Litchville Pty Ltd, and Grant Gittus Graphics have been trading for over 25 years. Like most small businesses, it had its good times and bad times and its share of cash-flow crises. Over the last few years, changes in the industry and the retirement of some of our long-term clients has resulted in the business being less strong than I would have wished and making a loss for the last two years. Nevertheless, its position in October 2009 was that there were no outstanding creditors, wages were being paid, there was minimal leave entitlements owing to my only other full-time employee, and there was money put aside to cover the current quarter's expected BAS bill. There was even a modest share portfolio in reserve.

What happened next is closely linked to the fate of another company, Geoff Weeks Design.

Geoff had been a client of ours for a long time - possibly 20 years. By 2004, it was clear that Geoff's business was in trouble - his account to us was growing and he had not made regular payments for some time. After discussion, I agreed to continue providing services in the hope that he would trade his way out of trouble and he agreed to try to bring the account back in order. By 2005, it was clear that this was not going to work. Geoff's debt was now in excess of $25,000 and was now threatening the viability of my own business. Geoff made the decision to sell the family home to pay his creditors, then he and his wife would retire to live with his wife's mother. He asked for another some more time to enable him to repaint the house and organise an orderly sale. I agreed. He paid off the sum of $27,103 in 2005. We continued to supply work to Geoff until the ATO, who apparently declined to wait for the sale of the house, appointed Paul Pattison as liquidator, for their debt of $5,600. At the time the liquidation commenced, the total deficit was on the order of $16,000, and it is my understanding that Geoff has subsequently paid in full all the outstanding creditors from the proceeds of the house sale, as he promised.

Paul Pattison has pursued him over the intervening period, claiming $96,691 in fees and $94,000 legal expenses. This matter was settled out of court on 2 October for the sum of $55,000, according to documents sent to me by Paul Pattison.

In October 2009, I received notice from solicitors acting for Paul Pattison that they had commenced proceedings to recover the $27,103 on the grounds that it constituted a preference payment. This came as a great surprise as I had acted in good faith at all times and thought the matter resolved, as Geoff had settled out of court with the liquidator some months earlier. I sought legal advice, and advice from several of my clients who were immediately aware that something was badly wrong. Should they succeed in proving the claim, the company did not have the capacity to pay and would then be insolvent. On my instruction, my solicitor provided financial statements showing the financial status of the company and proposed that they walk away. Unsurprisingly, they declined. I immediately sought advice from an insolvency practitioner, David Coyne at Lowe Lippman. He advised me that, should they be succesful in their claim, the company would be either insolvent, or so close that it would shortly become so. He calculated what the most they would likely receive in a liquidation would be, and suggested I make a final offer of that amount. I did so. They rejected the offer, in effect increasing their claim by saying that GST would be payable as well, and announced their intention to seek judgement as soon as possible.

Under those circumstances, with great reluctance and a degree of personal distress, I decided that there was no viable future for the company, and immediately requested David Coyne to act as liquidator for Litchville Pty Ltd T/A Grant Gittus Graphics.

I wish to make it clear that at the time of liquidation, there were no outstanding trade creditors or staff entitlements (excluding my own.)

I have started a new business: Gittus Graphics Pty Ltd.

I would like to express my thanks to our suppliers and clients, who have been wonderfully supportive through what has been a difficult period.

ASIC launches action to sink liquidator

Leonie Wood

February 9, 2011

THE corporate regulator has launched Victorian Supreme Court action to bar Melbourne-based liquidator Paul Pattison from practising after his own firm sank into liquidation last year.
Mr Pattison owes about $2.5 million to Bankwest and at least $1.5 million to the Tax Office for unpaid business tax, interest and penalties incurred in his practice, which until April traded as Pattison Consulting.

Mr Pattison still operates as a bankruptcy trustee and liquidator through his new practice, Pattison Business Reconstruction and Insolvency Services, and he controls at least 100 files on company insolvencies and hundreds more on personal bankruptcies.

