In ASIC v Somerville  NSWSC 934;  NSWSC 998, ASIC successfully sought to have a legal practitioner of an incorporated legal practice which employed 49 people banned from managing companies. The solicitor is an accredited business law specialist, a member of the Committee which awards such specialisation, the founding director of what he describes as North Sydney’s leading firm, and the president of the Northern Metropolitan Law Society. He has for ten years advised companies in financial difficulties (often over tax liabilities) to transfer assets and employees but not liabilities to a new company. It is of course the oldest trick in the thick book of insolvency practitioners’ tricks, known as a ‘Phoenix company’.
But this particular solicitor added a little flourish which he says he thought made all the difference. He advised the directors (generally sole directors of small companies) to issue to the original company shares in the new company with rights to the first specified amount of dividends paid by the new company. Only problem was, none of the new companies ever paid any dividends. Acting Justice Windeyer said ‘What has really happened here is that a scheme has been devised to bring about asset stripping but to attempt to make this seem legitimate by providing for “V” class shares.’ In the Piddity Liddity transaction (I kid you not), the original company phoenixed itself twice under the same scheme, first in 2002 and then in 2006 (unlike the indescribably gorgeous bird of lore inhabiting the cool cypress forests of Lebanon who flew to Heliopolos to arise from its own ashes only once every 500 years).
Do not feel too sorry for this solicitor, for he had been warned by an accountant that one of the transactions was on the nose. The solicitor dismissed the opinion, telling the accountant that ‘no one had challenged the transactions and “until the Court proves otherwise I will continue to promote them”.’ He gave the advice on dozens of occasions, and seems to have charged thousands of dollars in fees for each immolation and rebirthing ceremony. He continued to do so after he was aware that ASIC was investigating the scheme. And Acting Justice Windeyer rejected as untrue the solicitor’s statement on oath that ‘I honestly believed that the creditors would be better off if the company could continue to trade and pay off its creditors over time’. Continue reading “ASIC sics solicitor”