The Australian Securities and Investments Commission (ASIC) has commenced civil proceedings in the New South Wales Supreme Court against North Sydney solicitor, Mr Timothy Donald Somerville, and eight company directors over their involvement in alleged phoenix-style transactions.

These proceedings follow an ASIC investigation into eight non-related companies, and allege that the directors of those eight financially distressed companies transferred business or assets to a new company controlled by the same directors for a negligible consideration. This activity is commonly referred to as ‘phoenix trading’.

In each instance the assets of the distressed vendor company were transferred through a sale agreement signed by the same person, as director of both the vendor and purchaser companies. The vendor company was then placed into liquidation after the sale of its assets. ASIC contends that no tangible consideration was received from the sale of the assets, there were various unpaid tax debts, and that the business continued to operate under the name of the new company.

ASIC alleges that Mr Somerville recommended the transaction to each of the directors, prepared the necessary documentation, including the sale agreements, and in most instances, formed the new company.

ASIC alleges that the transactions caused detriment to the vendor company by removing assets from the reach of unpaid creditors. ASIC also alleges that the directors contravened their duties as directors of the financially distressed company, and that Mr Somerville contravened the Corporations Act through his involvement.

‘Phoenix activity is a significant issue and ASIC has broadened its focus in relation to misconduct to include not only company directors but also others who are involved in, or help facilitate, such transactions’, said ASIC’s Executive Director of Enforcement, Ms Jan Redfern.

ASIC is seeking declarations of contraventions of the Corporations Act by the eight company directors and Mr Somerville, injunctions, and director banning orders.

The eight director defendants are Mr Nicholas Eugene Jones of Seaforth; Mr Simon Durant of Roseville; Mr Calvin Bert Rowley of Elizabeth Bay; Mr John Lancelot Bradnam of Neutral Bay; Mr Christopher Paul Martin Jones of Bulahdelah; Mr Adam Leslie Troost of Darling Point; Mr John William Monsell of Peakhurst Heights; and Mr Arthur James Wells of Hurstville.