Federal Court hears Beau Hartnett gave differing incomes, did not know when GFC began

An unregistered Gold Coast lawyer has told a court he lost more than $3m selling his family home because of the Global Financial Crisis. Read the latest from court.

Beau Hartnett.

An unregistered Gold Coast lawyer has told a court he lost more than $3m selling his family home because of the Global Financial Crisis.

Beau Timothy John Hartnett was set to face the final day of a three-day hearing before the Federal Court of Brisbane on Thursday into how he was able to declare he was broke and avoid paying all his debts.

Taking the stand for a lengthy cross examination during the first two days of the case, Mr Hartnett was questioned about his “well-structured asset protection” strategies and accused of “deliberately incurring costs” so as to create “friendly creditors” in his personal insolvency.

Mr Hartnett denied the allegations.

The former solicitor used a personal insolvency agreement (PIA), backed by a majority of creditors, to avoid bankruptcy and pay out less than 3c of every dollar he owed.

The court action against Mr Hartnett, as well as his insolvency trustees Anne Meagher and Adam Kersey of SV Partners, came after Gold Coast Bulletin questions to the bankruptcy watchdog.

Inspector-General in Bankruptcy Timothy Beresford is seeking to set aside the PIA, with his legal team asserting creditors would have been better off if Mr Hartnett had been made bankrupt than under the deal.

Mr Hartnett has spent the case seated in the courtroom behind his legal team, occasionally handing them documents and taking notes before being called to the stand late on Tuesday.

Under cross examination by Julianne Jacques KC, for the Inspector-General, Mr Hartnett was asked about an invoice submitted in his insolvency documents from creditor Walsh Accountants.

Gold Coast lawyer Beau Hartnett (left), with his barrister Richard Cowen, leaves the Federal Court where he attending a hearing into his personal insolvency. Picture: NewsWire / John Gass

Evidence was tendered to the court that an initial invoice was made out to Hartnett Lawyers, but that a revised invoice including Mr Hartnett’s own name had been issued after an emailed request from Mr Hartnett.

The new invoice was used to support Walsh’s claim as a creditor of Mr Hartnett personally, and that claim was among those to vote in favour of the contentious personal insolvency agreement.

Ms Jacques put it to Mr Hartnett that he was “deliberately incurring costs in your own name, for the purposes of creating creditors in your personal insolvency agreement”.

Mr Hartnett said: “I reject the allegation”.

During Wednesday’s hearing, Ms Jacques asked Mr Hartnett why he had removed cross examination documents – including some he was yet to be questioned about – from the court when he left for the day on Tuesday.

Mr Hartnett said he had taken the documents with the intention of reading them overnight, but that he hadn’t opened them as he didn’t have time.

Ms Jacques asked Mr Hartnett about the 2013 sale of his former home, at Naples Ave Surfers Paradise, for $3.3m five years after he’d paid $6.13m for it. It sold again for $7.35m in 2019.

Mr Hartnett said he’d been disappointed by the 2013 result but had put it down to the effects of “the GFC”.

“When was the GFC Mr Hartnett?” Ms Jacques asked.

“I think it began around 2009 and that continued until around 2011 or 2012,” Mr Hartnett said.

When Ms Jacques replied “it began in 2007”, Mr Hartnett shrugged and said “I can’t disagree”.

Ms Jacques directed Mr Hartnett to an undertaking he made to the NSW Court of Appeal on December 15, 2023, in which he agreed not to reduce his assets below $311,000.

She asked him to explain how his sale of his one per cent ownership of his current family home – to his wife for $32,500 – did not breach the undertaking. 

Mr Hartnett said it was offset by “book debts owed to the law firm that are greater than or equal to that amount”.

In the cross examination spanning more than four hours across two days, and referencing reams of evidence before the court, Ms Jacques questioned Mr Hartnett about his involvement with a range of companies and trusts, as well as their multiple properties on the Gold Coast.

The court heard Mr Hartnett had been negotiating for his superannuation fund to get a loan to buy an apartment in the King Tide complex at Broadbeach, and Walsh had prepared a supporting letter on his behalf, stating he had “taxable income of more than $300,000”.

Ms Jacques said, a week later, Mr Hartnett had declared $250,000 income on his statement of affairs for the personal insolvency agreement.

Ms Jacques then referred to one of his tax returns which recorded a taxable income of $0.

Mr Hartnett repeatedly answered questions by referring to documents already before the court, and said he had let his accountant Tim Walsh handle the details so he couldn’t recall everything.

