Another nail in the coffin for the Dixon Plan?
From the Australian:
Solicitor prosecuted in phoenix trading suit
Michael Pelly |
August 08, 2008
THE nation's corporate watchdog has launched proceedings against a solicitor accused of helping eight financially distressed companies revive their fortunes through "phoenix trading", and warned that lawyers and other advisers are on their radar.
Tim Somerville, of Sydney firm Somerville and Co, allegedly advised the directors how they could transfer assets to a new company controlled by the same directors, at negligible cost.
The Australian Securities and Investments Commission says the vendor company was put into liquidation, after its assets were sold for a token fee and the business continued trading under the name of the new company.
This week, ASIC succeeded in joining Mr Somerville with all eight directors, meaning all the cases will be heard as one.
Justice Robert Austin of the NSW Supreme Court said "close case management" could overcome any difficulties and suggested the defendants could agree to a "lead cross-examiner". The court could also intervene to "prevent repetition of lines".
ASIC said it was the first time it had taken action against a solicitor for phoenix activity and that it presented a rare prosecution over legal advice.
"Phoenix activity is a significant issue and ASIC has broadened its focus in relation to misconduct to include not only company directors but also others who are involved in, or help facilitate, such transactions," said ASIC director of enforcement Jan Redfern.
She said ASIC was seeking orders against Mr Somerville and the eight directors of companies engaged in business ranging from furniture and fine art to removals and storage.
Last year, Greg Gaunt, Peter Beekink and Hersch Majteles were all finance company directors and partners of the law firm Phillips Fox when fined between $20,000 and $40,000 over a prospectus, which sought to raise funds for the construction of the Blackrock Caravan Park in South Hedland, Western Australia.
In agreeing to one trial in the Somerville case, Justice Austin said there were common questions of law and fact for all the transactions.
"In each case the (Somerville and Co) letter of advice said that the company might be insolvent and identified the risk of liability for insolvent trading," he said.
"It attributed a significant value to the assets of the company's business, and identified the disadvantages of closing the business down or appointing an administrator, and the difficulties of selling the business on the open market.
"Then the letter suggested that the only viable alternative open to the director was to transfer the business to a newly formed, solvent company, which he would control.
"Since there would be no cash in the new company to pay for the full value of the assets, the letter proposed that the old company would hold shares in the new company carrying the right to receive all the dividends paid by the new company until an amount equal to the value of the business was received.
"That amount, when eventually paid, would be available to pay the creditors of the old company."
He said the agreements "also provided that the vendor would terminate the employment of all current employees with effect from the settlement date.
"The purchaser would offer the employees re-employment on the same terms and conditions, the vendor remaining responsible for all wages and holiday pay up to the settlement date," he said.
Mr Somerville continues to practise at his North Sydney firm, pending the trial.