanese firm Dentsu had been negotiating to purchase McCorkell & Associates for as much as $14 million.

Hogan appears to think that the opportunity to avoid the pitfalls of an improperly executed phoenix got lost in the mix.

“The Director has given evidence to the effect that the backdating of the Loan Agreement was to
“pretend” that the Loan Agreement had been executed on 28 October 2022 when in fact it had been
executed on 29 November 2022,” he said.

“Based on that (and other) concessions together with the documentary evidence in support of same the Loan Agreement appears to be a fraud.”

In a Linked In post on Monday, the day before the report was distributed to creditors, Bailey appealed for support for his re-election, saying his goal is “to broaden my experience within ARITA with a view to filling a larger leadership role within the organization in years to come”. Voting closes in mid-April.