Brierty directors fail in legal move

The liquidators of Brierty have been given the all-clear to pursue $8.7 million in alleged preferential payments made before the contractor’s 2017 collapse.

The Supreme Court this week dismissed objections raised by current directors Richard O'Shannassy, Ray Bushnell and Dalton Gooding and former director Kenneth Hellsten.

They wanted the Court to partially set aside an extension of time granted to the liquidators in July 2020.

The directors, represented by Blackwall Legal, were not advised of the time extension and argued they suffered material prejudice as a result.

They said if the liquidators were successful in their claims, then creditors could seek to recover their losses from the directors.

The creditors include the Commissioner of Taxation, which was paid $5.5 million in alleged preferential payments.

Master Craig Sanderson agreed the directors should have been made aware of the original application for an extension of time.

The liquidators said this was an oversight on their part and agreed the directors had the right to be heard.

Master Sanderson also accepted the matter had run for a long time, saying this “inevitably visits prejudice on those involved in litigation”.

Nonetheless, he dismissed the directors’ application.

“In the circumstances of this case, I find it very difficult to identify what, if any, prejudice or injustice the directors suffer if the order for an extension of time is extended,” he said.

“There have been no steps taken in the action which in any way adversely affects their position.

“Indeed, it is by no means clear the Commissioner will seek to join them as parties to the proceedings. 

“The defence lodged by the Commissioner has raised all of the matters that could have been raised by the directors.”

Master Sanderson said “some account must be taken of the effects of the (COVID) pandemic.

“Clearly it affected the Commissioner's capacity to respond to the (liquidators) claims.

“That would not have changed if the directors were made aware of the extension application.”

Brierty collapsed in 2017 with KPMG partners Matthew Woods, Hayden White and Clint Joseph appointed initially as administrators, and later as liquidators.

In their subsequent assessment, they formed the view the company became insolvent on 16 May 2017 – three and a half months before the company was placed into voluntary administration.

They liquidators alleged that unfair preference payments were made to 21 creditors in this period.

They have commenced legal action to recover this money.

This week’s ruling explained in detail the basis for the directors’ claim of material prejudice. 

“They point to the fact they wrote to the plaintiffs (i.e. the liquidators) on 12 June 2018 noting the directors' intention to defend any proceedings,” the ruling stated. 

“They further wrote to the plaintiffs on 4 June 2019 noting the directors had an interest in any unfair preference claim against the Commissioner and therefore must be allowed the opportunity to oppose such a claim. 

“The directors received no response to that letter. 

“Now the directors may be required to defend a claim relating to transactions between the Company and the Commissioner, some of which occurred over six years ago.”

The directors also argued there was no real prospect of the liquidators’ action succeeding, based on several factors.

“First, they do not accept the plaintiffs' asserted date of insolvency (16 May 2017). 

“At that time the Company had the continuing support of its major secured creditor, Bankwest. On 21 June 2017, Bankwest agreed to advance a $6 million facility to the Company. 

“This was done with assistance from the plaintiffs in their then role as investigative accountants for Bankwest. 

“Second, as at 11 May 2017, there was no outstanding PAYG or superannuation liabilities owing to the Commissioner and all obligations to the Commissioner were up to date. From that date until the appointment of administrators, the Company paid all debts to the Commissioner on time or close to on time.

“Third, the Company was compliant with the payment plan it entered into with the Commissioner in February 2017. 

“Fourth, the Commissioner did not commence any enforcement action against the Company during the relevant time. 

“Fifth, the plaintiffs have not filed any correspondence between the Company and the Commissioner during the relevant time that would give rise to a suspicion of insolvency.

“Finally, taking all relevant matters into account, the Commissioner has a strong defence that the disputed payments were received in good faith and the Commissioner did not know nor ought he have known the Company was insolvent.  That is the case even if insolvency is established in respect of the relevant period.”