PwC partner’s conflict surmountable court concludes

A Queensland company director who thought he could juggle a construction business and a bloodstock agency no doubt thought ousting an unwanted liquidator would be a doddle. Yeah nah.

In the Federal Court this week Justice Roger Derrington ruled that while the director’s legal team had identified potential for conflict it was insufficient to justify the appointee’s removal.

“The point sought to be advanced was that Mr Vickers, if appointed as liquidator of Starcrest, would be put in a position when evaluating the proofs of debt, to determine the veracity of not only the claim made by those three companies against Starcrest, but also the veracity of the alleged counterclaims or set-offs.” Justice Roger Derrington.

The attempt to replace the incumbent came via an application for a review of the July 17, 2024 decision of a Federal Court registrar who ordered that Starcrest Constructions Pty Ltd (Starcrest) be wound up and PwC partner Derrick Vickers be appointed liquidator.

That application to wind up Starcrest – which until February this year traded under the name Heinrich Constructions Pty Ltd – was brought by the Deputy Commissioner of Taxation (DCoT) in circumstances where the company had already been in and out of the hands of receivers twice in less than two months.

Starcrest director Gerhard Horst Heinrich wanted Vickers punted and an order appointing as liquidators KordaMentha’s David Johnstone and Robert Hutson instead.

To that end he commenced proceedings on August 5 seeking a review of the Registrar’s decision.

Justice Derrington’s ruling in respect of that application is contained in Deputy Commissioner of Taxation v Starcrest Construction Pty Ltd (Receivers and Managers Appointed) [2024] FCA 1254.

Through his counsel Graham Dietz of George Street Chambers, Heinrich argued that Vickers was conflicted because he was also the liquidator of various related or associated entities which are creditors of Starcrest.

Further, as liquidator of three Heinrich entities Vickers had caused them to commence proceedings against Starcrest in respect of their unpaid accounts.

“Mr Dietz observed that, in respect of those proceedings, Starcrest asserted in its defence the existence of counterclaims or set-offs, the effect of which was to reduce the value of the claims against Starcrest to nil,” Justice Derrington said.

“The point sought to be advanced was that Mr Vickers, if appointed as liquidator of Starcrest, would be put in a position when evaluating the proofs of debt, to determine the veracity of not only the claim made by those three companies against Starcrest, but also the veracity of the alleged counterclaims or set-offs.”

Dietz also alluded to the possibility that Vickers could find himself in a position of conflict in respect of unrelated creditors and if appointed as liquidator, would be required to evaluate the proofs of debt and, on the one hand, would be evaluating the proofs of debt of the external creditors and, on the other, would be required to assess the claims of the remaining creditors, being other companies of which he is the liquidator.

“It is not an unreal proposition that the potential for a conflict of interest could arise in those circumstances,” the judge said.

“That is not to say that Mr Vickers would have any personal conflict, but that there may be a conflict between his duty to Starcrest and their creditors, and his duty to the creditors of the related party companies and its creditors. That possibility must necessarily give the Court pause for concern.”

In resisting the application Vickers proposed that in the event he encountered a genuine conflict he would retain the services of another liquidator to act as an expert in assessing proofs of debt, and secondly, if necessary, make an application to the Court for directions under s 90-15 of the Insolvency Practice Schedule (Corporations).

“Either would nullify the possibility that Mr Vickers might inadvertently favour the interests of one group of interested parties over another,” the judge said in concluding that Heinrich’s interlocutory application must be dismissed.

Justice Derrington’s decision however is unlikely to be the end of litigation in this matter.

Vickers confirmed yesterday to iNO that he is unfunded and if his October 17, 2024 report to creditors is any guide, he may soon be crossing swords with the third receiver to have been appointed to the company since February.

Starcrest’s passage through receivers’ hands started with the appointment on February 21 of Bill Karageozis and Nick Keramos of McLeods Accounting “pursuant to an ‘All Present and After Acquired Property’ security interest held by Kickstand Equity Pty Ltd (Kickstand Equity). More about Kickstand in a future edition.

“The McLeods’ Receivers retired on 19 March 2024 following the payout of the Kickstand Equity loan by a third party”, Vickers told Starcrest creditors.

Then on February 23 McGrathNicol’s Mark Holland, William Harris and Anthony Connelly were appointed receivers of Starcrest and G&H Consulting Pty Ltd (the Company’s parent entity) in respect
of specific bloodstock pursuant to an ‘All Present and After Acquired Property with Exceptions’ security interest registered in the name of Multiplex Constructions Pty Ltd.

The McGrathNicol trio retired on 19 July 2024 following the Starcrest and other related parties entering into an arrangement with Multiplex Constructions Pty Ltd.

On August 13 HCA Holdings, a related party of the Company whose director Tayla Heinrich is the daughter of Gerhard and one of Starcrest’s former directors appointed Vincents’ Nick Combis as receiver pursuant to a General Security and Loan Agreement dated 18 March 2024.

“The loan agreement between HCA Holdings and the Company states that an amount of $1,089,365.37 was advanced on the loan date, 18 March 2023, and that interest on the loan is accruing at a rate of 5% per month during the period that the loan is not in default with a further 3% per month of default interest,” Vickers said.

“The investigations to date indicate a number of anomalies and queries in respect of the loan and security documents, including that there is no record in Starcrest’s bank statements of funds advanced by HCA Holdings to the Company on any date and no information as to why the Company would seek an advance of funds from HCA Holdings on the terms provided and allow a security registration to be placed against it, to pay out a loan which was guaranteed by numerous other related parties and entities.

“My investigations into the validity of the loan and security agreements between HCA Holdings and the Company has resulted in the submission of a request to the Australian Financial Security Authority (AFSA) to remove the HCA Holdings security interest from the PPS register,” Vickers said.