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For Pallion Group, it’s been a long battle with the Australian Taxation Office over an alleged GST fraud scheme. And now, following the appointment of KordaMentha as Special Purpose Liquidators, it’s possible that the $200 million question surrounds one word: voidable.
For Pallion Group, it’s been a long battle with the Australian Taxation Office over an alleged GST fraud scheme. And now, following the appointment of KordaMentha as Special Purpose Liquidators, it’s possible that the $200 million question surrounds one word: voidable.

New money laundering laws: Pallion Group, the ATO, and the voidable transaction

Part IV of this series looks at the ramifications of a recent Federal Court Order appointing KordaMentha as Special Purpose Liquidators to investigate the potential overturn of a Pallion Group transaction. The legal maneuvering is part of a campaign to recover more than $200 million in GST payments.

The Australian Taxation Office (ATO) is chasing more than $200 million from a Pallion-related company in connection to an alleged industry-wide GST scam.

After a decade or more of legal wrangling, the case effectively rests on one word - voidable - and for the six Pallion directors, there are significant stakes riding on the outcome.

As previously reported, Federal Court documents show that Andrew Cochineas and Jane (Janie) Simpson have been singled out for being “on notice (and in some cases had actual knowledge) of the fraudulent activities”.

Further, Cochineas was described as being “disingenuous in denying in his affidavit the existence of any suspicions about the fraudulent activities” and that “he understood ‘what was going on’”.

Snapshot - What you need to know  

In 2014, the ATO began auditing EBS & Associates, a Sydney based gold refining company.

As previously reported, the company’s turnover had increased by more than $600 million in just two years - from around $130 million in FY 2012 to $746 million by July 2014.

Federal Court documents show that EBS’s turnover increased by more than $600 million in two years. (Note 2012 year is an estimate based on five months.)
Federal Court documents show that EBS’s turnover increased by more than $600 million in two years. (Note 2012 year is an estimate based on five months.)

The ATO subsequently issued assessments in 2016 for $208 million, leading to objections by EBS & Associates and the subsequent liquidation of the company. 

The case is complicated by intertwined involvement for multiple parties, including Pallion Group, and court battles have raged on until this day. 

Throughout the saga questions have been raised by the ATO concerning a liquidator’s conflict of interest.

His ties to company directors and Pallion Group, coupled with objections against the ATO’s assessments and the liquidator's funding by Pallion, raised doubts about impartiality, prompting the call for an independent investigation.

Fast forward to July last year and the latest victory for the ATO means the Federal Court granted the ATO the right to appoint a Special Purpose Liquidator for further investigation of past transactions.

Essential understanding

As one could imagine of any case that reaches the Federal Court, it is complex, detailed and lengthy.

That said, one of the most important words in the hundreds of thousands that appear in court filings is the word ‘voidable’.

A ‘voidable transaction’ can be described as a payment or a transfer of property/assets to a related (or unrelated) third party that either occurred when a company was insolvent or otherwise disadvantaged the company.

When a company is facing insolvency and cannot meet its debts, it can be placed under administration of which there are two types: voluntary or involuntary.

The former is typically done by the company directors, whereas the latter is usually done by the creditors, as a process to be paid what they claim they are owed.

» Background reading: Loopholes, lawyers, liquidation and Pallion

The administrator’s role is to act independently and to establish whether the company should be restructured, sold, or, if there is little or no chance of survival, wound up (liquidated).

The liquidator’s responsibility is to distribute the company’s assets while ensuring that no creditors are being unfairly advantaged and/or disadvantaged which can happen through unfair preferences, uncommercial transactions, unfair loans to a company, and unreasonable director-related transactions.

If any of these can be established as having taken place prior to the appointment of an administrator/liquidator, then there is power under the Corporations Act 2001 (Cth) to void these transactions, which is done to ensure that assets are distributed fairly amongst creditors.

Court documents described a phoenix operation: “The directors and shareholders of the related entities were the same as the directors and shareholders of the company and it was alleged the transferee may be a ‘phoenix' company”.

Show me the money - chasing $208 million

EBS & Associates was a gold refiner, and its directors were Andrew Cochineas, Philip Cochineas, Jane (Janie) Simpson and Francis Gregg (Simpson’s father).

As detailed above, in July 2014, the ATO commenced an audit of the company’s GST affairs and issued assessments against EBS & Associates on 8 April 2016 seeking around $208 million. EBS & Associates lodged an objection on 26 April. 

Director Andrew Cochineas: "understood ‘what was going on’”.
Director Andrew Cochineas: "understood ‘what was going on’”.

Four months later on 21 September, the ATO disallowed the objection, and the following day, the company resolved that a creditors’ voluntary winding up would occur and a liquidator was appointed. 

The total amount owed to unsecured creditors was $209,160,691 - 99.5 per cent of which was a GST debt to the ATO ($208 million).

Four of the company’s directors — the Cochineas brothers (Andrew and Phillip), Jane Simpson, and Francis Gregg — were listed as unsecured creditors for $187,000 each ($748,000), along with a group of industry-related creditors.

