The report by voluntary administrators FTI Consulting into the collapse of Clive Palmer’s Townsville refinery, Queensland Nickel, will be very uncomfortable reading for the federal MP today.
His short political career as the member for Fairfax looks set to be terminated by voters at the upcoming federal election, and Palmer’s career as a businessman is now on the line following the damning FTI Consulting report which alleges a number of breaches of the Corporations Act and director’s duties occurred on Palmer’s watch.
The administrators conclude that Palmer and his nephew, the company’s managing director, Clive Mensink, “in our view, appear to have been reckless in exercising their duties and powers as directors“.
Crucially, the 124 page report alleges Palmer acted as a shadow director of Queensland Nickel, and that it appeared to be trading while insolvent for several weeks before it was placed into voluntary administration.
Here’s what they say in the executive summary:
Our investigations have determined that QN became insolvent no later than 27 November 2015 and remained insolvent up to the Appointment Date.
A critical factual matter for resolution with respect to the timing of this is the status of QN’s liability to a major trade creditor.
If both claims were proven true, Palmer could be personally liable for Queensland Nickel’s debts.
While Palmer stated publicly that he “retired” from the company after becoming a federal MP in 2013, FTI Consulting lists two more occasions when he was a director, including nearly a year between April 2013 and April 2014, plus a few weeks between January and February 2015.
FTI goes to the heart of the allegation that Palmer was a shadow and/or de facto director at other times and concludes:
Our observations indicate Mr Palmer, a former Director of the Company, appears to have acted as a shadow/de facto director of QN at all material times from February 2012 up to the date of our appointment on 18 January 2016 (excluding any tenure as appointed Director, as outlined below).
The administrators go into detail on Palmer’s actions, including being a signatory on three QN bank accounts where “he has capacity to authorise transactions on these accounts solely and independent to the other authorised signatories”.
They also say:
From May 2014 and at all material times up to 18 January 2016 (excluding the period of his third tenure as an appointed Director), Mr Palmer exercised powers in controlling the decisions of the Company by way of:
1. either expressly approving or rejecting expenditure requests of varying amounts both within and below his approval threshold, or in the alternative, failed to act on such a request, controlling the Company’s ability to obtain supply or services, or to undertake repairs or other works, in the day to day operations of the refinery;
2. dealing with Company staff in day to day operational matters, including (but not limited to):
(a) supplier contract negotiations;
(b) ore supplies (pricing and shipments);
(c) the sale of surplus operational equipment (motor vehicles); and
(d) employment and remuneration matters.
As a result, the administrators say they “have conducted investigations on the basis that Mr Palmer is a shadow/de facto director of QN, and owed the same duties to QN as the formally appointed Director, Mr Mensink” .
They go on to say four sections of the Corporations Act may have been breached and that there are indications the directors may be in breach of their common law and fiduciary duties and may have also committed offences under Section 184 of the Act.
The possible offences include:
* They directed and/or authorised QN to enter into transactions with related parties which do not appear to have been in the best interests of QN or for a proper purpose;
* In their capacity as Directors’ of QN, they each appear to have failed to exercise discretion and avoid the conflict between the interests of QN and their own personal interests in related parties, and as Directors, shareholders and/or political party members of the related parties, may have gained an advantage directly and indirectly;
* The Directors may have gained the advantage as a result of the use of their position as a Director of QN and the information obtained by them as a Director;
* Their actions appear to have caused significant detriment to QN, having potentially appropriated assets ordinarily available to QN, and extinguishing any and all available alternatives and opportunities to QN in any short and long term business strategy.
The outlook for Queensland Nickel’s creditors, who meet next Friday, April 22, to vote on whether to place the business into liquidation, is bleak.
Secured creditors may recover all their money, depending on what the assets are sold for, unsecured creditors, including around 800 workers owed $73 million in entitlements, will receive no more than 50 cents in the dollar according to the administrators, and will hope that a compensation scheme set up by the federal government will make up the difference.
In the meantime, the administrators have foreshadowed the potential for legal action against the notoriously litigious Palmer, and Mensink, on several fronts, including “Unfair Preference” recovery actions, and the recovery of “uncommercial and director-related transactions”.
One specific conclusion is a timebomb that could send Palmer’s entire business empire crashing down, depending on whether creditors have the stomach and cash for a major legal battle with the businessman.
FTI Consulting certainly plants the seed, saying:
There is a prospect of a net recovery… from an Insolvent Trading claim against the Directors if funding was available to pursue the claims.
Either way, Palmer has a major battle to save his reputation ahead of him.
Here is the full report by FTI Consulting: