Resource shortfall sees small practice lose a plumb

Resource shortfalls can produce plenty of pain for small insolvency practice operators, as evidenced by the difficulties encountered recently by Chifley Advisory principal Gavin Moss.

“Mr Moss believes Mr Kwok has access to additional resources in his new firm, especially forensic accountants in dVT Group’s forensic division, to assist with the litigation and investigation regarding voidable transactions which will benefit the creditors of the company.” dVT Group partner Henry Kwok.

In October 2023 Moss and then Chifley colleague Henry Kwok were appointed as administrators to La Fortuna Pty Ltd, a West-Australia based security company providing monitoring and related services to various clients, among which was the state Department of Education (DoE).

La Fortuna serviced some 500 schools so the DoE contract was a big deal. The company’s ballooning tax debts however were a bigger deal and on September 27, 2023, the Deputy Commissioner of Taxation (DCoT) commenced winding up proceedings in the Federal Court.

While there’s no mention in the administrators’ October 27 report of a penalty notice, they do refer to the winding up proceedings and to further proceedings the DCoT commenced against the Director personally in the Supreme Court of Western Australia.

This may be what motivated director Carmelo Bertolami, 63 of Mindarie to call business advisor Andrew Purcell of Rebuild Now who then referred the appointment to Moss.

At the first meeting on November 6 creditors resolved to wind up the company and appoint Moss and Kwok as the company’s liquidators, meaning priority claims for wages and entitlements and more than $3 million in unpaid superannuation were destined to land in the lap of Australian taxpayers via the FEG Scheme.

There was however cause for hope. In their next report to creditors dated February 6, 2024 the liquidators provided details of unreasonable director-related transactions of almost $3.5 million including “payments of over $2.1 Million to a party named ‘Bilal Securities’ during the period 27 March 2023 to 3 October 2023′ and potential insolvent trading claims in excess of $6 million.

Certainly there seemed plenty of meat for Moss and Kwok and their team at Chifley to get their teeth into and Moss told iNO yesterday that FEG was willing to fund them.

There was only one problem. By February Kwok was almost certainly considering his future and by the end of March 2024 he’d defected to dVT Group, leaving Moss as sole appointee.

Being a sole appointee whilst negotiating with the FEG Recovery Division to pursue recovery actions on behalf of the Commonwealth is a recipe for hypertension, particularly in circumstances where you’ve lost your lead appointee.

Exacerbating the issue for Moss was that his bankruptcy trustee Alan Ma had defected to dVT at the same time, meaning Chifley’s capacity to carry the investigations and litigation it had commenced through to a conclusion that would satisfy FEG Recovery’s high expectations would have been compromised, as what happened next suggests.

According to a DIRRI Kwok lodged on August 23, he’d received a call from Moss on July 5 asking if he’d be prepared to take over the appointment.

This was because, Kwok said, “Mr Moss believes Mr Kwok has access to additional resources in his new firm, especially forensic accountants in dVT Group’s forensic division, to assist with the litigation and investigation regarding voidable transactions which will benefit the creditors of the company.”

There are also references to attending meetings with Moss with FEG Recovery representatives and rumours about a pre-existing conflict with the director which Moss rejected when iNO asked.

What can’t be ignored is the possibility that FEG decided Chifley was in resource deficit and that taxpayer’s money would be better deployed with a former appointee with access to superior resources.

Even when the work picks up, it’s still tough out there for the little guy.