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The Sounds of the Baskerville Podcast Transcripts

Transcript

James Flaherty: Welcome back to the sounds of the baskerville. I’m here with Chris baskerville, the star of the show, the Hound as. They call him Chris. Welcome to the sounds of the Nancy. Well, today Chris too. We’re also really pleased to be joined by Bill Cotter. Who’s one of the principles of Robson and Cotter insolvency group. Good to see you, bill. Thank. You very much and thanks for the location.

Chris Baskerville: Yeah, prison. You’re back.

James Flaherty: Talk about pared back. Maybe that’s the nature of what people think about when they think about liquidators. You’re both liquidators and trustees in bankruptcy. I didn’t talk about on these podcasts. Do people kind of cross the street when they see you coming, or how does it sort?

Chris Baskerville: Of work. Another guy I cross the street when. I see people.

James Flaherty: Really struck me. We’ll just. Come back from the AIP conference in Canberra. 200 liquid. It is in a room which to a lot of people it sound like their worst nightmare, but it was actually really and I think that the real underlying message came from me as an outsider kind of looking. Into your world is. That you are not the enemy. You’re the person that people should speak to. You’re the person who should. People should speak to now. Is that what you walked away from or you walked?

Chris Baskerville: From that’s certainly a message I I like to give people is come and talk to us in, in times of distress, not leave it till the last minute. The unfortunate part about our job is people do come and get up too late, man. By that stage the resources are gone. Books and records are dissipated. The knowledge behind the company go on. And what can you? Do what can we do with that? Shopping.

James Flaherty: I’ve not got a broken arm. It’s actually fallen off. Yeah, kind of places. Yeah, and that’s that’s the story, too, girl. So one of the things that he had, I’ve been talking a. Little bit about Bill, he’s. Things like small business reconstruction, lots of people are all trying to sell these business a chance for you. The really get your sleeves rolled up and. Help turn the business around.

Chris Baskerville: 100% I mean that’s what we love doing. That’s what most of us got into the industry is to try and help businesses. In distress help. People in financial, travel and and the new SBR agents are perfect for that. It’s helping businesses, you know, change and get better and and succeed.

James Flaherty: Into the future. Yeah, right. Yeah. I think one of the things that’s come out. And and people. Might read it this new thing called. All business reconstruction. It’s not perfect. There are a few things about it, but you know, I’m gonna perhaps talk to that, but it is what it is and it’s already something you can. Use. Is that a fair summary?

Chris Baskerville: It was brought in very quickly by the government and there’s some tight rules around it, but they’re working, you know, they’re being accepted by creditors and it’s putting a lot. Of businesses back into the. You know out there and surviving and maintaining jobs. And all that type. I think I think the data was saying over 80% success rate is in over an 80% acceptance rate, yeah. And I think there’s been maybe 500 so far. So yeah, that’s that’s been successful I think.

James Flaherty: How it’s done some with some reasonable amount of debt, often to the tax man. I mean, if I think about one that.

James Flaherty: Will the new. South Wales, employing other people over a lot of money. And when you talk us.

Chris Baskerville: Through that experience. Yeah, well, one of the key qualification criteria to be all of absolutely no is your debt level has to be less than $1 million. So that’s, that’s where it taps out, so. If you go one. $1,000,001.00, unfortunately you don’t qualify, but you’re right, let’s just say. At the 999,000 mark, the average return, let’s just say somewhere between 20 and 30 cents in the dollar. Hypothetically, you’re saving yourself 700 to 800,000. Dollars in in. Debt by using SBR. So that’s a lot of debt that’s coming off your balance sheet to free up a lot more cash flow for your future trading and now you can get. Back on your feet and imagine ripping out that.

James Flaherty: Much debt out of your business?

Chris Baskerville: If someone could wave a little magic wand and go, I’m just gonna make out on the grounds where. The debt disappear. If your balance sheet, but let’s have.

James Flaherty: To say it’s as easy. As going Shazam. So Bill, you’ve done like, what’s your take on?

Chris Baskerville: Well, that, yeah, there’s definitely a process. There’s lots of rules that it it is. A little bit tricky. But absolutely, you know, the 80% success rate speaks for itself.

James Flaherty: So I’m interrupting you, but like it is a bit tricky, but that’s kind of what you guys do and yeah.

Chris Baskerville: And that’s what you want to be using somewhere he’s done them before. That knows the process that knows the the direct lines to the tax office. Yeah. The tax Office is a regular credit in these things. And and they are.

James Flaherty: Accepting them, that’s the the key thing. So yeah. So you’re saying like it’s don’t try this at home. Try that quite clear to me that there’s a bunch of people who got in and had to go. And there’s a bunch of people. You are kind of sitting back with the lesson. Now be that with you both having a bunch of the money. Belt. You’ve got it pretty sorted is that there’s a process is that?

Chris Baskerville: The price is pretty regimented and loaded because you know, like a lot of things in the insolvency landscape, time is never. On Bill, on it’s side. Because of the strict rules in place, doing you gotta do X. By X you know. We don’t have time and small business restructuring about 20 business days from the start. To get our report out that says some benefit to creditors, why they should accept your proposal, you basically you follow the bouncing balls. You know, if yes, go to regulation. If yes, go to section. If yes go. But it is horses for courses, some industries it’s more suited to than others, I think. Yeah. So hospitality, we’ve done a few of, you know, restaurants and clubs and all that type of thing. Perfect works well. Yeah. Other industries. Yeah. We’ve got large supplies might be. A little bit trickier. But there and just needs a bit more planning. The planning is key. You definitely need your accountant on side. You need someone holding your hand walking through them.

James Flaherty: Yeah, I think there’s a real play for accountants or, you know, qualified trustworthy advisors, isn’t there because that you do have to have some conversations. So if you’ve got trade creditors that you, you know, have got those sort of things have gotta you gotta watch out for that? Is that some of the things we’ve learned from this experience? And if you’re looking for final. So there is a watch out.

Chris Baskerville: As you said, you know it’s 20 day period it’s you have to be prepared, it’s going to need some finance. You need to finance lined up and ready to go. If you’ve got key suppliers they need to be talked to beforehand or have. Plans in place for how you’re gonna deal with them. You know, if things. Get a bit.

James Flaherty: And I suppose in terms of process probably just give you a quick a quick summary. So I come to you, you get 20 days to. Gonna put a plan up, put a plan up to the creditors. Your job is to kind of say his best choice you’ve got. Otherwise, we put it into liquidation. What happens in liquidation? Usually that’s value destruction, right? It’s pretty tough to sell stuff.

Chris Baskerville: Yeah, we have to be able to put our hands on our heart and say, yeah, it’s reasonably likely. That plan is better than the alternative and. If the ATR is you made your creditor and you’re looking to them to write off a heap of tax debt through the SBR. This then they absolutely need to see that your SBR plan is results in a better return than the liquidation. So they’re actually asking us to actually put together what does liquidation scenario look like. Yes, now it’s obviously not as prolifically detailed as an administrator or liquidator doing that kind of analysis, but we have to look under. Good and make some educated assessment, but they wanna know that it’s achievable as well. They don’t just want it on a wing and a prayer that Yep, things are gonna get better in the future and that’s why it’s gonna succeed. They wanna know well, yeah. Positive changes have been made.

James Flaherty: Well, back of the envelope cash flows near enough. Yeah. So there’s a bit of work. Applies for counts. Can she be calling you?

Chris Baskerville: Got now, there’s actually, we call it a gig in it for the accountant because it’s not like, you know, most accounts probably referred to us. And they say there you go, there’s my. Client bill, there’s like like. Chris, see you later. Just tell us how it all ends now. It’s OK, so alright. Prepare your client for the SBR. So get them in good shape. Let’s run through it. Now. I’m going to call on the account to make sure all the tax returns are logs. I need a projection of the cash flow. We’re gonna. We’re gonna build your cash flow independently, prepared for the purpose of the report. Often goes to credits.

James Flaherty: Maybe this is watery. Why? Why are? We not the enemies in. Your profession. You, you, you’re. Because these are how many times do you talk to people and they don’t come back for ages. Here’s an opportunity. You can have a conversation with them right now and do something. Now. I do this one now because it was a bit of prep for you and you have the conversation. Have a. And these are the sort of things you. Gotta have, right? Yeah.

Chris Baskerville: Uh, I think, yeah, it’s essential that accounts have, you know, a couple of us in their network. So they can pick up the phone to. And so Bill, what do you think about this, Chris, what about this situation? What would you do? And if it’s just preparing and it might be 6 months down the track before it’s ready, but at least there’s a discussion and they just know that they can trust. That person, it’s not just a a random that they’ve never dealt with.

James Flaherty: It’s interesting too, especially from the captain to somebody who might have. Yeah, the clients said he’s only have had. She’s only have had a tax return conversation with his opportunity to get some additional work with the business as opposed to just disappear off the books and. And when they go off. Into the night, a real opportunity for accounts to actually I think. They get their.

Chris Baskerville: Hand getting bold. It’s always talk about advisory. Yeah, let’s in the tax base and the the the basic bookkeeping space. But they wanna be part of the ongoing business and helping achieve success .2 because one of those things is about staying in your lane. Your lane.

James Flaherty: So that we talk. About untrustworthy advisors who quite often, and this someone down the Gold Coast told me to do. This. Barbecue presidents and.

Chris Baskerville: The the twice bankrupt uncle. You’ve got some great or what we should be doing, but just going back to the advisor and Bill said to have us in your corner is kind of like we’re a specialty Golf Club inside the golf, you know what I mean? So you know, when your clients go into the bunker, you call out the sandwich. That’s kind of like me and Bill. And let’s try and get that client out. Of the bunker and we’re not in that game ourselves. We’re not gonna try.

Chris Baskerville: Turn that client into. I don’t want to be giving anyone tax advice or, you know, talk about capital gains. So we wanna, you know, package it up and head it back to the account as a an ongoing. Client that they can work with. And that’s a good point. Bills business, my business, we don’t have any back end accounting. We don’t do SMSF’s. We don’t do what we don’t do tax compliance in our respective. So an accountant referring their client to us doesn’t have that fear. Am I gonna lose the client back to the guy that that restructured them got them back on their seat? No, that’s. Not how it works for us. Because we’re a completely independent. So so we. The back, you know.

James Flaherty: And the whole idea is to put it back in some sort. Of shape that they’re.

Chris Baskerville: Actually, yeah, for. And they could pay their accounting bills going forward and and they’re valuable client to that county practise.

Chris Baskerville: And then, like in the Council’s works for you, and this is this is, you know, when when we’re sort of knocking on doors trying to say, hey, you know, trust us with the clients, their number one theory is losing. A client because they spend so much time. Building that client base over years of trust they don’t want to see. Those clients just disappear, so it needs to be good experience. They need to be put their clients in safe hands.

James Flaherty: The listening of the sounds of the Baskerville, they might be sick of us going. Why do it now? Like why now? Why would I consider doing small business reconstruction? Why should I come and talk to you now? We’ve talked about this for the last 10 or 15 minutes. Of all the reasons why people. And so it be sitting there going. Oh yeah, I’ve heard all this. We’ll get to. It it’s not the biggest thing. There’s not other bushfires right now. Why should I do it now?

Chris Baskerville: So this is the for a limited time only. And no, we’re not. We don’t have an extra set of steak knives here to throw at the deal, but at the moment I think this is the quintessential issue at the moment. COVID is the number one extraordinary event people going to use to say I need to restructure my business followed by any of the Bush fire and flood. That would be the main. Is it? But what happens and and Bill picked up on this is over time. That excuse is going to wane. No longer can we blame COVID in five years time, but at the moment we’ve got a fairly supportive Ato and we’ve also got, you know, effectively direct lines to talk to the right people to get their sort of preliminary view before it actually the planned actually officially leaves our office. And how long is that gonna be available to us? That they’re accepting these deals at the moment, but there’s no guarantee you know they they’ve got a big debt book to collect there and eventually, you know, COVID gonna start, you know, wearing thin as an excuse for your problems at.

James Flaherty: This you dealt with so yeah. Like you’ve gotta. Have a good story about what happens. And a good story about how it’s not gonna. Happen again, but yeah, we’re not going to change. It and then. I think it’s been really helpful. I really appreciate you making yourself available this morning in this quite industrial urban skate that. You gave us as an office. So thanks for joining the sounds. The basketball, I think we’ve gone up 10,000. Case studies we draw on, so thanks again Chris for sharing your thoughts and interesting sounds the best rule. A reminder that these podcasts are general in nature and do not count advice, and they don’t take into account your personal circumstances. So if you think though, that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice.

Transcript

James Flaherty: 22nd of January 2024, the Daily telling Sydney talks about a multimillionaire. Who’s gone missing or not turned up to court, $24 million have gone missing or unaccounted for from the Ponzi goldski now listens to this series. Well know all about gold sky. Everyone’s an expert. Everyone got an opinion. Yep. Another policy scheme. Everyone’s got a point. Of view. Hey, let’s talk to the guy who had to unpick it. Let’s talk to Chris Baskerville. Hi, Chris. Welcome back to Series 4 series. Chris, this why I think which was it’s too big to do in the one episode really, isn’t it? The story of Ken Grace? Yeah. Yet another forester who wouldn’t face up. To the investors that he stole from.

Chris Baskerville: I think it’s a classic case of a person that lived in denial, which is not the river in ageing. Right up until effectively.

James Flaherty: The day passed away by his own hand, right. He’s not faced up. He’s lived large and we’ve talked about this guy in parts. Talked about some of the journey, but now that we can talk about the names and go into a little bit more detail, there’s a lot of commentary. There’s a lot of people who can say that.

James Flaherty: Sure. But any sense you and your team had to go under the bonnet of this, pull this game, and we don’t call you the clumsy king killer for any particular reason. Other than the fact. That your group is really good at being able to find these schemes and bring as much justice as can be done in this case. The guy didn’t even front up, but at least.

Chris Baskerville: You’ve been able to tell the story. Is that the right way of putting it? It’s not a straightforward investigation. In fact, I probably should take back step and just define that a policy scheme is a fraud. So it’s it’s it’s conducted through deception and lies or treachery and lies as. If you wanna. Go that far. And it is typically old investors monies are paid for by new investors monies and there’s no real underlying enterprise where the investment actually generates A moderate return in the marketplace. So people are being promised a return of 20% iron cloud guaranteed 20% return, but there’s no actual investment going on. So the only way you can pay an old investors 20% ironclad guarantee. Is I have to take it? From the next guy that comes in the door. Or the next person that comes.

James Flaherty: So when I was a. Kid, that called like a like a pyramid scheme. The only way the people at the top of the pyramid got was with their skin is more people, such as many more people in at the bottom of the scheme as you could. It’s the same kind of concept. You just gotta the only way people at the top get out is if they can want enough people to pay them out with a little bit extra. Is that the sort of way?

Chris Baskerville: That work? Yeah, except generally in a Ponzi scheme, there is really only. One major win, but that that is like it’s the person that set it up from the beginning and let let’s have a look at the namesake of these types of schemes and Charles Ponzi selling stamps that had a conversion to them offering crazy returns. Within a 90 day window of. Time this is going back to the 20s and. The 30s and of course, people buy it. Then you got. And he made or, you know, like what? Robin, the like. Robin Williams says anyone with the name made or I don’t know, that the guy you wanna give your money to hit Bernie made. Off with your.

James Flaherty: Money. Sorry, I just got that.

Chris Baskerville: You know what with the yeah, we’re talking. In the billions. For that type of a Ponzi scheme come locally. To Australia and we’re talking mother. Melissa Katic Lady had a missing foot turned up on a beach. Yeah, you know. All these skins seemed to be designed. For one winner.

James Flaherty: Yeah. And I sort of almost used the lifestyle and and mistake around them to help. Some feed on itself. Well, let’s step this out, Chris. So we’ll break this into a few episodes. We should we’ll now we can name names and delve in a bit more with all the investigations you’ve done. Maybe it’s gay. This episode will look. About how long it began. Perhaps tell us a bit about the man and his story, and maybe some of the. Early red flags. That testimonies, and then we might look. Maybe next episode. Let’s have a look at the con itself. Is. Yeah. Is it really? Is this the yes Ponty skin you’ve ever seen? Or is it just a bunch? Of sour tank one. Of the things you I’ve talked about a little bit before that I’d really. Love to delve into the winners and the. Losers and the whole FOMO. Fear of missing out. How does the scammer? And knowing you in seemed like fly fishing a bit, throw the liver out and then pull it away and just that sort of. Thing and then another thing the bit about. You being the expert, chilly, there’s a whole story. There about how. You unpicked this guy. How did you unpick the fraudster? Maybe he will round that off with lessons. Into this always 5 episodes and as always they’ll be stories well told. Chris, appreciate you’re going to do this. So let’s have a look at patch the guy. Let’s go back into the king grace, where it all began. So who is that guy?

Chris Baskerville: Kim Grace would have been in early 50s at the time I met him. I can. I can give you the exact date, but it was in 2018 and the introduction came through his lawyer because ASIC had already taken very attractive steps. To freeze effectively the gold sky asset, they then took proactive steps to put a court ordered receiver in over all of the assets and then provide the call with the report. But what the lawyers were encouraging for Ken to happen is you need to put this thing into liquidation ASAP, like you’ve just got to bring everything. Go ahead. You gotta stop the carnage. Kim Greats was encouraged to voluntarily appoint me. As the liquidator for the whole group, OK.

James Flaherty: I’ve I’ve come into this story. I don’t know this bloke from my bar, so I might have met the lawyers a few times. I know who they are. It’s not an uncommon story for proceedings to be a fraud or things to be going on. Go back in time and before us then. How did the buyer get to that point? Like he said, he was a car sales. How did his story start?

Chris Baskerville: Standing was he was a franchise owner of a major car brand and he owns effectively. He did the Gold Coast or the northern coast of NSW. So it’s either the the Gold Coast of QLD. Or the so. What’s the and? We understand he sells out so that business. So he’s been in the used car. Sales getting for about 15 years is my understanding and he would have come into some element of wealth from that deal.

James Flaherty: Can I stop you there? We’ve talked about indicia of insolvency, but I’m not some people who sell used cars. And I’m not saying people from the Gold Coast. But is that combination in? Yourself when you come to financial services, perhaps a reason. For somebody who will go back to.

Chris Baskerville: The learning and we were obvious to be. Said for different. That’s right.

James Flaherty: So what you’re saying is, who are? I’ve sold my dealership. I’ve published some cash. I’m gonna live down the bottom end of the GC or drop into the northern NSW in somewhere so. Curious and hanging out with some salubrious counterfactual when there’s that where, where?

Chris Baskerville: He took his part. Yeah. So I think he was always based in that geographical reach.

James Flaherty: Gotchas. I knew.

Chris Baskerville: In the region, he knows quite well and he’s coming to some money and I think this is where the concept of of him learning to trade. Shares in a marketplace comes into play and we think somewhat may have either encouraged him or shown him potentially how to do some of his own share trading and potentially Ken grades has had. Some success at it. So other words, he’s taking his own. But he put it into his own share trading account, and he’s taking a punt effectively in the market and come up. With a win. Let’s go.

James Flaherty: With the story that hey. Couldn’t it struck some money in those mats and. Coin out of. It this is a bit of.

Chris Baskerville: A good skill. Now I think this is where this is the inception is. He’s obviously gone and told someone about a win he’s had in the marketplace. Gotcha. Or he suffered a lot and he still tells people he’s had it with one of the two. We can’t know how, but all it all came about, but he’s either had a good win and he’s boasting about. And people have gone well, if you all. Had a good. Win. You’re a successful businessman. You’ve just sold your used car dealership and walked away with potentially at least seven figures in there somewhere as our our best guess would you invest? On my behalf. And I think this. Might be one of those very early moments of. I’m gonna take your money, James, cause you’ve heard. I’ve had success, so I’m gonna.

James Flaherty: Try and and paper that that this all. Yeah. You know, in theory, this could all being quite well-intentioned kind of stuff, you know? Yeah. Hey. Yeah, yeah, yeah. Chris, I I really like what you’re doing. Yeah.

Chris Baskerville: Reading the league on.

James Flaherty: But it is. All these kind of things can sometimes turns. What’s still, Mr Grace? The benefit of the death? But when is a good man turned bad? When does it go wrong? Is it when he makes the loss that he can’t cover or? He realises he’s been drinking too much of. His own cool. Like what? What, and yeah, so I think.

Chris Baskerville: The turning point comes in one of two events. It’s in the he has had a win for himself and his mate. Whoever’s gone. He had used my money. Let let’s do it and then he’s had that light bulb moment. Hey, if I just encourage more people to follow suit. I. Could pull in more money. Or the alternative is he has just lost. His friend’s money. And he needs to find a. Way to cover that up.

James Flaherty: I’m not saying this situation, but in other situations where a certain lifestyle has been enjoyed here too, there’s a bit of a whole people invest themselves in what that business is and their success and be them or their family. You you’ve been dealt with directors, for example, who? The spouse doesn’t know just how. Bad things are going. Because. Until they go to the shops one day and their credit card doesn’t work, you know, they sort of, yeah, there’s people can get quite invested in the appearance of success without and then kind of manage all the problems in their own way. Is that potentially something that happened? Here? Or it’s really difficult.

Chris Baskerville: To pinpoint the exact moment, but I guess all we. Probably. Sigh. Is that at one point in time this was a if he could call it legitimate, there was a legitimate purpose and a legitimate reason for Ken to be busy raising some money to be invested in the stock market because he’s had a week. He’s either had a a couple of wins and he feels.

James Flaherty: He can’t lose. So then again. It’s about revenue of the time we’ve got left, so we’ve got a bike, he’s turned, he’s got a bunch of people, he’s got a bunch of people that so he’s been doing a bit of share trade. And you go to the next crowd and we’ll go into them later about the winners and the losers and the fear of missing out. But then we have to start fishing and progressively bigger ponds like, you know, he’s got a few mates, maybe a couple of them. You’ve got a few losses. What’s he done next? Says I’ve got a few things like as he sort of built some kind of mistake. There’s the mystique of this spreadsheet we’ve talked about in previous episodes or the the the social media thing which we talk about a bit later, but. When did the sort of the golden Ken Grace concept come to pass, or is that is that later in this?

Chris Baskerville: Yeah. Then I think because there’s a point where it goes from Ken and a handful of mates close to here to now I’m getting inquiry or referrals from people that are now one step away from which is I’m now getting a third party referral in. And could be off the back of word of mouth on your success from his inner circle that leads. The the introduction of third party third party investors, people he doesn’t actually know. So yeah, there’s. Obviously a tipping point in there, but there must have been a point where he’s now thinking bigger than just simply I’ll just take the 100 Grand Jane and see if I can tinker with it to turn it into 120. And now it’s thinking. Millions. So how do I get millions? Well, if everyone’s going to give me 100 grand a day. They want that by a million. I need at least 10 investors to pull in a million. Therefore, I need 20 investors to. Pull in to. Me, because there’s a point where he launches.

James Flaherty: Goldski.

Chris Baskerville: Yeah, right. And it’s a big fandangle party. It’s invitation only. It’s information memorandum. It’s all very pretty pointed, printed out. We’ve got celebrity boxer. We’ve got celebrity businessmen. Yeah, these are all people turning up to give legitimacy to the event. Of course, people aren’t paying attention to the fact that you can pay people to endorse product. Yeah, and. Yeah, you know. For the right sum of money, I will say, James, wherever that book is, the Otto book, that’s a brilliant book. Why have you 10 grade to say?

James Flaherty: That you. So what’s this? He’s talking about my diary. It’s an undated diary, which people quite, quite, quite interesting. You’re right. There’s that point where it switches from being me and a few mates having a cry. To. Something bigger and that’s the bit in the guys mind, which is I can make a dollar out of this or I need to cover the holes I’ve made to nearest and dearest by finding more people in there, but because there’s more people that you don’t know, there’s sort of an expectation from a bunch of them not that reasonably. If I’m gonna give you a. $100,000 change.

James Flaherty: I’d like to have a bit more substantiation for about what you’re going to do with it and that’s.

Chris Baskerville: Sort of where?

James Flaherty: Do you think? That’s sort of. Point it seems like the forward was afoot because there was documents that we will go on to later, which proved to not really be legit. Is that that would be when the fraud was afforded that those documents come later when people asked.

Chris Baskerville: Yeah, and that’s that’s a good. Question. So what I have seen? He is, and rightly so. If you are good investment in an investment vehicle at the end of 30 June, you need a statement that tells the tax man as an investor want. I earn what didn’t I? Earn what being capitalised. What is that unrealised? Either gains or losses, right? It’s a normal tax statement to get, but I don’t think, Ken. I was ready for it. Well though, when these third party investors are saying, hey, Ken, who would you mind sending us out 2018, 2017, 2016 tax the state. And go. Yeah, I’ll. Get back to you and that’s because that that’s how long the cookie to put up a tax benefit and that’s maybe that’s very good one for next year and your labour at.

James Flaherty: Commonwealth. You have the amateur. Now it’s like, so I suppose if it this early stage. So if we take a step back and say we’ve. Man, we haven’t gone much into. She was as a guy. And some of the people he’s had a bit of luck, he’s sort of growing. We try and go into the mind of the fraudster a bit. Just the early red flags. His early red flags like an.

Chris Baskerville: Well, they must have done in Mr Presentations, which is we’re gonna get a whole bunch of people. Inside a room. And we’re gonna. Do a presentation right and someone that spent a lot of time in the insolvency industry. So you know the investigating the good, bad and the. Ugly went to. One of these presentations as a backup. For his mate tonight. At the end of the presentation, very simple. Alice is calling our colleague who said Fred, 15 years selling used cars and now all of a sudden he’s now purporting to be hedge fund manager of the year. Take him and that was an immediate no go. Don’t go anywhere near this thing because it doesn’t make sense that someone has invested their entire life selling used cars. And you know how hard. That’s it all you know? And then all of a sudden, overnight we come here trying manager of the year, milking out.

James Flaherty: Thinking about every other financial institution like neighbourhood, but had that spot view the fact that we both know people who are very successful in finance and just how hard that job is, some black on the Goldie. Yeah, can have a crack in it and well done. Yeah. And just for the.

Chris Baskerville: List of the benefit I was advised by the government investigators that. When they said Tony. Just curiously, you know, how does he end up as head fund manager of the year, which is an award given to him in Singapore, he said. They said I just lied. On the application. In other words, whatever the material was. To make your application to. Get it? It is likely to.

James Flaherty: Delight. And that is why it’s. OK, there’s a fair bit in this. So our 15 minute episode is already over. That’s some episode 1 and this little kind of mini series. We’re gonna do. This sounds like the most elaborate one you’ve ever seen. Or is it a complete amateur shemales or somewhere in? The middle hey.

Chris Baskerville: Thanks Dave.

James Flaherty: A reminder that these podcasts are. General in nature and do not constitute advice, and they don’t take into account your personal circumstances.

James Flaherty: Think though, that some of the issues raised might apply to you. You should seek qualified financial, legal or counselling advice.

Transcript

James Flaherty: What’s a real estate agent? A restauranteur, a meat worker, an alleged mistress and a concrete are all got in common. Well, they were potentially in a possible office of the Gold Sky policy scheme in Sydney and they were all senior investment advisors, apparently. Welcome back to the sound of the Baskerville. Hi, Chris, welcome Back. 

Chris Baskerville: Good morning, James. Good morning back.

James Flaherty: Episode 2 on our Expos Day on the Gold Skies fiasco, I think is the best. Way of describing it, a number of them. Are also people that you have been.

Chris Baskerville: Doing for preference, yeah. So if following the gold. Sky collapsed in 2018. Yeah, part of our investigations was well, there’s money that exited this investment scheme and we need to get it back. And we had to work out what’s the best way possible. One of the cleanest applications, I think a liquidator can bring here is what we call a non fair preference being what. Monies exited a company within the six months before the appointment. Of liquor batter.

James Flaherty: And so these were people who were around this. Game. In some capacity, concreting real estate agent, apparently one was a Python developer. There was a machine learning specialist. Someone was a a trade processing engineer, we.

Chris Baskerville: Should give clarity that Python developer is not the animal trainer he actually got and actually writes codes for. Both grammes yeah.

James Flaherty: Right. Sorry we took last episode of. Yeah, Wendy’s a. Guy come into a bit of money, might have been done a bit of trading on the weekends or for the bit of day trader with his meal, or so that he got for selling the. My God, when does that got turned bad? Troubling along. We’re we’re growing a little bit. So in your research, though, didn’t you sort of kind of happen across to an information about how this thing kind of ballooned into this bigger than being her exercise? He’s obviously got to some level, if you look at the documents that. Got.

Chris Baskerville: Covered he this guy’s quite cleaned up like and you gotta tip your hat and give credit where credit is due. Even though it was credit. In the art of deception, but effectively Mr Grace had worked out a way to get around the need to get an AFL licence in Australia, because naturally, any investor buying an Australian product or or securities in Australia, the provider has to have an AFL. Unless there’s an. Empty. And what he’s done is is he got around it through the unless there’s an exemption elements. So ironically, section 911-A of the Corporations Act allows an exemption to a foreign financial service provider to not obtain an Excel licence.

James Flaherty: Or did it does or is going to change all of us some suggestion that it might change is that.

Chris Baskerville: Right. Governed by a. Parliamentary instrument called the class order. And the class order allows certain exemptions for certain countries for certain financial foreign financial services provisions. the US had a pass order at the time and this is what Mr Grace is hanging on to. I believe it was either class order 03/11 hundred, which is currently. Been repealed so no longer exists, but it allowed him to not have an A for cell in Australia because he was already registered in the SEC in America. Yeah.

James Flaherty: We’ve been around this space for a. While that was news to me when I knew that. I suppose we’d always. Thought that the context of the big end of town here. So OK, so we’re trying. I’m so he’s he’s told the local regulator what I’ve got. I’ve got SEC.

Chris Baskerville: Well, the actual the regulator actually wrote a letter on their letterhead acknowledging that he did had the class order. Under his belt. Because he would have shown them, or at least made the application showing that he had all the qualification criteria from the SEC in the US. In the first instance. So effectively it was a deception. Against.

James Flaherty: Yes. So the local like. They’ve they’ve used, he’s used a.

Chris Baskerville: So this is a pretty cunning plan to start with. Well, it’s it’s quite clever. Like when you think about it and and look, I should add that I’m not promoting done in any way, but from the eyes of an investigator that is trying to undo this web of lies, you’ve gotta go. That’s actually quite a clever.

James Flaherty: No, no, no.

Chris Baskerville: So and also just retrains us as to where we look for you know in future, what did he actually have with the SEC, anything? Yeah, I think he. Had a he had a licence, he had the licence in the SEC. I can’t remember exactly the details, but effectively he. Had. Managed to get a licence that. Told the SEC that he had about 100 and $507 million under management.

James Flaherty: Well, based on sort of Self reporting. 

Chris Baskerville: Yeah, based on whatever information he’s obviously. Given to them.

James Flaherty: So he’s found a way. To self report a number. Which then qualifies him from. Not that having a local. Regulator, who might actually say? Well, show us this number. So he’s just he’s he’s gonna be able to kind of put the cut and put the little thing out the cup game where they got the little ball under the cup and just moving them around so OK. Well, he’s trembling alongside it. How? Did the SEC twigged? It this was all.

Chris Baskerville: A bit our understanding. And this is always quite interesting as to. What piece of thread was pulled to then start bringing the? Whole jumper undone. And our understanding is on the Gold Sky website that was put together. The content of that website was a copy and paste of a Boston investment firm website in the US so other words, he found a website that said all the right things that he wanted to say happens to be from a Boston investment firm. He’s gone. Copy paste done the classic. Replace the Boston firm’s name with the Word doll sky. Change the directors to you know whoever the staff members are. And he’s pasted that up as if it’s gold Sky copy written material.

James Flaherty: This is the thing about this story that mystifies me. We don’t have to talk about this particular point out is God. You crumble of making all this complex. Kind of. Web of intrigued lies. And then he just copies and pastes someone up his website that you think eventually that that might.

Chris Baskerville: Not the first time he did that, too. So we’ve got the Boston investment firms website virtually copied and pasted verbatim, save for the right changes you need, right? The Boston investment firm has then made the complaint to the SEC about the content by saying look at his website. Look at our website. They are virtually identical. That raises the flag with the SEC in the US.

James Flaherty: Yeah, they gotta hang on hanger. What’s? That look. So then they. Start having a bit of a.

James Flaherty What’s the process from there?

Chris Baskerville: My understanding is the SEC went on an investigation to basically say, does this fund registered in the US under the SEC regulations actually have any money in the bank account? Like does it actually have funds on the management and I believe they looked at it and realised there was no money. In the US, there is no 100 and 500 and. $7,000,000 of.

James Flaherty: Assets under management like so we’ve got this book, he’s got pretend fund and he’s got this registration. That sounds like it’s just a self report. So that that company where? Is all the kind of the big names or kind? Of come into this equation, how do? We find out global accounting firm a. Is talking to global Custodian manager B Albert and he’s got them all talking to it. How does this all work for my book has just caught me at. A website, he’s. Now sucked in. Tell me how this.

Chris Baskerville: Next piece work. Yeah. So obviously now the SEC then fires up an investigation against him. So he he is now under. Direct attack and. I believe he’s getting advice in America from American lawyers to say, hey, you’re gonna have to come up with all this details, all this information. And what I found typical in this investigation, just trying to reengineer what a Ken Grace mindset would do. Is he very reactive, doesn’t have the four side to know what’s coming? The winner does land on his lap. He then goes into ohh. I now need to solve this problem. So he knows. That ordered, as any fun needs orders, any fun needs a broker. Every fund needs someone to manage just the administration element, and so he now starts to go around and. Find these brand names to give for the illusion that. He’s engaged these services now. We’ve seen some e-mail correspondence between global accounting firm and global investment stock broking firm global administration firm, where he’s accepting their engagement. But he hadn’t actually signed any documents. He hasn’t provided any documents to allow. Now these organisations to verify who is Gold’s Guy, who is Ken Grace? Is this fun? Legit. Does it have the proper documents to even allow them or to take place? Does it even have the documents to allow a broking house to properly service and?

James Flaherty: And it’s an interesting Christy cause if I think about what you’re saying, it’s like, Oh yeah, I’m using global firm A as my. Auditor and you. Get what I’ve chosen. But The thing is about that K wise like know your client, that firm hasn’t chosen him, correct? Are you suggesting that up to this point, no one’s gonna actually said? Well, hang on, show us where you’ve been accepted as their client. Yeah. So he’s accepted them in in communications. So he says, yes. I nominate global accounting firm.

Chris Baskerville: You’re, you’re now my auditor. I nominate you as my prime. Broker and all that. But. But of course, the accountant and the prime broker are now asking questions of, well, can you give us all of these details that allow us to know your customer so that we can take you on board?

James Flaherty: Wow. So he’s just having a bit of a laugh, really, isn’t he basically just convoluted a story? Or he’s telling him to them that. He’s talking to. The other one, and he tells us he sees.

Chris Baskerville: That he’s talking to them. He also takes these loosely gained acceptances. And then he uses it as a representation to investors into the future. So in the form of an information memorandum, he’s saying, yes, I have global accounting firm A and I have Prime Broking, House B and I’ve got global administration organisation, you know, C in this scam.

James Flaherty: Little bit of online marketing as I’m always amazed by how people let their logos pop up on other people’s sites with this. They will be like eating, cutting and pasting logos and we’re putting people in those sites saying that, you know, this is the mother in from, yeah.

Chris Baskerville: Yeah. Yeah. Well, the the documents that we got a hold of showed that the SEC were querying or how is it that you have global accounting firm a on your website? And global investment firm B and Global Broking House C and how is it that all these logos appeared on your website? Because it’s to. Give legitimacy to the any per party external login.

James Flaherty: Yeah, absolutely.

Chris Baskerville: What was even funnier is I watched that Netflix documentary on the guys that created that visa card that could access bitcoins or whatever, so that you can turn your cryptocurrency into tradable commodities immediately, they did the. They think they used visa. They put visa on their websites but they didn’t have any rights or agreements or any systems in place with visa so that people out there do do.

James Flaherty: That and and this is when you go back to being perception. Yes, you see. That do they call this guy? Yeah, like, does he ever have to cross examined or any of that sort?

Chris Baskerville: Of stuff or. Yeah, well, some of the documents. And we saw. He had he was cross examined, he was, and a transcript was. Then delivered to. And then he has a right of reply, which is OK. Yeah, Mr grace. Here’s your transcript of all the questions we asked you. And here’s your responses to it. And then he’s obviously gone to say, hey, I need to correct some of my material in which it looks like from our perspective, he’s been caught out. In a lie. The SEC have then said, well, you’ve got an opportunity to repent and but do it now and then he’s either backtrack on what he said or and he’s. Almost doubled down. So sometimes he’s he’s got everything on black and sometimes trying to run from the hill or he tries to blame someone else. That’s the other class there. Go on. It’s not my fault that guys fault.

James Flaherty: Yeah. So there’s another classic play of I know I wasn’t there. The girl, like the the Bart Simpson defence. Like it wasn’t me. I wasn’t there. You can’t prove a thing. Yeah. So then in your travels like. Surely someone at the SEC said, oh, somebody said OK, Mr Grace, this says this has got a. 105,000,000 bucks in it. How much is actually in it? Has anyone asked that question?

Chris Baskerville: Yeah, they asked him directly.

James Flaherty: And what did he say?

Chris Baskerville: $0.00 this guy.

James Flaherty: It’s gonna be.

Chris Baskerville: He said that was our projected or purported almost valued if we almost had of laws and we almost had have got the.

James Flaherty: So about these people that they haven’t actually got. Anything to order because there’s.

Chris Baskerville: No actual money. There’s no money, there’s no accounts. There is no ref. Boards, there’s nothing except the shingle of we. Somehow we managed to deceive the SEC to get a licence. We use that deception to then deceive the Australian regulator and then from that we then deceive the investors and and I mean, it would be funny.

James Flaherty: But for the tragedy that has caused. Of the people losing money and. Investors being taken in. But here’s a convoluted story that this guy has built and played some big names against each other. And had. How long has it taken the SEC to get onto this character? So it’s about a couple of years as before, the kind of this process kind of came to light. Yeah. So yeah, it’s a.

Chris Baskerville: Good question. Just thinking back. In time to 2018 was when the ship is heading for icebergs and it hits the iceberg and things are now sinking. So whether the SEC was triggered, say in 2017, could be rolling into 2018 that are not 100% sure on that, but definitely by 2018 the ship’s already hit the iceberg or it’s it’s heading for.

James Flaherty: And do you think that a lot of this dialogue on the top end of town, all that firmly does hedge funds and things like that in the Caribbean, those sorts of people, does he approach the even approached them before the SEC’s ongoing or he been smart enough to? Start that dialogue or do.

Chris Baskerville: You think he’s reactive, like he’d said. Yeah, there is a point in this gold sky journey where just simply the word of mouth. Of what Ken was saying to investors that have had some good wins was enough to generate a certain quantum of investment, yeah. And then he happens to find a guy that had huge credibility, credentials, massive client list of really wealthy, successful people. And as soon as that guy comes in, then we’re talking a launch. So we’re talking about now we’re going to do a big launch. Now, if I’m going to do a big launch, I’m going to leverage everybody’s network here. To pull in new investment, I need a document. That can stand up to the accountant sniff test or the financial planning sniff test. So I believe that being reactive, he’s gone line in a document, it can’t be a product disclosure statement because all of these things are all strictly regulated. But I can give them an information memorandum because that seems to just skirt around the regulations. Of what has to be disclosed. I’m not smart enough to. Put 80 pages of an information memorandum of very sophisticated financial data. Well, the quickest way to do. Is to find someone else’s work and copy and Paste it so. 

James Flaherty: Bit like it did with the websites. So we think about. What we’ve talked. About today. So the regulators are on to this fella, but in the mean time, he’s been making hay while the sun shines. He’s been getting people cooked in. He’s given the top end. It’s had a bit of a run around and he’s got all the top end of town. Talking to each other side, yeah, writing emails and letters that he. Could hold out to be. And he showing that he’s legit. He’s been found out a bit by the SEC. Anyone having you and I I’m looking at some of these documents like and I how would you know with all those names and all those this stuff maybe we don’t try and answer that this time normally try and answer that one next time. So we’ve got that top end of town. Having a sniff we’ve got. Peculiar fraud. We’ve got a concrete pizza. We’ll see a Python developer and real power to him, you know. And it’s. And I know you can do these courses on YouTube, bless them. But the point is that we’ve got a guy who’s a fraud stand. He’s be reasonably sophisticated. What? Help us. What hope? Us. So let’s have a talk. The next one.

James Flaherty: What you saw at the kind of investor level? Thanks, Chris. Yeah, interesting man. Thank you.

Chris Baskerville: Thanks guys.

Transcript

James Flaherty: Welcome back to the sound of the basketball James Slattery here with Chris Basketball on our continuing meandering story. Really meandering journey through the story of the explosion of the gold Sky policy scheme. Umm, I’m reminded Chris of the night at the opera, which was a Groucho Marx. And Marx Brothers film where they one of them was trying to get the other one to. Sign a contract and. Her gay? Yeah. The party of the first part of this contract will here be called the Party of the first part and the guy. Goes Oh no, I don’t like that. So I just whip it out. So you’ll end up with like a piece of paper that’s about, you know, a centimetre wide. The opposite of this is a document view you showed me, which is a public document which. Is the, it’s. Not a PDS. It’s a Christian share, information memorandum. And so I’ll get you to explain what a memory and what that actually is, but it’s a big stick looking thing that looks very impressive and that’s the problem and that’s where we come to the today’s episode. This. It’s pretty and it looks like it from the outside. It looks like something that looks, sweats words, you know, in a world where if you want to accept the phone upgrade that you’re given, you just gotta go accept the terms conditions. Yes or no. So you just go. Yes. Are we all just a. Bit too exposed like. That it looks pretty serious. Put $100,000 and do it cause it looks legit. You know what do. We got here, honey, you. And I was a bit of money. Navigate a document that looks as good as the one that is in front of us right now. Yeah, well, what’s an information memoranda? Well, probably the better way to say.

Chris Baskerville: It is. What is it? Not yeah, OK. An information memorandum is not a prospectus. An information memorandum is not a product disclosure statement, so both the prospectors and the product disclosure statement. Are governed by law and regulation as. To. Its contents and the veracity of the the content inside usually being audited 5000 ways from Sunday or the information is regulated to an extent to protect what’s called a retail investor. It’s a retail investor, just call her mum and dad, right, mum and dad with the better money that won’t want to be out there. But what an information. Memorandum ports to target. Is not the. Mum and Dad retail investors it purports to target what they call sophisticated and wholesale invested well. And people that are used to large scale investment and sophisticated are believed by definition is either someone that possesses net assets of greater than $3,000,000 or has income over the last two financial years of more than $250,000. In other words, some of us capable of making.

Chris Baskerville: Good money is an income or has some assets of substance. Behind that is considered a sophisticated.

James Flaherty: Slash whole other problem straight away with that is that you can be a person who might have sold the house in Sydney or Melbourne. And moved to Queensland or somewhere else you might have a water dough in here. You might have a water dough now as a retiree, for example, who’s downsized. You could quite easily qualify if you’ve had a really successful bunches. You don’t done some FIFO work in the mines and you’ve worked hard like we know a lot of. But the people have you could end. Up with the word cash. That makes you a sophisticated investor. Yeah, obviously.

Chris Baskerville: Yes. To you or ratify the sophisticated slash wholesale investor. Usually comes with an accountant certificate, so a professional accountant, usually the person that does your taxes or understands your financial position besides a document to say yes, this person complies because either they’ve got assets greater than I believe it’s $3,000,000 or their income has superseded 250 over.

James Flaherty: The last two financial years. So the point that’s in your banks have been asking just mortgage, especially school business back that for home mortgages for an accountants later than that puts a lot of pressure on accountants to produce this letter to for longer for banks to say that yeah to verify the.

James Flaherty: The information, so I’m not saying this happens in this case, but there’s a lot of situations where accounts might feel under pressure. Or under time where I know the person. It’s just that the four month fire at all, there’s a job there. The cat probably should have done it. So are you really sophisticated? But it could be just a bit of a ticker box for some people, people that want to cash and say look, this looks really great. Don’t you stand in my way, Mr or missus? Accountant. For me, accessing this once in a lifetime.

Chris Baskerville: Yeah. And and I think it comes. Down to you know. A classic kind of sales technique, which is to. Is to present something that looks pretty good to the investor, but then remove it from the table. In other words, I’m going to take it off the table now to leave you wanting more or someone trying to entice investment into, you know, scheme. You could potentially say to them. Ohh James, you know. This scheme I’m getting 20% returns in this scheme here, but you know James, I just don’t think this is for you. I don’t think you want that and and not by the way, this is for wholesale sophisticated investors. Yeah, that should entice you enough to potentially go to your account and say I wanna. Be one of these hops, see. What have I gotta do? Sign this. Sign this document. I want it. I want I want this 20. Percent. How dare you.

James Flaherty: Block me from it and I put the account. In a tough situation and and there’s. Yet another thing that’s A cause for accounts as being another thing they’ve got to sign off on. And especially when accountants are not allowed to provide financial advice, and that’s another point for another time. But I’ve I’ve got. This big water docks. Has been worded documents and it all looks. Pretty good here. It’s got lots. Of stuff in it. So it’s a big, thick information memorandum and it says lots of words like superior long term results can be achieved by systematic exploiting the judgmental and biases and behavioural weaknesses that influence the decisions of many investors. Gold Sky uses quantitative investment models to choose both in favour and out of favour, overvalued and undervalued stocks in the marketplace at the time of purchase that have potential for a near term depreciation or appreciation.

Chris Baskerville: Who was it? That said, if you don’t understand it, well if.

James Flaherty: I don’t understand something. I don’t understand how this talks about a lot of quantitative. Why not entirely sure what I used to work with a bunch of factories and know superbly brilliant people and some of those sort of people like open near the prison scene where you slide the food through a little slot in. The morning that is so. Do we have a bunch of these kind of super brain quantitative people or is that the concrete that we talked about?

Chris Baskerville: Before the what was funny is he’s having a look at the some of the transcript by the SEC because they put it to him directly and said so do you have a quantitative team? And then he obviously had to could capitulate. And saying no, I don’t. We put Mr Grace in the box and we drilled down on this. He used a lot of big words, quantitative analysis and behavioural science to predict the future and all most of the jazz. So what is this thing? Where is it? It’s a programme we’re looking OK, where’s the programme? Ohh tell by someone where? Where is this someone? Where is this something? And then I think through just keeping on pressing.

James Flaherty: Yes.

Chris Baskerville:  Theme for this magical algorithm. This magical software that they have developed, he finally capitulated in the box and said Ohh. It’s just an excel.

James Flaherty: You can have some pretty sophisticated exhausted.

Chris Baskerville: Oh, I feel is one of the most programmes, if you. Know how to yeah.

James Flaherty: If you know it is a pet, that company doesn’t sound like really this. Is what we’re talking. About this information memorandums, got, names of different people as a that used to be index supplier whose names have been dropped through. There they’re stuck in insert global accounting firms name here 1 instance of the name of the global investment bank is misspelt. But apart from. That there’s also this diagram in it. That you talked about before, I suppose that’s where this the rest of this should go. I’ve got. A really big. Thick document that uses all the words none of us really understand, then goes on to say the fund is an unregistered management and managed investment scheme is not required to be lodged with the Australian Securities and Investment. Mission ethic. There’s nothing wrong with some of these more impressive vehicles. You know what you’re doing?

Chris Baskerville: If.

James Flaherty: But if you’re right, not as sophisticated investor, that should be a red flag actually. And then it goes on to say the fund is limited to investors. Who are wholesale client? And sophisticated clients. So therefore, yeah, it’s ah with cheese. Chris, I really want to be one of those. So I can be in it goes on and we we should post it. Can we post this little diagram on our site Chris?

Chris Baskerville: Cause there’s a big whole lot of flow charts, and I mean, what’s the point? Do you make about it? Yeah. When we look at this flow chart, which is OK, the unit holder is the person with the money that is putting their money into effectively a fund. And in exchange for the money coming into the fund, they get units. Yeah. The Fund then sends the money. In all sorts of directions to all sorts of people, but what’s interesting is all the arrows point away from the investor, and none of the arrows and the full funds ever come back to. The unit holder.

James Flaherty:  All you ever get is you is units. Got it. So a little piece of paper that says, hey, look at this. Because your number of units has.

Chris Baskerville:  Gone up and I just wonder if, if subconsciously in the mind of a Ken Grace putting this document together or the diagram together, whether he subconsciously knew that none of this money was ever, you know.

James Flaherty:  We’re gonna go back to there. And then there’s a question for another time. Like, what’s the end game in this cause? I mean, he’s literally like a classic pyramid scheme. It can keep on going as long as you can find people to come in underneath. Yeah, it talks about prime brokers, leverage the fund and invest in derivatives. So like.

Chris Baskerville: Well, well, this is the other interesting thing is the SEC picked up again from the website that was copy and pasted to the extent they said they wanted them to grace to explain. So you’ve got a tracker Twitter feeds and it’s gauging. Social media and how the sentiment is changing from 1 moment to the next, and it’s paid off handsomely for the farmland. And then of course, they then until a bit more another deep dive. And then, of course, you know, King’s backtracked. Ohh no. Everything’s happened through a Bloomberg type platform. And so they’re like, well, so hang on there, you said. Are you saying the Twitter feeds of the sentiment feed into bloombergs? You know, like, how can you just like what? But I thought you said you developed proprietary software. Well, which one is it is it is it Bloomberg giving you the data or is it your own?

Chris Baskerville: Prior Terry, or does none of it.

James Flaherty: Exist, and so the story just unravel it just.

Chris Baskerville: And two. Yeah, and and that’s the problem. I think Abraham Lincoln was saying he fans will tell the truth is that you don’t remember all your. Like, this thing’s gotten bigger than Ben Hur. Now you’re starting to drop global names, and you’re starting to sort of copy and paste some pretty major players information. And you’re sort of thinking mum’s gonna find me this day and age. It’s because it’s on the.

James Flaherty: Where it’s something into where, where those of you continue this story as a Lord, she has a pay-per-view bunch of influencers who come there and.

Chris BaskervilleNeeds to win.

James FlahertyGive it a veneer credibility because they’ve attached their names to. It. But he’s actually got some he’s actually got a bunch of other people involved who are real people. Yeah. Yeah. Because they’ve told them the story, like personalities and sports stars and people like that. Yeah. Well, he’s he has enticed.

Chris Baskerville: Investment from these people using the leverage of. What he referred to as a business development person and this business development person happened to have a very large network of successful athletes and business owners. But yeah, one of them is world surfing Champion Tour de France winner cycling champion and this golfing champion.

James Flaherty:  These are and. These are. Big and you’re certainly not suggesting that those people are approving to what what he was. Doing at all? No, but he.

Chris Baskerville: Was he was stealing their IP or using? Their name to give some. Element of credibility, particularly when he’s under investigation.

James Flaherty: And why and why should we be surprised? He’s stolen the credibility of all his big firms.

Chris Baskerville: Yes.

James Flaherty: Yeah, tested the 2 regulate. Run the regulators across purposes saying the other ones are sweet, sweet with the other one. And then why wouldn’t we expect him to bludge the good name of a bunch of other people to get more money in the door? You talking about the fact that started the guy he’s had, he been launched. You know, his money’s coming in. It’s pretty hard for the average. If it looks if I get a piece of paper that says I’m rich and I trust the piece of paper or I feel reached out in that colour though, what happened with that? Bless their canned lady who they should have helped them in that particular instance. That’s a match that she actually copied and she made false bank statement. It was even sophisticated that it was just an Excel print.

Chris Baskerville: Out now we we found the. False bank statement. I thought you got OK. But but what’s funny? Going through the documents, one of the investors made comment, and I’m sure this is not limited to 1:00, but they wrote to us and said here is the document that was given to us to entice us to invest. Here is the. Document that once we invested we receive their comment was but it all looks so legitimate and and when I looked at welcome to the Gold Sky investment face value, it looks legitimate, bit convoluted, but it looks legit. But.

James Flaherty: So I gave some messages that have come out of this because this is this is a whole. Every time we talk. There’s another whole episode. Come get us, that’s all like. It’s such a big, thick document, it’s got some great names associated with it and some mega returns and a bit of fear missing and it’s it’s hard for people. To see how. Do you how do you resist it? And the only things. Are things like. The fund is an unregulated management investment scheme. It talks about a hole in a hocus pocus. Sure, staff not everyone had the benefit of that person we were. Talking about who he. Went along with one of his mates and said. To the mate. Ah, correct. Not everybody’s got access to. That in their. Home it does talk to getting a qualified financial planner or a financial advisor to look us up her stuff. It’ll be interesting to see. We should get one of them to have a bit of a look at this and see what the red flags up. For a start, none of the arrows point back. Where’s where’s? My money? Where? Do my money.

Chris Baskerville: ‘S on the arrows coin back to the investor getting. Any of their.

James Flaherty: Money back. Who want to get is units. All I get is win data, so this is grows it grows. He’s got this big and he’s got his glossy paper. All this stuff. Is your point when. He stepped back from the brink. You’re talking about the chance of some real money coming in.

Chris Baskerville: Yeah, yeah. The way we understood it is there was a chance for. Nearly 100. Million to come. In and there’s a lot some investment like that.

James Flaherty: On top of what it’s already.

Chris Baskerville: Got. Yeah. On top of everything that had been going on now, of course. When you’re going to be pulling in that much money, particularly from an overseas and location, it’s gonna come with a heightened level of security, due diligence, a lot more digging behind what you’re representing in this document. We’re gonna. We’re gonna really look behind and do our D in other words, we’re gonna put a lot of these representations to the test.

James Flaherty: Especially that you just and this is a six. Didn’t this guy win a prize? Sophia, tell some overseas mob that he was successful and they gave him a prize for it. Might.

Chris Baskerville: Go. Yeah, I think it was hedge fund manager of the year in.

James Flaherty: In Southeast Asia, that is that because he told them all this stuff and they said OK and he’s probably the same story. See attracted big dog like and this little guy looks she comes up with a. Why didn’t he take?

Chris Baskerville: The money thing because the increased level of security, due diligence scrutiny that was going to come.

James Flaherty: Because it grows that bit larger, and also because there’s a big water dough comes in, there’s a lot more strings attached to it. Someone’s gonna want. To look under the hot. The hot, yeah.

Chris Baskerville: Huh.

James Flaherty: I gotta say. I want to have a kick the times. They want to. Perhaps talked to the auditor, the Caribbean somewhere, who doesn’t even know that they’re they’re they’re being mentioned. Yeah. So there’s there’s a bunch of stuff. So that’s where it could start to. I’d rather. But there’s a whole other mums and dads or people who are relatively sophisticated. What are The Who are already in?

Chris Baskerville: The note this is one of the big issues. Is the product is offered to wholesale and fiscal investors, but at the end of the day, they really do trap mum and dads. They really actually trap unsophisticated people. And the sad part is I don’t even. I actually don’t think through any. I I can’t recall seeing one single accountant certificate for any one of these. Investors that put their money in it is purported to be wholesale and sophisticated, but the reality is there’s no compliance with making sure retail investors. Are not caught. Purchasing this product.

James Flaherty: And that is a minefield, because if a person was to invest in something without that certificate, then who’s to blame? Because if you haven’t got the certificate, then you’re not technically entitled to.

Chris Baskerville: In the retail investor. And you know, being offered products from people that are legitimately offering proper securities and all that gives that investor some protections right against roguish style behaviour and all the successful and legitimate funds have to contribute money to effectively the fund of last resort just in case. There is an investor that falls through the traps inadvertently, right? But if you’re a wholesale product, a wholesale sophisticated investor, there’s no protection because you are going into this thing eyes wide open. You’re apparently sophisticated and wholesale, you don’t need to know where the trap doors are, because if you put your money in something, well, that’s your call.

James Flaherty: Once again, it’s a bit like being the we’ve talked about thresholds. You could. You don’t need a special licence to be a director of a company and you can’t hold an obligation that you may not know about. It’s not that complicated to become a sophisticated investor and be still fairly unsophisticated. So. There’s a problem. Yeah, by beware, all that kind of stuff. But we’ve got an. Elaborate fraud here. So I don’t think I started this concept. Of was this amateur? Hour? Or was it an elaborate coin? And I think it should be something. Of a bit of.

Chris Baskerville: Base it’s an elaborate amateur hour.

James Flaherty: Because the Sprint it’s a spreadsheet, it’s a bunch of copied documents and websites, and broke. Who’s cunning enough to to to run a shell game to keep everything going.

Chris Baskerville: Yeah.

James Flaherty: And the lie gets harder and harder and harder, so eventually it comes undone. Thanks, Chris. Fascinating. OK, let’s. Keep it going. I’m really interested to know about getting to the minds of the mums and dads. We’ll talk about it next time the people are kind of in the game. What you could do for them and what you watched, but they would have loved to have been able to do if. The money and. Resources and time was available. Thanks Chris. Hey, Sam. A reminder that these podcasts are general. Nature, do you look constitute advice and they don’t take into account your personal circumstances. So do you think though that some of the issues raised might apply to you? You should seek qualified financial, legal or counselling advice.

Transcript

James Flaherty: Sometimes in life there were winners. There are losers. There’s also that risk, the fear of missing out. Welcome back to the sounds of the Baskerville. Hi, Chris. Welcome back to the South, the backroom good afternoon, Jane, for a morning meeting that I arrived to. So now it’s like so. Here we are back in the studio with the sounds. Of the basketball. I are continuing meander through. I think the definitive experts view on the gold Sky Ponzi scheme. Interestingly enough, Chris, you were just telling me before that when someone types in Ponzi scheme after a couple of. Renowned people, your name appears.

Chris Baskerville: Yeah, part of this scheme and liquidator, I got contacted by a completely random person that I’ve got no connection to, wasn’t even referred in from a professional advisor within my network. And I asked him at the end of the conversation, I said, just curiously, how did you come across me? And he said, yeah, well, I was typing in Ponzi scheme. In liquidator and when I got through the Melissa Caddock scenario, you are the next the name. On the list and we’ve.

James Flaherty: Called you before. I mean you are the. Man who gets called in. To kind of sort these things out and I think we’ve talked about this before, that sometimes people do get their money back, sometimes they don’t. And then I think.

James Flaherty: One of things we wanted. To really look at cause. Like last episode and before, we’re talking. About we got this massive. Big, thick information memorandum. Like that investment like it’s not a PDS, yeah.

Chris Baskerville: Importantly, it’s not a. Problem it’s closure statement. It’s an information.

James Flaherty: And that’s right. And their investment memory and. Whatever you whatever they and on him, they call. It’s got lots of really. We’ll talk about the fact it was cut and paste. We’ve got, we’ve talked before about the SEC filing where this guy used the licencing system, switcheroo the shell game to I’ve got one over here so I don’t need one over there type licencing scheme. He’s got, I told him. He’s got Olympian. Signed up and so you. Got like a.

Chris Baskerville: $105 million of investment.

James Flaherty: To the average man in the straight, myself included it, Martin. More witty. Reggie ditch. I look at this. I was. I was thinking this morning about when you put your name to something. As a celebrity, you are only an influencer or an influencer as well. I think you do need to have a bit of a. I think it’d be sensible to make sure what you’re putting in that too, because this there’s a whole lot of people who in a lot of cases, lost a lot of money that they could not afford. To lose.

Chris Baskerville: And then there were those that had spare change. So we call it to throw it something and and on the understanding that if they lost, it wasn’t gonna wipe them out, but they were gonna take the punt anyway.

James Flaherty: That’s different from my I I go to. The track and I. Put some money on the horse of versus. I go to the track, put by the horses, and then my spouse. Suddenly, the credit card doesn’t work anymore. That’s a different scenario in terms of loss.

Chris Baskerville: Yeah. Well, let’s look at gambling on a race track versus gambling with an invest. In a race? Track you were given odds. The odds are a reflection of the estimated performance of each of the whoever it is that’s performing in this race module, and the results are clearest day who won because it’s videoed and it’s there for you to see and the winner is the one that’s first. Past the post right, it’s very transparent process, right? Yeah, yeah. But when someone makes a representation to you that our performance is 20% above the market and I’ll give you 20% of your money back and your invest. Comment. It’s not very transparent, it’s a belief. That the what? The representations are made to you are true and correct, but most frauds and most Ponzi schemes are based on treachery and lives as a fundamental foundation. So the question, the punter having to go this. Is. Do we believe that? What’s being told is true, correct. So.

James Flaherty: Why would I? Put $100 down on a horse. Where I know. That there’s a photograph. If the horse is a little bit fun, walks a bit funny, or seems a little bit more. Happier than usual. Someone’s going to give it a test just to see if it’s. Not on some funny juice. Well put. 100 bucks on that. But people put thousands. On stuff with solar scrutiny. In this case, they’d say, well, hang on. But Chris says James Handy, Chris. Very thick pieces of paper. That have the information there relook, so OK to me. So stepping up to one side, how do I get caught in this whip? We’ve talked about this a. Little before so. It’s got a couple of famous names. He’s got a another fella who, sort of the broke we talked about last time, who managed to hook into a network that could bring some serious. Money toward. So it looks pretty good. People get a piece of paper that says they’ve got money back as they haven’t.

Chris Baskerville: They how it starts is the early investors that put their money in on the face that they’re getting an ironclad 20% guaranteed return on their investment. You can guarantee that the Ponzi scheme operator or a fraudster is going to make sure that 20% happens for those early investors, right? So you put your 100 grand in James, you want it out in 12 months time. I’m gonna make sure come heaven and earth. Then you get $120,000 out of this. Why? Because I want you Jakes to tell your friends and family. This is an. Ironclad Investment scheme I got my 20% return as promised, so then people then go well. If James got his 20% return and James is a credible guy, I’m gonna throw my money where James recommends that we should put it because it’s clearly work for James. Therefore, it must work for me. And it’s that perpetual motion of the early investors getting their money out, spreading the word by word of mouth, because word of mouth is a warm introductions of warm referral. You got a 50% chance of closing that deal. If it’s warm, your lead forces. You know that. And the more people that then perpetuate the fraud then. Put their money.

James Flaherty: In and, and here’s a word of mouth. I mean, how many stars it gets as a rating on a. Like if you go to a a rental accommodation or a hotel, how many stars it’s got or a restaurant? How many? How the average other person thought it was? That’s that a lot of people make it to the store, and that’s if James Rocks office says, hey, Chris, wait. And to be curious. So, so I put. 1000 bucks in. Do I get 1101 thousand 200? Does actually in the first instance did it even come to my bank account or did I you you actually I got I so it wasn’t like I just got.

Chris Baskerville: Click that button and physically get that funny, yeah.

James Flaherty: A piece of paper.

Chris Baskerville: Got that money?

James Flaherty: So that’s a little bit more sophisticated than just cutting and pasting. Major insert major bank, main bank statements here, and writing the numbers in it. In this case we should just say there’s two things. Do not try this at home. When you’re getting so run well.

Chris Baskerville: Of this game is a fraud, and let’s just.

James Flaherty: Then the people that we’ve discussed in this sadly haven’t been around than to face the consequences of what? They’ve done and the savings that they’ve stolen from people and that’s what it is, it’s. Theft. OK, you’ve got a bit of a vibe going in. The community words out on the. We’re down the street said. You talked about this to before, Chris. I was in it early. I got my money. I’ve got my money now. Say I didn’t put. It in the money. I can keep that.

Chris Baskerville: Yeah, you can keep it. Walk away and yeah.

James Flaherty: That’s right. And did people walk away from gold?

Chris Baskerville: Square with money. Some people did. Yeah. So we analyse. We had to go back to first principles which is follow the money and follow the money meant analyse the money coming in and analyse the money going out and see if we can match. The money in and the money out to the specific investor, and so we spent a long time analysing years of bank statements to work out. Which investor put what money in and which investor got money out? And then we analysed it and we could see there were three categories. Of investors, ones that got their capital back and profits. Ones that got some profits but no capital. And then there was ones that lost all their capital and got no profit. So they’re loosely the three, three times, so less. And that was just going back to managing the flow of funds and going back to the bank statements because we couldn’t rely on any financial reporting accounting records. Cause typically forces they keep that kind of record there.

James Flaherty: You went back to kind of as far back as you could. 3rd it’s.

Chris Baskerville: We went back at least four years. This because there was a point in time where Gold Sky was a legitimate entity and a legitimate proprietary limited company. I think it was a trustee of a trust that had an interest in a used car dealership in the Central Coast failed, so there was a point in time where. Oscar was illegitimate.

James Flaherty: And so properly constituted and corrected it conducted. A real business.

Chris Baskerville: And. Was incorporated for a. Proper purpose? Gotcha. It just turned there was a point in time where?

James Flaherty: It turned and. Then you went back to that kind of the point of the turning, and this is a principle we’ve kind of touched on before. I put my 100 grand. In and I got 50 grand three years ago. That’s 50 grand that you’ve talked about. This a little bit in the past. That 50 grand is that ill gotten effectively? Yeah, this is interesting because I can see where.

Chris Baskerville: You’re going with that? If the investor knew that this was a. Fraud or a? Ponzi scheme, then yes, that 50 grand is ill gotten gains, right and we can knock on them if they knew so. In other words, if they had suspicion or knowledge that this was a fraud and they benefited from fraud .

Chris Baskerville: Fraud undoes everything law 101 that just if you walked away with the 50 and you knew it was a fraud, while we’re coming to get. That 50 off you.

James Flaherty: But you just like to. Prove that. I knew it. That’s a. Reasonable person would, yeah.

Chris Baskerville: That’s right. We had to make a real commercial decision here and this is always the constrain that liquid ads operate by is commerciality. With the deal. Which way did we want to take this matter? Do we go after the profit? Of everybody that got a single dollar more than their capital. And we go down this legal route where we’re now into the laws of equity and the the laws of knowledge and property held on trust and the advice that was leaning. I was taken away from that was, we’re probably going to go down a quagmire where we’re going to be years fighting this thing out. That was one of the decisions we had to make. Or do we just go for a straight shot at anybody that took their money out within the last six months of the collapse because the thinking? Is that in the six months leading to the collapse, it is more likely than not those that are closely aligned with the key frauds that are the ones that got their money out. That was the decision we were going to make. So it’s either we attack everybody that got a single dollar. Of profit out of it. Or we focus our attention on just the last six months.

James Flaherty: Hoping to catch the rats. At the last minute or but you also risked the fact that it might have been getting yes, getting margin and taking money from more and more people with less and less scruples. And so, Richard, where’s the most egregious loss? The people who got away with?

Chris Baskerville: They’re the most egregious loss were probably those that. Deposited their life savings within that six month window of the collapse or anybody that invested in those last six months that saw $0.00 out of it. That’s probably where the most egregious losses are, because one, they literally had only just put their money in, didn’t even reside 12 months in the market. Even if it didn’t make the. Market and it was just lost almost.

James Flaherty: Immediately and egregious. OK, as in like. People who got.

Chris Baskerville: Good.

James Flaherty: A little just people who should just go and drive their Bentley or whatever it is, an expensive European car.

Chris Baskerville: I can’t tell the exact. Timing, but it would have been in the days where money was rolling in and some people were cashing out going. Hey. Thanks. Thanks very much, Ken. I’ve enjoyed the ride. Can I please? Get my iron. Had 20% return on my money. Yeah, sure. No worries. There’s your money. They were egregious winners. Probably the most egregious winners that we looked at were people that didn’t put any money in and somehow walked away with some of the alleged profits. Other. Because we couldn’t match any money coming into the scheme, but they managed to get money out as though they were investors in the scheme, but we couldn’t find the capital coming in the 1st place, so.

James Flaherty: So our winners and losers. What about the fear of missing?

Chris Baskerville: Out going back to the original point, which is how did these schemes work? And it is effectively a fraudster. Will capitalise on your credibility. So in other words, James, you’re a credible guy. You know a lot of accountants, those accountants highly respect you for who you are. So I’m gonna make sure that if I look after Jane. Who’s credible stand up guy. Make sure he gets his investment exactly as I’ve promised it. I know you’re then going to tell 100 other accountants about it and then comes the wave of of money.

James Flaherty: Absolutely recklessly. Misuse of people’s trust with real human consequence and say, is there a bunch of people around sort of northern NSW SE Queensland who might consider themselves. Fortunate to have gotten. Away with. And might want to ponder sometimes if they did know that it was a policy. What about they that have taken save their life savings away from?

Chris Baskerville: I like to. Refer to what happened in the US with the burning Madoff. Yeah, right. So these are the largest policy scheme ever seen in human history, and we’re talking. 66 odd billion dollars, right? Like there there are, and. And and a Ponzi scheme that effectively ran for over 3 decades. Yeah, they survived multiple US recession by. This is like. I don’t think it’ll ever be Batman. Hey, look, Mark my words make me. What is a? Is will be proven wrong in time, but the trustee in that Bernie Madoff case did attack those that got profits out of it. So in other words, the trustee made a Cognizant decisions. Don’t get me wrong, the trustees cost their legal bills were in the billions themselves. So they had the time. And the resources to take this legal action. But they effectively tapped everybody that got profit out of it and said we accept you got your capital. Back, right, keep that, but just give us the profit back and what I understood is a lot of people said, yeah, you kind. Of write we did. Make a profit on what was later discovered to be a fraud, so we’re going to give. You the profit. Back and we’ll keep the capital and the trustee accepted. That position, and so the trustee was able to recall. Billions of dollars back from the winners. To then share that with. The not so winners, OK.

James Flaherty: What are they? Those people know who they are. Should they said to you trustee?

Chris Baskerville: Look, when I want to give back the 2.

James Flaherty: $1,000,000 over there I was wasting money back into the.

Chris Baskerville: What?

James Flaherty: Would you take data challenge given to the people? Or they know who.

James Flaherty: Especially the people who are who read the.

Chris Baskerville: News mate. Yeah, I don’t think you look at it. Will never say no to. Money that arrives. But you looked into the eyes.

James Flaherty: Of the people. Who’ve lost money because of this and there’s. People on who? They might be listening, but they’ll be people who know them. Who will be if they know that they got money from a Shank that took money from mums and dads? Through a very literal. Elaborate fraud, but a fraud nonetheless. You take the money back to give gonna.

Chris Baskerville: Take the money and then share it with us. That didn’t get.

James Flaherty: Anything really go Bernie? Did the people doing what for Bernie did it? So why can’t you? Well. Hey, thanks, Chris. Let’s see if we can change. The world you and I see ya.

Chris Baskerville: Say.

James Flaherty: A reminder that these podcasts are. In nature and not constitute advice, and they don’t take into account your personal circumstances. So do you think? Some of the issues raised might apply to you. You should seek qualified financial, legal or counselling advice.

Transcript

James Flaherty: You’ve been given fake documents where they have used a little, oh, rather than a zero, and this guy’s giving Us Weekly with rather a year schmancy gold European watch. It’s a fake. So the guys are. For what? What are?

Chris Baskerville: You doing now? I think you take a leaf out of Jerry Maguire. When you say show me the money.

James Flaherty: Welcome back to the sounds of the basketball with Chris Basketball. How are you, Chris? Good morning, Jay. So the great Jim McGuire say, OK, so you’ve got nothing you can trust. You’ve put them on the stands. You talked about that last episode. You had your public examination. You follow the money money trail that you need.

Chris Baskerville: Yeah, that’s right. You can’t trust any of the documents that have been given to you. You can’t trust the words of the director that’s effectively appointed you as the as the liquidator influenced that decision making. Then you’ve gotta go back to what my learned lawyer friends often say is go back to first principles. That is, you follow the money. So it requires a massive fraud funds investigation.

James Flaherty: And trial funds investigation. So that’s and I’m still as we talk through this, I’m still stuck on that. Intelligent versus coming through like it’s not a strike. Theft in the sense that. His tried to cover his tracks that you’ve talked about that in previous episodes have been pretty ad hoc like he’s made-up a document and gave it to you, somebody to kind of calm them down. There’s no great side to it, but at least he’s got the veneer of compliance, doesn’t he?

Chris Baskerville: Yeah, it’s aside from not lodging tax returns from when they started to OK so red flag because well, I I think it’s. A classic red flag because. If you really are, if you’re effectively doing untoward you being dishonest, then why would you go and report anything to, you know, the tax office or whatever, because they may just tweak earlier than what the creditors and investors might tweak and they might start asking.

James Flaherty: For so this is where you’re now saying this is not as sophisticated as I have. Kind of been thinking because if we follow the. Logic that I want to appear like. A good citizen. I would maybe tell the tax office that my fruit shop had this much money in GST each month, but in fact there was a whole bunch of other money that I just didn’t tell the tax office about because I was running. A cash business. But at least I’m still lodging my tax. Return. But you said this guy says well on my fruit shop is basically. I there is no. Frick, now we got another big read about you catching a big read about fruit shops. There’s some great fruit, but the point is like a shop isn’t even double like the the tax office has gone. All those someone’s sitting there in the tax office, keenly waiting for the first bus to be launched, as every such. Yeah. Well, I I took a leaf out.

Chris Baskerville: Of and there’s this. A wonderful programme on television called Life and it stars Damian Lewis that lead actor in Billy. I had a most people understand his character is Detective Charlie Cruz that serves 14 years in the penitentiary, then later found out to be innocent, then gets a massive payout. From the state that held him and took 14 years of his life away, and instead of retiring, kicking up his heels, he went back to the police force to work as a detective because he said, well, my skills and understanding of, you know, everything I’ve learned will be useful in serving justice. And I remember he was investigating. I think it might have been a mafia. Time game and, he said, was the effect of we’re not looking for people that are not lodging their tax returns. We’re looking for people that are not not lodging their tax returns, which is people that are lodging returns to give the appearance of compliance. So in other words, yes, they’re logging them. But there it’s just a veneer of compliance. And that’s what he was looking for in that particular episode. And I’ve taken that on. Board and I thought. What would you provide to give you the the near that you are complying, but you’re not actually complying?

James Flaherty: That you know, I mean, in this case, you’re waiting on the wheels of the wheels. The machinery of the ATR and ASIC and others. I mean, we talked about that. How he was able to play ASIC and the SEC’s process is a little bit off against each other. The tax office isn’t really on to him.

Chris Baskerville: Yet, but he’s got enough smarts to provide people with a relatively to the untrained eye, relatively robust looking set of documents. Is that what we would say? Yeah, so to to the untrained eye. Yeah, that’s right. You’re robust documents. You’re getting an information memorandum that looks very legitimate because in part. It is. It’s just not his intellectual property. It’s someone else’s intellectual property that’s being used. But.

James Flaherty: Then you’ve just also just told us to. Interrupt. Sorry is. That’s a worthless power pipe, and the eggs and has no basis in fact. Or if it doesn’t, you wishfully based.

