Documents filed in the Federal Court last week show that the FEG “Active Creditor” Recovery Unit has not missed the opportunity to remind the voluntary administrators (VAs) of Probuild of the need for candour when applying to courts to extend convening periods and personal liability protections.
The Deloitte foursome appointed as VAs of Probuild on February 23 – Sal Algeri, David Orr, Matt Donnelly and Jason Tracy – applied to the Federal Court on February 11 for an extension of the convening period for the second meeting of creditors to June 24.
“Additionally, many orders seeking to relieve the voluntary administrators of personal liability should not unnecessarily preclude creditors from being paid from the estate in accordance with the priority established under relevant laws.” FEG Active Creditor Recovery Unit chief Henry Carr.
In support of the application Orr filed an affidavit annexed to which is a letter from FEG Recoveries chief Henry Carr addressed to Deloitte restructuring veteran David Lombe.
In the letter Carr outlines FEG’s concerns in respect of the decision to trade on Probuild businesses.
“The department’s primary concern when businesses are traded on through extended convening periods is for practitioners to monitor and disclose the costs of (and asset classes that benefit from) any extension of the administration so that these costs can be allocated to the various asset pools if companies in the Group enter liquidation,” Carr wrote.
“We anticipate that the administrators would not seek orders that, if granted, would impede creditors who are seeking to understand their position by limiting the information available to them.
“For example, orders permitting a pooling of funds in one bank account, or an order receiving the company directors and administrators of the duty to prepare a separate report on each of the companies in the Group, may hamper creditors seeking to understand their position.
“Additionally, many orders seeking to relieve the voluntary administrators of personal liability should not unnecessarily preclude creditors from being paid from the estate in accordance with the priority established under relevant laws.”
The hearing of the extension application is scheduled for 10:15am today before Federal Court judge Jonathan Beach.
Carr helpfully suggested to the VAs that they might want to address a range of issues he identified as being relevant to any application to extend the convening period.
Coincidentally, these are issues of relevance to FEG as the substitute creditor for employees whose claims are paid out by the taxpayer through recourse to the Fair Entitlements Guarantee (FEG).
“In the case of the employing entities, the current net asset position and how the extension will impact the assets available to pay employee entitlements that could crystallise on liquidation. (Ie detailing to the court the benefits and detriments to all employees in an extension versus immediate liquidation).
“The reasons warranting an extension in relation to each entity of the group for which it is sought (for example if orders are sought for a blanket extension for the group to effectively treat it as a pooled group, why is this necessary when there may only be certain entities with saleable assets/projects).
“An understanding as to the impact of any orders seeking to limit the administrators personal liability for debts incurred during the extended VA (Ie identifying whether these debts will rank in priority to employees or other creditors).”
Carr concluded his correspondence to Lombe by saying how much he looked forward to seeing a copy of the VAs’ application, “when it is available”.
As Carr is also on the Probuild group Committee of Inspection we suspect he’s well advanced in telling Lombe what he thinks of it.