FEG, McGrathNicol settle over Hastie claim

After all the defiance and all the warnings McGrathNicol and the FEG Recovery Unit have turned demure as mice and settled their differences in a confidential arrangement that allows for no comment.

Such was the outcome this week in the Federal Court when Justice Brigitte Markovic made orders by consent in Commonwealth of Australia represented by the Department of Employment V Peter McKenzie Anderson & Ors.

This case pitted the Department’s FEG Recovery Unit against the ex-receivers of the failed Hastie construction group.

FEG argued that Peter Anderson, Joe Hayes (now ex-MN), Jason Preston and Matthew Caddy had breached their duties as receivers by failing to divert any of the tens of millions of dollars they recovered from debtors for Hastie secured lenders back to FEG, after it had advanced almost $3 million to the McGrathNicol partners to pay employee entitlements.

The receivers countered by taking the position – based on what Anderson described as “tier one” legal advice – that the work-in-progress (WIP) was not a circulating asset and therefore priority creditors like employees or FEG were not entitled to share in the proceeds from its realisation.

“We had tier-one legal advice right through the entire Hastie receivership, we had tier-one legal advice in advance of conducting the asset realisation process we conducted, we had tier-one legal advice in advance of any payments we made and we had tier-one legal advice suggesting the position being taken by (the department) is not correct,” Anderson said in November 2017, days after Insolvency News Online broke the story in DoE Sues McGrathNicol Foursome For $3 Million.

The tricky element is that the receivers chose to trade on the business, a judgment generally made to further the interests of creditors and one which they argued reduced the amount the group owed to employees – thereby reducing the call on the Fair Entitlements Guarantee (FEG) Scheme – by as much as $12 million.

In January this year Anderson told The Australian newspaper: “On a practical level, if the government takes this line, any business that goes into receivership, almost all of them will have to close on day one, leading to extensive loss of employment and crystallisation of significant costs to the government in employee entitlements,” he said. “We’re concerned there’s not a practical understanding of these realities.”

Anderson and his colleagues relied on advice from Minter Ellison’s insolvency guru Michael Hughes, who was also the Hastie lending syndicate’s key adviser.

Hughes didn’t respond to requests for comment. Anderson told INO that the settlement prevented him from responding to media enquiries.

The receivers’ position relied to an extent on principles subsequently overturned in Victoria by that state’s Supreme Court of appeal in the Amerind decision, principles which were further weakened after the Federal Court of Appeal’s decision in Killarnee Civil & Concrete Contractors.

Following this week’s settlement we suspect Hughes and his clients have come to a new view about WIP’s circulating asset status in a receivership trade on scenario and while each party is apparently paying its own costs INO suspects we might soon discover that Anderson and Co capitulated and paid FEG its $2.9 million.

The means by which we expect to reach that understanding involves watching the proceedings launched by PwC’s Craig Crosbie, Ian Carson and David McEvoy in the Federal Court.

The three are the liquidators of the Hastie Group and in the wake of the decision in Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In Liquidation) (Receivers and Managers Appointed) [2017] WASC 152 regarding the limitation of right of set-off in liquidation scenarios they have launched proceedings against Hastie contractors who’d relied on the principles of set-off to avoid paying claims by the liquidators.

If successful the liquidators could potentially recover tens of millions for Hastie’s unsecured creditors.

In that event they would make another call for proofs of debt and INO suspects that any subsequent PoD FEG might submit would be about $2.9 million smaller than than its original claim.