Chris Baskerville: On yeah, correct. And the classic 1 is in the information memorandum was talking about all these international currency swaps and all these things, wonderful financial products, not even I understand them. That’s how you know how complicated it is. And yet really what he was really telling the investor. Is I’m just gonna take your money and and put it into our CFD contracts for difference, which requires a huge level of sophistication to get contracts for difference, right? And the only reason I know that is because I’ve met guys that work in that game and their mathematical brain is off the Richter like they are. They’re almost operating at a genius level, and I’m like, I’m assessing our Mr Grace going. You are not. A genius how? Could you possibly understand contracts for difference?

James Flaherty: How do you even start to then try and find where the actual money and?

Chris Baskerville: Yeah. Well, that’s see, that’s the easy part. The easy part is, is the flow of funds when I mean. Easy. I mean it’s. Simple, it’s not. Easy because because. You have to download a lot of work for four years where the bank statements. Through multiple accounts, some of which have been closed over a number of years, some were freshly opened and you gotta marry all of that data up to show exactly where the money went. Then on top of. That. You then trace the info of money and this. Is how we confirmed who the real. Investors were because we managed to trace. Money flowing in. But we also had to then make a calculated and commercial decision to trace. We started with the largest sums of money exiting the scheme and we had to trace exactly where which bank account that went into and then through that process we started to realise. That virtually no trading was ever done on any market using any of the Gold Sky company entities. It was all done by Ken Graces personal.

James Flaherty: So they can’t basically do his. Own kind of.

Chris Baskerville: Muddy wedding out the company. That’s right. The money. Certain monies would exit the company’s bank account into Ken. Based personally, who would then invest it? In the markets. Until we’ve talked about it, I think he got, you know, 1 trade out of 500, right?

Chris Baskerville: Might have slightly exaggerated the 500, but.

James Flaherty: Yeah. So your whole pile of paper trail and it’s just literally a matching exercise which has been sold, destroying job for someone in your office to sit there as a with that you or is it 1? Of your, your team or one of my.

Chris Baskerville: Colleagues that just. Absolutely loves to just sitting in a. Box and tracing numbers. Putting the picture together so I was very grateful that there was someone out there that perfectly enjoyed that that task.

James Flaherty: Place and then. That’s a really superb piece of work then too. Because that helps. At least give a forensic understanding of where some of the money is. The money that is been possible to ascertain where it came from and impossible to ascertain as best you can. Where it went and we’ve talked previously that your choice. Trying to get the money back from where we talked about in a couple of episodes ago was ill gotten gained effectively of people who got money from a scheme they knew was a bit flaky. But you’ve had to draw the line and say, well, here’s the money. I can reasonably claw back. And you’ve had to make that call, but. You’ve got the whole you’ve. Almost got a blueprint as best. There exist from as early back as you could go. It’s almost like a family. Tree, isn’t it like? Yeah.

Chris Baskerville: Well, the federal government represented by ASIC, we’re very, very interested in the file farms, obviously from the perspective of we think someone has committed an offence. And they need to be. Prosecuted for that offer. We were interested in the fault funds, cause one that was that would be interesting to ask, but more importantly, I also need to work out of the money exiting the scheme. What is it that I can reasonably have a a go at at trying to claw back? And of course, again, more hypothesis were put to the put to the team, which was we suspected money had exited Australia. So we suspected money had exited and got stored in potentially Asia. You know, the Caribbean, the classic Caymans and the Bermuda. You know, those sort of honeypots, I guess or or. Gold pots left everywhere. We could see some. Immaterial money had gone there, and when I’m in immaterial, probably less than 30 odd thousand, but just basically set up fees, but realistically no large chunks of change ever left Australia. So in other words, whenever money was raised has been spent here.

James Flaherty: Yeah, he’s gone to the trouble of going to.

Chris Baskerville: Offshore jurisdiction to set up Gold’s guy. In foreign jurisdiction.

James Flaherty: And you don’t actually pushed any of his. You’ve gotten gains there. Yeah, that’s what. That’s what it looks like from the. Evidence here, Scott.

Chris Baskerville: Yeah. So heads, if money did exit. It’s potentially being drawn out as cash somewhere and has been moved physically out of the. Country. Right. If there was so, so.

James Flaherty: And do you think it’s hard to say whether that was a material amount in terms of the whole fraud, even if someone went out with 20 grand in their socks? You know, I mean. Like it’s well.

Chris Baskerville: Well, this actually led me to think about there. Let’s go back to catch a thief. Think like a thief. Why was I given 4 watches? All fake that were worth to say. Collectives, you know three, $400,000, right? Then I suspect that this is an interesting way to to do money laundering, or at least get money outside of Australia is you buy the the legitimate watch here, Australia for the legitimate retail price, something that people value you then wear that watch over the into a foreign jurisdiction and you cash that wash in in the foreign jurisdiction. The cash and you leave that money in that foreign jurisdiction. I thought that’s one way to do it. And then in the foreign jurisdiction by a fake version of that watch and bring that back to Australia.

James Flaherty: Who things we often say to people who have tax debts is don’t seek the tax man does. There are these sorts of things going on, so don’t try this at home. I think it’s better, right? She’s giving it a crack. He’s giving you some fakes. You have the presence of. Mind to call him. On it. But yeah, there’s a. He’s not syphoning off vast sums of money. With a couple of fake, you know Rolexes or.

Chris Baskerville: Whatever the money is basically needless. Yeah, which means he’s either he’s spent it and he’s he. We I think our estimate was that around $8 million. Was spent like. Just on great lifestyle, you know buying new houses, new cars, just yeah, on his family as well. So the family were all you know.

James Flaherty: Could you get any of that back? Like if you’ve got like a decent European sports car, pretty hard to swap that for fake cars, but has been done? But is there real estate?

Chris Baskerville: That you could. Yeah, we managed to, I mean again. This goes back to sophistication we literally traced. Part of the file funds LED us to follow the money. Where large sums of deposits were given into a trust account of a specific lawyer who was then charged with settling the purchase of real estate. So again, you just follow the money, you exit companies bank account. It lands in this trust account. Magically, it’s the equals. This the quantum sum of the house plus the stamp. Do you think that then obviously then flows into the acquisition of of a house and so we through tracing that money, we’re able to then lock down that house by way of claiming equitable interest on a resulting or constructive trust basis. Some technical legal issues there we might and. She ripped into my caveat. So I was able to basically lock that house down there. That stopped that house leaving and moving anywhere, and now I’ve got an equitable interest in the home and we enforced our rights against that.

James Flaherty: Right. And that means that you’re able to get some some funds to fund the liquidation? And hopefully send a couple of cents.

Chris Baskerville: Yeah. At the moment, most of the funds gone into these extensive investigations because we’ve had to unpick it all. And then we had the chloride all back. And of course everybody. That it doesn’t want to just voluntarily just hand over the money, which forces me to have to go commence legal. Proceed.

James Flaherty: With the prize, the Money.

Chris Baskerville: I have to prise it out or I? Have to at least put the person in a. Position where they know and you’re not getting out of this unless. You come to a. Deal. Or if you’re gonna go all the way on this, you end up. Probably in a much worse position than trying to do a commercial deal with me.

James Flaherty: Right now. So I think there’s a few things that just come to mind as we’re talking about this is you’re. You’re on the money trail. You’re finding that his guard you also. Form a video. About the people who kind of eased the path of the flow of money because they might have had a suspicion that of what was going on versus the innocent kind of victims of those who just were doing them doing. Their job are they? Are there other people who you kind of **** and eyebrow to in this financial? Yeah, and you say. Well, hang on, you really should have known. Before you took this. Money or other?

Chris Baskerville: Yeah, well, part of my suspicion again there. So these are all hypothesis that we go into and this 1 ended up turning out to be correct, which was the people that got the money out of the scheme particularly towards the debt, which is when everything starting to the House of Cards is falling down. Had to be people that were closely. Aligned to Kenya. Like in other words, it’s the. It’s the, I call it the Type 5 and Type 6. People that have that are closely. That was our. That was one of the hypothesis. So we really drilled that hard. That because I just couldn’t believe that canning good when the House of Cards is falling down, share whatever is left with people he didn’t know very well. I found that very hard to believe. So so.

James Flaherty: He sort of parcelled off pieces that to people who were. It would be hard if you had filmed. That view based on. What you’ve discovered to that point. To prove to. You that I was just an innocent blaster, yeah.

Chris Baskerville: I was walking down the street one day. Ken tap me on the shoulder and said you wouldn’t believe it. But here’s your underground back and neck lady. We’re going to liquidation. I just. Find that really hard that was talked about.

James Flaherty: That, and even if that was the case, so sad. It’s kind of Ken’s giving you something that other people in this town on. So you’ve got. Preference effect, yeah.

Chris Baskerville: Effectively, yeah, like the hot zone for any liquidator is the six months before the actual liquidation itself.

James Flaherty: We’ve taken the. View that it was just based on a commercial reality. And the legal reality you had to use that six month rule rather than trying to claw back profits like we’ve talked about a pretty good episode. Yeah, because that’s right. Do you have a sense of the what? Not the right word is money on the table. But do you? Have a sense of. If in a perfect world, some fairy godmother said, look, he’s a couple of million to chase all the people who you know who you and I have talked about in a previous episode driving his fancy car, perhaps around the northern NSW or the Gold Coast if you wanted to go after those, how much money more do? You reckon you might have been able to get?

Chris Baskerville: Yeah, that’s a that’s a really hard thing to answer because. I mean you’ve. You’ve gotta sort of be guided by your legal advisors and you know our we, we engage senior Council and the impression I got was that if we took this, let’s go and get everybody that got a profit out of this, we’re going into. A fight on equity principle that have been around. For 400. Years plus. And we’re gonna be in a fight. We’re gonna be in this murky swamp for years. That was pretty much where they were going. That was the impression I took from from it as opposed to be clinic. Cool. Be targeted and just use your sniper rifle and we’re gonna hit the any benefit in the last 6.

James Flaherty: Months and then that that’s a good answer cause. In the end, it goes back. To we talked about the last episode and winners the absolute winners and losers, so there’s a bunch of people who. Just gone away with it, but you’ve got a tangible commercial group that you could realistically get your arms around based on all that research. You can tell this. Is the pace of the puzzle. And that must be the compromise you have to deal with. Isn’t it? It’s?

Chris Baskerville: For the gradually.

James Flaherty: This is the best that is available for me to do with the choices.

Chris Baskerville: I’ve got yet, like when we’re not the Australian Federal Police, we’re not detectives, right? We have no, no authority to go beyond our commercial constraints, so. Do we have the power to investigate? Yes, we do. Do we have the power to prosecute offences? That’s not in our purview. That’s a government agency issue. We can report it, and we’re gonna. Here’s our evidence. I think there’s an offence here, but we can’t prosecute that. But it’s always within the constraints of commerciality under the lens of in the interests of creditors. So that’s always is what Australians.

James Flaherty: Do you reckon you’re pretty fair sense of when most of the money?

Chris Baskerville: Went, yeah, when we did the flow of funds, we really came down to approximately about $800,000 that we could not explain. So in other words, out of the let’s call of around $33 million raised in this process put 22 million ended up finding its way back to invest. So so 33 is raised, 22 goes back to investors in some form. What are we chasing 11 so but yeah, there’s roughly about 800,000, we just couldn’t explain. There was just, it was just literally money exiting a bank. And we either didn’t have the resources to go down to the very minutiae of where every $100 went, the money we’re tracing out had to be limited to a reasonable commercial sum, of course. But yeah, I wasn’t gonna trace where $0.25 went. I wasn’t gonna trace where bank fees went. I wasn’t gonna trace where, you know the $100 ad hoc payment when that was never gonna do that. So yeah, we we say 8. 100 Grand of of. That 33 million we couldn’t explain.

James Flaherty: That’s a pretty good. Job. Well done. That person who sat there in that room with no lights on. For what? Did you sort of. That enjoyed enjoyed them and bless them for. The for the. Hard job they’ve done because that gives you. A really good kind of as a family. Tree or a? Diagram of where the food started and ended as a basis. This book in terms of how do I pick one of these things cause? You’ve got a really good flow of what’s OK. So you’ve found you’ve got the flow, you’ve got the diagram, you’ve seen. Who’s got it. You’ve got the people who you can get some money from. OK, let’s talk about next episode. What do you do with that? So what happened that there was then a a court appearance that the. And Ken Grace didn’t show up for. Let’s go back. About what you. Did next and the next episode. Thanks, Chris. First Adam, thank you.

James Flaherty: A reminder that these podcasts are general in nature and do not. Advice and they don’t take into account your personal circumstances. So if you. Think though, that some of the issues raised might apply to you. You should seek qualified financial, legal or counselling advice.

Transcript – Automated not verified for accuracy

James Faherty: Welcome back to The sounds of the Baskerville today with the quasi judicial Chris Baskerville. Hi here, Chris.

Chris Baskerville Good morning, James.

James Faherty: So listen, this episode is really. About what we call a friend of mines. Who are your friends and who are your foes? As you chased this Ponzi scheme down, maybe before we go, just how can you be quasi? What does that? I’ve been being crazy judicial Christ.

Chris Baskerville Yeah, well, I don’t have my Oxford legal dictionary with me. James. Thanks for the notice. But quasi, judicial refers to part of the role of the trustees and the Grands app. And I refer to trustee in the insolvency context when it comes to making a decision or an adjudication. The claim and that. Could go as far as also having. To make a. Decision on what is the prospects of success of a counterclaim, and unfortunately we are put in the in the position we. The courts expect us to make a decision, and so we have to use a quasi-judicial mindset or a judicial mindset to adjudicate on the claim that becomes binding. And if the party that is aggrieved by that decision doesn’t like it, well, we’re off the court to argue why we made the decision in the first place.

James Flaherty And there’s just that kind of weird sort of fusion. And, like, between accountant and lawyer, sort of that you kind of this kind of funny path that people in your profession will. Because you are very specialist in what you do and I’m pleased you do it because it seems very stressful thing to say.

Chris Baskerville Here, really, when you get into it, you go. Why not choose this path and I’ll still with theseBond University students recently. And I said if I buy time again, knowing that this is the profession that I was gonna land in, I should have done the law and Congress. The joint degree? Yeah. Instead, I just did comments and forgot the law element and then I realised, Oh my God, there is. So much law. To understand in being in insolvency practise.

James Flaherty But by the same token, if you’re done law degree, then you don’t have all that deck accounting knowledge that you need. To draw upon.

Chris Baskerville To be able to make so many of the decisions that you make so well, that’s the interesting thing I find about the profession and it’s quite it’s quite neat because in the Australian under the Australian systems, you basically encouraged to become a professional counter and have all of those registrations in place and then law is like this. Side hustle that you gotta get your head around, yeah. Yeah. Yeah. Just basically from learning on. Job. So yeah, for some reason we say we want liquidators to be accountants as opposed. To lawyers and it’s interesting.

James Flaherty OK. And I’m sure there’s lots of lawyers around the. Place go. I think it’d be. So much better for.

Chris Baskerville Rural lawyers for you never trust a lawyer with accounting. They never lose their numbers and they should have to. All my learned colleagues. Out there and.

James Flaherty Let’s talk about learned colleagues, cause I suppose that’s where we should go and nice segue so. Friends and foes.

Chris Baskerville We’ve talked about the the SEC to their evaluation and let’s start with the the the sort of the Gorilla ASIC, you had your relationship with them unfold over this thing. It was an interesting relationship with ASIC. And I think this whole frenemies or friends and foes reference came about because originally ASIC. D Then this is all. Public record try to have me replaced as Liberator with their preferred liquidator. And they were trying. To do that via court order. So so. What had happened? That is, in the context of things, someone in America had triggered the SEC, which and then launched an SEC investigation. SEC contacts ASIC, ASIC, then with time eventually puts a basically a freeze over all the assets of Gold’s Guy appoints 1/4 pointed receiver. Whose job is to go in and investigate. And provide a report to the court. About. In your short. Limited time quarter receiver. What do you see as? How’s the money being spent? Of course. The receivers poor comes in pretty damning against the scheme. Yes, all this money has gone elsewhere, not to investments. It’s gone elsewhere. So then ASICS ordinary next moves then is having frozen all the assets. Having then appointed the court appointed receiver, got the receivers report. The next movie is we’re gonna now applied that. The court should allow our court upon a receiver to become a court appointed liquidator. And so my appointment voluntarily between those two steps happened. This was a frustrating element for ASIC because they couldn’t follow their system, so no criticism on ASIC. That’s them following their standard procedures. But Ken Grace effectively made me the liquidator of his entities voluntarily by literally or at least his lawyers simply encouraged him. His his lawyers strongly encouraged him because I think they basically said, look, you just got to bring the card. To an end.

James Flaherty But you can’t rock up to court and say hi. In court, I want this job because it looks like an interesting job. Can you gotta sit there and say? Help me? Yeah. Because he’s gonna judge goes all with these guys look pretty ugly. Why would I do what a regulator wants and put their fellow in white? Or who are you, Mr Basketball? Such that I want.

Chris Baskerville Yeah, this is the interesting tension point and this is. Probably we’re at the beginning loosely. You could probably say ASIC was effectively against me because they had squarely said we see that being appointed voluntarily and I’m trying to be an open book with ASIC saying, hey, I’ve been appointed voluntary. Please, I’m here to help. Can we meet? Can we catch up? Can we just exchange information to? And of course. I I end up with three days of radio silence. Right. And then the next thing you know, here’s the application to, you know, basically bring you out and we’ll stick out by in. So that ends up resolving in a contest in the courtroom now. I can’t be a greedy liquidator and roll into the courtroom and say, oh, you’re gonna, I I I can see there’s some pots of gold in this job and that’s the reason I want to stay in place. I can’t do that. I mean that that looks so bad. It’s really. What are the creditors want? And it looked like that. No one in that courtroom was acting for the investors that. Lost 20 + 1,000,000 dollars and so my initial job once I became appointed liquor add it was to convene a meeting of the investors. I just couldn’t get that meeting done any earlier than the January following my appointment, just with Christmas and New Year’s and all that and the notice periods required. So if the court granted an adjournment. To this, you know Fisty comfort asset to. Kick me out. It actually served. In my favour, because it gave me. An opportunity to. Actually hear from the aggrieved people. Well, what do you want? You know, ASIC is on the March. They’re in the courtroom already. They’ve got their preferred guy. I’ve been appointed voluntarily. But I’m here for you anyway. Even if they called a point of receiver became caught upon liquidated, they would be. There for you as well. You’re the agreed. You tell us what you.

James Flaherty Want and I’ve reached out to you guys directly or.

Chris Baskerville Ready.

James Flaherty Now. Yeah, that’s right. So I’m here. I’m the one talking. So from an investor’s perspective, you’re all thinking is going on. I’ve reached out to them. So then come the German. When the Germans over you. What? You fly back to court. So. Well, in the meantime, I’ve spoken to all these people. And they’ve all they all seem pretty happy with my pouch.

Chris Baskerville We had to move very quickly, of course. So. So we didn’t, we didn’t just get a point of liquid. I’d sit on our hands and do nothing because I am the liquidator until. I’m not so as the liquidator, you got duty. So we ran fast to call in the banking records. Start working out. What assets? We could probably just secure. I mean, Assad had done a great job in in at least getting a freezing water there. But could I go one step further caveats. Can I actually physically secure assets like physically go grab them? And and I mean, So we did, we did all that and also our turbocharged some of the investigations ahead of that meeting of the investors. So they could see we’re not mucking around in this very limited window we had. We can now start to see where the guns need to be pointed so that the investors were confident well, this guy’s already ahead of the curve. He’s on the money. I think we have. Confidence. He’s got so they gave.

James Flaherty He effectively gave them the choice of approach, you know, quite a commercial person, so he just. To tackle the commercial interests of the organisation you lock things down. You move fast. Your process is.

Chris Baskerville Quick yeah. Ohh should add James. There’s two elements. What ASIC were doing? One is they had their enforcement element which were driving the court order process, the receiver and all that. And but the other side was their investigation. Right. Which are the guys that sit in the back office compiling the evidence and ready for prosecution? I actually invited the lead investigator from ASIC to come and join that investor meeting, so I said to the investors, you can now ask direct questions of the lead investigator and I think that was just a nice sort of food in the CAP and nice stroke.

James Flaherty Yes. And the court. Took the view that. Yeah, OK. Well, it’s all the investors are and. We’re happy to. Work with you. OK, so just leave things as they are. Yep, we don’t. There’s no benefit to change now. So good. So then what happened? To sounds like to Essex. Great. Credit those who have gone. Gobble, gobble, gobble. But hey by. The way here’s will. Here’s where here.

Chris Baskerville They were definitely a little bit upset that they weren’t able to follow through with their process and they’ve got a process they they follow it and it is it’s a good process like what they ordinarily do makes sense. To me, freeze everything, put someone In interim, get a report and then move to the liquidation element. But just the voluntary appointment in between those two steps was a bit of a frustrating process, but now that I’m in that the investors have said we’ll keep you in the court. Then we made the decision. You’re now the court appoint. They could add the best girl. So I went well. Thank you. I then started working with their lead investigators and it was a really good marriage of we were trying to exchange information between ourselves that would help their prosecution and then would also help me. Where’s the assets? Where’s the money? Has anything gone overseas? Has anything like they were able to confirm a lot and they said, look, we’ve investigated this, we haven’t actually seen too much money. Leave Australia, so I went well that I’m. Reassured by that and. All these elaborate schemes in the. Cayman Islands and the British Virgin Arts and. America and all you know, all these. Which goes to all those previous episodes. He actually wasn’t that sophisticated because it’s like they didn’t even sort of parcel that way, often dodgy overseas with. Yeah. And, you know, you don’t wanna be encouraging any, any style of fraud, fraud and does everything and and it’s a horrible thing. It is not a victimless crime. People get hurt. Right. But part of me was thinking, you know, the hypothesis that. We go through. Is if this guy is half smart. A lot of this money has exited the Australian shores and if he further smart he is in his attitude, he should have left the country with that money like you.

James Flaherty I’ve got a jurisdiction.

Chris Baskerville Non extradition and something is not part of the.

James Flaherty Even if you had to go into a violin case like so. Yeah. So The upshot of this is that it’s a. Yeah, some great relationships with some people from ASIC who really kind of. Yeah.

Chris Baskerville Yeah, I believe investigators and us from ASIC and even I’m pretty sure one of the lead investigator. But if my memory serves me correctly, they were saying it is a shame that the investigation. The basic and the liquidators don’t work more hand in hand like in terms of the exchange of information, the exchange of intelligence, so to speak like it, because you know they’ve got wide ranging powers, probably powers that. Are a lot. Greater than any ordinary liquidator, right? I have limitations on where I can go because I’m also constrained by commerciality.

James Flaherty But.

Chris Baskerville Say, but I have a duty to investigate and you could marry up with ASICS investigators and you could actually walk hand in glove with some. Of this stuff well. It would speed up the process and be so much more effective, you know.

James Flaherty OK, there’s something for a white paper. Yeah. So then so then they they sort of became friends, and they’re sort of where the people who caught it. What’s an example of, say, somebody who practically don’t ever give names but is one of the lessons about this that you can’t be the friend? Of people, you got a job. To do, but if someone is like they’ve got a preference, they should be open with, shouldn’t they? They maybe should get legal advice, but how do I? Deal with you. Well, you’ve talked about this to sort of. The black, the white and.

Chris Baskerville The grey and those lawyers that understand commercial litigation and something very, very well. My gut feel is the advice they give their clients to you is if you tickle all the boxes for these unfair preferences and you tickle all the boxes for an unreasonable direct related transaction, you tick all these boxes. In other words, the liquidator has you guys on toast in terms of all the evidence and what they.

Chris Baskerville They then settle quick, settle early. Just get in. We want to hit. Do it, dear. We just want to bring this to an end. Settle, quick, settle early, you know, and just get it out of the way, because that, generally speaking, and look, I can’t speak for every generator that’s out there, but. But generally the attitude is and you bury it in the sand and you’re making it very difficult for us to resolve. Well, we have to resolve like it’s on behalf of the aggrieved creditors. I have to ask you to surrender this money back and we tickle all the boxes of why you should. And if you just make that process more frustrating, then the bill only goes up. The settlement only goes up. The amount you have to pay goes up because the more we have to spend and prosecuting the claim, the less amenable we are.

James Flaherty

To settle. It’s a bit like the Incredible Hulk. Don’t make me angry. You wouldn’t like me when I’m angry. OK, so the cases. Where was there? Quote You talked about enemies since you didn’t really have any enemies.

Chris Baskerville Ohh, look again. What I’ll say to these bond students the other day is that you do the combative profession like you can’t come in here and thin skin. You gotta be reasonably thick skin because he’s combative. People don’t like surrendering cash. It was like quite. People don’t like surrendering property, particularly when the person has holding the cash or the property vehemently believes in their mind. This is my profit, right? Exactly. That. You know, when you have to disgorge that, then it makes people unhappy just thinking back to sort of the ASIC being sort of opposed to us. And then now they’re for us or with us is. It just reminded. Me of Abraham Lincoln. That I’m gonna paraphrase here. But he basically. Said if I’ve turned my enemy into a friend, have I not destroyed my enemies? I thought that was my person, but and I’ve always had that in the back of my mind. If I can turn an enemy. Into a friend. Never not destroy my enemies. 

James Flaherty: So you had sort of. You turn people around. Your head people who understand the not the game, but the process they’ve come to you and said you know and you’ve had to, I imagine price some money out. Of a few people who. Want to have a stout?

Chris Baskerville And as you say, typically if you do that, it’s usually more expensive than well, there was guarantee there was one party there. I won’t mention names, but the idea behind it was hey, like just saying, no we we’ve kind of got you on toast on on a few fronts here. We’ve ticked all the boxes I’ve I’ve got all the evidence. You know maybe let’s talk and let’s. Sort of thrash out a a nice commercial deal, something that doesn’t have to allow me to incur legal expenses and courts time and embarrasses time, night time. And at that point in time, they decided to go. No stuff you, Mr liquidator. I’m not discord. You said I’m not coming in to talk to you. And that person had to pay another 50%.

James Flaherty More so himself and you go OK. And he’s just going, man, you.

Chris Baskerville Could have walked away with 50% of that money in your own back pocket, but you, you you then just effectively turn from friend to enemy.

James Flaherty He did also provide some more money for our friends in the legal profession as well, so. The thing I mean you you’re trying to get the best outcome for the investors who’ve lost their money. People who make that harder for you. People need to be your friend, but there’s not. Said support of. Then that makes. You a panic well, because what? What?

Chris Baskerville You’re effectively doing, let’s call it. Let’s go back to some sort of the out. Of war is. That, you know, should always give your. Opposition a way to exit the battlefield, not believe you can’t. Don’t surround them to annihilate them. Give them and give them away. Retreat and the reason is is. Because as soon as you cut off someone’s retreat point, you are forcing them to go. Down tooth and. Nail fighting, in which case there’s more losses. So if you don’t come and do those commercial deals quickly and with with the liquidator, you’re forcing us to actually have to take action. And that’s what we’re trying to avoid. You’re trying to avoid. Yeah, just. Send a quick settler.

James Flaherty Yeah, OK. And that’s really interesting so. I think there’s. Been lawyers. You’ve helped along the way. There’s differently investors who, you know, come forward. And there’s a thing called and and the like. A. Is there a committee? What’s the committee? It’s.

Chris Baskerville Yeah, the Committee of inspection. So that’s a right that’s offered to the creditor body for who would like to form a committee. Within the greater body of creditors? Yeah. And that small committee can then advise the liquidator can resolve some resolutions without having us to call the full body of creditors. So if you could imagine if all our creditors are all over the geography of Australia, it can be a bit inconvenient to physically get them in one room. And the creditors agreed. Well, we should at least have you have five, maybe even 6 creditors form that committee, and they happen to be the largest creditors, the most hurt and grief and the most knowledgeable. Like they knew all the players inside out. So they actually were a great source of information for us. And we’re very grateful to credit a lot of our information comes from credits, or at least they go hey. Here’s some pain points you might. Wanna consider and?

James Flaherty That’s a better solution than just go and just walking away, because if you walk away, you are less empowered if. Well, don’t. Yeah. Provide you information. Like I said, you’ve got. So there’s a real case of everybody’s contributed to. Help. Bring this to a conclusion so you don’t like that Kim Grace didn’t even to even show up. But you’ve got some level of closure for people. And I mean, they’re still. You’re still. Friday on, actually, you still got things to.

Chris Baskerville Go. We still have a still have a clay. There’s still out there. And and there’s also we thank the Committee of credits for this or Committee of Inspection. Because one of them came to us and said, hey, did you know that someone has paid the deposit for, uh, a parents place of residence. And we went well, that’s very interesting. And so on the basis of that, our guys went back into the bank accounts and we found it. And so we ended up locking down those monies as well. Now that was something that was discovered. Because of the credited body now. More about the landscape than what we did, people.

James Flaherty Aren’t going to get their money back. This guys waste too much of it.

Chris Baskerville There was no money on arrival. So. So there was nothing there that had no, there was no watches, there was. Nothing. So you had.

James Flaherty To. To pick a little bit and get some level. Of justice and some. Level of closure. It doesn’t give people their money.

Chris Baskerville I think creditors reactions are always quite interesting and they vary. So not every creditor acts the same way. Some of the creditors that we’re investors, as soon as the liquidation becomes appointed effective. They took the view well. My money’s lost. I’m just gonna close that chapter mentally. I’m just gonna move on. I don’t want to know about the report. I’m not gonna turn out to any meeting. I’m not participating in any way. I’ve done my job. I’m moving on. And then you got the other ones which are. I’ve actually lost the serious money. Almost life savings elements. And I’m gonna follow this thing all the way to the end. And beyond. So it’s interesting.

James Flaherty And sometimes, really, the people would have showed up at court. That day in Sydney, yeah.

Chris Baskerville Well, I was told directly from the investor body. Is that yeah, at least one victim impact statement was requested by by by the largest investor. They’ve lost the most amount of money so and rightly so. You know, this guy was effectively through a series of you could probably say smaller cons ended up in a position where a whole life savings is gone. That’s a real victim. That’s that’s someone that’s lost time and time is because if that money did not get invested. I could have leaned on that money to have more time with my kids, and I’ve lost that now. Not so to basically force that person to have to really dig their entire work life again. And then then my understanding further is that that person did have children with some disability. I don’t think any of us will wanna wish on any of. Our children, so you know. Real, real lives are impacted by.

James Flaherty This. Yeah. So I think that’s a it’s good work you do and I really appreciate your sharing. This story I think it needed to be in this kind of detail. So there were the actions I think people do with the result of this podcast and other things that you do, people do approach you with. Hey, is this scheme? And Chris, what is this game and that and that’s that’s great. People should keep doing that. I think the other thing we’re saying to people is, you know, some stuff looks too good to be true or a thing if it’s got lots of really important booking bits of paper, getting financial advice from a qualified financial planner if you’re an. Parent we need to be careful if. You’re giving the. Right, like accountants aren’t supposed to give financial advice. So.

Chris Baskerville No, that’s and they need an AFL, at least to be able to do that. But principally, you’re right, Captain.

James Flaherty Shouldn’t so. So there’s a whole bunch of stuff, and I mean anyway. So I think if in. Doubt get advice from somebody you trust. To bridge out to Chris, if you’ve got anything, if you’ve got any questions about any of this sort of stuff because it’s been a fascinating little mini series, I really appreciate it as I. Say I think if there’s. Anything that is bothers you or something like that. Don’t forget that the the people in Lifeline or. 131114 if they’ve got any concerns or things in this, any of these podcasts can bother. You. OK, let’s leave that one there, Chris. Fascinating. Let’s start. Catch you next week. A reminder that these podcasts are general in nature and do not constitute advice, and they don’t take into account your personal circumstances. So do you think, though, that some of the issues raised might apply to you? You should seek qualified financial, legal or counselling advice.

Transcript – Automated not verified for accuracy

James Flaherty

Welcome back to the sounds of the Baskerville. I’m James Flaherty here with the great man himself, Chris Baskerville. I’m the managing partner of Jirsch Sutherland in Brisbane. How are you?
Chris Baskerville
Chris, how very fancy. Yeah. Good morning, Duncan.
James Flaherty
What is Fancy is what Duncan Perkins brought in. Hi, Duncan. How are you? Hi. Gentlemen, Duncan Perkins from tax time. We talk about a lot of things in the sounds of the Baskerville, but it’s not. We have a document presented with quite so many Roman numerals on that. Hey, Chris. 
Chris Baskerville
So I think you’re the most prepared to present that you include ads.
James Flaherty
We’ll see where this journey through. I think that’s 12. XI is 12, isn’t.
Chris Baskerville
I studied Latin.
James Flaherty
With someone like Duncan coming to join us, Chris, we’ve got a real. What you did is to talk about where you know where things tax accounting. He didn’t interface with you well though. He really and press get a couple of stories about what you’ve seen. Duncan at the moment. Let’s crack. Yeah. And so one of the things that here I’ve talked a bit about Duncan and obviously, Chris, yeah, I talk about it all the time is when is a side hustle or an investment. Actually like a business, like it’s sort of transitions from something, something you can kind of just sort of sit there and say, oh, it’s a bit of pocket running to something a little bit more serious. It’s like there was a kind of a point you were raising Duncan. Well, you already thinking in terms of some examples of when like what we’re talking about web designers, all I stumbled across a seminar.
Duncan Perkins
From the Gold Coast a few months ago, where? A buyers agent was spooking the wonders of buying investment properties and then leveraging off that investment property after 12 months and then buying another investment property and then buying another property after 12 months through the gained equity and then buying another. Property and so. On and and so it went. And so and then to minimise the amount of land tax. Spread that out over a. Number of states as well and before. You know it. You’ve got, you know, a young couple with a household income with, say, $80,000 each, possibly earning several $100,000 a year, according to this burger from property investments, this spruiker of property buyer’s agent or buyers advocate whatever they would call themselves profess to have think something like 500 properties themself. So what online model? Watch me watch me go, but indicated in the meeting that you can use the things like the 50% discount on capital gains. You can use the six-year rule where you pay no tax on the capital gain of. The asset even. If you don’t live in. It so, so forth it. Just got me thinking. When is this investment play for this young couple really becoming a business? And if it is seen as a business by the Ato, when is the Ato going to turn around and say, well, we see it as a business? You’ve been in quite a good deal of income from your so-called investments. We see it. For the business and therefore discounts like the 50.
James Flaherty
And will go. And that’s really interesting because I can think about sort of someone who might have a franchise or. They own a gym or. Something like that. Chris. That. Yeah, that’s quite obviously a business, isn’t it? Like you’d sit there and go. That’s supposed to be a separate kind of person. Legal entity, isn’t it from?
Chris Baskerville
Yeah. Well, imagine there’s probably. 1:00 to 12:00 in this year. As to what would make a business compared to a hobby, in other words. If I set up a gym in my own. Garage and invite a few mates. Around. Yeah. Is that a business or as a? Hustle. But if we’re talking about scale and tensions to drive a profit, yeah, well, the, the, the owner of the gym might be making a net profit of $30,000 a year.
Duncan Perkins
To be. Honest. Yeah, but they might be making 300,000. A year from their investment portfolio and property. Which is the business which?
James Flaherty
Is the minimum. OK, so let’s say the property is, yeah, so the property, because this is the thing you’re a gun tax accountant. We as accountants can’t provide financial advice, but you certainly can help people manage their tax. So this particular.
Duncan Perkins
Is it a significant commercial activity? Ohh I would say.
James Flaherty
My property look and then. So I’ve got three or four homes have one in NSW. I’ve got one in Queensland and a couple in South Australia and I live at Castle. Mum and dad, yes. Yeah, I mean, you know, yeah, OK, yeah.
Duncan Perkins
Alright, you’ve got knowledge and skill. You’ve got commercial sales of Proligent skill.
James Flaherty
In what sense in in what you’re.
Duncan Perkins
Doing you know.
James Flaherty
You’re running script. I’ve been to the striker thing, you know, follow the sprinklers. Here’s my 12 fold path to death. Eternal happiness. OK. Yeah. Well, so that’s even if I didn’t make it up myself. If I’m following the Duncan.
Yes.
James Flaherty
The Speaker of the Golden Success Path they got telling.
Duncan Perkins
Repetition and regularity of activity. The activity is. Or will be. Profitable and on a car. So this is under tax ruling 90. 711 so you know, we accounts we love to throw out three letter acronyms all the time. Yeah, that’s right. As we say, there’s probably too many TLA’s in in our vocabulary, but to me it’s just a a bit of a warning I.
Speaker
No.
Duncan Perkins
Know that the. Ato have systems and flags in there in in play. And I am sure that they’re picking. Up these types of things. When Bitcoin came to market and people were investing in Bitcoin.
Chris Baskerville
The flag of.
Duncan Perkins
Bitcoin pops up with yeah, sit down and do their tax return. Also, the sale of property through any office of State revenue or or titles office will flow through to the tax office.
Chris Baskerville
I think that’s interesting thing and I I was hearing this from 2 litigators that were. 20 year veterans in inside the Ato. So in other words, any litigation involving the Ato, it would go through their office and their number one comment that they were so strenuous on having now left the tax office and now kind of in public practise was and you, you can’t beat the DHS data. Like the data matching is is outstanding from the AG’s perspective and what I think you were given us an example today of where land was being transmitted or transferred as a result of death and then that information flowing to the Ato almost before the tax payer. Was ready to deal with the.
Duncan Perkins
Estate. Yeah. So, I mean, one of the other areas that I heard at this brokers conference, it kind of makes sense too. So you know, I patted him on the. Back, you know, quietly without him knowing on on the matter. And and I. And I think you know, he he makes a very good point. You you’ve gotta look at the yield of your investment property. So if you buy an investor probably for say $500,000 and it’s giving you a year at 5% a year. Which is $25,000 rent and that’s. Gross. It’s pretty running yield when you think, yeah. Yeah, compared to, say, shoving your money in a term deposit, not having to do with property management or anyone like, that’s right. So anyway, you look at that and.
James Flaherty
Yeah.
Duncan Perkins
Then you go well. Hey, this thing’s gone from 500,000 to $700,000 in the last three years, which is done in Brisbane and. Probably not Melbourne, but definitely Sydney and other places like that, so Perth and so you go well, hang on, the yield is rubbish now because I’m still only getting let’s say I’m getting 30 grand a year in rent. But I’ve got. A property worth 700,000. So my yield has. Gone down. Why wouldn’t I then sell that? So I’ll sell that pick up the 50% discount. Possibly roll money out of my carrying forward concessional contributions so I can then even further reduce my tax and then all of a sudden the AT and go hang on, buddy. Yeah, and 30 grand a year as a gym consultant or whatever or self. Employed, but you’re earning.
Speaker
Yeah.
Duncan Perkins
Real money from a. Real business over here in investment properties.
James Flaherty
I don’t know.
Duncan Perkins
I don’t think the ATM’s gonna be so kind in discounting taxes in that space, I think.
Chris Baskerville
Look out. So let’s just say I was one of the persons that this burgers conference. I drink the Kool aid and I’m following the path. Yeah, let’s say we gave five years down the track and I probably sold 2-3 properties. What do you think the ramifications could be if the Ato? Goes hang on. I think you’re actually running a systematic business here.
James Flaherty
Well, I think you have said a lot.
Duncan Perkins
Is you get a puppy in a corner. Even though it’s a puppy, it may still bite and that would be the same for you if you got burned by taxes of say, 2 or $300,000 and you were in a huge urging of the Ato over an idea that was passed on to you by a spooker some five years ago. You’re gonna. Buy. You may look and sound and smell like. A puppy. But you’re gonna buy it? And. You’re going to attack those that have literally lost you the money, which will be those advisors around you. So it may be your accountant, it may it that that sat there. And let you. Work through this journey over that last five years and and sat there blindly saying, yeah, Chris, you’re. Doing really well blah. I just think that if there’s any advisors out there that are seeing this.
Speaker
Yeah.
Duncan Perkins
Festering like a cancer. Maybe you should warn the likes of yourself that are going into this investment journey of the dangers of because you’re never gonna be able to sue or buy the spooker.
Chris Baskerville
I doubt it. No, no, because they know well you said then usually not licenced. In any way.
Duncan Perkins
We don’t have to be, yeah. They just say, oh, it’s property. You know, like if you what?
Speaker
You see.
Duncan Perkins
It does. I’m just. Quoting a few things out of tax and.
James Flaherty
You know, and there’s a difference.
Chris Baskerville
Between an agent that requires a licence not to sell. Versus someone that’s actually there to market.
Duncan Perkins
It’s a little bit like, you know, if I take you to the races and you know nothing about horses, and I apparently know everything about horses and the trainers and the jockeys and whatnot. And you’re being given a budget by your beautiful wife of, say, $200.00 and three beers for the whole day after I say to you. You walk in and I say just follow me, Chris. I’ll put $1000. Down on everything. You just put 10 bucks down and everything. And this is what happens. Is that you will then sit. There and go. Duncan just won 12:50 on 1000 bucks and I’ll put 10 bucks on it. I’m gonna follow him on the. Next one how long is? It before you start putting your whole $200.00 down and then cruising to the ATM and pulling money out of the ATM. And then you’re following me. Now I may have win, win, win, win, win War until about 3:00 in the afternoon. And then a couple of losses. Was it my fault that you started ripping all of your money out? No. And that’s kind of what happens in financial advice. That’s kind of what happens in regards to the mortgage world is that. You drink the Kool aid and you get hooked on it, and then it’s no one else’s fault but your own cause. You know if your wife rings me up and says, what the hell did you do to Chris? He drank more than 3 beers, but he cleaned out the ATM. Yeah, OK.
Speaker
You.
Chris Baskerville
OK.
Duncan Perkins
Hey, you know, like he followed them, but.
Speaker
They.
James Flaherty
I didn’t force him to, so this is an important because you can’t. Give financial advice. As an accountant, you can give it as a financial planner or a financial adviser. It’s about our so we always say, you know. This is general advice. You should always get advice that’s specific to your circumstances, but you certainly can warn. Hey, say if I look at 40 to 9, I axe is 9.9 sure, yeah, horse racing makes me thinking right. I’ve only just doing this houses. Yeah, and I’ve got a bunch of houses, but you know.
Speaker
Yeah.
James Flaherty
I’d do a personal training. Yeah, for my job. Yeah, yeah, that’s my job. Yeah. It’s so it’s so. Well, it’s this house thing is just a hobby. And you gotta work. Nice. Nice. Nice. Yeah. Nice. Work. Because it’s as you said.
Duncan Perkins
Before long, yeah, it’s real money. Yeah. Yeah, and. And and it’s. I think it’s going to get fairly ugly in this space because there’s a lot of people jumping on this bandwagon a lot.
James Flaherty
And this is Jonestown. You’re kind of trusting in bankruptcy. Has is the interesting one, Chris, cause with what these will be. When are these likely to be on their personal names or? These. Yeah.
Chris Baskerville
Well, it’s the only way to get some of. These concessions isn’t.
Duncan Perkins
It well, no. So the concession will pass down through a trust structure. So there’s a lot of finance brokers. I’ve actually seen one which is very ugly and it was a number of years ago. And the person drank the Kool aid. I like that. Say him and his wife. Dragged as much equity out of their quality Brisbane homes as they could to then on. Lend that money to a trust structure which is a discretionary trust and set up a company trustee for a separate company, trustee for both trusts. And they had these two trusts going and those trusts then went to the bank and the bank said no. But you know you do not. Have the income to support buying properties in mining towns, which was Moombah and Dysart one up near the. Top of WA so. And they ended up with about $2,000,000 worth of lending through these trust structures, the. Only way that they could. Do it is that one trust application went through. To the bank and then another trust application went through to the bank. So it was seen by the bank as two separate legal entities. And that was all one. And so I looked at the original loan applications that the client put together cause they basically were as close to bankruptcy as you.
Speaker
Yet.
Duncan Perkins
They sold their homes in Brisbane to pay down the debt and there’s still debt in the trust of well over $1,000,000 and the mining company properties are all gone because they boom and bust, right? So called income, Chris spread to them, possibly by the finance broker at the time was or, you know, made or buyers agent for mining properties, I don’t know. Them, they would have said to them all of the capital gains, all of the fortunes that you will make out of this. We can income, split it down through the trust, down to you and your wife. But clearly you’re running a business. So maybe you wouldn’t get those discounts. And anyway, so then you’ve got all of those losses. I’m talking $1,000,000 of losses sitting in these trusts forever. Yeah, right. Forever. And it’s it’s so sad. And it, you know, broke the relationship up and and and threw straightforward. And the broke is not responsible because the broke is basically saying, well, you signed the documentation and the Bank’s not responsible because they said well. We received some documentation from the client so and clearly they knew it was fraud. So one bank said no, that bank owns another bank under another title. If you know what I mean. And that bank, right the line? Yeah. Well, hang on a SEC. Your mother ship.
Chris Baskerville
The mother ship said no, no, Sidley said yes.
Duncan Perkins
Yes. Yeah. Squeaking these things through.
Speaker
Add.
James Flaherty
Well, thanks, Duncan. That’s there’s a fair bit to absorb. And Matt, who’s that word unpacked? But there’s a bunch of new rules for your post on the website. So I think this calls for sort of some kind of Baskerville way to wrap this one up. Do you know what you’re doing if you? Don’t know what do you got.
Chris Baskerville
The spruce goose. Well, that’s in the jazz. And and and. In the fall, out by the accounts, I think it’s only appropriate we go with another Mark Twain quote, you know, which is it’s easier to fool people than to convince them that they have been fooled. Yes. OK. Hey, thanks both with you. I really appreciate you. Great to have you in Duncan and and also in Chris. Thanks again. See you next time.
James Flaherty
A reminder that these podcasts are general in nature and do not constitute advice, and they don’t take into account your personal circumstances. So, if You think, though, that some of the issues raised might apply to you, You should seek qualified financial, legal or counselling advice.

Transcript – Automated not verified for accuracy

James Faherty

How come a great tax accountant such as Duncan Perkins from tax time always gets blamed? Working with the sounds of the Baskerville on here with Duncan Perkins, the aforementioned great tax accountant. Of course, he was the great man himself, a managing partner, Josh Sutherland and Brisbane Chris Baskerville.

Good morning.

So, Chris, how many times do you reckon the captain gets the wash up? Yeah, I’d probably say one in three. I’d say one in three insolvency events tends to point the finger at the counter. So what we were talking about. Last time Duncan was, this is actually a business that. You’ve got going on here. Not a side hustle or a thing I do on. The weekend but. This episode we wanted to go into. Actually. No, no, hang on, hang on. Your day job, is that actually our business? So, and that’s a different story. And how often have we said, Chris, that you see a person who goes. Ohh well, Chris, I I don’t know all those details about my company cause my account. Set up the structure for me and I I don’t really understand.

Chris Baskerville

Yeah, I think I think a lot. Of people fail to. Set their responsibility when they set up a business or a company and pin it all on the on their account to to have to like spoon feed them and hold their hand all the way through because the directors or the. Business don’t wanna put their. Hand up and say actually I am actually. Responsible at the. End of the day, well, if you can.

Duncan Perkins

Blame someone else. That’s a perfect way to die, yeah. And usually the easiest person to blame is the, you know, the person that didn’t explain it to them formally in the 1st place. Yeah. I mean, we see a lot of this and it usually starts with the very good, let’s say, person that digs hole for their boss who drives around in the backhoe all day, or a mini excavator, etcetera, etcetera. And they may have done. That for five years or 10 years and they think, why should I be earning all of this money from my boss and my boss’s business? Who gets around it? A nice AMG, Mercedes or whatever the case is, I could do this myself. At 32 or 33 years of age, they think, well, I have a home that I bought for, let’s say, $400,000 and it’s now worth $800,000. So I am a great investor as well. Well, it wasn’t mate, it was just luck. But anyway, you got an $800,000 home. You’ve got quite a bit. Of equity in that. And you’ve come up with this great idea that you. Can do what your. Boss does because you know how to. Drive a backhoe. But unfortunately, these people are very unskilled in the business world and they don’t know. The difference between a company and a trust and a sole trader structure? They don’t know what a a registered ABN is. They don’t know what the limits are and So what do they do? They walk down to their friendly accounting now years ago and I’m I’m talking in the 80s, probably 90s. You did that by walking down to your local bank manager and the bank manager actually helped you a lot. With this, they did the finance for your business and it was conditional upon. One big thing is that champion, we’re going to set you up an overdraft. It’s going to be secured against your home or was it unsecured overdraft? It was a cash flow overdraft and they would do budget planning with you for your business. But they’re also do budgetary planning for yourself and the bank. Never lend its money unless they knew. You were a good risk. And it was unsecured. A lot of the time back then, but not now. The banks are only interested in a lot of the time lending money to people for houses and investment companies and things like that. It’s an easy risk and there’s no review required there. If you set up an overdraft or some type of fully drawn advance or a business loan. And the purpose of it is for the business, the bank just goes. And you know, this is really hard. We’re gonna have to. Charge you a. Higher rate than look what I’ll write you a home loan against your property we don’t need. Any financials we’ll. Do what we call a low DOC loan or I like to call a low DOC loan and and we’ll get the accountant to. Sign that off. So go into your accountant. So now it’s in the hands, not in the bank anymore. It’s in the hands of the. Broker and they they go. Oh, OK, right. Well, I want to dig holes and I need. I need a backhoe. I need a an excavator. I need a truck and I need a trailer. And I need an AMG Mercedes Benz as well for the wife. To do it right. So that that’ll be the vehicle we. Can do the. Quotes in. Then I also need a. Hilux to tow the. Jet ski, but. I won’t say that and. So how much can I get? Against my home in the. Broker goes, you can go to 80%. So that’s the $640,000 loan. Your current debt 300 will give you $340,000. How do I get? Through with it. Just go get a note from your accountant, budgets and everything like that, and then we’ll go from there and then all of a sudden we’re setting up companies. We’re setting up all of this money gets poured into this company, and then it gets ripped back out again to buy vehicles and and capital equipment, etcetera. And this guy knows. Dig holes. He doesn’t have to. Do anything else took him aside 2 Duncan took us, came up in a discussion group with some accounts that I run, and people coming in and putting pressure on accountants to provide that letter and their their professional bodies are starting so. Then on it basically says in the removal that sort of says nothing kind of letters now because they because the risks for the accountants are signing are are increased. Yes, by trying to endorse these types of things. So those accounts letters are an interesting point, but because they’ll come in and say hey. I want to dig my hole, Duncan. You’re holding me back? Yeah, but there’s. Having a lending review every year, it’s their accounts and it’s the bookkeepers. And you have platforms like zero and my office and it’s just garbage in garbage out. So after three months or six months or 12 months, yeah, in four bass.

You go. My gosh. What a nightmare. Here. You don’t have a bookkeeper? Well, my wifes, the bookkeeper, and she ran this programme called 0 and you set it up for her. So it’s your fault that there’s. Yeah. And you have a. Tip at this McDonald’s in here and. There’s there’s no offered. You see, there’s.

Speaker 2

There’s fuel here.

Speaker 1

For $180.00, but I’ve got no breakdown of that. The seat. And so it goes. On it’s also good. When you’ve got like a 90. Right when you’re running a fleet of. Diesel vehicle. It was like, how’s that all? Yeah. Yeah, yeah, yeah. Yeah, yeah. What does? What does Winfield gold? Got to do with you.

Speaker

Who is that? Who is? Yeah.

Duncan Perkins

So. So yeah, so there’s it’s just an absolute mess. And then they say to you, well, I can’t pay my tax debts. I can’t pay my home loan. I can’t pay my business loan, which I think is a home loan and the bank don’t wanna talk. You see old saying, you know, the the bank will give you an umbrella when the sun is shining and when it starts to rain, they want it back. And so they’re stuffed. And then you’re sitting there as the closest thing to a business advisor that they have. And you go. I can’t really help you, it’s just horrible. And so one of the things that I try and say to anyone that comes to me like that is go home. Talk to your wife or your significant other and work out a personal budget. What you actually. Need this business to give. You per annum after tax. To survive. And if it’s $100,000 a year, you still have to get pay tax on that and it has $25,000 in tax. So what’s left over 75,000? But if you’ve got a personal budget that says you need 110,000 to survive private schools, jet skis, other things like holidays. It it’s not gonna work. So you could then come back to me and say it works now. At $75,000 I. Go well, you. Just tweaked it so that. It would work on paper. It’s still not gonna work. So stay working for your employer because you’re undercapitalised in. And we’ll go get a job is. That where you’re ohh stay, stay in the. Job that you’ve gone gone and you’re actually saying do the personal budget first. Do the personal. Budget first when in fact most of the time. People like Chris would say people who should have done the personal budget at first, but. You might see them in an SBR scenario. Might increase whether they’re trying to save your business. That’s got some. Of these problems.

Chris Baskerville

But I guess you’ve touched on two interesting points. One is, yeah, work out the home budget first before you decide that you wanted these grand schemes of business ownership cause it’s not as sexy as what people think it is, right? And people are disillusioned I think by what they see as these elements of success like ohh the boss is driving an AMG. Therefore, it must be randomly successful, but what you don’t understand as an employee is maybe that’s finance 299%. So it’s actually a liability, not an asset, but the other one is the percent is quite often he is one.

Duncan Perkins

I’m just going to say spouse because it could mean that the husband wife in the relationship and the other spouse not being understanding of this journey not being not on the same page and then not accepting that this decision is gonna be a joint decision. So if it succeeds, we both win. If we would fight those, we both lose, yeah.

James Flaherty

And. Judged, yeah.

James Flaherty

So what is happening is someone goes on the journey alone, tries to keep the other spouse in the dark, and then all of a sudden it. All goes pear shaped.

Chris Baskerville

so it’s a little bit like making a cake, right? So what happens is we. As the accountant. The clients come to us and said, where’s the recipe for the cake we go? Here it is. Take it home. Show your. And they don’t. Or they showed to the wife and the wife doesn’t care that you know that significant other in their relationship doesn’t care. And it’s the same with the business being like, here’s the business plan. If no one wants to do it, you may have the ingredients to make the cake. But boy, what a mess it’s going to be if you don’t know how to. Operate everything else in the kitchen. So people are are very when they go into business, they’re under capitalised. And yet even today, even sure successful businesses, they’re still undercapitalised.

Duncan Perkina

. So we’re all undercapitalized, but you imagine someone going into business on their own first time out, they’ve had no advice from their bank because they don’t want to give that advice. Or they’ve been told probably the wrong thing by their broker. They’ve been set up the wrong facility. It’s not subject to annual review. No one’s keeping them in line. There’s no set plan that’s been put down in front of them by their they don’t have a business. Which so some of the greatest basketball players or any sports person you can find, they’ve got coaches. Why don’t people in business have coaches and pay for it? You know, I think it would be a great investment for you to spend $1000 here on a coach to get 10. $1000 worth of. Business down the road, so just getting people to paying your fees to. Are.

James Flaherty

Do yeah, if. You say people spend money on the wrong stuff. Yeah, I have a short and they definitely sort of don’t sometimes dwell on, I think, yeah, why am I doing this? Yeah. Yeah, he’s three. We’ve talked often, Chris, about the franchise. Who does it for $3.50 an hour or something like that. They they’ve not done the maths and you. Touched 2:00 on.

Duncan Perkins

And you’re saying? Like bring the other one. Other half on the journey? Yeah, sometimes that’s really hard. It is like, yeah, I could think of examples of where the spouse just kept on spending on the spending on the credit card, noting things are tough. Yeah. But because that’s just the lifestyle to which they’re big male also enough to become accustomed. Yeah. Because that’s just kind of what the. Their their life. Yeah. Well, it’s we kind of have an acronym that it’s called fitter, you know, it’s finance, insurance, taxation, trust to state retirement planning and they’re all the things that you need to take into consideration in that acronym. I liken it to the. Word fitter because that’s what it is in. If you want to get fitter, if you want. To lose weight or get healthier, there’s two things that you need to do. One is that. You’ve got to go at. It nice and slow, but there’s no point saying I want to get fit today and then running 10 kilometres that way because you’re going to have to catch. An Uber home. Because your age, you’re probably. Yeah, yeah. And a booking for a car for the same thing. One thing is is that don’t go too hard at it. You know, maybe go for a brisk walk or something.

James Flaherty

Around. Yeah, gotcha. Well, maybe to the letterbox or something.

Chris Baskerville

I believe that if you wanted to get Fitter and lose weight or whatever the case is, everyone in the family needs to be involved because if you’re sitting there at home eating lettuce, drizzle with parsnip and then the wife comes home with a bucket of KFC and two litres. Of cone. The novel, as I’ve heard it, and it’s the same business, isn’t it so?

Duncan Perkins

If you go at it too hard, you basically lie in your paperwork to your accountant or to your bank, or to whatever really lying to yourself. It’s like checking the exam, right, and then the other part of it is if everyone in the household is. Not aware of it as. You said before off buying Jimmy Choo shoes and private schools and other things like that and holidays. Overseas to Japan. Well, it’s not gonna work. You’re gonna absolutely destroy the business. And possibly the families and the relationship. Absolutely. Yeah, that that comes next and then it all falls down around. And who do we blame? No. We blame the accountant. No blame, but. Yeah. Yeah. So it’s it’s it’s really. Hard and sometimes some of these. Suppliers that we try and bring into clients say a lot of the time they just don’t wanna listen. They just want another magic wand and gave more than give me give me more equity out of my home and make. It will go away so.

Duncan Perkins

Out of their home. Possibly through their book or. Whatever. But the problem happens again in another six months or 12. Months time I’ve done. Ask for clients and you know four years worth of no a years worth of BAS GST that have cleaned up all of their debts, cleaned up the Ato, got all the superannuation, everything cleaned up and said right now you’re back on track again. See you in three months time. You know when I see him again.

Yeah. Next crisis it it’s, it’s the leaky buckets and yeah. Which is unless you plug the holes in the bucket. Doesn’t matter how much water you pour into, it’s gonna. Leak out so.

What I’ve got is I’ve got 10 fingers and I’ve usually got each finger in a hole, stopping the water over here. And I’m yelling at the client. Knowing for the love.

James Flaherty

Put the bark up on the harbour so we. Can stop the work. And he gone. Surely you can use your toes. Yeah, mines were broke in New Zealand he used to. Have a boat called the. Calendar for that very same reason. Yeah. Yeah. So many holes that so I think that’s the. Probably a good way to wrap it up like Chris. I mean The thing is it would be great if more people listens. To what Duncan? He’s saying because how often do we? May Jesus be great if people could come to you with a blood problem or something that the damage is not so great that it’s you’ve got something to work with because we’re talking about some of these scenarios. It’s not that first day they’re kind of, you know, the they’ve already fallen foul of the tax man once or twice the strife everywhere and then they go. I can respect you. Can you fix this far from that? Yeah. Yeah. And you should see his face, which doesn’t look very enthusiastic. Hi. Thanks, Duncan. Really appreciate that. Has been really informative. So I think I’ve got a business. Good to.

James Flaherty

See you again, Chris. Thank you. Right. A reminder that these podcasts are. In nature do not constitute advice and they don’t take into account your personal circumstances. So do. You think, though, that some of the issues raised might apply to you? You should seek qualified financial, legal or counselling advice.

Transcript – Automated not verified for accuracy

James Faherty

Welcome back to the sounds of the Baskerville. I’m here with the great man himself and the hound, Chris Baskerville. How are you, Chris? 

Chris Baskerville 

Good morning, James. 

James Flaherty

, good to see you today, Chris. As we’ve been much on my mind about things. SBR and I know. We kind of. Harp on a little bit about SPR, but we’ve both learned. A bit since. This little thing came along, putting on paper the other day that I was quite scathing when they first came out I. Thought, well, what’s this? And in fact, when you think about, you know what they do for companies, which helps a good company survive. If it’s a good one. It’s a good thing, isn’t.

Chris Baskerville

It What I’ve really enjoyed about the SBR process is actually seeing businesses that are actually viable. This has beena good business \. The owners typically are genuinely their hearts in the right place. They they’ve run a good business and then the but for a certain event, you know, but for we wouldn’t be in the position and the but for is COVID bushfires, you know, loss of major customer. . You know, change of government policy. 

James Flaherty

 There’s all sorts of stuff that can cause business problems, things a business could not make provision for. Most of small businesses run on a bit of a smell of. An. Orderly range and say it’s something that happens like that. It’s you can’t plan for it. But hang on. This has been a good business than boys. People. I’m trusted. My clients rely on me. Bam.

Chris Baskerville

, we call it. The extraordinary event so and we asked the directors what is the extraordinary event that. Sort of put you in here. And of course, they’ll mention one of the you know, four deadly horses of this.

Chris Baskerville

Now and then, of course, our. Job is to look under the hood. A bit and just go. OK, just the narrative. That’s the numbers. . And we then put that in a restructuring report and and creditors asked this questions if if they want more information, which we happily give them and say here’s. Everything that we’ve got. And they leave it in their. Hands. But , I just enjoy that you’re dealing. With a lot more. Directors that actually have something viable to save and more importantly, you’re getting a lot of positive feedback that the HBO is genuinely supporting viable businesses to stay alive using this.

James Flaherty

Stuff. That’s if you engage with them. Telling your story well, at least listen, but at least with the SBR process, if you put a good story to them. They’ll listen and they’ll make a commercial decision and nice to them because they’ve gone through the philtre of a person like you who is registered. . Has scrutiny on you by the regulator. Your job is to be fair. But obviously in this case, you’re sort of there.

James Flaherty

You know a little.

Bit more on the director side now this time because you sort of say hey 80. I’ve had a look at. This from what I could see it looks like a good business. This is what’s going wrong. Here’s the deal. What do you guys?

Chris Baskerville

Say is that. , that’s right. And it’s the directors that initiate our appointment, but it’s also the directors that can terminate our appointment. You know, so unlike other regimes, you would like to take voluntary administration as an example. If the director initiates a voluntary administrator to be appointed, it’s irrevocable. You can’t just say, do you know what? I just don’t like you anymore. Well, I’m halfway through this VA. I wanted to end. It’s like too bad, buddy. It’s. , 

These people are like having an operation. You can’t say I’ve sacked that surgeon, right? . because it is a. a very credit driven process, so it’s the creditors that decide and in the absence of the creditors and then you’re off to the big house and the court and the court decided, let’s try and give this to court. Why aviation?

James Flaherty

Right.

Chris Baskerville

Means, , quite a bit. . But , different SBR, small business restructuring. There’s a lot of sort of power, I guess, in the hands of the director because you’re there to solve their problem. You’re on on their side effectively, but you’ve obviously got your sort of one eye on the interest of creditors and that’s why the creditors are asking us, hey, could you please look under the hood? Using your knowledge and powers and experience as a liquidator. And tell us what you.

James Flaherty

See, we’ve got a bunch of graphs in front of us. Dear listener. Hi, Duncan. We’ll ask Patrick from Alaris if we could probably put some of these on to the with the transcript onto the site. So at least because there’s a couple you were showing me some scribbles before we started talking about the fact that insolvencies are. Up ohh who?

Chris Baskerville

Knew well up against the average of pre pandemic. The last three three financial years pre pandemic. So in other words, whenever the average of 17/18/19 was. The current insolvencies are well above.

James Flaherty

That now, right, and I mean OK, higher interest rates, the fact that I’ve come off the end of the stimulus, all that sort of stuff, there’s a few things going on and the tax office has clearly you should know the graph was showing tax initiated, wind ups. Yet the tax. Man’s clearly lost patience, so therefore he’s back.

Chris Baskerville

Well, that was this thing. The point you raised and and this came from the ALARA starter and you know, thank thank you. Metric for but say pre pandemic in 19/20/19 you could see the HR was roughly about 5050 on all the court applications to wind up a company half was done by normal creditors or non Ato creditors. The other half was 88. That’s the average look at it and what we can see now is there was many many years during the pandemic. The HMO was. Nearly non-existent on such a prolific term. And then, of course, the last. Couple of financial. Years. They’re really ramping up their court activity to the point where they’re becoming about a third now nearly approaching 5050 again, OK.

James Flaherty

  1. And so that’s. Be able to deny and I mean. For a business person listening, would they care? Maybe, maybe not. But people say all insolvencies are up. But it’s be us. Some of the companies that are going into small business restructuring ones that might have either approached some dodgy place down the Gold Coast to get themselves sorted out some other way or. Some of them. The things that might have just sort of deregistered and walked off into the night and. Hope for the best. , like, does this a way to actually get rid of some of the nefarious behaviour, but also. Does it help some businesses that that would otherwise keep on struggling on and struggling on and struggling on get this stuff sorted out earlier and faster? Is it are we capturing more than we were getting before? , that’s a good point. I think that’s interesting. That’s an interesting point. I think it is bringing to the light the directors that are right on that.

Chris Baskerville

Knife Edge, where they tried to solve the equation themselves and try and punch their way through this problem. Ohh well, they go well. This small business restructuring seems like someone is kind of on our side. Someone is actually desirous to help our viable business stay alive and they know how to put the information together for particularly the taxman to consider it properly. And actually the sort of putting the best deck of cards. Out so that he gives the best possible chance. For the tax man to go alright, I’m gonna. Allow this compromise. To take place so it. Is bringing people. To the light, it’s getting them squared away with their taxes or tax returns. So I think the taxman really likes that. Actually, it’s actually getting people to get your documents in, make sure you look after your employees and then come to us and then say, OK, we wanna propose a deal.

James Flaherty

That’s been helpful. So I think it, it shows that there’s. Differently, properly look that the numbers are. Going up I. Think people are doing it generally for the right reasons. It’s an opportunity for people to step away from some of the fancifully trying to do on liquidation with a pre pack. All these kind of fancy things we’ve talked about in previous episodes. There’s an easier way that’s more commercial and has a better outcome.

Chris Baskerville

Obviously this is not something that you can use every financial year, correct? Because they they speaking to a bright. , it’s a little bit about this other day. It’s not the tax minimisation. No, no, no, no, because the qualification criteria like the very first hurdle are you total admissible, that’s less than $1,000,000 first hurdle also. So if you’re a million two. Question Mark as to where to go. Right. But the second hurdle is, haven’t you used this process in the last 7? Years. , and.

James Flaherty

Yes.

Chris Baskerville

If the answer to that is yes. Well then, that’s it. You can’t.

James Flaherty

Use it again. You get it. This is your shot and your shot. You basically one shot. Clean it and I mean clean your act up. So that’s that. OK. So what are we seeing at the moment? Question for you in terms of. Some of the ones that you and I have either worked on. You know, saying together or separately, what are some of the lessons that you’re saying?

Chris Baskerville

And now the rise of small business restructuring and it’s happening at, you know, in the hundreds of percent. I think if you compare to where it’s started to where it is now. It’s 400. Plus percent like, it’s just a ridiculous uptake. , but it’s it’s, you know, according to the the asset data is sort of released in June 24. It is nearing the popularity of. Voluntary administrations like, , they’re nearing. I thought when I got my head around small business restructure I said that style of appointments gonna overtake voluntary administration. Now voluntary administration has its place, don’t get me wrong, it’s still a product that we we if it is appropriate we would be saying this is the appropriate product it’s suitable for wouldn’t necessarily say small business would would get the benefit out of it because the expense is. Quite high, but certainly anywhere from zero to you know, bazillion dollar entity can use voluntary administration.

James Flaherty

Chris Baskerville

Obviously restructuring is limited to a business that has less than $1,000,000 of municipal debt, so. Target it. But , I can see restructuring, overtaking, voluntary administration in terms of the number of appointments, I think what the profession is kind of asking and what we’re sort of hoping and and there’s people studying restructuring as a means for their doctorates and their thesis or thesis or whichever way the correct. And then the Action News. I think they’re going to be saying the $1,000,000 threshold probably needs to be increased, , to help more businesses out, but.

James Flaherty

When we look at the numbers, there’s a fairly high success rate for them. There’s some more study needs to be done on the success of the businesses long to children reading is that word. Like how much of them. How many of them last after? The deal is done. That’s I think that that will probably.

I mean the tax man says, well, hang. On I get the money now so OK, but. In terms of the process, how many of these? Businesses go on to thrive like we all hoped. , well.

Chris Baskerville

That’s a good question because. One this thing was only introduced in 20/21. Was it really much uptake until as you saw in the data sort of? 2320. Four. So in other words, we’re not really gonna see or test this theory as to how thrive able are these businesses post SBR probably for another couple of.

James Flaherty

Soo we’ll have to watch this space, so. Just just a couple of things that maybe just around to do sort of this conversation off. It’s still treated by chores and. From what I’ve seen of companies, a lot of the insurers have demanded that the and this is this is just anecdotal, say a bunch of directors have received. We’ve been told that you can’t mount their credit. So your credit stops. As of the day of the appointment was.

Chris Baskerville

Something you said. , I think. I think the disruption on the supplier side is probably what keeps most directors up at night and probably their advisors as well. Because it you’re not going to have a problem, do it using SBR from the tax man perspective, because the taxman will follow a process and be guided by the bouncing ball following the bouncing ball. It’s the trade supplies and it’s the potentially people register on the PBR that either do have a debt or don’t have a debt. You know that that’s the impact. And I think there’s still a lot of education. Quite out there to, for suppliers and and secured interest holders to understand what SPR actually means for the organisation in. Theory. If a plan is proposed by director, it is then accepted by the director. In theory, the balance sheet is getting healthier by humongous margins somewhere between 50 to 70% health is increasing. It actually is making the company technically more viable than what it was before it began. So why would you not support?

James Flaherty

That entity, the thought process that has something like a 90% success rate.

Chris Baskerville

Yet it’s in the high 90s.

James Flaherty

The the, the, the, the, The Dirty pool, one that had the other day as they went. OK, not only we’re not going to give you credit, we’re going to put you in. Rec retail on your trade. Price. That’s harsh. . For a guy who might have been doing, you know, 10/20/25 years of business and you put a bloke. He’s trying to sort out his shop or rating, trying to sort out his business. And they put them on rec retail pricing. I mean, that’s against the spirit of what this thing was trying to achieve. If a person’s been a good pay, like our case, if I was a bit of a shambles of a payer. , sure, but. If I’ve been paying you. Hitherto up too. I thought that was. Dirty. Cool. But anyway so, but sadly so I think in general. So what’s the advice for directors? You need to have a little bit of a Kitty just in case.

Chris Baskerville

You have to go catch Turner. , , . Well, that’s good advice, but be prepared that you’re probably gonna have some disruption with supplies. So in other. If maybe in advance find an alternative supplier at the ready, you know that would be another one. I don’t. Know how possible? That is, and. So , other than.

He’s just setting up, or alternatively in preparation for starting the small business process, you probably have to do work out who’s your critical trade suppliers. Without. Without them, you don’t have a business anyway, so they may have to be looked after in advance of starting the process.

James Flaherty

But if I’m the taxman and. I end up being the the loan creditor. My question has always. Been hang on, why I’m why am I? Isolated like this. And I’m supposed to. Am I right in thinking well, the? Point is well. If I don’t have those trade supplies, there is no. Business. So I have to pay those sort of. People in effectively.

Chris Baskerville

In order to become a better taxpayer in the future by making my future lives on time, making my future payments on time, because that’s what the 8 hours effectively giving. You the relief today. So that you become a better tax payer tomorrow. You know you can you lodge your things on time, you continue to meet your tax commitments because the Ato should be aware. That businesses that. Do come out of any kind of external administration and are and are re engineered for success. Yes, pay multiples and multiples and multiples of tax into over time as opposed to shutting the doors right now and that’s the end of it. There’s there no more tax dollars coming out of that 

 I think I think there there’s definitely. A higher purpose here.

James Flaherty

And there and there are some would also say with the amounts of money in the bank. And that he direct his. Should be obviously having some money sort of for managing trade and you as a SPRP would sit there and say it takes me. Well, I can’t give you. There might be 200 grand sitting in the cash account. I can’t. , ex amount upfront because the company actually needs this to pay wages to pay trades and all that sort of stuff that they said like they’ve got quite from my experience of listening to the people from that department, they’re commercial bunch generally into it that they’re, it’s certainly the ones. That. Won the show.

Chris Baskerville

They’ve they’ve certainly shown us and and I’ve been. You know, quite amazed by the support shown by the HOA, because most of us just using our voluntary administration experience the HOA generally not a supporter of voluntary administration even in circumstances I’ve seen that where we even said you’re gonna get 100% of your money back and I’ve. And they actually vote against that, you know, for principle reasons. So in other words, they’re they’re looking through a through the lens of their policies and procedures and has this person being a a decent tax payer or tax lodger, at least leading up to this moment in time. If the answer is no, the actually goes, we’re not going to support that, whereas I think SBR. Of keeping people on track getting everyone. Up to date and that’s why it’s.

James Flaherty

I think I think certainly, since there’s many of you have been tardy here too. They’re not going to have inside an SB. If you’re going tidy and got behind and got a deep in. You’re not gonna get the same hearing.

Chris Baskerville

That can be true, but. We’ve seen some really interesting cases pop out. Two cases almost identical where, you know, director has a lot of tax returns for five years. But because they wanted the advantage of the SBR. Logged all their. Five year tax returns got up to date and then we’ve had that one rejected and then we’ve seen other ones same situation but the actual. So so it’s a hard one to actually say, well, what is the right answer here. But I think generally if you want the benefit of the small business restructuring process, stay on top of your life and just. Get. Them in because at least if the Ato. Is comfortable that they know. What they’re doing? Is they know what they’re compromising?

James Flaherty

And I mean the thing. Is it’s if you think that. The tax man doesn’t know something about what you think you’re doing. Well, you’re dreaming.

The data matching that these guys have got is. Pretty good so.

Chris Baskerville

The data matching is insane, and I’ve heard that from their in in-house litigation teams, you know that have then since exited and they said that it’s just their data.

James Flaherty

So if you’re out there thinking, . , sailing along. Cash in hand. . Good luck to you, but don’t think. He doesn’t know because he and she in there. Know all about it. Hey, that’s a bit of fun. So I think in general, what we’re saying is, , certainly talk to your SBP. So it’s really talk to people like Chris Baskerville at Jirsh Sutherland and other members perhaps of the Insolve panel who are able to help. You understand what you need to know upfront, so that’s definitely. There’s a few things you’ve got to be ready for, but the lesson is that it’s good, it’s evolving, and I think we’ll probably do this in six months time. With some more. Or less, but I think from what we’ve seen, it’s it. Keeps on changing. 

A reminder that these podcasts are general in nature and do not constitute advice, and they don’t take into account your personal circumstances. So do you think, though, that some of the issues raised might apply to you? You should seek qualified financial, legal or counselling advice

Transcript

James Flaherty Welcome back to the sounds of the Baskerville. I’m James Flaherty. I’m here with Chris Baskerville, the star of the show, the hand. Chris Baskerville is Managing Partner, Brisbane, of Jirsch Sullivan. Good to see you Chris!

Chris Baskerville Good morning, James. Good morning.

James Flaherty Good. Morning today with a special guest, Chris, we’ve got. Patrick Schwartzer from ALARES, welcome to that, which is the sounds of the Baskerville. But anyway in our fourth season.

Patrick Schweizer I am a prolific. Listener of the show very, very proud.