But the Australian Securities and Investments Commission's court move precipitated an urgent meeting yesterday of the board of the professional body governing liquidators, the Insolvency Practitioners Association of Australia (IPA), which immediately suspended Mr Pattison's membership and began its own disciplinary proceedings against him.

Mr Pattison's circumstances have underscored concerns about disciplinary procedures within the insolvency industry and refocused attention on a profession still reeling from allegations about rogue practitioners and adverse findings last year by a Senate inquiry.
One experienced practitioner said it ''beggars belief'' that a liquidator could go broke and yet continue to practice.

The liquidator in charge of Pattison Consulting believes the practice may have traded while insolvent for almost three years.

Mr Pattison's employees are claiming hundreds of thousands of dollars in unpaid wages, accrued leave and outstanding superannuation entitlements, and a further $105,000 is owed to an associated company, Pattison (Australia) Pty Ltd, which is also in liquidation.

ASIC is investigating Mr Pattison for possible breaches of sections 180, 181, 183 of the Corporations Act, which relate to fiduciary duties, 596AB regarding avoidance of employee entitlements, and 588G, which is the requirement not to trade while insolvent.

Under the Corporations Act, ASIC has two routes for disciplinary action: it can refer matters to the Companies Auditors and Liquidators Board; or it can apply directly to the Supreme Court.
ASIC wants the court to order Mr Pattison to stop practising until he can show he has the capacity to ''adequately and properly carry out his duties as a liquidator''. It also wants arrangements made for his current files to be distributed among other liquidators, and for a receiver to be appointed to his new PBRIS practice.

Neither Mr Pattison nor his lawyer returned calls or emails yesterday. ASIC declined to comment.
IPA president Mark Robinson said the IPA had been investigating Mr Pattison since November.
Mr Pattison has been a registered liquidator since 1984 and an official liquidator of the Federal Court and the Victorian Supreme Court for almost 20 years.

Pattison Consulting was put into what is known as a member's voluntary liquidation in April 2010 on the understanding that it would repay its debts within 12 months.
Mr Pattison and Pattison Consulting's then liquidator, Stirling Horne of Lawler Draper Dillon, agreed Mr Pattison could transfer all the insolvency and bankruptcy files of the old business to his new firm, allowing him to generate income to repay creditors.
But after Mr Pattison failed to remit any sums to Mr Horne by October, Bankwest appointed receivers and Mr Horne moved to appoint a new administrator, Peter Vince of Vince & Associates. Both Bankwest and Mr Vince opposed Mr Pattison's plan for a deed of company arrangement, and creditors voted in early December to liquidate his firm.

Mr Vince told creditors the firm suffered from a lack of cash flow, high overheads, insufficient working capital and ''poor strategic management'', and that it may have been insolvent since May 2007.

Some insolvency specialists suggested that Mr Pattison, widely recognised as one of the more aggressive and litigious practitioners of the past two decades, had failed to adjust his business to suit the tough conditions experienced in the insolvency industry.

Insolvency specialists claim their operating margins have tightened in the past few years, in part because the financial crisis curbed lending and because banks in the past two decades have adopted more rigorous internal controls over problem loans. That means the small businesses that do tip into administration or liquidation tend to generate only slim returns.

The Senate inquiry last year recommended the responsibilities for supervising and disciplining liquidators and trustees, which now reside with ASIC, be transferred to Insolvency and Trustee Service Australia so as to form the Australian Insolvency Practitioners Authority.

IPA chief executive Denise North said the professional body was ''committed to maintaining the highest standards of conduct in the profession''.

Original article
http://www.theage.com.au/business/asic-launches-action-to-sink-liquidator-20110208-1alox.html

I would have to comment that the IPA doesn't seem to be having much luck maintaining "high standards" in their industry, or perhaps this is a definition of "high" I was previously unaware of.

The Senate report regards ASIC as being next to useless. ASIC has just sent me a renewal notice (and $67 late fee) for Litchville Pty Ltd, which was placed into administration over 18 months ago and has subsequently been wound up. Hello, Earth calling ASIC....