Anne Meagher of SV Partners took the stand after Mr Hartnett, and was cross examined about her role as trustee of Mr Hartnett’s insolvency.

The Inspector General has claimed the trustees did not properly scrutinise Mr Hartnett’s affairs or the validity of creditors before allowing them to vote on the agreement.

“I feel that we covered off our investigations thoroughly, I feel like we did everything we could in terms of our role, which was to report to creditors,” she said.

Ms Meagher said she had broached the idea of putting a value on Mr Hartnett’s interest in Hartnett Lawyers, but that he “disagreed” with her doing so.

As a result, she decided the cost of “attacking” that transaction would have outweighed any possible return to creditors.

Meanwhile, one of the major creditors to vote against the PIA, Anthony Robert Bell, has lodged a counter claim in the matter, and is seeking to appoint his own trustee over Mr Hartnett’s estate.

The closing submissions are due to be heard before Justice Downes on Thursday.

DAY ONE: COURT TOLD ‘FRIENDLY CREDITORS’ HELPED LAWYER AVOID BULK OF DEBTS

The votes of “friendly creditors”, enabled a Gold Coast lawyer to strike a deal to avoid the bulk of his debts, the Federal Court has heard.

The three-day hearing, into how Beau Timothy John Hartnett was able to declare he was broke while avoiding bankruptcy and maintaining a millionaire lifestyle, began on Tuesday.

Hartnett’s insolvency trustees, Anne Meagher and Adam Kersey of SV Partners, are also named as respondents in the case.

In the matter, the Inspector-General in Bankruptcy Timothy Beresford seeks to set aside a personal insolvency agreement for Mr Hartnett, which saw his creditors paid less than three cents for every dollar they were owed.

Gold Coast lawyer Beau Hartnett (left), with his barrister Richard Cowen, leaves the Federal Court in Brisbane on Tuesday. Picture: NewsWire / John Gass

The case was filed after an investigation by the Australian Financial Security Authority, sparked by questions from the Gold Coast Bulletin.

Mr Hartnett used a ‘Part X’ agreement, an alternative to bankruptcy where a person who is unable to pay their debts enters a formal agreement with creditors.

Julianne Jacques KC, representing the Inspector General, said her case would address “quirks with each of the friendly creditors”.

“In our view, this is not a complex case, the (Personal Insolvency Agreement) should be overturned,” she said.

An example of a quirk, touched upon in her opening statement, was a proof of debt from Walsh Accountants, issued on February 28 last year, the day before Mr Hartnett appointed the trustees.

The initial invoice was addressed to Hartnett Legal Services, but Mr Hartnett emailed back requesting it be reissued in his name as well as his company’s.

The invoice was amended and resent by Walsh later that day.

The inclusion of Mr Hartnett on the invoice meant it could be submitted as his personal debt and Walsh could be included in the creditor vote.

SV Partners director Anne Meagher, who has also been named as a respondent in the case. Photo: Supplied.

Adam Kersey of SV Partners, who has also been named as a respondent in the case. Photo: Supplied.

Ms Jacques said it would be shown that there could have been a greater return to creditors if Mr Hartnett had been declared bankrupt, and that his sale of various shareholdings to his wife in the days before the trustees were appointed would also be covered.

Witness Neville Matthew, a senior executive with the Australian Financial Security Authority, was quizzed by Matthew Jones KC on behalf of the trustees.

He said he’d found Mr Hartnett to be the beneficiary of up to $10m in assets.

Mr Jones said the statement of claim appeared to make “serious allegations” about the conduct of his clients.

Mr Matthew said the efforts of the trustees were “manifestly inadequate in the circumstances”.

“There was more that could have been done… they failed to do it.”

Justice Kylie Downes queried the relevance of the line of questioning, saying there was “no allegation of deliberate misconduct by the controlling trustees”.

The Inspector-General’s representatives said such allegations were “not part of our case”.

Inspector-General in Bankruptcy Timothy Beresford.

In his opening statement, Barrister Richard Cowen for Mr Hartnett said the court should not exercise its discretion to set aside the insolvency agreement because it had already been fully executed.

He said the Inspector-General’s assertion that creditors would have been better off under a bankruptcy than the insolvency agreement was “mere speculation”.

“(And) the applicant’s case doesn’t get to speculation – it’s more idle wondering,” he said.

“It’s highly generalistic and hard for us to respond to.

“Apparently the investigations referenced some newspaper article on the Gold Coast.”

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Originally published as Federal Court hears Beau Hartnett gave differing incomes, did not know when GFC began