RSM’s Frank Lo Pilato conquers conflict.
In a week when we’ve seen a Victorian liquidator suspended for three years for ignoring conflicts of interest, a judgment has emerged demonstrating that a conflict doesn’t have to be a bar to a liquidator maintaining appointments even when the conflict ensures fees get paid.
In the matter of CAL Consulting Pty Ltd (in liq) v CAL Consulting Pty Ltd (in liq) Justice Jayne Jagot has effectively greenlighted a conflict that will allow RSM Canberra partner Frank Lo Pilato to pay fees he’s incurred since his appointment as liquidator of CAL Consulting in 2011.
The conflict stems from the fact that Lo Pilato wanted to adjudicate on and admit proofs of debt (PoDs) from two companies – Purple Consulting Pty Limited and ACN 114 250 529 Pty Limited (Ignetik) – to which he’s also appointed as liquidator.
The customary course of action would be to appoint an independent liquidator. That way the PoDs could be assessed without fear that a perception of interest might be generated. But the judge was persuaded that in the case of CAL Consulting, leaving it to the incumbent was preferable, just and equitable.
“Mr Lo Pilato’s evidence (which I accept) is that the costs of appointing another liquidator will be substantial,” the judge explained. “Further, given the state of the accounts of the companies and other related companies, it appears unlikely that another liquidator would be able to obtain any further information than Mr Lo Pilato has done to assist in reconciling the books of the companies. Accordingly, the appointment of another liquidator will be of doubtful utility at significant cost.”
It should be noted that while CAL Consulting “was originally incorporated as a vehicle through which a sole director could undertake contracting activities within the information technology (IT) sector …..CAL subsequently expanded its business to provide payroll solutions for other contractors in the IT sector,” the judge said.
These services included invoicing and debt collection, making salary, superannuation and novated lease payments on behalf of those contractors, as well as remitting PAYG tax and superannuation to the Australian Taxation Office (ATO) for the employees. “Mr Lo Pilato’s investigations have disclosed that there were ultimately approximately 30 companies associated with and incorporated by CAL involved in these arrangements,” the judge said.
Of the 30 odd CAL-related contractors, eight are in the hands of EY’s Michael Slaven. The judge said Slaven had lodged proofs of debt against CAL for each company, including a now withdrawn claim for damages for failing to provide the agreed management services. “Two proofs of debt remain for Michael Slaven companies that concern loans, and not any claim for damages,” she said.
Slaven did not object to the orders Lo Pilato sought. The ATO didn’t respond when served. Another creditor was notified made no objection and nor did any opposition emanate from Deloitte Canberra partner Eddie Senatore, trustee of the bankrupt estate of CAL’s former director, Christine Anne Lloyd, 56 of Bungendore.
This judgment shows a sensible approach to any uncertainty by a liquidator – go to the court for directions when in real doubt; and the way the court will fulfill the overriding purpose so often talked about in enabling a proper result and minimisation of fees. Much appears also to have been accepted from the background actions of the liquidator pre application for directions so full disclosure of notification of affected interests and issues is done. It is a good practice judgment.