The directors of NRAS provider Ethan Affordable Housing are being pursued for $5.4m

Ashley and Cielo Fenn, the former directors of failed National Rental Affordability Scheme company Ethan Affordable Housing, are being pursued in court for more than $5m.

Ashley Fenn from Ethan Affordable Housing.

The former directors of major National Rental Affordability Scheme provider Ethan Affordable Housing are being pursued in the Federal Court over more than $5.4m allegedly paid into their personal bank accounts, while failing to make payments to mum and dad investors.

The liquidator of Ethan has lodged a statement of claim with the court, alleging that Ashley Fenn, a former Victorian Senate candidate for the conservative Family First party, and his wife Cielo Fenn, failed to pass on payments under the federal scheme.

The NRAS was designed to increase the supply of housing stock, with newly-built dwellings offered on subsidised rents to people on low to moderate incomes.

Providers such as property developers, charities and not for profit organisations would act as the go-between, building or sourcing the houses which were sold to “mum and dad” investors, who were paid incentives by the government, allowing rents to be kept low.

The scheme, launched in 2008, was plagued with complaints about providers not passing on incentives, and in the 2014-15 Budget the government announced it would be closed to new allocations.

The statement of claim lodged by Ethan’s liquidator says the company received about $423,000 in payments from 2014-2016, which were meant to be passed on to homeowners.

“The Company did not make payment of and/or pass on the NRAS payment incentives to the obligees,’’ the claim says.

In 2017 the company received a further $1.2m, which it also did not pass on, due to lacking the sufficient cash, the statement of claim says, and by February 8 2019, it also owed $659,269 to the Australian Taxation Office, it is alleged.

It is also alleged that a series of payments were made by Mr Fenn and Mrs Fenn into bank accounts “belonging to the first and/or second respondents’’.

“The amounts transferred from the company’s bank account to the first and/or second respondents’ personal bank account between July 13, 2017 to February 27, 2018 amounted to $5,788,788.28,’’ the claim says.

Some money was also transferred back, with the net outflow from the company calculated at $5.4m.

The liquidator has alleged that the payments were made “in circumstances where the company had no obligation to make all or any of the payments’’ and that they payments were made “for no interest or consideration’’.

It is alleged the payments were therefore loans, and were also “unreasonable director-related transactions’’.

“In the absence of an express agreement as to when the loans would be repayable it was an implied term arising by implication of law that the unsecured loans were repayable on demand,’’ the claim says.

The liquidator says they asked the Fenns to repay the money in February last year but they have not done so.

The liquidator says the Fenns “ought reasonably to have been aware, that if one or more of the payments were made, the company was liable to become insolvent and/or increase the extent of its insolvency on account of it not being able to make the payments it was liable to pay to the homeowners pursuant to the NRAS agreements and/or the ATO pursuant to the ATO Obligations.

“By virtue of their role(s) in the company’s management and/or the directors’ imputed knowledge, the first and/or second respondents knew or ought to have known the FY 2018 payments were not made for any genuine business reason or purpose of the company.”

The liquidator is seeking orders from the court that the directors breached their fiduciary duties, and that they pay the liquidator $5.4m.

The respondents argue that the company, Ethan Affordable Housing, did not receive payments from the Commonwealth, but from state and territory governments, with that money put into a trust account.

That money was transferred to Ashley Fenn “pursuant to the terms of the consortium deed and in full compliance with the contractual arrangement struck in regards to the residential consortium in 2012, years before the impugned payments’’.

“The first applicant (Ethan Affordable Housing) had and has no beneficial interest in those moneys,’’ the respondents say.

“Further, to the extent that such third-party investors were ... entitled to moneys in the account of the first applicant or owed a debt by the first applicant, that obligation and/or debt has been fully satisfied by way of Questus Funds Management assuming liability for and making payments to those third party investors pursuant to an arrangement whereby the allocations issued under the scheme to the first applicant were transferred to Questus, when the first applicant ceased to be approved participant under the scheme.’’

The respondents deny the characterisations of the payments as set out by the liquidator “and say further that neither the first nor second respondent had any obligation to repay the amounts received from the first applicant’’.

The respondents “deny that the applicants are entitled to any and all relief as sought’’, including the payment of $5.4m.

Ethan was placed into administration of February 20, 2019 by Mr Fenn, the court documents state.

Federal Court Justice Patrick O’Sullivan this week made orders allowing all parties to file further affidavit material next month.

Mr Fenn also in 2015 launched a company, Ethan Automotive, which aimed to set up a car manufacturing operation in Adelaide with help from the Federal Government’s former Automotive Transformation Scheme, which aimed to make local car and parts manufacturing competitive

It was reported at the time that Ethan Automotive as not eligible to participate in the scheme as it was still in the proposal stage, and the venture never got off the ground.

Ms Fenn is also a former Family First candidate, running unsuccessfully in the 2014 Victorian state election.