James FlahertyTo us, we must be hitting double digits now. That’s great, Chad, and it’s just don’t you think, Chris, it’s time to get the talent into the room and actually look into the watch.

James Flaherty So, lets get down to it, what is it that allows actually does?

Patrick Schweizer Yeah. So look. Fundamentally, we are an aggregator of risk data, so we started off primarily focused on litigation and core data and we’ve grown that over the years to include many other things. So obviously insolvency data. We include Ato data building licences, many other bits of information.

James Flaherty Ohh OK, there’s a whole. Bunch of different sources that you can get you. Can get information.
Patrick Schweizer
Exactly, exactly. So we compile all of that information from many different places into. Both point in time reports and alerts.

Patrick Schweizer People to help mitigate their risk.

James Flaherty Really interested then in so where does this because I can go online and find some of this stuff coming. Like, I mean, if I could not.

Patrick Schweizer Not really. So the genesis of the virus actually dates back and insolvency practise we noticed. Pattern that would often. Take place which was company XYZ. Would go down. Creditors would be left in the lurch, and oftentimes. Some of those creditors would be somewhat unaware that there was any trouble growing and what was interesting was some of the creditors that we intuitively thought they will be all over it and they will be sort of all knowing they seem. To be the. Ones least in the know that there were problems. Going and so when we dug a little bit deeper into this, we found look often. You know, say it’s. A. A big bank or a credit provider. They will do a credit cheque. They will then decide to to either lend money or provide products and services on credit terms. And what we found was within those credit reports, basically anything that’s currently going through the law courts or even most prior matters that had. Previously been through the courts do not appear. On the report.

James Flaherty Well, so that’s a massive gap, isn’t.

Patrick Schweizer
It it’s a significant gap. And So what we found was case study after case study of people getting themselves into very sticky situations where had they only known what else was out there they. Would have potentially. Done things very differently to help manage their risk.
Chris Baskerville
So remember again the story that your brother was involved in that was lamenting about it this morning. So your brother was advising a guy looking at an acquisition, I think some either air freight or airline one, one of those to and Alaris has just come on the scene. They run the risk report on the vendor that they’re about to acquire. There’s business for and they’re having discussions with the vendor. And then of course, Oliver’s client says, hey, can you just? Tell us a little bit about. These three pieces of litigation that the companies involved in and the obvious response was how on God’s green Earth. Did you figure? That out, Needless to say, that acquisition didn’t take place because. The information was avail. Double to the person looking to acquire the.
James Flaherty
Business. So there’s a lot of cases that we look at Tech, Bose, Silicon Valley, there’s lots of people with a good idea. So you’ve done something here where you’ve developed, you’ve found a gap. You’ve developed an idea, so this isn’t something that happened overnight though, is it they? So we’re. Talking about you, we’re. Working at an organisation in Queensland, some. Years ago, it’s evolved over some time. Maybe you could take us just. A bit through that journey. Like, how did you glue all this together? Tell us again. Just watch in.
Patrick Schweizer
It yeah, absolutely. So when we came across this gap, the first question of course was, you know, how could this possibly be? Will you go to reputable credit bureaus?
James Flaherty
Yeah.
Patrick Schweizer
Run reports and the fact that you know company XYZ or person XYZ is getting sued. Sort of buy half a dozen different people. It just doesn’t show up in the report. And you know, how could this possibly be when we started to investigate that it became very clear that while there may be one or two courts around the country, that sort of have a have a registry that’s easy enough to search online. Most of them don’t.
Patrick Schweizer
And the information is, you know, while it’s ultimately in the public domain, it’s very hard to really come by and to compile with to use in any meaningful way. So the first thing we did is we were out to people. We knew, be it a. Lender or an insolvency practitioner or a company auditor. And we said, look, we’re aware you use a process. We’re aware that there’s some very key data that you’re actually not getting. Would it be useful for you if we could provide you this extra information and sort of one by one? They all said ohh yeah, first of all I didn’t even realise that I wasn’t.
Chris Baskerville
Getting it.
Patrick Schweizer
But now that you have. Pointed it out to me. Absolutely. This is sort of critical. Information that we need and want once we.
James Flaherty
The whole bunch of people hang on. Don’t do I not already get this? So there’s a bit of an you had to actually explain to them. No, you’re not. Exactly. And you’ve got some, really gives an example of there how that. Could quite bad. So then, OK, so you’ve got a bunch of people like the basketballs of the world to say, yeah, that might be an interesting idea. OK, cool. So then you’re. What what happens?
Patrick Schweizer
Then so many initial discussions and and. Meetings where you had. Started exactly like that. Where? The person on the other side of the table. Would say, well, hang on. I am with credit Bureau XYZ and I already get all this information.
James Flaherty
You’re right. OK. Yeah.
Patrick Schweizer
And So what we then did is we built up a very large dossier of case studies to say, OK. Here’s a credible report. Here’s. Our report you. Know compare them side by side in the credit report. Yeah. While it certainly provides a lot of useful information, the key point is it’s. Not all encompassing. And it doesn’t include everything that you really. Want to know? And so we prepared all of these case studies to show now the credible report tells you the answer is 0. His a data that tells you the answer is actually substantial and meaningful, and once people saw that sort of visually in front of them, they’re their eyes lit up and their jaw dropped and they said. My goodness, how can this be? And again? So then we started sort of building a platform that went around. Every day to all of the course sort of building the connectors building. Basically the the funnel to be able to bring all of this data into a central place where people could then. Centrally search against our database. It was specifically around filling that gap in data. So initially we were very mindful. First of all, we didn’t want to. Shout from the rooftops. Hey, we’ve got this one fly.
Patrick Schweizer
We also didn’t want to tread on other people’s toes and sort of become a nuisance. We really wanted to focus just on the gap, educate people that, hey there, there is a gap. And hey, you actually want us to help with builders. And so that that’s what we said about.
Chris Baskerville
Fill the gaps!
James Flaherty
To do and you’ve. Got. I’ve got. What? I’m sorry, Chris. You know.
Chris Baskerville
These two elements to allow US1 is it’s a searching tool. So if I want to look at someone or some Marty or some element, I’ll find what they’re currently involved in. But there’s also the watch list element, which is I can put peoples names and company names on the list. So whenever there’s any movement in in documents or activity within the the legal process, it’s going to flag to someone like me that there’s been a change or an an update.
Patrick Schweizer
Exactly right. And that’s that. That’s another key element where. But a lot of businesses rely on point in time reports where I’m about to do business with James or Chris, I can do a check on there and everything cheques out happy days. Well, what happens if next week or next month or 12 months down the track something changes? That I might want to know about, we’ll be able to give those alerts and updates in real time. It doesn’t always mean, hey, there’s some catastrophic issue, but at least it’s something that you’re now aware of. If you do need to, you know, do something to sort of manage your risk in a different way, at least, you know, to do that. Because oftentimes what we find is the first that a lender or a credit provider may know that there’s an issue is when they get a call from Chris saying I’ve just been appointed.
James Flaherty
Because you asked to call from Chris.
Chris Baskerville
It depends on what time of day it is. It’s getting close. To lunch, it’s.
James Flaherty
Probably good. OK, so so we’ve got we’ve got now you use it a little bit because I suppose the the thing I’m interested in selling a wholesaler and I get sick. Of the fact. That you know, these people kind of drop off because they trade with me one day, then they’re not, then I they owe me money or whatever. And then. Suddenly. Gone. So would I have them on a like a watch list? All of my credit. All my clients would like. OK. Gotcha. So. So that just says any time, so we it pins me if.
Patrick Schweizer
Absolutely.
Chris Baskerville
I get a just talking with the famous Schweitzer is what I’ve gleaned is, say, banks as an example. They put sort of customers on their watch list so that there’s any change to their customers. They’ll be alerted, but. I thought it was quite fascinating where construction companies put their subcontractors on the list, because if you’re running, you know, Queens Wharf, as an example, not you wanna know if you’re subbies are starting to look a bit shaky or money’s own claims are starting to come on them. They need to know. I thought that was a. Very powerful tool about to use.
Patrick Schweizer
That that’s an interesting one, where for a major contractor, often their risk is not themselves getting paid because they now have Project bank accounts. A lot of the work and maybe government work where there’s not really, you know, risk in terms of not getting paid by the government for. The project where their risk really lies is in there subbies not being able to. Deliver or falling over halfway through a job where the head contractor is then stuck with the delays, the liquidated damages having to sort of bring somebody new in having to do all the rework and and the catch up to compensate for for the subby who’s sort of halfway through falling over.
James Flaherty
It’s been interesting, whispered because it’s not only just insolvents is it? Like, there’s all sorts of other things, like workers, things like workers comp type stuff like any those sort of injuries sort of do those sort of things ever pop up?
Patrick Schweizer
Yeah, all of those. So you know, well one thing that’s interesting to point out is the one data point that the credit bureaus do get from the law courts, basically monetary judgement. So right, if I owe you money, you take me to court. If that ultimately results in a monetary judgement against me. That will then eventually appear on my credit file. What we see in practise is the majority of those things are small default judgments where it’s a small amount of money by the time I get a lawyer and and sort of go to court and defend myself, I’ve spent. You know, in some cases many times what the claim is for. So a lot of people just don’t sort of bother going through that process. Yeah. Then end up with what’s called a default judgement that appears in the credit reports. What they don’t pick up, though, the much bigger claims, which invariably will get defended where let’s say, I owe you a large amount of money. I I then will. You know, show up. With my lawyer and say no, no, no, there’s a big misunderstanding. I I don’t owe you that. Whatever the situation may be. So we see often that what’s not in the credit report is actually the more sort of juicy meaningful data. And sometimes the the more meaningful 1 can be. Workplace injury some of the penalties. And consequences of workplace. Injuries on sites can be business ending, you know either the penalty or you know what, what it means for your workplace. We we’ve seen many instances where there’ll be a ruling that says, hey, you’ve had a serious injury at your. Site here are. All the rectification. Things that you need to do to make your site. Safe. And the company has basically said well, by the time we spend all the money that’s required to actually do that, we’re no longer profitable and we now need to shut our doors as a result of this. So you know, things like that, which will never appear in a credit report given that they’re workplace related, they can be. Very, very meaningful.
James Flaherty
So there’s a gap, there’s. Not to demean in any way the role of. The credit agencies is just. A source of information that hasn’t been tapped effectively. Previous to a virus.
Patrick Schweizer
Exactly right, who have most of our users in the credit space will use our data in conjunction with a credit report. So we advise all of our users don’t throw the baby out with the bath water. You have a process, it’s a good process.
Patrick Schweizer
Credit reports useful. Running our report in conjunction with that to fill. That key gap. And what it does is gives people a just a much more complete picture of where their risk lies and what they might need to.
James Flaherty
Do favourite story favourite story about? We have caught something. You either of you, you’ve given me one where, Oliver. Who? I. Could deal with one if you got a another. Story that you. Can think of we we we have. Of course we’re there, yes. We have many stories, but you know.
Patrick Schweizer
What one that always sort of comes to mind is a. Lender who came on board. With us and it just so happened. That the very first report that they ran the prospective client who they were going to lend a fairly substantial sum of money to had a a money only claim in the. Report that flagged. And so the lender called up and said, look, we’ve run your report, you know, this is all sort of new new unchartered territory for us. Something is flagged. What do I now do? And you know, we said, well, look, I’m sure that you have an existing process. If something flags in your credit report, you then follow. Certain steps follow the same process you’ve. Now got another sort of adverse. Data point. You know, what would your existing process that you do? So we just threw that with this slander and we sort of just stress the point that look. You’re running our report. Specifically defined situations you know such as this. This happened to be a land that was going to be by and large. Even Long story short, the lender did not proceed with this loan about two months later, the prospective borrower entered insolvency. And as a thank you sent us an email with a Steve Smith one handed.
James Flaherty
Driving. Thank you, Sir. Thank you very much for.
Chris Baskerville
What’s going on?
James Flaherty
Patrick, we want you to come back, and we’ll talk to you about how you’re using and what you’ve seen. I think it’d be really fascinating to know the kind of Intel you’ve picked up along the way. Thanks very much for joining us. Patrick, it’s been great to have you along. And thanks, Chris once again. All the best.
Chris Baskerville
Thank you.
Speaker 4
A reminder that these podcasts are general in nature and do not constitute advice, and they don’t take into account your personal circumstances. So if you think, though, that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice.

By Numbers 1 Transcript

James Flaherty
Welcome back to the sounds of the Baskerville. I’m with Chris Baskerville.
Chris Baskerville
Welcome back, James. 
James Flaherty
Good to be.Back, Chris, on your own podcast, Chris, managing partner of the Brisbane Office of Jirsch Sutherland, where I realise that you are much in the news. And quite busy and have a fair bit on your plate, so it’s great to squeeze in a quick podcast or 2, worth it, isn’t it, Chris?
Chris Baskerville
For a cheeky coffee.
James Flaherty
Yeah, that’s right. Yeah. I brought him as probably, would you say your 5th coffee for the morning. It’s gonna be one of those kind of weeks.
Chris Baskerville
Yeah.
James Flaherty
It’s only halfway through. Hey, we took a lot and we’ve got a series about small business restructuring. There are a number of reasons because of the number of people who don’t still know about it. Blows me away. Recently we had  Patrick from Alaris. Great to have. Him on like the. Guru of statistics in terms of just giving you a feel for what’s going on and that they’re kind of early warning signs, aren’t they? Of is my Co. Don’t potentially exposed to litigation and will that sort of thing like a sort of a even before the credit bureaus is it’s a quite an interesting product, Belarus we had. Him on last week hey.
Chris Baskerville
Yeah, Alaris is basically scrapes the core data across the whole of Australia with the exception of Tasmania and what it does it it feeds into a report that. It really works really well with credible boarding. Yeah, and we. Use it as a mechanism to say, OK, this company that I’m about to inherit either whenever we. Yeah. What litigation has it been involved in or may actually be currently involved in, so it gives us an early.
James Flaherty
Warning fascination that just sort of following on that same. We talked a little bit about small business restructuring, the other types of appointments, but prior to the episode, you pulled up your laptop and you looked at. Some August stats. For what’s going on, and I mean the overriding. Sensation. It’s like the sentiment is that small business restructures.
Chris Baskerville
Are though, that’s where the trend is at.
James Flaherty
The moment? Yeah, especially.
Chris Baskerville
On the menu, isn’t it? Yeah. At the moment. I mean, just look at just the August data released classic, which then looks back at 23 and 22 shows of being, you know, 1300 companies that experienced external administration. Just in the month of August 230 or were restructuring, so it’s about 18% of the activity is small business restructuring. But but what’s what’s more significant is compared to this time last year. Small business restructuring has grown in its use 300%.
Chris Baskerville
But at the same time, what we’re looking at here is the concept of voluntary administration compared to last year’s actually come down, which could be explained by small business. Restructuring is a benefit for companies thinking about. Voluntary administration for a number of reasons, and also the cost burden voluntary administration typically is an expensive exercise. Has its purpose. And certainly really, really handy for for the larger type restructuring. But when it comes to a business with debts less than $1,000,000 and you know we can manage it ourselves fairly effectively, the directors that is, that’s probably the better.
James Flaherty
Fit yes. Right, Jay. I mean, it’s some relevant examples at the moment, it’s hard.
James Flaherty
To put something the size of an airline. Or a big trucking company into SBR because there there’s a million. Dollar threshold on.
Chris Baskerville
Liabilities to sort of credit and that’s a good point. He’s a it’s a debt level test, not a income test.
James Flaherty
Yeah, it’s interesting because you go to, you can have quite a big company that could still be eligible to be if they have low, if they have.
Chris Baskerville
You know you’ve got. Wow. Low unsecured creditors. Good. Yeah. Like, you know, hypothetically, you know, you take a brand name airline and it only owes less than $1,000,000 worth of debt in hypothetically you could use.
James Flaherty
You can use. OK, one of the things that in those stats that you did Alert me to was receivership. Just talk me through it just quickly and talked about what receivership is before in previous episodes. But just a quick what is it? Do you see an uptick? Of that and. Once, if any reason, would that be for that?
Chris Baskerville
Yeah. Receivership is an appointment by a secured creditor to effectively get the secured creditors money back in a nutshell. So. So you mostly see it where? Insert major bank name are points and insert a receiver’s name to go and get the banks money back from the business.
James Flaherty
Yeah.
Chris Baskerville
And the receiver is entitled to do, Trade the business, sell the business, sell the underlying assets that they have to do whatever it takes to get the. Effectively the security.
James Flaherty
So I can take over the cheque account.
Chris Baskerville
Of it, yes, right here.
James Flaherty
Absolutely. So they they should have become the become the board of directors until they get the money back and then they either give back to shell or like they’ve got control, you know, your complete control of the business slash asset.
Chris Baskerville
That’s subject to the banks security, assuming the better as a bank, right? And they can do whatever is required to to get the money back for the bank. And I think what’s important about the distinction between receiver against any other type of administration is the receiver is there for the secured creditor.
James Flaherty
Thanks.
Chris Baskerville
Not there for the unsecured credit.
James Flaherty
Like that, they would never be so unprofessional. But if I’m an unsecured creditor and I’m talking to a receiver that they could effectively tell me to talk to the hand they they wouldn’t, but they would. That’s not their job, is to look after your welfare. Their job is. To look after.
Chris Baskerville
Yeah, they gotta get the they gotta. Get effectively caught the banks money.
James Flaherty
Back. So I’ve got 2. Warehouses in my company and I, one of them secured by a. And you know, I haven’t been paying them. The other one is not does the receiver control what happens in both warehouses or notionally only has really got control over the secured. I know it’s a better. It’s. Well, the answer is in the documentation. Yeah. Know. The shots.
Chris Baskerville
And because your receiver. Appointment is a contractual appointment, so a company. And financier have entered into an agreement that, hey, I wanna buy one of the sheds. I need your finance to help with that. I promise that I’ll pay that mortgage back over time. So the question then becomes. Is the security limited to that one shed? That you are. Buying or do you give the bank the ability to say, security over the second shed that doesn’t have any bank debt to give the bank some comfort in the lending? Most people what will be asked of them is the make or say we want security over everything you got just in case. Any one of? Those facilities doesn’t work. We want the. Ability to come and grab. Everything. So that’s why. I say it comes down to the terms of.
James Flaherty
The contract. So many. Yeah, just. 3 two or three years ago we did a podcast, you and I, with a number of other practitioners, and we were talking about the difference between tax structuring and structuring yourself from liability and risk. And that’s quite a difference there, because if I’m a bank, I’m going to ask you to pretty much sign up in life.
Chris Baskerville
Liability and risk.
James Flaherty
Probably the name of you, probably your first born child. I’m gonna try and get my hands or whatever possible piece of security I can. Where’s if I’m distraction with the advice of our, you know, brought insolvency lawyer who might say, look, here’s your risk profile. Here’s the things you should put on the table here things you might like the house.
Chris Baskerville
Yeah.
James Flaherty
Yeah, you might wanna see if you can push away from the transaction, try and avoid signing directors. Guarantees all those sorts of things. It would be unusual though for you to see a situation where a bank was carved out from one part of the business cause they didn’t have security over the other. Fortunate. Is it? Yeah, it would be really unusual?
Chris Baskerville
It would be really. Unusual that the bank doesn’t have a general security agreement. So think about it like. An umbrella. So an umbrella that goes over the entire business and. Potentially even personal assets of. The director. It’d be unusual for that to. Would not be the case because you we just expect the bank has an umbrella over everything that you’ve got to protect their interests in the lending that they’ve given.
James Flaherty
Well, we better put that as a blog because the number of people ask me what’s the general security agreement or what is the have you got?
Chris Baskerville
Geez. Eyes. Yeah, yeah.
James Flaherty
I’ve got a GPS in my car.
Chris Baskerville
It is one of those documents that you need. In order to. Move to. I wanna register their security agreement on the PSR. To in capture. Everything under what’s called an all present entitlement, all PAP and all.
Chris Baskerville
Pap. Yeah, and all. Pap. Yeah, which basically says we have it all. So what’s present and what’s about to? Come into fruition.
James Flaherty
So they haven’t been so many of those. And if I think. Of the statistics. That’s not gone up. That much relative to what’s going on with SBIR. So because SBR is a situation, the directors stay in control, but they’ve got a person like you.
Chris Baskerville
He.
James Flaherty
Kind of helps them assemble the plan to put the credit as effectively and say, here’s my plan to pay you back over a certain amount of time or at a certain percentage because I’m a good human and I’ve got a good business that’s worth saving is. That a good summary. It’s interesting actually because the.
Chris Baskerville
Point of of. Of a receiver, receiver, manager controller comes down to the. Policy of the secured party, right. So in other words, how aggressive do we wanna be? Here, now the big four. And I’m only going to say it as loosely and generally so no one hits us for defamation. The concept is they if they’re we’re lending to consumers, we’ve gotta kind of be a little bit careful and then we’ve got duties to the mums and dads. We can’t be seen to be just gigantic sledgehammers and away we go. When we lend to businesses, though, a different story. We don’t have to be so protective, but we’ve. All been through. A royal Commission. We’ve all been grilled inside. And out it was a travelling roadshow. We’re all gonna take a more conservative and measured approach, so if we can actually encourage and the director to actually get proper restructuring help, we will send them to the people to get that. But where it is, there’s no possibility our our direct acting properly, practically all the business isn’t capable of doing it. Well, I’m sorry. We’re gonna have to enforce our. Rights. We’re gonna have to stick. Our receiver in now there are also secured lenders out there that are in this short term lending high interest rates. We’re not gonna take anything other than a personal guarantee against you, but we will get guarantees from your mum and dad, grandma or loss of stuff. They’re some of them have very itchy trigger fingers. And what I mean by that is they have. Almost designed it so that once the fault kicks in, there is almost an immediate appointment. Of a receiver. Almost as if everything was automatically generated by a machine because we’re seeing. A lot a. Lot of these short. Term money lenders. High interest rates. I’m not too sure where they. Sit in the. Tiers of of lending, but they’re being. Very, very aggressive.
James Flaherty
Our math was. That, you know, they have high interest rates.
Chris Baskerville
Yes.
James Flaherty
Typically, and they are taking a more risky proposition, so I suppose their view is well, I’ll do what it takes to get my money back here. It is a real case for the director to be aware of the kind of risk that that’s taking. So it’s members of the the taxation officer asked if you have to borrow money to pay your tax bill, do you really have a business? Do you have a business sometimes? Have you gotta keep on going into these more and more aggressive? Lenders. Then there’s a real question mark about that, and that’s a conversation for someone who might be a turn around expert or so that they don’t necessarily come. To you at that. Stage, but certainly it’s a have I got a business as a question we would say to any director at any stage what is this business that it is it providing me an actual return. And we’ve talked about that and franchises and we’ve talked about it and.
Chris Baskerville
Or am I the asset of the D the human?
James Flaherty
And why that’s? Yeah, it’s funny. We’re just literally talking about that in the. Case of people who are. Selling a business off and they. Don’t they are the they are. The value so when they’re not there anymore for sale.
Chris Baskerville
Well. And also goes hand. In hand with, you know, a good business owner will try and make themselves redundant from their own business. She is by saying I’m gonna set up this business so that I don’t need to be here and it can still operate. I mean, that’s ideally what you want. It’s.
James Flaherty
Funny, we’re just talking about, that’s just. To sort of. Round off where we’ve been a little bit of an uptick and receiverships certainly you’ve noticed that sort of your senses and we’ve talked about this with Patrick, is that the? The voluntary administration, the Great Australian idea of, you know, battling. On again with a. The person such as yourself to put. A deed of company arrangement. To the creditors to say hey. This is worth saving. Haircuts all around. Sorry, but let’s give this another go. But there are higher cost offers job. There are higher cost than an ESPY are. There’s usually more debt involved is.
Chris Baskerville
It generally well, yeah. You know, is there, I mean, ironically, involuntary administration could be used for a company that in hypothetically owes $1.00 to yes. Of course. Many, many, many multiples beyond that, it just has to be insolvent.
James Flaherty
Since.
Chris Baskerville
Or capable of. Or likely to become insolvent by resolution of the directors. So in other words, a sound minded director having used reasoning could go. I think we’re insolvent or we’d like them to be so. I mean, something is about to hit us when. And we’re not gonna survive. Yeah, well, so, no, but that that’s all you need. But yeah, like we said, you you can be. You can do V8 for $1.00 if you wanted to know why you would want to do that, I don’t know. But hypothetically, you know, if the company cannot pay the $1.00, it’s insult. It’s it’s.
James Flaherty
Have to watch. Over. Yeah, that’s right. Those are sort of trending along. So there’s a, there’s a real case. There’s a real chance for businesses with stuff that they haven’t addressed to get sorted out, and that seems to be what we’re starting to see is, yeah, the old stuff getting sorted out. The so called multiple billions of dollars of money owed to the tax. Office. That you? Yeah. Buy small business. Well, at least there’s a process to sit sort of separate the sheet. The the wheat from the chaff, I suppose. Yeah.
Chris Baskerville
Yeah, I think it goes back. To if you remember. Scomo right at the beginning of the recession when they bring. You in these. New laws will basically say we either want you to thrive or exit with crates, so.
James Flaherty
The answer?
Chris Baskerville
We’re we’re knocking on the door now, so you gotta make a choice. We’re gonna thrive. If so. Face up, face up, put. Up or exit with grace.
James Flaherty
Maybe that’s a good place for us to exit this podcast with Grace. I think it. As many idealistic can attest, sometimes it ends up at a different place than when it started this podcast. But I think that’s a if I take away the key lessons, it’s sort of. There are options for small business. We do notice a bit more of an uptick in things. Receiverships and V8 are still out there, but I think that’s that old question that any business person should ask themselves is this business got something that’s for sale. If I’m doing it, why am I doing it? Do I have a business? If I do have a business and it’s worth saving? It’s good to have options. Give Chris a call, take some good, Chris.
Chris Baskerville
Thanks James  
James
A reminder that these podcasts are general in nature and do not constitute advice, and they don’t take into account your personal circumstances. If you think you may have some of the issues that some of the issues raised or they might apply to you. You should seek qualified financial, legal or counselling advice.
Chris Baskerville, the managing partner of the Brisbane Office of Jirsch Sutherland, lets us in  bit why small business restructuring has grown by 300% compared to the previous year. This trend is crucial for small business owners to understand, as it offers a strong alternative to voluntary administration, which can be costly and complex. There are other things going on at the moment, though; Chris and James touch on the role of receivership and the importance of securing proper restructuring help to avoid aggressive actions from short-term lenders. Small business owners should listen to this podcast to gain insights into managing their business debts effectively and exploring options that can help them sustain and thrive in challenging times.

By Numbers 2 Transcript

James Flaherty

This morning we had our coffees. I had my single shot, long black and. What is yours? What is that? Caramel with six splendour not stirred or whatever it is that you had anyway? Hey, Chris. It’s James. Starting here with Chris Baskerville loadstar of the show with the sound of thebasketball podcast, how are you Chris?

Chris Baskerville

Yeah. Good morning, James. I like to call it diabetes in a cup with caffeine.

James Flaherty

Yeah, I just start shaking after about the second or third batch of coffee, but that’s how it all goes around. But like, walk over the sound of the. You know, we’ve been having Patrick on from Belarus and that that’s been really fascinating. He’s got a deep dive into what Alaris does and sort of Intel that you use in your day to try. And when you get appointed to something or you’re looking at the landscape of what our businesses are involved in. So talking a bit more about the landscape, you and I’ve just been just. Looking through the all guests insolvency statistics, because that’s the kind of exciting life that we lead. And we’re just trying to. Get a sense of what’s changed from last year. What are you seeing in terms of beyond the headlines John talks?

Chris Baskerville

About the usual. Yeah, the usual suspects are construction is either industry one or two on a year by year basis. Yeah. And that should be no surprise. And of course, you know, reading the papers is always this construction is going down this one.

But I mean, don’t get me wrong, there some really good building companies out are really good people in construction games. But yeah, it’s just sometimes how the mighty fall, particularly when you get a COVID reaction which causes price freeze on your contracts. But all your you’ve had to furlough a lot of labour and the materials can’t get in in time. We end up with cost going up, but you. Kind of capped in that. Contract fixed price contract in real disruptive, very disruptive, some builders were able to adjust to a pivot as they say quickly to get out of those fixed price contracts and more into a cost plus base. So no surprise construction at the moment still leads. But what’s interesting is is category #2 is the accommodation. And food services. Each in terms of insolvencies have doubled since last year.

James Flaherty

And that you would talk to Patrick Coughlin from High Patrick Ohh from credit watch about. He’s got a risk report. He talks about what the industries are and long hold. You know things like retail and coffee shops. There’s always in the top two or three, but are you saying there’s a step change? It’s not so much that there’s a high failure rate, but the failure rate is a lot higher this year. That that’s really what you’re Sorry.

Chris Baskerville

Saying is that. Yeah. Yeah. Well, if you, if you ever look at 22 to 23 financial years, yes, there’s an increase in this accommodation of food service. Is. By about 15%. But what the really significant element is what happened last year compared this year it has doubled in insolvency related to accommodation and food services.

James Flaherty. So that’s motels all the way through the combination of food services, not retailers. Use it. Retail retail will be its.

Chris Baskerville

Own separate category. Which outside of other services which obviously we haven’t categorised other services but retail comes in as the 4th industry leading the insolvency statistic.

James Flaherty

To be quite clear then. So that’s sort of people and tourist places might have a coffee shop you were talking about when you’re up and not. The other day. Umm. Yeah. You say like there’s lots of stuff for sale. Was that sort of at the?

Chris Baskerville

Hmm. You. Total I know, but one obvious 1 was like a three parter which is hey, we’ve got a

vineyard up here. We’ve also got this accommodation services up. Here and this wonderful

restaurant. All of it. Up for sale. No one’s been planning vines. No one’s been keeping

agriculture, and it’s just it’s just completely cactus.

James Flaherty

Such an opportunity for some savvy investor with a very big risk appetite.

Chris Baskerville

Yes. That’s right. But that wasn’t an isolated incident. So we’re we’re we’re travelling through

Montville, which all water mounts. So you covers both these major industries, accommodation

and food services, a little bit of retail and we’re seeing vacant stores, vacant accommodation places up for.

James Flaherty

Yeah.

Chris Baskerville

Sale that you wouldn’t. Normally expect to be on the market and some of it vacant.

James Flaherty

You know, it’s interesting a bit in that assuming it’s. Some of it will be a combination, but it

seems to me it’s the tourist related. Cafe by the beach, but it also it incorporates an office like

the CBD office based Coffee shop. Would be also. Included in accommodation and foods,

which the combination and food services. But catering run a coffee van in town with a coffee

van and an industrial estate. That’s sort of all of those. Are incorporated now are.

Chris Baskerville

They you’d expect, yeah. In terms of food services? Yeah, absolutely. That’s discretionary spend. I won’t put away as many coffees cause I don’t have quite as much money in my pocket. Is that what we’re saying? Yeah, I think it’s it’s the consumer spending. So you know, I think when we are and we being the collective, we the people, when we are fearful, we tend to save money or we don’t spend is probably the better way to put it. But when we’re kind of happy. And and feel this, we tend to just. Show that money. Out there when on the discretionary spending. There’s certain parts where people go, what recession, you know, if we’re talking about a reduction in discretionary spending. But I’m walking around certain parts and all the restaurants are full kind of makes sense to me in terms of when we are spending our money and and creating new restaurant opportunities. Yeah, there’s more options out there for the consumer. But as you start to take. Our competitors out of the market, the option for the consumer gets limited. So in other words, I still want to go to a restaurant, but now I’m limited to instead of having 10 choices, I’ve only got.

James Flaherty

Three now. Yeah. So that’s probably a question without notice, but we really need substitute chillion quotes. At. This point but there. Is a real kind of Darwinian survival of the. Fittest part here I mean.

Chris Baskerville

For to reflect on our favourite Churchill and success is stumbling for failure. With no loss of enthusiasm.

James Flaherty

Sounds like a second marriage to the point. The upshot of it is that yeah. There is a failure that’s happening that’s businesses do. That’s what we’re seeing. But they’re seeing as a. Like there’s lots of reasons why that’s happening. Less people go to the office, the whole work from Home Revolution. There is a change that will impact business models for sure.

Chris Baskerville

And then everything is a cycle. I think that’s the important thing is, is, you know, economies and everything almost works in the cycle. So when that we stop spending as much money. It naturally will restrict where our money is spent. Therefore it limits the amount of businesses that are gonna be able to service at a shock and demand. So business will naturally exit industries, but there’s always going to be an element of the baseline that won’t leave like for for example your house may be devalued after a global financial crisis, which we saw negative equity happening, which is you actually owe more. Money to the bank than what it’s worth. Right. But I remember no matter how much of the market became a blood bath, there was always a limit to where things would not sell out. In other words, there’s that. Far blind. Yeah, we acknowledge we’re gonna have to drop our price a bit, but. We can’t go. Beyond that, there’ll be a reduction in the amount of coffee shops we have in the city, but there’ll be a hard level where we need our coffee from somewhere. There’s always gonna be demand for it. It just might not be terrific, but some coffee shops are gonna throw.

James Flaherty

Right there. We also talked about this. We’ve we’ve had Patrick talking about sectors of the market and and we’ve talked about do I have a business, if you’re in some of these occupations or these places and the questions you ask is do I have a business and is this going to give me a retirement income? Is it gonna feed me one of the things that you are doing in your small business? Restructuring is that you’ve gotta kind of in some ways advocate to creditors. This is a business worth saving. So I imagine it’s much in your mind at the moment when you looked at a business that might be in one of these distressed situations. Is this one worthy of keeping like should the creditors give this one a second go and it’s a real question about.

James Flaherty

It’s Pretty hard to say to a person who’s put their whole life savings into a business to say, you know what, I know you’ve put a lot of money into this, but and our heart, we can do this restructure but. You’ve got to ask yourself, will you be here at 12 months time and of? Course you only get.

Chris Baskerville

One chance at this. Yeah. And I think also think about the make up of what creditors are caught up typically in a small business restructure or even you know a voluntary administration sometimes is. Your critical trade creditors and suppliers. Generally are gonna be. Looked after before you have to hit a button like that. So who are you really needing to convince? Typically a lot. Of statutory creditors. You know your work covers your payroll taxes, your taxes. They’re the people you need to convince that we have something viable to so. In other words, you don’t. You’re not typically pleading hard to your critical trade suppliers. It’s actually the statutory guys that you need to convince. You can’t convince them that this business will become a better prospect.

Chris Baskerville

Future tax payer or you?

Chris Baskerville

Work their systems out to be better in future, more efficient and you can improve your cash flow. They may out of principle just go. No, we’re we’re not supporting this.

James Flaherty

That’s interesting because. There’s a a lot of people run a business because I wanna make money, but they also they like their customers. They like their staff. They like the people, they like what they do. Yeah, they. Like the people they do with, there’s a. Concept that’s been talked a bit about, say, in some of the higher the big end of town talking about social contracts. Yeah, yeah. Some of the big accounting firms being dragged through Parliament, they’re asked to explain themselves. You have a social licence or a social contract. You say if I’m running a coffee shop or what’s my social contract? Well, I’ve got a part of the fabric of my society and my community. There’s a there’s a group of people who know each other and share stories around the heart of my espresso machine. Yeah, and. And that’s a great thing. Maybe that’s worth keeping. But not if it’s. Costing me money to keep going inside, yeah.

Chris Baskerville

Yeah, that’s that’s why, you know, I’m support a business obviously is I don’t mind people putting their prices up right prices up on copy prices up on here cuts prices up on things because.

James Flaherty

Yeah, of course.

Chris Baskerville

What I’m actually doing is I’m paying the extra price. So that that. Business can stay in business to continue to service. Me the way I like. To be serviced, you know, so as an example. The Barber shop. In the city here every six months, it’s like the price is going up. It’s time you swallowed and go. Oh, God, you know, do it. And I have the back. But you do it because. They keep their same staff on. They know who you are. They know the service that you’re offering. You have to you.

James Flaherty

Gotta pay for that. That’s that value proposition, you. Do it all the time.

Chris Baskerville

You know, I mean, yeah, and I think some business owners can get caught in the mindset that ohh if I put my prices up, I’m going to lose customers, which is a potential threat, but I think if you work out the mathematics of it. Is if you increase your prices, you have to consistently at least once. A year. You. Know six months. Please. You could afford to lose potentially 10% of your customers and still maintain profitability. Yeah. Yeah. And you might be surprised. You may not lose that 10% customer base. They may actually go. Yeah, I guess we’ll just pay the increased price in. In which case, what you’ve done is you’ve improved your profitability. Yeah, you’ve often talked about if you’ve got a challenge like.

James Flaherty

That sometimes it’s worthwhile. Just talking. The people you’re giving it to them, some shooting people are gonna be angry with you unless you give them an opportunity.

Chris Baskerville

Yes.

James Flaherty

I mean, how?

Chris Baskerville

Hey, guys. Would you feel if I bought coffee prices up to? $6, OK. Yeah, sure done OK.

James Flaherty

Yeah, OK, grumble, grumble, grumble, grumble. But Jesus. Nice coffee. Yeah. The good businesses do survive the you’re a loyal customer base. You might lose. One or two, they might go and get one of those machines you can use at home, but geez, it’s nice sometimes to go to the coffee person and.

Chris Baskerville

Yeah. And sit on the chair, outdoors, people. Yeah. To get to give you a contrast speed through Italy, Venice as an example, 2 operators said to us, listen, you’re about to pay 10. Euro for a cup of coffee if you sit and people watch from a chair. Don’t look at it as though. You’re buying a cup of coffee for 10 Euro look at it as though. You’re renting a chair for €10. Like you have to change your mindset.

James Flaherty

But we paid €10 for job contrast. You could also just get a short black at $0.80 and just stand back and shoot go a very good friend of mine describes who drinks coffee and red wine for a fact. Save me the guy off the back. She probably having the, adding, adding.

Chris Baskerville

Well.

James Flaherty

I think we’re gonna tend to sit around and watch the world go by. So I think this is there’s a few things. It’s the best cafe I think I’ve been to. At Brisbane, I think she got she got an award full. Same thing. Knew all the names of the customers, knew all the names of the pets that were bought in this woman was a machine there’s a high. Investiture you’ve put in to be that good has to reward you back. That you was able to sell that business and well done her because a lot of those are hard to sell, especially when you shave their the the entrepreneur is often the most valuable thing, but she was able to sell that business and well done her and we miss her dearly.

That was a great experience.

Chris Baskerville

Hmm.

James Flaherty

So in a world where there are failures in coffees, so there’s an opportunity for the people who still have the game to assess what it is that makes them worthwhile. If they’re behind, there’s a problem. Maybe there’s SBR that needs to be done. But if they’ve got a good story and there’s a place that people go and they provide a good a good service to people that would be missed, that’s a good story. Yeah. Which prices are make some tough decisions, make some tough decisions, get someone. And if you know, you need to survive, your business needs to survive in order to provide the services.

Chris Baskerville

That your customers dearly want, and you gotta put your prices up.

James Flaherty

Yeah, not really even likes inflation and sorry, RBA, but we’re not telling people to put their prices up. But put your prices up and if you can’t.

Chris Baskerville

No.

James Flaherty

Or you lunch. Then that’s the tough thing about business, isn’t it?

Chris Baskerville

For the value proposition another way, yeah.

James Flaherty

We have a whole bunch of people who could provide advice, often initially for like no charge. There’s a few ideas and then if you need someone like a coach or a turn around guy or a small business restructuring practitioner, go get a good one. But I don’t think I have to do it by yourself. There is an opportunity in this. Environment where.

Though are people falling around you? What keeps your business alive and how do you differentiate yourself from the ones that have already gone? Is that the answer? Make account there’s that someone centre. Never waste a good price anyway. Hey, thanks,

Chris.

I know you’re online on let you go.

A reminder that these podcasts are general in nature and do not advice, and they don’t take into account your personal circumstances. So if you think though that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice.

Lets make a Deal – Transcript

James Flaherty

Welcome back to the sounds of the Baskerviile I’m James Flaherty. I’m here with. Chris Baskerville the hand himself. How are you, Chris?

Chris Baskerville

Morning, James.

James FLaherty

it’s good to be back on this nice sunny day in Brisbane. In that sunny days, one of the things that struck me, sometimes you see all the facts, don’t you? You see the facts in front of you. You go the director here. I’ve got a case against this person and. I’m gonna take him to. Court, but then one. Of the things we haven’t really covered off is you might say tomato, tomato. I’ve only got $200,000 that I can pay you and you go. Yeah, but you owe me a million. So somewhere in. The line. There’s gotta be a. As sort of a settlement, so I suppose I was interested to get a sense of do you ever set, like, do you ever kind of like effectively make a deal or set a deal or do a settlement?

Chris Baskerville

You if you take the view, you don’t. That 90 plus percent of matters that start in court end up not going to trial. Well, then you’re only talking about the, you know, the top four 5% of matters actually go all the way into the trial. And and a judge makes a judgement call. And most of the matters are settled before trial so.

James Flaherty

I suppose the judge is going, you know, can you guys just sort this out? And there’s a lot of steps in the in the litigation process.

Chris Baskerville

From when you start it and to get onto the doorsteps of trial, there is usually. A court ordered mediation in that process, so another, and and the court basically says, look, you guys you parties get together in a room. Do it professionally. You get a professional mediator. Both of you get some advice and attend with the interest of trying to resolve this thing in good faith. In other words, turn it to mediation and try to to settle this thing well. OK, you can do that, can’t you?

James Flaherty

It could be a situation where you’ve got a a method that’s hang on these cats. I’m not gonna cook that. They’ve done something all want some more money.

Chris Baskerville

You can take them with. Cool. Yeah. So you’re right. As a liquidator, you would make an A claim, you’d make a claim, you’d make an assertion, you’d you’d make a demand against someone and they either. Respond or not? And you either are forced. To bring on legal proceedings, etcetera. They are forced to. Defend whoever it is that you’re you’re effectively making the claim against. And you both then show each others what evidence you both got, and then and then you end up at. A mediation so. When you turn up at a mediation. Usually, like my lawyers sometimes say to me, you know, you’re probably holding three out of five cards yourself. They’re probably holding two out of five cards themselves or the right ratios. Are vice versa. Very rare. Do you hold all of the cards? Yeah. Media. Very rare. So on that basis, you then assess where’s the risk lies. With proceeding beyond here. In other words, if mediation fails, we are off to trial like that. That’s the ultimate position. And we say that the court, hey, we tried. You know, we tried. We tried to attend mediation. We all turned. Up in good faith. We just couldn’t reach a southern, and so we’re. Now before you. His or her on us. You now have. To make the decision.

Chris Baskerville

Yeah. Playing your two or three cards, generally you sort of if you’ve got good parties on each side, you got a good mediator that can really explain the the risks. Of the case to both parties and and you got sensible parties, you can generally find a middle ground that you can settle. We are, I often say to my lawyers that that a good mediation is where each party walks away equally unhappy.

James Flaherty

That’s a good mediation. Looks something I can divorce settlement, perhaps as. Well, so just so I’m clear though. You can kind of. Here that stopwatch of the lawyers fees going. Is the longer this goes on, the more. The more the more protracted this becomes, the more their legal expenses can get up. Yeah, and. And then. So the risks you talk about are. Hang on him to do this. You may have to pay the costs of the other side is.

Chris Baskerville

Always one of the multiple risks there makes this thing so risky or or there’s elements of risk there, and there’s ways to mitigate it, but let’s just say there’s risk, right? So. Often in legal proceedings, you’re paying your legal team to act for you to do the best thing for you. Right. So no, but usually it’s a. Solicitor that drives a lot of the. Process. And then at the mediation events at the appearances in court events at the you know where where it’s really required. A barrister will also be added to the. Legal thing. So not only you’re funding your solicitors, you’re then funding the barrister as well and out of mediation. Usually parties understand that a mediation usually goes for longer than half a day, so a barrister will charge you a fixed rate for the entire day.

Chris Baskerville

The mediator will charge a fixed. Rate for the entire. Day because there’s just some fixed cost. You you basically. You allocated that barristers cost for the entire. Day your lawyers. Solicitors typically will charge on the hour, so if if it takes six hours to settle or 14 hours to settle that you’re paying that that the longer full pay but at least the barristers can can fix in a fee. Let’s just shoot. Him for a minute on the arguing the settlement that you do actually reach that point. You still have to put it in writing. So in other words, whenever an agreement has been achieved that mediation, usually some lawyer is prepared with a deed of settlement in draught, ready to fill in the blanks and and massage the document to meet what was. Agreed upon correct.

James Flaherty

With what I’ve prepared earlier. In the sort of degree the general, then you sort of go into their various clauses.

Chris Baskerville

And so a lot of the. Times we we expect if we go to. Radiation. I’ve I’ve done the quite a few. Tyres. Years if you. If your mediation has to start at 9:00 or 10:00 in the morning, right usually starts with an open joint session, so all parties have got to eyeball each other with all their lawyers and the mediator, the mediator, will lay the. Ground rules and then. Usually the plaintiff. Is first the defendant or respondent goes second. Both parties will say our case is strong. Yours is weak. No, our case is strong. Yours is weak, so you know, cause you’re trying to throw off you and then you. Split into separate rooms. And what the mediators job then is to do is to try and elicit some version of an offer to start this horse truck. And so the mediator will bounce between the two. Private rooms where the. Applicants are in one side and the respondents are in the. Earl plaintiff defended the term way whichever label you need to put on there and it’s the mediators job to try and get the parties to see some sense that you don’t want to go to trial here. It’s gonna cost you a truck tonne of money and most lawyers will know that after that last mediation, the doorsteps before trial or that you can just about. Add another hundred 200 to your legal bill. Once you fail at mediation, then you’re on your way to trial because the amount of preparation that’s required to get ready for. Trial is quite enormous.

James Flaherty

And so if you’re chewing up. All of this money? Yeah. One of the. Risks might be. Where everybody has to pay their own costs, even if you even if you win. Part of the I even if you win, I.

Chris Baskerville

Still, gotta pay you all lawyers. That’s right.

James Flaherty

And that and so that so that choose that we say, OK, well fantastic and I won 30 grand and it cost me 50 grand to get it. Yeah. And if you lose you still pay your lawyers and then you pay the other side legal costs as well. Yeah. Right. So that’s gonna hurt. Does hurt. Yeah. Right. So there’s a real risk so often often. This is to say to people. That I can’t quite. Understand why someone would be a liquid, and because the amount of pressure that you guys have to deal with these kind of costs all floating around with a whole bunch of angry creditors usually saying don’t do them. Chris, go get this guy or go get those people.

Chris Baskerville

Yeah, it’s all very well for a creditor side. Look at that gallon gallon sue here, there and everywhere and it’s like, yeah, great. Yeah, I think there’s valid claims and you corrected. In the fight. But at the end of the day, is there a pot of gold that if we are successful, we’ll get access to it? That’s usually the first question that goes through the Crows head and then the other one is and I refer to it as a rainbow and a pot of gold at the end is the claim good? So in other. Words the rainbow is like the clay. It’s in other words, is the claim good enough to get us from this side to the pot of gold? That’s your rainbow. And then use their pot of gold at the end of the rainbow. So there are two things that go through my mind.

James Flaherty

We’ve got a high bar so. Obviously this is so this is don’t try this at home.

Chris Baskerville

It’s a very scary thing for for those that. Have not gone through. Through. Yeah, little much litigation and and you’re going through your first one it it is it’s pretty hair raising and particularly when you’re the one that’s named as the party. So in other words it’s you you know it’s you versus whoever it is that your opponents are.

James Flaherty

There’s not sort of like big. Large company. It’s just backstreet.

Chris Baskerville

This is the interesting thing. Sometimes the proceedings. That we bring on. Is is a combination of? It’s a liquidators claim which which means I get named personally and the companies claim because the company is also the aggrieved party versus insert your opponent right. But sometimes we bring the action because it’s solely a company claim only like it’s not acts, it doesn’t fall within the realms of a liquid at its claim it falls. In the realms of the companies claim. Brought on by the liquidator. In which case it’s it’s in the name of. The company only.

James Flaherty

OK, explain this again.

Chris Baskerville

Now, why? What’s the difference? That’s.

James Flaherty

Probably the question you know.

Chris Baskerville

If I am the named party on the application, I am now exposing myself here, my human self to a cost or if I’m wrong, yes. If it’s brought in the name of the company, well, that’s a company side issue and usually an insolvent.

Which is.

There with no assets. It doesn’t have anything behind it. Unusual. So what a good opponent will do is they’ll challenge us and say, well, we want security for cost because we know this company has no assets to pay. So you, Mr liquid or someone sump up some cash, put it in the courts trust account, and once that money is secured for cost, whoever wins, then we’ll find it.

James Flaherty

And talked about this something before, like the company needs to be kept alive. Sometimes a creditor might tip in some. Cash because there’s a valid claim. So if it if it dies then sort of that it’s very hard to bring the claim without the company still in existence. And obviously it can be the one that’s that kind of corpus or the. Yeah, the thing that’s the actual entity that’s gonna gonna cool up.

Chris Baskerville

How could he still? Exist even in liquidation, I think. That’s an interesting thing. People understand this.

James Flaherty

Is in liquidation company still exist?

Chris Baskerville

It’s just the the management or. The control of it is now in the. Hands of a liquid. That’s right.

James Flaherty

You’re the manager. You have the right to run the show. Technically, in this particular case, and that’s interesting.

Chris Baskerville

Point and and it’s separate to personal insolvency, where assets vest in the human trustees. So in other words, different so in bankruptcy as an example, the assets of the insolvent and bankrupt. Now vest in the human trustees interest, so I don’t see the assets are lost right by the bankrupt.

James Flaherty

In a corporate liquidation as an example, the assets still remain assets of the company, but still it’s within the company, but it’s just charging. That’s right, it’s the control of the company has changed. The directors are no longer in charge, OK. So look like this all for you. Well, so OK. What’s an example of when you go hang on guys?

James Flaherty

I reckon there’s something I want to have a crack at here and you take you go after a couple. Of direct 2/3.

Chris Baskerville

Yeah. Well, I think there. Was a recent construction company, and it’s probably an interesting point to raise now because it is is a really recent investigation, but effectively. Two guys going to business and construction and. Then of course. You know COVID and all that. And hangovers all come in. And next thing you know, the company has become insolvent. And there’s a huge cough overruns on all the projects that they promised. So they come and say, OK, we we see the benefit of liquidate up. You know, there’s you upfront contribution, liquidator, we’re done. We’re gonna start a whole new different construction business. A whole new area up there, I think we’re. Kind of done with, you know, resi housing or? Whatever it is that they were doing in time. So we accepted that on face value instruction from the counter and away we go, we go do our business, then we start conducting investigations as you do as liquidator and we realise that like within two days or three days of our appointments nearly you know 2300 grand disappeared out of the company’s. Bank. Yeah. And we say well. Do you think the directors took it or that money ended up in the? Directors new new company so. In other words, company a that’s just falling into liquidation basically sent $200,000 to Company B.

James Flaherty

Yeah, the Accountant won’t recommend that as in particular, something like that one.

Chris Baskerville

I think the accounts are like you. Guys. Idiots, you. Shouldn’t do this because. You know, I understand that there’s problems with this and the directors ignored that and did it anyway.

James Flaherty

So that’s bad because I’ll take its Highness. You said about two or. Three days before the company. I’m gonna. I’m gonna appoint. Chris, for on three days before I’m gonna clean. The thing out, and I’m gonna cry poor.

Chris Baskerville

Too. So I’m gonna cry poor and I’m gonna. Give the liquid. Out just the bare bones catch up front to to get. Them to do the job thing.

James Flaherty

But OK, look, I’ve only got a few greens.

Chris Baskerville

Yeah, we’re we have. More construction guys. With through the pooch here and where we go.

James Flaherty

OK.

Chris Baskerville

But what was the icing on the cake as part of the investigation? Is the monies have exited the bank account, so 200 grand is clearly gone. But then we looked at the email systems and we saw the directors had just written to creditors saying hey, guys wouldn’t believe it. We’re shutting up shops, we’re insolvent. We’re closing all down and we’ve got no money to pay any credit. So in other words, on the day that they sent that email to all their suppliers is the same day that matched up to the exit of the money. And so, of course, that’s just red flag to liquidator have gone right? Well, what we can’t let this one be idle. And we thought well, one of the key strategies we’ll do first is what have we examined the directors get all their records in, but not only examine the directors that were in charge of the company at the time we’re going to call to question the company that received the money. Was at least part of.

James Flaherty

I’m calling it a loose syndicate, so we actually subpoenaed their new companies records to be delivered to the court and then put the two directors in the box now. And that’s your special power. So anybody talked about this in this podcast, particularly to this point, you can do a public examination, you can call in.

Chris Baskerville

Yeah, it’s. One of the powers that administrator, liquidator deed administrator ASIC has, is to conduct what’s called a public examination, which is you have to now front up and provide documents to a court. You need to sit in the witness box while you’re being. Effectively, a cross examination by a barrister, and because you’re a party that’s summoned to the court to answer questions, you can’t really stop us. You can narrow the scope and you can whinge and complain an object, but you really generally if we’ve already convinced the court why you need to be there, it’s very hard for that person to go. This is wrong but and look. People do throw all sorts of wonderful. Objections at you? To try and stop the process, they generally can’t.

James Flaherty

OK, so I’m in this topic examiners. I’m a direct driver. Just cleaning the company out for 2 or 300 grand, maybe 4 or 500. Whatever it is. If I’m hearing myself in this room with a bunch of very cold eyes. Yeah, me. What? I’d try and see if there was another. Way out of the scenario well.

Chris Baskerville

I’ll tell you what, I’ll. Tell you what, if if, let’s. Put it into the shoes of. These two directors that we were pursued haven’t we having discovered and uncovered this investigation. As soon as they get subpoenas. You don’t follow a defence, you don’t file a. Ohh no I. Think, look what has got it wrong at. That point it’s you just turn up. And not only that, do you turn up, you have to give us all of these documents. So the burden on that person goes through the roof. And of course there are. Now under pressure because. We’re not moving that court date, that they’re set and starting. New front up. Or you get arrested. You know, that’s another story. For another podcast. They front up, they produce evidence. We then get to test what records have you have you delivered to us and how is it that you’ve started a new business, but magically you can’t find profit and losses and balance sheets and trading accounts? And yeah, how?

James Flaherty

So. Directors go away and say. Maybe you should try and cut a deal.

Chris Baskerville

Yeah. It’s not an abusive process. Obviously you can’t bend. That’s usually something that people throw out at us, but it is an opportune time now that you’ve got the parties attention now that they’re starting to see. OK, I think the liquidator is actually on to this transaction and it looks like their brief of evidence is only getting bigger and bigger and bigger. And now that we’ve sat in the box and. To answer questions Underoath because we can’t tell lies. Maybe we’re starting to realise. That advice that the the accountant gave us was probably. Right. So maybe.

We shouldn’t have taken that money in the first place.

James Flaherty

From someone gonna try and do now as a dress? I’m. Gonna try and cut a deal. And I probably. Want to pay still as little as I can, but I realise it’s gonna hurt. Yeah, but what sort? Of deal could I? Cut well, you know.

Chris Baskerville

It’s it’s. Yeah, it’s what is a commercial deal, you know. So again, goes back to the sort of rainbow and and the pot of gold at the end, right. So I think our our rainbow or our plane was strong. So in other words, the evidence was just so quite overwhelming. Like the rainbow is looking very colourful covers. All the spectrum. The question was what’s the pot? Of gold at. The end of the rainbow. So then you’d look at do the directors have real estate themselves? Would bankruptcy totally affect their life moving forward? In other words, if we absolutely just ran this thing all the way through, which we think we’d win the whole way through, what does it look like from bankruptcy end but also? Their new business, having received some of the money was it was that actually trading OK or was that actually looking a bit shaky as well? So you have to weigh all of these commercial considerations up plus you’ve also. Gotta weigh up. Burden the hands were two in the Bush, so if they could come up with 50% of that claim now, as in here is within seven days of you accepting we’ll make 50% of this claim disappear and you release us forever. Is that worth it or do you go? No. If we’re stuff you we’re going to go all the way to troll here. Burn another 300 grand. 100 grand like.

James Flaherty

Two guys too.

Chris Baskerville

So the commercial.

James Flaherty

100 grand now or 300 grand later, yeah.

Chris Baskerville

Settings. All of that weighs up, so there’s no cookie cutter approach to it. And then you probably wanna get legal advice to say, hey, look, this is what’s on offer. What do you think? And if your legal advisors say, look, given all the circumstances, give her all the cost to run this thing to trial given everything, this is actually not a bad bad. Welcome.

James Flaherty

Great. Like you say, then you do like a settlement agreement, correct? Yeah. OK. We’re gonna talk about it, OK. Be worth while having a bit of a chat through a settlement agreement, perhaps in another podcast.

Chris Baskerville

Is it be worth while talking about sort of the elements that go into it because we see it time and time and time again and and this is designed so that people can settle. And walk away and that thing where we’ve.

James Flaherty

Had great, so how do I walk away? OK, let’s talk about that one next time. Thanks for. That. Thanks. Questions. Yeah.

Chris Baskerville

Tanks James

A reminder that these podcasts are. By nature, and will constitute advice, and they don’t take into account your personal circumstances. So do you think, though, that some of the issues raised might apply to you? You should seek qualified financial, legal or counselling advice.

Transcript

James Flaherty: Welcome back to the sounds of the Baskerville here with Chris Baskerville. How are you, Chris?

Chris Baskerville: Good morning, James. Good.

James Flaherty: To be back. Yeah. So last time, Chris, we talked about going to court. You do, you cut a deal with the director. Do you have to come to some kind of settlement? And so I suppose that the one of the things that really struck me is, well, what does that kind of what does this settlement look like? So we talked about the fact. Done a public examination so that sounded reasonably terrifying. So someone come through, you know, the the prospect of either having to do that or having then been through 1 doesn’t sound like a comfortable experience. So no. And so if you say, OK, let’s, let’s come up with this out. OK. So let’s let’s try and settle this, make it go away. What? What’s that actually look like? And monthly effect that directed the. Creditors roll. Got go. Chris, go get him. Go get them, Chris. Smash them. I want my money.

Chris Baskerville: You know, it’s funny we we talked about there’s commercial considerations that go into it and then there’s costs. We probably didn’t talk about risk considerations, which is you know the risks that continue to mount or continue to exist. If the matter was to continue to proceed because. Yeah. I mean when the parties. Don’t reach a settlement between the parties with, with both being guided by, you know, smart lawyers on each side. What happens is the destiny. If if you don’t settle at a mediation or over private terms, you know, without a mediation is that you leave the hands or the decision into the hands of another human being that has no knowledge of any of this. So that person obviously called a judge, looks at all the facts the way. They see it. And evidence gets tested, and then they have to make a judgement. Funny enough. And then they’re either going to decide one way or another now. Some lawyers will probably tell you that you could go into the courtroom thinking that you are on the absolute winner and walk out as the absolute loser. Some lawyers will probably tell you you’re walking in as the absolute loser and magically you’ve come out the. Winner like you. Just you just don’t know. So to avoid putting the destiny of a conflict. In the hands of a human that has no knowledge as to this matter, you probably want to do everything you can to settle at some point, right? Now that we have achieved settlement, the lawyers will say to both parties, it’s got to be in writing.

James Flaherty: Yeah. So, so, so just take a step back out, OK. OK. Sally, phone. Chris. Tell him or phone. Chris, get Sally phone the lawyer. Get the lawyer to speak. To Chris’s. Lawyer say we want to do it. What I said was, well, what do I do? This this is just getting out of hand. So then it’s a little bit like. The mediation we were kind of talking about. Last time a bit, you’ve. Gotta be an offer, and it’s gotta. Be reasonable like.

Chris Baskerville: Yeah, like, like as an example. So settlements can come at any time, right? Our first port of call is to just write directly to the director and say how I think we’ve got some, we’ve got a claiming is to we think the value is X amount. You know, do you want to just come and voluntarily? Talk to us and let’s try and do a deal between us. And the sensible director will go. Yeah. OK, let’s cut a deal. Let’s just talk terms. And then we agree we’ll get it settled in a settlement deed. You look at it, you get your lawyers to look at it, and there you go. So that that can be. That’s usually, you know. Liquid out to direct to trying to settle something like that.

James Flaherty: Doesn’t go through court. Peters. No, no, that’s that’s just. A green a legal agreement.

Chris Baskerville: Everything you have, and sometimes you can have these chats on what’s called a without prejudice basis. Cheers IC could tell you, James, all sorts of wonderful things in our discussion, but we’re doing it on a without prejudice basis so that none of this discussion ends up in court, but it’s it’s designed so that you and I can talk freely and openly and honestly to try and get down to the what’s what’s the integrity of the issues and and lawyers will say that all the time in, in conferences. Because what you’re trying to do is allow people to express themselves openly and honestly, so you can actually get down to the the real issue. Actual issue. Yeah. So so that’s one. The other one is we will press the director for a claim. They will immediately lawyer up. The lawyer then sells us. Now you’ve got no claim For these reasons we then.

Chris Baskerville: We’re up, our lawyer tells them. No, I think we do have a claim for. These reasons and. Then the lawyers that go maybe there is a deal to be done, in which case the lawyers. Start talking back and. Forward. So basically put the bones of the settlement. Together and then it ultimately. It ends up in the settlement deed or or settled over the letter so. Something that could be done.

James Flaherty: That’s a settlement dates that’s different from, like a judgement court where the the two sides might sit there. And right at the judge, when the judge goes. Yeah, OK. I’ll let you do that. That’s different this.

Chris Baskerville: Is just an agreement. Yeah. Yeah. This is not a court order. Right. So this is agreement to settle privately without the need of the Court, without the need interfering with the Court as time we as the parties in this dispute agree to settle on these terms. As outlined in the settlement.

James Flaherty: Peak and it’s bound by then contract law. Like what’s the if? I say so. If I’m a director, I don’t want you go. I’m gonna try to offer you enough money that you’re just gonna leave me alone.

James Flaherty: And so I would want undertakings from you.

Chris Baskerville: Yeah, Chris, you could put undertakings in this element 362.

James Flaherty: That, Chris, is. Not too hassle me about something else. He comes.

Chris Baskerville: Up with, yeah.

James Flaherty: And you with that in the settlement?

Chris Baskerville: Yeah. So settlement maybe maybe if if we if we take a generic example and sort of run top to toe about what we find because you know.

James Flaherty: It’s to. It’s it’s always really settled. OK, yeah.

Chris Baskerville: Yeah. So obviously, if let’s say we have now doesn’t matter what kind of dispute doesn’t have to be a liquid at this point, just any plate like any plate been any defendant, any applicant, any respondent, right. The first thing you need to do you identify the parties to the dispute. That’s usually a big one because there’s no point in trying to settle with that palm tree over there. If that palm tree is not part of the state, you know, yeah, usually there’s a recycles part because you kind of need to identify what’s the generic background here that led us to this moment in time. So recitals.

James Flaherty: Basically means background kind.

Chris Baskerville: Of background. Yeah. And sometimes the recitals, if they’re written, are actually quite important because what the recital actually do is show intention. So it’s like, what is the intention or the meaning behind this document? Like we say, this document can be used for whatever reason into the future if. Needed gotcha. Alright. Yeah. So usually, so I’ve now usually in the recitals it will say something along the lines of one party, assert something against the other party. The other party denies the. Allegations being made, but in the interest of all being commercial, we’re gonna. Do this deal.

James Flaherty: Ohh like those characters the other day took few 100,000. Bucks and then. Three days later. Quite poor. Yeah. Can I have a cheaper liquidation, please?

Chris Baskerville: Chris. Yeah. Right. So, yeah, right. So so. What that means is it’s. A no admission as to the responsibility or liability type, yeah.

James Flaherty: Saying anything wrong, Chris, but he’s annoying if I deny I’m just not gonna say anything about it. And you’re like, what? And what are you gonna say? And.

Chris Baskerville: I’m talking about middle.

James Flaherty: That you’re gonna. Say well, I’m I still think I’m right, but I’m gonna say I’ll accept you.

Chris Baskerville: Money. I’m going to accept your money to settle a matter that I assert against you, which you deny.

James Flaherty: That’s right. No, you’re not your.

Chris Baskerville: Denial. And I’m going to accept that you are not admitting to what it. Is I’m asserting?

James Flaherty: Is that going the recitals? Is that going a? Bit later on.

Chris Baskerville: Yeah, potentially. Yeah, mostly in the recitals, because you gotta think again, goes to the background. Why are we here? Yeah, that type of thing.

James Flaherty: OK, alright, OK, so. You got that you got the context. You got all that kind of stuff. He’s over here. Here’s the kind of. Bones of the whole scenario that. What happened?

Chris Baskerville: Yeah. Then we sort of move into. You know your. Classic definitions cause you know definitions come and go. Because in this. Issue we might define school bike or motorbike are two different things, you know, you know also the one for staff and of course you know how do you interpret things and then it goes straight into. Alright well look you’re in order to settle the thing. You’re going to pay some money. Yeah. What’s the timing and the amount that?

James Flaherty: You’re going to how much is it? Is it gonna say how much they’re well about, like, how how’s, like, who’s trust account? Does it go into and which when does it go like?

Chris Baskerville: Yeah. Yeah, and and and also. Like I know a lot. Of the times with with liquidators. Actually, sometimes what traps us in trying to settle something is one party needs more than three months to procure the funds, right? Or what we’re trying to settle is consider the debt. So if if an agreement goes for more than three months or we’re compromising a debt. More than 100 grand. What I have to do is liquidators go and get approval from creditors. So one of the traps or one of the conditions that has to be in the settlement that you usually buy liquidator is that I have to go and get creditor approval. To enter into this.

James Flaherty: Document right? And if what if I want. Oh, look, Chris, I I I will bring you the money, but I want to be as a.

Chris Baskerville: To the, to the extent permitted by law, it can be. So confidentiality does come into it, but to the extent permitted at law now, if at law I have to disclose this settlement to credit the body to get this approved, I have to, let’s say, say, yeah, I’ve gotta, I’ve gotta get approval from the people who you didn’t pay the money yet.

Chris Baskerville: Or that you nicked off with.

James Flaherty: The money, and they’re gonna and you know. And so they no grease, they’re gonna give me for why you only take that much? Chris, what are you going for? Big go. So you gotta.

Chris BaskervilleCorrect.

James Flaherty: Cause you’ve they gotta explain to them this happens all the time. You.

Chris Baskerville: That happens all the time, usually sometimes where the Ato, which is one of the most impacted creditors and one of the most prolific in accredited bodies that we have to deal with, turn up to meetings all the time, ask. The right questions. Of a of a liquidator. Administrative receiver. It’s. All on them, yeah, so. Yeah, generally, you’ve always gonna think in the back. Of the mind, if the creditor if. HBO is the major creditor here. What will the Ato think if I have to present this deal to them and they do ask those questions. Sometimes they go. Nah, not enough. I’m like.

James Flaherty: So you’ve got your mouth, you’ve.

Chris Baskerville: Got. Yeah. So usually that if there’s any kind of legal proceedings that have been brought on that causes this settlement, naturally there’s an agreement for how that comes to an end or is discontinued.

James Flaherty: OK, so all the stuff related. To what we’ve talked about. Is in this settlement so. So you’re agreeing to say I’m not going to smash you.

Chris Baskerville: Anymore, James. Yeah, that’s right. It this settlement becomes the whole it’s a holistic. It’s settles. Usually it’s everything right. So in other words, we’re going to settle all of the litigation. We’re going to settle all of the issues. Yeah.

James Flaherty: Anything and I would want my law. Would it? Be you’d want an insolvency of the. Way. On this because you wouldn’t you want somebody?

Chris Baskerville: Who, if the climate?

James Flaherty: He brought what to think about all of that? Yeah. Potential issues. Well, hang on. He the settlement should cover every, not every, but all the conceivable elements that might relate to that particular dispute. Yeah, she can’t then turn around. And go oh, but. By the way.

Chris Baskerville: It is. Well, well, well. See, that’s an interesting point because there have been settlements I’ve conducted. Yeah, we said to the party, we’re going to release you over everything to do with this specific issue, but I’m not going to release you on the other issues that I might bring in future. In other words, let’s just say a loan account owed by director, it’s pretty obvious it’s on the balance sheet. You took the money, you have it back, that’s that’s that’s probably the. I call it a low hanging fruit. We’ll we’ll strike there first, right? But then five years later, I’ll get my insolvent trading claim put together. And then I’ll come back at you again. Now, if you were reasonably smart director, you’d probably say there’s the money to settle the home and look, could we just settle what you think might be the sole trader claim right here, right now? And we’ll go. Look, we think it’s about 1,000,000 bucks. Could you come up half? Great. Let’s put that. In the deal as well. You gotta pay for that. But what what? Some cheeky guys do sometimes is is they they get us when we come after them for the low. Hanging fruit called the low. Account. They will say we want you to release us from everything that you might even conceivably come up with in the future.

James Flaherty: And you said they go. Hang on. I’ve got. I’ve got a. Pretty good deed I’ve got. A pretty good hand here, yeah.

Chris Baskerville: Why would I do that, right? Yeah.

James Flaherty: Why would I?

Chris Baskerville: Yeah, so so. To to mitigate that risk, if you you’ve realistically I think and not everyone is the same. But my my view is if you’re going to go and shoot for the director as an example or directors. And let’s not let the singular be singled out. You should actually bring all your claims on in one hit. So in other words, you sort of say to the director, hey, look, we’ve we’ve got the loan account, you’ve taken a Mercedes-Benz out of the company. We’re also going to hit you until I’m trading. And by the way, remember that business of hairdressing that you transferred it just been sideways. We’ll get you that as well. So in other words your. Claim brings on 4 elements in what the?

James Flaherty: There’s. Good practise for you to say all of the things to furnish all the potential risks of the director.

Chris Baskerville: By you said we do it in writing in a letter of demand usually and say, look, here’s everything we’ve found in advance. Here’s the quantums that we estimate. Let’s talk you.

James Flaherty: Know and they’re their lawyer should. Be warning them now. He’s got you. This, this and this. But you might have to watch out for. That so yeah.

Chris Baskerville: Probably shave a bit off here. We can. We’ve got arguments for some of these. Right account money, maybe it’s actually a dividend is actually not a loan. You know, there’s arguments that would put the liquidator not so much back in their place, but there’s arguments that someone could bring that gets the quantum into a bit more realistic.

James Flaherty: Quantum go. So we’ve got the quantum, we’ve got the proceedings. Like you’ve sort of. And now what’s in and what’s out? What happens?

Chris Baskerville: Next, then, then you you gotta consider releasing of the parties, right? So in other words, and this is where you’ve really gotta really drill down into the words, because who are you releasing, which is usually the parties to proceeding that that makes sense and for how long? Usually it’s forever. And for for what context? So. Is a release of the parties. Sometimes as liquid as we stick in there that the if we’re going to release you directors or whoever our opponent is, you also have to release us. So in other words, you can’t settle this thing and then all of a sudden bring on a claim against. Look what I said. Ohh. You know outrageous. Really. Just process and abusive process and now you know he’s just I just don’t like him or we want to release from that too.

Chris Baskerville: So in other words, we’re we’re both gonna settle. This thing walk away.

James Flaherty: Yeah. You want me to kind of deal with? Yeah. And you, I don’t want any more grief from you either. OK. Gotcha. Yeah. Makes sense. Yeah. Yeah. Yeah. Yeah. OK.

Chris Baskerville: Well, literally you’re building. Elements of default in there which. Is kind of like OK.

Chris Baskerville: Yeah, yeah. Because sometimes, like I said, if I have to go to creditors, then I’ve gotta get that approval. That could take some time. So that can be, you know, two months from from agreement. But also let’s just say the director only comes up with half the money and doesn’t actually contribute the other. Well, that’s the default. So then there has to be some element of what’s the ratification on default?

James Flaherty: Though what happens then does this does the thing fail? What happens? What happens to the money if you’ve got you got half of it? There’s a whole bunch of different things.

Chris Baskerville: You gotta think about. Yeah. Yeah. There’s there’s all those things. And so sometimes with with the default we build in there a consent to judge or an automatic consent to judgement, which is if you fail under this. Settlement you trigger an automatic judgement against you like.

James Flaherty: This it’s like so we can. Then go with this we that.

Chris Baskerville: We just go straight in. We’ve now got a judgement.

James Flaherty: Got a judgement and the judgement. That’s got the seal of the cord on it. And then yeah. That’s quite bad.

Chris Baskerville: Well, it opens up a whole lot about it using her. Let’s just call it that. OK, but the obvious thing once a human has received judgement.

Chris Baskerville: For an amount, and assuming it’s over $10,000, well, that’s grounds for bankruptcy. Notice almost immediately, so you know you just don’t want to expose yourself to that. Usually warranties because you know you’re sort of saying we are warranting that we have the capacity to enter this agree.

James Flaherty: Yeah, I am able to do it with the warranty order that I have the pay. Am I warranting that? I’ve got the money to pay? Cancelling all I have the right to sign this agreement, making the undertaking to pay you maybe.

Chris Baskerville: That could be 1. The other one would also be something like and we do this quite often with with directors is. To say well look. You you made off of the company’s money. We’re chasing you to get that money back on behalf of the company, we’re gonna ask you that we’re because you paid this money back to the company. We’re gonna ask you that you do not claim as a creditor back in the original company. Me that you took money from. So in other words, you ain’t worried that you’re never going to dissipate because you think about.

Chris Baskerville: It it’s a. Chicken and the egg, which is alright? Well, I’m going to take this money from the director. The director then proves in the winding up so they end up getting a portion of that money back. That doesn’t make any sense. That doesn’t. That’s. Not very enticing, no no deal. Usually costs everyone bearing their own costs if you if you, if you, if you settle things without the aid of a court. So I like that, which is basically, you know, just just cop it. Everyone’s usually got, we usually get people to say, hey, just want to make sure you’ve got proper legal advice, you’re warranting that you’ve actually got that legal advice. Yes, I want. Got the legal advice because you know our self Rep politicians can sometimes and get out of things by saying, oh, I didn’t get legal advice on that type thing or no one advised me that this is the ramification of of this settlement you. Know. Usually in you know Queensland a lot, but time is of the essence. So in other words, if if something in a document says you. Got 7 days to do something. That’s seven days is the essence of the deal, so if you miss it, you missed that 7th day on the 8th day you’ve defaulted it.

James Flaherty: That’s the point .2 cause. This should also say what if there’s a problem, which. Courts, you gotta go.

Chris Baskerville: To. Yeah, well, you’d you’d you’d build in jurisdiction. So that’s a that’s a really good point, which is, you know, you build in jurisdiction so typically.

Chris Baskerville: if I’m settling things in QLD. Against Queensland, businesses against QLD directors, it makes sense that jurisdiction is here in Queensland, but there have been times I’ve actually set around the jurisdiction of Victoria because that’s where most of the parties are. Gotcha. So just just depends just yeah, so yeah, jurisdiction is usually considered in that and I think I like the concept that the entire deeds. This settlement represents the entire all representations, everything, all the warranties and everything good, bad and ugly is represented in this deed. This is it like this. This. Is there’s no ohh hang.

