Serious questions are tonight being raised as to whether creditors, including a former director of failed technology media company Derwent Howard, were given preferential payments ahead of the collapse of the company after it was revealed that $4M was paid out in the six months prior to the Company being placed into administration in August 2009.A creditors’ report written by administrator Worrells Solvency & Forensic Accountants claims that some of these payments may be preferential payments as defined by the Corporations Act.
Derwent Howard was placed into administration with debts of over $4M.
At this stage, it appears that there are no funds for the administrator to investigate claims, unless creditors make up to $40,000 available immediately to enable an investigation to take place. On top of this, creditors will also have to find an additional $100K to follow the legal process through to a prosecution.
In the report, which was delivered to creditors last week, the administrator is recommending creditors vote to accept a proposed deed of arrangement made by Jim Flynn, the former Managing Director of the failed company, who is now running a brand new company that acquired assets on the cheap from Derwent Howard.
Flynn is believed to have offered $0.05cents to the dollar as a deed of arrangement payment in an effort to get the company back.
Prior to the company being placed into administration, Flynn orchestrated the legal transfer of magazine titles from Derwent Howard to a new company called The Media Factory. Among those titles were Sony, Microsoft and Nintendo titles.
The administrator claims that in order for any payments to be deemed preferential, it must be shown that the payment was made at a time when the company was insolvent.
Among the companies that would be investigated if funds were made available to the administrator is Webstar Printing, who was paid $140,000 only days before the publisher was placed into administration.
The administrator wrote in his report that, “It appears likely that the payment of these funds may be considered preferential; however, a Liquidator would be required to conduct further investigations and to commence litigation to recover these funds.”
It has also been revealed that Nathan Berkley, a former director of Derwent Howard who left Australia for Spain prior to the company being placed into administration, was paid a total of $434,052.59 in the period 3 March 2009 to 23 June 2009.
The repayments were made in several separate transactions. Berkley is also listed as a creditor for an additional amount of $193,971.
Questions have also been raised about the transfer of Derwent Howard assets to The Media Factory, a company that now publishes several magazines previously published by Derwent Howard.
On the 17 August, which was prior to the company being placed into administration, The Media Factory paid $26,372 for all of the furniture and assets of Derwent Howard.
The report says that on or about July/August of this year, The Media Factory Pty Ltd, a related entity, began publishing the various magazines formerly produced by the company under a new license agreement with Derwent Howard Media Holdings Pty Ltd.
The administrator wrote, “Upon review of the company’s records, including copies of transfer confirmations from the Media Factory Pty Ltd to the company, I have confirmed that approximately $750,000 has been transferred to the company since the beginning of August this year.”
It has now been revealed that both of these contract publishing contracts are due to expire before the end of the calendar year, and that one contract believed to be a publication for the Institute of Chartered Accountants has been terminated due to the insolvency of the company.
These two magazines have been produced through The Media Factory Pty Ltd.
A dispute has also arisen over payment to former executives and staff.
The administrators have also asked former Derwent Howard executive Nick Cutler, who is now publishing a technology magazine for Dick Smith, to provide proof that he is owed $122,729.57 by Derwent Howard.
The Dick Smith Magazine was previously an asset of Derwent Howard with the company, using the CEDIA show in Sydney in July to circulate a sales kit that indicated that Derwent Howard was set to publish several issues of the magazine for Dick Smith.
After one issue, the magazine was mysteriously transferred to a new company run by Cutler.
No payment appears to have been made to Derwent Howard.
Cutler is believed to have been terminated by Flynn after he sought assurances that the company was not trading while insolvent.
The administrator said of the Cutler claim, “We have been advised that, prior to our appointment, this claim was actively disputed by the company. The nature of the dispute is in relation to the termination of the employee’s employment including the date and nature of the termination.”
.”We have not made any determination on the validity of this employee’s claim as at the date of this report. Creditors should note, however, that this claim will materially affect any dividend to unsecured creditors in liquidation. However, it will not affect any dividend to unsecured creditors in the event of the proposed Deed of Company Arrangement being accepted, as there is a fixed fund of $160,000 available to participating unsecured creditors.”
Between 30 June 2008 and June 2009, Derwent Howard liabilities blew out from $789,659 to $5,814,396.
The creditors’ meeting takes place in Sydney on 1 December 2009.