When investigating a bankrupt’s affairs, a misleading story does not always fall apart straight away.
More often, it shifts just enough to stay alive. That can make asset recovery particularly difficult where the asset in question is a specialist item — hard to identify, easy to move, and easy to disguise behind technical detail that sounds plausible on first pass. But in the end, detail is not the same thing as proof. Stories are only stories. Evidence is what counts.
In this matter, the bankrupt, quite separate from his business activities, was also a collector and restorer of historic Australian racing vehicles. In his statement of affairs, he disclosed several collectible cars, including one performance vehicle, recorded at a modest, estimated value. The explanation given was that the vehicle had been stripped back to a shell, that the shell was located interstate, and that various parts remained in his possession. Photographs of the shell and loose components were produced in support, together with contact details for the person said to be holding the shell. It was a detailed account — but detail was never the issue. The issue was whether the evidence supported it.
As part of the administration, we arranged for our agents to attend the bankrupt’s premises and collect the various vehicles and significant parts. On its face, the explanation being given appeared capable of fitting the material initially provided. That changed as further information came to hand.
As enquiries progressed, a creditor contacted our office and supplied external photographs of what appeared to be a fully restored car in distinctive racing livery, said to be owned by the bankrupt. We had also come into possession of an earlier valuation prepared for insurance purposes, which indicated that the subject vehicle had a significantly higher value than what the bankrupt had disclosed. Despite that, the bankrupt maintained that the restored vehicle and the dismantled shell and parts were one and the same. His explanation was that the race-style vehicle had been stripped due to paint issues and was in the process of being taken back and repainted at the time he became bankrupt.
Enquiries with the third party said to be holding the shell did little to clarify matters. That party claimed to be owed money for works undertaken, but no supporting evidence was ever produced. At least initially, those informal discussions appeared to align with the bankrupt’s version of events.
We challenged the bankrupt’s account, including by reference to particular anomalies visible in photographs obtained and produced by a creditor. Further stories that fit the bankrupt’s narrative were relayed to us, along with additional photos, in an attempt to support the position that, again, were questionable at best.
Through contacts in the vehicle restoration community, the creditor obtained and provided additional photographs of the vehicle at an earlier stage of restoration. Those images showed clear evidence of a race roll cage fixed within the vehicle — something that fundamentally contradicted the shell photographs previously produced and relied upon by the bankrupt. The significance of that material was not merely that it raised further doubt. It undermined the chain of explanations that had been given to us throughout the administration of the estate.
That is often the turning point in investigations of this kind. Routine enquiries can only take a matter so far. Once the available material points strongly enough in another direction, the issue becomes whether formal steps are required. Sometimes, the prospect of a formal examination changes the dynamic. It signals that the matter may move beyond informal questioning and that the account being given may need to be tested under oath or affirmation.
In this matter, that mounting pressure ultimately brought the truth into the open. After further enquiries and in the face of a threatened examination, the bankrupt admitted that he had possession of the restored vehicle and assisted with its recovery. The restored car was entirely separate from the disassembled shell and parts originally referred to.
The outcome was significant for two reasons. First, it materially improved the asset recovery position of the estate by securing a vehicle of far greater value than had originally been suggested. Secondly, it demonstrated that the mere prospect of using the examination powers available to a Trustee in Bankruptcy can apply sufficient pressure to produce a practical result. The bankrupt’s conduct, however, required the estate to overcome a number of unnecessary hurdles to get there. As a result, an offence referral was submitted to AFSA, where the matter now rests.
This case is a timely reminder that concealed assets are not always uncovered by a single dramatic breakthrough. More often, they are recovered because enquiries are pursued carefully, inconsistencies are tested properly, and useful information reaches the administration before it is too late. In this matter, creditor assistance played an important role in sharpening the investigation and, together with mounting pressure, helped bring a concealed asset into the estate for the benefit of creditors.
Written by Chris Kaarsberg