James Flaherty: On about this other it’s all in. This this is. This represents the entirety of the of this.

Chris Baskerville: Ohh of the settlement. That’s right. So so ignore anything that we might have agreed to partially along the journey. Like, yeah, we’ll do that. No, we won’t do that. Yes, we will do that, like, ignoring all that. We bring it all to a head in this one. Moment of time. Yeah, the dog. Yeah, so I I. Like that and the ability for counter they counterparts. But you remember back at the old horse and buggy days where if I I had the original deed and then I’ll send it by snail mail to you, you’d sign it then your lawyer would sign it and then five weeks later the document might come back. Right. So, so counterparties these days, just. With, particularly with this digital Asia, we live in it. If every party to the deed signs just their signature panel on the deed and just send their signature panel back when you compile all the signatures together, once the last signature is applied, you’ve got your deal, right? It just makes a very. Speedy way to get us there.

James Flaherty: Yeah, OK. Rather than circulating something around.

Chris Baskerville: Yeah, that’s it. You know, I mean, this is just some of that. Don’t ever take that as legal advice that that’s what must be the deed.

Chris Baskerville: But that’s just generally what we see for Tony.

James Flaherty: And it’s going to be worth. While in some states getting. You know there’s. A one of our lawyer friends could come in and go through us a little. Bit you know from. The The No no better, but just maybe some other examples of when you’ve actually had to do this together, so that’s been really helpful.

James Flaherty: So so I suppose. The the mould the story is. That there’s a way that you could do. You are a businessman. And you are a liquidator with a job to do. You are making a commercial decision based on risks. And the scope of what is the best outcome for creditors based on what you see in front of you? Versus the risk. Of losing basically. So you cut a deal. In this particular case because. On balance, I’ve got you for I’ve got you, James, for most of what I’ve got you for most of these things. But I’ll cut you a commercial deal if you’re front up with some cash. Now.

James Flaherty: Away. Yeah. And I go hang on the I’ve got a decent lawyer, I’d say. Well, make sure I get as much in this pot as I possibly can. In exchange for the money, I’m gonna be giving Chris. Yeah.

Chris Baskerville: Because no matter what you know, sorry. No matter which hat we wear, the corporate hat or the personal hat, we are constrained by commerciality. So that’s just one of the realities. Of the world. That we live in now, don’t people listeners think that that makes us weak at every moment? Because there’s ways to get around all that. But yeah, constrained by commerciality. Which is. That constant do we have the funds to actually fight this thing ourselves? If not, can we call it other funds or the funds there? You know, it’s that. And then versus what’s the reward and then what’s the expense that will go to in order to achieve? That reward, you know. And sometimes it doesn’t make sense to spend $1,000,000 in legal fees to get back half a. $1,000,000. That doesn’t make sense, but if you knew that up front, if you knew that up front, then maybe a 300 grand. Deal looks quite clear.

James Flaherty: Looks looks quite good, so I think that’s commercial. So I think for anyone, Chris, who’s been listening to these now over 80 episodes over the several seasons, it was a full seasons. We’ve done these. I don’t think anyone’s gonna accuse you of being weak. So I think you’re pretty safe there. So they might, they might say. Yeah, it’d be good if we got more money, but this this is part of the story about how these things come about. And it also goes back to that thing. You know, what if people come to you early and they come to you with the truth, things can go better.

Chris Baskerville: I’ve always appreciated voluntary appointments because the directors are waving the white flag and they come. With open books. And they’ve got. Here’s our books. Here’s the white flag. We kind of screwed the pooch. Please help. You know that that’s a much better scenario.

James Flaherty: Then I’m happy to go hunt for it. OK. Thanks for that, Chris, been really good. Really appreciate your time and see you next time. Thank you. Reminder that these podcasts are generally in nature and do not constitute advice and they don’t take into account your personal circumstances. So do you think, though that some of the issues raised might apply to you you should seek? Qualified financial and legal or counselling advice.

2024 A Wrap Transcript

James Flaherty

Welcome back to the sounds of the Baskerville on the Chris Podcast. How are you, Chris?

Chris Baskerville

Morning James. Our end of year wrap up.

James Flaherty

It is the. End of the right so I thought. I could, if you don’t mind. What we’ll do is maybe a do a double, a double hit like we did with the Maker deal. That’s what we’ll do on maybe the year in review and then I might get to sort of get out the old crystal ball, you know, have a bit of a look at the future, make bold predictions like you and I’ve done before folder and carbon oil, one feet infinis some of it came true eventually it’s a bit like it’s a bit like eventually if you buy the site have the same Lotto numbers, you might eventually get the.

Chris Baskerville

Hold you in COVID. All of it. None of it came through.

James Flaherty

Low division events. But we eventually got something and we there was. Said it wasn’t. A zombie apocalypse, but it was a.

Chris Baskerville

Yeah, it it is interesting it. What? What I find interesting is the lag effect and I guess that’s probably the government of the day’s decision, was to alright.

Speaker

Yeah.

Chris Baskerville

We’ve got, we’ve got a medical emergency. It’s global, it’s impacting all economies. Like if I. Showed you the map from the International Monetary Fund of all the countries that went into recession around that beginning in Coven. If if a country was red, it’s in recession. It was like 80 to 90% of the world went red and it was a couple that were just holding on, like China, I think was one that wasn’t in recession. It was holding on and India, I think India was another one thatmwas not in recession as a result of COVID.

James Flaherty

Apparently yeah.

Chris Baskerville

But outside of that, it didn’t wide sweeping changes. So the government then had to respond appropriately to stabilise the economy, to allow businesses to get back on. Their feet or. Exit with Grace so that then we didn’t have this total trains mash. But guys like me saw, you know, using our GFC hat on. Saw a train smash coming.Speaker

Hmm.

Chris Baskerville

So we made all these old kitchens as to what we could see. Meaning, of course it. Didn’t happen, but it feels like that. What we thought was gonna happen at the beginning of cos is actually coming now at the back end or outside of the COVID years, yeah.

James Flaherty

Into the post code with all the government stuff’s gone. Was interesting things that have been talked about this often. We won’t need to go out again, but yeah, SBR, the small business restructuring regime came out of that, initial numbers were low that I think so so.

Chris Baskerville

And then it accelerates at a right.

James Flaherty

And our good friends at allow us have provided some information. So we’re we’re so, so come the end of the year. What? What? What have we seen? So where are we now? Probably a good place to start.

James Flaherty

It seemed to me that sort of middle of this year, things really started to ramp up. It was at the tax office. Really started firing out the. The started really turning out the DPN, that sort of stuff I dreaded. Directors penalty notices. So that stuff started ramping up. You felt that creditors were already chasing their money last couple of years.

James Flaherty

Tell me when did it change for you this year?

Chris Baskerville

Yeah, I actually felt it just. Shift in September last year. So maybe really basically the last quarter of 2023, I felt I felt there was a shift and it does kind of marry up with the with the data from Alaris, God bless ALARA.

James Flaherty

Yeah, that’s true faith.

Chris Baskerville

But what happened is definitely the front end of this year. For the first six months of 2024, it was just busy and my colleagues in the industry, we were all busy. And then obviously the number one complaint is we, we now need bodies to help solve the new influx work. So yeah, definitely the talent of the last quarter of 2023 into the first half of training, 24 absolutely going at A at a rate of knots. We then closed out by 30 June and when you tally up all the corporate insolvencies where external administrators been appointed to 30 June 2024, that closes out at a peak higher than the fallout of GFC. So in other words, another words we’ve hit that mark where we’ve now gone beyond GFC. What is now surprise? Thing is, when you have a look at the rate of incorporate insolvency since 30 June 2024, so for July, August, September, October, the rate of corporate insolvency is increasing faster than that. So in other words, whatever peak Web now hit beyond FC, it’s now in accelerating at A at a rate faster. Then the page we just hit in 30 June.

James Flaherty

Well, and I suppose there’s a real question about that again. Well, is this a port? I mean, you and I, I. Think I’m a what are we gun shy? Are we gonna make the predictions? And maybe we talk about that next episode, but it does. If it looks like a trend accelerating. From what you’re.

Chris Baskerville

Yeah, I think the the papers were were reporting assets, October data at 1300 companies a month last month entered some form of external.

Chris Baskerville

Desperation and the peak fallout from G FC, or even even just the COVID, was about 1100 a month. That was like, that’s hitting peak numbers for corporate. And so now we’ve gone from 1100 to 1300.

James Flaherty

Cause there was a bit of a wash out during covered so people you know often talk about it. How how hard it was to be around this end of this profession, you know, most of you had or losing staff because they have not much for them to do that. And then people retired. So there’s now less people. This high numbers have work like we work to do, and it might, I venture, more slightly more common than the regulatory regime hasn’t got any software or gene glasses GFC.

James Flaherty

So you’ve got more boxes to tick more things to check and more expectations set on you by regulator. By creditor, you know, by us oppose government. It’s not. I often say that liquidators lots not a happy one, but it’s yeah. But I mean it’s. A. You got a big job. With less people, more complex regime and a higher number of companies to deal.

Chris Baskerville

Hmm. With well, I think one of the interesting shifts that I’ve seen is we would this be the insolvency profession. Is this the profession at large? Is it Australian economy at large? Is it looks like we are now offshoring a lot of our workforce. To not Australia, yes, the obvious at the moment is the Philippines as an example.

Chris Baskerville

So in other words, yeah, the the staffing issue, the the sort of the pressure to maintain or on margins as an example means that we have to now use an almost a part of our workforce is overseas. And there are some businesses in their own game that have almost set their their whole engine room is not in Australia. So other words, they’ve been able to systemise the work and use overseas workers to make.

James Flaherty

Then and then the badge of the insult panel are people who just driven by sheer necessity.

Chris Baskerville

It happen. Yeah.

James Flaherty

Hmm, it’s not like you know what Australians wanting the job over got a young interim with me at the moment.

James Flaherty

Who’s decided to go to and to restructuring and insolvency? Ohh well don’t you? Because it’s there’s not many of them The Hunger Games.

Chris Baskerville

The very it blows a lot of people out. Yeah, it’s like God, this looks like really cool activity. Ohh this is so hard.

Chris Baskerville

That’s ****.

James Flaherty

And she was great. Credit is to his great credit, so that’s one. OK. That’s so fast. Press. The point is by Sheer necessity, people are going to the Philippines, to India, Indonesia there’s other.

Speaker 3

Asia.

James Flaherty

Malaysia say.

Chris Baskerville

Go ahead an account and come to me and said they’ve actually set up shop in Zimbabwe.

James Flaherty

Yeah, that’s very well.

Chris Baskerville

And and I said, well, do you mind just exploring with me what was the logic behind it?

Speaker

Good, good.

Chris Baskerville

And he said, well, first of all, Zimbabwe is a Commonwealth country. Yeah, they’re educated under an English system that they understand the common law. So whatever the laws of England loosely applied to Zimbabwe, loosely applied to Australia. So there’s a common element there and and the accountants in Zimbabwe are Chartered Accountants, they they combined under the Chartered Accounting Education SYS. Some, but of course you’re not paying Australian prices, you’re paying.

Speaker

No. Whatever. They.

Chris Baskerville

Lower African prices.

James Flaherty

Yeah, well, that was available.

Chris Baskerville

You know, whatever that.

James Flaherty

Is a basket case, so if I could get anything that helps it to be candid, part of me says if you’ve got people there with skills that can provide some some good income to people that are stable and you know why the hell?

Chris Baskerville

Let’s just call it 1/3. Of what you would in Australia so.

James Flaherty

Wouldn’t you do that? Yeah. Yeah, Siri Lanka is another. So years ago, when I was at a big. Accounting firm one. Of the clients, this was in the audit. That said, not only. Do we not mind that you are offshoring some of this stuff? But in fact, if you hadn’t, we would have challenged you as to why not. Because it’s just arms and legs, people and and I and those sorts of things will help. But you know, I got. A long way to go.

Chris Baskerville

Yeah, that’ll be, that’ll be a real disruptor AI.

James Flaherty

So.

Chris Baskerville

And and it’s one of those things from what I’m hearing from my tech. Guys in industry is that you’re either gonna be on the curve or. As as this a. I starts to move in and shift and start to change our paradigm on how we do things or you are going to be left completely out of it. And if you’re not on the curve, it’s like, yeah, you’re on the gun sights for such.

James Flaherty

Interesting because I’m very wise, man said to me once, he said. James, don’t be first. Is she done here? I mean, you’ve known me long enough that there’s 2 not much risk of. Maine being first. But but like yeah, and there’s a real difference between leading edge and bleeding edge. And so it was. Another wise Scott’s woman, who ran a big recruiting business, was really trying to automate their whole recruiting when serve when the web started coming on in this whole enter.

James Flaherty

I have to wait.

Chris Baskerville

Dean.

James Flaherty

How do we do this interwebs and use the cloud later? Use the clouds where the clouds.

Speaker

What?

James Flaherty

Nothing. Where is the clay anyway? Sorry I’m a stand. The promise I see. I’m just one of the big universities as just certain as of next year their students are allowed to use a. Bye. And funny enough, my nieces and another institution which was saying, well, you must not use a I and I’m going that is madness cause I use it in my job everyday and I know that lots of people are doing it everyday as fluid and as imperfect as it is. And it doesn’t have to be a big, terrible big jump. It’s just finding a way of doing something a little quicker and a little faster using tools like that. So we’re where’s all this coming? Is like what we’ve seen this year is a I I think we have seen the need for. Less people to do more with the number of insolvencies in the world. So from a business person’s perspective, the trends we’re seeing should be no different from what the rest of the industries are seeing, which is how do you do more with less in a competitive environment with and an economy that just for whatever reason will not play dead.

James Flaherty

It will not play dead in some years. The hit interest rates with us and that’s definitely increased the stresses around the place.

James Flaherty

Can you explain why house prices are still going up? I mean, they’ve been threatening that they have them go down for ages. No Victoria’s debts, supposedly. They’re, you know, so. I’m not going to predict down again next year. Because it has happened so far.

Chris Baskerville

So funny you could just about, I said.

Speaker

That’s fair.

Chris Baskerville

I ran into my old economics teacher from from school, or at least the economics teachers from my old school. And I said, you know, I’m, I’m beyond 20 years outside of high school. Obviously,

you know I said, you know. Lost boys? The only lesson you need to teach students from an economic perspective is supply, demand and the impact on price. If you if all you did was just teach them that concept and get your students to understand that you just about understand every market and economy around around the world, right, you know supply and demand is what drives everything. Look at it. From say, we’ve got this seismic shift of people wanting to leave the Mexican states in Australia. The move to Queensland, where it’s a bit more sunny and Sunshine’s rainbow and all.

Speaker

Yes.James Flaherty

People are friendlier and less of the staff areas.

Chris Baskerville

That. And it’s gonna be big demand and infrastructure over the coming years as Brisbane prepares for the. Pics problem is, we don’t have enough supply of houses to fit this demand in. So what is naturally going to happen? The house prices must go up, and it’s not like we’re living in any different lives or anything.

James Flaherty

Yes.

Chris Baskerville

It’s just supply and demand is gonna force that up.

James Flaherty

Yep, more people want something that the limited supply. The price goes up.

Chris Baskerville

That’s it.

James Flaherty

Yeah, right. So we’re gonna really suppose you look back at the year. I think this is. There anything that really kind of stands out as a? Bit of a surprise. Do you think there’s anything you said? You know where I didn’t see that coming? Is there anything that you? What kind of? Ohh yeah if you. And that’s a bit of a question without.

Chris Baskerville

Notice. I know. Yeah, it’s, you know, what was really funny is I I hadn’t been paying too much attention to the personal insolvency side. You know, we all we’ve mainly had discussions around

corporate insolvency and and then numbers what really did come to me as a surprise there was

only because I was preparing a a presentation to explain insolvency to non insolvency people.

Speaker

There.

Chris Baskerville

And you gotta you generally have to talk. At a higher level. Not not at the minutiae, but it was the massive change between. Yeah, it’s 30. Odd 1000 people a year ordinarily would have some sort of personal insolvency. So in my head 30,000 people file for bankruptcy year on year on year on year on years.

Speaker 3

So so I got that.

James Flaherty

So let’s not part 10 part 9, that’s.

Chris Baskerville

That’s the. Ohh no, that that would include personal insolvency across the entire border, but but a part 10 is only a small fraction. Yeah, of it anyway.

James Flaherty

Where and we’re talking about those before. Yeah, yeah.

Chris Baskerville

But but the latest data is showing that it’s not much more than 10,000 people a year currently. And I don’t think that’s a covered related issue. I think it’s a reflection of, you know that Hayne Royal Commission into misconduct by banks has has really softened the amount of people that are filing for bankruptcy either voluntarily or involuntary.

James Flaherty

And that’s a real change. That’s a real significant change.

Chris Baskerville

30,000 to 10,000 that’s 20,000 people that are are not going bankrupt yaronia. Yeah. And I I suspect maybe it’s because there’s been a shift in the change in the policy of banks as to how or when or why they enforce debts. Or don’t.

James Flaherty

Yeah. Wow. And I mean, you know, so who who are you bankrupting?

Speaker

Okay.

James Flaherty

That’s yeah, yeah.

Chris Baskerville

Well, I thought.

James Flaherty

Yeah. So what didn’t happen this year? You you kind of thought might have you even think of anything that you have thought? You know what? So do you think VIS voluntary administrations? Would have been higher than they were.

Chris Baskerville

Yeah. Suspected bunts. I think it might have been last year we might have been talking about this, but in 2023 I when I saw the uptake like a real seismic shift in small business restructuring uptake, I thought in my head.

SpeakerYeah.

Chris Baskerville

It’s gonna supersede voluntary administration in terms of the number and and it’s absolutely blown past that by 30 June for sure. But I can.

James Flaherty

The voluntary administration hasn’t gone up as much or as it’s. It’s hard to it’s hard to say. It’s a question without notice because of.

Chris Baskerville

Well, yes, so. So there is an increase, say from the base level of pre COVID to where? We are now. Or at least in the early part of this year, there’s definitely an increase in voluntary administrations compared to the base level.

Speaker

Yeah.

James Flaherty

Of course.

Chris Baskerville

So that that is. But if it’s the seismic shift of restructuring compared to voluntary, in other words the take.

James Flaherty

Could be stressed yet.

Chris Baskerville

Up of small business restructuring.

James Flaherty

Is so kind of sort of did happen what you thought was going to happen?

Chris Baskerville

Really it has happened.

James Flaherty

Yeah.

Chris Baskerville

So that one time.

James Flaherty

Ohh that’s good. Try that and then everything is sort of like any let downs from this years or anything you sort of.

James Flaherty

Thought, you know you need. Let downs that came out of it. Was a I think. Some of that stuff in terms of our profession was pretty hard. I mean, I was some of the stuff that came out of the certainly late last year and earlier this year in terms of. Yeah, the accounting profession certainly got a fair bit of paint knocked office by some of the behaviour of the top end of town.

Chris Baskerville

Yeah, I think I think that’s interesting. You say that and one of the I guess the fallouts from say a no, I mean I mean PwC was the one in the gun tights was that they started to you know discombobulating certain departments within. Hmm. And and moving that out to not part of PwC and then then as we saw the government’s trying to put pressure on the maximum number of partners that can form a partnership. In other words, they’re capping how you can’t get too big, you know.

James Flaherty

Yeah, it’s a real.

Speaker 3

He said that.

James Flaherty

It’s all change, and it’s a little bit watch this space. I think The thing is if I go to, not the captain to you and I would deal with would be. Yeah, getting the small to medium sized enterprises in the main. Hmm. Yeah, they just shake their head at that kind of insulation behaviour and then have to deal with the consequences of the wrecked reputation and all the regulation that’s gonna get smashed at.

Chris Baskerville

But they they. Yeah, the poor old account that I. Take my hat off to. And this is the normal 1 not not the abnormal ones like us, but indirectly they are becoming the agents for the tax office doing the heavy lifting for the tax man. That’s an effectively what has happened, so it’s putting a lot of pressure on the accounts out there with their compliance looking after their clients. It’s the ATO is really making those accountants.

James Flaherty

To the extent where they got a letter from the tax man to the tax agents saying you need to help us collect money from your clients and the tax and then I can be this quite senior without this like close to retirement but advise head of the industry.

Speaker

Yeah.

James Flaherty

Is Grammarly on. You’ve got all the tools to chase your own debts, including debt directors peddling notices, and I’ve already busy.

Chris Baskerville

Hmm yeah.

James Flaherty

Yeah, chase your own money. Don’t make it my problem. That was really interesting. He’s got it.

Chris Baskerville

It’s what they’re trying to do.

James Flaherty

Yeah, yeah, yeah, yeah.

Chris Baskerville

So. So he’s sort of thinking about it there. What could the A do? They can either hire in house all of these more auditors and more enforcers and more legal guys, and more that. I mean, they could do that, they could raise their workforce to especially one or they just put the pressure on the accounts to do that job for them.

James Flaherty

And how many accounts? Do you know who are just cruising? Pretty, pretty happy life. Just got nothing to do. Yeah, that’ll be 0.

Chris Baskerville

Hey.

James Flaherty

And I got. I know some guys were really sorted super efficient practises Dr Nice cars, in fact, a shout out to Sandeep who stopped on the side of the road when he discovered that these episodes are only 1520 minutes, actually stopped his car to see what had gone wrong because it was so good. He told us and what I said Ohh anyway. But sort of guy. Really good practise. Butbyou know, those guys have gone full tonne. Really sad and I’m not said to the rest of the profession like the rest of us, who just try and make the with what we’ve got and sort of lessonsfrom the smart guys, but a lot.

James Flaherty

Of accounts got a big pile of stuff to do. Too few people to do it, so getting asked to help help the tax man do his and her job. Yeah, Okay put it.

Speaker

Hmm.Chris Baskerville

Ohh it’s not meant the bird is huge.

James Flaherty

Put it in, put it in the in tray.

Speaker

Hey. Hey.

James Flaherty

Hey. OK. And the idea that do. You feel the end of the year, though. Do you feel like you’re a happier place at the end? Than. You are at the beginning or you just looking forward to the holidays.

Chris Baskerville

Ohh definitely definitely. I think we’re looking forward to a break. What? What I’m actually concerned about is and it happens quite off. When is, people will leave their decision to do something with their company until almost the door steps of Christmas Eve. Yes, because they don’t wanna carry their problem into the new year. They’re then go bang is now your time. And look, we’ll, we’ll be grateful for the work. Don’t get me wrong, but it it means then we then have to go to battle stations just before. Christmas. Just to get process. All the.

James Flaherty

So hold that thought.

Chris Baskerville

And yeah.

James Flaherty

So. So the kind of good news could you could kind of be busy, but Jesus gonna be a bummer to be doing it in between Christmas and New Year.

James Flaherty

Hey, thanks, Chris.

Chris Baskerville

Yeah, like that.

James Flaherty

A.

Speaker 3Reminder that these podcasts are generally nature and do not constitute advice, and they don’t take into account your personal circumstances. So if you.

Think though, that some of the issues raised might apply to you. You should seek qualified financial, legal or counselling advice.

So 2025 whats next Transcript

Chris Baskerville

Welcome back to the sounds of myself. I’m Chris Baskerville and together with is James Vardy.

Speaker

The.

James Flaherty

Hey, Chris, how are you? So we’re saying on okay. So look, I want you to throw you under the bus. I want you to stay. Let us with with a with the. Thought for today?

Chris Baskerville

And thought for today. As we were talking is from Einstein. That said, the definition of insanity is doing the same thing over and over and over, expecting different results.

James Flaherty

Yeah. And some people could say that about this podcast. But I mean the port is. Hi, Chris. So I think that the reason why I wanted you to do that was because let’s talk about next year, OK. So let’s talk about next year.

Chris Baskerville

So we’re talking about the the calendar year of next year being 2025, yeah.

James Flaherty

Okay. So, OK, that’s our ground rules. What do you predict? The last episode you just sort of talked about, boy, I’d like, you know, I’d like Santa. To come to my house and in my Christmas stocking is to not be a whole lot of immediate trade unions and voluntary administrations that apply that are appointed on the 23rd and the 24th of December.

Chris Baskerville

Which happened to be business days now.

James Flaherty

That’s in our business day. So that’s your Christmas wish.

You were open on Christmas like you go.

Chris Baskerville

Yeah.

James Flaherty

Right.

Chris Baskerville

Yeah.

James Flaherty

And you wanna be able to. Have law on a beach. Take the fan somewhere nice and. Leave the fan. Ohh and for it not to ring.

Chris Baskerville

It’s an interesting time of the year. If you have a look at the ASIC data, December, January is the worst in terms of new work for us typically. So in other. Words. If you think about the calendar year.

James Flaherty

Worst as in, not much or worse than a lot.

Chris Baskerville

There’s not much, and now and they’re they’re generally the worst months in business as well.

Chris Baskerville

How do you get through December, January period? Because you’ve got a lot of leave happening, you’ve got no income coming in. I mean limited income coming in, but you gotta truck load of expenses that have to go. Out the door. It’s always, always a challenge, but what happens? These directors get over it. Before Christmas and I don’t want to carry this over it into the new year. They want to start the new year fresh. So what does happen is close to Christmas Eve, the director or directors makes that decision. I’m done. I wanna start the year refresh bang, incomes the VA incomes the liquidation. Incomes the SBR. Because they don’t wanna carry this burden into the new year.

James Flaherty

What I want to look at my. Family at Christmas or whatever the whatever celebrations you’ve got over Christmas, whatever background you’ve got and go. You know what? I wanna have the holidays. On a switch off and know that it’s know that it’s not noring at me anymore.

Chris Baskerville

Yeah, correct.

James Flaherty

And I mean we off. And in fairness to. All the directors and all their advisers, we always say just at some point you. You gotta face them with you, say time the beast.

Chris Baskerville

Like that.

James Flaherty

Face the base. Then stop it, letting chewing at you. It’s just that a lot of people seem to do it on the 20.

Chris Baskerville

Head and we are grateful.

James Flaherty

3rd and 24th of December, December.

Chris Baskerville

We are grateful for the work. Right. Who always grateful for when the work comes in. Because that’s how we feed our families as well, and most of our colleagues will operate some version of the skeleton staff, or at least the appointees will be available even if there’s no one in the office that you can at least reach an appointee.

Yeah. So the director of relief, their burden. We’ll take it and. Then we have to just go like the clappers. But if I was talking to. The directors that are out there. It’s usually it’s. It’s the first few days and weeks of making that decision that you have to do something with the company that is the most troubling. A lot of dusk. It stirred up and and and media and and all this. All these fears float around, I say. What a perfect time. Then, just before Christmas, when the whole world will shutdown for two weeks, give the bad news before that Christmas period used that time to recalibrate your head because everybody’s gonna be off and the whole world will shutdown. That is the time to be pushing the button.

James Flaherty

Isn’t it too? Cause I mean because of course there’s a bunch of other people are going. You know what? So yes, but if I blow this thing up, all my crew will be lose their jobs before Christmas.

Chris Baskerville

Yeah, that’s right.

James Flaherty

And so there’s a whole lot of nice stakeholder issues that you gotta think about. You go. Ohh wow, when and I suppose there’s never. An easy time to make the decision.

Chris Baskerville

No. So. So it’s either what what happens in our game is it’s either just before Christmas, the decision will be made or just after Australia Day.

James Flaherty

Yeah.

Chris Baskerville

So in other words, in our in our world, typically the phones don’t ring between the close of business in December and and really Australia.

Chris Baskerville

Okay, it’s just gently quad, you know.

James Flaherty

Yeah, it’s just.

Chris Baskerville

But you know, we’re talking predictions, right? I guarantee there will be at least one one retailer who will milk the Christmas sales.

The Boxing Day sales and shortly after that, potentially in the New year, hit the button and go up. We’re out.

James Flaherty

Ohh cause that check back cause I haven’t got what they wanted.

Chris Baskerville

We’re done. That’s right, yeah.

James Flaherty

Yeah, it’ll be people sweating on Black Friday and stuff already out of this year, so.

Chris Baskerville

There and there will be people who basically just trying to milk the last of the of the money that’s floating around in this calendar year and then come the new year.

James Flaherty

See if it red tap out.

Chris Baskerville

Bang, we’re out. We’re done, he.

James Flaherty

OK, so so prediction number one is they’ll inevitably you see a retailer. Now possibly other construction, maybe there will be a bunch of hospo places that’ll just give up the ghost at.

Chris Baskerville

Yeah, that’s a good point. The hospital will run into Christmas.

Chris Baskerville

Do the Christmas party routine. You know the events and all that. And then bang, there that you won’t see him again next year.

James Flaherty

Banks don’t think they don’t. OK, so yeah friends. According to watch, it’s not so much construction and hospitality and retail. They’re always alone. We’ve spoken, you and I before to those guys, it’s they’re often. At the top, it’s just the percentage of them that are falling as fast. Yeah, there’s just more of the same.

So that your expectation is.

James Flaherty

So based on what we talked about last episode, you saw that there was gonna be a higher number of there’s a hot.

Chris Baskerville

Small business restructuring.

James Flaherty

There’s a higher SP I and you think that the the general trend of insolvency will be you’d expect it to continue.

Is that what you’re where you’re?

Chris Baskerville

Yeah. Yeah, so, so the data coming out beyond 30 June 2024, so we’re talking July 24, August 24. Ever. Is that the right of corporate failure in those months is now showing us that we are actually accelerating insolvency dies faster than the peak of GFC now. So another words what the insolvency numbers on a month by month basis are now higher than than the fallout from the GFC. So it does say to me we are gonna. We’re gonna break records in this next year. I mean, in theory, we’ve already done it by 30 June, but it’ll be of. Yes, that the insult corporate insolvency numbers are now higher than the peak fallout. From G FC.

James Flaherty

The because there’s no, I mean there’s some suggestion of maybe an interest rate cut, but it’s all keeps a. It’s a bit like.

Chris Baskerville

It’s it’s. It’s because we that don’t. The inflation data is is is a lot backwards looking.

James Flaherty

Yeah, yeah.

Chris Baskerville

So what’s happening is we’re getting squeezed and squeezed and squeezed. The Alba is looking backwards, not forwards. Drought and they’re going ohh but but but the last quarter we we’re still very high inflation.

James Flaherty

What’s your sister still too hot?

Chris Baskerville

They’re not looking ahead going, we are getting crunch going into the Christmas. Our mortgages are are now at, you know, three times what they used to be.

James Flaherty

Yeah, that further than last episode. We also talked about this in the economy that won’t play deck, I’m not gonna pretty get anything based on our track record, but I mean, I think we’re pretty safe.

Chris Baskerville

Yeah.

James Flaherty

So we would expect insolvencies to.

Chris Baskerville

Increase insolvencies absolutely increase. I think we’re gonna see a shift in the Ato with respect to small business restructuring cause we’re starting to see it now in the last couple of. Is if a return to creditors was in that 20 to $0.30 range in small business, restructuring are good compliance history and it’s a business that’s viable employees need saving. You get the tick. Now we’re starting to see that the Ato potentially wants either more money or they’re now starting to be very selective about which industries they’re gonna give the tick too, because we’re we’ve definitely noticed things relating to construction or labour hire. Is starting to now get on the nose with the Ato and there we’re starting. To see a bit of push back.

James Flaherty

Ohh, you’re not here you.

Chris Baskerville

That’s gonna be interesting. It’s gonna be interesting to see what happens next year. The problem with this is the HO doesn’t put in stone in writing. Here is our policy on what we will accept and will not accept in small business restructuring land. So it’s very difficult. For us to tell a director, this is. Where we think you need to land it’s it’s we’re using our best educated guess.

James Flaherty

Just like best offer. Get your house in order to. Put your best off home.

Chris Baskerville

Basically, put your best offer forward.

James Flaherty

Yeah. Yeah, right. It’ll be interesting to see. I I agree that there’s definitely a bit of a change in tone. They’re flat. Out there’s more and more of them. Yeah, a lot of them are trying driven by directors penalty notices, but not all.

So that will be interesting to see what happens next year. The tax office should be less accommodative and a little bit more nuance. Is to which industry? Only that’s a reasonable expectation. OK, give me more money. You wanna? Yeah, I’ve been telling her to be compliant. You’ve been told to be compliant for since pretty much covered you’ve been told about the benefits of being compliant. Russia doesn’t also same day, Supers coming in. Next year as well so.

Chris Baskerville

Which is you pay your wage. You pay your super on the same day.

I mean that makes sense to me.

James Flaherty

Yeah, yeah, yeah.

Chris Baskerville

That’s that’s.

James Flaherty

Ohh, this kind of free bank stuff.

Chris Baskerville

That makes sense.

James Flaherty

Sort of. Yeah, that’s.

Chris Baskerville

Ohh I think too. And and then the only reason I mean again, I’m just but boxing at shadows thrown through some predictions out there.

But I have been hearing and some of my colleagues in the industry where director penalty notices are issued and they have a very strict 21 days to deal with it. If it is a non lockdown one, in other words, while you still have options to remit the penalty and avoid personal liability 21 days, the advice that’s out there is from accountants is don’t worry about it. We will get all the returns lodged and then we’ll enter into a payment plan with the tax man within this 21 day period to remit the penalty. But that is no longer an option. Once the director penalty notice comes out, there is no enter into a payment arrangement to the penalty anymore.

James Flaherty

That’s no, no, no, no.

Chris Baskerville

So what I for Shadow coming is someone is going to sue their accounter that gave that advice because the director has now worn all of this personal liability on the basis of their accountant saying don’t worry, we’ll get a payment arrangement up and remit that penalty. This is no longer an option. You gotta read the notice. You gotta look at the notice, not the letter that you gotta look at the notice and and see what is the options that the NHS is giving me to to remit the penalty. Obviously pay the tax. Bill would be. Refreshing, but in the absence of that, it’s only appointed administrator. Put the thing into liquidation. Start a small business restructuring process. There’s no payment.

James Flaherty

that’s all. It’s just some. That is the mechanism and I think that’s probably a point that should be raised at various conferences about industry conferences. It was sort.

Chris Baskerville

Of that, education needs to be out there to accountants, yeah.

James Flaherty

Ready. Yeah. People find us at the time saying how to can I get a payment? Arrange something you. No, you can’t cause there isn’t a. The mechanisms are as you what you just said.

Chris Baskerville

Yeah. Ohh, I’m by the way. You’ve called me on the 25th day after receiving the notice.

James Flaherty

Yeah, yeah, yeah.

Chris Baskerville

Your choice.

James Flaherty

Too late.

Chris Baskerville

That’s it.

Your gone1

James Flaherty

Go on.

Chris Baskerville

It’s not 2121 days, is not arbitrary. It’s not subject to any flexible. So the ohh this is the other thing too is directors talking with the Ato saying hey, I’ve just got this director penalty notice. It’s given me 21 days now. Goes. Yeah, we acknowledge that. Just give me some time and I’ll come back to you with some sort of arrangement or payment in the A goes. Yeah, okay. Well, you know that’s that’s cool. Meanwhile, the clock is ticking. The H is not doing you any favours when you engage with them. We need to get a pay the their. Backed it. Or you gotta take one of those other three options. If it is available to, that’s it. You know, there’s no other. There’s no you can’t move the deadline.

James Flaherty

Yeah.

Chris Baskerville

You can’t.

James Flaherty

They don’t have the capacity to give you an alternative because there. Is one there.

Chris Baskerville

We just put the notice has gone out.

James Flaherty

A yes.

Chris Baskerville

That’s it. You are now on on notice, right?

James Flaherty

So I think a bit more come to Jesus is that order a better expression, a bit more face the music for next year. Yeah, right. OK, so be and I. When do you think the next torrent of deep heat director’s penalty notices? As much.

Chris Baskerville

Yeah, it’s funny you say that cause we were having this discussion today, which was, you know, if 21 days is the magical time limit to do. Something it really means if the HR does not want to be seen as a Grinch leading into Christmas. Hey, we issued 10,000 dpns just before Christmas. Ladies and gentlemen, it means that our gut feel is that they won’t issue any dpns after 30 November. 2024. So in other words, what they going to do is up my my gut feel is they won’t issue anything in December that has a 21 day deadline that finishes either. In the New Year or just before Christmas, but it wouldn’t surprise me that come into early January, the regime picks up again, potentially even after Australia Day. Cause you know if we’re.

If we’re trying to be a reasonably Australian, let’s not kick anyone in the guts before Christmas. It’s let everybody enjoy up to Australia Day and then it’s game on.

James Flaherty

The new game mode say, rather than a cool summer, it’ll be sort of a very cold autumn. And yeah, so I think that’s a reasonable. I think we would be. What to expect? That, and I think the industry would be right to. Be geared up with that.

Chris Baskerville

He’d be better behaviour that I say put this way. How will I know that I’m wrong? James in my prediction about Dp’s being issued inside or outside Christmas.

James Flaherty

The ohh it will get 4 get feedback from listeners. Don’t worry about that.

Chris Baskerville

So I will be getting phone calls on one January 2 January 3 January that that’s what that’s how I will know I’m wrong.

James Flaherty

Yeah, yeah, yeah, yeah.

Chris Baskerville

Now it’s in. It’s a weird way in in a way. I want the work and I appreciate the work.

James Flaherty

As you’ll regret, fun.

Chris Baskerville

Happy to get the phone.

James Flaherty

Call calls from a point you’re getting appointment. You’re getting appointment on and then you. Yeah. That’s what I was. Predictions that yeah, wanting people to I think what you do, what you ultimately want people to do is the right thing. If the right thing is to call it, they should call it when. The time to call it. You know you better to call these the. This. Sooner rather than later. When the DPN hits, we expect the DPN to go next year, but if it comes, if it comes, you gotta act on it. We expect them to go actually, but that’s not a licence to any dealers that are go. I can’t have to worry about anything too. Yeah, cause you were lying on the great predictive powers of Chris and James. We’ve got it wrong before, but I think it’s a reasonable expectation that you need to have your house in order by.

Chris Baskerville

Hmm. Yep.

James Flaherty

February next year. If they haven’t come for your by then. They’ll be coming for me.

So you need to get yourself sorted out.

Chris Baskerville

Does that affect and don’t?

James Flaherty

Ohh yeah.

Chris Baskerville

Don’t get me wrong. The courts close 18 December this year.

James Flaherty

Yeah, yeah.

Chris Baskerville

So another words you if you want anything filed, it’s gotta be done before then. But even if you did file it, say between 1:00 December and 18, it might get kicked off into the new year anyway. So again, we will be coming back into January early February. So, you know, I think I think the world or at least the, you know, enforcement will go into a bit of a ho. Guide us between December and January, but there are some very sharp operators. Very sharp debt recovery. People that know exactly how the game works. Yeah, don’t be surprised if if statutory demand and and wind ups happen on Monday the 23rd of December, Tuesday the 24th of December.

James Flaherty

Just like that.

Chris Baskerville

People lodging notices to cause people to do something on those two business days cause they’re still busy. Just days and 21 days is 21 days. You know, it doesn’t matter. If it’s Christmas, it doesn’t matter. As New Years 21 days is 21 days.

James Flaherty

Yes, it’s so be ready for a few. Yeah, that little pool be.

Chris Baskerville

There were a couple of doozies.

James Flaherty

Yeah, so cool summer for some probably lazy days. Hopefully for most of us. And then we go into next year with, you know that’s the same thing. You know, well turned upside down with the political developments around the world.

Interest rates. Who knows? I think we expect SE QLD. To keep doing what it’s. And maybe things quite nice when the Mexican states, as you say, your friends in WA, just keep on digging stuff out of the ground.

Chris Baskerville

Yeah.

James Flaherty

So yeah, some of it’s a bit like the same, but I think there’s.

we were expecting more of the same. I think is what we would probably be expecting, more uncertainty, more insolvency, more directors, penalty notices, probably more for you to do. Is that a fair of the year?

Chris Baskerville

Yeah. And and I think you’re right. Look, most of minds obviously practising and friends are, I believe would would feel this way, which is our time to take holidays is January. That’s the best time, right? Because there’s no emails aren’t coming around, phones aren’t being rung right, however. If we start. Getting phone calls and urgent emails and things start ramping up before Australia Day, then that is a lead indicator of what our year is going to be like. So in other words, if we start the year, our super strong right off the bat, then that will tell me where in for a cracking year in terms of there will be a lot of work coming in the.

James Flaherty

Door like I would say, let’s, it’s probably about next. Our next probably series which will be episode will be series since Season 5, season 5, season 5 will start after Australia Day next year.

Chris Baskerville

Jan 2 6.

James Flaherty

That will be the 26. This we’ll see what happens.

Chris Baskerville

Yeah, I’ll tell you up.

James Flaherty

Comments all. My phone calls, they say Christian’s been great during these with you over the last four years, but obviously thanks again for this year, all the best for you and your family for the festive season and they don’t.

Speaker

Well.

Chris Baskerville

Here.

James Flaherty

And let’s so we’ll reconvene. Thanks listeners.

Chris Baskerville

And say thank you, dear listeners.

James Flaherty

Let’s see here and David.

Chris Baskerville

Thank you, Chad. Thank you, Duncan.

James Flaherty

And said deep keep driving, Sandeep all of this.

Speaker

Thanks.

James Flaherty

A reminder that.

These podacsts are general in nature and do not constitute advice, and they don’t take into account your personal circumstances. If if you think though that some. Of the issues raised might apply to you. You should seek qualified financial, legal or counselling advice.

Transcript

Episode 86 Transcript

Welcome back to the sounds of the Baskerville, I’m James Flaherty here with Chris Baskerville, the star of the show, the Hound, howdie Chris. 

Chris Baskerville 

Morning, James. 

James Flaherty 

Welcome back to again to Patrick Schweizer from ALARES –  there was a mouthful but we got there in the end. Hi. Before we go on, what does ALARES mean, Patrick? 

Patrick Schweizer 

So Alares is an acronym. 

James Flaherty 

Ohh. 

Patrick Schweizer 

Which stands for adverse legal action risk alert system and it’s one of these things where I’m sure in time to come we’ll all forget whatever stood for. 

James Flaherty 

Rot. Before that. 

Patrick Schweizer 

But it does actually have a. 

Chris Baskerville 

I keep saying it was the great God of. Information or something? 

James Flaherty 

Yeah. 

James Flaherty 

Yeah, that sounds like, yeah. 

Patrick Schweizer 

That’s a much better answer than. 

Chris Baskerville 

Normally because of information. 

James Flaherty 

Couldn’t. And So what happens? So thanks for coming. We really ended last time we spoke. We really talking about like a what’s in them, what’s in the box? You know what? What am I getting? It’s really interesting. Stuff about that. Workers comp claims and things like that. So there’s a whole bunch of info that you’ve really tapped away to be able to provide people in a useful a useful way. So who? Who again uses? Your product, yeah. 

Patrick Schweizer 

Yeah. So we’ve got a number of key user groups. 

James Flaherty 

Yes. 

Patrick Schweizer 

So sort of half of our business, if you will, is credit providers. So that might be lenders, financiers. Also trade credit providers. So say you’re a supplier to the food industry, or you’re a supplier to the building industry. You provide products and services on trade terms, um and then the other half is professional services. So this is lawyers, auditors, professional insolvency practitioners, anybody who is a part of their daily work needs to do due diligence. Cheques and reports on on either counterparties or new jobs. 

Chris Baskerville 

You. 

Patrick Schweizer 

You’re gonna pointed to. Or or whatever it may be. 

James Flaherty 

So kind of is that a case like in your case Chris is like show me the dirt on this guy. Or is it? Or was it a get in or is it a watch list thing? Or is it both like tell me what they’ve got going now and what’s coming is that? 

Chris Baskerville 

Yep. 

Patrick Schweizer 

So somebody like Chris would generally as a part of sort of the day one process. There’s a number of cheques that an insolvency practitioner needs to do when they open a new file. There’s none of that process. They can run our search, which gives them insight into any current legal issues as well as any, any prior legal issues that. Might help. Identify insolvency dates might. Help sort of put. The pieces together in terms of how, how did we end? Up here today and. 

James Flaherty 

Okay. We talked about this last episode. So how did you said, is it really day one? Is it that the most important time for you to hook into Alaris or is it during? The process. 

Chris Baskerville 

Probably the most important time is to get Patrick’s monthly report. So you look like a champion on LinkedIn. That’d be the most important time to tap into allows, cause that makes us look like we know what our numbers are. 

James Flaherty 

Well, we’ll get to them. It’s not, it’s not looking good. 

Chris Baskerville 

Become a thought leader but. One is definitely the investigation side, so usually the hot zone of investigation is the six month mark before our appointment and then going back to two years. That’s really the hot zone. So we’re looking. For what the company was involved in in those years? That’s always important, but you can also use it as a precursor. So which is preamble? If we’re gonna go into Saya trading voluntary administration, probably the highest risk element that administrator will go into. You kinda wanna know. No. What am I gonna land? What? What’s gonna happen on my arrival in the and who are my fighting? 

James Flaherty 

All the things we always talk about this show is who would be mad enough to take on a job where you take the personal risk of the business that you’re about to administrator of basketball. So really, anything that can provide living with as much armour. The better, isn’t it? Like it’s a great so. But it’s taking a step back. Hang on, you’ve been doing this for a few years. You kind of all see you must have quite a cool bunch of data that because you talked about that like there’s the there’s the monthly runs, statistics like who’s what you’re batting average is. But there’s a you got a whole. Pile of stuff that you can see. 

Patrick Schweizer 

Yeah, absolutely. So you know, we we compiled data now obviously from the law courts, but also from ASIC insolvencies, the Ato, various other data points as well. And and while the core of our business is providing reports and alerts um to our users within our data, there’s a lot of really fascinating insights that come out of that. So each month. We publish our our credit risk insights which basically. Looks sort of sifts through all our data and and just looks for. But what are the interesting sort of stories that this information is ultimately telling us, both in terms of where we are today, but also looking ahead to see what what, what may be to come before we. 

James Flaherty 

That’s it. 

James Flaherty 

Preps tap the great man’s mind to be how do you use it? Like I said, you’ve talked with me before about the the things that when you’re sharing, when you’re talking to your account, how you, how are you? Giving your Larry. 

Chris Baskerville 

Yeah, well, most recently it’s always been handy when you’re doing presentations. Typically to your accounting friends, because when you take a large data and you show them the. Effects of the pandemic. 

Chris Baskerville 

Um, during and after most accounts are actually quite blown away because they go but hang on a pandemic comes in, shuts the entire world down. Businesses are all in lockdown. Humans are in lockdown, and then when we say our work drops 50% for a couple of years, they don’t understand. They go but hang on the the administration just said that the country is in a recession. How is it that you guys are now 50%? Yeah, more quieter than when you were prepending. 

James Flaherty 

Some of the. 

Chris Baskerville 

They don’t get it until. 

James Flaherty 

Cookies the graph. Then you basically you’re. Job your job as an insolvency practitioner. Kind of halved overnight. 

Chris Baskerville 

Effectively new works through the door, yeah. 

Patrick Schweizer 

So you go into insolvency, see when you can’t pay your bills. What happened during the pandemic is you basically got a a free hall pass to not pay your. 

Chris Baskerville 

Yeah, yeah. 

Patrick Schweizer 

Bills. So you no longer had to pay the AT 0. You no longer had to pay your Lander. You know, there was leniency, the leniency across the board because nobody had issue with paying their bills because they didn’t. 

Chris Baskerville 

Landlord. Landlord. 

Patrick Schweizer 

Late, too, naturally, there were far fewer who Will ultimately went into insolvency. So during that time. 

James Flaherty 

I’m over talked about the victim. I worked with liquidators and sort of people you know if I’m a social function and so forth and people kind of edge away from you and start walking off talk to talk someone more interesting there wasn’t. 

Chris Baskerville 

Like an accountant. 

James Flaherty 

There was, yeah. There wasn’t that sort of the world’s smallest violin that liquidators had nothing to do. But there is a job that is so important about getting. Yeah, I’m putting capital into the right hands, putting in businesses that are competing unfairly by not paying their tax or their GST. So weeding out the wedding out the what? 

Patrick Schweizer 

We heard from a lot of our. Clients that there was quite some. Sure. If I go as far as to say anger, but there were certainly discontent that they had with the Ato for allowing businesses to string things along for as long as they did, where they effectively said, look, this company is, for all intents and purposes, no longer solvent. It should actually be shut down, and by the Ato not acting upon that there really just allowing this company to rack up more and more and more. Debt. That these suppliers are then, you know, unfortunately going to have to wear when when the Ato does. Ultimately, come back around to to do what they should have done. A long time ago. 

James Flaherty 

So then what the OK. So then when did you start noticing that though? What was the things that you started seeing that? 

Patrick Schweizer 

Yeah. What was really interesting for us and if you look at our graphs that we publish, you’ll see a very prolonged period of the Ato effectively doing very little in terms of recovering. 

Patrick Schweizer 

Uh, unpaid uh. Text that if you look at the similar graph, uh for the big four banks, you’ll see that they sort of dropped off at the same time. And they also, you know, started doing and rightfully so, being very lenient in terms of recovering um, they did. But the banks actually switched back on a lot earlier in the piece, about a year or so even 18 months earlier, where we saw then okay the the holiday, if you will, is over in terms of paying your lenders. But we saw that the Ato just. Sat on the sideline. You have a longer and longer and longer, and then it became quite sort of apparent that at some point the rooster, you know, this will come home terrorist. And when it does, you know things may sort of go a little bit, a little bit crazy for for a little while. While this catch up happens. 

Chris Baskerville 

And looking looking at the alarm’s chart, with the winding up applications, non Ato versus Ato winding up, it’s really not until sort of mid 2023 that they’re really starting to come in at a prolific rate and obviously increasing in 2024 but but between 2020 and the beginning of 2023 almost nonexistent. 

James Flaherty 

So Chris, live famous for miscalling the sanami miscalling the zombie apocalypse. But I think in the sense. Ohh did did you say that that the ITI went there? I was just saying that ramping slowly. Is it sort of started to go? Is it a? Is it a faster and faster tempo that you see or what? What are you looking at? Is it question without notice? But what? What do you think? That. 

Patrick Schweizer 

Yeah. 

James Flaherty 

You’re saying? 

Patrick Schweizer 

What we saw initially was that there are a couple of sort of blips where they had started to do something. And then they kind. Of slide down again and then they started again and kind of tailed off again in more recent times. They’ve really been sort of full throttle. Um, you know, foot down and they they’re going quite hard from from all the things that we see and hear and and not just in terms of winding up S and and court recoveries but but you know dpns. Ohh wait. 

James Flaherty 

So directors polling notices. Yeah, got united. 

Chris Baskerville 

Garnishee notices. 

James Flaherty 

And then I. What are like, can you see a deep PN on your system? Or you can at least get a sense of what, how granular can? You get, yeah. 

Patrick Schweizer 

We can’t see it debut within our system, but we can certainly see anytime the Ato is taking a company or an individual who thought. 

James Flaherty 

Done acting, acting on a DP. And OK. 

Chris Baskerville 

You’re and one of the one of the other elements the Ato was using is that if you weren’t engaging with the Ato and you had a debt in excess of 100 grand and it’s been 90 days overdue. My understanding is that was going into a credit file, so we’re starting to see any of that information. 

Patrick Schweizer 

Yeah. So we get all that information now as well. So as you said any any arrears over 100,000 more than 90 days overdue effectively without a repayment plan in place will now get reported. Um to ourselves as well as other reporting agencies that that data is also quite interesting just in terms of the sheer number of businesses on that list. So currently sits at around 27 odd thousand businesses and what we see the. 

Chris Baskerville 

There should be clear that’s 27,000 businesses that have been reported to a credit Bureau because of this non. I. Mean none. Hello. 

James Flaherty 

Cause I’m not talking to you. This is the ones who are. Not talking to the earth. 

Patrick Schweizer 

These are the ones who do not have a repayment plan and place, so they’re there will be. 

James Flaherty 

Ohh, they could be talking, but they’re not. They don’t have a plan. 

Patrick Schweizer 

Yeah. So I look the the Ato the the wedding they use is meaningful engagement now. 

James Flaherty 

You. 

Patrick Schweizer 

Yeah, I I thank the practical reality of that means you’ve gotta have a repayment plan. 

James Flaherty 

Lost. 

James Flaherty 

Yeah, I got you. 

Patrick Schweizer 

But certainly if you are, yeah, if you are talking to them and making sort of suggestions that you’re open to doing that. They’ll be some leniency there, but if you are ignoring the ITL altogether, then you will end up. 

Chris Baskerville 

And you’re you’re on. 

James Flaherty 

And we’ve often talked about that like, don’t ignore the tax man, cause he probably knows most of the stuff that you think you might be hiding from him. So it’s always a good idea to be talking to them so, so you can certainly see a real tempo. It’s we’ve heard statistics GFC type we back. What are we back numbers wise cause you know also have spoken there wasn’t exactly massively busy and solvency wise prior to con. 

James Flaherty 

But is it now? What are the numbers like in both your words? Are you seeing? I mean, you’re, you’re flat out now, aren’t you? 

Chris Baskerville 

It certainly feels like, um, where where those few years after GFC, it was a wild. But I think for it to start biting in and then at then then we would just, you know, battlestations and feels like the profession is getting to that level now. No, I’m certainly my colleagues in in Melbourne and Sydney are saying they were. They felt like this one year ago. So. So it’s almost like Queensland is just starting to catch those two major capitals. 

Patrick Schweizer 

What we heard sort of in the early days of of the insolvency ramp up and the numbers that we see. The numbers are. Sort of more or less 50% higher than they were in the preview COVID days. 

Chris Baskerville 

Pre endemic. 

Patrick Schweizer 

What we heard initially was that there were a lot of businesses that may have had a legacy. Wait, I text it? They. Potentially hadn’t been trading for some time anymore, but they still existed as a a legal entity and effectively the Ato was coming along and sort of mopping those up, whereas in more recent times we hear that the jobs are are more actual. 

Chris Baskerville 

Something of substance and or just either still potentially trading or about to about to. 

James Flaherty 

Shut the door. So is that a little bit more like it kind of used to be where there’s some stuff inside? There’s actually some things to do as opposed to a. Dead entity Zombie your own. 

Chris Baskerville 

Yeah, I think there there’s always gonna be. There’s there will always be, um, shell less companies that end up in, in liquidation and you know, knock on the door, can’t find the director, can’t find records, can’t find anybody. But I think what’s happening here is because there are a lot of advantages in voluntarily coming forward and voluntarily facing the music, and there’s a little bit of leniency there in in doing more directors. It feels like are starting to show. So where they would ordinarily just bury their head in the sand, they’re hopefully their accounts are getting the message. Just getting get on the front foot and cause. You’ve got options. And that’s the only message we try. And get out. There is to say you’ve got options, you know. 

Patrick Schweizer 

And I think I’m sorry, I think that’s the way the dpns have really had an effect where you know as a director, you’re actually personally liable. It’s not as simple as just touching your company $500. Go online, register a new company and off you go. You’re actually personally liable for the the debts, the PAYG that the bass and sell on unpaid soup. So that that that your prior businesses incurred? 

James Flaherty 

Yeah. So it’s really there are consequences for having hidden the sand. And as we’ve often said, Chris, we just want people to talk to you early. Don’t wait till it’s too late. Hey, that’s been really that. Can we hang? Can we get you back in for one more? I just want to have a bit of a chat about this whole SBR thing cause I think that’s kind of where this goes. Well, we’ll get you to come back in again. Thanks. Thanks, Patrick, again, for joining us in the sounds. Of the best girl. 

Patrick Schweizer 

Thank you. 

James Flaherty 

And thanks Chris. 

James Flaherty 

Don’t okay. 

James Flaherty 

Thank you. 

James Flaherty 

A reminder that these podcasts are general in nature and do not constitute advice, and they don’t take into account your personal circumstances. If you think, though, that some of the issues raised might apply to you. You should seek qualified financial, legal or counselling advice. 

account your personal circumstances. 

So if youThink though, that some of the issues raised might apply to you. You should seek qualified financial, legal or counselling advice. 

Episode 87 Transcript

James Flaherty 

Welcome back to the sounds of the best. While I’m here with Chris, best of the band, Mr Chris baskerville, the managing partner of Jirsh Sutherland, Brisbane, howdie Chris! 

Chris Baskerville 

Even QLD. 

James Flaherty 

Queensland.. the world and once again back with us, we’re really pleased to have Patrick Schweizer up from ALARES So great to have you. Back and do. That’s it. 

Patrick Schweizer 

Great to be back gents. 

James Flaherty 

So we should. 

Patrick Schweizer 

Thank you. 

Chris Baskerville 

Come along way havhaven’t you Pat!?. 

James Flaherty 

Yeah, no problem. Holding back in here, really, we think about it. We wanted to go, OK, we’ve had tell us what this whole ALARES  thing you mean is we’ve had that. And that’s been really interesting in terms of the. Sort of clients. That you’ve got, I think it’s been a little bit of that commentary that we were talking about last episode of, yeah, what have you seen and what are the drivers and where are we but? I think one of the things that I think that Chris and I were really interested in was. Small business restructures because that’s the sort of a new thing that came across. I stopped at a previous episode, Chris, about you and I famously miscalling the zombie apocalypse and famously miscalling the tsunami. We also say what this small business restructuring thought problem never took on … well, and of course, the numbers are quite high. Are they for these? These. 

Patrick Schweizer 

Raised here, SBRs  are really quite interesting way. In the early days, when the process was first devised, the numbers were actually very, very low. And the take up was very slow I think. Yeah, likely because the that that whole scheme was sort. Of very unfamiliar and and not well understood. But what we’ve seen is this year, especially the numbers have really started to take off with more and more SBR appointments. Our understanding is again that one of the major drivers. Is that is the AT 0. I’m sure Chris can speak to this more. But you know what? What? We sort of seeing here is that the Ato is is a key component of many of those appointments. 

Chris Baskerville 

Yeah. I just wanna address James’s. Opening statement about all predictions that we made. Didn’t come true, and I think the the reason being fundamentally the reason was we never anticipated the government response. So the government comes sweeping in changes. 

James Flaherty 

Is that wrong? What? 

Chris Baskerville 

All the relevant legislation around chasing debts, what Patrick. Talking about in the previous episode introduces new legislation, then stimulates the entire economy, $300 billion plus plus, plus, plus plus. So no one, no one in. Could see that coming. So that was what we didn’t see. But I think having on reflection now wasn’t that what we were saying was going to be wrong. It was just not yet, yes. And so we’re now four years down the track and now we’re starting to basically see the things that we saw four years ago starting to come to fruition. 

James Flaherty 

And I think that. Maybe that’s the legislature didn’t come out of nowhere, specifically about small business restructures. Sort of appeared as well as Willett stimulus. 

Chris Baskerville 

I said that appeared in January 1st January 2021, so that was when the legislation began, yeah. 

James Flaherty 

And then if you’ve got a graph on from Belarus which will show you this kind of increased uptake if this particular service at the time got ending, just Sutherland, another member of also of the insult panel, some of the leading firms in the country for doing this, aren’t you? Yeah. 

Chris Baskerville 

Yeah, because the thirds are the kind of aligned with insolvent, typically bestialising the onto the director side. It’s the voluntary style of insolvency which is we want directors coming to us saying. We’ve got a problem. And so it naturally goes hand in hand that if you go up small business restructuring available to a director and it’s a voluntary process and it can relieve legacy debts to allow business to continue on that, that fits our mould, fits our mindset. 

James Flaherty 

One said, yeah, beginning of last year sort of looked through the telly leaves from what? ASIC had said from the report that they’ve done to for the kind of proceeding 18 months. And it was mainly the ITO were mainly the people who were the creditor, and if it wasn’t just the Ato, then the Ato was the one that was owned the most money. So then there’s certainly. That’s a big driver. And you told Patrick at a previous episode of perhaps the director penalty notices might be driving more directors to actually face up to. 

Patrick Schweizer 

Yeah, I think so. I think the realisation that this is not just a I’ve got a BN or a CNX, you know what, 123? This is actually a me issue as the. Director of the. Really likes it a little bit more real for company owners and directors to say, hey, I’ve I’ve really gotta do something about this, which is then you knows, Chris said. Ideally they would then go to Chris early on where one of the real benefits of the SBR process is it gives you a chance to live to fight. Another day. The whereas sometimes if you wait too long, the only option may be a liquidation where it is a very final process. 

Speaker 

Yeah. 

Patrick Schweizer 

Rather than giving you. An opportunity to to sign on. 

James Flaherty 

Yeah. 

Chris Baskerville 

It’s really important to distinguish the two types of director penalty notices being the lockdown version where it’s lockdown. You’re not getting out of it without pay. Think my sense. And then you got the non locked down version, which means you’ve potentially got four options to avoid this becoming a personal liability for you. But one of those options that’s been inserted is you start an A small business restructuring process. You are then remitted from the penalty of being personally liable for company tax debt. 

James Flaherty 

Who’s that one? That’s not the. 

Chris Baskerville 

Lockdown for the non lockdown director penalty. 

Speaker 

Yeah. 

Chris Baskerville 

That’s right. 

James Flaherty 

What’s important distinctions? 

Chris Baskerville 

What? What that means is, with an increase of direct penalty notices going out, there will be commensurate with an increase in small business restructuring as well. They go hand in hand. 

Patrick Schweizer 

Exactly right. So more more Dpns getting issued more people than saying what are my options? What should I do? They will go to their accountants. They will go to their key advisers and more and more we’re seeing in our data is they’re getting pushed towards this SBR process where in the last couple of. So it’s not quite but approaching 20% of all new appointments are now SBR. 

James Flaherty 

I don’t expect an answer, but do in your heart do you think that the SBR are bringing your forward that might have gone into liquidation more formally or dare I say it that some people might have tried to go into an untrustworthy adviser and tried to find somewhere that she knew themselves out of the problem in the past? Where is now. Small business, you guys, these SBR were a way of using the process to actually do the right thing. You know is. That a is the answer may be yes. 

Speaker 

Yeah. 

Chris Baskerville 

Ohh I guess are you trying to say that as a result of small business restructuring with mitigated any sort of illegal phoenix activity or or directors? 

James Flaherty 

Don’t the other table just simple? Acting. Surely there must be less incentive to do that if you’ve got a legitimate path to negotiate with the tax man, yeah. 

Speaker 

What? 

Chris Baskerville 

What? What? It’s actually doing, I think, some of the feedback we’re getting from the officers within the ATI, particularly when they’re looking at our plan is one thing they like about is it brings the direct to the forefront, it gets them lodging, their returns, so that they’re trying to do the right thing. You then also have to look after your employees as well as part of the process so employees are getting looked after. We’re getting all tax returns in, we’re getting a proper position and more importantly, the director’s being proactive and launching up to the problem rather than just bury my head in the. Saying and and let’s see what happened to you. 

James Flaherty 

I suppose that just interested now people have temptation to be lured off and do something a little bit in the shadows was not quite the same incentive in the sense of I can go and face up to my responsibilities and actually get my chance. Mean. For my family. 

Patrick Schweizer 

Certainly I think it’s it’s a better outcome across the board for, for all stakeholders than say, liquidation where you know basically everybody loses out, whereas we’re this. 

Speaker 

Yeah. 

Patrick Schweizer 

As Christ said, employees get paid. Creditors get paid at least some amount and again the business gets to to live to fight another day. Where? Where it’s actually still a viable. 

Chris Baskerville 

Going concern and the other important part is, is the director remains in control of the company and its business all the way through that process. So you don’t have to surrender the. To guys I guess and say ohh well, they’re in, they’re in control now. It’s actually the director runs the business. In the ordinary course. 

James Flaherty 

Sorry, I accountants across this. Do you think accountants? 

Chris Baskerville 

They’re beginning more and more educated about it. I think it probably the data that on that chart that would probably be brought into screen about now. I think it’s an education pizza as the accounts didn’t understand that we were, it was. New to us. We sort of all did our first SBR and we just sort of dipped our toe. In the pond going ohh. 

James Flaherty 

You the second one in the you did. So mean that. 

Chris Baskerville 

And Sally, what? 

James Flaherty 

Yeah, you know the doctor. 

Chris Baskerville 

Doctor. Yeah, but, but, but I think what was happening is now that the profession is getting their head around it and the accounts are now getting more educated. It’s going to become more and more prolific. 

Patrick Schweizer 

Yeah, I think as well that there’s much clearer understanding there, right, in terms of what will the Ato actually accept out of the process, you know how many sort of cents on the dollar, if you will, can you negotiate what is, what is the range there, what what is the wiggle room. 

James Flaherty 

OK then. 

Patrick Schweizer 

That was probably not, yeah, the first one you did, you probably didn’t know what the Ato it’s gonna. 

Chris Baskerville 

Well, that’s correct. In the early day, so the HI did set up people within their the organisation that would just hand. Please, in the early days of it, we used to send our reports about 5 days in advance. Get the feedback from the Ato. That then helped us. Tweet the report or tweak the proposal. No working with the director and so that gave us a real sense of where does this report or where does this proposal need to land? But as the. Is showing the this humongous growth in small business the Ato is spending less and less time on doing that because they’re getting inundated with proposals. 

James Flaherty 

So busy and I think the thing that’s and that was the thought that I kind of had was. If we talked about the Cam was kicked down the road for the insolvencies and the business wind ups that would have happened. But for government stimulus and the change. Of the law. Are we now at the stage where those SBR replace a whole chunk of the more traditional business that you might have had to have done where you had? To wind up. I’m interested to know what the new yeah when you sent to what. The world looks like from here. 

Chris Baskerville 

One of our predictions and done in the last four years, it looks like it’s about to come true is I said that SP. Job will overtake voluntary administration cause if you didn’t have SBR, you still got voluntary administration as a as an option. Different style thinking around it, but it’s still an option. But SBR I think will overtake voluntary administration. So maybe you’re right, James. Maybe we’re just replaced. What would ordinarily us be in a voluntary administration role and put it into and SBI role, or alternatively, it’s taken potentially some of the liquidations that you’d normally face and replaced it with small business restructure. So potentially the SBR is taking from the data of the liquidations and the voluntary administrations that would ordinarily flow. If we didn’t have small business restructuring. 

James Flaherty 

If you got any sector view or geographies that you. 

Patrick Schweizer 

Yeah. Look, if you look at insolvency numbers currently, obviously you’re that the usual suspects feature very highly. So hospitality cafes and restaurants, building construction, they they’re really the two main ones that we see. 

Chris Baskerville 

Instruction. 

Patrick Schweizer 

I think things tied to consumer discretionary spend will increasingly face more and more headwinds, giving cost of living pressures etcetera. So nothing sort of near Earth shattering there. Building construction is is a really interesting one. What we hear from our client base is that while a lot of the building material costs have started to settle down where you know previously there were a lot of price escalations that that element has started to settle down. However, labour costs still through the roof. Lots of labour shortages. And now a lot of the building construction guys are having to compete with big government infrastructure projects. For labour and, of course, a lot of these projects are paying sort of very high, very high rates. So what? Where the government is sort of making big claims and statements and proposals about building 1.2 million homes, that they’re all question people are asking as well. That’s great. That who’s who’s gonna sell them? 

Speaker 

You don’t like well done. 

James Flaherty 

It’s the only one that side. Oh oh, and and so that’s why I continue. Pressure point on the economy. I think it’s interesting noise. Yeah. The consumer discretionary and things like cafes mean cafes have a failure rate anyway. It’s more about a higher failure rate than. You D ordinarily expect for a cat isn’t actively what you say. Isn’t it? 

Patrick Schweizer 

Yeah. And they certainly saying higher rates at the moment where you know you’re you, you’re sort of typical office worker who may get a a coffee in the morning and then another one before lunch. Maybe they’re only getting the one coffee now, or or maybe they’re making their coffee in the office and now where you know that the cafe sort of downstairs on the corner is really starting to. 

Speaker 

Not. 

Patrick Schweizer 

To struggle with that lower, lower foot traffic. 

James Flaherty 

Especially with inflation, making host of the coffee on the corner quite high. So that’s some instant drivers, isn’t it? 

Chris Baskerville 

But that’s the that’s natural. That’s kind of natural market forces at work, you know, and Australia is semi free markets, semi socialist like we’re kind of in this interesting balance between we wanna give people a shot to earn money and generate profits have become rich but at the same time we have to look after the people that are a little bit less fortunate the unemployed and all like we don’t want them falling off on the safety net cause one of the major links between extreme poverty is extreme crime there’s a. 

James Flaherty 

What? 

Patrick Schweizer 

Yeah. 

Chris Baskerville 

There’s a real. Connection there. 

Patrick Schweizer 

Then. 

Chris Baskerville 

So we need as an element of safety net. So we’re a little bit free market and a little bit, a little bit socialist, but probably pre pandemic. We had coffee shops on every corner. Of our city block. Well, that might be a bit excessive now, so naturally the market forces will bring you down to maybe two you or maybe one. 

James Flaherty 

Yeah, especially with the whole kind of work for I powder though, world turned upside down. So whilst we are seeing a trend up, that was kind of consistent with the path of previous kind of crises like the GFC. 

Speaker 

Call. 

James Flaherty 

What we are seeing is a. Different makeup of what’s making that uptick is? That the first Sunday. What? 

Speaker 

It is okay. 

Patrick Schweizer 

What will be really interesting to see how this plays out if if you look just at the raw numbers, there were sort of roughly 8000 insolvencies, that didn’t happen through COVID that normally would have happened week clearly now. 

Chris Baskerville 

Yeah. 

Patrick Schweizer 

Gonna catch up. Period it. It’ll be really fascinating once we’ve caught up those 8000, if you will, what will then become the new exactly. 

Chris Baskerville 

Norm, what’s my? 

Patrick Schweizer 

So what have they are high level? Will it be? Will it be a lower level? Where is it really gonna ultimately? 

James Flaherty 

It’s also the interplay of government and and policy. So does the tax man say I wanna get more than $0.20? And I like. Do I wanna? Does that dial go up or does the threshold for SB because the threshold for SBS is $1,000,000 isn’t so it’s like if they increase that with what? 

Speaker 

Yep. 

James Flaherty 

One of the one. Of those things do to the numbers. 

Patrick Schweizer 

Yeah, it looks certainly you know if if I had to make a prediction, I would think that things will settle down to sort of AA historical know where COVID was on unprecedented as Chris said with the amount of government stimulus. Yeah, we’ve never seen that. 

Chris Baskerville 

Pull. 

Patrick Schweizer 

Nobody had any idea really, how that was gonna play out. I think unless there’s another sort of major world. Um, that’s right. US homes along things, should you? Know eventually settle down to just normal market forces. Hopefully we don’t see the continuation of of the high level that we’re seeing now. 

James Flaherty 

Okay. 

Chris Baskerville 

Yeah, I think I think normal, normal corporate insolvencies round about 8 to 900 a month, right? That was normal. That was pretty pandemic normal. And then of course, it drops to just over 400 during those pandemic years. When now approaching that thousand a month mark, if not where we’re going over $1000 a thousand failures in a month, that’s getting close to the GFC style level of numbers. 

James Flaherty 

Yeah, you. 

Chris Baskerville 

So and again, it took about three years post year see in Australia before we started to feel that effect and it’s kind of very similar here. You know, pandemic comes in 2020. It’s about 20/24/2023 when now starting to see those uptick so. 

James Flaherty 

That’s strange because it combines that this time it’s different with. In fact, it’s very similar to what happened in the past, but if it reasons yeah. 

Speaker 

Yeah. 

James Flaherty 

So that’s been fascinating something. Thanks very much for coming and telling us the future, Patrick. It’s been really, I think we’ve we’ve also learnt about what Alaris does and then applications for what sounds must have type solution and it’s been really interesting Chris to see how you’re. Getting in and with your own discussions with accountants. So thanks Patrick for joining us on the sides of the Baskerville. We’ll see you some other time. Thanks for your pleasure. 

Chris Baskerville 

The at which yes. 

Patrick Schweizer 

thank you very much. I think next, Chris. 

James Flaherty 

Thanks Chris. 

This is an AI-generated transcript and may not be accurate. 

Episode 88 Transcript 

James Flaherty: Welcome back to the sounds of the Baskerville. Welcome back to the Sounds of Baskerville. I’m here with Chris Baskerville, the hound, back here for a season 5. Chris. Wow. 

Chris Baskerville: Yeah. Good morning, James. 

James Flaherty: Morning. You’re getting close to the century there, so quite a good repertoire of real experiences. So one of the things that has been fed back to us is to perhaps. Try and put some of the episodes into  a packages, of what a director needs to know. What an accountant needs to know. What an advisor needs to know and maybe do some little booklets or stories that we can share based on all of the people we’ve talked to over several years, and also, some of the lessons that you’ve seen. That was the idea of this, wasn’t it really, to get people to kind of share their experiences and you to share yours so that directors could see, your way forward. Isn’t that really the part of the whole idea? 

Chris Baskerville: Yeah, obviously give some sort of clarity and when do you go and get professional help, when you go get professional expert and tell them to help and I guess also it’s about training the advisors out there on what they should be looking for from their clients, the ultimate goals. And then just basically get the stories out of our head on the tape. 

James Flaherty: We’ve got some great ones, so I’m fascinated about the value of four lessons from 4 ponzis or five lessons from 5 ponzies, which we might do later in the series. 

Chris Baskerville: Yeah. 

James Flaherty: So we’ve got some really interesting bits of feedback. I mean, there was a period last year when the ATO was getting so smashed with SBR’s that they couldn’t respond quickly for feedback, whereas this year it seems they have a few more bums on seats in there and people are reporting a bit of feedback, which is good. So that’s even. Feedback since our last episode we had with Ginette Muller, who was talking about what is actually a  pre-restructuring advisor, right? Yeah, I suppose that’s still trusted advisor. Yeah. So that was a useful episode. So dude, to listen to them. It’s also a podcast. We’ve got also got some other podcasts coming up, which we’ll sprinkle during the season. People say I’ve got a good face for radio! I didn’t know it was so bad! You Chris? But anyway. But it’s good to put a face to a name. So in terms of this season, yeah, I think it’ll be really helpful when we kind of circle back to some of the stories. 

I mean you are able to name a few names, which is interesting. I still see and I actually work at a firm occasionally that is still dealing with what happened at card. Well, at that sewage station, was there was that scheme that you were involved it all those years ago? 

Chris Baskerville: Yeah, that was. Pinch, pinch, pinch. For Hinchinbrook and I think it might have been Cardwell properties, yeah, or some variation of that name, but it was just exceptional to go up to 1/2 completed property development in resi, commercial industrial Cyclone Yasi comes in and completely wipes the Marina out. Again. Boats are thrown through. Second story windows and just the sheer destruction of what cycling yards he does, but more importantly, it absolutely annihilates the Marina to the point where we can’t afford to pay for dredging so that we can get our boats out at like 5. Like so yeah, that was interesting. And then what followed from that is that the sewage treatment plants. And potentially the water were all privately held, so it wasn’t state government syringe services and water services from council. It was privately owned that no government wanted to come anywhere near, trying to help the estate out. So yeah, that was wild. 

