Liquidators taken to task by one man's dogged pursuit

It was fortuitous that he graduated as a solicitor on December 20, 2001, John Viscariello says, because "the next day they put my company into liquidation".

"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 and 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 Fawlty 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 legion of liquidators' and lawyers' abuses. Liquidators are appointed by the courts, after all.

This is the beauty of the Viscariello case. The preliminary findings by the Chief Justice are not pretty. They support Viscariello's claim that PPB and Minters carved the estate up between them with little heed to repaying creditors.

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, over a period extending through to 2006. Up until 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 Ms 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's purpose much," the judge found. "Mr Macks's purpose in funding the arrangement was to secure the bankruptcy of Ms Hamilton-Smith."

The judge also made note of how the funding details had somehow slipped the mind of the liquidator's legal team: "In the course of submissions by senior counsel engaged by Minter Ellison for Ms George, [Justice] Gray asked him this question: 'Does Mr Macks have an interest in this matter of any sort?' Senior counsel replied: 'On my instructions, he has no interest in the debt which is the subject of the action and, on my instructions, he has never paid the debt.' [Justice] Gray then asked: 'Does he have any interest in this action at all?' Senior counsel replied: 'Not on my instructions, no."'

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 thought 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 appeared 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.