If any insolvency practitioner remains uncertain as to the intentions of the Department of Employment’s (DoE) Active Creditor Unit (ACU), contemplate the plight of dVT Group’s Riad Tayeh, whose role as receiver of Delnote Constructions has recently been the subject of public examinations in the NSW Supreme Court.
Tayeh and dVT colleague David Solomons were appointed receivers of the commercial concreter in November 2014. The appointor was Hermes Capital, a specialist invoice financing outfit headed up by ex-Turnaround Management Association (TMA) chairman Nick Samios. Delnote’s sole director had placed the company into the hands of Sule Arnautovic and Glenn Crisp of Jirsch Sutherland as voluntary administrators (VAs) only days earlier.
As SiN slouched in court room 9B, counsel for the DoE’s most zealous litigators probed Samios about why Hermes had entered into a factoring arrangement with the receivers that on the material available didn’t seem to involve the provision of cash. When the DoE’s counsel postulated that the purpose was to enable the receivers to avoid having to satisfy preferred creditors, Samios almost exploded.
“No. We haven’t confected some scenario,” he responded testily. The receivers were, he said, trading on the business as they were requested to do by the VAs (who have since been appointed liquidators). The point was that Hermes had nothing to do with the receivers’ decision to trade on, Samios told the court. The ACU’s pugnacious chief Henry Carr should focus on Tayeh, whose fees he added in an intriguing aside, had displeased him.
Carr flagged last year that the ACU would be watching closely to ensure receivers were not unnecessarily increasing the burden on the taxpayer funds sitting behind the Fair Entitlements Guarantee Scheme (FEG), and it’s believed he’s already extracted some fat cheques. But back to Samios and Tayeh.
So how did the factoring arrangement with the receivers even commence, ACU’s counsel persisted? “I would’ve thought there had been an email,” Samios told the court, to which the ACU’s inquisitor pointed out that if there had been, it had not been produced. Samios replied that he had engaged an IT specialist to recover all such correspondence in accordance with the notice to produce. Why no email has surfaced detailing how the factoring arrangement was conceived remains unexplained.
Seeking more detail SiN relayed a list of questions to Tayeh, to which he decently replied without delay. However in explaining why he had factored Delnote customer invoices to Hermes, Tayeh attributed the request to trade on to a different source.
“I was asked to trade on the company by the directors to see if they could refinance,” he told SiN before staunchly rejecting any suggestion that the whole thing might’ve been designed to favour Hermes at the expense of creditors with superior claims.
“The factoring of new debtors does not avoid preferred creditors,” he said. “It is a funding mechanism to allow a company to raise funds to trade on. I also considered it worthwhile to finish some profitable jobs to be able to collect debtors. The company had no funds (so) Hermes advanced the required funds for which I gave them security, being the debtors I raised post-appointment.
“If I could not get funds I would have had to close the doors on day one which would have resulted in a much worse position for creditors,” Tayeh said. Fine, but what was that about the directors asking him to trade on? Samios told the court he thought the VAs recommended to the receivers that the company trade on.
Tayeh’s explanation indicates cash flowed from Hermes to the receivers via the factoring arrangement. The questions put to Samios in court implying Delnote customer invoices had been submitted but no cash released may have been speculative, and the product of deficiencies in the supporting material dredged up in response to the notice to produce.
After all, the court also heard that the factoring initiative, which meant Delnote inevitably continued to incur fees payable to Hermes, required the receivers to engage construction industry dispute specialists Macleay Partners to collect debts, a firm which by happy coincidence boasts ex-dVT manager Justin Ward as co-founder.
But back to the receiver’s decision to trade on, and who might have requested Tayeh do so. Was it the company’s director? Or Arnautovic and Crisp, as Samios had recalled? Another email was dispatched, this time to the Jirsch Sutherland NSW managing partner.
“The Receivers made the call as to trading and employing,” Arnautovic told SiN in response. ” … our powers were nullified immediately on their appointment. The merit in the short trading period was to preserve some debtor value … but again that was the call of the receivers,” he said.
The seeming confusion could of course be a result of an incomplete document recovery exercise in response to the notice to produce. But for Tayeh, the real angst is likely contained in an inconveniently confidential letter from Carr to the receivers, dispatched no doubt after Arnautovic and Crisp had tapped FEG to cover the entitlements owed to Delnote’s employees.
“It’s a very serious piece of correspondence,” Samios said of the letter in an email to Tayeh that was read out in court. And serious correspondence addressed to receivers from the ACU can include instructions on how to write serious cheques. In Tayeh’s case, about $450,000 ought to do it.