James Flaherty: Yeah. I’m reminded of a book called The Forever War cause. It’s called a Vietnam. It’s called the forever walk. It seemed to. Go on forever. And there’s this science fiction book where this guy sort of gets recruited for this war, but you have to go into space. And because of the whole physics and but he, he has only way for a few years. But because he comes back to Earth. Huge numbers of years have passed, so there’s a whole lot of everyone’s got on with their lives. He’s still stuck in this last moment. Like, you know, it’s as if he’d ever left. But everything’s changed. I do wonder about some of these kind of matters that you and and maybe it’s also just the director, like for long periods of time, nothing can happen. And then. Something does that isn’t directed deal with the fact that some of this stuff can seemingly go on for years, cause it can take you a long time to kind of go through all of the. 

Chris Baskerville: I was talking about lawyer yesterday, he said. One of the most valuable lessons he was told by his old man is it people can hold off going broke for a long period of time, like eventually it comes due, but people can do that 3-4 years, you know, and just do enough to keep some of the walls at Bay. But yeah, it’s quite fascinating. And I remember a guy that owed must have been in the if dot 10s. It’d be just early 100 million right out to, you know, 500 mum and Dad investors type thing. Yeah. And it was just amazing how long that guy could avoid being sued by any one of those investors. And I think part of the charm of of it all was that if you owe, you know, 1000 mum and Dad investors, all this money and any one of those investors takes action against you. There you go. Well, I’m gonna spend all my precious money to to take action for the benefit that I stand in line with every one of these thousand people. Equally. 

James Flaherty: Yeah, that’s right. So why do I expend the money of all? Because that’s my money and we’ll ever get. 

Chris Baskerville: Yeah. 

James Flaherty: It back. 

Chris Baskerville: Correct. You know, it was just fascinating to watch that. I mean, eventually the story ends where I think this guy, he gets on a plane, he’s got a briefcase of cash and he’s headed for island. He sits on the plane, he locks his belt in place, the door door close it, and then all of a sudden, the plane stops moving. AFP officers. 

James Flaherty: They shouldn’t laugh, but likes taking other people’s money. But anyway, yes, yeah. 

Chris Baskerville: Come onto the plane and RIP him out of. The plane because as it got some urgent warrant for his arrest and to prevent his departure, and it was one of those like, he nearly got away like the plane was nearly rolling on the tarmac and I’m away. 

James Flaherty: So like that scene in that Argo movie where they got the trucks driving along the road and the planes taking off with this case, they stopped it. Yeah. So the good guys that got their man. So you’ve had some fascinating. So you’ve had guys that you’ve been chasing down, stopped at the border. You’ve had people on TV, you’ve had. Boats through wind. Those, and I suppose The thing is interesting in these stories, is there a director who goes, you know what? I just want this to stop. 

Chris Baskerville: Yeah. Yeah. I think even talking about gold guy as an example, I know we’ve used the name Ken Grace being the the soul guy behind it. He was interviewed by ASIC and. In their investigations and the feeling was that he actually wanted the whole thing to come to an end like he almost welcomed the fact that liquid water was coming in and and someone was gonna bring. It all because it’s. Just so hard and the stress of it all, of maintaining the lives, controlling everything. Remembering all your lies that you told and the thing becoming bigger than Ben Hur. And it’s they I think when they go, I just welcome quick death, you know.

James Flaherty: And that Paul fell, I mean, he’s unfortunate. So, you know, he actually went a bit too far where he’s at least a bit fronted up and said I’ve done wrong. I can do a couple of years in prison and maybe band as a. Director, you know, going bankrupt, even if you’ve done bad, it’s still better than doing some of the horrible things that you’ve seen people like trying to self harm or. Yeah. Yeah, that’s. 

Chris Baskerville: Own life. Probably the one thing I kind of you know, just going toss on with King Grace story. I mean, the way his story ends is he pled guilty to financial crimes. He then on the day of his sentencing, doesn’t turn up welfare officers go and check on him. And really what they do, they find him drowned in alcohol. Well, what the? Basically, he basically drank himself to death on the day of his. Now what that kind of says to me is that the IT was like this, living constantly in denial that he’s done anything wrong. I think if he just faced up to the fact that, OK, yes, I’ve pled guilty to four things. Do your time 1 he stays alive and #2 he probably comes out completely change better minds it. Instead, literally loses it all. Yeah, just loses it. 

James Flaherty 

All and I mean. It actually, yeah, for all of its flaws, it had done some interesting things. You know, the insights that everybody got and how he did this would have been a useful resource for him. To be able to draw upon. So that I’ll walk for war streets. Don’t try this at home. So we’ve talked about that kind of RIP off the band aid, but geez, that’s hard if you’re investing. We’ve talked about this a lot. I spoke to a guy yesterday. Fabulous bloke. 

Chris Baskerville: Yeah, watching, yeah. 

James Flaherty: But he’s talking about taking money out of super to keep his business. And then Chris is shaking his head here. That’s not a business and must be part of your job, isn’t it? When you’re dealing with people as a, say, look, when is enough going? 

Chris Baskerville: No. 

James Flaherty: To be enough for. You in the case of a Ken Gracer was Ken, the Jags. Up versus somebody who’s tried and invested and put all their effort into this thing and it’s just gone bad. But you’ve gotta say to them, hey, this is done, and that must be an interesting conversation for you to have looking into people’s eyes. And I’ve talked about this a lot, getting people to tear the band aid off, understand that their whole self identity invested in this thing. And the reason why they’re sort of Democrats have debt hanging over their head, not sleeping at night. Yes. Is there a time where you’ve gotta say? 

Chris Baskerville: Enough, enough, yeah. 

James Flaherty: And after that. 

Chris Baskerville: It’s a tough one because I think you know, directors identities are tied to their business, sometimes to the point where they don’t even distinguish that the company and the director, human director are two separate entities. You know, I’m the director. It’s my company. I’m the shareholder. Therefore the money in the company’s bank account is must. 

James Flaherty: Be mine. Yes, and I’ll pay my gym membership and my groceries. So we’ve also talked. About keep the money. 

Chris Baskerville: It is 100% separate. It’s you got. It you’re dealing with a corpus. It’s like a you’re the thinking mind of the corpus, but it’s its own beast, you know. And that’s why I think even I was saying to some of our juniors, there’s only really three ways you get your money out of the company. And that is, you know, sort of PAYG bonuses, director fees, right, locked that into one, which is basically getting paid to do a job for the company. 

James Flaherty: It’s giant animal. 

Chris Baskerville: Comes with big consequences. This is 2 is dividends from profit, but it has to come from profits. If you have no profits, there is no dividends that also comes with, you know, franking or unranking benefits or the third one is a loan. Now the loan initially is no taxes on it, but at some point you have to pay the price for that at some. Stage Classic Division 7A line, yeah, so. Yeah, that always puts a few directors. Into a bit of a trap that. 

James Flaherty: Yeah, the tax man in the case of small business restructurings, not a fan of Division 7A. Yeah, because it’s, like, hang on, you’re not paying your tax and you, by the way, you’re stuck your hand in the company till. And you’ve bought yourself your holiday and you, but you must see it all the time. Where I’ve been fighting and fighting and fighting and going and going and going. I don’t. And really have a business, I’ve accumulated liabilities to others. I may have accumulated A liability myself to the company via Division 7A loan. I’ve got a tax. Death at some stage and there’s a bankruptcy trustee must see this bit. Does the light go on for people or is it not as simple as to? Say that. When you say the jig is up, when you RIP the band out or it’s time and people get to that point first couple of seasons we talked about this. In most cases. Do you feel that people kind of shoulders lift up a little bit or they kinda can sit back a bit more easily in the chair, knowing at least they’ve made a decision or? 

Chris Baskerville: Yeah, I think you, you gotta go to the stages of grief. I think so. Yeah. Yeah. So, you know, I mean, you can’t get through to someone that is still in denial, but they’re they’ve got a problem. You know, their house could be completely. Fire and it’s like, hey, you know, your house is on fire and fire department can come here to deal with it. No, my house is not on fire. It’s like, you know, what are you supposed to do? But yeah, the smart directors, when they understand the situation, when they understand that there’s actually an element of relief in there. Yeah. Just move on. Yeah. Same for bankrupt, too. You know, once you sign your documents to just purge all of those debts that have been causing you to not sleep at night, well then you know, let’s move forward. Go again. 

James Flaherty: So if you’re listening to this podcast, you’re either an advisor. Or a business person who’s got a few concerns. So you’re probably a smart director if you’re listening to what you’ve got, you’ve. 

Chris Baskerville: Thinking we’ve made it this far on. The podcast? That’s… 

James Flaherty: Right. Yeah, hang on. Couldn’t I talk about that last season? 2, But thank you to those who have listened to all. Of them but. People come to these conclusions of their own time, but I think the thing. Is I suppose when I. Go back to that forever. War analogy. Yeah. The wheels of the. Processes can take time. But just because you’ve heard nothing doesn’t mean it stopped just because it seems to have gone quiet doesn’t mean that you’ve forgot. 

Chris Baskerville: Yeah. 

James Flaherty: Because that’s not how it works. The process is the process and it can take a while, but. You have the right as a liquidator, don’t you? To keep pursuing things, especially if you’ve got funding from aggrieved creditors who could say, hey, this guy’s got a briefcase full of cash and he’s trying to catch a plane and someone’s gotta stock it. Yeah. Seem set people to go and chase people in New Zealand, you’ve caught people on the tarmac. 

Chris Baskerville: Hmm. 

James Flaherty: You’ve chased people around the world. See here that long hand of the. Chris, basketball. Josh. 

Chris Baskerville: And yeah, well, a lot of those events, obviously, yeah, that was definitely part of the story, but it was definitely the enforcement of our great regulators that pushed a lot of the envelopes. But it is funny. Sometimes the regulators and the enforcement arm don’t move as fast as what we can move. Sometimes we have limitations, but yeah. 

James Flaherty: That cuts both ways. That’s the additional risk you run thinking. Well, hang on Chris’s quiet. But that doesn’t mean that other things aren’t going on. Is that also? 

Chris Baskerville: A fair thing to say. Yeah. Well, well, well. That’s an example. A fellow that had taken a fair bit of money from investors and. Then leaves the country. We were able to show so most of the regulators and the relevant police thought the other department was investigating and as a result of everyone thinking the other guy was doing something, everybody did nothing and we managed to get effectively an arrest warrant for the guy using the wonderful powers we have for examinations. Because we could show the court this guy deliberately left the jurisdiction of Australia to avoid his creditors, and he is a material person in understanding the company’s affairs and we ended up getting an arrest warrant. So faster than any other government agency out. 

James Flaherty: Don’t mess with that. Hey, we might leave it at that. That’s interesting. We might follow that one up. Hey, Chris. Thanks for that. Let’s chat next week. Chat soon. Thanks. 

Chris Baskerville: Thanks James 

A reminder that these podcasts are general in nature and do not constitute advice, and they don’t take into account your personal circumstances. So if do you think though, that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice.  

Episode 89 Transcript 

James Flaherty: Welcome back to the sounds of the Baskerville. Welcome back to the sounds of Batgirl. I’m here with Chris Baskerville: hound back here for a season 5. Chris. Wow. 

Chris Baskerville:  

Yeah. Good morning, James. 

James Flaherty:  

Morning episode locked episode lock. You’re getting close to the century there, so quite a good repertoire of real experiences. So one of the things that has been fed back to us is to perhaps. Try and put some of. Them into some little pack. Images of you know what a director needs to know. What an accountant needs to know. What an advisor needs to know and sort of. Maybe do some little booklets or stories that we can share based on all of the people we’ve talked to over several years, and also, you know, some of the lessons that you’ve seen. That’s sort of the whole idea of this, wasn’t it really, to get people to kind of share their experiences and you to share yours so that directors could? See, your way forward. Isn’t that really the part of the whole idea? 

Chris Baskerville:  

Yeah, obviously give some sort of clarity and when do you go and get professional help when you go get professional expert and tell them to help and I guess also it’s about training the advisors out there on what they should be looking for in terms of from their clients though they were the ultimate goals. And then just basically get the stories out of our head on the tape. 

Chris Baskerville:  

Try this make. 

James Flaherty:  

We’ve got some great ones, so I’m fascinated the value of four lessons from 4 ponzis or five lessons from 5 posies, which we might do later in the series. 

Chris Baskerville:  

Yeah. 

James Flaherty:  

So we’ve got some really interesting bits of feedback. I mean, there was a period last year with the Ato was getting so smashed with SBR’s that they couldn’t even really kind of respond quickly for feedback, whereas this year it seems that they have a few more bums on seats in there and people are reporting a bit of feedback, which was good. So that’s even. Feedback since our last episode we had with Jeanette Muller, who was talking about what is actually a pre restructuring advisor and a pre restructuring advisor, right? Yeah, I suppose that’s still trusted advisor. Yeah. So that was a useful episode. So dude, to listen to them. It’s also a podcast. We’ve got also got some other. Podcasts coming up, which? Will sprinkle during the season. People say I’ve got a good face for radio. I don’t. Know it was so. Bad you Chris? But anyway. But it’s good to put a face to a name. So in terms of this season, yeah, I think it’ll be really helpful when we kind of circle back to some of the stories. 

I mean you are able to name a few names, which is interesting. I still see and I actually work at a firm occasionally that is still dealing with what happened at card. Well, at that sewage station, was there was that scheme that you were involved it all those years ago? 

Chris Baskerville:  

Yeah, that was. Pinch, pinch, pinch. For Hinchinbrook and I think it might have been Cardwell properties, yeah, or some variation of that name, but it was just exceptional to go up to 1/2 completed property development in resi, commercial industrial Cyclone Yasi comes in and completely wipes the Marina out. Again. Boats are thrown through. Second story windows and just the sheer destruction of what cycling yards he does, but more importantly, it absolutely annihilates the Marina to the point where we can’t afford to pay for dredging so that we can get our boats out at like 5. Like so yeah, that was interesting. And then what followed from that is that the sewage treatment plants. 

Chris Baskerville:  

And potentially the water were all privately held, so it wasn’t state government syringe services and water services from council. It was privately owned that no government wanted to come anywhere near, trying to help the estate out. So yeah, that was wild. 

James Flaherty:  

Yeah. I’m reminded of a. A book called The Forever War cause. It’s called a Vietnam. It’s called the forever walk. It seemed to. Go on forever. And there’s this science fiction book where this guy sort of gets recruited for this war, but you have to go into space. And because of the whole physics and but he, he has only way for a few years. But because he comes back to Earth. Huge numbers of years have passed, so there’s a whole lot of everyone’s got on with their lives. He’s still stuck in this last moment. Like, you know, it’s as if he’d ever left. But everything’s changed. I do wonder about some of these kind of matters that you and and maybe it’s also just the director, like for long periods of time, nothing can happen. And then. Something does that isn’t directed deal with the fact that some of this stuff can seemingly go on for years, cause it can take you a long time to kind of go through all of the. 

Chris Baskerville:  

I was talking about lawyer yesterday, he said. One of the most valuable lessons he was told by his old man is it people can hold off going broke for a long period of time, like eventually it comes due, but people can do that 3-4 years, you know, and just do enough to keep some of the walls at Bay. But yeah, it’s quite fascinating. And I remember a guy that owed must have been in the if dot 10s. It’d be just early 100 million right out to, you know, 500 mum and Dad investors type thing. Yeah. And it was just amazing how long that guy could avoid being sued by any one of those investors. And I think part of the charm of of it all was that if you owe, you know, 1000 mum and Dad investors, all this money and any one of those investors takes action against you. There you go. Well, I’m gonna spend all my precious money to to take action for the benefit that I stand in line with every one of these thousand people. Equally. 

James Flaherty:  

Yeah, that’s right. So why do I expend the money of all? Because that’s my money and we’ll ever get. 

Chris Baskerville:  

Yeah. 

James Flaherty:  

It back. 

Chris Baskerville:  

Correct. You know, it was just fascinating to watch that. I mean, eventually the story ends where I think this guy, he gets on a plane, he’s got a briefcase of cash and he’s headed for island. He sits on the plane, he locks his belt in place, the door door close it, and then all of a sudden, the plane stops moving. AFP officers. 

James Flaherty:  

They shouldn’t laugh, but likes taking other people’s money. But anyway, yes, yeah. 

Chris Baskerville:  

Come onto the plane and RIP him out of. The plane because as it got some urgent warrant for his arrest and to prevent his departure, and it was one of those like, he nearly got away like the plane was nearly rolling on the tarmac and I’m away. 

James Flaherty:  

So like that scene in that Argo movie where they got the trucks driving along the road and the planes taking off with this case, they stopped it. Yeah. So the good guys that got their man. So you’ve had some fascinating. So you’ve had guys that you’ve been chasing down, stopped at the border. You’ve had people on TV, you’ve had. Boats through wind. Those, and I suppose The thing is interesting in these stories, is there a director who goes, you know what? I just want this to stop. 

Chris Baskerville:  

Yeah. Yeah. I think even talking about gold guy as an example, I know we’ve used the name Ken Grace being the the soul guy behind it. He was interviewed by ASIC and. In their investigations and the feeling was that he actually wanted the whole thing to come to an end like he almost welcomed the fact that liquid water was coming in and and someone was gonna bring. It all because it’s. Just so hard and the stress of it all, of maintaining the lives, controlling everything. Remembering all your lies that you told and the thing becoming bigger than Ben Hur. And it’s they I think when they go, I just welcome quick death, you know. 

Speaker 

Yeah. 

James Flaherty:  

And that Paul fell, I mean, he’s unfortunate. So, you know, he actually went a bit too far where he’s at least a bit fronted up and said I’ve done wrong. I can do a couple of years in prison and maybe band as a. Director, you know, going bankrupt, even if you’ve done bad, it’s still better than doing some of the horrible things that you’ve seen people like trying to self harm or. Yeah. Yeah, that’s. 

Chris Baskerville:  

Own life. Probably the one thing I kind of you know, just going toss on with King Grace story. I mean, the way his story ends is he pled guilty to financial crimes. He then on the day of his sentencing, doesn’t turn up welfare officers go and check on him. And really what they do, they find him drowned in alcohol. Well, what the? Basically, he basically drank himself to death on the day of his. Now what that kind of says to me is that the IT was like this, living constantly in denial that he’s done anything wrong. I think if he just faced up to the fact that, OK, yes, I’ve pled guilty to four things. Do your time 1 he stays alive and #2 he probably comes out completely change better minds it. Instead, literally loses it all. Yeah, just loses it. 

James Flaherty:  

All and I mean. It actually, yeah, for all of its flaws, it had done some interesting things. You know, the insights that everybody got and how he did this would have been a useful resource for him. To be able to draw upon. So that I’ll walk for war streets. Don’t try this at home. So we’ve talked about that kind of RIP off the band aid, but geez, that’s hard if you’re investing. We’ve talked about this a lot. I spoke to a guy yesterday. Fabulous bloke. 

Chris Baskerville:  

Yeah, watching, yeah. 

James Flaherty:  

But he’s talking about taking money out of super to keep his business. 

And then Chris is shaking his head here. That’s not a business and must be part of your job, isn’t it? When you’re dealing with people as a, say, look, when is enough going? 

Chris Baskerville:  

No. 

James Flaherty:  

To be enough for. You in the case of a Ken Gracer was Ken, the Jags. Up versus somebody who’s tried and invested and put all their effort into this thing and it’s just gone bad. But you’ve gotta say to them, hey, this is done, and that must be an interesting conversation for you to have looking into people’s eyes. And I’ve talked about this a lot, getting people to tear the band aid off, understand that their whole self identity invested in this thing. And the reason why they’re sort of Democrats have debt hanging over their head, not sleeping at night. Yes. Is there a time where you’ve gotta say? 

Chris Baskerville:  

Enough, enough, yeah. 

James Flaherty:  

And after that. 

Chris Baskerville:  

It’s a tough one because I think you know, directors identities are tied to their business, sometimes to the point where they don’t even distinguish that the company and the director, human director are two separate entities. You know, I’m the director. It’s my company. I’m the shareholder. Therefore the money in the company’s bank account is must. 

James Flaherty:  

Be mine. Yes, and I’ll pay my gym membership and my groceries. So we’ve also talked. About keep the money. 

Chris Baskerville:  

It is 100% separate. It’s you got. 

Chris Baskerville:  

It you’re dealing with a corpus. It’s like a you’re the thinking mind of the corpus, but it’s its own beast, you know. And that’s why I think even I was saying to some of our juniors, there’s only really three ways you get your money out of the company. And that is, you know, sort of PAYG bonuses, director fees, right, locked that into one, which is basically getting paid to do a job for the company. 

James Flaherty:  

It’s giant animal. 

Chris Baskerville:  

Comes with Pyg consequent. This is 2 is dividends from profit, but it has to come from profits. If you have no profits, there is no dividends that also comes with, you know, franking or unranking benefits or the third one is a loan. Now the loan initially is no taxes on it, but at some point you have to pay the price for that at some. Stage Classic Division 7A line, yeah, so. Yeah, that always puts a few directors. Into a bit of a trap that. 

James Flaherty:  

Yeah, the tax man in the case of small business restructurings, not a fan of Division 7A. Yeah, because it’s, like, hang on, you’re not paying your tax and you, by the way, you’re stuck your hand in the company till. And you’ve bought yourself your holiday and you, but you must see it all the time. Where I’ve been fighting and fighting and fighting and going and going and going. I don’t. And really have a business, I’ve accumulated liabilities to others. I may have accumulated A liability myself to the company via Division 7A loan. I’ve got a tax. Death at some stage and there’s a bankruptcy trustee must see this bit. Does the light go on for people or is it not as simple as to? Say that. When you say the jig is up, when you RIP the band out or it’s time and people get to that point first couple of seasons we talked about this. In most cases. Do you feel that people kind of shoulders lift up a little bit or they kinda can sit back a bit more easily in the chair, knowing at least they’ve made a decision or? 

Chris Baskerville:  

Yeah, I think you, you gotta go to the stages of grief. I think so. Yeah. Yeah. So, you know, I mean, you can’t get through to someone that is still in denial, but they’re they’ve got a problem. You know, their house could be completely. Fire and it’s like, hey, you know, your house is on fire and fire department can come here to deal with it. No, my house is not on fire. It’s like, you know, what are you supposed to do? But yeah, the smart directors, when they understand the situation, when they understand that there’s actually an element of relief in there. Yeah. Just move on. Yeah. Same for bankrupt, too. 

Speaker 

Oh. 

Chris Baskerville:  

You know, once you sign your documents to just purge all of those debts that have been causing you to not sleep at night, well then you know, let’s move forward. Go again. 

James Flaherty:  

So if you’re listening to this podcast, you’re either an advisor. Or a business person who’s got a few concerns. So you’re probably a smart director if you’re listening to what you’ve got, you’ve. 

Chris Baskerville:  

Thinking we’ve made it this far on. 

Chris Baskerville:  

The podcast? That’s. 

James Flaherty:  

Right. Yeah, hang on. Couldn’t I talk about that last season? 2, But thank you to those who have listened to all. 

Chris Baskerville:  

  1.  

James Flaherty:  

Of them but. People come to these conclusions of their own time, but I think the thing. Is I suppose when I. Go back to that forever. War analogy. Yeah. The wheels of the. Processes can take time. But just because you’ve heard nothing doesn’t mean it stopped just because it seems to have gone quiet doesn’t mean that you’ve forgot. 

Chris Baskerville:  

Yeah. 

James Flaherty:  

Because that’s not how it works. The process is the process and it can take a while, but. You have the right as a liquidator, don’t you? To keep pursuing things, especially if you’ve got funding from aggrieved creditors who could say, hey, this guy’s got a briefcase full of cash and he’s trying to catch a plane and someone’s gotta stock it. Yeah. Seem set people to go and chase people in New Zealand, you’ve caught people on the tarmac. 

Chris Baskerville:  

Hmm. 

James Flaherty:  

You’ve chased people around the world. See here that long hand of the. Chris, basketball. Josh. 

Chris Baskerville:  

And yeah, well, a lot of those events, obviously, yeah, that was definitely part of the story, but it was definitely the enforcement of our great regulators that pushed a lot of the envelopes. But it is funny. Sometimes the regulators and the enforcement arm don’t move as fast as what we can move. Sometimes we have limitations, but yeah. 

James Flaherty:  

That cuts both ways. That’s the additional risk you run thinking. Well, hang on Chris’s quiet. But that doesn’t mean that other things aren’t going on. Is that also? 

Chris Baskerville:  

A fair thing to say. Yeah. Well, well, well. That’s an example. A fellow that had taken a fair bit of money from investors and. Then leaves the country. We were able to show so most of the regulators and the relevant police thought the other department was investigating and as a result of everyone thinking the other guy was doing something, everybody did nothing and we managed to get effectively an arrest warrant for the guy using the wonderful powers we have for examinations. Because we could show the court this guy deliberately left the jurisdiction of Australia to avoid his creditors, and he is a material person in understanding the company’s affairs and we ended up getting an arrest warrant. So faster than any other government agency out. 

James Flaherty:  

Don’t mess with that. Hey, we might leave it at that. That’s interesting. We might follow that one up. Hey, Chris. Thanks for that. Let’s chat next week. Chat soon. Thanks. 

Chris Baskerville:  

Thanks James 

A reminder that these podcasts are general in nature and do not constitute advice, and they don’t take into account your personal circumstances. So if do you think though, that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice. 

 

Science fiction, a water treatment plant, and a guy owing money getting nabbed in his allocated seat before he escapes on a plane.  

Another eclectic combination of topics packed into just one episode – this time, the latest, ep 89 of The Sounds of The Baskerville Podcast. Now in its fifth season, Chris Baskerville:  continues to delve into and outline compelling issues for business owners, their advisors, and anyone interested in a good, informative yarn. 

Ep 89, we think about time. How long does it take for the wheel of justice to spin? How long a bad business can keep dragging on and on… how denial can prolong financial struggles and the severe consequences that come with it. As always, this episode offers valuable insights on avoiding financial business pitfalls and getting on with seeking sustainable success.  

Worth your time!

The Sounds of the Baskerville – Episode 90

James Flaherty

I’m sorry, Chris. I’ve just been hurt so deeply that $1. 5 million is not even going to slightly cover the damages. You’re listening to The Sounds of Baskerville. I’m James Flaherty, here again with Chris Baskerville. How are you, Chris?

Chris Baskerville

Good morning, James. Good to be back again.

James Flaherty

Did I read or hear that you just had a pretty significant judgment in your favor in the Victorian Supreme Court? Now, people might say, there you go, geez, James, you’re reading some interesting things. But it was pretty newsy. Tell me what happened.

Chris Baskerville

Yeah, so on behalf of a company that was in liquidation, that myself and my business partner were liquidators of, we took umbrage with an instalment paid to acquire development land of, call it, $1.5 million. And we said to the party that was holding the said $1.5 million, you have no right to hold the $1.5 million. You need to surrender the said $1.5 million. And they didn’t want to surrender it.

James Flaherty

I mean, if you’ve got $1.5 million, well, what did they sort of say? They said, well, aren’t you in liquidation? So maybe take a step back. So why did you think that they shouldn’t have the $1.5 million again?

Chris Baskerville

Yeah, well, all of this turned on a specific contract. So there was a contract entered into between the company that I’m now the liquidator of, but before my time, our company entered into a property purchase with the vendor for, call it $30 million, and you have to pay a 10% deposit. So in comes $3 million to satisfy the deposit. Then there was a bit of mucking around with settlement. And so our company, before my time, said, can we just extend the terms a little bit? And of course, the person selling the land said, sure, no worries. Please tip in another $1.5 million. So in total, $4.5 million actually exits the company and goes to the vendor. So when you look at the contracts, we accepted that the $3 million was lost cold. Because it was in the contract, it’s the deposit, and the contract clearly states that if you don’t complete this sale contract, you lose the deposit call. We accepted that.

James Flaherty

Okay, so your company that’s now in liquidation that you’re the liquidator of, they didn’t buy the site. Didn’t go through. Correct. And then so what’s happened is that, I don’t know, the other mob have said, okay, I know you’re taking a bit longer, just another one and a half mil, and it’s all going to be sweet.

Chris Baskerville

Yeah, effectively. And the contract. Again, you have to really drill down. You have to look at the specific words, right, of the contract. The 10% you lose cold if you don’t complete the contract, fair enough, and we accepted that. But the $1.5 million was being held to assess damages. In other words, we’re going to hold on to this $1.5 million until the damages are eventually assessed, and if the damages exceed $1.5 million or equal $1.5 million, well, guess what? We’re under the contract. We’re taking the whole $1.5 million. The problem for our opponents is that in the contract, they had a two-year window to assess their damages and they didn’t take any steps in that two years, which is very, very critical. And even the judge at trial was walking our opponents through the thing, going, but this two-year period is quite important. So how is it that you say if the contract is very specific about you’ve got two years to justify your damages? And you take no steps in two years. What do you think gives you the right to hold on to the $1.5 million indefinitely?

James Flaherty

Because you’ve had two years to come up with a really compelling story as to all the aggrieved damages and all why you’re – I’m sorry, Chris. I’ve just been hurt so deeply that $1.5 million is not even going to slightly cover the damages that I’ve suffered. But instead I do nothing?

Chris Baskerville

The basic principle in equity, and don’t quote me because I’m not a lawyer, but basically equity does not favour the tardy. So, in other words, if you drag your heels, you take no proactive steps and you’re lazy and all that, how could you get the benefit of the discretion of a court? If you’ve been aggrieved, you need to take positive steps, you know, to demonstrate the aggravation.

James Flaherty

And that’s interesting because I’ve already trousered my three mil because your company didn’t complete. But you’re saying, that’s fine, I was always entitled to that, and I’ve taken 1.5 mil because I just asked for it, and you, a mob, gave it to me. Then the onus now is on me to demonstrate why I’ve still got possession of that $1.5 million, because the contract that it relates to, the only bit that I was entitled to it is the $3 million, and if I can prove some other out-of-pockets, like, oh, I’d already gone and bought a whole lot of yellow things to do something with, you know, so like the damage that I incurred. So that’s really interesting. So it’s not stealing by finding. I’m not saying anything like that. But you’ve got a pile of money that you don’t have a direct entitlement just because it’s in my bank account. Ha-ha, I’ve got another $1.5 million. He’s gone bust. I’m not going to give him that back. He’s got to go fish.

Chris Baskerville

And they’ve probably taken an attitude that possession is nine-tenths of the law, right, which is if I’m holding the $1.5 million, well, there’s 90% of the job done. But I don’t think our opponents kind of respected the fact that we can’t let that go. You know, on behalf of potentially 400 mum and dad investors that collectively put their money into this big scheme or managed investment that was unregistered, you know, four and a half million of those mum and dad’s monies has gone into this contract. We have to accept that three’s gone and there’s no way to get that back. We just had to accept that. But we just could not let the one and a half million go.

James Flaherty

And I mean, you’ve got a good legal team. They’ve read that and said, oh, hang on, these guys have done nothing. And so you go to the court and say, well, I’ve done nothing. But they’ll go, well, hang on, who are you, Mr. Baskerville, to represent? Like, who are you in this? Are you, like, is it Chris Baskerville’s $1.5 million? Like, who? Are you?

Chris Baskerville

Who’s the plaintiff? Is that where you’re going with this?

James Flaherty

Yeah, I think so. Because we’ve talked heaps of times about you’re on the hook personally for half this stuff. So who are you in this matter?

Chris Baskerville

Yeah, so it’s quite interesting actually. So as liquidator, the company status does change in terms of the company is still in existence. The company still has property. This company still has entitlement to other property. All we do is we replace the director and we become the thinking mind with the relevant statutory powers that come with it, right? The claim that we were chasing is not a liquidator’s claim. It’s a company’s claim against, in this case, another company. So it’s a company versus company issue. The company just happens to be in liquidation and I’m its thinking mind. But the aggrieved party is the company that lost the $4.5 million, which we say $1.5 million had to come back.

James Flaherty

Which is not to downplay the important role that you take, but technically this is, in a sense, just a commercial dispute.

Chris Baskerville

It’s 100%. You didn’t need a liquidator to run this claim. I think that’s an interesting point: it’s a liquidator didn’t have to run this claim. The company, if it wasn’t in liquidation today, as an example, could have run the same claim that we ran. It just so happened the company was in liquidation at the time and we took it.

James Flaherty

Okay. And then so you then are really effectively operating as a director of that entity, in your capacity as the director, like effectively.

Chris Baskerville

We’ve become a thinking mind and an officer of the company. Like you said, yeah. Yep, that’s right.

James Flaherty

And so that’s interesting in this particular case because it would say, well, hang on, that’s slightly less hairy except for the fact that, hang on, if I’m the person with the $1.5 million and I know you’re a liquid, I know you probably don’t have that much money.

Chris Baskerville

Well, the company doesn’t have that much money.

James Flaherty

So the company doesn’t have that much money. So then I’m going to, hang on, I don’t want to run up all this expense to fend you off, especially if I don’t want to. I’m going to try and effectively hose you out, keep you away. So I’d ask you to put a bond up, wouldn’t I?

Chris Baskerville

Yeah, so my learned colleagues in law will say to their clients all the time, you know, you can’t litigate for free, right? Hold that thought. So the company has no money. It’s got no property. It’s insolvent because it owes a whole bunch of money, but it’s got no assets to deal with it. You’re right. Our opponents, having seen the fact that the company has no money, they would ordinarily apply for a security of costs, which means that in order to have this fight, someone has to produce a certain quantum of money into the court to be held to protect the downside risk that if we were wrong. And it’s up to a judge to pick the number. And the other side will say, ‘Oh, it’s going to cost a million dollars to run this thing. ‘Of course it will. And the judge goes, ‘Well, that’s just ridiculous. It’s only a half-day trial at best, you know. ‘And it’s usually about the future costs of the litigation, not the past costs. So, yeah, so our opponents did try to run that, but they just ran that a bit too late.

James Flaherty

Right. So, hang on. I’ve been sitting on one and a half million bucks for two years. Yeah. And don’t do anything about explaining why it’s still mine. Yeah. Then I don’t hit you guys up for some.

Chris Baskerville

Not until they made an application, you know, within, say, three or four business days of trial. Right. Okay. And then they hit it up. And we said, well, pleadings will close. The evidence is all in. The case submissions are in, at least from our side, right? Yeah, yeah. In other words, we’re ready to roll. We are ready to go to trial. And the judge listening to it in Melbourne, the commercial list was unbelievable. I’ve never seen a guy so intelligent and just on the money. Our opponents were basically saying, oh, but we haven’t gone that far in the procedural issues of the trial, Your Honour. And the judge goes, but hang on, you’re in trial on Wednesday. You know, like how could you say that we haven’t taken enough procedural steps? It’s kind of like, wow. Anyway, that was a funny day. But, yeah, they did try to run that and they lost.

James Flaherty

Right, which is helpful. But even still, there are situations where you sit there and go. I’ve got a certain pot. You’ve only got a certain kind of amount of money that you can draw upon in these situations. Do you sometimes go to your learned colleagues and say, hey, ladies and gents, I’ve got this much. How far can we stretch the rubber band? Do we do that sort of thing?

Chris Baskerville

Yeah, well, this is where it comes down to relationships. So we spend an entire career and a lifetime building relationships with relevant experts. And we share referrals amongst each other to build the trust. They obviously get an insight as to how we operate. We get an insight as to how they operate. And those that you build strong relationships with. And because we are considered a sophisticated litigant, I still don’t know what the definition is or where to find it.

James Flaherty

That’s probably an episode in its own right. We’ll have a panel discussion on what that means.

Chris Baskerville

Basically, taking the office of liquidator, you’re already anointed a sophisticated litigant, even if you have not stepped one foot into the courtroom, right? So if you’ve got those relationships and if the lawyers believe that the case is strong enough and that there’s the pot of gold, and I use the rainbow analogy-pot of gold, which is the pot of gold is if we run this claim, there is a pot of gold where we can all get paid. The rainbow in the analogy is the claim. So in other words, the lawyer’s job is to tell me, alright, we’ve got the rainbow, it’s got a good claim, and then our job is to say, yes, there’s a pot of gold there, and they agree, in which case. If you’ve got lawyers who you’ve got good relationships with, they know how you operate, the claim’s good, they’ve looked at the evidence and gone, yes, I think your prospects are reasonable, if not good, then they will come on a journey with us on what we call a speculative or a conditional basis, which is if we win, we win, and if we lose, we all lose.

James Flaherty

Okay, got you. And if I’m a mum and dad and I’m hearing about pots of gold, I go, well, it doesn’t sound like too many pots of gold for me, but what it is – Part of the reason why the dividend at the end won’t be 100 cents in the dollar or whatever it is, is because of the amount of work and effort. Like you’re at one end of the rainbow, you’ve got to get to the other. That’s not very easy. I’ve tried to follow rainbows quite a bit and I’ve never found a pot of coffee. And you know what I mean? So like, oh yeah. So it’s an interesting analogy because I suppose in a sense there’s a prize and there’s a prize that can be won with effort and risk. And the risk that you guys take is that it all blows up in your face and you’re left carrying the debt.

Chris Baskerville

The risk is we go and run this thing and the judge finds completely against the liquidator or the company in this pursuit and we’re wrong. Not only has the pot of gold disappeared, but then I get a bill for having a crack and losing. So, yeah, I mean, that’s the risk that we put ourselves in. And what’s always a challenge in nearly every – let’s call it an unregistered managed investment scheme that was intended to potentially defraud mum and dad investors. That’s me dancing around. What I really want to say is that there was no money on arrival when I arrived. So, here I am coming into the job. I’ve got no money, right? There’s no real obvious property that I can get my hands on. Which means what we’re chasing is I’ve got to claw back property that should have been there that isn’t. Yes. And that’s the challenge. So that’s where you’ve got to have really good relationships with good lawyers so that you can run your investigations, run the assessment, get the evidence, and then go, all right, we can see these pots of gold. Is the rainbow good? Great. Are you willing to run with us? Yes. Let’s go.

James Flaherty

Right. So this particular case is you’ve gone to court. These cats are sitting on some money that’s not theirs. They had the opportunity to try and prove some or most of it was. They didn’t. They then should have hit you up for some costs well in advance at times, and then didn’t. They haven’t helped themselves in this matter.

Chris Baskerville

No. And I do want to finish with this line, which, you know, the relevant clause in the contract does not allow for such laxity to be rewarded.

James Flaherty

And so now you get the money back.

Chris Baskerville

Well, that’s a judgment for the money to come back. Now, obviously, when a judgment like that comes out, there is a period in which someone could appeal. And I take it that our opponents have appealed. So in other words, we’re now off to the Court of Appeal in Victoria, and we’re going to test who’s right or wrong.

James Flaherty

But you have a judgment in hand, which is public record.

Chris Baskerville

Correct.

James Flaherty

So that’s a good start. And you were quite impressed with the judge that you sat before. So I think we’ll follow this one with interest. I think it’s a really interesting one that equity does not favour the tardy. Nice one, Chris. Well done. I just want to follow up on that difference for next episode. Chat you soon. Thanks. A reminder that these podcasts are general in nature and do not constitute advice; they don’t take into account your personal circumstances. So if you think, though, that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice.

Audio file 

The Sounds of the Baskerville – Episode 91 Transcript 

James Flaherty 

Last episode, we talked about a win for the great man. Like all of the wins in that game, there always seems to be some other part of the equation that needs to be solved before we get to the end of the pot of gold or the. Prize, but anyway. Welcome back to the sounds of the Baskerville. You’re with the sounds of the Baskerville I’m James Flaherty, but here’s the star of the show, The Hound. How are you, Chris? 

Chris Baskerville 

Good morning, James. 

James Flaherty 

Yeah. So you could soon to pot a gold last week and this tells the story of really running a matter where you were basically almost like the director of a company that had been wronged and you chased the money down. Well done. You could win for you and your team, and now you’ve gotta get it because you’ve got judgement, haven’t you now? 

Chris Baskerville 

Well, we’re talking about the pot of gold, so one thing we are aware of is the company that we took this action to return, the one and a half million still owns the very said land. 

James Flaherty 

So yeah. 

Chris Baskerville 

That was previously under contract to our company years ago. So in other words, the land is still there. We do know that land is currently on the market to be sold. So that probably did increase our urgency to bring this on. I won’t go into what our thinking is, but basically we want to make sure that we got into this position before this land. 

James Flaherty 

I got 2 right, OK. And now. See, there’s a sizable chunk of land of which there should be some money to pay. And you’ve got a judgement. We’ve talked about this before. You got a piece of paper with a stamp on it that says you’re owed money. 

Chris Baskerville 

So. 

James Flaherty 

And you can use that to go get. So how do you get? 

Chris Baskerville 

It then, yeah, well, there’s a few things that we can do and I won’t announce that they are, you know, but most people are in the, say, debt recovery space. Understand that if you’ve got a judgement debt, one of the most obvious things you do is a statutory demand for payment of it. But what we thought we’d do initially is just ask nicely for the money. 

James Flaherty 

You ask cash. Here’s the best privacy. Very. Let’s just be nice about it. 

Chris Baskerville 

Now remembering also that because we got this judgement recently, there’s also a period of time in which someone that is agreed by the judgement wishes to appeal the judgement, and I have it on good authority that our opponents are going to appeal, which means we’re gonna go back down to Melbourne and have a fisticuff in front of the Court of Appeal in Vic. 

James Flaherty 

OK. And and like I said, when we started off, you know, it’s not gonna be as easy and let’s face it. We’ve talked last episode about someone had $1.5 million for a company that you were liquidator of and hadn’t really done a lot about trying to preserve the reasons. Why they’ve got it? And they would perhaps as proactive as perhaps they. Might have been but. They’ve still got avenues, and we hope that we can get into a gentlemanly, relaxed agreement, but we’ll see what. Ends up. 

Chris Baskerville 

Well, it’s a beautiful thing about the legal system, is that, you know, there has to be a due process on both sides to give everyone a a fair shout. And we have a system which says, well, if you don’t like the principal judgement and you feel you’ve got a case to appeal, well, let’s go and have an appeal. When you go and. Could appeal. It’s not just one judge. Now you got three looking at it. So in other words, now you gotta convince at least 2/3 of that bench that as an appellant that we were actually right the whole time or that the previous judge erred, which is another way of saying made an error. Let’s just say you are aggrieved by the decision. Either party by the Court of Appeal while now you’re on the doorsteps of the. High Court well. So now you’re. Thing on the absolute big house and you have to explain why we should come through the gate and absolutely have this fisticuff in front of the High Court. 

James Flaherty 

Of Australia and you did talk about the relationships built over years and this is an important thing that people keep in mind with the people that you go into battle with are not people that. You know and trust because you play golf with them. You may, but it’s people who have been in the trenches with you. And. Have demonstrated that they have your back, but also you can work with them and your teams can work well. Together, but don’t know what you. Just said didn’t sounded very cheap. No, but how you gonna pay for? 

Chris Baskerville 

All that well, this is the wonderful commercial risk that we find ourselves in is that decision making around? Are we going for this? Yes or no? Are we happy with the rainbow that leads to the pot of gold? Yes or no? Are we going into this eyes wide open? All of us? Yes or no? And then are you willing to come with me? To the very end, and if the very end means we’re at the doorsteps of the High Court, or even potentially in the High Court, they are all the decisions that go into play with everybody and I think this is where the relationships and trust comes to, which is if my lawyers thought for one minute that I was being dishonest or submissive and not giving them all the evidence that they need to make informed decisions. If they thought for one minute I was being deceptive and not open and transparent, there’s no way they would come with me on that journey. 

James Flaherty 

Yeah, and I mean anyone who knows, you’d be pretty safe from anyone thinking that about you, so that’s fine. But yeah, I think and what? And just talk about commercial interests. It’s if these people, if you want people to go on the journey, I mean we’ve talked a lot about Ponzi schemes where people will con people to go on the journey. But these are people who are gonna go to the hopefully. And not bitter end. So you know, you need to make an informed decision about the journey. We’re gonna go on. And it’s a bit like going to the Antarctic, isn’t it? You’re gonna go. Down and find the South Pole and you got dogs. 

Chris Baskerville 

And you kinda need lawyers that are crazy enough to go. Yeah, that sounds like a great idea. Let’s go. 

James Flaherty 

OK, alright. 

Chris Baskerville 

But I think the other thing is, is that those lawyers that really understand the office and the role of a liquidator understand that like we had no dog in the fight until we eventually arrive on the scene and then we’ve gotta. Pick history to work out. Ohh I can see there’s been some wrongdoing here. So we’re coming in objectively. We’ve obviously got to think about the credit of Pearl and the credit of body.  

James Flaherty 

So. That’s the mums and dads who. Had their money taken. 

Chris Baskerville 

Yeah, that’s right. That’s right. So we’re sitting here as we’ve got duties and there’s even a public interest element to what we do. So in other words, there is a hey, the liquidator does need to challenge these transactions for the benefit of the Marbo, the Vive and awesome stuff. So the lawyers that get it know that we’re not. Emotionally invested in this thing, it’s very clinical. It’s black and white, and it’s usually fights over money or property. So while dealing with people’s time, not dealing with people’s kids and families, it’s just we need to get this money back. We need to get the proper. Back for the benefit of the people that are aggrieved. 

James Flaherty 

Yeah, yeah, yeah. So then public interest, it’s the right thing to do effectively it’s the right thing to do for the mums and dads. The right thing to. Do for society in general, because behaviour that is potentially disadvantageous to any of those. Groups of people should be. Challenged effectively is that kind of what you’re sort? Of saying in the world way, yeah. 

Chris Baskerville 

It will put it. This way it would be unjust for someone to hold property or cash. That they weren’t legally entitled to halt. 

James Flaherty 

That’s right. So if there’s money sitting in an ATM, someone’s forgotten to take, you shouldn’t. Technically, you don’t just stick it in your pocket and go half days. Especially cause it’ll be a camera. But also as well, that is effectively kind of almost stealing by finding. You’ve gotta go and. Mess it up and if no one else claims it, then in the absence of another claim then you might be entitled to it. Now I’m not saying that’s as simple as this, but just because it’s in your bank account doesn’t mean it’s yours like in those. You know, people that accidentally put. The wrong numbers into the deposits. Oh. Look at this, they. Got 1,000,000 bucks? It’s not yours. 

Chris Baskerville 

I remember coming across the concept. I mean the concept was quite funny and I think it was one of those when I was a junior burger in and told them see and we were chasing the return of property from someone that was holding it and the basic principle was, you know, possession is 9/10. Of the law. Yeah. So I mean, good luck finding that in any written statute, right? But. If you’re in possession of the property, you’re in much stronger position, and even my lawyers will always say you’re better off fighting to keep than fighting to get. Yes, we happen to be in a position we were constantly fighting to get, you know, that’s the position that we’re constantly in because all the property money’s gone by the time we arrive. Yeah. In, a lot of cases. 

James Flaherty 

Yeah. OK. So, suppose I was just interested because. Before about this about you being the person in the crosshairs, you sort of take on. We’re talking off air about voluntary administration, where you gotta take over the enterprise. And are running the enterprise like you are running the enterprise like it’s you. So then like you’re signing the cheques and that sort of stuff. So how is this different from a preference claim? Which? Yeah, anyone who’s ever been subjected to a preference claim to hang on. How did I know this guy? Was gonna go. 

Chris Baskerville 

Yeah. 

James Flaherty 

All this stuff. How is this different? So you’re chasing money? You talked about it last time. You’re doing something at any ordinary company could do in this matter. 

Chris Baskerville 

Yeah. So in in the matter where we got judgement, it was a company versus another company claim and you didn’t need a liquidator to run it. The company could have. But for the liquidation run, the exact same claim I read right? So so that’s the difference. So it’s a company, the company kind of issue an unfair preference can only be run by the liquidator or liquidators plural, don’t correct. So what happens in that style of litigation? 

James Flaherty 

Gotcha. Right. So that’s a special power that you have. 

Chris Baskerville 

Is I am actually the named plaintiff personally, right. In other words, it’s not the company coming after you, it’s the liquidator representing the company that’s coming after you. But essentially it is a liquidators claim against a creditor that has received an unfair preference. OK, so that makes it personal. So that just ups the risk again. 

James Flaherty 

And in this particular case, we talked about this in the gold sky. Matter. This this isn’t really a preference example, but if someone had been paid one and a half million dollars two years ago and it was pretty clear that they shouldn’t have it. Can you pursue that sort of preference or is that too far? I’m not saying in this matter, but yeah, cause remembering gold’s guy you had an Ave to go back all the way back if you wanted to and had the money and the time and the energy. Whereas in this case it’s pretty clear if there was a preference of data, the sort of six months that people often. Talk about is. That something that you can do or. 

Chris Baskerville 

Yeah. So to be clear, there is a lot of claims of liquidator can bring right variety of them out our job and why you get legal advice is to say, hey, we’ve noticed this money going to these certain parties. 

James Flaherty 

Many special power. Yeah. 

Chris Baskerville 

How should this be? Pleaded or classified? Is it? An unfair preference. Is it an unreasonable director related transaction? Is it an unfair loan? Is it just something that is uncommercial about it? Which category does fit in? Or does this thing fit into multiple categories? Which is ideal? It’s basically like. 

James Flaherty 

Gotcha. 

Chris Baskerville 

Instead of throwing 1 spear at someone, you throw. Corey and what that means is that your partners have to defend 3 Spears. Now you might defend 2 of them, but one of them gets through. 

James Flaherty 

Yep. You got? Yeah. Two Spears coming at the same time. Which one is gonna hurt me less, yeah. 

Chris Baskerville 

Correct, correct, correct. Correct. But there’s also claims as liquidator that the company has, which is the example of what we’re doing in Melbourne. So This is why you gotta work hand in hand with lawyers because we go, hey, we can see all this property exiting. How do we class it? Do we have the evidence that supports it? But that’s all governed by statute. A lot of what? 

James Flaherty 

Got you. 

Chris Baskerville 

So does it tick all the boxes in statute that this claim meets that criteria? If so, we run it as said claim, whatever that happens to be. 

James Flaherty 

Yeah. And so if there was a situation where something seems to be in my particular question, an unfair preference a couple of years ago like they got paid that whilst all these other people. And he got stronger. Can you pursue that as a preference? 

Chris Baskerville 

Yeah, that’s right. And you know, a lot of what the role of the insolvency practitioner is to balance out fairness, right? So is it fair that certain creditors get all their money and other creditors don’t? Is that fair? Is it fair that the director and their family run off with the company’s property and creditors miss out? Like, is that fair? So our job is to bring the balance. 

James Flaherty 

Of fairness back right and. This is bigger than our small business getting a letter saying, hey, you knew Barry was going bust. He’s paid your bill and gone broke the next day. This is a far more sophisticated sort of process, isn’t it? It’s really. A bit of an investigation exercise across all the range of skills that you’ve got, I suppose, where I was going with that question is that when we talk about the role of a liquidator, people often will say like you’ll get a few cents. In the dollar. And then I got a letter from one of them telling me that I got paid a bill and I had to give them some money back. But that’s not your job, and it’s not your life. You look at this today, this. Is chasing money for mums and dads. At some personal financial risk and leaning on some pretty heavy friendships. To get there is. That kind of the summary. 

Chris Baskerville 

Of what it is? Yeah, pretty much. And then just to touch on the unfair preference point is there’s defences available to people that get tapped on the shoulder to say, hey, I think you’ve got an unfair preference here. They’ve got defences, you know. And usually the. 

James Flaherty 

Get legal advice. Yeah, and then. So, yeah. And I think that we’ve often said that just cause someone writes you a filthy letter doesn’t mean you have to sort of instantly do what it says and not saying it’s like spam but just cause you get something that says you owe $1,000,000. 

Chris Baskerville 

Absolutely. 

James Flaherty 

Who said telephone company doesn’t mean you have to instantly assume that you do so there are defences you should be concerned you. Should be alert. 

Chris Baskerville 

Yeah, yeah. Or anybody that gets either demands or or claims statement claims from a liquid or anybody really. You should really should go and get immediate legal advice from an expert that. 

James Flaherty 

You have. You do have to. 

Chris Baskerville 

You have to. Because the worst thing you can do. Is ignore it. And as Winston Churchill says, you know, ignore danger and it doubles. Whereas if you meet it head on, it halves because it’s a very technically specific area of law that sophisticated litigants like liquidators, they know it inside out and the lawyers they use know it inside out. So you really have to. Properly defend yourself. Go get legal advice. You have to get. 

James Flaherty 

It you know, and that’s the challenge for a small business, I suppose. Is that the thing that the Ombudsman talks about is? The need to. Get legal advice and you can get legal advice from not only your government agencies, but there’s also, yeah, you don’t. To spend a fortune to be able to get advice from. A lawyer, but make. Sure that the lawyer is somebody who’s understands insolvency law. Don’t just talk to the person who did you. Can buy because it’s not. Of an area we’ve talked about. This it’s not an area for the for. The honest toiler isn’t. 

Chris Baskerville 

No, and I guess this is the hard thing for let’s just call it the general mums and dads. Out there to get their head around. Ears up. You may have a very, very good relationship with your local conveyancer or the wills and estates guy that’s helped set up your will or the family lawyer, right. You got great relationships. Them, but not all lawyers are the same and not all lawyers specialise in all areas of law. Like you’d be hard pressed to find a lawyer that says. Yeah, I do. Every area of law like they usually say here are my 2. 35 specialties and that. 

James Flaherty 

Ohh there’s some pretty big ones in Eagle Street and George Street, you know. Ohh straight well. Yeah. 

Chris Baskerville 

We’ll have specials up to you. 

James Flaherty 

So but if you’ve got a have. You got an office near the law courts in Vic. That’s a substantial bill, potentially. 

Chris Baskerville 

Yeah. Well, that’s the thing. And so depending on the subject matter, you should be depending on the lawyer that you should go to. I mean, look, you know, we we see it all the time and and I don’t always use insolvency guys. Sometimes I need family law advice. Sometimes I need bills in the States and sometimes the tax advice. 

Speaker 

Yes. 

James Flaherty 

When you go to about my door. But you go. In fact, we’ve had person on this podcast. Yeah. Who’s the family lawyer that you use when you need to so. We get that. So suppose you get the right advice from the right person, and I think the thing that I sort of sit back and listen to what we’ve been doing over the five years of these, they’re getting closer to the 100th episode. You are met on a reasonable basis with a reasonable argument. You’re a reasonable guy and will consider on that basis, so if it goes to antagonism, will be if you’re ignored or antagonised, that’s not a very commercial way to deal with any type of scenario, no. 

Chris Baskerville 

Because you’re forcing the opponent to have to continue taking the necessary legal process steps, and it just gets. More expensive, harder, longer, more obligations. And the pressure mounds and mounds and mounds and mounds. Like you know it’s it’s one of those things. Whereas you know, I think the smart option is get into the office, start the communication dialogue, see if you can reach a commercial settlement before a liquidator has to go and take legal. 

James Flaherty 

Action. I’ll strike another one up for the moms and dads. Well done, you see, you’ve chased down some guys who’ve got some money. I’m gonna be lucky. You might get a. Back and hopefully some people will get some money at the end of the day and well done. You and the crew. I mean The Dirty is not done yet, but it’s not easy and well done you for having a crack and it’ll be fascinating. Well, watch for that. No, I imagine I. I look forward to when you’re able to name that. Chat soon, Chris. Thanks, Dave. A reminder that these podcasts are general in nature and do not constitute advice, and that they don’t take into account your personal circumstances. So if you. Think though, that some of the issues raised might apply to you. You should seek qualified financial, legal or counselling advice. 

 

Audio file 
The Sounds of the Baskerville – Episode 92 Transcript 
James Flaherty 
So yes, if you are one of our colleagues who might be a practitioner who’s listening in to hear what your a great competitor and friend Chris Baskerville would say, make sure your paperwork’s up to date. Welcome back to the Sounds of the Baskerville, I’m James Flaherty. I’m here with Chris. How are you, Chris? 
Chris Baskerville 
Good afternoon, James. 
James Flaherty 
Yes, good afternoon. The afternoon edition of the Sounds for Baskerville, they talk about afternoon, in recent episodes. We were talking about what was a big win and we did talk about maybe calling that episode, Chris Baskerville as himself, because you represented yourself as not the liquidator but kind of operating as a, as an entity on behalf of a company in a particular matter that was going. To court. Yeah. And you had a pretty good win. 
Chris Baskerville 
Yeah, I should clarify. I didn’t go down and represent myself in the courtroom. You. I. Obviously always but, but you’re right it. 
James Flaherty 
Yeah, but you can still be, yeah. That would have been cool. Sort of like Castle style. 
Chris Baskerville 
Yeah, we went down to Melbourne because we were challenging the return of money that should have come back to a company in liquidation. The other side were saying, well, they’re held because of the damages claim that we think we’ve got. And then we said, well, the contract that we all signed doesn’t allow you to hold those monies any longer than two years. So you’ve got that two year window to assess your damages. And if you don’t do that well, then you have to surrender the money back. And that was the fight that we had and the court found in our favour that, yeah, if you took no steps. Once a contract is terminated to prove up your damages in. Two years. You gotta surrender the money. 
James Flaherty 
And we called the first episode of that little series. Equity doesn’t favour the tardy. Most of that effect. So let’s talk about what’s happened since this day. 
Chris Baskerville 
Yeah. Well, in the Victorian Supreme Court rules, if you don’t like a judgement or a decision made, you got 42. Days to file an appeal. So that put it. At about the 27th of June, Umm, we get notified on the 1st of July that the appeal has been filed that day. So it’s gonna be interesting matter. So we’re gonna be going back down to the Court of Appeal in Vic. 
James Flaherty 
42 business days. 
Chris Baskerville 
42 days like just land old days. 
James Flaherty 
Not like. Not those innumerable Victorian public holidays. And that’s the stuff. It’s just that day just dates, yeah. 
Chris Baskerville 
So that includes weekends. So yeah. Yeah. So, anyway, we’ll have to come back and do another episode on the outcome of that. 
James Flaherty 
OK, well, at least there’s a certain consistency to the approach that they’re taking. To deadlines and so forth. 
Chris Baskerville 
They missed nearly every deadline during the process. 
Chris Baskerville 
And I expect they will miss every the deadline moving forward. So. 
James Flaherty 
Right. Well, we’ll watch that one. With great interest coming back to another subject dear to our hearts, there’s an ASIC, Australian Securities and Investments Commission report on the small business restructuring regime. 
Chris Baskerville 
Was released in June 2025. 
James Flaherty 
Yeah, due to advise us to hold off the press, avid listeners will remember you that when we sat back and looked at the first kind of big report that they did and this one is kind of like a the next follow up addition consistent with the usual approach to taking to this, I haven’t really dived deep under the hood. I thought what we do is just sort of have a bit of a quick look at the numbers. Conveniently, have been presented to us on a summary page, but we can have a look at the key things that that stand out to us, especially cause you, as a second practitioner in the country to do an SBR and then certainly have done a bunch through the time. And you know we’ve all certainly learned things along the way. So any code takes your headlines from what you see so. 
Chris Baskerville 
Yeah, let’s just start a top of the infomercial. We have to appreciate that that none of the listeners can see the that’s right. And so this analyses the last 2 1/2 years of SBR. And so ASIC are saying there was 3400 companies that I’m rounding up here, 3400 companies that took up. Yeah. And those jobs are run by 46% of registered liquidators, which I, which I found quite interesting because that would also suggest that there’s more than half of liquidators that are not doing small business restructuring. We were digesting the 3400 SBR’s in that 2 1/2 years basically. Come down to roughly about 100 jobs a month. 
James Flaherty 
Yeah. Somewhere around that. Yeah. And that sort of struck me as interesting. Like, what were those hundred jobs a month pre this regime?  
Chris Baskerville 
Yeah. What would they have been if it? But for small business restructuring? 
James Flaherty 
Yeah, and that’s. A bit of a hard one to call. I mean my question for you is, I mean would some of those have been ones where they would have gone to voluntary administration and copped a quite high cost of that relative to the SBO. Some of them would have gone to. 
Chris Baskerville 
Yeah, VA being an option. Voluntary administration, obviously a little slightly more expensive approach or liquidation. 
 
James Flaherty 
Because that there was sort of that idea about sort of doing pre packs where people would, you know, sort of close one and buy the assets from another and then there’s this sort of the lesser approved version which is people doing a phoenix where they kind of you know you know when you receive an invoice from the same person but it’s got ohh by the way our company name has changed and we’ve got a new bank account you go. But we’re still at the same premises in the same low, low prices. So I do wonder if some of these might have been phoenixes that some of the more unsavoury types, or the untrustworthy advisors might have promulgated as a phoenix before. Now, there’s an actual way to do things properly. At lower cost and less risk to all concerned. 
Chris Baskerville 
Well, if you follow on, so we’ve got these 3400 SBR’s over 2 1/2 years. It looks like that has provided or given back to creditors just over $100 million back to creditors. So if we were talking in the bad old days, let’s just say the SBR’s of this period would have been liquidations of yesterday. Yeah, and majority of liquidations returned virtually no money to creditors. Yeah. So potentially this regime with this in place and the you know over 100 million going back to creditors over the last 2 1/2 years probably a good sign that It’s certainly a better outcome than without it. 
James Flaherty 
And further than that, since there’s an average and certainly we’re hearing now that the amount that for example that the ATO is asking for is increasing in the cents. In the dollar but. On average, either 2 would be like $0.20, so if you sort of do the maths and say well that’s half a billion dollars worth of debt negotiated down by companies down to 100 mil. Yeah, cents of the dollar. OK, well, that’s good. 88 mil of that, I think, is tax office because we know the tax office is usually the number one. So the tax office is getting a fair lick because they know that they’re getting some of their money back. They’ve got a fair way to go for these umpteen billions of dollars they are owed, but at least they’re making a start. So yeah, it shows you the size of the challenge. 
Chris Baskerville 
Well, If you look at, they’re chasing $105 billion. And if the SBR regime has done $101 million back. A fair percent of their money’s coming back from this process. 
James Flaherty 
Yeah, that’s right. So that shows you the size of the task that they’ve got ahead of them, but one of the things is interesting is that there’s a number of companies that still actually go through with it because you sit there and go ohh, it’s all very easy for people to do these deals and then disappear into the night. But that’s not how it works. They’re kind of on the hook. Is there a stat there, something along about? 
Chris Baskerville 
The ones that actually get through and then succeed? Yeah. So I think they’re basically saying that the plans that actually succeed, 93% of them are still registered, having successfully completed the SBR. So that’s good. So in other words, way, way, way, the greater majority of companies that get through SBR still alive and kicking. Which is awesome, but what was also interesting is the acceptance of plans has come down slightly, so it used to be close to 90% acceptance and now that looks like it’s dropped down to 80% except to. And that could be just the changing attitude mainly of the ATO, who we think while this report shows the median return to credit is $0.20 on the dollar, the word on the street or what we’re getting a sense from the tax man is that they actually want closer to $0.30 right. Using this type of regime. 
James Flaherty 
And we’ve talked about this before because the whole COVID excuse is starting to wear thin now. I mean we understand there were still all of the holdups with supply chains and wage increases and all that sort of stuff, it has definitely been a factor. Unsurprisingly, construction featured highly is one of the groups of people that were going through this process, which is interesting. In Queensland, the QBCC has taken a pragmatic view relative to some of the other jurisdictions. 
Chris Baskerville 
That we always thought that the QBCC would be quite militant with this because they’re very militant in anything but an SBR. So a voluntary administration, liquidation, all that they’re right on the hammer. And can’t wait to suspend and terminate licences. 
James Flaherty 
But to their credit, they’ve been constructive. 
Chris Baskerville 
Yeah, that’s right. They’re being quite constructive and the QBCC and this might be. 
James Flaherty 
Queensland building and construction commission. 
Chris Baskerville 
Yep. So where are your builders, plumbers and all that to hold their licences for construction? Yeah, but they’ve actually been quite supportive. And the only reason they probably would not accept an SBR is because there’s some licence history of the actual entity, some of them that they don’t like. 
 
James Flaherty 
Yeah. Gotcha. OK, so. One of the things that’s interesting but SBR’s do appear on your credit report, so I’m interested that there are people still trading on because you sit there and go, you know, if you look at those, the ones from our friends, for example, creditor watch, you know, the little dial goes red. Because you’re like, you know, it’s an active insolvency. You’re chatting to the people from there about our views on that, but at the end of the day, it’s through the insolvency regime, it goes red. But then as you come out of this process, if you’ve cut 80% of the debt that the business couldn’t afford to pay anyway, then you’ve got a leaner, smarter, hopefully more. 
Chris Baskerville 
I’ve always thought. That because technically you can run this thing up to $1,000,000, right of admissible debts. But the median seems to be hovering around 600,000. So in other. Words a company with $600,000 worth of debt on their balance sheet needs to be compromised at $0.20 in the dollar being the median compromise. Then in theory, yeah, you should be becoming a healthier. On your balance sheet, like your position becomes a lot stronger, that’s the theory. I think the right people get that the wrong people don’t. 
James Flaherty 
Yeah. And that’s the thing. We’re just gonna sort of keep making the message that if I think of some that we’ve worked on together and in our own businesses. You get a set of cash flows. I was funny. I was just running through a set of cash flows for a restaurant the other day of course, reminded that there’s a really good trap for the uninitiated decide to open a restaurant, because, of course everything you sell 10% GST and there’s no GST on food. So all the basic inputs like the uncooked chook. If you just go back to the original GST example and uncooked chook is GST free. But if you cook it in the oven, you gotta charge 10% and you’ve got to remit that and have that ready to go to the tax man every quarter. You gotta keep your wits about you and those sorts of businesses with complex affairs, so it’s not for the fate of heart. So these people have now got cash flows that the tax man or other creditors have accepted. Usually they’ve had to pay their super, get they super up-to-date. 
Chris Baskerville 
Well, that’s actually probably a good point. And particularly with the 95 that actually. Makes it through that hurdle, right? 
James Flaherty 
95% of what you’re saying, 95% is Chris is pointing at it at a little graphic at the moment, which is 95% of the appointments go through to a creditors plan. 
Chris Baskerville 
Yeah. So, yeah. So in other words, the first hurdle is do you qualify for small business restructuring. Which is simply we got debts less than $1,000,000 and have we done this before in the last seven years? So as long as you affirm those two qualifications, you’re in the paddock, right? 95% once you’re in the paddock actually get their plan out to creditors to qualify to get your plan out to creditors or your supers gotta be paid up to date and your taxes have to be lodged so that’s good. So that means 95% of these companies are getting squeaky clean with their employee entitlements and reporting everything to the tax man. 
James Flaherty 
I was in an institute of Public Accountants Open meeting last night. One of the topics which was just raised. It’s not a position of the institute. That was about same day super, which is coming in next year when you got within seven days to pay the money for the Super for that employee to the Super Fund, there’s a few hairs on it as far as I understand it from the legislation. Cause I mean if you’ve got the wrong digits or something like that and then technically you can be in breach if the employee is giving you the wrong super number and all. There are some traps for the unwary. I didn’t wonder when I was thinking about this last night. That same day Super was trying to catch all those people who just never get around to paying their employees super. And then you get to see the in the bigger liquidations where it’s happened, where you’ve seen and you sit there and get this turkeys never paid the Super for any of their employees, and you sit there and go and that cause with super that’s unrecoverable. It’s not part of the federal employment guarantee. 
Chris Baskerville 
Yeah, it’s super is. A charge over the company. So it’s one of the highest ranking creditors that needs to be paid even in the liquidation, right? As an example. But it is not protected by the fair entitlements guarantee, which is designed to protect employees of terminated and liquidated companies. So yeah, the Super is not in that catch. So basically if the company is not doing the right thing with respect to the Super and there’s no assets there to be used for the benefit of creditors, the employees miss out on retirement earnings. And that could be significant.  
James Flaherty 
Well, yeah. I mean cases we hear of people losing hundreds of $1000 in cases of some people, but certainly I’d like to have that problem of having that much super. But I mean like. Maybe I wouldn’t, but the point is that what I liked about this scheme is it’s a bit like some of the other things like Safe Harbour. You’ve gotta have your entitlements. Ridgy Didge. Certainly by plan phase to qualify for this. So I did wonder if this is kind of partly solving their whole same day super problem of people just getting away with just getting behind. Because the superannuation guarantee scheme, the charge scheme, the price, is already pretty high for getting if you get behind and you’re trying to catch up. Yeah, it’s already pretty expensive. 
Chris Baskerville 
Yeah, then they whack on administration charges and an interest rate. And I think the interest rate is in the double digits. 
James Flaherty 
It’s nasty. So we’ve both seen cases where part of this exercise has been, you know, the accountant. Or. Like a qualified pre restructuring advisor to sit there and actually help these people get their house in order as yeah, a friend, Ginette Muller says get the match fit. Is that sort of idea to say. You know, getting them match fit means that they convince their creditors mostly often the tax office. But there’s others that they’re worth saving continue to employ, people continue to provide a service, that sort of stuff. What’s the most interesting one you reckon you’ve done in the last little while?  
Chris Baskerville 
Yeah, there’s been quite a few. They all kind of blare in. But you know, I still go back to the very first one I successfully got into. 
James Flaherty 
Yeah. In fairness, you assisted some friends of ours with an experiment so. 
Chris Baskerville 
So, we just don’t include the first one experiment. Yeah, this engineer guy, and he just fit the mould so perfectly. And yeah, we went and probably potentially even over serviced this case. But I just wanted to get the win and he was completely grateful because when COVID comes in, he maintains its full employment. But his cost of goods goes to nearly 100%. So in other words, for every $1.00 that came in, one dollar went to employee expenses. Now so forget, landlord, forget everything else, like it was just insane. So he had to carry that burden for a period of time until the business was starting to get back again. And I felt really good for the guy that we could get him that result. Then he came to the party with the plan money like within 30 days of acceptance. So in other words, accept this compromise creditors. 30 days and you get your money. I thought that was a great outcome. 
James Flaherty 
Yeah. I mean, I think. That’s kind of what it was for, isn’t it? That’s what it was about. Trying to say someone trying to do the right thing. I mean just going through some of these stats, was it 87% were approved of the plans and then there’s still some that were ongoing as according to this report, so some of the plans. 
Chris Baskerville 
Yeah, and nearly half of those plans, half of the 3400, half of them are still in in the plan. So they’re still going. And then let’s just say the other 50%, 41% successfully completed it. I think they’re saying 3 started into the plan, but then ultimately ended up terminating. 
Chris Baskerville 
And then there’s 1%. They can’t explain what happened. 
James Flaherty 
So yes, if you are one of our colleagues who might be a practitioner who’s listening in to hear what your great competitor and friend Chris Baskerville would say, make sure your paperwork’s up to date. So anyway, Chris, appreciate just a little bit of a step through. I think there’s it’s proves again. I think the concept makes sense. There’s some things that could be improved, but I think the process and there’s some other things about the report that. Yeah. For the most part, we’re not still going into too much detail and putting the wrong emphasis on things. Reports not seeing a lot of abuse in the process it would be a fair call, you know, always things that could be done better. And there’s a few things I’d like to check on, but. Seems like a pretty principled, pretty fair process, and there are, you know, there will be things that they want to check. Like, are you really eligible and some of those other sorts of things that they’ll tweak as time goes on. 
Chris Baskerville 
Yeah, it’s very rigid and structured programme and it’s really for the directors. It’s gotta come up with how much money can you provide and over what period of time. To a maximum of three years. And then you follow the bouncing ball and the ATO either is for it or against it and you know within 35 business days of starting which way it’s gonna go. 
James Flaherty 
Yeah. Hey, we really appreciate it, Chris. Thanks for your insights as always. Catch you next time, possibly we’ll find out how things go with your friends in Victoria chat soon. Thank you. A reminder that these podcasts are general in nature and do not constitute advice, and they don’t take into account your personal circumstances. So if you. Think though, that some of the issues raised might apply to you. You should seek qualified financial, legal or counselling advice. 

