Court reverses Five Star ruling

Five Star Finance building. Photo / Greg Bowker

The Court of Appeal has reversed a High Court ruling that stopped liquidators of a failed finance company from receiving nearly $1 million.

The Five Star group called in receivers in 2007.

Five Star Finance owed creditors $43.8 million, of which $551,887 had been recovered.

In January, liquidators Gerald Rea and Paul Sargison of Gerry Rea Partners applied to the High Court to void payments worth $928,937,79 by Five Star Finance to Bowden No14 Trust, of which Ronald Leslie Russell was sole trustee, between September 2006 and August 2007.

Associate Judge Roger Bell turned down the application.

He said the payments were in "restoration of property unlawfully misappropriated from the trust" and the liquidators were not entitled to an order to set them aside.

Judge Bell ruled that while it was improbable the company would be able to avoid insolvency in 2007, there was not enough evidence to exclude the possibility.

But in a decision released on Friday, the Court of Appeal ruled it was obvious the company's bank accounts were significantly in overdraft in the months before March 2007, and remained that way while the company was heading towards receivership in September 2007.

"The financial position of the company was hopelessly insolvent at the time of its receivership, and the suggestion that in the last six months of its existence it might have gone out from overdraft and into credit and then back into deep insolvency is improbable."

The ruling said the payments to Bowden No14 Trust were "insolvent transactions".

It allowed the liquidators' appeal and ordered Russell to pay Rea and Sargison $928,937,79.

Five Star marketed itself as a low- or modest-risk finance entity that made small consumer loans for household purchases such as fridges.

Instead, it was allegedly investing large sums in complex commercial and related-party loans totalling more than $50 million.

In 2010, the Serious Fraud Office investigated the collapse of the Five Star group and laid charges against former directors Nicholas Kirk, Neill Williams, Marcus McDonald and Anthony Bowden. All but Williams have been convicted.

In 2010 Williams admitted charges over misstatements in company offer documents but later said it was only because he was too ill to endure a trial. He has since been fighting to have his plea vacated.