The founders of Australian bespoke accessories brand The Daily Edited are locked in a court battle over hundreds of thousands of dollars' worth of personal expenses that were booked up to the business.
The founders of Australian bespoke accessories brand The Daily Edited are locked in a court battle over hundreds of thousands of dollars' worth of expenses that were booked up to the business.
Alyce Tran and Tania Liu met while working as lawyers at prestigious law firm Allens in Perth in 2011, and together launched and worked on TDE in their spare time until its popularity demanded they focus on the business full time.
They have both since relocated to Sydney and TDE has grown to have annual turnover of about $25 million, boasting flagship stores in Sydney, Melbourne and New York.
The pair shot to fame in 2017 when they sold a 31.4 percent stake in TDE to luxury fashion company Oroton for $4.5 million, buying it back a year later while Oroton was in voluntary administration for $2.2 million.
But the partnership now appears to be strained, with Ms Liu accusing Ms Tran, in an affidavit lodged with the Supreme Court of NSW as part of a legal action, of using TDE funds to both build her other business and to pay for her own personal expenses.
The documents reveal that Ms Liu, who spent four years setting up the manufacturing side of the business in Hong Kong and China while Ms Tran focused on marketing the brand in Sydney, launched the legal action soon after she moved back to Australia in 2019.
Because the pair had an equal stake in TDE, and were the only directors of the company, Ms Liu required the court's permission to take action against Ms Tran on the company's behalf.
In a court judgment handed down late last year, Justice Ashley Black found there were serious questions to be tried about the expenses and whether Ms Tran had breached her duties as a director. He granted leave to bring the action.
Justice Black said a court-appointed expert had investigated 454 of the transactions in dispute and found 338 were “not proper expenses”, based either on the nature of the expense or whether it was properly documented.
"I recognise that the fact that a transaction is not documented, or not adequately documented, does not necessarily indicate that it is not for a proper corporate purpose, although it may involve a potential contravention of the obligations to maintain true and fair accounts, and the documents necessary to prepare true and fair accounts, under Chapter 2M of the Corporations Act," Justice Black said in his judgment.
As part of her efforts to secure the court's leave to bring the action, Ms Liu agreed not to pursue expenses of less than $500. This reduced the total number of expenses in dispute from 3644 to 809. Ms Liu has also provided an undertaking to pay TDE's legal costs of the action if it is unsuccessful.
Ms Liu's affidavit, lodged with the court as part of her efforts to secure leave to bring the action and released to Business News by Justice Black, revealed the pair each took a $220,000 per annum salary from TDE, but had also each taken a $10,000 dividend per month to cover the cost of buying back from Oroton the 31.4 percent stake in TDE.
Ms Liu said in the affidavit that Ms Tran had taken more money from the company, including $30,000 to pay for a leaking roof on her home. That money had not been repaid despite repeated attempts to negotiate a repayment plan, she said.
She also claimed Ms Tran had spent more than $27,000 of company money on catering, event planning, alcohol and travel for her 34th birthday party in 2019.
"I also believe that in many instances in which the company has bought expensive luxury items such as designer clothes, handbags, jewellery, rugs and high-end makeup, even if they were initially used for the purposes of marketing (and I do not accept they were, but even assuming they were), those items should still be in the company's possessions, or else sold and the company at least then recouping some of the original expense," Ms Liu said in her affidavit.
"None of these expensive luxury goods are at the company's premises and there is no record of the company having received the proceeds of their sale. I believe it is wrong and contrary to the director's duty to the company to simply throw away, or give away, or keep for oneself, expensive luxury items like those the company has spent somewhere in the vicinity of $200,000 to purchase."
Ms Liu said she was concerned about the taxation implications of the expenditure, especially after TDE received an enquiry from the Australian Taxation Office last year about "input tax credits on transactions that appeared private in nature".
She also detailed in the affidavit a raft of expenses she claimed had been carried by TDE for Ms Tran's other business, In The Roundhouse Pty Ltd, which sells homewares, including dinner plates, bowls and napkin sets.
These expenses allegedly included mostly marketing and event expenses, but also the use of TDE staff and resources. Ms Liu alleged in the affidavit that Ms Tran had tried to conceal those expenses.
Ms Liu also revealed TDE's revenue had grown to $18.74 million in 2016-17 and to $27.54 million in 2017-18. It then levelled out, taking $25.78 million in 2018-19 and $23.56 million in the COVID-affected 2019-20 financial year.
Comment has been sought from Ms Tran and it is understood she has lodged a counterclaim against Ms Liu.
In response to a request for comment, Ms Liu said: "The litigation between TDE and myself with Alyce has been challenging but my focus remains on the success of TDE, and working with Alyce and our team to make sure that TDE continues to grow in Australia and internationally. While I don’t normally speak publicly, I am proud of TDE’s achievements and very grateful for every team member’s contribution."
A statement of claim has since been filed by Ms Liu, as well as a defence and cross claim by Ms Tran. Those documents have not been released by the court.
The case is due to return to court in May.
