Failed hospitality business Pialligo Estate showed "indicators of insolvency" five years before it closed, liquidators say.
Pialligo Estate Operations went into liquidation on April 8, 2023.
RSM Australia Partners Frank LoPilato and Jonathon Colbran issued a report to creditors following a three-month investigation.
Creditors are individuals, organisations and businesses owed money by the collapsed business.
"Based on the liquidators' investigations to date, they have formed the view that the company exhibited indicators of insolvency from at least 30 June 2018," liquidators said in a statement.
"They will provide their preliminary findings on this and other matters to ASIC for the regulator's review and determination of any next steps."
Insolvent trading indicators
The report identified insolvent trading as a possible way to recover funds for creditors.
It also claimed company director John Russell failed to provide proper accounting records.
If Mr Russell does not provide fair and proper books, the company can be presumed to have traded insolvent, the report said.
"In our opinion the management accounts and records provided to our office do not present a true and fair financial position of the Company," the report said.
However, the report said Mr Russell disputed that presumption.
Insolvent Trading Indicators
- Continuing losses - yes
- Liquidity ratio below 1 / Negative working capital ratio - yes
- Inability to produce timely and accurate financial information - yes
- Ongoing negative net assets - yes
- Creditors unpaid outside trading terms - yes
- Solicitors' letters, demands, summonses, judgements or warrants against the company - yes
- Suppliers placing the company on cash-on-delivery (COD) terms- not identified
- Dishonoured and post-dated cheques - not identified
- Special arrangements with selected creditors - not identified
- Payments to creditors of rounded sums not reconcilable to specific invoices - yes
- Inability to obtain finance from bank, related parties or shareholders - yes
- Overdue commonwealth and state taxes - yes
- Source: Report by liquidators RSM Australia into Pialligo Estate Operations
On paper, Pialligo Estate Operations ran at a loss in 2018, 2019, 2020 and 2021.
Of the 12 insolvent trading indicators listed by liquidators, they said nine were present.
"Our preliminary investigations indicate that the Company exhibited financial indicators and non-financial indicators of insolvency from at least 30 June 2018," the report said.
This includes trading losses from June 2019 but as early as June 2018, and taxation debts outstanding from June 2018.
The company was "balance sheet insolvent" from June 2018, with it recording a loss of $3.6 million at that time.
In June 2019, liquidators reported the company ran at a loss of $94,000; a loss of $243,000 in June 2020 and a loss of $352,000 in June 2021.
Creditors owed millions
Creditors, including staff, suppliers, customers and the tax office, are owed $10.5 million.
Of that cohort, unsecured creditors, meaning any person or organisation owed money without having any assets held as collateral, are owed $8.5 million.
This does not include money owed to secured creditors or employee entitlements.
The estimated possible amount of money creditors could get if the company is proved to have traded insolvent is more than $8 million.
However, Mr Russell personally would have to be able to pay this, and the liquidators were unable to identify any property assets owned by Mr Russell through a title search.
They also said they were unable to afford to continue investigations into Pialligo Estate Operations.
"We currently have insufficient funds in this matter to satisfactorily progress our investigations," liquidators said.
Further investigations would have to be funded by creditors.
Why the company failed
The company Pialligo Estate Operations failed because of its inability to sustain ongoing trade losses or pay tax debts, liquidators said.
This was exacerbated by COVID-19, staffing shortages and fires in 2016 and 2017.
The Australian Tax Office was owed $4.1 million.
Company director John Russell had been assisting liquidators with their investigations, Mr LoPilato said.
"While the liquidators are only investigating the affairs of Pialligo Estate Operations, we have noted that this company is one of a number of entities within the Pialligo Estate Group of companies,'' he said.
"To provide an informed opinion on the nature of any transactions that occurred between Pialligo Estate Operations and these companies, further investigations would be required, and a reconciliation of all company accounts undertaken which would require funding from creditors.''
Unsecured creditors are unlikely to receive anything, liquidators said.
"Pialligo Estate Operations had limited assets once the business ceased trading, other than sundry building equipment, such as kitchen equipment, which has limited commercial value on its own," they said in a statement.
Creditors will not get a cent from the sale of the property the business operated on, despite an estimated value of more than $30 million.
About $883,000 worth of employee entitlements, not including superannuation, is able to be paid out to 119 former workers under a federal government scheme.
As of Saturday, 61 former employees had lodged claims under the scheme, liquidators said.