Director Janie Simpson: "had actual knowledge of the fraudulent activities".
Director Janie Simpson: "had actual knowledge of the fraudulent activities".

Pallion Group was listed as a secured creditor for $393,800, along with Robinson Legal — a firm associated with Pallion Group director Andrew Robinson — which was also recorded as a secured creditor for $200,000.

Therefore, of the almost $210 million owing to secured and unsecured creditors,  ‘related party’ creditors amounted to $1.3 million, less than 1 per cent of the total.

As previously reported in New money laundering laws: Loopholes, lawyers, liquidation and Pallion, the case started around 2013, and at the time, few people would have predicted that it would still be going through the courts more than a decade later, courtesy of Pallion Group.

Engaged in misconduct

In November 2020, the Federal Court overturned the ATO’s previous successful litigation against EBS & Associates.

Cochineas had successfully appealed and the decision was based on “a question of law from a decision of the Administrative Appeals Tribunal”.

However, if Cochineas and Simpson — the two who have received special mention by the ATO — believed the success of the November 2020 appeal would end the matter, they were mistaken.

On 31 July 2023, the ATO had another Federal Court victory, granting it the right to appoint Special Purpose Liquidators (SPL).

A SPL is appointed by the Court to carry out a specific function in circumstances where it is desirable that the function is not performed by the acting liquidator.  

(Editor’s note: At various times throughout the decade-long case, court documents refer to two liquidators of Pallion-related businesses; however, in the best interests of brevity and simplified understanding this article does not distinguish between the two firms.)

Justice Goodman
Justice Goodman
"And part of the investigation will be into the conduct of Mr Andrew Cochineas and interests associated with him."
Justice Goodman

In one matter, court documents show that the liquidator “had been referred to him by Mr Andrew Robinson of Robinson Legal in his capacity as solicitor for the Company”.

Robinson is a director of Pallion Group. 

Cochineas offered to fund the liquidator, whose first report, dated 28 November 2017, stated: “Mr Andrew Cochineas had advised the liquidator that he would provide an upfront payment of $20,000 as a contribution toward the cost of litigation and that further monies and/or indemnities were likely to be provided for further litigation in relation to the challenges to the objection decisions; and the liquidator did not consider that the referral to him by Mr Andrew Robinson placed him in a position of conflict of interest or duty.”

Ten weeks later, on 14 February 2018, the liquidator issued his second creditor report stating that he had undertaken preliminary investigations which indicated possible misconduct by directors. 

The report raised an issue concerning the liquidation and sale of assets in September 2017: “[It] may be a voidable transaction; and the company’s officers may have engaged in misconduct”.

The report stated that the ‘related entities’ had proposed that the liquidator “enter into a funding agreement with Pallion to cover the cost of investigating the notices of assessment.”

The liquidator also raised the possibility of conducting examinations of the directors of EBS & Associates if the creditors were prepared to provide funding for him to do so. The funding request was for $150,000. 

Creditor records (see table below) showed that of the $209 million, 99 per cent of it was owed to the ATO which could mean that, as the major creditor, the ATO was being asked to stump up money for a liquidator - who had been appointed by the company directors - to investigate the company directors.

The ATO would not have a bar of this and it formed the basis of the next legal battle, which it won. 

Unacceptable - legal reasoning

In his July 2023 ruling to allow the ATO to appoint a SPL, Justice Goodman indicated that the ATO was not willing to fund the liquidator to undertake further investigations of the September 2017 transaction because:

  • The liquidator was effectively appointed by Andrew Cochineas, a director of the company, the sole director and shareholder and a director of Pallion
  • The liquidator was appointed on the referral of Andrew Robinson, also a director of Pallion, and the solicitor for the Company and the Company that prepared the documents for the September 2015 transaction
  • The liquidator had pre-appointment contact on a number of occasions with Andrew Cochineas and Andrew Robinson
  • The liquidator had lodged objections against the ATO notices of assessment issued against the Company and commenced a proceeding on behalf of it challenging the disallowance of those objections
  • The liquidator had received funding from Pallion Group to object to the decisions and, was presumably, taking instructions from, liaising with, or reporting to the directors of Pallion including Andrew Cochineas
  • It was preferable that the investigations into the September 2017 transaction be conducted by a liquidator who is and who is going to remain independent of the persons standing behind the Company and its related entities including Pallion
Appearance of a liquidator conflict

In his decision to grant the order, Justice Goodman wrote: “I was satisfied that there was an available perception that the liquidator, if funded to undertake the investigation, might be in a position of conflict in circumstances where: the liquidator had been funded by interests associated with Mr Andrew Cochineas to challenge the objection decisions; and part of the investigation will be, as the liquidator has identified, an investigation into the conduct of Mr Andrew Cochineas and interests associated with him.

<a href="https://www.jewellermagazine.com/Img/155714/" target="_blank"><strong>Click to enlarge:</strong></a> EBS Creditor
Click to enlarge: EBS Creditor's list showing that the ATO debt represents 99% of all debt.

