Federal Court finds phoenixing scheme behind Eastside collapse

The Federal Court has found that the wife of an employee and the general manager of failed construction contractor Eastside Formwork Pty Ltd was a de facto director and participated in a phoenixing scheme that left substantial debts behind, including millions owed to the Australian Taxation Office. Justice Needham found Connie Stojic acted as a director or officer of Eastside from its incorporation in 2015, despite never being formally registered as one. The Court found she breached her duties by permitting Eastside to trade while insolvent and facilitating uncommercial transfers to related entities and her husband, Dane Stojic.

Liquidator Shumit Banerjee of Westburn Advisory alleged that the Stojics had engaged in a scheme involving successive iterations of a formwork business designed to leave creditor debts behind. Eastside followed earlier entities including Rediform NSW Pty Ltd and Rediform Contracting Pty Ltd, while another company, Eastside Formwork Group Pty Ltd, was incorporated shortly before Eastside's collapse. Justice Needham found the evidence overwhelmingly supported the existence of the scheme and that Eastside's registered director, Mohammed Zaidan, was a nominee who took no substantive role in management.

The Court rejected Mrs Stojic's evidence that she merely performed administrative work. Justice Needham found she instructed employees, accountants and solicitors, dealt with creditors and financiers, negotiated a proposed sale of the business and signed financing documents on Eastside's behalf. Those activities showed she had ultimate responsibility for management decisions and was both a de facto director and officer.

Eastside's deficient books and records were also critical. Accountants and bookkeepers attempted to reconstruct several years of accounts from incomplete material, leading the Court to find a breach of section 286 of the Corporations Act 2001. That triggered the statutory presumption of insolvency from incorporation. Justice Needham separately found Eastside was actually insolvent from 20 June 2017. By liquidation, proofs of debt showed liabilities of at least approximately $10.3 million, including more than $6 million owed to the ATO.

The Court also upheld challenges to substantial related-party transfers. Eastside made net transfers of approximately $9.34 million to Mrs Stojic's company Buildquip Pty Ltd, with Justice Needham finding there was no genuine commercial basis for the payments and that invoices relied on by the defendants were not genuine arm's-length business records. Further payments were made to Eastside Holdings Pty Ltd and Mr Stojic without adequate supporting documentation.

Justice Needham found Mrs Stojic breached sections 180, 181 and 182 of the Corporations Act, as well as her duty under section 588G to prevent insolvent trading. She was also held liable under both limbs of Barnes v Addy, while Buildquip was liable for knowing assistance. The Buildquip payments were found to be voidable transactions under Part 5.7B.

The precise monetary orders remain to be settled at this time.

Read the decision here.

• Marcus Pesman SC of Queen's Square Chambers, Ralphed Notley of University Chambers and ERA Legal acted for the liquidator, Shumit Banerjee of Westburn Advisory, and Eastside Formwork Pty Ltd

• Andrew Fernon SC of University Chambers, Darien Nagle of H.B. Higgins Chambers and Lancaster Law & Mediation acted for Connie Stojic and Buildquip Pty Ltd