Incuriosity behind regulator’s attack on trustees

Assuming the proceeding commenced in August by the Inspector-General in Bankruptcy (IGB) against a Gold Coast lawyer and two bankruptcy trustees concludes with judgment, practitioners will gain useful insight into what level of scrutiny of a debtor’s affairs the regulator deems acceptable.

Back in June, The Australian Financial Security Authority (AFSA) issued a statement confirming it had commenced an investigation “into circumstances surrounding the personal insolvency of debtor Beau Timothy John Hartnett“.

AFSA said it acted after becoming aware of concerns regarding Hartnett’s conduct and actions taken in relation to his personal insolvency.

While iNO makes no suggestion of wrongdoing the IGB’s statement of claim lodged in the Federal Court on September 27 alleges concerning conduct including asset sales and transfers of shares and interests effected by Hartnett prior to the execution of his Personal Insolvency Agreement (PIA) in April this year.

As well, the IGB has outlined multiple concerns focussing on an alleged lack of investigation by Hartnett’s controlling trustees, Anne Meagher and Adam Kersey of SV Partners.

Those concerns include the willingness of the trustees to admit proofs of debt from minor creditors where evidence appears to show their claims were procured by Hartnett only shortly before creditors were to vote.

The IGB also claims that Meagher and Kersey didn’t sufficiently investigate the major claim by value of more than $3 million, lodged by a related entity controlled by Hartnett’s wife, migration lawyer Suzanne Lee Weel.

The largest unrelated creditor, who voted against the PIA, last year served Hartnett with a bankruptcy notice after the NSW Supreme Court of Appeal upheld a decision ordering Hartnett to pay the plaintiff in those proceedings almost $585,000.

Documents obtained by iNO show that Meagher obtained legal advice in respect of the related entity claim from solicitor Dan Ryan of Davidson Ryan Lawyers and that she told Hartnett she wouldn’t recommend his proposal in its original form.

This prompted Hartnett to add an $80,000 sweetener but the IGB complains that Meagher and Kersey never investigated where these additional funds came from and whether it represented a potential source of recoveries.

According to a report to creditors Hartnett’s affairs aren’t amenable to penetration by the laws of bankruptcy.

“We reiterate we have not found any assets or recovery actions available to a Trustee in bankruptcy from any of the properties held by the associated entities as the properties were owned either by trustee companies of discretionary trusts or superannuation funds and in the majority of cases have been held in same for significant periods of time,” the trustees said.

Correspondence between Meagher and AFSA senior inspector Agnes Castaigns also indicates that Hartnett hasn’t owned property in his own name since 2012.

In seeking orders that the PIA be set aside the IGB’s Statement of Claim describes the terms of the agreement as “not reasonable or not calculated to benefit creditors generally”.

It does not however identify what if any orders it wants the court to make in respect of Meagher and Kersey, though in all documents obtained by iNO Meagher appears to be the primary appointee.

In a text response to iNO’s inquiries Meagher confirmed this morning that the trustees were filing their defence today in accordance with the court timetable.

She declined to comment on whether or not she and Kersey would seek to be appointed as Hartnett’s trustees in bankruptcy should the IGB’s application succeed. The matter is set to be heard over three days commencing on January 28, 2025.