He added, “It was not necessary for the Court to form a view that the liquidator is, or will likely be, in a position of conflict.

"Rather, it was sufficient that an appearance of conflict existed sufficient to compromise confidence in the position of the liquidator.”

The Federal Court Order appointed Rahul Goyal and Jennifer Nettleton of KordaMentha as Special Purpose Liquidators to investigate the September 2017 transaction. 

According to its website, KordaMentha specialises in financial crime, risk management and compliance reviews.

The firm also assists with investigations into alleged violations of anti-money laundering (AML) and counter terrorism funding(CTF) legislation and sanctions breaches.

Where to from here?

The Federal Court Order rules that any loans, lease agreements or assignments, general security agreements, 'directions to pay', and any other arrangements involving various Pallion-related companies can be investigated.

The SPL can also probe any dealings with the London Bullion Market Association (LBMA) regarding the Good Delivery List accreditation and transfer of that accreditation.

The LMBA lists approved gold and silver refineries that meet specific minimum criteria, such as age, net worth, and production volume. They must also demonstrate the business’ ability to produce Good Delivery bars. ABC Refinery (Australia) Pty Ltd heads that list

Listed companies agree to submit to monitoring by the LBMA, and listed companies that refuse to participate in regular monitoring are removed from the Good Delivery List.

After a decade of legal manoeuvring - with wins and losses on both sides - the case appears to revolve around one word: ‘voidable’.

In other words, is the liquidation of EBS & Associates - and the resulting sale of its assets and the transfer of LBMA accreditation to Pallion-related entities -  a voidable transaction?

That’s an assessment for special purpose liquidators Goyal and Nettleton. 

For the six directors of Pallion Group, particularly Andrew Cochineas and Janie Simpson, it's the Australian jewellery industry’s $200 million question.

Detailed reading
» Part I - New money laundering laws: What do jewellers need to know?
» Part II - New money laundering laws: Millions at stake in the jewellery industry
» Part III - New money laundering laws: Loopholes, lawyers, liquidation and Pallion
» Part IVNew money laundering laws: Pallion Group, the ATO, and the voidable transaction
» Part V - Pallion Group: Timeline of missing detail, controversy and legal dispute

Federal Court Documents
» Commissioner of Taxation v EBS Refinery - November 2020
» Deputy Commissioner of Taxation v ABC Refinery - 31 July 2023
» Federal Court Order - Justice Goodman - 31 July 2023
 


» Editor's Note: Readers with information about alleged wrongdoing and/or financial crimes in the jewellery industry can either, formally or anonymously, contact Jeweller via the Contact Us form or write directly to our Tips email address.


 

FOOTNOTE: As previously reported, at the conclusion of the second instalment of this series, Jeweller informed readers that a subsequent story would address a court case involving Pallion Group and the Australian Taxation Office.

On 22 May, two days before the story was published, Jeweller was contacted by a representative from Fowlstone Communications, requesting a ‘right of reply’ to any editorial content relating to the Pallion Group.

The company's managing director, Geoff Fowlstone, describes himself as a leader in “the field of Crisis Communications and Reputation Management.”

At the time, the Fowlstone representative claimed to act on behalf of Pallion Group, although no evidence was provided to support this assertion. The email also sought a telephone call to discuss the matter further.

He was informed by Jeweller that if it were necessary to seek comment from Pallion directors, it would be done directly.

The representative replied the same day, reiterating the expectation of a ‘right of reply’ and instructing that any questions for Pallion Group should be directed to Fowlstone Communications.

Jeweller replied on 23 May, advising the representative that these demands would be ignored and that his company was not in a position to dictate terms to the media.

The same day, Pallion Group CEO Andrew Cochineas was contacted by Jeweller via email to raise this issue and asked if Fowlstone acted for Pallion Group. Cochineas was also advised that any questions would be directly provided to him, not an external, third-party crisis management consultant.

Mr Cochineas did not respond to the email.

UPDATE: Jeweller subsequently followed up the email on 6 June and also asked Mr Cochineas about unusual activity on a number of 'social media' accounts that appeared to be in his and Pallion's name on Quora.com.

The website's About Us pages states that its "mission is to share and grow the world’s knowledge".

At that point Mr Cochineas replied confirming that Geoff Fowlstone acted for Pallion Group and he also denied any knowledge about the Quora accounts and/or their content. 

 

More reading
Presentation at Sydney Fair to detail counter-terrorism and money laundering legal reform
Anti-money laundering agency pursues audit of Perth Mint
Two more gold dealers sentenced over stolen goods
Gold dealer linked to jewellery store robberies sentenced to jail
Jail likely for gold buyers linked to 2017 store robberies
Police drop more than 400 charges against gold dealer linked to jewellery store robberies
‘Record-breaking’ armed robbery at gold dealer; colourful history revealed
Gold dealer connected to jewellery robberies fronts court
Gold dealer linked to jewellery robberies ordered to pay $200,000
Melbourne jewellery robberies linked to gold GST fraud
Breakthrough in Melbourne jewellery robberies

 











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