Comlek administrators in the clear, almost

Comlek
Wexted Advisors’
Joe Hayes.
Comlek
Wexted Advisors’ Andrew McCabe.

Barring the filing of an appeal in the next few weeks Joe Hayes and Andrew McCabe have almost certainly seen off what has been an aggressive push for adverse conduct and commercial immorality findings brought by Queensland’s Commissioner of State Revenue (CSR) in respect of the Comlek Group.

It is difficult to understand how, having been made an offer to enter into a repayment plan (albeit one that was subject to a proper further investigation and potential reassessments), the Commissioner maintains the position that the step taken at that point by the Comlek Companies and the directors amounted to a misuse of Pt 5.3A.” Justice Sarah Derrington.

Delivering judgement in the Federal Court last Friday in Commissioner of State Revenue v McCabe (No 2) [2024] FCA 662, Justice Sarah Derrington rejected the CSR’s argument that the deed of company arrangement (DoCA) Hayes and McCabe had recommended to creditors of the Comlek Group was against the public interest and an affront to commercial morality.

If not challenged by the lodging of a notice of intent to seek leave to appeal within the appropriate time frame the judge’s decision will bring to an end proceedings commenced in March 2023, approximately three months after the Wexted Advisors partners were appointed voluntary administrators (VAs) of multiple Comlek Group entities on December 5, 2022.

Hayes and McCabe were appointed after the CSR declined a repayment arrangement proposed by Comlek Group director and founder Michael Donaldson, who professed to have no knowledge of payroll tax arrears accumulated over more than a decade.

Donaldson’s plan involved specific entities within the Comlek Group repaying more than $10 million in payroll tax liabilities at the rate of $40,000 per month. The rejection of the plan meant Comlek’s directors were in danger of trading whilst insolvent.

Post appointment the VAs received two DoCA proposals. One from Donaldson and one from a Comlek competitor. In their report to creditors ahead of the second Hayes and McCabe indicated that they would recommend the Directors DoCA.

Ahead of the January 19, 2023 second meeting Hayes and McCabe had several meetings with representatives of the Queensland Revenue Office (QRO) including manager, Debtor Enforcement Collections Division Saskia Broekhuizen and Mr Kim Easton, director, Collections Division.

During those meetings it became clear that while the VAs supported the Directors DoCA the CSR, who believed Comlek’s payroll arrears constituted deliberate tax evasion, wanted the companies wound up so liquidators could conduct thorough investigations.

The day before the scheduled second meeting of creditors on January 19, the QRO representatives told Hayes and McCabe via a Teams hook up that it in accordance with the CSR’s duty to consider the public interest, it couldn’t support the Directors DoCA and asked the VAs to adjourn the second meeting.

Hayes and McCabe responded in writing that evening, seeking an indemnity in the amount of $430,000.00 “in order to consider any adjournment of the Second Meeting to 10am (AEST), Monday 23 January 2023” so as “not to prejudice the unsecured creditors and to meet the ongoing costs of the Administration”.

The letter also detailed the reasons why McCabe, who would chair the meeting, would use his casting vote to break any deadlock resulting from the CSR voting in opposition to the VAs’ recommendation.

In a written response received by the VAs that same evening the CSR declined to engage with the indemnity proposal.

It said that “the return to the Commissioner under the directors’ DOCA was unfairly discriminatory; and that there existed matters concerning public interest and commercial morality that “strongly indicate why it is appropriate for the Companies to be placed into liquidation”.

Certainly the CSR received different treatment to other creditors in that its return was substantially less but as the judge pointed out, it had not sought to prove tax evasion and the arguments it did advance for an orders setting aside the resolution supported by McCabe’s casting vote, terminating the DoCA, winding up the Comlek Group of companies and appointing liquidators were not so much unconvincing as illogical.

“It is difficult to understand how, having been made an offer to enter into a repayment plan (albeit one that was subject to a proper further investigation and potential reassessments), the Commissioner maintains the position that the step taken at that point by the Comlek Companies and the directors amounted to a misuse of Pt 5.3A,” the judge said.

” …. notwithstanding the clear reasons articulated by Mr Donaldson for proposing the DOCA in the terms he did, the Commissioner submitted that what had been proposed by Mr Donaldson needed to be seen: “in the light of the more than 10 years of outstanding and payable amounts of payroll tax”; “in the context of an administration process which occurred over Christmas, where, as is commonly known, most of Australia is on summer holidays”; and “in the context of an administration which started with an intent for the directors to make a DOCA proposal and ended with that proposal being accepted, against the vote of the majority unrelated creditor”.

“With the relevant events viewed in light of these contextual features, the Commissioner submitted that this conduct, coupled with the suggestions of deliberate tax evasion and default, is the type of conduct which makes a liquidation appropriate in the public interest.

“I am unable to follow the logic of such a submission, and reject it,” her honour concluded.

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