Court douses DoCA optimism

A court’s refusal to adjourn the hearing of a winding up application this week reminded iNO that there is no greater optimist than a non-compliant director.

In the matter of De Security Solutions Pty Ltd, NSW Supreme Court judge Ashley Black on Monday was asked to adjourn the hearing of a winding up application being brought by Workers Compensation Nominal Insurer (WCNI).

That request came from Worrells partner Graeme Beattie, who was appointed administrator by the director of the company on November 1, 2024, more than six weeks after the winding up proceedings were commenced.

Beattie sought the adjournment on the basis that a deed proposal he was recommending should have the opportunity to be put to creditors.

In his 439A Report Beattie said the company had been insolvent since 2021, that the ATO has submitted a claim in the sum of $5.3 million in respect of unpaid GST and PAYG liabilities in
addition to interest and penalties and that he’d sighted an email from the legal representative of Revenue NSW which disclosed that its claim was in the vicinity of $2.6 million.

He also disclosed that the company hadn’t traded since June this year when the company’s primary client, Spotless had terminated its contract with Cleanaway, which had subcontracted to De Security Solutions.

What’s more director Ahmad Charafeddine had been unable produce a copy of the subcontract or the notice of termination, though this may be due to the director’s decision to travel to Lebanon to support his family following the commencement of hostilities between Israel and the Iranian-backed militia known as Hezbollah.

What the director had been able to do was bring to Beattie’s attention a primary reason for the company’s abject failure to comply with its tax and regulatory obligations, that being the fact that the company’s affairs had since 2021 been in the hands of western Sydney accountant Benjamin Carter of Carters Tax Advisory.

iNO readers may be aware that in July 2023 Carter was arrested on charges of fraud and embezzlement in respect of approximately $26 million in client funds police allege were used to fund a lavish lifestyle and a gambling addiction.

Carter has since had his registration as a tax agent terminated and remains on bail at time of writing.

2021 however was many years after the company commenced down the path of non-compliance, as identified by Beattie who said in his report that “the Company has had generally poor compliance with its statutory obligations since 2014, noting that its tax liabilities appear to have accrued since this time”.

Beattie also disclosed that the contract with Cleanaway that the company had lost was subsequently awarded to I Tech Facilities & Solutions Pty Ltd (ITFS), a company registered in 2022 and whose sole director Deyaah Elattar, is the former director of De Security Solutions, Elattar having held that role from May 2010 to May 2023.

Also disclosed in the report was Beattie’s understanding that both Elattar and Charafeddine had been issued with Director Penalty Notices (DPNs) and that neither appeared to have assets sufficient to respond to any insolvent trading claims brought by a liquidator if one were appointed.

Despite all this they were however able to persuade Beattie to recommend their DoCA proposal on the basis that property in Lebanon could be sold to raise the cash needed for the deed fund. Clearly there was so much optimism they were able to share some with the administrator.

But as Justice black deliberated on the adjournment application on Monday, it became clear that neither the director or ex-director or Beattie were able to provide anything that could satisfy his honour that the money would materialise and that the proposal was in the best interests of creditors.

Instead the application for an adjournment so creditors could vote on the DoCA proposal seemed to be fuelled by nothing more than optimism, an optimism which some might argue is justified by at least a decade of ATO leniency.

Groomed by a near perpetual absence of consequences why would unsophisticated company directors expect anything other than a similar degree of indulgence from the court?

Alas their hopes were dashed. The adjournment application was dismissed. The winding up application was heard and decided in WCNI’s favour. And Beattie will now need to consider whether it’s worth chasing funding to bankroll the various causes of action he identified as being available should a liquidator be appointed.