C2 Melbourne administrators have flagged several potential breaches of the Corporations Act 2001 as they investigate the circumstances leading to the company’s demise.
A special investigation by Bronwen Largier
The Administrators’ report to creditors of C2 Melbourne, released in early October, contains evidence that C2 International stripped over $1.38 million from C2 Melbourne, beginning 23 days before announcing the cancellation of the event, transferring the funds in 12 payments – nine of which were $150,000 each – from C2 Melbourne to C2 International between 2 August and 28 August.
In addition, Administrators found that C2 International transferred a contract worth over $2.5 million from C2 Melbourne to C2 International in the week before the company was placed in voluntary administration. The contract relates to an event in Sydney for a multinational accounting firm which is believed to be going ahead in November, under the C2 International brand.
There is over $2.4 million owed to “parties claiming to be creditors” according to the Administrators’ report. ASE understands that many of these claims were awaiting verification at the time the report was released.
While C2 International informed creditors that the failure of C2 Melbourne came down to “insufficient ticket sales” and “cancellation of a proposed major government contract”, Administrators have suggested that “poor financial control” and “poor strategic management” along with the transferal of the above funds and contract “may have also contributed to the failure of the Company”.
In their report, Administrators write that Richard St-Pierre – currently the sole Director of C2 Melbourne, in addition to being the President and CEO of C2 International and President of C2 Montreal – “advised that financial statements were never prepared for the Company”. Administrators were also advised that C2 Melbourne’s “financial affairs were managed out of C2 International’s office in Montreal”.
The Administrators’ report suggests that both of the actions above constitute likely breaches of the Corporations Act in Australia and that a Liquidator may be able to challenge these transactions in court to reclaim funds for creditors.
The Administrators have received legal advice that “a Liquidator…would have strong grounds to pursue an unreasonable director related transaction claim against C2 International, Mr St-Pierre and/or former Directors who held office at the time” that the $1.38 million was transferred from C2 Melbourne’s accounts.
In addition, “a Liquidator…may have grounds to pursue a claim for breach of director duties against C2 International, Mr St-Pierre and/or former Directors who held office at the time” when the event contract was transferred. The amount at stake is an assumed 20% profit the company would be likely to make on the event, roughly $496,000.
It is also interesting to note that given that “the Company appears to have failed to adequately maintain its books and records” in accordance with the Corporations Act, “it could potentially be presumed that the Company was insolvent since [the] date it was incorporated” in September 2017.
ASE also understands that a supplier from an event which C2 Melbourne completed for a client in early September in Asia remains unpaid for over AUS$80,000 worth of work. Alongside the substantial amount of debt left owing in the wake of C2 Melbourne’s demise, this raises concerns in our mind for suppliers working on the forthcoming Sydney event.
So we asked C2 International about it.
“C2 International and C2 Melbourne are two separate entities, therefore one’s activities does not directly impact the other’s,” responded St-Pierre, to our question of how Sydney suppliers could be reassured that they would get paid for their work on the November event.
“C2 International has always been committed to strengthening its existing partnerships and developing partner and supplier relations abroad,” he added.
At this juncture we’d like to point out, for emphasis, that $1.38 million did not simply vanish into thin air.
We asked about the transferral of funds too, to which St-Pierre responds:
“We respect the administrator’s position, but our position is that this was due to the normal course of business as was the case for the past two years.”
(We did the maths on this and if it was indeed the “normal course of business” to transfer over a million out of C2 Melbourne each month, they would have made almost $14 million from C2 Melbourne since it was incorporated in September 2017.)
We also raised the transfer of the event contract with St-Pierre, given that profits from the execution of the event could have been used to pay C2 Melbourne creditors.
St-Pierre points out that the accounting firm in question – which he requested we didn’t name – is a long-term client of C2 International.
“C2 International has been working with this client for several years and C2 Melbourne PTY has never delivered any project for this client.”
It seems that C2 Melbourne and C2 International are separate entities when it is convenient to C2 International but interchangeable at other times.
ASE also asked C2 International about the ethics of their actions regarding the funds and contract transferal, particularly given C2 Montreal, upon which C2 Melbourne is based, espouses values of respect and humanism.
“Over the past two years, C2 did everything in its capacity to get things running, including investing close to $4 million in C2 Melbourne,” said St-Pierre in response.
“Ultimately, C2 Melbourne could not come to life, we are the ones that suffered the highest financial loss.
“With the administration process, we are working to provide the best outcome possible for the creditors under the circumstance.”
St-Pierre confirmed that 1,100 tickets for C2 Melbourne had been released at the time of cancellation but only “a couple hundred” had been sold, the rest being tied to partnerships.
As for the “cancellation of a proposed major government contract” cited as a significant factor in the downfall of C2 Melbourne, St-Pierre is quick to point out that support from the Victorian State Government never wavered.
“C2 Melbourne benefited from support of the Victorian Government from day one and their support has been steadfast throughout the entire process.”
“The issue was with the Government of Australia. They withdrew from a one-day event planned prior that extended within the C2 Melbourne event called Air4,” he said.
Despite seeking clarification from C2 International, we were not able to confirm whether there was a signed contract between C2 and AIR4 for the event. However, the event appears to be going ahead in November at Luna Park Melbourne, funded by the Federal Government through the Defence, Science and Technology Group and RAAF.
To date, as far as we know, C2 International has made an offer of $525,000 to creditors to write off their estimated $2.4 million debt.
The Administrators have made a recommendation to creditors that they accept this offer rather than proceed to a Liquidation scenario, in which claims for breaches of the Corporation Act could be pursued, in part because there is considerable uncertainty over litigating across two continents and whether “the Director, former Directors and C2 International would have the financial capacity to satisfy any successful” claim.
ASE understands that creditors will meet in the coming weeks to decide whether to take the $525,000 settlement or send C2 Melbourne into liquidation.
Do you know more? Email ASE here.