Red flags over tens of millions in lending to Daniel and Kat Grollo

Daniel Grollo was loaned millions to spend on furniture for his Eureka Tower penthouse, according to a report into Grocon’s demise.

Collapsed Grocon loaned millions of dollars to Daniel Grollo to spend on furniture for his Eureka Tower penthouse and renovate his luxury New York property, a creditors report reveals.

The company loaned $63.2m to a family company which remains outside the administration process at a time when the legacy building business was likely to have been insolvent, a creditors report reveals.

The loan, made by Grocon Group Holdings to a related company called Twenty Twenty2, was also made seven months after Mr Grollo had sought specific legal advice around enhanced protections afforded to directors during insolvency, known as safe harbour provisions.

And plans to sell Mr Grollo’s Eureka Tower penthouse to pay back creditors have been complicated by his wife laying claim to the prestige property which spans all of level 80 at the landmark skyscraper.

Daniel Grollo and former wife, Kat Grollo

The report also says part of an $11.4m loan made directly to Daniel Grollo was spent on furniture for the Eureka penthouse.

The penthouse has emerged as a key asset within the Grocon administration, with valuations ranging from $16.5m to $25m.

The apartment, which offers 360 degree views of Melbourne and comes with eight car spaces, underwent a $15m luxury fit out in 2019 but remains in a semi-finished state.

Bank of Queensland holds a mortgage over the property which would need to be paid out if the property is ultimately sold by KordaMentha.

The report also details a $4.8m loan extended to a company called Ploutus – a company owned by Mr and Ms Grollo – that was used to renovate a property in the US.

Mr and Ms Grollo lived in New York for a number of years.

Like Twenty Twenty2, Ploutus remains outside the administration process.

KordaMentha notes there may be aspects of the Ploutus loan which constitute “voidable, uncommercial and/or unreasonable director related transactions”.

The property which was renovated with the Ploutus loan is also subject to an ownership claim by Ms Grollo in the Family Court.

The settlement offered to creditors by Mr Grollo excludes the US property.

The details are contained in a 1550-page creditors report into the Grocon collapse which has identified more than $85m in inter-company and related-party lending which may have run afoul of rules around voidable transactions.

These rules relate to transactions which are made when a company is insolvent or generally harms a company’s financial position.

KordaMentha concludes “it would appear” the legacy arm of Grocon became insolvent “around February 2019 or earlier”.

The report notes Mr Grollo sought out legal advice on safe harbour provisions at the same time.

These provisions, introduced in 2017, provide exemptions to directors from insolvent trading charges provided they are working to rescue a company from collapse.

Grocon Group Holdings made the loan to Twenty Twenty2, jointly owned by Mr Grollo and his former partner Kat, in September 2019.

Twenty Twenty2 used the funds to pay out a loan it had taken out with Melbourne non-bank lender MaxCap Group.

Mr Grollo told KordaMentha the MaxCap loan had been used to provide equity and working capital to Grocon.

He considered it appropriate that Grocon provide the money to Twenty Twenty2 to repay the MaxCap facility given the non-bank lender held security over a number of Grocon assets, the report says.

But KordaMentha concludes: “The advance may constitute voidable uncommercial or unreasonable director related transactions and may warrant further investigations.”

Twenty Twenty2 has previously featured in a legal dispute when Ms Grollo was sued by her mother, Kathleen O’Toole, over a property dispute.

The case heard the company was the owner of a Toorak property which Ms O’Toole lived in from 2012 to 2016.

Mr Grollo declined to comment on the specifics of the Twenty Twenty2 transaction but pointed out that KordaMentha “found no evidence of the commission of any offences in relation the company to report to the Australian Securities and Investments Commission”.

The Grocon-built Rialto Towers.

He also noted that “certain related party loan transactions” would only constitute a voidable transaction if it was found they were advanced when “there was no proper corporate benefit in providing the loans and the companies providing the loans were in fact insolvent at the time”.

Creditors spent Wednesday poring over the details of the KordaMentha report as they assess whether they will accept a settlement offer from Mr Grollo or vote to liquidate 88 Grocon companies.

Mr Grollo has offered to tip in $10m as well as the proceeds from the sale of his Eureka Tower penthouse in order to partly pay off creditors.

But creditors, other than employees, will only get their money back in full if Grocon wins a $270m damages case against the NSW government for a former Sydney development.

The KordaMentha report says Ms Grollo is arguing for ownership of the Eureka Tower penthouse in the Family Court although the administrator does not believe she has a valid claim.

“We are in the process of considering selling agent submissions to realise the property,” it says.