Worrells ask creditors for insolvent trading investigation pay, potential fall out for board, senior staff

The forensic accounting firm looking into collapsed community services organisation, Encompass, has flagged a move with potential to reduce employee pay outs.

Creditors of collapsed community services organisation Encompass are being asked to fund investigations to determine conclusively if it was trading insolvent for six months or longer before it shut.

But the cost of a potential investigation, to be overseen by forensic accounting firm Worrells, and potentially include cross examinations in court, would likely need to be paid for from money outside of what the organisation will recoup through liquidation.

In a recent report Worrells, in charge of the liquidation of Encompass, said the organisation’s finances began to unravel in November 2021; it potentially traded insolvent from June 2022; and was losing $250,000 per month in the last months of 2022.

“If any creditors are prepared to provide funding to meet the cost of public examinations or (investigations) tasks... we request they contact (us this by May 10),” the report noted.

“There are sufficient funds available in the liquidation for us to conduct detailed further investigations, this will erode the return available for creditors in the form of a dividend.

“Accordingly, we may limit those investigations in preference to providing a higher return to creditors where it is unclear whether further investigations are likely to result in additional recoveries.”

Worrells liquidator Nathan Deppeler

Insolvent trading is illegal and carries penalties of up to $200,000. A compensation order can be made in addition to civil penalties.

Compensation proceedings for amounts lost by creditors can be initiated by ASIC, a liquidator or a creditor against a director personally.

Between Encompass’ cash in the bank, asset sales and debts paid to it, liquidators are expected to recoup about $4.25m.

At least $3.1m is owed to former employees and Worrells is likely to be paid more than $1m for the administration and liquidation of Encompass.

Worrells will ask the federal court if it needs to complete a pay audit of about 350 staff who worked at Encompass between October 10, 2015 to October 10, 2021.

“If we are not required to conduct the audit, the onus will remain on the former employees to quantify and support any claim for underpaid wages,” the creditors report reads.

Worrells’ report notes: “We are currently in the process of quantifying the insolvent trading claim against the board of directors. Once the claim has been quantified, we intend on issuing a demand to the board of directors for payment of the claim.”

Worrells said a public investigation of directors of Encompass could be used to get more information about the organisation’s finances.

At the time of liquidation Encompass’ directors included Alyson Miller, Amanda Wilkens, Grace Brown, Gloria Jellef and Daniel Kovacev.

“We have been made aware of a number of claims and concerns regarding the management of (Encompass),” Worrells’ report reads.

“In the event that these claims can be substantiated, it may give rise to breaches of director’s duties action.

“These may enliven claims against the board of directors individually for compensation for the amount of the loss suffered by the association as a result of the breaches if any.

“These potential claims may also extend to the association’s chief executive officer Elaine Robb and other senior management however further investigations will be required.

“We anticipate that the costs to establish and pursue claims of this nature will be significant and accordingly, it is unlikely that we would pursue a claim unless it is expected to result in commercial recoveries.”

Worrells said Encompass had liability insurance for its directors and officers, and it was likely any claim against senior staff or board members would be covered by the policy.

Originally published as Worrells ask creditors for insolvent trading investigation pay, potential fall out for board, senior staff