Audio file 
The Sounds of the Baskerville – Episode 93 Transcript 
James Flaherty 
Don’t hurt the ones you love. Or as perhaps when we’re talking about an insolvency world. Are you throwing your spouse under the bus? Welcome back to the sounds of the Baskerville. I’m James Flaherty and once again with the great man himself the hound. Chris Baskerville, how are you? 
Chris Baskerville  
Good afternoon, James. The afternoon edition again. 
James Flaherty 
Afternoon editions here this afternoon. These ones kind of roll. But anyway, so look, there was figurative. Of course, Chris, it’s the situation where you put your beloved, the person that you want to be your companion. And you make them the director of a company. Or something like that. And they then get, unwittingly or otherwise in a whole lot of trouble. Is that kind of really where the this one? 
Chris Baskerville 
Was going, we’ve seen it a few times. The thinking is, particularly if you’ve got licences at risk and this is where you see it the most. So in other words, let’s just say for the argument’s sake, the husband has certain licences that they wanna protect. They don’t wanna necessarily be the director of the Enterprise. Just because just in case the enterprise fails, it puts pressure on the licensee. So who do we trust? We put our spouse in there. The spouse has no idea how to run a business, has no idea, has no idea about the record keeping the administration behind it. They’re probably at home looking after little ones, right? Well, husbands out there. And lo and behold, incomes director penalty notices for unlogged BAS’s and taxes returns. You see it a few times. 
James Flaherty 
And this is interesting cause it happens to men. It happens to women. So there’s a situation where, for example, as a business, I’m familiar at the moment the director was told to put her partner in as the company director, whilst she devoted some time to a new enterprise, the new partner. Has no feel for the underlying part of the business, but a name is the director of an enterprise and as a director on the hook for stuff we’ve talked about like this is the fifth series of these. It’s no small risk that. You’re taking on. 
Chris Baskerville 
No, it’s not. And being a director comes with a whole stack of duties, right? And they’re not all in the Corporations Act, so. You know, Corporations Act governs companies in Australia and there is absolutely clear cut duties in there. It’s easy to find, but you’ve also in charge of health and safety, so someone dies or is severely injured on a work site where you’re the director, then you are in the gun for penalties and some of them could be criminal penalties as well and also with having duties right to the company it comes with penalties if you get that one wrong, some of them can be court order fines and in a very extreme case potentially go to jail. 
James Flaherty 
There are reasons why some people might set up an arrangement where one person’s taking the risks and the other person is the holder of the assets. We’re often talked in the past about sensibly structuring your affairs. So if you’re the risk taker in the family, the people who you work with understand that you are the risk taker. But then if you’ve got a family home. Structure wise it would be sensible for spouse and kids to be protected if things go wrong for you, but that’s not giving financial advice or people to defeat creditors. Really, that sort of stuff. But it’s just the job is to manage your risk. Is that a fair way of describing it? 
Chris Baskerville 
Yeah. Definitely risk management. And you’re so right. I mean, just add it’s very basic level. Ideally you wanna separate risk from asset, so let’s just use a very basic example. The family home, whoever is the risk taker and I kind of agree with you on that one maybe shouldn’t be on the title of that property. So that the person that is the risk taker can then become the director of the enterprise, run it and manage it and roll the dice on success. Because just in case that doesn’t perform well and ends up in complete catastrophic failure, at least the non-risk-taking spouse has got the house and you got a place to retreat to and do not pledge the equity in that House for the business. Purpose. Either, which we see that all time, which is, I’m gonna just go mortgage my house in order to pledge company problems or liability. 
James Flaherty 
We know that it in Australia is not easy because a lot of banking will look for whatever asset it can possibly lock itself onto. Not even banks will ask for any sort of guarantee, so it’s easy for you and I to sit there and say never give a directors guarantee that’s pretty easy to say, but it’s not easy to do when it’s hard to get finance for a business that needs it for cash flow. 
Chris Baskerville 
Totally. 
James Flaherty 
So you’ve got the one you love for whatever reason, you’ve decided to put them in the list of projects for. The directors role. So for example, we’re both encountered situations where the entrepreneur has put the spouse into the business and then all the whole the spouse gets a directors penalty notice. If my wife got a directors penalty notice for one of my enterprises, she’s a very measured. And quite intelligent woman, but I would be in trouble. 
Chris Baskerville 
With a capital T. Yeah, well, that can lead to really tough conversations. I’ve been talking to directors over the past and I said hey. Just so you know. When these director penalty notices come in and I say when and some of them are the lockdown, the angry variety, which is you have to pay it, you can’t do anything other than pay. Yeah. You better let your spouse know that that’s what’s coming. 
James Flaherty 
Right, so be in front of the field. You’re not? I think so. So all those things is. Rather letting it happen to you. 
Chris Baskerville 
Let’s go back. To that real basic director duty, right. And I think this is where caution should be given to anybody thinking about it. But when you step into that role as a director, it is your job to put the interest of the company at high priority, which is. Making sure as a director you are across the books and records of the company you are across the taxes and the returns and all that you are across the cash flow management. That’s the role you have to perform. So you can’t sit there as a director and just tie blinds on and bury your head in the sand and just hope it all works out. 
James Flaherty 
And that’s also. That cuts a few ways we’ve talked about this before. Is it dumping onto the spouse he or she all the financial affairs of the company and saying, well, you go sort it or you do this. I just go like to build things. I’m just really good at hammering nails. That’s what I’m gonna. And then you sort it out, but there is a responsibility as the director of a company to actually pay people go pay their super well. We’re talking about the last episode. So the stuff you gotta do so have you any situation then? Surely you’ve seen this spouse has gotta a directors penalty notice you’ve talked about on lockdown one, which is do not pass go do not collect $200. We encountered a case where a mother put her son as a director. Gets a lockdown. It expires. So now every time this poor fellow does his tax return, he’s calling back this poor kid back. Be working as I say. He’s a mechanic. Is, you know, 500 bucks tax return he gets for every year, for deductions for his uniforms and stuff. Thanks, mum. 
Chris Baskerville 
Yeah. Ohh look. It’s a very common story, and what I find interesting and look, this could be husband and or wife or husband, husband, wife, wife whichever the scenario is. But what always fascinates me is whoever is the non-risk-taking spouse. Usually has completely no idea what’s going on until the information drops, and I’m going hey guys, like, just so you guys are all aware here, this is what’s about to happen. Yeah, sometimes I had to leave the room and just let the spouses argue it out. So it does happen from time to time. 
James Flaherty 
It’s one of those old considered that they talk. About risk management. Is it better to get people ready for something rather than have it all happen to them as one nasty surprise? When they meet you, the pleasant but commercial Chris Baskerville for the first time. 
Chris Baskerville 
Hmm. Well, obviously, people coming to meet us aren’t saying, hey, James, you wouldn’t believe it. We made $10 million profit this year and our cash flow is extraordinary. And we paid this whopping big dividend to our bank account. That is never the discussion we ever have. It’s usually the exact opposite. That’s right. I’ve taken too much money out of the company. We’re running out of money and there’s huge liabilities there. So it’s taking the director and or the spouse down the journey where they work it out for themselves that we’ve got problems. 
James Flaherty 
So how long that you talked about people, was that a lot of? Things we’ve talked about tax world called them Division 7A loans were directly doesn’t take away, it’s just pays their gym membership out of the company account. Bookkeeper and accountant gotta generate that as a liability to the company, cause they’ve used company funds for personal purposes cause it’s not wage. They’ve not paid any PAYG tax on it. It’s of course it’s effectively cash tax, free money. They’ve gone out and spent. It’s not good form on many many levels, so it’s not uncommon for you to see people taking money out of a company and then that’s one of the other things that is owed to the company is they might have lost a big client, but they’re they might also have a large amount of money owed by the director to the company. 
Chris Baskerville 
Actually, that’s a really interesting point because this this has happened a few times where let’s just say her husband, spouse is running the business and then things quite smartly. Oh I know what I’m gonna do instead of taking wage, which comes with PAYG or paying dividends, which comes with the franking credits and taxes of its own. I’ll just pay money to my wife in the form of a loan and that’ll make a lot of problems go away and then years go by and the liquidators are appointed first thing we do is make a demand on the wife to repay the money. Yeah, that’s an interesting conversation. 
James Flaherty 
The guys. Then the spouse may or may not know the mechanics of that. Now some people gonna say, well, hang on, they’ve had the benefit of something that’s come about by a transaction that really you shouldn’t really do. But there’s been an example of where someone’s taking money out of the company and you’ve had to try and chase them down and try to be a little bit tricky and say, haha, I’m gonna take this money and I’m gonna push it off into a side thing or. 
Chris Baskerville 
Ohh, it happens all the time. I mean the funniest part is how we chase and the pressure that it brings because sometimes we might not get to it for about let’s just say a year after the winding up because it sometimes it takes us a while to get all the evidence in right. And so if they’re being silly enough to take that loan and then put it into a mortgage directly. Then effectively, you’ve given us almost inequitable interest in that property. You’ve given the company inequitable interest in the property. 
James Flaherty 
So taking the money and dumped it into my private mortgage of my house. 
Chris Baskerville 
Or the girlfriend’s mortgage or the wife’s mortgage yeah. 
James Flaherty 
So if I go back to the thought about throwing people under the bus. Some of its not about directors. Cause you could be in a situation where your partner may not know that you’ve done this. Or even if they do. Then they have to face the full force of the Jirsch Sutherland, Chris Baskerville juggernaut, chasing the director for money that should be in the hands of the people that you’re trying to help. 
Chris Baskerville 
Yeah, a loan that’s owed to the company is an asset and our job is to get the assets back. 
James Flaherty 
And what are the levers you can pull?  
Chris Baskerville 
Recently we worked out that the money had exited the company straight to the directors House. And So what that means is you’ve just given us a habitable interest in the House. So bang it goes the caveat. Then we work out that there’s related party loans owed by one of the other companies and it’s in excess of $1,000,000. And it’s recognising the account, so we just immediately issued a statutory demand. Now statutory demand is not an ordinary demand. You’ve got 21 days to satisfy it or you become deemed insolvent once you are deemed insolvent, then we can wind that entity up. 
James Flaherty 
Right. So you have statutory demand? You can chase them down, you whack a caveat on something and start laying on. You. Paid that with money that’s not yours, so we’ll be taking that. Thanks very much. Can you enforce the sale of that asset or do you have to sort of wait, how does that work? 
Chris Baskerville 
Yeah, so at every state has their own different rules. Queensland. The caveat will only last three months. So it lapses at the three month mark unless. You commence a proceeding that connects that caveat to the proceeding, in which case it becomes a non-lapsing one in those circumstances, and it probably goes back to the third mechanism to get your money is you actually just sue someone you starting the claim process in the court. So yeah, you file your claims that in the claim you then inform land titles that caveat relates to this matter so that way. That triggers the non lapsing of the caveat and then you go and fight on in the courtroom. 
James Flaherty 
So you got. A lot of tools to try and chase these things down your advice to people is don’t try and be too tricky, cause it’s not like it’s the first time I’ve seen these kind of thing and you do public examinations if you have. To try and. 
Chris Baskerville 
Yeah. We had one guy and he was in a construction company in this set or late last year, but he’s in a construction company, but he takes. You know, a couple 100,000 out of the company that’s about to go into liquidation. He then transfers it and they stick it in Newco. And just before taking the money, writes a letter to all suppliers saying ohh, he wouldn’t believe it, but we just had no more money. Now we’re shutting shop. Goodbye. And of course, we’ve just followed that money. Straight to the new business. So yeah, incomes examinations. But this time we’re looking at all the directors of Company A and Company B. But we’re also forcing the new Company B to deliver up all of its financials, its taxes, its bank statements, because that’s the reach that can happen if we have to go into that mode and all we need to loosely convince the court is that Company B that took our money. Is connected to the company’s affairs of Company A. It’s not a high bar for us to get that, yeah. 
James Flaherty 
Yeah. And I mean you don’t want then of course to be subject to a proper examination too. I would have thought another one of your special powers. Yeah. So they sit there and ask your spouse, who may or may not be fully across the transaction. 
Chris Baskerville 
And yeah, particularly when the subpoenas start coming out or the summons start coming out, your wife or spouse. It will be a little bit upset if you didn’t tell me it was coming, but then again, we don’t tell anybody that they are coming either. 
James Flaherty 
That’s right. So I suppose it goes back to that, sort of if you have a poor structure, you should get advice. If you’re in a bit of a pickle, you should get advice. If you’ve got a poor structure that’s in a pickle and it’s not gonna go well for you, whatever you do, you should go to Chris Baskerville. And lay your cards on the table. I’m reminded again of the Incredible Hulk don’t make Chris Baskerville angry. He wouldn’t like him when he’s angry. It’s best to go with open hands. And what was that thing you were saying about the best time to plant a tree? We’ve talked about it before is 20 years ago. The next best time is right now. But if you want to start something and do something for the first time, what’s your take, Chris? 
Chris Baskerville 
Yes, very simply. If you’re going to go into business, you really gotta give some thought as to how you structure it right from the beginning. In other words, who’s going in as the director, who’s gonna be the licensee, who’s gonna be the shareholder? Is there a trust that we need to put in all that sort of jazz? Do we use a corporate trustee or a natural human trustee? All that needs to be thought out. Because I think too many people just quickly rush. To set up a company very, very quickly without thinking all that through and also similar to how you acquire assets. So again we’re talking about separating risk and assets, some of the sort of smarter plays I’ve seen is in this trading group of companies. There is an entity that holds the plant and equipment which is separate from the entity that is the trading risk that takes on that liability. So again, you’re separating assets from the risk. So yeah, you just gotta think about that. 
James Flaherty 
Yeah, you say plan with the end in mind? 
Chris Baskerville 
Yeah. Begin with the end. 
James Flaherty 
In mind, so, but if it’s, say hope for the best and plan for the worst, but certainly plan for the best and yeah, prepare for the worst. So it’s glass half full for sure. But I think if you walk away from this episode, I think you’ll like many of them. What was that one actually about it was. Yeah, don’t hurt the one you love. If it’s your risk, take the risk. Understand isn’t that right. 
Chris Baskerville 
Yeah, absolutely. 
James Flaherty 
And just make sure that you look after both parts of your life, big business or home. Hey, thanks, Chris. Thanks, Joe. A reminder that these podcasts are general in nature and do not constitute advice, and they don’t take into account your personal circumstances. So if you. Think though, that some of the issues raised might apply to you. You should seek qualified financial, legal or counselling advice. 
 

 

Episode 94 Transcript

James Flaherty
Welcome back to the Sounds of the Baskerville. This is one of two podcasts that were recorded live at the HAA Assist GM Advisory Conference here in Bali in Indonesia, bringing insolvency, legal, business development and improvement people from Australia across to meet people from Indonesia, be their staff or people that they work with up here. Got Chris Baskerville and James Flaherty live on stage. Welcome to the Sounds of the Baskerville. I’m James Flaherty once again here with Chris Baskerville, who’s the hound. He’s known for hunting down the money on behalf of creditors or for looking after the face for all stakeholders. So Chris, the backstory to this was to try and turn this into a bunch of lessons, but we’ll use this as a bit of a hybrid session.

Chris Baskerville
So first of all, we put this together because someone was coming up to me going, that’s an extraordinary story. And for those that are in the insolvency game, our version of ordinary is someone else’s extraordinary. So, you know, what happened to us Monday to Friday, nine to five, you know, we were shipping uranium containers in a container from into Australia. That for us could be just a day job. And everyone else was like, what, you did what? And so when we were looking at this Ponzi scheme issue, again, you know, that was just part of our ordinary day-to-day activity. But everyone else was going, tell me more because that’s actually quite extraordinary. And so we just decided to record it.

James Flaherty
And you’ve done six podcasts on the Ken Grace story. Yeah, pretty much. So why don’t we start at the beginning and where do you think this journey starts?

Chris Baskerville
Yeah, yeah. I originally put this together because these were three Ponzi schemes that I’d been liquidated off. And the first one was GoldSky. Mark, who was my lawyer on that, Ginette worked with me for a period of time. And then somehow I ended up with two more. Now GoldSky, as an example, managed to take about 30 odd million dollars from investors in a very small and isolated community in Kingscliff. Renit Capital got a little bit more sophisticated. It took about 120 million from about 400 Mum and Dad investors, a little bit more sophistication to it. And Ollie Capital was a Chinese-Australian that targeted non-English speaking Chinese investors. And he managed to get 50 billion dollars out of those investors. What he did is 47 billion of the 50 went straight out of the company’s bank account, straight into his joint account with his wife. Like he didn’t even try to move the money around for us to not trace it. So what was interesting is having seen different varieties, what I did start to identify was that there was a couple of common traits in there, which I’ll show you coming up. Ordinarily I’d challenge the room and say, what’s a Ponzi scheme? In essence, it’s where new investors pay the profits of old investors. So if I’m an old investor and I say, hey, I need 100 grand out of this investment because I’m going to buy a new Ferrari or make a small deposit at Mark Nassl’s house. Where that 100 grand comes from is I need to steal it from someone else. And so that’s the only way that I can get my 100 grand out. So I do presentations, I suck in your investment, but that money just goes to pay out old investors that are earning their money.

James Flaherty
And so the stuff that’s happening in the meantime, so that James is just putting his money in and then James wants it out. So therefore you’ve got to get Mark to put his money in. Correct. And in the meantime, you bought yourself a Ferrari, done whatever.

Chris Baskerville
That’s pretty much it. And where it all comes from, if I could hopefully get this guy here, this guy’s name is Charles Ponzi scheme. This is 1920s. And it had something to do with a stamp and a coupon recovery where I’d buy foreign stamps and have them translated into US dollars. And this guy goes out and he promises fixed it to 45 days. But if you want a double your money, I’ll give that to you in 90 days time. And for the 1920s, right in 1920s, right, he raised this 20 million US dollars, which is the equivalent of 271 million in today’s dollars. So that’s an extraordinary amount of money you could raise in that era doing this. Of course, he gets then whacked with 86 counts of fraud, spends, you know, 14 years in prison. But this is where it all comes from.

James Flaherty
If you look at this in the next slide, isn’t that something you said to me, you’d never met a con man you didn’t like?

Chris Baskerville
Super charismatic, super charming, you know, yeah.

James Flaherty
So think about a lesson as we go as we’re looking through this little bit of a history in this. These people are obviously got some credibility about.

Chris Baskerville
But the grandmaster is this bloke, Bernie Madoff. Has anyone heard of Bernie Madoff? There’s a whole documentary series on him in Netflix, and I highly recommend you watch it. This guy was alleged $65 billion paper fraud. And I believe FDI in America were appointed as the trustees and their job was to try and pull back as much money as possible. Because as you would probably understand, in these schemes, the liquidators turned up. There’s no money in the bank. Well, he’s gone, right? So the only way we really can get our money is we’ve actually got claw it back. So it’s a cat and mouse game, it’s a chase. And I think that probably flies loosely into the nickname, The Hound.

James Flaherty
Chasing things down. And so one of the things we did a podcast on how you had to try and pursue funds for Goldsky without jumping ahead of where you’re going. That job can be quite difficult to pursue in terms of trying to actually chase that money down. You said in the case of Madoff, people actually tip some money in before it’s out, didn’t they?

Chris Baskerville
Yeah, well, Madoff was interesting. So firstly, this guy was the chairman of the SEC in America. This guy had survived three recessions. So American economy goes down, right? And the investors stay with Bernie. The American economy goes up, they stay with Bernie, it goes down again. What brought Bernie undone was the GFC. Because when the global financial crisis hit, no one trusted anybody. And so what happened is there was a massive call, I want my money back. And that massive run on investment all of a sudden expose him, because he surprisingly didn’t have $65 billion in the bank account. Because it didn’t exist. It was all fictitious. What was quite interesting about Bernie, and then I got this when FTI did their global tour of how they sort of traced all the monies, is they said, Bernie, office was behind a locked door. Behind the locked door was a locked room. Behind the locked room was a locked cabinet. Inside the locked cabinet was a 386 computer, green screen. And this is in the year, you know, 2008. That’s where he held all of the investment data. Those 386 computers, if we all remember from the 80s and the 90s. Some of us won’t. No internet access. So there was no way that anybody outside using their cyber skills could hack into this computer, because it just wasn’t on the net. But that’s where he held all the investment data. And he had that computer was connected to a dot matrix printer, I think. So no one could find what the true investor ledger was.

James Flaherty
And that’s interesting, because at least he had gone to the trouble of having a place to put it. Because you’ve dealt with some before where it’s just made up. So if you think back to some of the examples we’ve talked about. So you’ve got a credible guy with a PC that only he probably knows how to even use. As opposed to somebody who just made Excel spreadsheets up. And that’s some of the things you had to deal with. So yeah.

Chris Baskerville
Well, that’s one of the common themes I’ve seen across the three of these things we’re investigating. Is the control over the information. All the control of all the financial information across the group is controlled by one person. And they divide and conquer amongst their staff and their people. So that no one person can connect all the dots of all the information. So I would tell you a little bit of information. But I didn’t tell you the balance. I’d tell you a little bit of information. But I wouldn’t tell you what he knows. And then I’d tell you guys the information that you guys don’t know. And try to compartmentalise the information. Because if all of you guys actually got together. You’d put the story together. And then you’d work out this whole thing is one big giant fraud. So control of the information. That’s one of the majors that I’ve seen across the entire group. I often say unsophisticated people commit unsophisticated fraud. So when you’re chasing someone that’s a bit dumb and not very sophisticated. You don’t have to pick that part as to how they did it. Like they’ll literally just move money from bank account A into their personal bank account. The more sophisticated people like what we saw in Renit Capital. They created like a product disclosure statement. They were selling shares. They were basically selling dog shit shares in a dog shit company. To an unsuspecting investor. Who then puts the money in. Gets a share certificate. And then the money disappears to another corporate trust structure. So that’s a little bit more sophisticated. But yeah if you’re dealing with unsophisticated people.

James Flaherty
Unsophisticated doesn’t necessarily mean they’re people without money. It just means that they’re in some cases just not devoted the amount of thought that’s required to. Hey I’ll give you x return over in 12 months. Isn’t that amazing? What do you mean by unsophisticated? Is that?

Chris Baskerville
Yeah it’s mainly the operate I think. So half your battle is actually knowing you know hand. You’ve got to know. It’s like the art of war. You know yourself. Know your enemy in a thousand battles you never lose. I don’t know how true that is. But yeah half of it is actually I need to assess who your opponent is you know. And I think this comes back to our highly suspicious nature as insolvency practitioners is. You know to catch a thief you’ve got to think like a thief. And it’s kind of a little bit scary. My staff come up to me and go. Oh man I can’t understand this transaction. And I go well think like a thief. What would you do? What would you do if you’re the fraudster? How would you make the money disappear? And once you start to think like the person that’s taking the money. It starts to make sense. You know what I mean? And of course all presidents men. Great movie. But you just follow the money. That’s the real essence of what the investigation is. Just trace the money.

James Flaherty
Yeah and then there’s what we talked about before. That’s sometimes easy sometimes hard.

Chris Baskerville
Yeah that’s right. Yeah but basically it was just showing you the targets and how they operate differently. And I just remember like Ken Grace’s very unsophisticated guy. And this is the interesting tell. Does anyone here remember that famous partner at Court Method called Daniel Bender? Yeah most people can’t remember it. Because I can’t remember any of the functions he put on. But this guy Ken Grace goes and does a presentation for investors. Very similar to what I’m doing for you guys here today. Except I’m not trying to sell you anything. We go to the presentation. Bender goes along with a potential investor. And they worked out that this Ken Grace before he started this Ponzi scheme. His business or his trade craft was used car sales. So for 15 years this guy sold used cars. And then magically overnight becomes this international investment guru. Winning all these awards in Asia Pacific. And thankfully Bender being his training in insolvency for 20 plus years. Went well that’s bullshit. And that doesn’t make any sense. You cannot be a used car salesman and all of a sudden flip into I’m a guru financial. So as a result the investor didn’t obviously invest. So that was a smart move. But then it triggered you know classic Bender. He’s like I think there’s a job in here. There’s someone in here is going to get this liquidation.

James Flaherty
And someone definitely did. But part of that story. So anyone in the industry would go hang on this guy has some cars down the bottom of the GC. Now he’s guru. Because what’s the product? Pulling out of sentiment from social media? Or am I thinking the right scheme?

Chris Baskerville
Yeah I’m going to challenge the audience here. Does anyone here know what an alpha fund is in investment terms? No? Good. All right. I don’t have to tell you anything now. And you’re going to believe me. Just like Ken Grace. An alpha fund means that we have a secret source. We have a secret thing about us that is returning higher than the average returns in the market. So if you think about the share market year on year on year over 40 years. On average is about 8%. So over 40 years 8%. Housing over all the years, 8%, 10% maybe right. So if I go to the market and I say I can get 20% on your money. And I’ve got an alpha fund to do it. Then we must have a secret source. And Ken Grace’s secret source. He used the word quantum anyway. We use quantum analytics across the quantum social media multiverse. And we collect all that quantum data and then quantifies everything into a quantum time machine. And what we can do is we can gauge your sentiment over social media. So I know where to invest your money. Well, that sounds great. That’s how he pitched it. So people bought into that story. And then when we got Ken Grace in the witness box. And it was beautiful day. We used our powers of examination and put it in the witness box. And my barrister was so brilliant. They just walked him through. Hey, can you tell us about this quantum physics, mechanic quantum, whatever. And he wouldn’t answer the question. Wouldn’t answer the question. We drilled him and we drilled him and we drilled him. And then it got down to, oh, yeah, it’s just Excel spreadsheets. That’s how he made the call. And if I recall, not very good ones.

James Flaherty
Listen to the next episode where Chris talks about how complicated they might appear on the outside and some of the lengths that the con man might go to. But yet how simple it can sometimes be just an insight. Tune in for some more insights from the hound. A reminder that these podcasts are general in nature and do not constitute advice. And they don’t take into account your personal circumstances. So if you think, though, that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice.

Episode 95 Transcript 

James Flaherty: Welcome to this second podcast with Chris Baskerville and James Flaherty in front of delegates at the HAA Assist collaboration here conference in Bali in Indonesia. 

Chris Baskerville : It’s funny because we often arrive at the scene. It’s an absolute train smash. Multiple people have lost money and there’s no money available to fund us, you know. But you’ve got to quickly run a very fast, slow funds investigation. Fast is not always an ominous of it, because you’ve got a call in bank statements and your bank statements into, say, an Excel format that you can quickly analyse. So I think with AI coming in, we should be able to plug a whole bunch of AI should analyse it for us. We’ve gotta quickly follow the money and we’ve had to use this on Ollie Capital. We had to get urgent freezing order. Because with the money on Ollie Capital going straight to the joint account. The wife of the fraudster had a house in Sydney and she was trying to sell it, but cleverly she put on the market for three days and magically found a buyer. But did it without even really putting any money into marketing. It and the way he discovered it is the credit, the school and all that wrecked off. We’re sending us tips and they were saying this house and the backs going. You’ve gotta jump all over it. So the decision I had to make with no money buying. Do is we had to go immediately into the Supreme Court and get a burger freezing water and a freezing water. Just locked everything down. So no money, no property and the freezing order. The order came 7 minutes after settlement. So we’re running as hard as we can and we’re trying to get the thing to the court. Look, look at the evidence. Look, the flow of money. And she owns the house. It’s about to be sold. And the settlement happened like 5:00 PM and the freezing order came down 5:07 PM. So we just missed the money. The money had just been so. Thankfully, we managed to scare the absolute living daylights out of the wife, who directed her share of the property to another Chinese bloke, right? So another words, the money she should have got from the house went to another Chinese guy. That guy was so scared of these orders coming down, he voluntarily said. Ohh. I think I should give you the money back. Should not. Yeah, she should. And they should do it right now because we’re pissed off and we’re angry. So we managed to get most of that money from the wife’s house. 

James Flaherty 

On this podcast. We’d kind of describe you as the Incredible Hulk in that situation. You know, don’t make me angry. You wouldn’t like me when I’m angry. So you’ve done a bunch there. There are some on hand. Could you just tell us about the smoking gun scenario? Where someone’s gone to the level of sophistication. To actually completely block you away from the moment. Can you talk about that matter at? 

Chris Baskerville 

The moment it’s funny, I think fraudsters at their core are psychopaths, so they don’t care if your life savings have just been invested like they just don’t care and they’re cowards, right? They really are. At their core, their cowards, they present so strongly. They present so well it’s one of the other common themes here, even to the point Ken Grace was, he was trained in neural linguistics. And for those that don’t understand neural linguistics, if I talk to you in a certain way and during that conversation I plant certain keywords in the conversation. You want to do something for me, but you don’t understand why and through that training, I’m actually encouraging you. To give me your money. Now equally. Liquidators are psychopaths because we don’t believe anybody we have such high trust issues that everything this guy was saying. My bullshit radar is going straight off the roof like it’s just I’m just not buying it and, you know, being lied to enough. Over 2 decades like it’s like, yeah, it’s like, how do you con a con man? You can’t. 

James Flaherty 

And so sometimes they’ll go to some lengths to hide the money. And sometimes they won’t. So I think in terms of people in this room, if it looks like a Ponzi and smells like a Ponzi it probably is. 

Chris Baskerville 

No, these are difficult. And definitely the more sophisticated get like Peter Terrell, I think I’ll be honest. He was actually the biggest challenge I had because I looked at this guy, he was smart and he was cunning and he had lawyers kind of advising him along the way. Like this guy was smart and don’t get me wrong. There was a lot they got away with that we couldn’t undo, right? There’s an example in Ollie Capital. There was a whole medical suite of property that was sold. And again, it’s like being in the movie. The big short. We’re selling tax, shipping, dock ship. He sold that to a whole bunch of investors. They then ran a V8 Docker for that whole entity and wiped out the money that the head company was owed. So they managed to move the assets sideways. The debt that they owe the company which I’m trying to get. They used V8 Docker to wipe that dead out entirely. So now I’ve got no legal basis to go and challenge it, and the new directors that took over all of those assets just walked away virtually Scott free from a whole medical precinct that’s still operating now in Melbourne. So those guys got a win.  

James Flaherty 

Just so that I should give us some context through this podcast cause. Felix and Steven from HA Assist and GM Advisory are having a conference here with colleagues from Australia and Indonesia here in Bali. Who’s obviously other people in this room who have dealt with complex schemes such as you, Steven, have work. So it would be worthwhile just to kind of define what counts for that.  

Chris Baskerville 

Yeah, I think one of the common elements, what I saw across all three is the promise of 20% return to investment. I don’t know what it is, there’s a magic 20% return. What was interesting about the way Peter Terrell structured his 20% was? You’re gonna get 15% at a certain timeline and then you get the last 5% when you exit the scheme. So when you put all that together, these are 20%, but equally everything was 20%. So one thing that does exist on both sides of the Ledger, so the Ledger of the fraudster and the Ledger of the investor is greed. So both of them are greedy parties. Trying to be greedy, right? So the on this team operator or fraudster they’re trying to get your money out of your pocket, but the investor is enticed by this 20% return and I’ll kind of explain why does anyone wanna have a crack at what the rule of 72 is? Financial terms, it’s basically the formula that tells you how long your money is invested for what percentage rate until you double your money? So ordinarily, if an 8% return is your return on the share market as an example, and you invested that money in the share market for nine years. 8 * 9 = 72. That means you double your money in nine years. But if I’m getting 20% return on my money, I doubled my money 3.6 years. Or at least that’s the thinking behind. So that’s the greed element from the investor is they go 20% turn my money 3.6 years. Have my life savings. Sadly, there were some people that lost their entire life savings. And they were conned into it through the classic bait and switch. Sales technique and So what would happen is as an investor, I’m gonna try, let’s just say not saying Peter, but just for the example, Biazos says, hey, I’ve got a great scheme offering 20% return on investment. So I’m gonna give Peter 100 Grand just to test Peter out. Then I’m gonna ask Pete to get my money back and Pete magically gives me my 100 grand plus the 20% that I invest with it. So I go brilliant. I’ve just made 20 grand. I then go and tell all my friends and I’ve only got four of them. I go and tell them and guess what they all then come in and throw their money in. That’s how it kind of works, but. Sadly, one guy was so desperate to secure his return. Because he had disabled kids and he knew that if I don’t earn my money now, I won’t be able to have this limited time with my kids because the kids were a timeline. So he goes and gives 100 grand in, gets a 20% return and then he goes thank you, the investment worked. Here’s my entire super fund life savings. So incomes 2 and a half million bucks. And all that money gone. So there are real, real victims in these scenes. The smart investment doesn’t obviously give you all their investment life savings, but yeah, that’s one classic commonality we discovered. And none of these companies or schemes generated income. I think it might be one of the most obvious questions to ask. Is the Tesla investor is, can you show us? Their profit and losses, you know, and that’s the other thing. They won’t disclose it to you. So that should be the second flag. They just don’t generate income. The only income they get is from the flow of money coming in from investment. And now and again, all three experts in sales like brilliant salesman like so charming. Almost to the point where I felt like giving my money. You know here only signing liquidation papers. I’m like, oh, where can I invest? But it’s so charming. Yeah, yeah. 

James Flaherty 

One of the things that struck me about some of these scheme on the face of the how do you protect yourself here and can’t really get 20% in such a short amount of time? Some of them get quite detailed. What would describe might look like a PDS type document or information. 

Chris Baskerville 

Yeah. Yeah, that’s the interesting thing. So the classic was, like Ken Grace comes up with this document and it’s called an information memorandum. So it is specifically not a private disclosure statement, because if it’s a product disclosure statement, you gotta follow the corporation’s rules. But if it’s an information memorandum, you get around the product disclosure rule. Also, if I target wholesale investors as opposed to retail or mum and dad investors. They get around all of those rules. And the corporations. Act that a lot of the big investment firms get to do so. Yeah. If you see anything like an information memorandum and it’s only targeting wholesale investors, you gotta be really careful with that because that that’s people trying to get around the disclosure elements. 

James Flaherty 

And in one case you. Also talked about some of the length. Of trouble on the perception of. The place Company 1 and what? 

Chris Baskerville 

Yeah, that’s where I was going with this. This is this document here, right? It’s like Ken Grace crowded document on the left. And you can see it’s a. It’s a global alpha fun. So we’re talking about what? How fun was before. One of our guys went and just went ohh. I’ll just do control search across the entire internet, see if I can come up with this exact same document and what we found is that the document on the right is a legitimate information memorandum that I think might be a subsidiary in maquarie bank. So Ken Grace takes this legitimate information memorandum. He unlocks it. So you’re gonna unlock the document and he’s got his do it. Do it. And again, he put the daughter in with the Great Dane. Or. She admits, or know that she unlocked that using technology. Then they do control find, platinum control replace gold sky. So he’s literally created the Macquarie Bank document and he’s just gonna replace it with gold sky. And then he’s he’s saved the document and that became the information memorandum. But the silly bugger. In certain sections of the document, he left the word platinum in there and we discovered this at a few times. So he did. He left the word platinum in there and that’s how he said that this document has been stolen, stolen intellectual property. And again we asked Ken in the box. Hey, can you walk us through this document? 

James Flaherty 

Yeah, it really lessens to people of this room. You’d like to. Kind of wrap up on so we’ve talked about. Mr Charming talked about some levels of. 

Chris Baskerville 

Yeah, yeah, yeah. Well, it’s complex structurally, I think convoluted structures like, you know, if we’re all sophisticated advisors, half of us are smart and it’s like, does this complication need to be in this as an example? Ken Grace had all of these names and all of these. Elements of the structuring and money’s going to the Caymans and monies. All that, and this flow of investment, you know, watch your money, come into the scheme and watch where it sort of circulates and goes. Like to me, I look at that and just, you know, this is horseshit, you know, that is just a horseshit investment and. What’s interesting is we picked up on this if you if. You notice the arrow, right? You notice that the investors money goes into the scheme, but no money goes back out to the agent. If you notice those in the arrows and I wonder if that’s one of those Freudian slip when he’s creating this image that he forgets that you have to return money to the investment body. And then this is another funny part to it is as an example, Ken never used any automated system for generating any investor statements. Now every investor needs their investment statement, right. And then if you’re investing in the Super Fund, you need the statement that says here’s the unrealized gains. You’re like, God. Because Ken’s under pressure and he’s dumb. He doesn’t do the maths right, so if you have a look at the unit holdings that he puts in the statement, right, whatever that title is to when you actually multiply the units by the cents per unit, his maths doesn’t add up. So I don’t know if that’s another red flag and cleverly the way he got around the AFSL. So when you’re raising money, you need an AFSL licence in Australia, which is a licence to promote investments. He got around that by using what’s called a class order and there’s a certain number there. But it basically said if you already have a registration in America on the SEC, you don’t need a registration in Australia. And Ken had a registration in America. The obvious question is, how did he do it? Well, he lied to the SEC in America. He told America that they had $150 million worth of funds under management, and America believed him until someone said, hey, can anyone just check the bank account of this investment in America? Oh Yeah. And there’s not money in there. And then the SEC then calls us and goes, hey, I think. You guys have got a problem. Besides running around Australia raising money using our licence in America, has it been knocked at a licence in Australia? 

James Flaherty 

I really appreciate all thanks Chris for sharing that. So thanks all. Of you for. Listening for the Sounds of the Baskerville. A reminder that these podcasts are general in nature and do not constitute advice, and they don’t take into account your personal circumstances. So if you think, though, that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice. 

 

Episode 96 Transcript 

James Flaherty 

Here on the Sounds of the Baskerville, we’re a big fan of the 1990s action thriller, so thinking back to passenger 57, Wesley Snipes this time we’re gonna talk about company 57. Hey Chris. Good to have you back. On your own show. The hound, as he’s called by those who know how good he is at chasing down the right thing for the stakeholder, getting back stuff that might be hard for other people to find, well, you’re the man, aren’t you? You get the money back. 

Chris Baskerville 

Well, let’s go back to passenger 57 and Wesley Snipes. I believe one of the classic lines in that movie, which is basically over a hostage rescue on an aeroplane is he asked a hostage taker. Are you a gambling? Man, because you should always bet on black. And I think in this circumstance you should always bet on the liquidator, particularly when there is real property at stake. 

James Flaherty 

Yes. OK. So let’s talk about what you’re trying to do here. You’re trying to get money back for the creditors from a failed enterprise in a particular case. 

Chris Baskerville 

That’s right. I mean, that’s the principle of their entire. Motos operandi is get the property that’s available, turn it into cash, pay the creditors in order of priority. I mean, that’s quintessence it. So some people call us asset recyclers, but that’s probably simplifying a little bit. But in this case and I think they’re learning lesson, we’ll get to it at the end is about structuring how you acquire assets in the first place. In this scenario, we’ve got a 1 trustee company and very similar to Lord of the Rings. 1 trustee Company ruled over 5 separate trusts. Now the five separate trusts if potentially structured properly, should have each had their own individual trustee attached to it. But to save compliance costs, these guys have decided we’re gonna use one company as trustee of the Five separate trust. 

James Flaherty 

Well, it could possibly go wrong. So I’m supposed to take a step back too. There’s a few things I think about in that Wesley Snipes. There’s one of the bad guys, goes on. Where is the passenger manifest? Because I think Halle Berry is kind of hidden because we know that Wesley’s out there hiding up with the bags and the roof of the plane, really, to kind of get the bad guys. We’re not saying these people are bad guys, but we’re saying here’s baskers Wesley Snipes fiddling around in the structure, and he’s found the one zip that you pull it out and all the bags fall out of the overhead locker in one because they’ve put all the bags effectively in the one locker, because if you take a step back, though, what have they done have they’ve put the assets of an enterprise, they’ve got like a property. Say they’ve said, OK, I’ve got my shed, it’s in. Whether or park it’s in a trust structure and I’ve got the company 57, say for example corporate trustee and then what I’ve then said is, oh, I’ve got another set up here in Eagle Farm and I’ve got that in the Eagle Farm Trust. But the trustee is company 57. Then. Got somewhere out down at Werribee Company 57, so yeah, I like smart cause I’ve just saved from. Well, it’s it’s 200 and 300 bucks a year to register the company and then you gotta do the return. So you know. I’ve got 5 trusts. I’m saving myself 1200 bucks a year just by straight up. Look at all the money I’ve saved. Now you’re smiling at me. Well, that’s great. But then what? 

Chris Baskerville 

So exactly as you were saying, a vacant block of land was acquired, so the vacant block of land goes into a trust with the street name of the vacant block of land, and then they appoint company 57 as trustee. So of itself, smart. But then we go and buy residential property. We put it in the name of the street address of the residential properties trust. But we appoint the same trustees of that trust. So in other words, we’ve now got 2 trusts, same trustee. We acquire another residential property. Name of the street that reflects the property, but we use the same trustee again. We then acquire this whole. I think it’s about 17 lots of land, which is now a commercial enterprise, rural industrial enterprise and we put all of that land in the name of the same trustee. And then we also run a machinery operations business and we put. All that machinery in in a separate trust, but we use the same trustee. So what ultimately happened is a related company went into liquidation. The liquidators investigation showed that money had flowed from that company into company 57. So the liquidator then goes and soothes the one trustee company to get the money back. Massive litigation ensues. Cost orders are awarded and on the basis of a cost order, call it a $12,000 cost order. The lawyers for the liquidator managed to liquidate the trustee company that ran all 5 trusts. 

James Flaherty 

How does that work? 

Chris Baskerville 

Well, if you get a judgement debt, you then put a lightly ask for the judgement debt to be paid. If that doesn’t happen, you then issue a statutory demand for the payment of the debt if that does. If that doesn’t happen. The company is deemed insolvent, and then they went and liquidated by court order. 

James Flaherty 

So then I’m fighting back. I’m the director of Company 57. I thought I did. I go to the judge and say, well, how do I try and stop that? 

Chris Baskerville 

There are mechanisms. The big one is the liquidation was triggered by court order. So I am now the liquidator by court order. So to undo it, you have to convince a court to terminate the liquidation. But you can imagine the hurdles you have to jump through in order to terminate a liquidation. It is a very. Rare occurrence that you get it, but like just principally. What are the courts concerned with one? What’s the prejudice to the creditors in terminating it? Our creditors rights protected is the liquidators costs and expenses covered and is the company solvent, so the courts gonna be asking all these questions. And if you’re trying to stop that liquidation, you’re the one that has to put on the evidence that shows and tells all that. So otherwise the court goes well. You know what? If you can’t get over this high bar, then I’m just gonna let the liquidation run at the process. 

James Flaherty 

You’d still be allowed to liquidate it even if the company was solvent because of all the other stuff wouldn’t. 

Chris Baskerville 

Well, the trap for people where a statutory demand is made against the company usually sent to the registered office or given to a director, right? 

James Flaherty 

Yeah, of course. Yeah. 

Chris Baskerville 

Is that document principally deem a company insolvent, even though you potentially got bazillions of assets but it deems it insolvent. So much so that the court can then use that demand, or the lack of compliance with the demand to justifiably liquidate the company because at law it is now deemed insolvent. 

James Flaherty 

Yep. So you’ve got the one thread that when you pull it, the whole knitted jersey will start to unravel because you’ve just pulled this one thread, which is. Company 57. You pull the thread and the whole thing all starts to unravel. So hang on. I’m still wearing the jumper. I’m trying to stop you from pulling it off me. I’ll go back to court. I’ll try and pitch it. So what happened in the case of 57? 

Chris Baskerville 

Yeah. So the challenge we had is when we looked at all the land holding that each one of the trusts had we had people residing in residential property number one, we had people residing in residential property number 2 and we had an entire business residing in the other commercial property. But we did have one vacant land that obviously no one was residing on. So just the lowest hanging fruit I was using my powers as liquidator and receiver because we had to go to court to attach ourselves as receivers over the property and we managed to market that and sell that above the market price. So that was done. But the challenge is I’m required to go and sell all the rest of the land, except they’re all in occupation. So what that caused us to do is to make the application to the Supreme Court to gain possession of those said properties. So the directors said well before you make that order, we wanna have a crack at trying to stop the liquidation in its entirety. So the court gave me what’s affectionately called a guillotine order and a guillotine order. They basically said alright to the directors, the liquidator slash receiver is about to take possession of all of that property unless you make the application to terminate the liquidation and stop this whole process and you got till mid-december 2024 to do it. And of course true to form, they lodge their application right on the death of the day, which is fine. They just got it, I think within time. So now we’re in April and we’re boxing on to deal with the termination, but they fail at that. So what ends up happening is they can’t convince the court to terminate the liquidation. What that then means is you go back to the earlier order. Where I get possession, except if you successfully terminate my appointment because you failed to terminate my appointment as liquidator. The guillotine now comes down. So now in comes the guillotine. And now I’ve got a court order that now entitles me to possession of the property we go one step further. We then ask the Court for a warrant of seizure. 

James Flaherty 

Wow, OK. 

Chris Baskerville 

Which is a bit like hitting the nuclear button. When you push that button, what I’m effectively enlivening is I get the sheriff of the court to physically take possession of the land subject to my court orders, kick everybody out, kick the businesses out, lock the whole premises up, change all the locks, hand me the keys. So that was the order that we got the warrant about May 2025. The warrant was about to be served on Tuesday, just gone on Monday, my opponents tried to stop the warrant from being exercised. They failed. So yesterday, 5 police. And one sheriff turn up to all of the property subject to the warrant and basically kick everybody out, right, including the 80 customers that were all turning up to get landscaping supplies in the process. At the Fisticuff fight that we had on Monday, the court said to our opponents and we didn’t speak that much, which is usually a sign that the judge has gone. I think I see where the liquidator and the receiver are. I see their position. Yeah, try and convince me why I should not accept their position and the legal counsel against us. Had two hurdles to overcome and one of them is there’s High Court authority that says a court will not undo their own order unless in exceptional circumstances. Yeah, and I won’t bore anyone with those exceptional circumstances. But even more so, same High Court authority. We’re not gonna undo anyone’s court orders. But we especially aren’t gonna do them where the order was made by consent of the parties, which in this case, it was the guillotine. Order was done by consent. So how is it that the court can undo their own orders when you guys are the parties that agreed to this. 

James Flaherty 

To get the opportunity to make the application to stop the liquidation, the quid pro quo is a guillotine or. 

Chris Baskerville 

Yeah, basically, I’m going to restrain the liquidator slash receiver from taking possession of the property. I’m gonna restrain them on the proviso that you make the application to terminate his appointment by court order. So you have to convince the court that I shouldn’t be there and undo the whole liquidation, right? Or bring it to an end. Otherwise, I will not restrain the liquidator slash receiver. They will go and do their job. 

James Flaherty 

So that was the deal. The deal is the guillotine. I think you said its bastille day. So I can here noise of the guillotine come down. But the only way to sort of stop the blade from falling is to say ok I’ll agree to the blade falling. If I don’t do this or I’m unsuccessful. And stopping the liquidation. OK, so then by consent, these guys have turned up. You do feel a bit sorry for the people who are kind of in the houses, but you can’t have people in something that doesn’t belong to you. Like, I mean. 

Chris Baskerville 

We understand that everybody in the two residential houses and the landscaping business are all family and it seems to be a patriarchal family, right? Who happens to be the director of the company. And so it’s very hard for the family to say, hang on, you’re in charge of this thing and you’ve effectively put us in this position. You didn’t take up the offer that we made. 12 months ago, almost to the day where I said you’ve gotta come and talk to us in August 2024. Let’s have a sit down cause this is a highly complex issue that we’re dealing with and potentially they get out of it for a lesser sum of money. In other words, how can we make this all go away? And we were prepared to do that. Their lawyers were even prepared to arrange it, but nothing happened. Like nothing happened. So every time I had to make moves in this administration. I had to use the court because I was getting no cooperation. And so that just forced us to basically do, you know, always bet on black. We’ll always bet on the liquidator on real property because if there’s real property that we must get to satisfy creditor claims, I can’t sit there idly with my thumb up my whatever. No. So we had to take those steps. 

James Flaherty 

You have to do what you have to do, and that’s your job. So if Wesley had got to the head hostage guy and sat him down and said, look, fellas. 

Chris Baskerville 

Can we make this all go away.  

James Flaherty 

We’ll land the plane over here. You guys get out. Everyone flies off. 

Chris Baskerville 

Passengers are safe. 

James Flaherty 

You know, everybody’s happy. But in this particular case, no. It has to be played out the whole way. And Wesley Snipes has gotta go do his stuff. 

Chris Baskerville 

Well, that’s it. Wesley Snipes was forced to take action by the conduct of the hostage takers? 

James Flaherty 

So in this case here you’re forced to do the full pass, and we’ve talked about if you approach Chris with a proposition, that’s reasonable. You will kind of listen to it. 

Chris Baskerville 

Well, yeah. And all liquidators have got the degree or the duty to act commercially. Yeah. And acting commercially is why don’t we just go and meet with everybody, discuss what the situation is and then how do we work our way out in this case, I can only sort of guesstimate that our director’s opponents in this either were pretty stubborn and just didn’t want to have that conversation. Probably too pride driven. Didn’t want to admit that. They’ve probably got a problem in the 1st place because I’m just sitting here wondering why wouldn’t you take up the offer to go and have that sit down? And I think the proposal is either you come to Brisbane or we’ll come to you like we’re dealing with a decent amount of property here. And to us, it didn’t matter where the meeting took place. But yeah. Why don’t you have that sit down? But more importantly, why didn’t you have that sit down at any part of this legal journey for the last 12 months? And instead what’s happened is you basically had to force us to be Wesly snipes and have to take the appropriate action where now there’s actually nothing they can actually do now because it’s now. Completely out of their hands and the court. Has been effectively doing its part by 1, supporting the fact that I’ve got problems in the administration, which is I don’t have cooperation with the other party. Yeah, the court gave the other side humongous amount of rope and leniency to get their affairs in order and time and everything I’m saying today is all on the public record. And they, they’ve effectively missed every deadline or nearly every deadline that was given to them. And of course, well, what can possibly happen now? We’ve given you every rope to follow the procedure you’ve been given procedural fairness to stop us, restrain us, put evidence on, talk to us, and do deals. You never took any of that. Up, you basically forced our hand here. 

James Flaherty 

Yeah, OK. So we won’t go into the details of how people should speak to a lawyer about how to set up a structure, but certainly we’ve always recommended if you’re prepared to take risk you, you should structure your affairs in such a way as to kind of mitigate risk. This particular structure wasn’t well set. Up and there were assets in it. Your job is to go get em. You got them with the police yourself and the sheriff. You turned up with the sheriff. 

Chris Baskerville 

Well. This was all executed in Mackay yesterday at 10:30 AM. So in other words, we’re obviously not in Mackay. No. And the reason the police were involved and this is an interesting tidbit the sheriff before. Providing the warrant for a seizure. Worked out that our opponents did have gun licences, right? So because they had gun licences that made it a reasonably high risk warrant. So the sheriff got the police involved and that’s why the police turned up in numbers because they were anticipating it was going to be a high risk warrant to serve. 

James Flaherty 

So never say that your life is not exciting. Anyway, so I just like Wesley. You’ve kind of sort of the planes landed. We’re not saying these people are bad. They’re it’s just whatever’s happened to them has happened. They’ve had opportunities to speak to you. So we’re not saying that they’re, you know, they’re bad people. We’re not saying anything was gonna happen with guns. It’s just that’s kind of how the law works. But anyway, wow, that’s a bit of a hot one. So lessons are speak to you early. Get yourself some proper advice about how to structure your affairs. And yeah, just be very careful if you do have a gun license. 

Chris Baskerville 

The lesson is always what structure do we use when acquiring assets, right? Which is smart? You need 2 sets of advice. You need the advice from the accountant to make it a tax effective structure. You need the advice from the lawyer to give the understanding of risk. So I think if they had had potentially not saying they did it, but let’s just say they had good legal advice right at the beginning. I doubt the legal advice would say put all of those trusts under 1 trustee banner. I doubt that would be the advice. If anything, it should have been separate corporate trustees for each separate trust, and the reason I see that beneficial. Is you quarantine the problem in one of the trusts to just that one trust. 

James Flaherty 

Which is kind of the whole idea. 

Chris Baskerville 

It’s 100% the whole idea. 

James Flaherty 

I just gotta do it properly so we’re not lawyers. Gotta say if you need legal advice, go speak to a good one. Chris knows a lot of them and so did I. So talk to us and we can put you in touch with the right people. Hey, Chris. Wow, that’s pretty interesting. How exciting is your life anyway. 

Chris Baskerville 

It can be and it can be deadly boring too. 

James Flaherty 

That’s all part of the chase. OK. Thanks Chris. 

Chris Baskerville 

Thanks. 

James Flaherty 

A reminder that these podcasts are general in nature and do not constitute advice, and they don’t take into account your personal circumstances. So if you think, though, that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice. 

Episode 97 Transcript

James Flaherty

Better get a lawyer son and make sure he’s a good one. But if it is time for lawyers, make sure you’ve got the right one. Welcome back to the Sound of the Baskerville. I’m James Flaherty here with the Hound.

Chris Baskerville

Good morning, James.

James Flaherty

How are you, Chris? Hey, look, we’ve talked about this in the past. If you’re going to be pursued by Chris Baskerville et al from Jirsch Sutherland because you’ve got money that you shouldn’t, or… Did you say something about having assets that are in the possession of a director that may not be and should be in the possession of the company?

Chris Baskerville

Yeah, so it’s either property in our hands or property in your hands that should be in our hands.

James Flaherty

And I’ve given you a hard time about having a lawyer on speed dial, but you’ve got a pretty gun crew that you would pick up the phone to and say, Hey, lawyer A, listener zero, hi, Chad, I’ve got this particular matter. And then Chad’s your guy. Or the people that you work with around town. They’re the guys that you kind of pick up the phone and say, Hey, I’ve got this. And they know what to do, right? They know how you roll. They’re across the law. They get it. That would be the best way.

Chris Baskerville

I’ll put it this way. We work in a very technical insolvency speciality with a very high bar. And there’s only a handful of lawyers that have specialised in this space and actually get our space. So yeah, that’s why your pool is somewhat limited. But put it this way, I wouldn’t be calling a family lawyer, a conveyancing lawyer, a wills and estates lawyer to go and challenge avoidable transaction under the Corporations Act.

James Flaherty

So I don’t mean to make your jobs harder, but if I’m a director, I wouldn’t be going to my usual conveyancing lawyer. If I get a letter from your lawyer to me, I don’t just go, Hey, the person who helped me sell my unit up the coast, can you just lawyer back to that guy?

Chris Baskerville

The big challenge that let’s just call on the average punter has out there is the misconception that their lawyer can handle every area of law. So in other words, just because you got the title lawyer means you can cover everything, right? Now, generally lawyers getting your degree, you do cover a widespread of subject matters that you must pass, like you call subjects to be registered. But now that you’ve got your law degree and all that, what happens is you find yourself picking a speciality, particularly one that kind of resonates with who you are and your value systems. So what happens when a sophisticated litigant comes with their sophisticated lawyers and challenges you on a very sophisticated complex claim? I don’t think you should just go to your local lawyer that you’ve known for 20 years. You actually have to find a equally specialised lawyer to respond.

James Flaherty

Many years ago now, my wisdom teeth were hurting and I had been going to the local dentist and he said, I can have a crack at these, come in on a Saturday. Don’t need a surgeon. I can do this. And you know when you go, I’m sure you’re a great dentist and I’ve got beautiful teeth, but I just don’t quite think this is for you. And needless to say, it was the whole schmear. I had to go to sleep, all that kind of stuff, get them taken out and it hurt and it took about a year to get better. So I figured I don’t want to work with a gifted amateur on something as important as my teeth. And it’s a really interesting case because we’re talking in this situation, facing you as a sophisticated litigant with your dream team lawyer crew, that’s going to hurt. But if someone wants to defend themselves against you, the resources, and I often say this to people who talk to me, if you’ve got a certain amount of money, you’ve got to use that very wisely. So if it’s defending what I think is my case against you, Chris Baskerville, I need to invest that kind of little bit of money that I’ve got into the right sort of people to kind of lawyer back to you? Is that the sort of idea?

Chris Baskerville

Yeah, well I think it also goes to throwing good money after bad. So you’ve always got to approach things, even if, let’s just say you’re a defendant against us, right? And this is a consideration that we hear all the time against, call it our opponent, is how much money do I spend to prove my case right? Or how much money will I spend defending a high-risk position where I’m more likely than not to be found against me? And then wouldn’t it be better to perhaps, instead of throwing that money at your lawyers to eventually be proven wrong, that maybe you just simply come at the first instance and go, look, this is the money that we’re prepared to throw because we acknowledge it’s going to cost us something anyway. What do you think? Take it or leave it.

James Flaherty

And this is where you can put your savvy accountant hat back on. We’ve talked a few times about you’re an accountant by training rather than a lawyer, but you know a lot of law. So hang on, this is a commercial conversation here now. I’ve only got a hundred grand, Chris. That’s all I’ve got. We all lawyer up here, but there’s not going to be a lot of money left at the end because that’s all I’ve got. So at least if you put that out on the table and if that’s not enough, that’s not enough. But at least everybody knows where they stand.

Chris Baskerville

You use that hundred grand analogy, right? And it does sometimes come back to a bird in the hand, right? So if you look at it and go, there’s a hundred thousand dollars on the table to settle a matter right here, right now. And all you’ve got to do is sign an agreement to release everybody. And this is full and final settlement. There’s a hundred grand, right? And that’s today versus if I have to go and invest, let’s say I get a successful judgement for $1 million in two years time, but it’s cost me $900,000 in my time, lawyer’s time to get that. What is the net result of that benefit in two years time? It’s a hundred grand. So sometimes you’ve got to sort of use this crystal ball with your experience, get some advice from the lawyering community and go, all right, if I was to run this whole hog all the way, what really is the net result of a legal action? And if the person comes to you on day one and says, this is the money that we’re willing to offer, you’ve really got to seriously consider that.

James Flaherty

And I suppose if we put a creditor’s hat on and go, hang on, Chris, hang on. This guy owes me a mil and you’re going to settle here for a hundred? Like, hang on. And then they’ll go, hang on. But then he goes, they’re liquidator, it’s 10 cents in the dollar. And then his fees come out. So I got three cents. But the bottom line is he was probably only ever going to get three cents. It’s just whether he got the three cents now or the three cents in two years.

Chris Baskerville

Certainty of outcome and certainty of time are the two things that are not always in our purview, but they’re things you’ve got to consider. And you’re right. I think the creditor body sometimes goes, well, hang on. Why didn’t you push that million dollar claim to get your net 100,000 at the end of the day? Why did you accept 100,000 today instead of pushing it? So that’s always a tough decision to make. And it is a commercial decision. And I think the courts will always be looking at us going, okay, well, how did you come up with that decision to accept that? But what makes the decision easy for us is the interesting part, is where we allege or assert something against the party and the party basically does nothing to grapple with any of the issues or try and grapple a settlement. And you’re actually forcing our hand now. So in other words, no fault of my own, you are just being a stubborn party, probably ego driven here, potentially commercially driven, but ego driven. And you’re just going, nah, we don’t pay liquidators. Give us the forks. And it’s like, all right. At least that decision is easy.

James Flaherty

Yeah. You go to Brendan or anyone else that you know around town and say, hey, off you go. Bam. I’ve got to go after this cat. The thing that’s interesting about that is that if a creditor said, look, I still reckon you could get more here, I’ll give you some dough. We’ve talked in the past with someone, particularly to that episode we’re talking about when the boats down the Gold Coast, a bloke just said, look, you know what, I’m going to go after this cat. And so here’s some coin. Yeah. That doesn’t happen very often because mostly you’re just trying to eke out an existence out of what’s in the empty tin, is that right?

Chris Baskerville

Well, this is the interesting thing, right? You sort of keep one eye on what do the Americans do? They don’t have a bankruptcy card. And then you sort of keep one eye on what are the British doing loosely, right? But the principal difference between the American system and the Australian system is the American system is a court driven process. The Australian system is a creditor driven process. So in other words, we have to deal with the people that are most aggrieved. They’re the decision makers. The courts will always look at us going, well, what did the creditors say? So hence why our accountability is to the creditor body. So when we say to the creditor body, hey, we think we’re chasing something. It’s quite significant. We’ve got no money here. But if we were funded, I think our result is much better. Yeah. Occasionally you’ll get a creditor goes, yep, I’m just as crazy enough to do that. Let’s go. Now the courts then reward and we can even get credit approval for this. But that person that puts their money at risk to help us gets elevated in priority to every other creditor to reflect the risk they took in giving us the money. Not only that, obviously there’s an understanding that you at least get your money back, but your return on that is a higher priority than everybody else.

James Flaherty

Because you were prepared to back Chris and my dream team, Chris sophisticated litigant and his sophisticated lawyers. So that’s that advice you go back because if I think back to what we started with, you could say, well, hang on my lawyer, he’s a good fella. He and I play golf or she and I go sailing together. Awesome. She could negotiate a commercial deal. It’s not quite the same though, as like a sale of a business. This is a different scenario. There’s a lot more at stake here.

Chris Baskerville

Yeah. I often refer to front end law and back end law, right? Front end being, let’s get deals done. Let’s sell businesses. Let’s merge. Let’s create heaps of profit. Let’s get the unicorns flying over the sky with their rainbow and all the beautiful stuff of business. That’s your front end. The back end is what happens when that all turns to poo poo dust. So the back end commercial litigators are not the same as the front end commercial lawyers. So even though you would have gone to a front end commercial lawyer to get your business sale done, get your mergers, get your financing in place, probably not the person with the speciality to be able to handle when it all goes bad, because that is a completely different skill set. The skill set of litigation is completely different to every other skill set out there.

James Flaherty

Yeah. It’s not a profession that one goes into blithely. We’ve often talked about the amount of risk that you take on personally. And sometimes your lawyer friends have a commercial risk because often they’re specking their time, but they don’t necessarily have carriage of the actual enterprise on them like you would, say, when you have to run a child care centre or run a warehouse. You haven’t had to run a sawmill, did you, or something like that?

Chris Baskerville

Yeah. Sawmill with very redundant machinery with no safeguards. That’s one of those ones you go, hmm.

James Flaherty

Yeah. So there’s a bit of risk there. Okay. The business, the unicorn, is now facing the concept of unicorn poo poo dust, which I think is probably a name for this episode, if it’ll get past the nanny. But anyway, so things have crashed and burned. I’m fighting to keep things alive. Your guys are on to me. You’re not going to phone me and say, hey, James, you need to get yourself lawyered up. But you might say your crew will come to me and say, look, you’ll hear an offer. You’ll make your case. But I’ve got to have somebody who can speak sophisticated litigant back to you and back to your crew to at least, as you say, come up with the least worst possible scenario I can from my weak position. Is that kind of what you’re doing?

Chris Baskerville

Yeah. And look, I’m in direct negotiations with a couple of directors right now, which is they know we’ve lawyered up. They know we’ve put the demand to them, and they’re writing to me directly, which is okay. Clients can always speak to the clients directly. Gotcha. If I’m lawyered up, the opposition’s lawyer can’t talk to me directly. My opposition’s has to talk to my lawyer. That’s the professional standards there. But the clients can absolutely talk to each other directly. So yeah, I’ve got a handful of directors talking to me directly, trying to resolve and settle. But we would always say, we strongly advise that you get legal representation. Like, we’ll always say that because I can’t be leading an unsophisticated person into a trap, entrapment, so to speak. And we have professional standards to uphold. So I’ll always say to people, go and get your own independent legal advice. You need it. What we’re coming at you with is very complex, and you don’t want to misstep in this.

James Flaherty

We’ve talked about this before. The words of the song, you better get a lawyer son and make sure he’s a good one. But it is a case of, if I’m a director in a scenario which no one wants to be in, we’ve often talked about, come to you early. But if it is time for lawyers, make sure you’ve got the right one and get the right advice.

Chris Baskerville

With the right speciality. That’s the key part. We’re no longer generalists anymore. I’m a qualified accountant, right? I’ve got my chartered accounting degree, part of the chartered accounting mob. Don’t come to me for tax. Don’t come to me for super fund audits. That’s not your guy. And that’s not my speciality. And most sophisticated people understand, this is the lane and this is my speciality. This is the person you now need to talk to, who has the speciality of what you’re trying to achieve.

James Flaherty

Yeah. And why have I raised this again in this episode? Because we’ve just got recent examples of people who are using lawyers or accountants, or in my case a dentist, who thought that they could bike up. Yeah. How hard can that be? Well, it actually could be really bad. So for example, if your lawyer doesn’t know about a particular deadline because they’re not used to it, that can be bad.

Chris Baskerville

Yeah. And then two occasions recently, and we’ll probably talk about these examples down the track, but two examples where our opposition on two pretty prominent litigations, where there is real property behind our action. We’re not chasing intangible assets here. The lawyers are not specialists in this space. They’re not specialist litigators. They’re not specialists in insolvency. And to be fair, you probably don’t have to be in one of the legal actions, but our guys have basically outmanoeuvred their lawyers every step of the way, just because our guys know the rules better than the other guys. So yeah, you don’t want to be caught in that position. So you need specialist advice for the particular matter that you’re dealing with.

James Flaherty

Yeah. So bring your best team and make sure that they know what they’re doing. Okay. Hey, that’s been really interesting. And as I often say to people, if you’re not sure, why don’t you ask Chris? Because he’ll tell you. Thanks, Chris. Thanks. A reminder that these podcasts are general in nature and do not constitute advice, and they don’t take into account your personal circumstances. So if you think though, that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice.

Episode 98 – Transcript

James Flaherty
I’ve often said, don’t make Chris angry, because you wouldn’t like him when he’s angry. Welcome back to the Sound of the Baskerville. I’m here with Chris Baskerville, the namesake of the show. There’s not so many bankruptcies these days as there perhaps might have been. People talk about the Hain Royal Commission being when the banks kind of said, hang on, hang on, maybe there’s a different way to go after people who’ve got behind than going to formal bankruptcy.

Chris Baskerville
Yeah, to give context to the listeners is prior to the Hain Royal Commission, 30,000 bankruptcies on average per year. After Hain Royal Commission, that level drops to 10,000. So there’s no real COVID impact on the level of bankruptcy. That is the biggest impact of bankruptcy.

James Flaherty
That’s right. It’s a different approach taken by those financial institutions. But you know, you’re a trustee in bankruptcy as well as a liquidator. So there are circumstances where people still need to fall on the sword or personally. Yeah, personally. And, you know, I suppose you don’t like it when you might have to take over the family home to pay a debt. But that’s kind of part of the job, isn’t it?

Chris Baskerville
Yeah, one of the interesting things because I’m a registered liquidator and registered trustee. So that basically gives me a bridge to put my corporate hat on and deal with the corporate issues. Then come and deal with the personal issues. One of the interesting key differences between the two is the concept of vesting property. So when we go in with our liquidator, administrator, whatever hat in corporate land, the property remains that of the company and any actions available to the company is the company’s actions. We just become the thinking mind of the company. The difference in personal insolvency is the concept of vesting property. So in other words, when a bankruptcy does occur, there is a legal transition at law where that property is literally taken out of hands of the bankrupt and given to a trustee. It probably goes, disappears. But basically, if you duplicated a bankrupt, cloned them, right? The original lives on as the natural human. The clone is almost in a parallel universe, is the estate, and they run parallel with each other. So we manage the bankrupt estate and all the property of the original copy will be transferred into the bankrupt estate.

James Flaherty
I’ve just watched Mickey 17, which is a movie where this guy gets the worst jobs and he dies, but they can reproduce him the next day in a 3D printer. So in this particular case, you’ve got the estate of the bankrupt and then you’ve obviously got the bankrupt because the objective is you want the person to get on with their life and start again. That’s the whole idea.

Chris Baskerville
And that’s a good point. And this is why the estate is created, is the natural human, the original carbon copy human that went into bankruptcy, they should only be there for three years plus one day, and then they are discharged and then free as a bird to go and relive life with no restrictions. But the bankrupt estate can live on multiple years after the discharge of the actual natural human. So once the natural human is let free from bankruptcy, the estate can live on because there might be property that is yet to come in. There’s property that we’re chasing that we need to get our hands on and we have to manage the flow of monies in and out and report on.

James Flaherty
So what’s an example of that? Like say, okay, I’ve gone bankrupt, but I am the beneficiary of an estate for a relative who’s passed away, but it’s taking a long time for it to be sorted out.

Chris Baskerville
Yeah, that could be an example. So imagine this is, let’s say in the third year of the bankruptcy. So like we’re in that last turn, I can see the light at the end of the tunnel, I’m about to be released. I’m about to be a songbird and free to fly everywhere. Let’s say in the third year, a relative that you are to bequeath property if that person dies, dies in that third year. The deceased estate isn’t resolved overnight upon death. That takes years to resolve. So as a bankruptcy trustee, we have to note our interest in the deceased estate, and we may have to wait a few years to get that property in. And that could be many years after our natural human bankrupt has been freed from the shackles of bankruptcy.

James Flaherty
And you go, hang on, that doesn’t seem right. But think about what hat you’re wearing. Great Auntie Ethel’s just given me enough money to get myself a fresh start. But hang on, Chris has got dibs on it. That doesn’t seem right. Well, it does in the fact that, hang on, Chris is working for a whole bunch of people who I never paid back in the first place because I went bankrupt. So your job is to try and maximise the return for the estate that you can for the people who wrote money from it, which would be the banks or the lenders or whichever creditors of the company that you’ve done a personal guarantee for. So is that the sort of story?

Chris Baskerville
Yeah, well, it reminds me of a case, I can’t remember if we talked about it here, but I ended up inheriting an estate from AFSA, who was the original trustee. So the government became the trustee of this fellow. One of the outstanding issues was the recovery of granddad’s estate money coming into the bankrupt estate. So yes, AFSA was sitting there for a few years waiting for this money to come in. Lo and behold, the bankrupt then dies in the bankruptcy period as well. Oh, wow. So what we ended up happening is as a bankruptcy trustee of the deceased bankrupt chasing the property in granddad’s deceased estate and having to pull that money in.

James Flaherty
Wow. Yeah. And then of course, were there any beneficiaries of the deceased? Yeah.

Chris Baskerville
The interesting part is the bankrupt estate of the deceased bankrupt became annulled at law because the property we clawed in was enough to pay out all creditors in full. So the guy goes bankrupt, bankrupt estate is created. During that time, his granddad dies. During the bankruptcy, he dies. So the money we pulled in from granddad’s deceased estate was enough to pay out all creditors in the bankrupt estate of the deceased debtor. And so the beneficiaries ultimately was the surviving spouse of the deceased bankrupt. That’s right.

James Flaherty
Wow. Okay. Yeah. So clearly this is a case of if you ever got money worries, pick up the phone to people like Lifeline. Don’t let this stuff chew you up. But in this particular case, there was an outcome where the spouse got something and it must be a human tragedy you’ve seen from time to time where spouse, husband, wife is tossed out of the family home because the bankrupt has pledged either the family home as a personal guarantee. So I just quickly talk. I want a particular machine from a factory. I do it on credit. And I say, if a company can’t afford it, I’ll back it. I’ll do a personal guarantee or a director’s guarantee. Lo and behold, company goes bust. I’m then on the hook. So then you as liquidator say, well, what happens now? You say, James, well, you’re on the hook for that because I’ve sold the machine for $1,000. You paid $100,000. You’re on the hook for the other 99. That’s kind of how it works, isn’t it?

Chris Baskerville
Yeah, that’s how it works. And then the bank will either enforce that to get paid the money or if it’s trade finance and inside the terms and conditions of your trade finance, there is a charging clause over real property. You’ll notice that a caveat will go and be placed straight on the property by the creditor.

James Flaherty
Right. Putting a caveat on my house makes it a nuisance if I want to sell it.

Chris Baskerville
Yeah.

James Flaherty
They’ve got to do something. You can’t just leave a caveat to sit there, can you?

Chris Baskerville
Yeah. So a caveat is a notice to the world that someone has an interest in this property beyond the owners and any other potential mortgagees that exist. Right. So it’s a notification thing. And you have to have a cavitable interest. We won’t go into right now. So depending on which state it’s lodged, the caveat can either become non-lapsing. So in other words, it sits there forever or it becomes lapsing. And you have to take steps to enforce. In Queensland, the obvious one is a caveat will last three months. Then you’ve got to bring on proceedings and then you tie those proceedings to that land to make it a non-lapsing caveat.

James Flaherty
When would it come to a situation where you would then see me with my personal, like, how would it come that I would then see you in a bankruptcy situation?

Chris Baskerville
Yeah. So it’d be when that financial pressure of personal guarantees from the failing of the company or at the time the company fails. I think directors should be talking to someone personally immediately. Don’t have to take steps immediately, but know what’s about to fall out from this. Yeah. So at least you’ve got the heads up. But yeah. And then with the trustee, you then work out, well, at least the trustee’s mindset will be what’s the value of the property that you own and what’s the first mortgage? And then how much do you owe under the caveat to then work out, is there an equitable position here for the general body of creditors? And then challenge the caveat too, to make sure the caveat is valid.

James Flaherty
Yeah. Wow. Okay. And so there’s a bunch of stuff that happens and then, okay, I’ve gone bankrupt. You’re now my trustee. I’ve got a home in my name or joint names. I’ve talked about that before, about I’ve got a share of the house and the missus has got a share of the house. You can’t just sit there and say, well, I want the whole house because only half of it’s mine. But if it’s all in my name, that’s not good for any member of my family, that would be bad.

Chris Baskerville
No, no. Well, that’s that value to separate risk from assets. One of those wonderful lessons people hear about in episode 100 of the podcast, but it reminded me of this example. One of these directors ran a very large commercial plumbing company in Queensland and it goes down horrendously, like it’s owing hundreds of millions to all sorts of parties. And when I became this guy’s trustee, there were like eight or nine caveats on his property. I mean, this was a reasonably ritzy property in a reasonably ritzy suburb of Ascot here in Brisbane that may or may not have overlooked certain racecourse. But when we got there, it was just amazing to see there’s eight people all in alignment. So we had to sell that thing, but we had all these eight caveats on here. We had to sell the property. So that was an interesting time having to negotiate our way through that mess.

James Flaherty
You’ve got all these people, hang on, this guy owes me this and this guy owes me that. Isn’t it lasting? How’s that all even works? If I’m the bottom of that caveat list, am I the weakest or am I the most.

Chris Baskerville
Well, that’s the interesting thing. So caveatable interest is the point in time when the caveatable interest was created. So it’s not necessarily the order of priority as who put the caveat on first. You could, in theory, James, be the 11th caveat on real estate, but your equitable interest or caveatable interest was created before everybody else, in which case you become the number one ranking caveator. That’s the challenge is working out when were the relevant equitable interests created. And it reminds me of a conflict I had down in Victoria where it was a mansion, a McMansion in Brighton there. And we had two insolvency practitioners both coming in trying to claim a caveatable interest. So my fellow colleagues at another firm were saying, well, we’re entitled to call it a quarter of a million dollars. We both lodged our caveats on at the same time. And then we worked out whose equity was created first. My company’s equity created the deposit to initially acquire the land. My company’s equity came in second to renovate the property. And then my fellow colleagues in insolvency’s company came in third as an extra borrowing or a security for some other debt. So we had to work out the order, whose money came into the property first, second, third. And it just turned out that the company I was representing provided the first and second tranche. And my alerted colleagues were the third.

James Flaherty
Does that something that you and colleagues work out or is it do you have to go to court?

Chris Baskerville
Insolvency practitioners chasing real property, they don’t come in half cocked. So we had to kind of explain the position at law to them. Yes. But as we do, we’re commercial beasts sometimes. I remember having to have a sit down with the lead appointee in my position. And I said, look, you and I are going to go to war here over this money. I’m absolutely certain I’m first ahead of you two times. The initial deposits plus the renovation before you see your money. I don’t think we actually have enough money to satisfy even my positions in this property. But I tell you what, just so we can avoid having to go to punch on because I’d have to go and punch on in a courtroom to knock off their caveat or at least show they don’t have an interest. How about you take X amount of money now, which is going to be the money I’m going to have to spend to prove myself right anyway. Take that money and be gone. And sensibly they took that money.

James Flaherty
And that’s a commercial decision. What’s the point of spending a whole lot of money to prove my point? If I can say, well, here’s the money, walk off.

Chris Baskerville
Yeah. It’s like saying, yeah, how much money will I spend to prove myself right? Because if I have to spend that money anyway, it would make sense that that is the level where the deals made.

James Flaherty
In that particular case, it’s goes back to separate the risk, isn’t it?

Chris Baskerville
Yeah. Separate the risk from the assets. I think that’s one of the key lessons. Even your lawyers, I would expect, would give you that same suggestion because they’re not giving advice but it just reminds me of another story. It seems to be commercial plumbing. So another bankruptcy I was working on, smartly, husband had his property 100% in his name, wife had property 100% in her name. So at first glance, you go brilliant and the husband then goes into commercial plumbing business and again, spectacular failure in different companies, of course, between my two examples. But, and here’s the but, they cross-collateralised the two assets against company loans and each other. So in other words, if a shortfall was experienced on one of the properties, you could then claw it back on the other property. So yes, they were reasonably smart in separating, all right, wife, there’s your property, husband, there’s your property. When you cross-collateralise it, you’ve just now brought all of that effort, you’ve just connected risk to asset again.

James Flaherty
Just to make it 100% clear, what you’re not advising, you’re not advising people to hide money, but you’re saying compartmentalise it. So if I’ve got a company and the company is given credit, the people who loan to that company get a clear view of what they have got to secure it against. So it’s prudent for me to not provide any more security than that I need to get the money for the business that I’m trying to run. So make it quite clear that this is the amount of money that I need, this is what your security is. But as soon as you start mixing things all up, in that sense, it gives creditors access to money they may not necessarily have known that they could have, and that’s your job to find it for them.

