Court mauls liquidator over doomed proceeding

Melbourne-based Michael Carrafa has been savaged in a judgment of the Supreme Court of Victoria after persisting with insolvent trading and related claims despite realising he couldn’t prove insolvency.

A week before Christmas last year Judge Clive Croft ordered the SV Partners executive director be removed as liquidator of Gemwood Projects Pty Ltd (GPPL), that he be denied recourse for remuneration or expenses incurred in the proceeding and that any remuneration already paid be returned.

Carrafa commenced the proceeding in July 2022 after being appointed administrator of GPPL on July 4, 2019 and liquidator of related entity Gemwood Installations Pty Ltd (GIPL) on the same day.

“Had Mr Carrafa informed the ATO and SRO of the circumstances of the E&C lending arrangement, as he was required to, the ATO and SRO may very well have determined not to settle those claims. Accordingly, in my view, the settlement sums received by the Liquidator are to be returned to the respective statutory authorities.” Judge Clive Croft.

The decision in Gemwood Projects Pty Ltd (in liq) [2025] VSC 819, which the judge indicated would be sent to ASIC, will also go down like a lead balloon at FEG, which is claiming $624,972.35 in the liquidation of GPPL to cover advances to employees and had funded Carrafa in the proceeding.

Nor is there any question that the question of costs won’t be resolved in favour of defendants Emilios Georgiou and E&C Georgiou Nominees Pty Ltd as Trustee for the Emilios Georgiou Trust, despite indica of phoenix conduct by “predecessor” directors as the business transitioned without discharging statutory debts.

We could not make this stuff up.

iNO emailed Carrafa asking whether he would consider an appeal but no response was forthcoming prior to our publication deadline.

In iNO’s experience a well regarded practitioner, it’s difficult to fathom how Carrafa and his lawyers let this matter sink.

Much is made in the judgment of a so-called Tendency Notice filed in the proceeding on October 3, 2024.

The notice declared how Georgiou allegedly “had a tendency to place companies operating the ‘Gemwood Business’ into external administration without causing the company or companies to discharge debts owed by it or them to statutory creditors in respect of taxation liabilities (including payroll tax and PAYG and GST) and superannuation guarantee charge prior to entering external administration”.

Under cross examination Carrafa said he never instructed his lawyers from Johnson Winter Slattery to file the notice.

The judgment then records Carrafa’s counsel as contradicting his client, saying “the Liquidator did provide instructions for the preparation and issuance of the Tendency Notice, however, the Liquidator was not involved in the drafting, nor did he review or sign off on the notice before it was served”.

Then there was the primary issue. Carrafa commenced the proceedings on the basis that the company had been insolvent from inception.

Could he show that the sole director had traded the company whilst insolvent in circumstances where the director was also the company’s funder, having extended loans over many years and as the company’s land lord extended significant rent forgiveness?

As the judgment shows, the analysis on which Carrafa’s initial view was based was conducted by then SV Partners’ colleague Shaun Fernando, and it was wrong.

“Mr Carrafa was also extensively cross-examined on ‘errors’ made by Mr Fernando, an employee of the Liquidator, in a cash flow analysis, which, when rectified, Mr Carrafa accepted that the analysis indicated the Company had a running profit over its entire lifetime save for 3 months,” the judge said.

“That is, over the Company’s 35 months of operation between September 2016 until July 2019, it operated on a running profit in every month except for three”.

Shaun Fernando has since joined Mackay Goodwin.

During what must have been an excruciating cross examination Carrafa eventually conceded that with the benefit of hindsight he wouldn’t have pursued the claims.

This means not only has he not obtained judgment for more than $2 million initially sought, he’ll also have to repay proceeds from preference payment claims he’d settled with the ATO and Office of State Recovery (OSR) as well as any remuneration he’s received during the course of the proceedings.

Presumably he’s indemnified by FEG, which will at least help in respect of the defendant’s costs, which we imagine will be sought on the indemnity basis by the defendant’s lawyers Aitken Partners.

Adding hurt to Judge Croft’s decision are his findings that in pursuing the proceeding Carrafa committed multiple breaches of the Civil Procedure Act 2010.

The parties have been ordered to provide draft orders to give effect to the judgment by January 31.

Jirsch Sutherland’s Andrew Mattinson has signed a consent to act as replacement liquidator.