Liquidators taken to task by dogged pursuer
"I wouldn't have been able to do what I've done otherwise," says the former retailer from South Australia. Few are equipped either mentally or financially for a long lawsuit, he says, particularly against liquidators and lawyers, "fighting you with your own money".
It didn't go too well just before Christmas, when the Supreme Court of South Australia struck out his appeal against the Legal Practitioners Conduct Board.
Though this was merely the latest skirmish in an epic decade of hostilities. Name your court - supreme, federal, appeals, magistrates and high - Viscariello has been in every one except the tennis court.
His companies are long dead, his assets bled, but the legal actions still ebb and flow. Now the man who once traded under the brand name Faulty Towels has become the poster boy for injustice in insolvency. He has taken the fight to a rapacious profession, which is in need of reform.
And he has already amassed as much evidence as any litigant before him to support his claim that the lawyers and liquidators of his companies had lost the plot in pursuit of their fees.
Indeed, the Chief Justice of the Supreme Court of South Australia, Chris Kourakis, had some damning words for liquidators PPB and law firm Minter Ellison in an interim judgment in August.
"No material has been placed before me which could explain how Mr Macks [the liquidator formerly from PPB] could have come to burden the creditors of Bernsteen [Viscariello's company] with the weight of legal costs approaching half a million dollars in an attempt to recover $28,000," the judge said.
"I have formed the view that there are reasonable grounds to suspect that the proceedings were prosecuted recklessly, indifferent to the possibility that they might be an abuse."
PPB and Minters are hardly the first to gorge themselves at the trough of a liquidated estate. Insolvency is the biggest gravy train in town and these are but two of the bigger players to live high on the hog. What is rare is to see the courts acting to stem the flow of liquidators' and lawyers' abuses. Liquidators are appointed by the courts, after all.
From the outset, Viscariello claimed there should have been a deed of company arrangement. Fred Bart had agreed to buy his company's assets, he says, but the liquidator ignored the Bart proposals and ran up legal bills fighting it instead.
Things turned nastier in 2002 after Viscariello's girlfriend and former employee Tanya Hamilton-Smith bought some shop fittings from Bernsteen. She was owed entitlements by Bernsteen, she claimed. The liquidator was unmoved and sued her for the $27,733.29.
"The proceedings against Ms Hamilton-Smith took a tortuous and expensive course," Justice Kourakis found. "There was further litigation over the consequential costs order made against Ms Hamilton-Smith on the application to set aside the judgment. The litigation over the costs order troubled the appellate courts of this country, including the High Court, until 2006. By May 30, 2005, legal fees totalling almost $250,000 were incurred by Bernsteen in pursuing Ms Hamilton-Smith.
Excluding again any work on the Hamilton-Smith proceedings, PPB had racked up fees of $552,984, which left the estate in deficit.
"With the result that the creditors received no dividend for the assets of the company and no return for the close to $1 million in fees incurred by the liquidator and the solicitors engaged by him," Justice Kourakis said.
Another key element to the case were claims by Viscariello and Hamilton-Smith that the liquidator, Macks, had sued another party, Heidi George, in order to get at Viscariello through Hamilton-Smith.
The judge refers to "the existence of the funding arrangement" between liquidator Macks and Heidi George. Macks had funded the George lawsuit to bankrupt Hamilton-Smith - and, in so doing, had run up $180,000 suing George and another $184,000 in pursuing its claim against Hamilton-Smith.
"Payment of Ms George's debt would not have advanced Mr Macks' purpose much," the judge found. "Mr Macks' purpose in funding the arrangement was to secure the bankruptcy of Ms Hamilton-Smith."
This case is dynamite. Macks has left PPB. Minters Ellison is on edge. Final submissions are due in February and judgment will follow. But already Viscariello has taken his case further than many would have believed possible.
Surely there is no financial reward now that the estate is gone. Why did he do it?
"It was the right thing to do," Viscariello said. And from his August interim judgment, South Australia's Chief Justice seemed to think so as well.
"There were characteristics of the George proceeding which, on their face and in combination, were capable of being viewed as calculated to corrupt the processes of the court," Justice Kourakis said.
In the course of that litigation, the judge said, the solicitors and the liquidators "had engaged in a loosely defined fee-sharing arrangement funded from recoveries".
They carved this baby up good and proper, in other words. And had it not been for one very determined man, they would have got away with it.
Frequently Asked Questions about this Article…
The Viscariello case follows John Viscariello — a former retailer whose companies went into liquidation — as he challenged the actions and fees of liquidators and their lawyers. The case is important for everyday investors because it highlights how large legal fees and disputed liquidator decisions can swallow recoveries, leave creditors with no dividend, and raise broader questions about accountability and reform in the insolvency system.
South Australia’s Chief Justice Chris Kourakis issued sharp interim criticism, saying there were reasonable grounds to suspect proceedings were prosecuted recklessly and might amount to an abuse. He questioned how liquidator Michael Macks (formerly of PPB) could burden creditors with legal costs approaching half a million dollars in an attempt to recover only about $28,000, and flagged features of some proceedings as potentially calculated to corrupt court processes.
No. Justice Kourakis noted that because of the legal fees incurred by the liquidator and engaged solicitors — close to a million dollars overall when combined with related litigation costs — the creditors received no dividend for the company’s assets.
The article reports that the liquidator and solicitors ran up fees approaching half a million dollars to pursue about $28,000 in one line of recovery, and nearly $250,000 on litigation involving Tanya Hamilton‑Smith. Excluding the Hamilton‑Smith work, PPB’s fees were reported at $552,984, leaving the estate in deficit.
The judge said solicitors and liquidators had engaged in a loosely defined fee‑sharing arrangement funded from recoveries. That became problematic because it suggested incentives to pursue litigation for fees rather than for the creditors’ benefit, and it contributed to the court’s concerns that some proceedings were recklessly prosecuted and possibly an abuse of process.
Yes — the case describes liquidator Macks funding a separate lawsuit against Heidi George with the apparent aim of putting pressure on Tanya Hamilton‑Smith. The judge found that the funding and related litigation (costing hundreds of thousands of dollars) appeared intended to secure Hamilton‑Smith’s bankruptcy, raising questions about appropriate use of estate resources.
Investors and creditors should be aware that insolvency can generate significant legal costs that may erode or eliminate any recovery. It’s sensible to monitor insolvency appointments, ask for transparent disclosures about expected costs, and consider early legal or financial advice if you are a creditor or have interests in a company facing liquidation.
At the time of the article, the Chief Justice had delivered an interim judgment critical of conduct, final submissions were due in February and a final judgment was expected to follow. The coverage argues the case is ‘‘dynamite’’ because judicial criticism of liquidators and lawyers may prompt calls for greater accountability and reform in insolvency practice, but any formal changes would depend on outcomes and subsequent regulatory or legislative action.
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