Chris Baskerville
And it’s usually very expensive too. So if you think about it, right, let’s just hypothetically say I owed a trading supplier $10,000 on a company debt, and then I’ve signed my personal guarantee, and in the terms and conditions, I’ve pledged any property in my name, you can put a charge on it or a caveat on it, guarantee that $10,000, once it goes and becomes a caveat, and you’ve got lawyers involved chasing the $10,000, it quickly becomes $30,000.
It quickly becomes $40,000. Then you have to indemnify them for the legal expenses they have to send to fight you. So you end up ultimately paying their legal bill for chasing you. The compounding effect of giving that away is humongous. That’s right.

James Flaherty
So it’s easy advice to give, but don’t sign personal guarantees. Read the terms and conditions. In a sense, it’s not about making your job harder, but it is a situation where if you don’t have to take someone’s home from them, that’d be a good thing.

Chris Baskerville
And we have done deals with people in the past where, okay, in order for me to not sell, why don’t you buy the equity that exists? And I give myself a ratcheting upwards clause, which says if the property does increase by X percent over this period of time, I’m entitled to a chunk of the uplift, which I think is fair enough.

James Flaherty
That’s fair enough. So I think it’s again about being commercial, being fair, and understanding the roles and the needs of every stakeholder. Hey, that’s been fascinating. Really appreciate it. Thanks, Chris. I learned something again today.

Chris Baskerville
Thanks, James.

Episode 99 – Transcript

James Flaherty
Sounds so simple. It’s not your money, so don’t spend it. It’s episode 99. Welcome back to the Sounds of the Baskerville. James Flaherty here with the Hound. Chris, how are you, Chris?

Chris Baskerville
Good afternoon, James.

James Flaherty
Chris Baskerville, the man himself. So, Chris, episode 99.

Chris Baskerville
Who would have thought we’d have 99 topics to talk about?

James Flaherty
You talk about asset recycling. I think it’s going to be 99. It has to be the Get Smart episode, doesn’t it?

Chris Baskerville
The Get Smart.

James Flaherty
Because, I mean, I think that could be behind every male as a far more intelligent woman who actually knows how to do the job. Or maybe it’s about the fact that if you think back to the Get Smart series, there was a guy who had this fellow agent, 99. And my favourite line out of that was always, sorry about that, Jim, because, you know, he would do something and mess up. But anyway, if we’re talking about people who may or may not mess stuff, if it’s 99 and it’s the Get Smart episode, what is the Get Smart piece of advice?

Chris Baskerville
Well, I think we go back to cash is king. What do they say? Sales for vanity, profit for sanity, but cash is king, you know. Cash is king.

James Flaherty
Yeah, right. So then, because I was thinking about it, you were talking about that some of the earlier episodes, indicia of insolvency. Isn’t it one of them when people don’t pay their invoices properly? Like, you know, they only pay part of invoices, maybe suggest that they’ve got cash flow problems.

Chris Baskerville
Yeah, yeah. One of the indicia, I think, Assick versus Plymouth, is that you pay your invoices in rounded sums, not the exact invoiced amount. That’s something we go hunting for all the time.

James Flaherty
Yeah, right. So we go, well, cash is king. So there’s kind of two hats I think we should wear.
So let’s start with the director. What are we saying? Like, you’ve got to understand your position. So how many times would you say that would be the thing that directors come to you because they just haven’t tracked what their actual cash flows are?

Chris Baskerville
Yeah, yeah. Not too many people, if I asked them, hey, could you give us the next 12 weeks cash flow, would immediately have that available. In fact, they have to sort of think about it. Accountants would probably tell their clients all the time, you at least need a 12-week forecast ahead as to what’s coming. Because if you know that October is a horrible month because you got PAYG, Super coming out in that particular month, well, then maybe you’ve got to think about some strategies around what you do in August to get ready for that hole in October. So that’s the purpose behind having a forecast. It is a forecast, so it’s a bit crystal ball-y, but it should just get the director thinking about, all right, well, what does the next three months look like? And then you’ve got to plan your strategies around that.

James Flaherty
There’s that old cliche, I don’t know who says it, but you don’t plan to fail or something along those lines. You’re probably the master of the quote.

Chris Baskerville
Yeah, if you fail to plan, you plan to fail.

James Flaherty
Yeah, thank you for rescuing me. So I’m just trying to think of companies I’ve encountered. And I know we operate in this world where we often deal with companies that are in trouble, but if you looked at nine out of 10 of them would struggle to give you a really good cashflow projection, would that be a- Yeah, yeah, always.

Chris Baskerville
Particularly in where companies are fatal, which is there is no option here. It’s just a straight liquidation. The company’s run its course. More sophisticated companies, as you start to get into limited liability companies and listed, obviously their governance will dictate as a director, we need to see ahead. But yeah, in small medium enterprise, it very rarely happens. And the only time we see it quite frequently is when you’re doing small business restructuring and you need to throw at least a 12-month cashflow when you send the proposal out so that the creditor body has some level of confidence that this restructuring plan can be met.

James Flaherty
How many times do you wonder if you’ve done when you’re doing SBR, whether the directors of the particular company have not seen a cashflow of that quality before, or the accounts you’re working with put these things together for a creditor?

Chris Baskerville
I think most directors know what they need to be doing. The question is whether they take action to actually do it. And some other directors say, well, look, that’s not really my job. My job is to just win sales and keep the customers happy. And then I employ bookkeepers and accountants to have my back to cover all that, which might be good. But the other element in business, whether you like it or not, so it doesn’t matter whether your speciality is trade or finance or whatever, is know your numbers. And so how can you run any business without knowing what your numbers are?

James Flaherty
You might be out there making sales, but how do you know if they’re profitable sales if you don’t know how much it costs to actually provide the service or make the thing, do the plumbing?

Chris Baskerville
We say that in construction all the time, which is this concept that I’m chasing turnover at the expense of profit sometimes just to keep the boys employed. You hear that all the time. But the question we always ask is, are these profitable contracts? And when you find that someone’s in this cycle loop of downward spiral is where they need the next contract into the future to pay for some of the current or previous contracts losses. And it’s kind of like, well, at what point do you stop dancing with your red flags? And at what point do you actually go, I think we’ve got a problem here?

James Flaherty
Which is interesting because what you just described is not too much different from some of the Ponzi schemes we’ve been talking about. And I’m saying these people are doing it like that, but if you’re literally paying the last one with the next one, wow, it’s like it’s a real live from day to day existence.

Chris Baskerville
Yeah. And this is the funniest part about it, particularly when in SBR land, more than 80% of the plans going out, the ATO is the major influencing party, right? So then when you look at how some of these particularly construction businesses can operate sometimes is because you’re chasing this turnover at the expense of profits, not sure if your contracts are actually profitable or not. And we’re using our future contracts to pay for past contract losses. It’s no wonder that all the boys get paid, just using the analogy, all the boys get paid, all your trade supplies get paid, and the last person in the bus happens to be the tax man. And of course, they’re smart enough to realise now that we don’t like that position. So if you do treat us as though we’re the last persons to be paid, well, guess who’s about to decide your future?

James Flaherty
That’s right. Now, that’s an interesting point because they’re sick of being the bank. And so one of the points that you were talking about while we were just getting ready was, because now you can’t deduct the interest on outstanding, if you owed a tax man and he says, okay, I’ll give you a repayment plan, but you’re going to pay a not particularly low interest rate, you could at least in the old days deduct that interest as, oh, that’s an expense. It’s like another form of finance.

Chris Baskerville
Yeah, that’s right. And the HA has been wise for many years now, probably even longer than I’ve been in this game, that they acknowledge that they are often a bank and that people leverage their finance. And of course, it’s an involuntary credit. This credit is going to be your credit, whether you like it or not, whereas all your trade supplies, you get to select who your suppliers are. But yeah, I think in July, 2025 or 1 July, 2025, they changed the law that you can’t claim the general interest charge or any of the other interest components to a tax debt as a deductible expense for your business anymore. And that interest rate, I think was pegged at like, whatever the cash rate is plus 7%. So the higher the cash rate, the higher the interest. Now that’s a huge deduction that is now missing from a lot of businesses. So what we’re starting to see in asset finance people, obviously they’re promoting this because any refinance or new finance helps their business. But they’re starting to see a wave of people that are trying to basically leverage their business assets or home to refinance the ATO debt out so that they can put it into a facility where they can deduct the interest. But it has to be effectively a commercial loan.

James Flaherty
Commercial loan. Right. And taxman says, well, thank you very much. I’ll be taking that tax that I’ve mowed. They will be exposing themselves to a further deduction for the interest. But that was what they’re already paying. People were already getting the deduction before. So from the taxman’s perspective, he or she doesn’t mind, does he? In fact, they get more money.

Chris Baskerville
Well, yeah, the taxman gets the taxes back.

James Flaherty
Yeah. Happy days for that. Yeah, correct. Correct. So if you think about getting smart, does that mean… I mean, that’s a savvy person saying, well, non-deductible interest, that’s crazy. So therefore, if I do do this refinance, you’ll have another set of eyes looking at you pretty closely though, because the lender wants their money back.

Chris Baskerville
Yeah, well, you do. And they might actually ask for a cash flow.

James Flaherty
Yes, right.

Chris Baskerville
Yeah. It tells for your cash flow. But I mean, some of the feedback we’re getting from some of these asset finances that specialise in this area is business conditions aren’t that great at the moment. And so some businesses are really struggling to raise the cash. So they’re basically borrowing against the economic asset value of their business in order to cover up old debts.

James Flaherty
And talking about getting smart too, one of the other things we often say is try and avoid a director’s guarantee, which is easier said than done. But we’ve been sort of helped, I suppose, some people have been helped by the rise of the value of the family home if they wanted to take a bit of that equity to support a business. And you’ve spoken long and hard about the ups and downs and risks associated with that being a bankruptcy trustee. But what will we do if that property market starts to cool down a bit? There’ll be some fairly leveraged people around the place.

Chris Baskerville
Yeah, well, I’m just reflecting on what the global financial crisis did where we experienced negative equity, which is where prices fluctuated so badly against the property market that the mortgage was worth more than the value of the house. And not only that, we saw not only do people have a first mortgage, they have a second mortgage and a third mortgage. So in other words, they’ve leveraged their primary place of residence three times to three different financiers. Now, the GFC is a pretty outlier sort of way to view it, but it was just amazing. We watched third tier financiers getting wiped out, nearly second tier financiers getting wiped out because they all pinned their security over things that went the other way. Now, I think the banks have learned very valuable lessons from the GFC, and so they’re not as aggressive in that space. But yeah, when the property market was hot, people were leveraging that equity.

James Flaherty
There’s a lot of private lending and private money in this sort of world, though, because you don’t need an AFSL to be able to lend money to a company.

Chris Baskerville
Yeah, well, that’s actually a good point, which is the banks had to get a bit more conservative in their lending, so they couldn’t do this second and third tier mortgaging. So when they exited that space, there was a vacuum created where in comes your private lending who is prepared to take those risks. And also, they charge double digits sometimes for their money.

James Flaherty
I was going to say, credit card type rates and so on. If we go back to getting smart again, we’re talking about we know conditions are a little tight. It does really demand cash is king.
So do you know where it’s coming from? Do you know if you’re making enough? What can you do to keep it? So the old expression about a dollar saved is a dollar earned. So that’s absolutely critical. If I’m lending in this environment so that I don’t have to be one of your creditors in a liquidation, what am I doing? I’m securing my position?

Chris Baskerville
Oh, you have to. If any creditor out there offering some supply or credit, you should be thinking, what security am I taking? And then also, what’s the value of the security?

James Flaherty
Can you explain that a bit more?

Chris Baskerville
Yeah. So if I’m supplying you widgets, I will as a first strike weapon is I’m going to secure the widgets that I give you in the event you don’t pay me. So if you don’t pay me for my widgets, I’m entitled to come and collect my widgets from you. And obviously, if the widgets have all been sold by you, my security position in theory is $0 because I’ve got no security over that. Some creditors are trying to be a bit cleverer by saying, yeah, but if we can trace the widget revenue into your bank account, well, through equitable tracing, we want some of the cash in the bank, which makes sense. It’s a very difficult thing to run.

James Flaherty
This is important for SBRs because a person might say, well, hang on, I’ve got a security, I’m kosher, I’m sweet. When they realise, in fact, all the widgets are gone and you don’t know where they are, then you’re not secured on anything.

Chris Baskerville
That’s right. And then also, how do you value a business per se? Do you value it on its net tangible assets that you could get on an open market at a market value or at an auction value? Or do you value the business on its cashflow generating ability? I think the most simplest one that people understand is, well, we’ll just take a security over your house because we all understand bricks and mortar generally rises at 8% every year. That’s probably the safest security we’ll take.

James Flaherty
And that’s what you’ll see and should be seeing in terms and conditions. And as you’re a director of a company, you know you’re taking on risks. Those are the things you’ve got to really be careful of. You’ve got to be smart, get some advice.

Chris Baskerville
Oh, absolutely. And read the documents. So there’s some short-term money lending out there. I won’t mention any names, but let’s just say I could grab 100 grand right here, right now. Very easy to get the 100 grand. And yes, there’s no security coming in over the business per se. But if you happen to have real estate in your name, there are charging clauses inside the terms. So as soon as there’s a default, incomes, caveats, and now that creditor has converted from unsecured to secured. Or in alternatively, they just take an umbrella security over everything that you got.

James Flaherty
Right, which means family home, car, and whatever.

Chris Baskerville
The whole gambit. Yeah. I’ve even seen people taking security over human beings, in which case they appoint a receiver over the human. So some lenders are pretty savvy. And if you’re not alive to that, it’s another thing that can work against you.

James Flaherty
Yeah, I have seen someone try that on. So it’s interesting. So we celebrate business and that we’ve talked about. One of the roles of you as a liquidator is to put assets that could be productive into the hands of enterprises that can get more out of them or use them to their advantage to be profitable and employ people and grow the economy and do all the good things that good enterprises done. But if cash is not absolutely what keeps you awake at night, maybe it should. It would be a lovely place for many business people not to have to worry because they’ve planned ahead and they know where the next dollar is coming from.

Chris Baskerville
That’d be ideal. Yeah.

James Flaherty
Okay, so we can’t get ideal. What do you want to see? You want to see what’s your tax debts, plan for your BAS, understand your margins. These are the sorts of things that you’d be saying.

Chris Baskerville
And what some smart business owners do is they realise that every dollar that comes into their bank, not all of it belongs to the company. And this is where I think a lot of people go wrong, particularly in the trades and construction game who aren’t quite financially savvy, is you apportion a percentage of the money that comes in from your sales or your revenue, your debtors, whatever. And you quarantine that in a separate account. And that is not your general account for general use funds, nor should it be paid out to the owners of the business to go and buy their jet skis, the new BMW. Just do not touch some of that cash. Preserve that in a tax account because when the BAS’s come due and they come due monthly or quarterly, and it’s like clockwork, it’s not a surprise you’ve at least got that money quarantined.

James Flaherty
It sounds so simple. It’s not your money, so don’t spend it.

Chris Baskerville
Yeah, don’t touch it.

James Flaherty
So, well, we did another episode, remember, called Don’t Touch This, but I remember this. Oh, well, thanks for helping us get smart. I think if you’re a business person, it’s always sensible to listen to what Chris says or if you’re in a bit of strife, give him a call. And if you’re a creditor, just listen to what some of the stories he’s telling you and don’t be one of the ones who Chris has to try and scratch money up for. Yeah, anyway. Hey, thanks, Chris.
Well, thanks for 99. Looking forward to 100. We’ll do that live. We’ll do that live. No, we won’t have a studio audience, but we’ll have it on camera and let’s see how we roll. Hey, great. Thanks, Chris.

Chris Baskerville
Thanks.

James Flaherty
A reminder that these podcasts are general in nature and do not constitute advice, and they don’t take into account your personal circumstances. So if you think, though, that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice.

Episode 100 Transcript

James Flaherty
Welcome back to The Sounds of the Baskerville. I’m with Chris Baskerville, the Hound. How are you, Chris?

Chris Baskerville
Good afternoon, James.

James Flaherty
Yeah, good afternoon. That’s not an early morning start this time. And so, an auspicious occasion, where today is the 100th episode. Unbelievable. Of The Sounds of the Baskerville. So, when we sort of talked about what this show would look like, you thought, well, why don’t we put a face to a name. So, we’ve got a vodcast going on. So, we’ve got Will and Jocelyn here in the background, making us look as good as possible.

Chris Baskerville
I now have deep regrets. I think we’ve got faces for radio.

James Flaherty
Faces for radio. So, we talked about what would we do on our 100th episode. And one of it was to sort of celebrate some of the stories and feedback and some of the things that people have given us over the time and some of the yarns you’ve told and some of the lessons learned. So, I did what most people do these days and fed it into AI. And so, what were the top 10 sort of things we talked about? And it’s pretty consistent with what you’d expect, which is unusual for AI. I didn’t sort of mention things that we hadn’t talked about, like, you know, Napoleon’s invasion of Europe. So, that was good. So, that was helpful. We didn’t talk about that specifically. And also, what we’ve done over the five seasons that we’ve done. And so, it’s been quite an interesting journey. It sort of started off with, if you sort of start about what you thought you wanted this to look like, would be the best place to start.

Chris Baskerville
To be honest, I had no idea, James, to be frank.

James Flaherty
Yeah.

Chris Baskerville
I think we were bored, lonely, and it was middle of COVID. Yeah. And we thought, what the hell, let’s just start taking our stories out of our heads and putting them somewhere.

James Flaherty
And I think putting them somewhere that you could do something with them. Isn’t that the idea? Because I think about, if you distil all the knowledge that you, as a liquidator and trustee in bankruptcy, have got, you’ve kind of seen all the stories, haven’t you? You know how things went wrong or you’ve seen how they’ve gone wrong. Wouldn’t it be nice to turn that around?

Chris Baskerville
I’m still being surprised. There’s nearly two decades in this industry. Still surprised. Not quite shocked, but it’s like, oh, that’s interesting. So there’s always something to learn. Because I think business evolves and you get new challenges. And I think the latest challenges that we’re coming up against is the digital age, which is records are no longer stored in a filing cabinet anymore. They’re no longer stored in archive boxes with rats and stuff gnawing through them or magically in flooded, infested lands that magically get destroyed every time the Brisbane River floods.

James Flaherty
I like that episode we talked about when someone said never waste a good cyclone. So those old chestnuts of, oh yeah, sorry, the factory burnt down. I’ve got no, yeah, the computer. You can’t really do that in the interweb and the clouds, can you?

Chris Baskerville
I know how you can start a fire. I don’t know how you can start a flood.

James Flaherty
So you think back to when we started, a lot of it was about, well, why would somebody listen to what you have said if you’ve seen businesses at the end? And I suppose when we thought about it, it was about, well, couldn’t if two or three people could listen to the podcast, and sometimes that’s about as many people who do, but if two or three people could take a message away and say, hang on, if I could avoid that mistake, then won’t I be the better for having listened? We’ve had feedback from people who have kind of listened to all the podcasts and sort of seen what they need to do or to turn things around, which is great.

Chris Baskerville
Yeah, I think it’s when you spend your entire life and all you just see is disaster and failure on scale, right? And it’s just one after the other after the other. I think there’s perception and perspective we come with from all different industries, all different walks of life, that we take it for granted. Like that’s just our Monday to Friday, and I call that our version of ordinary, right? But our version of ordinary is someone’s version of extraordinary. And I think that’s the interesting part is that if real business owners actually listen to some of the crazy stories that we’re involved in, maybe they take a lesson out of that and maybe redirect how they operate their own businesses.

James Flaherty
It’s an interesting point you raise because like we talk about those kind of seminal events, you know, death in the family or marriage breakup or a moving house, things that are quite significant. Surely a business failure would be one of those really quite critical turning points in your life where you’re kind of almost that sliding doors, crossroads moment. Is that some of what you’re talking about?

Chris Baskerville
It is catastrophic if you’re going through it for the first time. Yeah, okay. When it’s your third time. Right. That’s something like a frequent flyer. It’s kind of like this guy’s destined to do something really big because if you have stuffed it up three times, surely the formula is becoming clearer and clearer. And I’ve met a few people that had fallen over a few times and in the fourth business, it’s a rocket to the moon and you never see them again, you know, because they’re playing in a stratosphere that none of us can reach anymore.

James Flaherty
And more power to them.

Chris Baskerville
And I often say to business owners that come in, let’s just say first failure, I say, well done, you’ve just achieved your MBA. What do you mean? I said you’re a master of business administration but you’ve done it the hard way because I guarantee you from the failure you will learn some impressive lessons and hopefully stuff that you take with you so you don’t do them again.

James Flaherty
Yeah, yeah. And I’ve stolen that idea of yours quite a bit because it is, it’s about the same price for a lot of people as a decent MBA would be.

Chris Baskerville
MBA is about a hundred grand. People go down owing millions of dollars.

James Flaherty
And hold this thought for as we go through this and some other episodes we’ll do on camera is, you know, a lot of what you’re doing is also representing creditors. So as a creditor listens and goes, well, yeah, great, great. That guy succeeded the fourth time but, you know, I did my dough. Yeah, yeah.

Chris Baskerville
Three lots of people have been punished along the way.

James Flaherty
So a lot of this has also been about as a creditor, what do you need to do to avoid this happening to you again? Sort of some of that sort of, and that’s not only when we’re talking about people who lent money to a business or done stuff on credit. We’ve also talked, and we’ll go into later episodes about you, the man who is known as the Ponzi killer king for going and finding these dodgy schemes and trying to get money back for mums and dads.
See if you’ve recovered some territory over these last.

Chris Baskerville
Yeah. I think it’s not like, you know, usually I’ve got such a short term memory sometimes is all I can think about is what I had for breakfast. And I barely struggle with that sometimes.
But then when you actually start to align a questioning or a topic comes out, I’m actually quite surprised that I actually can give a story that’s actually relevant and on point. Sitting in the deep recesses there of the darkness.

James Flaherty
So we talked about that. It’s a dig in your cell. You know, the sack of rocks we talked about.
We talked about when you, you know, you’re a business in COVID, you’ve got no income much coming in. So we thought, you had this sack of rocks of accumulated debt. And then, we thought there was going to be things like zombie apocalypses. Remember that? We were spectacularly calling, all these businesses were going to die and it was going to.

Chris Baskerville
Yeah. I think the adequate word was train smash, which is, you know, as soon as I saw factories in China shutting down, shipping and imports shutting down, businesses forced lockdown. I thought it’s going to be a train smash. And I thought I’m going to start looking for waterfront property now. And I want a 42 foot boat, because I was planning ahead that all this money would fall from the heavens. And the exact opposite became true.

James Flaherty
So we had, so then we had quite a lot of opportunity to do quite a number of podcasts because we got, we had, we were very bored. And it’s funny how few people shed a tear when I tell them that story.

Chris Baskerville
I think one of my lawyer friends said it best. He said, you know, government’s trying to save every industry in Australia, except yours, which is basically, we don’t care about the insolvency industry. In fact, we’re actually happy if you guys are quiet, because then it’s obviously a reflection that we might be doing something positive. And so to that end, I think what is the valuable lesson learned for our perspective is government’s response. And so no one could see what they would do. They’d literally just change laws to suit the effect and then just tip in half a trillion dollars.

James Flaherty
Just a small amount. It’s a small amount and it’s still there on the national debt. And don’t get me wrong, you know, drastic times call for drastic measures. But what we did talk about a lot is, well, what is your job and why is it important? And we did talk about the fact that it is a bit, it is unfair. If you’re running a business and somebody else who you’re competing with isn’t paying the wages properly, isn’t paying the super, isn’t paying the GST, and then can undercut you, that’s wrong.

Chris Baskerville
Yeah, that’s right. So yeah, that’s correct. It gives an unfair advantage and that’s one way to look at it. But you know, the liquidation and trustee profession is a very ancient profession. It looks very modern now. I mean, we’re in new suits and we’re playing with AI and computers and recordless offices now, but it’s a very ancient profession, which is basically this concept that you owe someone money and you have not paid. A third party has to enforce whatever the rules are about getting that money back. But that goes back, you know, millennia’s.

James Flaherty
And we’ve talked about the fact that, and you, you’re very positive spin on it. We’re not putting people in jail or until they pay their debts like they used to.

Chris Baskerville
Yeah. Yeah. I think we abolished that about the 1860s, somewhere around there. Because you do want to encourage risk. Yeah. You do want people to take. Well, that is a free market economy is one where someone is willing to take a calculated risk, throw some resources at it and we’re going to roll the dice and we either make it big or we completely bomb out because, because success breeds success. So the more people that are successful and showing other people how to become successful, the more you lift a whole squadron of people do the same. As soon as you suppress that entrepreneurial spirit. And as soon as you suppress that wanton desire to become successful by offering no incentive whatsoever, you end up with, you know, communist, fascist style regimes. And that we all, we all seen in history what that does for, for economy.

James Flaherty
Another bit of a theme that’s coming out too, is the pressure on small businesses. So that, you know, with the requirement for STP and single touch payroll, and then as you go super, and those sorts of things is that line between making sure companies are running proper cashflow, but also making sure you haven’t got so much regulation and pressure on them that they don’t have some elbow room to succeed. And so the other option is you can either become a communist state or a big corporate state where one particular coffee brand is on every corner and everyone tastes really weak coffee.


Chris Baskerville
All government regulated pricing as well. Everything is exactly $4.50. No one can charge a cent more.

James Flaherty
So, so maybe just to go back then and say, well, then if you’re crazy enough to run a small business, and we’ve talked about that a bit, I thought a good place to finish 100 is back into the mind of the people who are prepared to have a go. The people who kind of, we aimed this at. If you are running a small business or want to take a punt, and sometimes it’s going great or sometimes it’s not, well, well done you for, well done you for having a go. That’s what we kind of celebrate. But there’s times when you’ve got to call it a day. And we’ve talked about this a lot about why people wouldn’t, why people keep going after that time when they should stop.

Chris Baskerville
It’s, Australia is good because it’s relatively low bars to entry into business. If you want to start a business today, go for it. If you want to start a company today, go for it. It’ll cost you a couple of hundred bucks. Like there’s nothing out there. So there’s no real major restriction there. Access to capital is reasonably easy. If you’ve got a good idea and someone’s crazy enough to throw money at it, there’s money there, right? The problem is, and this is the tipping point is that if, if going into business, it doesn’t work and all you’re really doing is causing financial harm on other people, then our laws basically say you have a duty to stop that. So in other words, have a crack, shoot for the moon. But at some point where you don’t have the resources to make your financial commitments, you’ve got to pull up stumps.

James Flaherty
And that’s easy enough for you and I to say. So it’s pretty invested. So many, we’ve talked about this many a time. A lot of people say, you know, you know, what do you do? You say, well, I’m a plumber. I’m a, you know, I’m an accountant or a lawyer. I like I’m a thing and their company is the thing. Like I own my own company.

Chris Baskerville
I’m a business. Yeah. Or they intertwine it with themselves.

James Flaherty
That’s right. And even worse, they intertwine their personal and company finances.

Chris Baskerville
Oh yeah. That’s a trap for young players.

James Flaherty
Yeah, exactly. So then, so you think, I suppose we’ve talked about this so many times, and if there’s a lesson of the 100, it’s, um, do we celebrate those people for having a crack? The ones that are having a good honest go? But do we, how do we get the message to talk to you?

Chris Baskerville
Yeah, I do. I think anybody that’s going to having a crack at business should, you should tip their hat to them because there’s a risk involved in that, right? Um, but the reward is that you can generate a lifestyle better than what you could if you were working for someone else. So, and there’s some people out there, psychologically, cannot work for someone else and probably should not work for someone else like that. Um, we know a few, uh, I might engage a few from time to time to for professional services, but, um, there’s just people that can’t work for them, uh, another person. So they have to be in business. That’s all I know. Um, and they’d rather live and die by that sword, you know? So, you know, I tip my hat off to anybody that, that takes the risk. And I think that’s, you know, I think that’s the entrepreneurial side of me and that’s probably the business side of me, uh, would, would celebrate that. Um, but understand, you know, there are guys like us that can help people when you, when your business starts to go pear shaped. Um, and we’re here to help, you know, and our guys are crazy, uh, experts, trained, educated, well-experienced, you know?
So why not as a, you’re a new business owner, this is your first business. Why not talk to the people that have seen this a couple of thousand times?

James Flaherty
Now, what you’ve talked about, and you said this in one of the very first episodes, so that sort of, it’s about, um, is it plan for the end? What was that?

Chris Baskerville
Begin with the end in mind. Yeah, yeah, yeah. Stephen Covey.

James Flaherty
Yeah.

Chris Baskerville
Seven habits of highly effective people, James.

James Flaherty
What’s that mean? I mean, basically have an idea of where you want this to go.

Chris Baskerville
Well, if you’re going to start in business happening, what is your end goal? Like, is your end goal to run this business until you go to the grave? Like, I mean, that can be a goal. Is your, is the end goal that in five years you want to sell? Is the end goal you want to grow so big that you want to do an IPO listing and turn it into a publicly limited company? Um, or is your end goal that you just don’t want to work and it’s just a job? Like what, what is your end goal? So yeah, I think you should always, before beginning almost anything, begin with the end in mind. What do you want this business to achieve? What do you want it to, what’s the outcome that you’re searching for? Because that sets your true north and then you just, then you direct your business to achieving nothing but true north.

James Flaherty
And then if you want to know where true north is, it might be a direction, the complete opposite to from ever seeing you again, because other than maybe take you out for a drink or a nice, a nice meal, thanks very much, Chris, you saved my business and I got a sense of direction. And I, um, and the other big thing that we’ve talked about a lot during this is, um, separating, you know, family assets, like making sure you’ve structured yourself properly so that you understand the risks you’re taking, like how many cards are you putting on the table? And that’s another thing that a conversation with, uh, maybe it’s not liquidator, maybe it’s life coach, sort of business ending psychologist, aren’t they? Without putting hats on you, you’re not qualified.

Chris Baskerville
I often say to people, um, that you never want to meet a liquidator nine to five, but you do want to meet a liquidator five to nine.

James Flaherty
I’m happy to, hey, happy 100. Thanks Chris.

Chris Baskerville
Thanks James.

James Flaherty
A reminder that these podcasts are general in nature and do not constitute advice, and they don’t take into account your personal circumstances. So if you think though that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice.

Episode 101 Transcript

James Flaherty
Welcome back to the Sounds of the Baskerville. James Flaherty here with the hound, Chris Baskerville. How are you, Chris?

Chris Baskerville
Good afternoon, James. Good afternoon.

James Flaherty
This is part of our little series we’ve been doing since we celebrated our 100th episode, Chris. 100 episodes of the Sounds of the Baskerville.

Chris Baskerville
And who would have thought we’d shoot this immediately after?

James Flaherty
Yeah, well, we might not run it straight after, but anyway, the idea is what we thought we’d do is maybe do the top 10 topics that we talked about over 100 episodes. And it was quite an interesting exercise to sit there and go, well, what did we talk about? Because we talk a lot. And it was sort of in that 50s and 60s territory and also sort of a little bit the beginning of this season, we were talking about things like the creditor, what the creditor does about risk and risk alerts. So that was interesting. We talked about that. And we also talked about director’s penalty notice and, of course, our favourite, SBR. Small business restructuring. Small business restructuring, yeah. So I thought maybe we’d just start when, well, over the seasons we’ve had the two Patricks in to talk about Patrick Coghlan of Creditor Watch and we’ve also had Patrick Switzer of Alaris coming in and talking to us about risk. And I think that goes to that, well, I’m a creditor. How do I stop this happening to me? What do you think was the takeaway for you if you put your hat on as a liquidator for the times when people could have used those tools and didn’t?

Chris Baskerville
Yeah, there’s more and more information coming out that’s available now. And we seem to be sharing a lot more information that was not available. We’re still missing small business financial statements that are publicly available. I believe they do that in Switzerland. Small businesses have to report their finances publicly. So that would probably be the last thing or at least one of the major things. If there was something going to be changing, it should be that everyone, every business discloses their financial position because that at least allows a huge amount of transparency as to know who you’re actually dealing with. Will that ever happen? We don’t know.

James Flaherty
That’s an interesting question because there’s a conference that you and I both went to, or colleagues had went to for sure, where the tax office was talking about the criteria that they use as red flags, like this business could be at risk. And someone said, well, why don’t you actually give that to the company itself and say, hey, here’s some of the red flags we look for and you’ve got these three. If you keep going down this road, it’s not going to be good should you be talking to us or maybe reaching out to getting some professional advice.

Chris Baskerville
Now, we can’t talk to, and we obviously press both Patricks in this as to what the algorithm was behind their secret sauce for how they come up with their insolvency index or risk factor.

James Flaherty
I think if anyone was going to do it, I thought you might have been able to crack it, but somehow that whole proprietary thing, I don’t know, they wouldn’t let it go.

Chris Baskerville
They’ve never experienced one of my interrogations before and I was going to let them go just this once.

James Flaherty
Public examination. Public examination. Maybe you might get there, but I’ll remind you, Patrick, you’re under oath.

Chris Baskerville
But anyway, so what does that mean? What does that mean? That means that these formulas have to be based on the information that is available, that’s out there, right? And it’s normally creditors driving that process. So if a creditor takes an action, like if they take a step to chase money, usually called a money owed type claim, and there’s multiple ways you can do that. These resources that are available to creditors, the idea is that this data is being scooped up and aligned with the customer body. The other thing is when you change anything fundamentally with the structure of a company, a director, an address, a wind-up notice or whatever, it gets flagged on ASIC. So again, that data gets scooped into these credit files. So at the moment, it’s really a creditor-driven and based on publicly available information. Now, what is not on these credit files, unless it’s reported, are outstanding tax debts. So unless the tax office actually proactively says, this company owes the taxman a substantial amount of money, it doesn’t go on the list. So, you know, it’s obviously buyer beware still plays a part. I think caveat emptor going back just a few years. But, you know, it is still buyer beware. So the creditor really has to take proactive steps to do their own investigations, go to all, there’s heaps of publicly available databases out there, do your own searches, make the enquiries, probably even ask for the financial data or the customer so you understand who you’re in business with to safeguard yourself.

James Flaherty
And I think there’s that whole idea though that you could, if you’re going to sell something to somebody on credit, you might want to think about what you’re making them sign in exchange for your trust that they’ll pay you.

Chris Baskerville
Yeah.

James Flaherty
So if you just got something you downloaded from the interweb as your terms and conditions of trade, or had something that had been around, you know, some old thing that was run off, you know, the person who retired 20 years ago used to do and you just kept on photocopying it. Well, the laws have changed.

Chris Baskerville
Yeah, there’s a lot. Yeah, so you’re talking about the terms and conditions, like making sure your terms and conditions are updated and modified because you’re right, laws change all the time. Also, with the introduction of securities being registered now and the PPSR, I mean, we’re going back more than a decade now, but, you know, creditors should be seriously looking at how they secure themselves over the products that they provide.

James Flaherty
And in fairness to what you just said, the number of times that you and I have said to people, oh, check the PPSR and the people go, the what?

Chris Baskerville
Yeah.

James Flaherty
So it’s quite a significant change about how things were registered, which very few people really understand.

Chris Baskerville
But also the ridiculous part of it from our perspective is it’s relatively cheap. It’s relatively cheap to put the security on. It’s relatively cheap to search. Like, I think, you know, we’re talking $7.

James Flaherty
$7 to register if you know what you’re doing, which is, well, I guess $2 to check. Like, you know, it’s not that hard.

Chris Baskerville
It’s very low, low costs to do these things.

James Flaherty
Yeah, yeah, yeah. And so there’s, you know, I think when you’re representing creditors, it’s probably nice to represent creditors in some senses who have helped themselves a bit to at least done some of the due diligence up front to either enhance their own position or try and get some security or ideally not be there.

Chris Baskerville
And look, don’t get me wrong. Creditors are one of our best sources of information. So, you know, if a company has failed, they’re usually the ones that tell us where the skeletons are sometimes buried. So we go, thank you, because they’ve done a lot of due diligence or they’ve intertwined their business with these directors and they’ve known them for many years. So they’re great sources. And also we ask them, hey, could you just give us the documents that the company represented to you to get this credit facility up and running? And there’s a lot of really interesting stuff. And there’s a lot of sometimes misrepresentations. And we go, thank you very much. You’ve basically sort of BS’d your way into credit.

James Flaherty
And if you do that, that’s not good.

Chris Baskerville
No.

James Flaherty
Okay. So then when we go back to how we started these series, we’re talking about in the pandemic people around in insolvency, well, no one was allowed to go bust. So we didn’t really have anything to do. So we started talking about this. And we talked about this thing called small business restructuring. And I can remember, what a thought bubble. I think I was quoted as saying it was a thought bubble. And in fact, it actually went, I think you did the second one in the country. The thing evolved, though. We thought, let’s just, it’s a bit like, just see what this thing does. And I think we’ve learned a lot. We’ve had some interesting experiences with them. There’s now hundreds of them a month now, these small business restructures.

Chris Baskerville
Yeah. Yeah. Well, I think as this last report they did in June 25 said that nearly 3,400 companies took it up with a near 80% success rate.

James Flaherty
And the reason why I raise it now is because we’re talking about the hidden. A lot of people might have a green tick on something like that in one of these credit reports. Or Alaris mightn’t have found anything where there’s no court actions. But then suddenly the taxman’s down there to close them down and no one knew about it. The only debt they weren’t paying was the biggest one of all. The taxman has started reporting for over $100,000 or roughly, I think.

Chris Baskerville
Yeah, that’s absolutely happening now.

James Flaherty
And that’s certainly moving the needle a little bit. That gives a bit more insight. But the small business restructure, and we’ve done this a few times, the taxman’s often one of the only creditors. He’s one of the last persons who gets paid their money. And as a taxpayer, I think the taxman is getting sick of that and has said, okay, party’s over, let’s get some of this money back in. So some of the trying to phone up and sob stories, not so much anymore. But there is this small business restructuring that if you’ve got a good story, he’ll listen to you.

Chris Baskerville
Is that in summary? There’s a few things that you need and one of them is, but for an extraordinary event, flood, fire, COVID, cyclone, you know, magical unicorns rolling through your business and destroying everything, you’ve got a viable business, right? You’ve tried to be a really good taxpayer by lodging everything on time and you’ve been upfront and transparent with the taxman. And you’re offering a reasonable return on the money to pay those taxes over time, not a very long time, but over time. They generally are looking for ways to say yes. But they’ve certainly been changing their tune over the last 18 months because they are realising that they are one of the last creditors, the largest creditor, and usually everybody else gets preferred before the small business restructuring rolls in. So, yeah, I think they’re starting to get a little bit annoyed by that. Plus, I think we as an industry, you know, as we’re all trying to work out what this small business restructuring means, we’re all talking to each other, hey, what did you get that small business restructuring for? What did you get that plan for? It became known that about 20% seemed to be quite acceptable. We’re now starting to see that the ATO wants more, sort of more pushing towards that 30% return now.

James Flaherty
Yep. And certainly if people have got what are called Division 7A loans, you know, bought the gym membership out of the company funds and just never remembered to pay it back.

Chris Baskerville
Yeah, yeah.

James Flaherty
Those sorts of loans. Bought the Ferrari. Yeah, that’s right. You’ve probably seen. Bought the deposit for the house. You’ve seen a few more of those. And so they’re definitely not excited about when the director owes more than the taxpayer.

Chris Baskerville
No, no. Particularly when, and we see this quite often, the tax bill magically equals the director’s loan account. Isn’t that amazing?

Where the director pulls so much money out of the business, that also equals the tax bill. Yeah. I mean, it’s just amazing.

James Flaherty
And there are astute people in there. They can see that. They can read all these numbers. They’ve got access to probably more information than we mere mortals do in there, and they’ve got some pretty powerful tools. So I’ve just said to anyone, just assume they already know or can figure it out pretty quick. So, yeah. So I think you’ve got to go with an open story and a qualified insolvency practitioner, such as yourself, who’s got experience in talking through these business. Yes, this is viable. It’s got a good story. They’ve paid their super.

Chris Baskerville
You’ve lodged everything on time. You’re not bad with your compliance because your compliance history plays a part. Sure, you’ve got all your tax returns up to date today for the purposes of small business restructuring. But you’ve only done that because you want the advantage of small business restructuring. What it should be is you’re lodging everything along the way, and you just need that little bit of assistance.

James Flaherty
I mean, coming out of the pandemic, it seems like that’s the way it’s going to go. It’s not. There may not be quite so many. It’s interesting, there was a lot of pressure about having the threshold because I have to owe less than a million dollars worth of unsecured debt tax, that sort of stuff. There’s a few times where we went fairly close, but there doesn’t seem to be quite that same pressure to increase. There was talk about increasing the threshold, but that seems to have quietened down a little bit.

Chris Baskerville
I was hoping they’d follow sort of the American and the UK model where they’re kind of pushing it more towards $3 million because you would absolutely open up more businesses that could benefit from this style of restructuring. But also it makes our remuneration, the fees you pay for our services, more palatable because generally we have to offer fixed fee and a fixed percentage of the money that are returned to creditors. So the bigger the debt burden that’s available, the more economical our services can be. Whereas if we’re not lifting that million dollar limit, then it is what it is.

James Flaherty
It is what it is. But I do think it does give an opportunity for you to think, and I think back to some of the early videos that you did and you were thinking back to your own experience and about being in a family, an entrepreneurial family. If you could go back and help your father at that stage through some tough times, if you had advice for someone you could go back to then, and that’s been a theme kind of how can you help an entrepreneur or a small business person? How can you help a family to learn how to do it better? And that’s what SBR was something that enabled you to do, wasn’t it?

Chris Baskerville
Yeah, SBR was the first of its kind where we allowed the director to remain in control.

James Flaherty
Right.

Chris Baskerville
Because every other system that we have in Australia in the insolvency scheme, everybody loses control and they lose control to us. So we take the keys. We kick out the director, right? You’ve had your time. You’re out. It’s now our time. So SBR was the first one that said, no, no, no, we need to keep the director in play trading in the ordinary cause. We have become like a helicopter parent of the director and we just make sure that they stay on track. We help guide the director in what the proposal should look like. And then we’ve got to make sure that they stick to the proposal and hold them accountable to that.

James Flaherty
But by the same token, let them fight on.

Chris Baskerville
Yeah, yeah. Because you know your business better than us. I mean, we’ll figure it out eventually, but you’ve got three years in the game. You know the business better than us. You know how to make money.

James Flaherty
So here’s the last, sorry, I’ve interrupted you, but here’s the last. With all of those skills and experience you’ve got of how businesses go wrong, here’s an opportunity that SBR did present you to apply some of that skills in a live business without going into the big voluntary administration, which is often a more expensive process and for slightly larger businesses. And you have to be, as a voluntary administrator, you’re the man. Yeah, aren’t you running it?

Chris Baskerville
Yeah, yeah, absolutely. And I have to roll into a voluntary administrator, just like any other one of my learned colleagues in my profession. But we go in immediate personal liability immediately. So in other words, from minute one, bang, you’re on the hook. So what SBR does for us, and I think this is one of the advantages I saw immediately, de-risks the programme for us. So in other words, we don’t have to take on those risks of trade anymore. That is squarely on the director’s shoulders there. We’ve just got to hold them accountable and ask a lot of questions, put together a report that makes sense to the accredited body. I think we need to give these guys a second chance. And remembering, you can only do this once every seven years. Yeah, so make it count. You’ve got to make it count.

James Flaherty
Now, we’ve said all this stuff and we’ve talked in a previous broadcast about the psychology of your director of knowing when to stop. And we’ve talked about taking advantage of an SBR when you know that you’ve got behind. How many times does a director not do any of those things until they get a thing in the post called a director’s penalty notice?

Chris Baskerville
Well, if you look at the pie chart of insolvency, let’s just say three quarters of it is liquidation, which is either it’s either by the court or it’s by the voluntary hand of the shareholder group going, we’re done and dusted. So if you look at it from that perspective, you could almost throw out Pareto’s principle here and go 80% of the time they leave it way too late and it’s really the 20% that actually take a proactive step. So using your psychology here, those that are huge in worrying about their situation that have huge empathy for other people generally will be the ones that put their hand up going, I’m really worried about here. And they’ll generally put their hand up earlier. Those are a little bit more cowboy-esque and not so much reckless, but this is my baby and I’m going to fight tooth and nail to the bitter end and I’m not going to throw the baby out with the bathwater. They will fight tooth and nail and they will not realise there’s a problem until the bitter end. And sometimes the bitter end comes involuntarily, which is, well, you did your best, you hung on to the bitter end, and the court has gone, it’s now time for you to go.

James Flaherty
That’s right. And so the tax office might, for example, it might be a creditor’s statutory demand or you might get a thing in the post which may or may not go to the right address if you’ve got the correct registered business address for your company on ASIC. And it says director’s penalty notice, 21 days, you can basically do one of three things, can’t you?

Chris Baskerville
Yeah, one of four. The first one should be pay the tax bill. That’s always recommended. Wish people would do numbers. Yeah, well, what do I do if they get this notice? Well, can you pay the tax bill? That’s usually the first question I ask.

James Flaherty
Like most other people do, yeah.

Chris Baskerville
But you’ve got two styles of director’s penalty notice and we refer to them non-lockdown, lockdown. The lockdown one are for everyone that lodged their tax returns late, in which case it’s an automatic liability. You can’t get out of it unless you pay the tax. Amazing. If you were a good taxpayer, you lodged everything on time, but the ATO now needs to want to move against the director, they have to send a notice first and usually you’ve got four options, pay the tax bill, go into voluntary administration, go into small business restructuring or just liquidate the company, like just bring it all to an end. And as long as you take one of those four steps, the penalty is remitted, so it’s no longer a threat to the director personally. But you miss that 21 days and you’re gone. You’re gone. The whole lot becomes the director’s personal liability.

James Flaherty
And it sits on your own tax portal and say you get a new job or something like that and you get a $500 tax return. Gone.

Chris Baskerville
Even bankruptcy, where people say, oh, I’ve just gone bankrupt, what happens to my tax returns post bankruptcy or during the bankruptcy? I said, if you’re owed a refund, the tax office takes it for those three years. Okay.

James Flaherty
So I suppose if you circle back, if you can pay your tax, you should. If you can’t, there are options. But getting a director’s penalty notice is the wrong option. And if it gets one, you don’t wait more than 21 days to do something about it.

Chris Baskerville
Basically, it’s a ticking time bomb. That’s the way to look at it, right? And this is the important thing for all directors, is update your residential address on ASIC because the notice is going to the last known residential address of the director. So if you’ve moved home 10 years ago, guess where the notice is going? And you can no longer kind of direct to say, yeah, but I didn’t receive the notice. It’s now legislated that as long as we send it to your last known address on ASIC, it’s served.

James Flaherty
So they’re coming. The ATO have told everybody that they’re sending more of them out and people are getting them.

Chris Baskerville
Yeah. Tens of thousands are going out the door. And nearly 30,000 companies have been registered on credit files lately because the ATO is chasing somewhere in the order of about $105 billion of which they think half of it is collectible.

James Flaherty
Right.

Chris Baskerville
And magically, I think if I remember seeing the budget in May correctly, we have a surplus this financial year. Next financial year we have a deficit of $50 billion, which magically is the unrecovered tax liability that currently is out there. So you can understand why the ATO is going to go and get that $50 billion.

James Flaherty
So I think the lessons from this, if we talk back to the sounds of basketball over the last hundred and something episodes, I think there is a bit about it. There are things for creditors to use, to watch out. There are tools like SBR for small businesses that get behind for good reasons and there’s a big stick that you don’t want to get called a director’s penalty notice. Amongst others. Amongst others. All too often they’re the ones you see. Hey, thanks, Chris.

Chris Baskerville
All right. Thanks, James.

Episode 102 Transcript

James Flaherty
So Chris, you’re a man about town, you’re an entrepreneur, you’re a thinker, a showman. So in your experience, if this is a way to make an extra dollar by doing something different, have you seen people will always try and game the system?

Chris Baskerville
Yeah, people always try and game the system, particularly where the legislation is set in stone, everyone tries to find their way around the fringes.

James Flaherty
Hey, let’s call this one The Gamers. Welcome back to the Sound of the Baskerville, I’m with the hound, Chris Baskerville.

Chris Baskerville
Good morning, James, good to be back in the hot seat.

James Flaherty
Yeah, back in the hot seat, into the hundreds. One of the things that I’ve just been noticing and we’ve talked a bit about before is we’ve talked a lot about small business restructures, but you said something to me before we started today, so if someone sets up a set of rules, is there always going to be human nature to try and go around the edge of them?

Chris Baskerville
Yeah, absolutely. Or at least take it all the way to the boundary. Because law is, to a degree, while it’s very objective, the subjective element is how you interpret a word. And people go to war over the interpretation of a word. So if it says that you may not do something versus must not do something, we’re going to play in the may and we’re going to push may as far as we can.

James Flaherty
And I think we could go back to the castle, play a particular word that they were talking about in a legal case. It’s not a case of is it the or is it thee, it’s just is a particular word, what does it might turn on a particular thing? Or in the case of SBR, it’s a million dollars, but what’s in the million dollars?

Chris Baskerville
Yeah, what’s in the million dollars? And then is it admissible claims? And then what’s the definition of admissible claims? Claims that would claim in a liquidation. So what does that not include? That does not include claims that are backed by some security, as an example.

James Flaherty
So I’ve loaned you the money for a ute and got a PPSR on it, then I’m secured. Is that correct? So hang on, this Chris fella hasn’t paid me from several parts of my ute. I’m secured against the ute, obviously, but I can also go in unpaid monies for like, if you’re behind on your lease payments, I can do something like that. Isn’t that your kind of job to figure out whether I can or I can’t or you send a claim out and ask me to prove it or?

Chris Baskerville
Yeah, correct, correct. So first of all, obviously, secured creditors have rights. I’m sure we’re going to go way off topic of where we were starting. But yes, secured creditors have rights, which is in the event of default, you can enforce against the security that underlines the debt. So that means that I can take possession of the underlying asset and go and sell it. And then hopefully there’s a surplus, in which case it goes to the company. But if there’s a shortfall, then that forms part of the claim or the admissible claim that a liquidator would consider.

James Flaherty
So here’s just one example, I think, of the nuance a bit of your job of trying to ascertain the value. Is there a valid claim? And sometimes you have to get lawyers involved, all sorts of things. So there’s a whole bunch of stuff. And this is with a fairly, not rigid, but SBR, it’s got some pretty distinct processes in it that we’ve talked about before. They could certainly improve it. But that’s a process that’s laid out. And yet there’s all these other bits and pieces that can go on.

Chris Baskerville
Yes, so small business restructuring is very systematic and pro forma. So everything is kind of laid out. All you’ve got to do is fill in the numbers, so to speak. So paint by numbers, if you want to call it that. So there’s very little flexibility in it, very little. But to turn this back around on the topic that we were originally starting, what we do see from time to time is the improper use of securities as a means to give the illusion that someone is a secured creditor to then transact asset sales and property transfers under the guise of being security, which should be outside the arm of the liquidator. But doing it in a way that really, when you unpick it all, you’ve just literally transferred assets from company A to company B for nearly no consideration.

James Flaherty
Oh, I love that. That’s great. So we’re trying to get a sense of people trying to game the system. I think we’re calling them gamers. So you go, well, here’s an example there where somebody’s said they’re secured, so therefore they don’t have to go in with all the people who don’t have security or don’t have a PPSR or anything like that. They’ve just got to hang on. I sold this guy some stuff and he never paid me. Oh, too bad. You’re unsecured, so therefore you go in the pot with all the others. Whereas you’ve just given us an example of where people can try and game and say, well, actually, I’m really secured. I’m OK, so I’ll be all right. Well, no. And that’s part of your job, isn’t it? To sit there and say, well, divine what’s real and what’s not.

Chris Baskerville
Yeah, well, the biggest common transaction we see with the use of securities is that securities are provided or granted to a secured creditor for monies that owed in the past. So in other words, in the past, I was unsecured and now I have become secured. So ordinarily, and this is just generally, if I’m going to give you security over an asset, I need to give consideration at that same point in time. And use the example of a bank. You want finance from a bank. We’re going to give you that finance. So here’s our consideration coming to the table. But in exchange, I’m going to mortgage a house, mortgage the company’s assets and take a lean on whatever it is I can get my hands on. So that’s consideration in exchange for the security.

James Flaherty
And that’s a really good description. And we’ve talked about that in the past, but that’s a nice little summary of how it should work. So then you’ll see some advisors or people who might call themselves a broker or whatever they might call themselves, might come up with some other scheme where they try and tell you, well, all this money that you’ve bunged in the company, I’ll set up a mortgage or something like that or something that we can try and tell the liquidator that you’re secured, you’ll be OK. That’s an example of someone trying to game the system of it, isn’t it? Especially if the money has already been paid and it’s not actually a real thing.

Chris Baskerville
Yeah, that’s right. Because also, like when you sort of think about gaming the system, most people might have an understanding of the concept of an unfair preference, which is you’re paying certain people ahead of everybody. In other words, I’m effectively choosing who I’m going to pay, make sure they get squared away with their debts in full, and then I’m going to cognisantly make a decision not to pay other people, which is not fair. And that’s why this unfair preference exists. But monies that are paid to discharge a security is not part of that unfair preference regime. So it makes sense that if you’re trying to game the system, that you try and create the illusion of security.

James Flaherty
So I think that’s interesting because if I’m a person who’s done trade credit or something like that, I’ve just offered something and I get a notice from a liquidator saying, hey, look, we think that you were paid because you’re Fred’s mate, and then you’ve got to give some money back. I think I would be angry, but I think I’d be even more angry if I felt that somebody else had done something to give themselves an even better position than even I had. Because then they’re not even in the same pot as me. They’ve squared themselves away nicely, and here’s me hanging out in the breeze. So I suppose from a liquidator’s perspective, your job is for the people who risk missing out, the unsecured, is to make sure that the secureds are who they say they are.

Chris Baskerville
Yeah. I mean, it’s almost part of your standard operating procedure, or should be. So obviously I can’t speak for the entire profession, but it should be that whenever you see a version of security anywhere, like whether it’s a mortgage, a caveat, a PPSR, someone claiming a lien, then you’ve got to challenge it. So in other words, you’ve got to ask them for all of their documents, statements, the whole thing, what gives you the rights? And then what’s the value of the property at the end of the day? And then what are you actually owed? And try and work out who’s who in the zoo.

James Flaherty
And we’ve talked before about creditors defeating transactions and things when people are trying to shuffle, like shell games and things like this. So again, an example, try and tell people, oh, look, if we do this, liquidator won’t touch you because you’re secured, or we won’t put that particular debt in, otherwise the liquidator won’t let you do an SBR, all sorts of different things that you must sort of sniff sometimes in the breeze. And you go, you know what? There’s more to this than I’m seeing. Do you see that from time to time?

Chris Baskerville
Yeah. Some people will enter into a transaction one-off and either not quite know what they’re getting into, or if they’re using professional advisors, they’ll guide them through. Where the problem in the system works is those that systematically play those games and systematically set directors up to basically shift assets around in rather sophisticated ways. It’s that systemisation of it. And lots of advisors are being pinged by police, ASIC, ATO raids, the whole gambit. You know, there’s literally people have just been subject to raids that they wouldn’t have seen coming.

James Flaherty
Who’s being raided? It’s the director being raided.

Chris Baskerville
No, it’s the advisor. Okay, right. It’s the people that set up this systematic behaviour of what they effectively call illegal phoenixing are the targets.

James Flaherty
So these people have been trying to game the system. And of course, it’s one of those situations where they say to the director, well, you could do A, B and C, but if you do D, that’s up to you. But D could look like this.

Chris Baskerville
And what’s always interesting is sometimes it’s difficult to get the copies of these advices, but it opens with, this is not legal advice, but you should consider A, B and C, which is basically code for this is legal advice disguised as not legal advice.

James Flaherty
And something that’s legal advice is still legal advice, even in some ways, even if you say it’s not. In that situation, as you say, it kind of is. And that person would be exposing themselves to all kinds of bad things because if you’re providing legal advice and you’re not a lawyer, that’s kind of bad, isn’t it?

Chris Baskerville
Yeah, I think it can land people in jail.

James Flaherty
So I think we would celebrate the time when some of these shysters were given the full force of the law. And we’ve talked about raids and federal police going in and taking computers and all sort of filing cabinets and all sorts of stuff like that. Is that the sort of thing that…

Chris Baskerville
Yeah, they’ve even taken property that they even suspected were part of this systemised legal phoenixing as well. So property and records and…

James Flaherty
We’re not just talking here about things like you might’ve seen on the news where people are doing things with trying to defraud GST. This is sort of, in some cases, could be just more general advice that people have been given of the businesses facing liquidation. They’ve gone to somebody who’s kind of given them not A, B and C, which would have been the logical things to do, but D, which is the dodgy, slightly different way of doing things, which is, you know, I’m not saying you should do this, but if you did, then try to make the director take the fall if it all gets unravelled when Chris and the crew come in and realise it’s just a complete scam. Is that…

Chris Baskerville
It’d be interesting to be a fly on the wall when those discussions are had. And I would say discussions, because I am very doubtful that anybody that engages in systematic phoenixing behaviour in trying to defeat the creditor body of whoever it is that you’re trying to defeat would ever put the advice in writing. I’d be very doubtful.

James Flaherty
Yeah. Can you sort of sense the fingerprints of particular people? I mean, people aren’t going to come to you who’ve done this because I know that you’ll bust it open. But I mean, are you aware of people who sit there around town and go, you know, that smells like a phoenix, looks like a phoenix, you’ve got a little taste of a phoenix?

Chris Baskerville
There is a little bit, yeah. I think the longer you’re in the industry, the more you start to sniff out that certain people might be behind it. You might not even be able to identify who it is, but it just feels like that this is all being beautifully set up, mainly because you look at the timing of when documents are created. And it’s all within days of each other. But transactions that potentially go back years, that’s one. But the other classic one is the dodgy advisors in that space, because there’s a lot of really good director advocates out there. But the classic is they always ask for their money up front. So the question is, where did that money come from? So sometimes we can see it in the bank statements. So as soon as we go, oh, so this guy’s behind it. Well, then our view is you take an extreme prejudicial view. As soon as you see that monies have gone to someone that we suspect might be not playing the game properly or above board, then you go into extreme prejudice mode.

James Flaherty
We talked about this in previous episodes. If you sort of got a wind of one of these people, you have to assume that there is more to see here. A hundred percent. And then gloves are off.

Chris Baskerville
Yeah. And you start going down the usual dark holes. And sometimes, I mean, to their credit, they challenge us to be better at our job. If I was to give some element of credit. But what’s happening is you can start to notice pattern of behaviour and you start to see, OK, well, where are these really dark holes that these guys operate in?

James Flaherty
It’s a bit like saying, you know, those fish like prawns that feed around bottom feeders do serve a purpose in the ecosystem. I mean, if you’re a creditor and you’ve been dudded by some director who’s gone to one of these cats and gotten away with it, you’ve got a right to be pretty upset because somebody got a better slice of the pie than you did and it wasn’t fair. And you might say that’s kind of life. Happens all the time. But these gamers, these people are trying to say, OK, we can shoehorn this into an SBR by doing this and doing that. We can liquidate this and buy it back. We’ll, you know, have James’s Cafe number two. There are ways that you can do those kind of transactions properly if you get advice up front.

Chris Baskerville
Yeah, there’s the proper way to do it. Because you think about it like a company exists as its own legal entity. It has a purpose. It’s got a thinking mind, which is the director body. And then you’ve got the shareholders that are effectively the beneficiaries of the company’s performance. And a company is set up usually for a specific purpose. And sometimes that specific purpose reaches a tipping point where it can no longer continue into existence or it can no longer pay the bills along the way. The duty of the thinking mind of that company is to bring the financial hurt to an end. Like just you’ve got to bring it to an end. I think directors have a real hard time with that because they try and fix the problem themselves or, you know, they think they have the solution and they are just so interwoven with this corporate entity personally that they’re not going to give it up. But your duty is to stop. And if we see people that have turned that corner and realised this company can’t go on and then you wave the white flag real early, that’s exactly what you should be doing.

James Flaherty
Yeah. I think the thing just to wrap this up, the thing that’s just struck me is if someone went to you early, I mean, you’d lay out all the risks, all that kind of stuff and the challenges and the things that have got to be done. But I wonder if you went and saw you or one of your colleagues around the industry, the people that we know, I don’t think it would be cheaper than going to some of these dodgy people and paying a whole lot of money up front for all sorts of funny shenanigans that can get unpicked.

Chris Baskerville
This is the biggest difference. And this is why this dodgy pre-insolvency industry exists. And I’m not saying all pre-insolvency are all dodgy. I’m saying the dodgy component of it is this. We are going to tell the director what they need to hear, whereas they go to these other advisors to get the advice they want to hear. That’s the major difference. And so I, as a director, I’m willing to take the risk because what you’re telling me is what I want to hear.

James Flaherty
OK, and I’ll pay you handsomely for it. Whereas we’re needing to be told what they need to hear. Hey, we’re going to go. There’s a fire alarm. Thanks for that. Thanks. A reminder that these podcasts are general in nature and do not constitute advice and they don’t take into account your personal circumstances. If you think, though, that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice.

 

Episode 102 Transcript

James Flaherty
Okay, the good guys, you’ve sniffed out a gamer. Tell me what happens. Welcome back to the Sounds of the Baskerville. I’m James Flaherty, here with Chris Baskerville. Morning, Chris.

Chris Baskerville. Fire Alarm edition.

James Flaherty
Yes. Chris, last episode, we talked about the gamers. We talked about the people who’re trying to play the shell game or move the documents around or make a debt or a liability that wasn’t really there and so they try and get it around you. So, one of the questions is, what happens when the good guys come and break the whole thing up? Is that kind of a good place to go from here?

Chris Baskerville
Well, we talk about the systematic advice around illegal phoenixing, which is somebody, obviously not us, but somebody is going to deliberately and systematically walk directors through a process that effectively moves assets from company A to company B or wherever the assets go to the detriment of the credited body that sits behind those assets. So, what the ATO and ASIC and even FEG, which is the Fair Entitlements Guarantee, because they’re one of the impacted government departments, is they formed a task force, the Illegal Phoenix Task Force, and their job was to work out who are these people and then raid their offices. Right. Basically doing what we would ordinarily do, except they’ve got guns and authority.

James Flaherty
Right. Although we have talked in a previous episode, it might have been company 57 where you had to go in with some pretty heavy stuff for some people who you just wanted to make sure that it was going to be okay.

Chris Baskerville
Yeah. Yeah. Well, I think that was the Sheriff Department and Queensland Police had to enforce that. Yeah, yeah.

James Flaherty
So, your life’s got some interesting parts. Okay, the good guys, you’ve sniffed out a gamer. Tell me what happens.

Chris Baskerville
Again, the directors are getting the advice they want to hear and so they go, great, you’re telling me what I want to hear. Here’s the money up front, because these dodgy advisors don’t invoice you on a monthly basis or invoice you at the end. They want their money up front.

James Flaherty
Illegal at Phoenix advice, invoice number one.

Chris Baskerville
Correct. Correct. The advice never will be put in writing, is my suspicion. And so, we walk through the series of transactions. The director walks away with the new company, with all the assets of the old company. All the creditors of old company are now trapped by the liquidation. We become the liquidator. The director goes merrily on their way. They think that after a year or two, that they’re like, that’s it. We’re done. We’re dusted. Thank you, dodgy advisor, for helping us walk through here. We’re feeling very comfortable. And then next minute, in comes a claim or a summons from colleagues in my industry. And then all hell breaks loose on their side.

James Flaherty
That’s right. And so, unhappy director, I thought I paid you guys to make this all go away. And the dodgy director goes, well, you know, we just told you what could happen. This has happened. You’re on your own.

Chris Baskerville
Yeah. Or they tell us that the company ceased trading. All the assets have all been sold before your appointment. So, here’s your upfront contribution to kickstart the job. And of course, it’s never enough compared to the work that we actually do. It’s just really a contribution. And through asking a series of questions and getting all the reports in and all the evidence and all the records of the company we work out, well, hang on, these assets have basically shifted from old code to new code, all undervalued or no considerations being paid. And you’ve made off like abandoned.

James Flaherty
You’ve had people in your office who just kind of do this for their day job, sifting through the tea leaves and documents and going, hello, what have I found in here?

Chris Baskerville
Well, it even goes one step further than that. So, I think to be a really good investigator or even potentially a good baron, you need an element of autism. I don’t joke about it. And we think autism is actually a superpower when it’s harnessed correctly. And one of the things that would trigger one of these investigators or one of the barristers to ask more questions is they now go through the detail of the evidence in fine tooth and put the whole timeline together. And we would do the same and then go, right, what other evidence do we need? We then go and hunt it down and get it. And then all of a sudden, the story appears.

James Flaherty
Yeah. We are talking about people who are on the spectrum and obviously they’ve got challenges they’ve got to deal with. But that is one of those situations where an unusual capacity to be able to disseminate detail and to be able to deal with that kind of thing. And remember it.

Chris Baskerville
Yeah. I need to write down the timeline of events in order, right?

James Flaherty
Yes. So, you and I don’t have the capacity to juggle that kind of stuff in our brains, but we are very pleased that we do know people who do.

Chris Baskerville
And I think that’s the important part is that in part of our hiring, particularly those high levels and who I engage in council is have they got that ability to figure it out or at least see what we see. Like, can you see the story we’ve got with all the evidence we’ve got? Yes, I see the story. What could make this story better? Grab this evidence. Great. They’re the people that we work with.

James Flaherty
And we’ve talked about this before, not so much in this kind of detail, but, okay, is there a recent example where you’ve been able to crack something open? Were any of those things we talked about when we did our live show in Bali or any of those kind of matters that you could talk about?

Chris Baskerville
Yeah, well, I mean, these matters pop up all the time. So, it’s like, you know, our bread and butter is just unpicking these transactions. But one of the greatest tools that any external administrator gets is the ability for what’s known as public examination. I think that’s one of the greatest tools that we’ve got. I think it’s potentially underutilised a lot by our profession, but effectively it is going back to those draconian days of old where the courts get involved because we need the help to unpick the evidence or to collate the evidence because often some people are non-cooperative with giving us the evidence that would show that they actually have done something that was a bit naughty. So, we kind of need to pry it out of their hands. And so, if you’re getting a summons, means you are now, by order of the court, have to deliver records to the court and get ready because you’re about to get under the witness box and answer questions.

James Flaherty
And we’ve talked about your special powers before those public examinations that are kind of Chris Baskerville’s extra power where you can get someone to sat down in a court under oath and be asked questions by a KC, if they’d be. You’d want to make sure that you were really sure of what you’d done if you were in that situation.

Chris Baskerville
Yeah. And KC stands for King’s Council, meaning one of the most senior barristers that we have. That is correct.

James Flaherty
Yes. And then I’d imagine that you’d really want to be chasing some money to pay for a KC. That’s part of your day job is to get the money off people who shouldn’t have it and spread it fairly amongst the people who should.

Chris Baskerville
We had two matters recently and it’s almost like just a transfer of company assets. Company A is going with debt burden into Company B, the new co. They transfer. We then ask a whole series of questions, ask for records and all that. We’re not getting any cooperation from the directors. And then you’re sort of leaving us with no option other than to exercise this power that’s given to all external administrators. And of course, as soon as the summons arrive or as soon as they get word that a summons is coming, then all of a sudden they put their hair up going, oh, can we do a deal? But it’s kind of like, well, it’s a bit too late now because we’ve engaged council. We now want the evidence delivered in form that we can use as evidence. Back to the future, there’s that tipping point where you cannot turn the DeLorean back. It’s going.

James Flaherty
It’s going. You’re locked in. And it’s the sort of thing about like almost a poker analogy. I mean, the longer the person delays folding in front of you, they’ve just got to hope you just haven’t continued to get better and better cards in your hand. So if you’ve got something that’s a bad hand waiting to the last minute, isn’t the price too high? Well, I don’t know the rules of that game particularly, but I mean, like, yeah, the longer you leave it, the DeLorean light, the faster it’s going to go, the more the flames are in the ground. And like, you’re going to go somewhere into a place you may not want to go and have consequences you may not be able to control.

Chris Baskerville
Or using your Texas Hold’em poker analogy, let’s just say the liquidator goes all in, right? So in other words, the liquidator is now ready to show their cards and they’re ready to go all in. Are you prepared to go all in to try and challenge our position? Or are you going to wait until that moment then fold, in which case you’ve burned a lot of resources along the way to get to that position? Because, you know, quite often liquidators won’t fire up any kind of legal proceedings unless there is reasonable success there to winning, as in winning being getting the money or the property back for the benefit of the creditor body.

James Flaherty
And that’s an interesting thing, because if I was a devious type of cat, I might go, so doesn’t that just tell me that I’ve just got to be extra specially good at hiding stuff to make it just so hard that the liquidator thinks it’s not worth my while. But it doesn’t really work like that, does it? I mean, because at the end of the day, there are sort of facts. You know, the transaction occurred here, then the next day something else happened to it. Well, you can’t change that. You can’t go back and change things. It doesn’t matter how much money you pay somebody.

Chris Baskerville
But let’s go back to basics, James, and this goes back to almost the underlying message we’ve been trying to give people right from the beginning, is you’ve got to set your structure up right from the beginning. Work out which entity is going to own the assets, which entity is going to take the risk for trade, which entity is going to hold the intellectual property, whereas everyone just puts all their eggs in one basket. And then it’s not until you then reach that pressure point financially that you then take proactive measures to make sure the creditor body can’t get access to the assets. Whereas if you set yourself up structurally at the beginning, your options of succeeding really bad times improves and it’s almost done perfectly legally and can’t be challenged because the assets were never in the entity’s possession to begin with. That’s right.

James Flaherty
And that’s where we go back to your creditors, though, and say, I can do the best I can to get this money for you, but there’s a job for you as the creditor to, if you’re going to give credit, you need to understand how you’re secured.

Chris Baskerville
So you’re right. So let’s use that same analogy. Let’s assume company A is the asset holding company. Company B is the trading company. So in other words, that’s the one that’s going to take the risk. That’s your customer face-to-face compliance risk and all that. And company C is the employing entity for your staff, right? Your three separate entities, all with a specific function and all working kind of symbiotically. If the trading entity fails for whatever reason, and there’s multiple reasons that are not director’s fault, some of them are obviously, but that trading entity goes into liquidation, but it owns no assets. Typically, it might have interposed loans between the entities that it’s owed, but effectively, it owns no assets. So that means no assets have changed hands. No assets have been avoided as a creditor-defeating disposition because the company had no assets to begin with, right? So again, that’s the whole structuring element. And so then if that be the case, then we go back to the creditor side now. Now the creditor has made a cognisant decision to give credit to someone that might be an assetless entity, but that’s the risk now that’s on the creditor to assume. In which case, well, you took the risk and you didn’t get any other securities in any other form. You took the risk, you gave credit. Sorry.

James Flaherty
And that’s why directors get asked for director’s guarantees and all sorts of other stuff. I don’t know what’s in your entity, but I’m just going to hit you up. I’m going to hit you up personally.

Chris Baskerville
Or into company security. So okay, I acknowledge I’m dealing with company B, the trading entity, but if I’m going to give you credit, I want a security over company A who owns all the assets. That’s a commercial proposition.

James Flaherty
So I suppose going back to where we started with this, I mean, the gamers, the gamers often don’t have those kind of smart structures in place.

Chris Baskerville
No, they’re under pressure and it’s a panic.

James Flaherty
Right. And so the gamer has put the pressure on themselves already. They, mail mode employee, somebody to tell them something they want to hear, and then the jig is up. And the offer that might’ve been reasonable before, because of the expense, we’ve talked about circumstances, the amount, and it’s more that you’ve uncovered, says, well, hang on, there’s more here. So where do I have to stop? Maybe making you an offer isn’t going to be enough. I’ve got to play this out. Are there situations where directors have just been sufficiently bad that Asic have gone after them? And you must’ve heard those.

Chris Baskerville
Yeah. Yeah. So every liquidator logs reports with Asic on every job, right? So in other words, we’re basically saying, what have we uncovered? Is there anything here that could be criminal? Is there anything here that where civil breaches are there? Like they’re getting that information every job, right? And then occasionally Asic goes, we’re interested in this particular matter. Can you give us a deeper dive? So that’s what we affectionately call a supplementary report, which is, all right, we’ll do a deeper dive and come up with more evidence and more detail. But going back to the gamers, one thing that always stands out for me, and we see this quite often in a lot of our investigations, is when people are under pressure, they make mistakes. So if you sort of think about it, if you, before you start a business, set yourself up properly with thinking, rationalism, and got yourself all organised before you began, you have to invest a bit of time and money to make that happen, but much better scenario than when you are under pressure, because we know where the mistakes are going to be made.

James Flaherty
Yeah, okay. So the idea being that you can’t sort of unscramble the omelette two weeks before. We’ve often talked about what are the lessons in why do we do these podcasts? And I think it’s distilling the experience. And your day job is to see something that’s quite exceptional for lots of people. It might be something that happened in a person’s life only once or twice in their life to have to deal with you at a professional capacity. If they could distil some of that knowledge, but just do not be tempted to try and take what might look like an easy option or look like an option that sounds good to you because that’s what you want to hear.

Chris Baskerville
Well, get proper advice. Go and see a lawyer that’s going to give you advice in writing, that’s going to put their insurance behind the advice in case they’re wrong. Go and see the accountant and get the same sort of advice about what you should be doing. Get the proper advice from qualified people that are insured because if the advice turns out to be wrong, well, then you at least know you’ve got a fallback position. Now, that advice might not be what you want to hear, but it’s what you need to hear. You need to know this is the situation that you’re in. The way to look at it from this perspective very generally is this. A solvent company or a solvent person can do whatever they want with their asset. Give them away for a dollar if you like. Give each of the three kids a house. Sure, easy. You can do that. What changes is the moment the person or the entity becomes insolvent, which is the moment in time where you can’t pay your bills on time. What happens after that moment in time is capable of being voided and you’re effectively exposed the people you just gave that asset transfer to legal proceedings and it could be years down the track. You’ve put those people at risk.

James Flaherty
We’ll celebrate the people who have a go. We’ll celebrate the people who take a risk. Just tell them to just try and do it properly.

Chris Baskerville
Exit with grace.

James Flaherty
Thanks, Chris. A reminder that these podcasts are general in nature and do not constitute advice and they don’t take into account your personal circumstances. If you think, though, that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice.

Episode 103 Transcript

James Flaherty
Okay, the good guys, you’ve sniffed out a gamer. Tell me what happens. Welcome back to the Sounds of the Baskerville. I’m James Flaherty, here with Chris Baskerville. Morning, Chris.

Chris Baskerville
‏Fire Alarm edition.
James Flaherty
Yes. Chris, last episode, we talked about the gamers. We talked about the people who’re trying to play the shell game or move the documents around or make a debt or a liability that wasn’t really there and so they try and get it around you. So, one of the questions is, what happens when the good guys come and break the whole thing up? Is that kind of a good place to go from here?

