ONCE the focus of national attention for its Sydney Olympic rings, a former local steel manufacturing site is now the centre of financial investigations.
The liquidator of Mass Steel has recommended its director front the Federal Court over several alleged breaches of trading laws.
One of these is that the company traded while insolvent and engaged in ‘phoenix’ activity, or shifting business and assets to a network of related companies to avoid tax and other liabilities.
Creditors have claimed north Goulburn business, Mass Steel, trading as Old MS Pty Ltd, owes them $11.5 million, chartered accountants Kazar Slaven have found.
The company went into liquidation in June 2012 after just 18 months of operations in Goulburn, leaving employees owed $1.42m in superannuation and entitlements.
Some who spoke to the Post last year had been chasing their money for months.
Kazar Slaven’s report, recently released to creditors, alleged the company had not paid any superannuation since July, 2010 and were now owed $858,133.
With workers first in the repayment queue, there’s some prospect they’ll receive their money. But the remaining unsecured creditors, including six Goulburn businesses, won’t receive a cent, liquidators predict.
That’s the tip of the iceberg in Michael Slaven’s investigations.
He’s applying to the Federal Court for a full investigation of director Rohan Arnold’s conduct, along with the firm’s external accountant and some former employees, according to the report.
Mr Arnold has declined comment on any of the report’s contents and claims when contacted by the Post.
His company slid from a net operating profit of nearly $1m in 2010 to a net loss of $8.9m in 2012.
Mr Slaven has also sent a preliminary report to the Australian Securities and Investment Corporation, which has advised him Mr Arnold qualifies for banning as a company director for five years.
The corporate watchdog has requested a second report before deciding on further action.
Mr Slaven has alleged Mr Arnold breached three sections of the Corporations Act, namely: * That he failed to use care and diligence when discharging his duties as a director by “allowing the company to incur significant debts which it had no prospect of satisfying, nor did Mr Arnold have the means available to contribute sufficient funds to enable such liabilities to be met.
* That he “failed to act on good faith and for a proper purpose” ie he “failed to pay” employees’ super and entitlements and allowed debts to accrue.
* That he misused his position as a director to “gain an advantage for himself.”
On the latter point Mr Slaven claimed Mr Arnold was associated with a number of related entities which received “significant repayments” before his appointment as liquidator.
“Mr Arnold provided a number of company creditors with personal guarantees and ensured that these creditors were repaid prior to my appointment so as to avoid personal liability,” Mr Slaven wrote.
“I am also of the opinion that Mr Arnold has been involved in phoenix activity in that it is apparent that contract work initially awarded to the company (Old MS Pty Ltd) was transferred to related entities for little or no consideration.”
Mr Arnold claimed that $3.3m was owed to companies of which he was a director, including MG Administration Pty Ltd, Steel Contracts Pty Ltd and Pyrtee Pty Ltd.
These related entities also leased equipment to Old MS Pty Ltd but due to their ownership, could not be classified as assets in the Mass Steel liquidation.
The liquidator has demanded $2.84m from Mr Arnold for alleged insolvent trading.
But Mr Arnold denied the claim and told Mr Slaven that in any case, he “was not in a financial position to satisfy the demand in full.”
Investigations are continuing.
Kazar Slaven supervisor Michael Lawless said his firm hoped to secure a Federal Court date within the next six weeks.
Reasons for failure AS part of the case they are also calling in creditors who received a total $2.3m in “unfair preferences” or early payment of debts. Mr Lawless said these could be legally recovered because they were made within six months of the company’s winding up. But so far only $89,370 has been repaid, with some companies disputing the amounts.
Mass Steel closed its doors last May, leaving 14 local employees out of work.
At the time, Mr Arnold blamed the downturn in the manufacturing sector, cheaper imports and energy costs.
He told Mr Slaven that inclement weather in 2011 and 2012 had delayed several major contracts and that wage pressure, caused by the mining boom, were also significant factors.
“While Mr Arnold’s reasons for the company’s failure are not without credit, I am of the opinion that the company has been insolvent for a significant period up until the liquidation (at least since July, 2011),” Mr Slaven wrote in his report.
“Notwithstanding this ongoing critical status, its director delayed taking steps to prevent the company from incurring further debts while arrangements were made for a related company, Steel Contracts Pty Ltd, to assume control of its operations.”
Among the $7.5m owed to unsecured creditors is $26,547 allegedly payable to DME Engineering, the company from which Mass Steel leased its north Goulburn business. The NSW Office of State Revenue is claiming $601,000.
Mr Slaven said given the amount owed to former employees, he did not expect unsecured creditors to receive a dividend.
His supplementary report will also be used as a basis for any Federal Court case.
Meantime, the Olympic rings, manufactured for the Harbour Bridge as part of the 2000 Olympics are being stored locally for safe keeping and are still owned by DME Engineering.