Michael Hogan.
A certain Sydney insolvency practitioner must be rueing the day he agreed to introduce Scott Keith McCorkell to a business valuer.
Or is the day the liquidator’s referrer introduced him to the Mosman ad man the penultimate moment of regret?
” … while the BSA “appears to be “supported” by the Valuation …. there are a number of matters which may impact upon the reliability of the Valuation and in such circumstances Hogan wishes to explore the circumstances surrounding the BSA and whether the purchase price paid for the Business was commercial.” Justice Michael Lee.
Regardless, liquidator Liam Bailey is facing some time in the witness box after the liquidator who succeeded him on the McCorkell & Associates appointment obtained court approval last week for the issue of eight summons for public examination, one of which bears Bailey’s name.
The O’Brien Palmer partner was replaced by Hogan Sprowles’ Michael Hogan on February 15, 2023 at a meeting he convened at the behest of creditors.
Among the events Hogan wishes to probe are the circumstances immediately preceding Bailey’s December 15, 2022 appointment.
Those circumstance include the sale of the company’s business to McCorkell Group, an entity controlled by McCorkell and his wife Georgina, who also controlled McCorkell & Associates.
McCorkell Group was incorporated on November 24, 2022 the day after McCorkell, his accountant Andrew Fraser, Bailey and business valuer Andrew Whittingham met for the first time.
Insolvency News Online (iNO) makes no suggestion of wrongdoing in regards to any of the proposed examinees.
Bailey’s summons was inevitable given his having been an officer of the company whilst appointed and given his attendance at pre-appointment meetings, about which Hogan would know more.
The following is taken from the July 27 judgment of Justice Michael Lee in Hogan (liquidator) v McCorkell, in the matter of McCorkell & Associates Pty Ltd (in liq) [2023] FCA 863, delivered shortly after Hogan made an urgent ex-parte application.
The Hogan Sprowles principal went to court primarily for freezing orders, seemingly concerned that the McCorkell residence, which last sold in 2003 for $1.735 million, needed the kind of asset preservation protection only the courts can provide.
But securing what these days could be a $6 million to $7 million slice of real property wasn’t the only reason for applying for orders without notice.
Hogan replaced Bailey in circumstances where a number of statutory authorities had an interest in the administration and one, the FEG Recovery Division of the Federal Department of of Employment and Workplace Relations (DEWR), has since agreed to fund public examinations.
That funding agreement needed Justice Lee’s imprimatur, as did draft summonses for the examinations of the eight individuals identified.
McCorkell and Bailey were two. Among the others were Aaron Robinson and Andrew Whittingham of Groves & Partners.
The judge described Groves as “a firm which provides various services including valuation services and restructuring advice” and it was to Whittingham who Bailey turned after he was first contacted by the referrer, Andrew Fraser of BJD Partners, an accounting firm based in North Sydney.
Whittingham attended the first meeting Bailey had with Fraser and Scott McCorkell on November 23, 2022.
In its aftermath a series of events unfolded which Hogan told the court have the hallmarks of a “phoenix” transaction. Each is helpfully summarised by his honour below.
“On 23 November 2022, Mr McCorkell met with a registered liquidator, Mr Bailey (who eventually became the liquidator the Company); his accountant, Mr Fraser; and Mr Whittingham of Groves & Partners (a firm which provides various services including valuation services and restructuring advice) to discuss the Business and “the options available to the Company” (First Bailey Meeting).
“Later, on 23 November 2022, Mr McCorkell registered a security interest on the Personal Property Securities Register (PPSR) noting an “all present and after-acquired property” interest in the assets of the Company.
“That interest appears to refer to a loan agreement (Loan Agreement) between the Company and Mr McCorkell, which bears the date 28 October 2022 and which refers to a loan of $500,000, with interest payable on a monthly basis at a rate of 12 per cent, reduceable to five per cent for prompt payment (McCorkell Loan).
“On 24 November 2022, the second defendant (McCorkell Group) was incorporated with Mr McCorkell as its sole director and both himself and Mrs (Georgina) McCorkell as its shareholders. Objectively, the corporate structure for McCorkell Group is the same as it is for the Company.
“On 2 December 2022, Karen Powell, described as the managing director of the Company, sent an email to Mr McCorkell referring to the existence of “2 potential buyers” for the Business.
“On 9 December 2022, Aaron Robinson of Groves & Partners issued a valuation (Valuation) of the Business, suggesting that its going concern value was approximately $1 million.
“That valuation was prepared by adopting the “summation method” which is “typically used for investment companies or other types of assets or entities for which value is primarily a factor of the value of their holdings”. Mr Robinson in applying this methodology added the value of the Company’s plant and equipment (being $19,665) to its aged debtors (being $986,826).
“On 12 December 2022, Mr McCorkell had a telephone conference with Mr Fraser, Mr Bailey and Mr Whittingham (Second Bailey Meeting). Mr Bailey provided Mr McCorkell with the documents necessary for the liquidation of the Company.
“On 14 December 2022, the Company entered into a written sale and purchase agreement (Business Sale Agreement BSA) for the Business with McCorkell Group.
“That agreement recorded the assets of the Business as having a value of $2,237,430.16 and provided for a payment of that sum with a cash payment of $20,000 (which appears to have increased to $29,129.69 between the execution of the Business Sale Agreement and the appointment of Mr Bailey) and the transfer of the Company’s liabilities for:
“(1) certain of its employees’ entitlements, which totalled $1,657,430.16 and which included the sum of $1,012,204.40 said to be owed to Mr McCorkell and Mrs McCorkell (collectively, McCorkells); and
“(2) its liability for the McCorkell Loan, which was valued at $560,000.
“On 15 December 2022, Mr Bailey was appointed as the liquidator of the Company pursuant to a voluntary liquidation under s 499 of the Corporations Act.”
Hogan is seeking to determine if the valuation was commercial in circumstances.
Rounding out the eight examinees is Brisbane-based lawyer Kyle MacMillan, whom the judge said appears to have been responsible “for the preparation of the Business Sale Agreement (BSA)”.
Justice Lee said that in submitting his view that the sale had the appearance of a phoenix transaction, Hogan told the court that while the BSA “appears to be “supported” by the Valuation …. there are a number of matters which may impact upon the reliability of the Valuation and in such circumstances Hogan wishes to explore the circumstances surrounding the BSA and whether the purchase price paid for the Business was commercial.”
Bailey did not respond to requests for comment. Hogan was similarly tight lipped in regards to iNO’s inquiries.
Further reading:
It used to be the case that it was inappropriate for a compulsory examination of another liquidator or professional adviser unless exceptional circumstances existed. The examination is clearly one in the discretion of the court against a person who is not a director and therefore that discretion exists. No doubt some reason for departure from the previously existing practice would have been given in the confidential affidavit of the liquidator.