Chris Baskerville
Well, we talk about the systematic advice around illegal phoenixing, which is somebody, obviously not us, but somebody is going to deliberately and systematically walk directors through a process that effectively moves assets from company A to company B or wherever the assets go to the detriment of the credited body that sits behind those assets. So, what the ATO and ASIC and even FEG, which is the Fair Entitlements Guarantee, because they’re one of the impacted government departments, is they formed a task force, the Illegal Phoenix Task Force, and their job was to work out who are these people and then raid their offices. Right. Basically doing what we would ordinarily do, except they’ve got guns and authority.

James Flaherty
Right. Although we have talked in a previous episode, it might have been company 57 where you had to go in with some pretty heavy stuff for some people who you just wanted to make sure that it was going to be okay.

Chris Baskerville
Yeah. Yeah. Well, I think that was the Sheriff Department and Queensland Police had to enforce that. Yeah, yeah.

James Flaherty
So, your life’s got some interesting parts. Okay, the good guys, you’ve sniffed out a gamer. Tell me what happens.

Chris Baskerville
Again, the directors are getting the advice they want to hear and so they go, great, you’re telling me what I want to hear. Here’s the money up front, because these dodgy advisors don’t invoice you on a monthly basis or invoice you at the end. They want their money up front.

James Flaherty
Illegal at Phoenix advice, invoice number one.

Chris Baskerville
Correct. Correct. The advice never will be put in writing, is my suspicion. And so, we walk through the series of transactions. The director walks away with the new company, with all the assets of the old company. All the creditors of old company are now trapped by the liquidation. We become the liquidator. The director goes merrily on their way. They think that after a year or two, that they’re like, that’s it. We’re done. We’re dusted. Thank you, dodgy advisor, for helping us walk through here. We’re feeling very comfortable. And then next minute, in comes a claim or a summons from colleagues in my industry. And then all hell breaks loose on their side.

James Flaherty
That’s right. And so, unhappy director, I thought I paid you guys to make this all go away. And the dodgy director goes, well, you know, we just told you what could happen. This has happened. You’re on your own.

Chris Baskerville
Yeah. Or they tell us that the company ceased trading. All the assets have all been sold before your appointment. So, here’s your upfront contribution to kickstart the job. And of course, it’s never enough compared to the work that we actually do. It’s just really a contribution. And through asking a series of questions and getting all the reports in and all the evidence and all the records of the company we work out, well, hang on, these assets have basically shifted from old code to new code, all undervalued or no considerations being paid. And you’ve made off like abandoned.

James Flaherty
You’ve had people in your office who just kind of do this for their day job, sifting through the tea leaves and documents and going, hello, what have I found in here?

Chris Baskerville
Well, it even goes one step further than that. So, I think to be a really good investigator or even potentially a good baron, you need an element of autism. I don’t joke about it. And we think autism is actually a superpower when it’s harnessed correctly. And one of the things that would trigger one of these investigators or one of the barristers to ask more questions is they now go through the detail of the evidence in fine tooth and put the whole timeline together. And we would do the same and then go, right, what other evidence do we need? We then go and hunt it down and get it. And then all of a sudden, the story appears.

James Flaherty
Yeah. We are talking about people who are on the spectrum and obviously they’ve got challenges they’ve got to deal with. But that is one of those situations where an unusual capacity to be able to disseminate detail and to be able to deal with that kind of thing. And remember it.

Chris Baskerville
Yeah. I need to write down the timeline of events in order, right?

James Flaherty
Yes. So, you and I don’t have the capacity to juggle that kind of stuff in our brains, but we are very pleased that we do know people who do.

Chris Baskerville
And I think that’s the important part is that in part of our hiring, particularly those high levels and who I engage in council is have they got that ability to figure it out or at least see what we see. Like, can you see the story we’ve got with all the evidence we’ve got? Yes, I see the story. What could make this story better? Grab this evidence. Great. They’re the people that we work with.

James Flaherty
And we’ve talked about this before, not so much in this kind of detail, but, okay, is there a recent example where you’ve been able to crack something open? Were any of those things we talked about when we did our live show in Bali or any of those kind of matters that you could talk about?

Chris Baskerville
Yeah, well, I mean, these matters pop up all the time. So, it’s like, you know, our bread and butter is just unpicking these transactions. But one of the greatest tools that any external administrator gets is the ability for what’s known as public examination. I think that’s one of the greatest tools that we’ve got. I think it’s potentially underutilised a lot by our profession, but effectively it is going back to those draconian days of old where the courts get involved because we need the help to unpick the evidence or to collate the evidence because often some people are non-cooperative with giving us the evidence that would show that they actually have done something that was a bit naughty. So, we kind of need to pry it out of their hands. And so, if you’re getting a summons, means you are now, by order of the court, have to deliver records to the court and get ready because you’re about to get under the witness box and answer questions.

James Flaherty
And we’ve talked about your special powers before those public examinations that are kind of Chris Baskerville’s extra power where you can get someone to sat down in a court under oath and be asked questions by a KC, if they’d be. You’d want to make sure that you were really sure of what you’d done if you were in that situation.

Chris Baskerville
Yeah. And KC stands for King’s Council, meaning one of the most senior barristers that we have. That is correct.

James Flaherty
Yes. And then I’d imagine that you’d really want to be chasing some money to pay for a KC. That’s part of your day job is to get the money off people who shouldn’t have it and spread it fairly amongst the people who should.

Chris Baskerville
We had two matters recently and it’s almost like just a transfer of company assets. Company A is going with debt burden into Company B, the new co. They transfer. We then ask a whole series of questions, ask for records and all that. We’re not getting any cooperation from the directors. And then you’re sort of leaving us with no option other than to exercise this power that’s given to all external administrators. And of course, as soon as the summons arrive or as soon as they get word that a summons is coming, then all of a sudden they put their hair up going, oh, can we do a deal? But it’s kind of like, well, it’s a bit too late now because we’ve engaged council. We now want the evidence delivered in form that we can use as evidence. Back to the future, there’s that tipping point where you cannot turn the DeLorean back. It’s going.

James Flaherty
It’s going. You’re locked in. And it’s the sort of thing about like almost a poker analogy. I mean, the longer the person delays folding in front of you, they’ve just got to hope you just haven’t continued to get better and better cards in your hand. So if you’ve got something that’s a bad hand waiting to the last minute, isn’t the price too high? Well, I don’t know the rules of that game particularly, but I mean, like, yeah, the longer you leave it, the DeLorean light, the faster it’s going to go, the more the flames are in the ground. And like, you’re going to go somewhere into a place you may not want to go and have consequences you may not be able to control.

Chris Baskerville
Or using your Texas Hold’em poker analogy, let’s just say the liquidator goes all in, right? So in other words, the liquidator is now ready to show their cards and they’re ready to go all in. Are you prepared to go all in to try and challenge our position? Or are you going to wait until that moment then fold, in which case you’ve burned a lot of resources along the way to get to that position? Because, you know, quite often liquidators won’t fire up any kind of legal proceedings unless there is reasonable success there to winning, as in winning being getting the money or the property back for the benefit of the creditor body.

James Flaherty
And that’s an interesting thing, because if I was a devious type of cat, I might go, so doesn’t that just tell me that I’ve just got to be extra specially good at hiding stuff to make it just so hard that the liquidator thinks it’s not worth my while. But it doesn’t really work like that, does it? I mean, because at the end of the day, there are sort of facts. You know, the transaction occurred here, then the next day something else happened to it. Well, you can’t change that. You can’t go back and change things. It doesn’t matter how much money you pay somebody.

Chris Baskerville
But let’s go back to basics, James, and this goes back to almost the underlying message we’ve been trying to give people right from the beginning, is you’ve got to set your structure up right from the beginning. Work out which entity is going to own the assets, which entity is going to take the risk for trade, which entity is going to hold the intellectual property, whereas everyone just puts all their eggs in one basket. And then it’s not until you then reach that pressure point financially that you then take proactive measures to make sure the creditor body can’t get access to the assets. Whereas if you set yourself up structurally at the beginning, your options of succeeding really bad times improves and it’s almost done perfectly legally and can’t be challenged because the assets were never in the entity’s possession to begin with. That’s right.

James Flaherty
And that’s where we go back to your creditors, though, and say, I can do the best I can to get this money for you, but there’s a job for you as the creditor to, if you’re going to give credit, you need to understand how you’re secured.

Chris Baskerville
So you’re right. So let’s use that same analogy. Let’s assume company A is the asset holding company. Company B is the trading company. So in other words, that’s the one that’s going to take the risk. That’s your customer face-to-face compliance risk and all that. And company C is the employing entity for your staff, right? Your three separate entities, all with a specific function and all working kind of symbiotically. If the trading entity fails for whatever reason, and there’s multiple reasons that are not director’s fault, some of them are obviously, but that trading entity goes into liquidation, but it owns no assets. Typically, it might have interposed loans between the entities that it’s owed, but effectively, it owns no assets. So that means no assets have changed hands. No assets have been avoided as a creditor-defeating disposition because the company had no assets to begin with, right? So again, that’s the whole structuring element. And so then if that be the case, then we go back to the creditor side now. Now the creditor has made a cognisant decision to give credit to someone that might be an assetless entity, but that’s the risk now that’s on the creditor to assume. In which case, well, you took the risk and you didn’t get any other securities in any other form. You took the risk, you gave credit. Sorry.

James Flaherty
And that’s why directors get asked for director’s guarantees and all sorts of other stuff. I don’t know what’s in your entity, but I’m just going to hit you up. I’m going to hit you up personally.

Chris Baskerville
Or into company security. So okay, I acknowledge I’m dealing with company B, the trading entity, but if I’m going to give you credit, I want a security over company A who owns all the assets. That’s a commercial proposition.

James Flaherty
So I suppose going back to where we started with this, I mean, the gamers, the gamers often don’t have those kind of smart structures in place.

Chris Baskerville
No, they’re under pressure and it’s a panic.

James Flaherty
Right. And so the gamer has put the pressure on themselves already. They, mail mode employee, somebody to tell them something they want to hear, and then the jig is up. And the offer that might’ve been reasonable before, because of the expense, we’ve talked about circumstances, the amount, and it’s more that you’ve uncovered, says, well, hang on, there’s more here. So where do I have to stop? Maybe making you an offer isn’t going to be enough. I’ve got to play this out. Are there situations where directors have just been sufficiently bad that Asic have gone after them? And you must’ve heard those.

 

Chris Baskerville
Yeah. Yeah. So every liquidator logs reports with Asic on every job, right? So in other words, we’re basically saying, what have we uncovered? Is there anything here that could be criminal? Is there anything here that where civil breaches are there? Like they’re getting that information every job, right? And then occasionally Asic goes, we’re interested in this particular matter. Can you give us a deeper dive? So that’s what we affectionately call a supplementary report, which is, all right, we’ll do a deeper dive and come up with more evidence and more detail. But going back to the gamers, one thing that always stands out for me, and we see this quite often in a lot of our investigations, is when people are under pressure, they make mistakes. So if you sort of think about it, if you, before you start a business, set yourself up properly with thinking, rationalism, and got yourself all organised before you began, you have to invest a bit of time and money to make that happen, but much better scenario than when you are under pressure, because we know where the mistakes are going to be made.

James Flaherty
Yeah, okay. So the idea being that you can’t sort of unscramble the omelette two weeks before. We’ve often talked about what are the lessons in why do we do these podcasts? And I think it’s distilling the experience. And your day job is to see something that’s quite exceptional for lots of people. It might be something that happened in a person’s life only once or twice in their life to have to deal with you at a professional capacity. If they could distil some of that knowledge, but just do not be tempted to try and take what might look like an easy option or look like an option that sounds good to you because that’s what you want to hear.

Chris Baskerville
Well, get proper advice. Go and see a lawyer that’s going to give you advice in writing, that’s going to put their insurance behind the advice in case they’re wrong. Go and see the accountant and get the same sort of advice about what you should be doing. Get the proper advice from qualified people that are insured because if the advice turns out to be wrong, well, then you at least know you’ve got a fallback position. Now, that advice might not be what you want to hear, but it’s what you need to hear. You need to know this is the situation that you’re in. The way to look at it from this perspective very generally is this. A solvent company or a solvent person can do whatever they want with their asset. Give them away for a dollar if you like. Give each of the three kids a house. Sure, easy. You can do that. What changes is the moment the person or the entity becomes insolvent, which is the moment in time where you can’t pay your bills on time. What happens after that moment in time is capable of being voided and you’re effectively exposed the people you just gave that asset transfer to legal proceedings and it could be years down the track. You’ve put those people at risk.

James Flaherty
We’ll celebrate the people who have a go. We’ll celebrate the people who take a risk. Just tell them to just try and do it properly.

Chris Baskerville
Exit with grace.

James Flaherty
Thanks, Chris. A reminder that these podcasts are general in nature and do not constitute advice and they don’t take into account your personal circumstances. If you think, though, that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice.

Episode 104 Transcript

James Flaherty
Let’s talk about a good liquidator. What do you think a good liquidator actually is? Welcome back to the Sounds of Baskerville. James Flaherty here with the hound. Chris, morning.

Chris Baskerville
Good morning, James.

James Flaherty
It’s really good to be back. So your friend Gareth put out some numbers recently about who are the top liquidators in the country by number and type. And I suppose the question that I wanted to pose to you in this episode is, what makes a good liquidator? So shout out to a friend of the program and fellow Insolve panel member, John Morgan. I think he’s number one for appointments on that. Yeah. So clearly a man of steel and all over everything. Well done, John. So good operator, does a good job, got a great team around it. But there’ll be people who aren’t even in the top 10 who you would watch out for as being a good liquidator or a good operator. So let’s not just talk about the number. Let’s talk about a good liquidator. What is a good liquidator?

Chris Baskerville
Well, look, I’ve been in the game 20 years. I’m still trying to figure that out too. Yeah.
Looking at it, I’ve got to be good at everything. I think makes the ideal insolvency practitioner, right? And I guess, what does that mean? The principal role of why we exist as a profession is one, is to try and save an existing business and keep it in operation, albeit it might have to be restructured at a financial board, whatever level, but it’s to keep business alive, employees engaged, taxes paid. That’s the principal role. If that can’t be achieved, then it is an efficient and orderly winding up. And in other words, get those assets into the hands of people that can do a better job, get the employees into somewhere else where they’ll be more effective, basically dissolve the existing entity and let’s just move on.

James Flaherty
So it’s interesting because your job title is liquidator. So it kind of sound like you kind of like got this lick on you that says, I’m going to liquidate you. If you watch any sort of Hollywood movie or something from France, especially, usually it would end up pretty miserable for most of the people at the other end of it. Whereas in this particular case, it’s not. So in your other hand, as a bankruptcy trustee, the people are more in your hands a little bit or the estate’s in your hands. Is that a better title for what it is that a liquidator actually does or like a fixer-upperer?

Chris Baskerville
Yeah. It’s a funny title. And to get context, there’s roughly about 640 liquidators in Australia at this point in time, and there’s about 200 bankruptcy trustees. So you got 600 in one camp, 200 in another. And I think it’s a small percentage that have both combinations.

James Flaherty
There is a subspecies of both, isn’t there?

Chris Baskerville
Yeah, correct. And so I happen to be one of those parties that has both. And a few of my colleagues in the gang that I admire and respect also have both. But some people deliberately choose one or the other, mainly leaning towards corporate, obviously. Corporate’s very black and white, whereas I find bankruptcy element is an element of grey and a little bit of discretion. So in other words, a trustee does have that power. It’s got the person’s livelihoods in their hands, and there is some discretion to be.

James Flaherty
So the corpus is an actual person, even though the estate is being managed effectively. You still got to remember that there’s an actual person.

Chris Baskerville
Yeah. Well, no matter which way we go about it, there’s always human stakeholders everywhere. So in corporate and bankruptcy. And part of always the challenge is how do we deal with the human element of anyone. But with bankruptcy, it gets super personal because it is someone’s house. It is someone’s car. It is someone’s income. So it really hits home.

James Flaherty
So when we go back, we’re probably today talking about what makes a good liquidator. So that’s the corporate job. And I don’t think there would be such thing as a perfect animal unless you tried to build a liquidator to perfection from scratch, because there’s too many variables. There’s too many points of view because you’ve got stakeholders. It’s almost inevitable some will be less happy than others.

Chris Baskerville
Well, I say this all the time. I said, no two liquidators are created the same. So every liquidator has to follow the same rules, has to be registered the same way, has to tick all the boxes in order to be registered and maintain registration. Well, that’s some jazz, but they are humans themselves. And so two different liquidators looking at the exact same situation may make two different decisions. Now, neither decision might be right or wrong. And as long as it’s within the confines of commerciality, legal, morally, this decision makes sense. Does it exacerbate the public interest? Does it result in returns to creditors? As long as that decision has been made within the scope, you generally get the green light. No one really has a criticism, but it is possible for two liquidators to look at the same situation and two different decisions will be made. And quite often, as an example, and lawyers have said this to me, they said, look, when stakeholder engagement is critical and it’s the people that you need to rally around a business, particularly when there’s a trading element to it, they typically will get that job my way. And when you need that sort of, nah, we just need to go and sledgehammer people to get money back and it’s all fierce and ugly and fighting, it’ll go to a different style of liquidator.

James Flaherty
Is there a moral hazard in that or is it more about just the right person for the job?

 

Chris Baskerville
Definitely. I think I find we’re horses for horses. So it’s just the same way we sort of pick our lawyers and accounting and advisors. I find I’m usually one of three liquidators on any particular panel with lawyers. So a sophisticated lawyer in our game understands that, well, they’ll have three different liquidators for three different purposes, whereas the accountants typically only have one.

James Flaherty
I suppose that the bigger firms might have, especially if there’s more than one partner, they might have a person who they each go to. I think one of the things that I started when we set up the Insolve panel was just to make sure that people who are going to liquidators, and part of the reason why we focus on the liquidator person or the trustee of the person is because of who you are and what you represent and the values you bring, as opposed to the best person who has the best golf day. That shouldn’t be the criteria by which someone’s livelihood is referred purely to because of your golf day. It should be part of the decision, like you said. So when we’re talking a person who I occasionally has things that they need to refer to three liquidators, they’ve got a panel of three in their mind. This sort goes here, that sort goes here, and then somebody where I’m going to get someone whose got to do all the people’s people stuff goes to Chris Baskerville at Jirsch Sutherland. So then you go, okay, well, that’s a case in point. Panel of three, he chooses you because he knows what it is that he needs you to do. It’s about getting the right outcome, but it’s doing what you’ve got to juggle. Chris can juggle the people.

Chris Baskerville
Yeah, well, it’s when there is a business and this business potentially needs to continue to trade for whatever various reason. Stakeholders are potentially at war with each other and whoever has to go in there is going into a very highly sensitive, very emotional issue and you need that stakeholder engagement, like the human element. Like your classic example was getting parachuted in via court order to run effectively a NDIS that provided 24-hour services to people with high needs. Now, there is humans that have to be inside that property. There are humans inside the property that need the help. It’s a very sensitive industry. In other words, everyone’s emotions are very, very sensitive because they’re very caring and selfless people. You contrast that to our profession where hearts of black steel, zero empathy. It did clash a few times because we were just so, just get this done, don’t muck around and the others are like, no, but we need to care about these fields. That caused a bit of friction sometimes. I remember in that same scenario is the director trying to basically convince me that this business doesn’t exist without us. This is probably where our cold black hearts come from and our tactical empathy that we deployed from time to time. We’d already worked out where was the important parts of the business and we’d already started to secure those relationships before the director made that call. Effectively, when the director said, well, if you’re not going to suffer my ultimatum, I’m out, we said, goodbye.

James Flaherty
I think that’s the thing that is about investigations. You go back to the question, what does make a good liquidator? You’re talking about somebody understands the human side, does the work, investigates, half the time you’ve got to do it with no money. That’s always interesting. Then there’s the fact that you take personal liability on for some of these things. You do have to have a certain kind of fortitude.
Chris Baskerville
Here’s a good quality I think would resonate. The person needs to be able to solve complex problems at times of supreme stress where time is against you. We don’t have the benefit of time. Everything we’re doing is always on the clock, under pressure, and we miss deadlines, we get penalised for that. To be able to come up with practical solutions at times where there’s super stress running around the place under those conditions, it’s probably what weeds out those that can’t exist in our industry and those that actually stay. Those that stay and appreciate that scenario, I think it resonates with them. I know at my best, it’s really time critical, under pressure, and going at 100 miles an hour, and just the quick decision making that needs to be made, usually very intuitively.

James Flaherty
I suppose some of that’s also about team, because whilst you are very good at understanding the deadlines and process, are you so good at actually filling out the forms or do you just need to make sure the forms are filled out?

Chris Baskerville
Success is a team sport. That’s the important point to know. Any stories that are lamented in this podcast series where I’m my make out that, I’m the champion, it can only happen because I’ve got really, really awesome people behind me, including even my greatest staff in other states and my business partners that basically make us look good. Effectively, I employ people to make up for all of my weaknesses. I know where my strengths are and I play those cards well, but I also know where the holes are. That’s great. I’ve got people that take care of those elements. What do they say? They say integrity is doing the right thing when no one’s watching. That’s integrity. I think the challenge we have sometimes is we do come across scenarios and a decision has to be made. I remember having this discussion with my senior team members and I said, well, what is the right thing to do in this scenario? Sometimes the right thing to do doesn’t always benefit us, comes at sometimes a bit of detriment, but if the right thing to do is the right thing to do, you do it. The perspective of a good liquidator depends on the eye of the beholder. From the creditor perspective, they want a liquidator that they think is going to hunt down every possible transaction, avoidable, try and prosecute every director under the sun, throw them in jail. On behalf of the credit body, that’s what we want to see. That’s their version of a good liquidator or alternatively, get some or all of our money back. From a director perspective, the perception could be one of two things. One is a good liquidator that can come into this business, help me restructure it so it lives again. That’s valuable. If you’re a director that is really opposed to doing the right thing and just wants to be so selfish and you only want to serve your personal interest, your version of a good liquidator is going to be different.

James Flaherty
That probably isn’t going to talk to you.

Chris Baskerville
I’m not the huckleberry.

 


James Flaherty
You’re really right. It is a bit on the behold, but by the same token, if I look at the people in your profession, the ones that I meet, you’re exposed to controversy. You’re exposed to argument. You’re exposed to different points of view. There will be people that have different views on how people do their job. That’s probably because of the nature of the complexity of the world in which you live, I think. But I think you’re talking about good things, being guided by what is the right thing to do, making professional judgment and being able to stand by it and have a basis for the judgments that you make and being prepared to defend your position.

Chris Baskerville
That’s the sort of test. Can I sleep at night making that decision? I’ll give you a quick story. Newly minted liquidators get found out by those that want to influence that newly minted liquidator to take certain styles of appointments. It’s usually disguised as, hey, I’m going to load you up with all these jobs. You’re going to make a million dollars in the first year. I’ve got your back and congratulations for being a liquidator. You’ve made it. You’ve made the top of the pipe, but don’t ever question anything in these files. Don’t turn the locks over. If you do find something, you must come back to me, the referrer, because I’m going to be the gatekeeper between you and the director. That is such an easy trap I find newly minted liquidators to fall into because newly minted liquidators are so desirous of creating value for themselves and value for the firm or their own business that they want to look good. But what you have to do is you’ve got to sacrifice yourself to turning a blind eye when it’s required, being told what to do, having the influence that one person can influence so much of your revenue, and you’re going to be behoving to their wishes.

James Flaherty
The regulator is alive to that risk. Some good people around town have had a fair bit of bark knocked off through that bitter experience and to their credit have lived to tell the tale. I suppose that’s part of what I was thinking about is because you’ve had a controversy or the court case has gone against you or you’ve learned the lesson the hard way, then that in some ways is a pathway to being a good liquidator, isn’t it? Because you’ve seen how bad it can be.

Chris Baskerville
Yeah. Look, I’ve always said to even my own team, I said, failure is your greatest teacher. And I hate failing. I hate losing. Trying to put a proposal doesn’t get up. If you’re on top, it doesn’t get up because you just invest so much in trying to help a business and try and save it. You win in court, you lose in court. I really hate that. But the important point is to learn, well, what are the lessons that led to that? How did you fail? And I know my sparkling neurodiverse brain is reverse engineering all of that to then go, oh, I’ve worked out where the mistake was made. And you just don’t do it again.

James Flaherty
So I think congratulations again to John and also Jarvis, are they? Because they were joint number one. But the key point was though that good guys, good operators, it’s not just about the numbers though. It’s about how you bake the cake, isn’t it a little bit?


Chris Baskerville
It’s a little bit like that. That report is really a vanity check. If you look at it from our perspective, in terms of, yes, it shows you the number by number of appointments. But if you look at it from this perspective, Virgin Airlines, when it went down, just that one job was nearly $13 million for one firm. So numbers doesn’t always translate into dollar value. And I would say that there are hugely successful liquidators that aren’t being recognized in that top 20. And just the way they conduct business, the wealth they’ve generated, the smarts, their network is humongous. They’re not in the top 20, but they’re people that I would keep one eye on as respectful competitors and colleagues. Good people in the industry.

James Flaherty
Appreciate your time. Thanks for that Chris. A reminder that these podcasts are general in nature and do not constitute advice and they don’t take into account your personal circumstances. So if you think though that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice.

 

Episode 105

James Flaherty
Welcome back to the Sounds of the Baskerville. I’m here with Chris Baskerville, the Hound. How are you, Chris?

Chris Baskerville
Good afternoon, James. Good to be back.

James Flaherty
It’s good to have you back on your own vodcast. And we’ve been sort of filming a few sort of post our 100th episode. And we thought about, you know, this one might be something around some of the funny stories that we’ve seen, but also, and maybe we’d start first with people, whilst you’re an awesome person at what you do, sometimes companies and directors aren’t ready to go straight to you. So we thought we’d bring in Hansel Hizola from Jirsch Sutherland, your fellow colleague of yours, and Hansel, or H, as your colleagues call you.

Hanzel Hizola
H, that’s what they call me.

Chris Baskerville
The big H.

James Flaherty
Good to see you, Hansel. Thanks for joining us.

Hanzel Hizola
Thank you. Thanks for having me.

James Flaherty
So then let’s throw straight to you then. Well, you know, how many times do you see a company that might be eligible for a small business restructuring that kicks all the boxes, like under a million dollars, paid all of the, you know, got all the tax lodged, all completely rigid edge? Is that what, 100 out of 100 would be?

Hanzel Hizola
Well, you asked that question because I’ve actually got three right now that’s on the pipeline. They pay the SBR practitioners fees and our trust account. We’re just waiting for the accountants to complete the business activity statement and the income tax, all the ATO forms that need to be lodged. And which is, which actually I just received those forms and the go ahead from the directors this morning, and the accountants also confirmed that everything is prepared, ready to go. So you might have to start that tomorrow? So yeah, so that’s just the one. And the other one is, I’ve been speaking to this guy, director of a couple of restaurants on the Gold Coast that came to me with over a million dollars worth of debt. And he’s trying to reduce that debt so that he can enter into SBR. They’re not ready yet. I think he’s got also other projects that he’s prioritising before the SBR. And I’ve already told him that the million dollars in the ATO is going to come knocking on the door pretty soon.

James Flaherty
You’d sort of think that based on some of our previous conversations, Chris, that you owe the tax man a million dollars, that wanna be some pretty important projects, Hansel, I reckon.

Chris Baskerville
That’s in the strike zone of action. Like I think we’re saying, and don’t take this as a gospel, but I think if you go half a million dollars and above, you’re riding the gun sights for firmer action. So if it’s a couple of million bucks, I think you’ve got to get your house in order real quick.

James Flaherty
Yeah, yeah. And it’s got to be ready for directors.

Hanzel Hizola
And the fact of the matter as well, James, is that the ATO is now looking at other entities that the director is involved in. If they have outstanding forms as well that hasn’t been lodged, they consider that would adversely affect their decision to accept an SBI proposal.

James Flaherty
Oh, so you’re making life harder for yourself if you haven’t done any paperwork.

Hanzel Hizola
And also the fact is that other entities that are probably… Because the first question you ask is, what happens to that million dollars, right? And then if the ATO then finds out that there’s another entity that’s propping up another restaurant, then you ask that question, right? And then they’ll take that into consideration when they’re making a decision on whether to accept or reject an SBR proposal.

James Flaherty
And what does your heart say when you say, well, I didn’t pay you a million dollars because I used it to prop up my other enterprise? The ATO, you’d go, well, why? That’s my money?

Hanzel Hizola
Yeah. And our job as a practitioner is to explain to the ATO the background of that million dollar debt. And then if we cannot explain that properly to them, of course, they’re going to start asking the questions. What happened to those million dollars?

Chris Baskerville
And in SBR, we always said that two things. One, the business had to be viable. So whatever it is that we’re saving has got to go into perpetuity. We’re not saving a horse with no legs and a head missing. And number two, there had to be an extraordinary reason why you’re actually asking for SBR assistance. And obviously COVID was the big one, right? And that was the main reason, but you can’t use COVID as an excuse now in 2025. It’s like people still relying on the floods in 2011. We can’t use it as an excuse anymore. So it has to be an extraordinary reason. And frankly, I think smart business owners, when they receive any money into their bank account, will portion a bit off for taxes and others don’t. They just spend it all. And that’s the trap that most business owners, particularly new in that first 18 months to two years, get caught. They spend all the money. But what happens is with the tax cycle, which your accountant can explain for you, you end up getting caught having to pay back old taxes and future taxes at the same time. And that’s the cashflow trap.

James Flaherty
Yeah. And so I follow that logic of that. But what I should be doing, Hansel, is I should be, even if I’m not paying, which I should be, I should at least be telling the taxman what I owe them. The taxman should still be getting my, I should say, here’s my BAS. Because if I don’t, it’s a world of hurt later on when you’ve got to ask the accountant and say, you know, all those 12 months worth of BASes you’ve been chasing, I need them now. Because that puts a lot of pressure on them.

Hanzel Hizola
Oh, absolutely. Because if you don’t, again, if you don’t lodge a business activity statement, you’re going to get pinged as a director with the director’s penalty notice.

Chris Baskerville
And it’ll put you on the hook.

Hanzel Hizola
Yeah, it’ll put you on the hook personally.

Chris Baskerville
And usually if you have to commit to having to lodge all those returns in a very, very short period of time, we say that an unofficial tax gets added to your accounting bill called the dickhead tax, which is we’re going to sting you a price because you have been tardy and you haven’t done your homework. So the cost is going to go up.

James Flaherty
Do you see businesses that you go, you know what, with a couple of small changes, this is actually, could actually be a decent show. Have you seen some of those and some of your experience down the Gold Coast? You’d see all sorts of things on the Gold Coast, but you know.

Chris Baskerville
It’s a sunny place for shady people.

James Flaherty
If you just did X, Y and Z, have you seen any of that sort of turnaround? You sit there and go, hang on, that’s a turnaround job. It’s not just like fix me first. But have you seen anything like that?

Hanzel Hizola
There’s quite a few of them. Okay, I’ll give you another example. Another restaurant. She came to me last week. She was crying, very distressed. Yeah. And she came to me with the director’s penalty notice dated May 2024. And she told me, the other business activity statements and ATO forms are ready to be lodged by having lodged them.

James Flaherty
Right.

Hanzel Hizola
And so I said to her, you’re going to have to stop trading because you will be trading insolvent. You’re just going to have to look after yourself because with this $200,000 DPN, most likely you’ll probably owe by the time you lodge the business activity statement, you’ll owe the ATO about $400,000. So see straight in the business. It’s entirely up to you. You’re still the director of the company, but I’m letting you know now that if you continue trading this company, you’ll be trading insolvently.

James Flaherty
So that’s a good call. That’s not turnaround. That’s, hey, and you didn’t want to see, we wouldn’t want some of the people who give bad advice, the untrustworthy advisor mind, tell them, oh, we’ll do this. We’ll try that. All care. No responsibility. The most responsible thing is to rip off the Band-Aid, isn’t it?

Hanzel Hizola
Exactly. And then that’s when I told her the ramifications of being bankrupt because she was all distressed, crying, almost suicidal, as she was telling me. And then she came out of the boardroom, she came out of the meeting and she said, oh, with a smile on her face. And I’m so happy. I’m going to go bankrupt.

Chris Baskerville
You’ve gone through seven phases of grief in like 20 minutes. Right.

James Flaherty
This guy’s a master.

Chris Baskerville
We’ve said this before, is that you’d rather be slapped across the face with the truth than kiss with a lie. And, you know, I think we’re professional face slappers. And that is our job. Like our job is to inform a debtor or a director. These are the consequences for the actions. And we’re not going to sugarcoat it. And we’re not going to tell you anything that is untrue. You just, but you need to hear this. And some people don’t like hearing that.

James Flaherty
No. So is that river in Egypt that sort of denial?

Chris Baskerville
Denial.

James Flaherty
Yeah. So I thought a great opportunity to share with you some of the stories that we’ve talked about over a hundred and something episodes. But, you know, our favourite kind of the stories that we think are like stuck in our minds as we’re talking. So I like the guy who had the science experiment in the banana farm. That was quite an interesting plantation. But in terms of.

Chris Baskerville
Yeah, he was creating liquid fertiliser in the back of a chook shed. Yeah, that was the guy.

James Flaherty
Yeah. And then you had to try and chase some horses. Some guy had horses in a paddock. So, you know, how do you chase? Where were the horses and where was the paddock?

Chris Baskerville
My colleagues in Melbourne are chasing cows somewhere. So they’ve got this massive farmland. They’re trying to find out whose cows are what and the branding. It’s a milking cow. Yeah. I remember there was a guy in Varel and it was a banana plantation or so we thought. What he was really doing was running cocaine up and down the eastern seaboard using banana boxes. And so he ended up getting arrested. No surprise. And then the Queensland government put proceeds of crime charges on all of the assets. So they go and seize everything. And they even did it over the land as well. And we tried to sell the land. And on there was a cow missing all of its teeth. We didn’t know what to do with it. And so we sold the cow as part of the property.

James Flaherty
Oh, sort of like a toothless cow. Can you chop a toothless cow as an egg? Can you chop that handsome? And it was mindful of the fact that, yeah, so you’re operating on the Gold Coast and, you know, there are some great entrepreneurs down there and then there are some other ones. And so you get to see all kinds everywhere. So didn’t our friends at Creditor Watch kind of isolated South East Queensland Gold Coast? Massive hot zone. Massive hot zone for insolvency.

Chris Baskerville
And I’m pretty sure every unregistered management investment scheme is conceived somewhere in that South East Queensland.

James Flaherty
And then is there anything really sort of sticks to mind? You can’t top the toothless cow. You can’t topless the banana plants.

Hanzel Hizola
Not at this point, though, James, because we’ve only been there for what, last two years in the Gold Coast. We’re making strides, but I will tell you a story when we do come up with one.

James Flaherty
OK, so we’ll get you back, though, so that you don’t notice them. The H has got something to see if we can top. So we’ve had the sawmills with equipment that’s almost.

Chris Baskerville
It was obsolete and importantly, none of it had safety guarding on it. So anybody could have lost an arm, a leg, and it was just amazing no one did. And it was just one of those failures to adapt. And it was one of those multi-generational businesses that started with great granddad with a handsaw chopping down trees that then moves into a bit more automated sort of processing. And then the grandchildren inherit the business, but there’s no IT, there’s no computer systems, there’s no nothing, all operated on paper. Yeah, that was crazy. But after Cyclone Yazzie hit the Port Cardwell, and we had all these private citizens living in this estate, and the sewage treatment plant was privately run. So Queensland didn’t want anything to do with it because it had no… It’s not our problem. Yeah, it’s not our problem. That is your problem. And we had this madman running the sewage treatment plant. I reckon he was sniffing all the chemicals that go into the sewage treatment plant because the guy was trying to wrestle up chickens. And he discovered that there was a crocodile in the local creek and he was throwing the chickens into the creek to feed the crocodile because what he was really trying to do is train the crocodile to have a crack at some of the residents that he didn’t like in the estate.

James Flaherty
I reckon that’s close to the winning story. Isn’t that closer to the winning story? I mean, in terms of the ones, and maybe you’re the arbiter of this, it’s the most tangential to liquidation on the face of it where you don’t these things end up where they do. We’ve had a Ponzi scheme where there was a hairdresser and a concreter were on the board of the investment advisory.

Chris Baskerville
Yeah, Python advisors.

James Flaherty
And so there’s lots of ways that people can find how to lose money. The most important thing we often lament is that they don’t just lose theirs, they lose the money of others, which is the sort of the, how do you catch them in time and how do you sort of prevent them from sort of, you know, taking something which is not theirs? But, you know, how many of these kind of crazy stories come from, you know, honest endeavour gone wrong versus something that just was always going to be a bit out there?

Chris Baskerville
Yeah. Yeah, that’s a good question. Because, you know, it’s perception. So I may be crazy enough to create a machine that turns liquid fertiliser from, you know, pineapples, and I think I’m on track. I think I’m doing the right thing. To everybody else, they think you’re a mad scientist in the middle of a shed, you know. So, yeah, it’s all a matter of perception.

James Flaherty
Okay, so I think the story goes that you’ve got people who try and make a dollar, and we talked before about you celebrate people who have a go, don’t you? You celebrate them.

Chris Baskerville
Yeah, you do. And one common thing we see quite often is wherever the government spends its money, they tend to have a humongous amount of people starting up businesses in that space, you know, timber milling or trees, and then we had ostriches, then we had olives, pink bats, if everyone remembers pink bats. And now the NDIS seems to be the current one where there was a prolific amount of money exiting federal government to go to anybody in this game. And of course, those that can sniff out money know how to set up a business to get that money. And then it gets saturated. So it gets saturated with a lot of rogue operators. And all of a sudden, the government starts to realise why are we spending millions and millions and doesn’t feel like we’re getting any benefit. And then they tighten all the screws. As soon as they tighten the screws and stop the flow of funds, it’s just chaos, absolute chaos. And we’re starting to see that now. A lot of inquiry around NDIS companies where the government just froze their funds. And they freeze their funds to conduct some investigation that may or may not lead to the release of the said funds. But that could take three months. So imagine having to fund your business three months without the cash flow coming in.

James Flaherty
Yeah.

Chris Baskerville
So the lesson I think I’ve taken away from that is you really shouldn’t be setting up businesses where government is your major customer in that respect. You shouldn’t rely. Because a changing policy, a changing government and you’re out of business. We talked about that early on. Overnight.

James Flaherty
And so we talked about that early on. Any other kind of thoughts on that sort of to round us off? I mean, businesses that you say don’t buy into? Franchise? Anything else like that?

Hanzel Hizola
Hospitality. Restaurants. I mean, my brother is a chef. He’s got two restaurants in the Gold Coast. He’s quite successful. He’s got a good following. But if you are in a restaurant industry that is very, very, your profit margin is very, very low. And you’ll be dealing with also like, again, you know, changing government generally, the interest and the interest rates. And it’s spending that you’re expecting from free money. Right. And restaurant business, although they’re popping up everywhere, but they still people don’t understand that there’s very little profit margin in there.

James Flaherty
That’s a bit like running a bookshop. You do it for love, not for money.

Hanzel Hizola
Yeah, it’s a lifestyle. And that’s why my brother is doing what he’s doing, because he loves the lifestyle.

James Flaherty
And he’s good at it. Yeah. Right. Okay. So maybe that’s where I went wrong. Don’t do things unless you’re good at them. But maybe. Yeah. Anyway, there’s nothing wrong with having a go. Hey, talking about having a go. Thank you very much for joining us, Hansel. I really appreciate you joining us on The Sound of the Baskerville. And thanks to you, the star of the show, Chris Baskerville.

Chris Baskerville
Thanks, James.

James Flaherty
Thanks Again.
Hanzel Hizola
Thank you.

James Flaherty
A reminder that these podcasts are general in nature and do not constitute advice and they don’t take into account your personal circumstances. So if you think though that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice.

Episode 106 Transcript

James Flaherty 
Welcome back to the Sounds of the Baskerville. I’m James Flaherty with the star of the show, Chris Baskerville. How are you, Chris? 
  
Chris Baskerville 
Good afternoon, James. Good to be back. 
  
James Flaherty 
Filmed not in Bali this time.  
 
Chris Baskerville 
The day after Melbourne Cup.  
 
James Flaherty 
Yeah, that’s right, in Sydney. Anyway, how we are here and whose fault it is will remain a mystery. But great to have you in a different place to talk about some different things. So, I’m a bit of a science fiction fan. There was a film called Jupiter Ascending, which I think maybe three people watched. I was one of them. And it was in a world where you had everything you possibly could want, but the only currency that really mattered was time. So, if the way to extend your life was to give you more time. So, one of the things we’ve not really talked about is if I’m in business and in trouble and I want some time to kind of fix it, what are the legitimate ways as opposed to doing the typical Australian way of ignoring it? But what are the official ways? How do I buy time? 
  
Chris Baskerville 
Yeah, we often do say to directors, if we can actually buy you time and we can do a number of different mechanisms depending on the circumstance. The most obvious one is putting an administrator in, if it was a company, right? You put an administrator in play. The administrator gets 20 business days to sort something out. But within that 20 business days, if we go to the court and say, you know, Your Honour, we need more time to complete these investigations and we can show proper reasons, the court will even extend that 20 business days and give us, insert whatever amount of time that we need. So, we can work with the courts on that. Or even the creditor body, like we can get up to about 45 business days using our certain powers. But generally, you’ve got to work with the court in there. And then let’s just say hypothetically, the creditors then say, okay, well, we want a deed of company arrangement and certain things have to be done in certain times. Well, we can build in mechanisms, custom mechanisms that allow us to exercise some discretion to give even more time. So, you know, time is actually something that we can use. 
  
James Flaherty 
So, you can get, you are the time doctor. You are the man. 
Chris Baskerville 
Doctor Strange. 
  
James Flaherty 
You can make things larger. So, we’re trying to think of the different ways that, like, if I’m a small business person, a lot of that sounded quite expensive. So, talk me through, there are things like safe harbour that I could do if I wanted to keep in trade, isn’t there? 
  
Chris Baskerville 
So, safe harbour is a defence for the directors in that we think we can turn this company around, or at least get a better result for creditors than if we liquidated right now. So, in other words, if you just buy a time, we can do that. But you’re still subject to the same mechanisms of if someone hasn’t been paid, they can enforce actions and all that sort of stuff. 
  
James Flaherty 
So, in that situation, you know, you could still be subject to a creditor’s statutory demand because it’s just safe harbour. 
  
Chris Baskerville 
It doesn’t protect you because you don’t announce it. 
  
James Flaherty 
You know, it’s a secret thing and it stays in the background, but it does give an amount of protection for the director while they’re trying to turn the old ship around and try to get things fixed. They’re obviously still going to pay their employee entitlements and super and all that sort of stuff to be even eligible for the safe harbour. 
  
Chris Baskerville 
Which also sort of flows into, say, small business restructuring as an example. So, we’re talking about time here, right? So, the maximum amount of time you get under small business restructuring under the plan is three years. So, in theory, if you knew you could actually pay all of your creditors back 100 cents in the dollar and you’ve looked after your employees, you could buy basically a three year payment term or a three year payment arrangement under that if that was important. 
  
James Flaherty 
Could you? I mean, there’s been some SBR style agreements with the tax man where they’re getting close to 100 cents in the dollar, but it’s a longer period. It’s almost like a repayment plan, but it’s got no interest in it. But I mean, if you wanted to get really fancy, you could even have a… Can you pay a higher dividend than what was owed as part of… Because if I’m making my creditors wait three years, I don’t know, could you make it 101 cents in the dollar? I don’t know. Because effectively, that’s what we’re doing. You’re buying time, but there is a time value of money, which is the interest that that person is foregoing, I suppose. 
  
Chris Baskerville 
Yeah, because in theory, if you agree to this quantum sum, which is just black letter sum over a particular period of time, it’s only that sum coming in. That’s all you’re going to get. That’s it. 
  
James Flaherty 
But then again, the difference the case in Safe Harbor or SBR is, you’re better off taking this deal than blowing this up. Because if you blow it up, you’ll definitely get less than what the plan… 
  
Chris Baskerville 
Yeah. And I think that’s always the tension point when you’re pitching to the credit body, particularly the ATO, because they’re becoming more and more sophisticated, asking more and more questions, asking for more and more evidence. So it’s not just, here’s our view, here’s the evidence that supports it. We are always asked to, can you give us a hypothetical of what the worst case scenario is in the event the whole business blows up and we’re in liquidation or bankruptcy or whatever? We have to show that using our expertise and experience and… 
  
James Flaherty 
Yeah, okay. So there’s some really interesting avenues for relatively small businesses to take advantage of those two things, if they’ve got a situation and you’re still trading. What if it’s sort of getting a bit tough or there’s more than a million dollars and you have to go into voluntary administration? That’s where you sort of led this in, isn’t it? I’ve got 20 days, I can go to court and I can stand it. 
  
Chris Baskerville 
So the idea behind a voluntary administrator, the idea is you either got to increase the chance of that enterprise remaining in place, or you got to bring it all to an end quickly. So the ideal voluntary administration is a business is still trading, employees are still employed, we’ve still got enterprise moving forward and we just need time, we need time to work out what is the ultimate solution. Because sometimes 20 business days, I mean we can do it, but I mean that can be a super tight turnaround. But also the larger the organisation, the more time typically an administrator needs. So if you take Steelworks in South Australia, we kind of need a little bit more than 20 business days to solve this billion dollar problem. 
  
James Flaherty 
I’m sure they’re well remunerated for their troubles, but a voluntary administrator taking on a big complex operating business like that, they are still personally on the hook, or there’s an amount of, that’s a big undertaking for a person to take on. 
  
Chris Baskerville 
Yeah, well imagine going home and saying to your spouse, hey we’re a million dollars in the hole, or a billion dollars in the hole, don’t worry, everything should be right. I mean there’s some mechanisms in place, obviously you could come in with an indemnity from someone. So let’s just say a major financial institution needs this asset to remain, this asset must continue on. Well then maybe you, the financier, back the administrator with an indemnity. The other one is, and we’ve seen it with some of the bigger insolvency houses, they actually go and get court orders that removes personal liability of the administrator. Particularly with some of these massive turnarounds. I think they might have done it on, don’t quote me on this, but it could have been the Virgin Airlines recently, they got orders that said administrators not to be personally liable. Because we’re talking about a multi-billion dollar asset, it’s critical transport infrastructure, they’re doing almost a public service in trying to keep this airline up and running. 
  
James Flaherty 
So we’re talking about situations there where the business is trading on, but if there’s such a muddle and puzzle, and there’s assets here and there and everything, can you just sit there, hang on, hold up, I’m just going to have to sift time and figure this out. Is there something like that? 
  
Chris Baskerville 
Yeah, well they’re affectionately called a holding docker, which is a deed of company arrangement, but it puts the company in a holding pattern. And I think it’s been challenged in court, no, that’s a legitimate purpose to do a holding docker. Typically you put a company into a holding docker when there is a longer term strategy that we’re going to come up with, or that needs to be explored, but we just can’t either get the information, the answers now, but it’s coming, or it’s waiting on a contingency to happen. And I remember in COVID, I was talking to an organisation that was cash poor, asset rich, and they were stressing that we weren’t going to get through this. And I was pitching, why don’t we put the thing into a holding docker while we work out, well, what can we do with the land or maybe access the equity in it? Because that’s not going to come overnight, that’s probably going to be a six month journey, but let’s at least buy you the time and just put that organisation into a holding pattern. And the second example is one that we’re currently dealing with is effectively a car dealership in regional Queensland, didn’t quite know its numbers, didn’t quite know that all the debts that it owed, and the accountants had been working 15 straight months to reconcile years and years and years of financial information, so they can lodge everything to then work out this is the debt pool now. So we put that into a holding pattern or a holding docker just to buy time until we worked out what the solution was. 
James Flaherty 
And typically a company that’s in a holding docker does or is not operating or could there be still operating entities within the larger group? 
  
Chris Baskerville 
Yeah, well, a deed of company arrangement transfers the power and operations of the company back to the director. So the administrator is in control during the voluntary administration period, but once the deed kicks in, you surrender the control back to the director, so the company’s actually in the director’s control. But you’re still kind of… Subject to our supervision and whatever conditions we hold the director to, which is written in the deed. 
  
James Flaherty 
So I suppose what we’ve tried to come into this is how do you buy time? So there are sort of formal and informal mechanisms. I mean, you obviously can buy time by trying to negotiate with your… 
  
Chris Baskerville 
Yeah, payment arrangements directly. 
  
James Flaherty 
Payment arrangements directly, that sort of stuff. So it’s just when you are literally the time lord because you can find ways to get extra time without… Doctor who can get the business an extra time. Do you think that that’s a good outcome for business? It’s a good outcome for business and for creditors it’s a good outcome? 
  
Chris Baskerville 
Yeah, and understand we won’t just simply buy time for the sake of time. You have to convince us that there is really good reason why we should be pushing this forward to the creditor body because always the creditor body will look at us and go, well, what do you think? And sometimes we have to put in the report and stick it in there and say, this is our position. So yeah, so I mean, one, you’ve got to sell us on your dream first before I then take that information and give it to the creditor. 
  
James Flaherty 
And there could be a situation too, where you may be asked in court to… 
  
Chris Baskerville 
Yeah, why did you make this recommendation? I thought it was a good idea. Yeah, it seemed like a good idea at the time. I’d just come out of Melbourne Cup races and in a way… 
  
James Flaherty 
Yeah, and here we’re in a strange city and a strange day. So I think that gives us a sense though that that’s yet another one of the secret powers we’ve talked about and so the liquidator has. So not only can you solve all the problems of the world, but you can also give us extra time. Hey, thanks, Chris. That’s been fascinating.  
 
Chris Baskerville 
Thanks, James.  
 
James Flaherty 
Time Lord. A reminder that these podcasts are general in nature and do not constitute advice and they don’t take into account your personal circumstances. So if you think though that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice. 
 
 

 

The Sounds of the Baskerville – Episode 107 Transcript

James Flaherty 
But in a small business where it’s like a one-person operation, two or three grand, if you don’t get it, it hurts. Welcome back to the Sounds of Baskerville with Chris Baskerville. How are you doing, Chris?  

Chris Baskerville 
Good morning, James.  

James Flaherty 
So one of the things you said in episode 100 and something, we were talking about the creditors. We’re talking about a good liquidator. What is a good liquidator? And if a creditor wants your money, I’m owed this money, I want someone who’s going to get my money for me. And as a generalisation, I think that’s a pretty fair thing. Someone owes me money, I’ll want it back. We’ve done previous episodes just recently about what are the steps that a creditor could take, and we’re talking about it would be lovely if they had some more information. So for example, if your accounts were public record like they are in some other countries, we’ve talked about that. So there is an obligation on the creditor that if you’re going to lend money to somebody, you’re putting proof to know what are the chances of getting it back and what security you can put on. And we’ve talked about that for probably 30 or 40 episodes. But is it true that I’m always angry, Chris, just smash this guy, I want my money back, go get it? 

Chris Baskerville 
Short answer is no. And it’s funny, I actually had a journalist from the Courier Mail call me about a company that buys grain from Australian farmers and then we export it to China, right? Simple. The grain traders wrote 4 million bucks and he called me just as I’m about to walk into the creditor meeting and he said, are you about to walk into a hostile creditor meeting? And I said, no, no, I think the grain traders see what we are doing and about to do and they are actually on my side, which he found quite surprising. And it’s because the main creditor pool got to me early in the liquidation and they said, can we have a meeting? I said, absolutely, let’s have a meeting and we just heard each other out. So I wanted to hear what they thought, they wanted to know what our process was. You’re building a relationship and a rapport with the creditor body and that’s what we should be doing. But it also meant when I said to them, hey guys, I think there’s something we’re going to have to investigate here, I’m going to have to spend some of the company’s property to do it. But if we do it effectively, we think there’s potentially 2 million bucks that we’re chasing here and either money is transferred offshore domestically or the money hasn’t yet come back into the country yet, but I can’t tell you what that looks like, but I think it’s worth a shot. And they all backed me on it. But on the flip side, I sometimes find that the smallest valued creditor happens to be the one that speaks the loudest. And I guess why are all creditors not super angry? This might go to the answering the question. So let’s just assume in small business, small medium enterprise, ATO is one of the largest creditors. The ATO upon external administration just simply follows the procedure, lodges their claim, sits there and waits for a dividend. And if there’s meetings called, they’ll attend, right? So we know how the ATO is going to act in that regard. When you’ve got sophisticated trading suppliers and all that, some of them are insured for their loss. So in other words, if a creditor has lost 100 grand to our company, they can potentially get back 80% of that using insurance. So that takes a lot of the sting out of the tail as well. So you’ve got sophisticated ATO and you’ve got sophisticated trading suppliers or big trading suppliers potentially insured for their debts. Where do you get the angry creditor body is one, when it comes to investment schemes and people have lost their personal investment in things, like we’ve talked about all those schemes we’ve investigated. So that hurts and that causes a lot of anger. Or two, sometimes, like I mentioned, potentially it’s actually the smallest creditor that makes the most amount of noise. 

James Flaherty 
Your small business or if you’re one of those people that’s, especially if it’s very small, that sort of money can really hurt. It could be small to you and I, but in a small business, when it’s like a one person operation, two or three grand, you don’t get it. It hurts. 

Chris Baskerville 
That hurts. And also I should add, anybody that has lost money by what they later find out was through deception. That person is also usually quite hostile, quite angry. They usually blame us for it until we can show them, hey, it’s not us. We didn’t cause it. We’re the result, right? And yeah, for some reason, they just want to scorch everything. 

James Flaherty 
The accusation that you sometimes hear from a disaffected creditor was that it was just a stitch up and the liquidators didn’t do anything and we know we’ve got nothing and the directors got away with it. That is a simplification, but driven by the fact that liquidators aren’t doing their job. But like you just said, if there’s investigations to be done, if there’s assets to fund it, you can. So you could equally say, well, if you’re an angry creditor, and we’ve talked about, I think in the maritime trade in Queensland, angry creditor was sufficiently angry to give you some more money to go and chase this. 

Chris Baskerville 
Yeah, well, that’s right. That’s the interesting thing. If you annoy a sophisticated creditor that’s actually got money behind them and just for fun, sometimes they just want to cause maximum hurt on the director that has caused the creditor to be aggrieved, they will fund and they’ll be happy to fund. And the benefit and the upside for any creditor that does that is one, a recognition of a priority in the return of your payment of your debt, your return of capital, and then a premium for taking the risk. That’s the benefit to the creditor that does fund us. But obviously we need to show them, and I use the pot of gold rainbow analogy all the time, which is we need to show them, hey, there is a pot of gold that we’re chasing and our lawyers are good enough to put the rainbow, which is known as the claim together, or at least the action to get to the pot of gold. 

James Flaherty 
There are circumstances where you could seek funding too from a litigation funder, couldn’t you? Like there’s something in this, we need some money. So that’s probably another whole episode, that one. 

Chris Baskerville 
But you’re right. I think what that overcomes is anybody that perceives that, oh great, the liquidator has no money, therefore the liquidator has no ability to chase us. Haha, we’ve started liquidator out of funds. Litigation funding gives us the fuel to be able to chase those claims down when we arrive with no property or no cash on arrival. So good liquidators, let’s call it that, find those creative solutions to those problems. And then there are people willing to throw money at these style of claims or recoveries because they get a premium on their money. And if it’s fast and furious, they get a premium faster than if they had invested it in the top ASIC 200 companies. 

James Flaherty 
It wasn’t that a former treasurer was trying to make some of the people involved in that process get an Australian financial services license, which the accusation could be made that by making that more difficult to do, then it’s harder to get claims up. That never came to pass. 

Chris Baskerville 
No, it shouldn’t. And some of these litigation funding guys, I mean, these guys know how to make money. They can sniff a deal and it’s usually private wealth. So you think about it, you’ve got a handful of high net wealth guys that are looking to make a little bit more money on the more money they’re already making. So they go, well, why don’t we pull a million bucks each, we create a fund of 20 million, and we go and invest in really good claims that have good prospects because there’s a chance there we can earn 25% of our money, 30% of our money within 12 months. 

James Flaherty 
Going back to that point you talked about before, I mean, if the creditor goes, you know what, they had a crack, they failed, as opposed to the mums and dads we’ve talked about who’ve been victims of Ponzi schemes or someone and you go, this director’s a crook. So there’s a different sort of mindset for those creditors. In SBR, where someone does a small business restructure, do you see situations where trade creditors are sort of accommodative if they see a good business? I mean, isn’t that part of the whole idea of SBR? If there are trade creditors or there are creditors outstanding, can you generalise or not? 

Chris Baskerville 
Yeah, it’s a bit difficult to generalise on the basis that most of the SBRs I’ve seen, obviously the ATOs typically, ATO work cover and payroll taxes seem to be the major creditors that are involved because trading suppliers are typically not involved because the business needs the trading creditors or that supplier to continue on in business and you can understand why they maybe prefer an employee to get looked after. So SBR I’d probably say would be a little bit different, but I definitely have and it just reminded me of some liquidations that I’ve had where there’s actually been also creditors that are sympathetic to the director, which is they acknowledge the director through everything and the kitchen sink at the business. The director sold their own properties and threw that equity into the business to save the business. They nearly exploited all their own personal super funds, threw that into the business to save the business. So some creditors can see that a director is literally throwing everything and the kitchen sink at it and it just didn’t work, a little bit of sympathy there. So it really just depends on how the creditor body was treated, but I do say there is an element called creditor goodwill that exists and if you get to guys like us to do restructuring early when the business is on the turn, you have high creditor goodwill. If you get to us too late and creditors are being lied to and lied to and promised things and promised things, your goodwill disappears. Now good luck trying to get a deal up when all your creditors are pissed off, you can’t do it. 

James Flaherty 
Yeah, we say that probably one episode in every 1.5, just talk to you early and then get your accountant to talk to you early or who are they talking to? Shouldn’t just be the person they play golf with, it shouldn’t be somebody who’s got some insight to be able to share. So I suppose that was where I was really interested to say, do you ever find people so angry at you because they didn’t do enough to protect themselves? Because you are an easy target. 

Chris Baskerville 
It’s such an easy target and it’s easy to shoot the messenger and you know there’s been a lot of times and the hardest meeting to have at any inception of any job is the very first meeting of the employees on site or near on site because that’s the one you’ve got to break either the news that, sorry all of you are terminated, which is that today that’s it, you’re out of a job or alternatively we say hey we’re here to run a game plan that hopefully sees the future of the business maintained whether it’s with the existing director or through sale but it’s business as usual so you’re still employed, we’re still going to pay your wages on time because then that creates instantly there’s a fear element which is well when do I lose my job? So yeah that’s always the hardest meeting is that one and because I find employees are usually the last party to know what is really going on. Some of them have got a sixth sense, they pick it up but they are generally the last people to know so when we eventually arrive it’s a massive shock. 

James Flaherty 
It’s interesting you should say that because a coffee shop that you and I frequent and I’ve spoken to the young barista fella, he gets paid whether there’s people there or not and I’ve noticed over the last several months there’s not a huge number of people there and he’s still being paid. Good luck, hopefully it all goes well but that’s not a long-term sustainable business owner. If he’s not the owner in the business that’s going to expose him to some risk because running a business is risky and it’s not for everybody and we say that all the time. Don’t take it on if you know what you’re doing. 

Chris Baskerville 
Yes, the message I learned being a business owner and through the course of just the every day of every day is from the business owner perspective no one drives your business harder than you. You can’t expect an employee to drive your business as hard as you would because as an owner your lifestyle is incumbent on this business. If it doesn’t work you die metaphorically or financially whereas an employee he just goes and gets another job whereas this is where you’re pinning your colours to the mask as a business owner so no one’s going to drive that harder than you. 

James Flaherty 
That’s right and it’s got to be worth the risk that you take and that’s easy advice to give sometimes hard to take. 

Chris Baskerville 
100% and I mean I’m not going to generalize employee mindset but yeah there is a fear element of failure and a fear element of success. What if it actually does work? But it’s the risk. It’s the risk factor. 

James Flaherty 
Thank you. I just really wanted to get a sense of kind of looking into the whites of the eyes or the flaming anger of a creditor. Is that the same Alan? Well every time and we know it’s not but I was interested to understand a bit more about what it is you see in the drivers. I mean you’ve talked about people in the past who have said I’ll swap it for some equity just to keep this thing going because I believe it. We’ve had people who say shut the guy down and chase him overseas. So that’s the whole gamut and that’s the whole sort of stories I think you’ve been sharing over the hundred and something episodes of almost that first part of Anna Karenina the famous novel where they talk about happy families are all pretty similar but unhappy families are all unhappy for different reasons and I think that’s the thing you’ve seen is all these different stories have always got a nuance, always got something different. There’s a different set of personality stories and people even if you’ve got that same experience over the top. Thanks Chris. Awesome. You go well. We’ll chat soon.  

Chris Baskerville 
Thanks James. 

The Sounds of the Baskerville – Episode 108 Transcript

James Flaherty 
Is there any hope for next year that you won’t be finding another Ponzi scheme, Chris? Welcome back to the Sounds of the Baskerville. I’m James Flaherty with Chris Baskerville. How are you, Chris?  

Chris Baskerville 
Good morning, James.  

James Flaherty 
Welcome back to your own show for the final show of the season. Been an interesting year. You and I have stood up on stage in Bali and done a joint episode in front of a live audience talking about your five lessons from four Ponzi’s in three years. We’ve had Company 57, where you had to get the police to go and secure some property, and then you went to court in Melbourne, so I think that’s still chugging along. We talked about cash flow this year, about cash has always been king, and in a year where you don’t have cash in your pocket so much, it’s all a bunch of numbers, it still doesn’t make it less important to know where it all is. And then we’ve talked about people who game the system and how you chase them down, and also lawyering up when to use the right lawyer and get the right person for the job. And then we sort of talked about, well, perhaps you would sit, what makes a good liquidator? But it’s been a bit of a mixed bag of the years, and so where do you think the year ended for you? If you look at where we started and where we ended up now, we know the ATO are sharpening the knives a bit more, aren’t they? A little bit more chasing money, a bit harder? We’re always sadly chasing money. 

Chris Baskerville 
Yeah, I think the overall summary is the ATO’s aggression this year has been not unprecedented, but it’s been of the highest order. The expectations in small business restructuring, more stringent, we want more money, we want better taxpayers with better compliance history if you want to do a deal with the tax man. So you can have a really good proposal that’s outside the average return, and the ATO will reject it because they just either don’t like the taxpayer, don’t like the industry they’re in, don’t like the taxpayer’s lodgement history, and that’s it. You’re out of the game. And sometimes they’re just choosing, well, if the return is actually not that great, we would actually rather a liquidator or a trustee go in and see if there’s some hidden property there that really should be looked at. So yeah, they’re trying to find ways to say yes for good taxpaying businesses, and taxpaying isn’t always paying tax, it’s complying. They’re trying to find ways to say yes, and we’re still in that 80% average, but they have got no qualms now in just saying no to plans that just don’t suit their model anymore. 

James Flaherty 
So I suppose if we look back, a lot of companies that sort of came through in the first few years, I mean, they weren’t model businesses that struggled to be compliant. They were needing to be fixed up. So SBR was a method to help bring these people back onto the straight and narrow. Is it more, well, you’ve had enough notice now that we’re serious about these things, you should at least be telling us what it is that you owe us. 

Chris Baskerville 
So it’s, we’re lodging, it’s meaningful engagement, and it’s trying to pay the taxes back. So being on a payment plan, trying to get that money back to the taxman, and then having to use SBR because you actually just need a proper once-off deal, which you only get one every seven years. Well, that seems to fall within the ballpark of, well, we’ll accept that. We could recognise that your business has been impacted by some extraordinary event, usually it’s COVID or fire, floods, cyclones, whatever, as opposed to the taxpayer that doesn’t lodge a single return in one or two years, that all of a sudden then gets good because they want to take advantage of small business restructuring. Well, the taxman’s across that and they can say, well, the only reason you got your lodgings up today is because you wanted to take advantage of this system, but you never told us over the last two years what you actually owed us, nor did you even try to pay us. So you can understand the conundrum from the commissioner’s perspective. 

James Flaherty 
But the trouble is, does that not then start people going back down the whole double inverted commas, illegal Phoenix route again, where they start trying to do things that are either what might be formally described as a hive down or restructure, if it’s done properly, or might be, as it’s often done, not properly, people just trying to hide stuff to fine lines. 

Chris Baskerville 
That’ll always be relevant. I think there’ll always be, it goes back to the gamers episode, there’s always going to be people that understand where the black letter boundaries are, and then either take situations right to the boundary or know how to step over the boundary. Because once you go into that territory, then you play effectively the practical game, which is like, okay, well, I’m taking this client over this boundary. I’m recognising that now it’s a practical element of what now happens and what’s our reaction if something happens. So there’ll always be people that play in that space. Obviously, the government’s trying to minimize all that by obviously holding directors personally accountable for company activity, creating director identification so that wherever you go in this corporate world within Australia, at least, your unique identifier follows you. So that way they can just easily connect all the dots and pick up patterns. And some people should be directors, some people should not be directors. But even if people were banned as a director, they will just find someone to step in, almost like a patsy or a wood duck, to take that responsibility or the fall for someone else in compensation for a decent financial gain or some other benefit. 

James Flaherty 
As long as it’s not some kid picking fruit somewhere who ends up with the director’s identification number. But I agree, the process is definitely improving. And you also talked in previous seasons about creditor defeating disposition. So sort of a dotted line to people giving the advice to the director as well as the directors themselves trying to parcel off cash and deals to try and defeat the creditor body to protect their own assets. Any more developments in that area? 

Chris Baskerville 
Yeah, the creditor defeating disposition is the closest thing that the government has been able to put in statute that kind of explains the transaction of what you’re looking for as a illegal phoenix type transaction. And I think it’s broad enough to also capture not only the person actually engaged in the transaction, but those that are advising on that type of transaction. Because, you know, history has shown us that there are advisors out there that systematically prepare directors for these style of transactions and they systematically use their street smarts in order to beat the book smarts. 

James Flaherty 
And if they’re listening, they know who they are and we know who they are. And so the other thing is they need to be mindful of is that the regulator also knows who they are. So to round that off, there’s an evolution of the way the taxman is treading that. We know that at a conference recently they’re talking about they are chasing those Division 7A loans where you’re taking money out of the company as a director rather than taking a wage or a dividend, you’ve just borrowed money from it. And then if you suddenly get a tax bill that’s higher than the amount of money you owe the company, rightly, the taxman doesn’t like that. And then also chasing a tax gap. So they have a feel that small business might owe a bit more money to the tax department than what they’re seeing. So there will be a bit of a compliance exercise probably for next year. But so if you go back to this year, we’re sort of seeing a nuance of SBR. You’ve had some interesting stuff going on. Is there any hope for next year that you won’t be finding another Ponzi scheme, Chris? 

Chris Baskerville 
Well, and just on the ATO aggression, just to add to the list of the ATO’s response this year is the 80,000 director penalty notices that they’ve issued in the financial year compared to the 35,000 the prior year before. So it’s almost seems like there’s a huge pressure on the tax man to get this money in or write it off, whatever the scenario is. Like basically, we’ve just told the Australian public there’s a hundred billion dollars out there that’s owed. So we need to call that back in because obviously the Australian government’s got some budgetary issues and pressures of their own because we borrowed a lot of money to survive COVID, which comes with interest. 

James Flaherty 
Yeah, right. And I suppose going back to we’re around government regulation. I mean, there still seems to be people finding ways to lose money in not regulated schemes, like we’ve done Ponzi’s to death in some ways, but hopefully get a year without too many. 

Chris Baskerville 
Yeah, well, it’s a good question. So just circling back to the original question, sometimes I get told you answer questions like a politician, which is you’d never answer. 

James Flaherty 
You never actually answer. 

Chris Baskerville 
But you think about Charles Ponzi, 1920s, 1930s. And ever since then, there’s been Ponzi schemes everywhere, every year. So yeah, you’re never going to stop that. And what’s even funnier, and I guess this is the funniest part about those that don’t learn history are doomed to repeat it. So some joker in some future point is going to go, hey, that Ponzi scheme idea seems like a good idea. And no one’s ever thought of this before. Therefore, I’m going to run a Ponzi scheme, right? Yeah, right. And it’s kind of like, oh, dude, come on, man. Like, have you not watched any of these Netflix docos on Madoff? Have you not done some research on where did Ponzi come from, you know, the original predecessor? But even before Ponzi, there has to have been Ponzi scheme. 

James Flaherty 
Oh, I’m sure there was, yeah. Sort of an ancient Egyptian Ponzi scheme. 

Chris Baskerville 
Yeah, yeah, yeah. In the jail time, it was just, you owe me money. You didn’t pay, I’ll just cut your head off. Probably why we don’t hear about it. 

James Flaherty 
We don’t hear so much anymore. So yeah, that would be something that would be nice for next year if you didn’t have mums and dads, money being taken off them. But I suspect there’s always going to be businesses that just don’t work out. And that’s kind of, we’ve talked about this a lot, about the correct allocation of resources. And I suppose that’s, again, part of why the tax office, to go back to the tax office briefly, that’s why they do want to clean things up. Because that whole unfair advantage, if someone’s not paying enough GST or they’re not paying the PAYG and they’re under-quoting either because they don’t know how much they should be costing, or they just don’t, that’s not fair on everybody else. So that is part of your job, I suppose, is to sort of sit there and put capital into the hands of the compliant and the competitive, isn’t it? 

Chris Baskerville 
Yeah, if you’re talking about the principal role of why we exist, is one was to maintain a business that’s in distress, ideally, because an enterprise that’s keeping on trading employees, pay taxes, and just circulates the cash, you know, money makes the world go round. But the second one is effectively, you take the assets from a bad manager and you redeploy those same assets with someone that is a good manager. In theory, deploying those assets in the right person’s hands also creates an economic benefit. So, I mean, at a very high level, they’re kind of the two elements. 

James Flaherty 
And that’s kind of what I think you’d be looking for if you looked at what’s going to be in your stocking for Christmas. It’s sort of businesses that you can save. But if there’s something big that you’ve got to help redeploy, then you’ll take two things out of it, isn’t that what you’re saying? 

Chris Baskerville 
Yeah, yeah. One of the things that will always stress out an insolvency practitioner will be the trading voluntary administration on Christmas Eve. I mean, you’d like the job because you would expect there’s something of huge substance to that. But it’s also a nightmare because goodbye Christmas, goodbye New Year’s. And it is a bit of an industry joke. That’s the nightmare before Christmas. Yeah. 

James Flaherty 
And we’ve talked about this in previous episodes because some Christmases, you’ve had a nice Christmas. And some of those Christmases, they’ve been hectic. So, interesting to see what happens to you this time. 

Chris Baskerville 
Well, what was interesting is also watching, and this might have been since the GFC, I’ve kind of noticed that nearly every year since the GFC, some major retailer or some major entity will fall just after New Year’s. So, it’s always quite interesting to watch that all play out. 

James Flaherty 
Going to be interesting too, I did read a stat the other day that something like Amazon, Temu, and one other might’ve been Shein or one of those, they represent 33% of Australian retailing already. So, that’s tough in bricks and mortar. So, it’s a competitive world. So, your retail will be worthwhile to watch again for next year. Yeah. 

Chris Baskerville 
I’ve always been curious. I mean, this is something for maybe the punters out there to discuss. But you had Westfields, right, in Australia, major retailer in Australia, major shopping centres all over the place. And then as soon as I saw Frank Lowry that sells out of Westfields, and he did it a few years ago, but he doesn’t transfer control to the next generation of his family. He just sells out entirely. And this is when the rise of online retail, I literally thought retails like cactus, but you turn up at some of these major shopping centres and there’s still people that actually like to go and purchase products from a brick and mortar store. 

James Flaherty 
There is a big town square capability in those places. And that seems to be a lot of the focus at restaurants. 

Chris Baskerville 
It’s creating the experience, which is, hey, we can go there for entertainment. 

James Flaherty 
We’ve talked in sort of very early episodes, we talked about the COVID pivot, a person who goes from doing this to running a car park and all sorts of different things. So, there is an interesting thing probably to look about for next year is that where you’ve seen a successful pivot after a restructure, that’d be something interesting to put on the discussion list for next year. Yeah. 

Chris Baskerville 
Well, I remember dealing, and this is probably in my early days, a company that went down and we traded it with the objective of selling down the stock, but the market was prams, cots, baby seats, anything to do with babies. And what I noticed is all the premium brands that are out there in that space will be immediately sold to very knowledgeable mothers to be because they are researching what gives us the high standard. And part of me thought, if I was to restructure that business, I would have a brick and mortar store that gave the ability for moms to come and actually test drive some of the equipment and all that, but the immediate ability to either order online right from there. But yeah, these ladies were very sophisticated. They already knew the product before they came into the store. But yeah, the mistake our guy made is one, he tried to import his own cheaper versions of the highest already standard Australian products. He was trying to import cheaper versions. Of course, moms aren’t going to put their newborn baby at risk. So I thought that was really dumb of the director. And then the other one was he just kept opening up these gigantic warehouse showrooms, which I don’t think needed to be done. You could have had one large warehouse and then you just ship everything out. 

James Flaherty 
And that’s not even to say in the world of AI, which is something we’ve got to probably talk about next year as well, but got an old boat and I wanted to fix it. I’ve been basically just asking AI all the things I’ve got fixed and just buying what it suggests. So if you’re not in that game where AI, and AI in terms of even the work that you do, that’s another whole couple of like where that stuff is going. So this is the probably around the year off we sort of, AI is that everybody’s talking about it. No one really understands too much about what it is. 

Chris Baskerville 
No one’s really an expert. We’re all riding this wave together. There are some people that are obviously ahead of us, right? But even they’re still figuring out the power of AI. 

James Flaherty 
So maybe for next year, that’ll be an interesting conversation. We’ve already got people in your world who will throw in a report and try and find a point of insolvency just by looking at the blimange of what may or may not actually be accounting records and just seeing if it can figure out what the hell is going on. So there’s a lot coming ahead. I think next year is going to be interesting. So if we look back at the year, I think it’s been an evolution of the previous ones. I think COVID is no longer an excuse. The taxman wants his money. Cash is king, as it always has been. And if you’re a mum and dad, please do ask about how you get 20% a month, how that actually even works. Because Chris doesn’t want to do your ponzi scheme, do you? Really? No? 

Chris Baskerville 
You’re talking from an investment. Yeah, yeah, yeah, yeah. 20% return on your investment. Yeah, God. Yeah, yeah, yeah. It’s pretty wild. Okay. 

James Flaherty 
So thanks, Chris, for a year. Good job. What series are we next year? Series six. Wow. Woo hah. Go well. Thanks, Chris.  

Chris Baskerville 
Thanks.  

James Flaherty 
A reminder that these podcasts are general in nature and do not constitute advice and they don’t take into account your personal circumstances. So if you think, though, that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice.  

James Flaherty

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