FTI Consulting’s Joanne Dunn may well be ruing the day she agreed to an appointment as liquidator of engineering firm Intelara.
Prior to her appointment in December 2015 pre-insolvency advisors had persuaded the Intelara directors to undertake what courts say was described to the directors as a “legal phoenix”.
The subsequent involvement of the FEG Recovery Unit – which had Palisade Business Consulting’s Jack James appointed Special Purpose Liquidator (SPL) in November 2018 – saw Dunn forced to deny that she had ever given the proposed transfer of assets from Intelara to Intelara Engineering her blessing.
That denial is just a well. Last month Federal Court judge Roger Derrington granted James the declarations he sought, including that restructure undertaken prior to Dunn’s appointment constituted an uncommercial transaction, an insolvent transaction, an unreasonable director-related transaction and a voidable transaction.
The idea – proposed by restructuring advisors retained by Intelara’s directors in mid-2015 – was that some assets would be transferred to a newly incorporated entity, along with the liabilities associated with Intelara employees – who were to also transfer to Intelara Engineering.
Apparently this transaction would leave Intelara with sufficient assets to discharge debts to major creditors like NAB and the ATO.
For reasons that aren’t entirely clear the directors of Intelara then sought a second opinion and were advised by a different lot of pre-insolvency advisors that the transaction in its present form would leave them at risk of bankruptcy.
According to Justice Derrington in ACN 093 117 232 Pty Ltd (in liq) v Intelara Engineering Consultants Pty Ltd (in liq)  FCA 1489 ” …. an asset Sale Agreement was drafted pursuant to which assets would be sold to Intelara Engineering Pty Ltd.”
The advisors – the second lot that is – also drafted a letter on behalf of the company to the NAB ” … noting that currently the employee entitlements of Intelara were in the order of $1 million and the only realisable asset, being unpaid debtors, was around $900,000.
“The letter advised the NAB that, if Intelara failed, the employee entitlements would crystallise as a debt which would rank ahead of it in a winding up with the consequence that it would not recover any of its debt.
“This was, apparently, designed to encourage the bank to accede to the restructuring plan,” the judge said.
“It is alleged that the agreement was entered into so as to allow the debt owing to the NAB to be discharged and thereby releasing the directors from their personal guarantees.
“As will be seen later in these reasons, there is much force in that allegation,” Justice Derrington said.
In its application appointing the SPL FEG put in evidence an email sent by one of the pre-insolvency advisors to Intelara’s directors.
The email included the statement: “Joanne has researched the definition of phoenix and what we are doing is clearly not a phoenix”.
In correspondence with FEG, Dunn denied that she had said any such thing.
You also gotta’ feel sorry for NAB. It seems to attract dubious restructuring plans that go on to attain unwanted prominence. Walton Constructions anyone?
44 days after it acquired the Intelara assets Intelara Engineering was wound up by a resolution of its shareholders.
It owed $770,000 to employees but had insufficient assets – surprise surprise – forcing its employees to tap the FEG scheme for $676,777.31.
No doubt the FEG Recovery Unit then had a sniff and didn’t like what it detected.
Inquiries directed to Dunn in the first instance appear to have generated a mutually adversarial stance which saw Dunn refuse requests for information.
In such an atmosphere James’ appointment was inevitable. Support INO’s continued chronicling of the insolvency sector.