Fee deal evaporates as judge refuses to terminate

Smith Hancock partner
Mike Smith.
Smith Hancock partner Rommel Alfonso.

A proposal that would’ve seen liquidators Mike Smith and Erwin “Rommel” Alfonso paid $85,275.07 in satisfaction of exisiting and future remuneration claims and costs has been crushed after a judge refused to terminate a winding up despite the applicant’s offer to discharge the company’s debts.

As is evident In the matter of Kele Group Holdings Pty Ltd [2021] NSWSC 412 NSW Supreme Court judge Kate Williams appears to have found much to be uncertain about in respect of the termination application, brought by Ms Hilda Elias, sole director and sole shareholder of Kele Group Holdings Pty Ltd.

Where the Court’s discretion to terminate a winding up is invoked, the Court seeks some comfort that a similar state of affairs is not likely to recur in the future. The Court therefore requires evidence demonstrating not only that the company in question is solvent, but also that it is likely to remain solvent“. Justice Kate Williams.

That evidence was conspicuous by its absence according to the judge, who described how there was nothing put before her to prove that post termination, the director and two other related party creditors who proposed to come on board as new shareholders would fund the company in a second incarnation as a purchaser of real property and collector of rent.

Quoting from an affidavit Smith submitted in the proceedings her honour said: “Mr Smith expressed the same view in his affidavit. However, it is also plain from Mr Smith’s evidence that the Company does not have any funds or other assets.”

Nor might her honour have been comforted by the applicant’s proposal that no money would be applied to the company’s existing debts or the Smith Hancock duo’s remuneration and costs until after an order terminating the winding up had been made.

On top of that was the fact that the applicant proposed applying almost $2 million in tax losses generated over more than a decade to the proposed future enterprise of Kele Group, despite owing the Deputy Commissioner of Taxation (DCoT) as petitioning creditor in excess of $60,000.

In iNO’s humble opinion the applicant would seem to be suggesting that future, ongoing solvency post-initial debt discharge would be partially reliant on historical tax losses.

Finally, in refusing the application her honour alluded to that history, and its key distinguishing feature: non-compliance.

“The unresolved inconsistency in the evidence concerning whether or not the Company had complied with its statutory obligations to lodge income tax returns for a significant period prior to the winding up raises a serious question about whether the affairs of the Company were conducted in a manner contrary to commercial morality prior to the winding up,” the judge said.

“In my opinion, that is a further matter that weighs against the exercise of the discretion to terminate the winding up.”

Quite. Her honour dismissed the application and ordered Elias to pay the costs. We asked Smith how he and Alfonso would get their fees paid. A response was pending when iNO went to press. Support INO’s continued chronicling of the insolvency sector.

Further reading:

When the court agrees to terminate: In the matter of Winsome Australia Pty Ltd (in liquidation) [2021] NSWSC 430

1 Comment on "Fee deal evaporates as judge refuses to terminate"

  1. James T Johnson | 30 April 2021 at 11:58 am | Reply

    The outcome does not appear to be surprising as the court in exercising its power does so with a view to, essentially, matters of public interest and upon being satisfied that the relevant entity is “solvent”. Historically the court has refused to terminate or permanently stay a winding up unless these matters have been identified. Recently there have been a number of cases where this position and the principles upon which the court acts have been identified.

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