Today I have signed off on the closure of one of our corporate windings up, and in light of the recent proposed changes to the Bankruptcy Act, I feel compelled to tell the story publicly.
The story begins with a group of Chinese investors who decide to establish a small chain of entertainment venues in Australia, initially in Sydney but with a greater horizon in view. The entertainment venues were aimed for main stream consumption and would be expected to be very popular with visiting tourists in particular. Just under $3 Million was raised, an Australian company was acquired, which we will call Venue Coy Pty Ltd (Venue Coy), and the money was transferred to an Australian bank account in the name of the company.
The initial plan was that a person with the appropriate skills would be identified that would be able to search for and negotiate the acquisition of suitable premises’ and equipment to establish the venues. This person would be employed in one form or another by the company. A person resident in Australia, who for the sake of this story we will name as Mr. X, was identified and given his experience and credentials it was agreed that he be appointed as the Director of Venue Coy. Mr. X had other business interests both in Australia and overseas.
Over the ensuing 18 to 20 months Mr. X visited many potential venues and equipment suppliers, but unfortunately, nothing that was sited was worthy for Venue Coy. Over this time, Mr. X had his related companies issue progress payment invoices to the company for his work. One of the most interesting components of the majority of these invoices was the information relating to GST. On the majority of the invoices the GST amount contained the words “To be invoiced separately later.”
After about 18 months the representative of the Chinese investors, given the failure to secure any venues, stared to make enquiries and sought the assistance of a relative located in Australia. Mr. X very quickly became evasive and uncooperative and it was soon discovered that the only funds that the bank had remaining was approximately $120,000 in its bank account.
Thus over the period of Mr. X’s directorship he had essentially drawn all but the remaining $120,000 of the original deposit as consulting or other fees. Furious, steps were immediately taken to have a Court Liquidator appointed and an investigation commenced.
During the time of Mr. X’s directorship, not only was the money skived off, but also a number of the venues considered unsuitable by Mr. X for the company were in fact acquired by other company’s related to Mr. X. Public examinations were conducted and the sad and sorry tale was exposed. Throughout this period, Mr. X was well represented by some renowned insolvency solicitors who were no doubt well paid with Venue Coy’s money. As the events became clearer and clearer and the pincer closed in there was only one thing remaining. The two company’s owned by Mr. X that had invoiced Venue Coy were wound up with the only money in each being about $4,000 as a part payment to the liquidator. The liquidator never received any further sums to the best of my knowledge, and correspondingly never communicated with my office other than in relation to necessary statutory notices.
Shortly after, Mr. X declared himself bankrupt. The estate has no assets. All of the other businesses are in others names and still continue. Our funds were exhausted in dealing with defensive actions played out by lawyers that sought to stymie our investigation at every point.
So for making more than $2.5 million disappear, the only resultant cost was a three-year bankruptcy.
In future, it will only be twelve months! One thing I’m confident of going forward is that I will see far more Mr. X’s amongst bankrupts than I will failed innovators, and I bet they won’t even waste money on lawyers to delay things. They will simply go bankrupt straight up and stick their fingers in the air at anyone who threatens them because the system is on their side.