Clive Palmer could face up to five years in jail and bankruptcy proceedings if prosecuted over his “reckless” use of Queensland Nickel as a “piggy bank” to fund his business and political empire.
A report by QN administrators to the corporate regulator will flag possible criminal offences by Palmer as an alleged “shadow director” who drained about $200m from the Townsville business, contributing to its collapse.
The tycoon turned federal MP faces the possibility of prosecution under the Corporations Act and the prospect of public examinations under oath by liquidators who will target his companies and properties for recovery of up to $300m owed to creditors.
It comes after a report to creditors on Monday flagged the “attractive” prospect of liquidators trying to claw back about $250m in “uncommercial and director-related” payments including to Palmer’s political party and investments in mines, a vintage car collection, golf courses, resorts and the tycoon’s ill-fated quest to build a replica of the Titanic.
This also included $43m that Palmer, then a QN director, ordered the company transfer on one day in November 2012 – including $38m to himself, his father-in-law and his wife’s offshore company.
Administrator John Park of FTI Consulting said it was working “hand in hand” with the Australian Securities and Investments Commission, which it would ask to fund public hearings and legal action to recover money.
Park said he expected Palmer to wage a “vigorous” and prolonged legal fight against recovery action by FTI, which will become QN’s liquidator if creditors accept its recommendation of winding up the company on 22 April.
He said pursuing criminal charges alleging reckless conduct by directors would be “extraordinarily difficult, it doesn’t happen very often and it requires more evidence to get to that”.
Park said public hearings into Palmer’s alleged role in extracting cash from QN, including via orders issued under the email alias “Terry Smith”, would be “a great opportunity to get evidence on oath as to the various issues you may say are contentious”.
The alleged misappropriation of funds by Palmer and his nephew Clive Mensink, the managing director of QN, took place alongside neglect of basic repairs and maintenance which led to safety and environmental concerns at the Yabulu refinery.
Park said QN was “the piggy bank, the treasury, and the money was coming through [it] in the better times and was being dissipated amongst the Palmer empire entities”.
Given the collapse of QN after signs of a nickel price slump, it was neither “appropriate [nor] prudent” of Mensink and Palmer to authorise the payments, mostly loans that were improperly “forgiven”, he said.
Keeping the money would have kept QN going through the nickel slump for several years at least, Park said.
Park said to find sufficient evidence of reckless breaches of director duties under section 184 of the act “certainly will require further interviews and further examination of the directors about their state of mind and why things were done”.
“One of the issues that we’re certainly concerned about is the way the business was run … We certainly take a view that the QN operation with respect to its treasury function was run in a reckless fashion.”
Palmer has denied acting as a shadow director, arguing he was entitled to control QN spending as chairman of a joint venture committee directing the operation of the refinery with “no assets or income” of its own.
He released a statement on Wednesday saying he would release documents that would prove the allegations in the administrators’ report were “false”.
Palmer accused FTI Consulting of releasing a report containing derogatory and untrue statements “without providing myself or others named in their report the opportunity to be aware of such allegations or discuss such matters”.
“The report calls into question the professionalism and impartiality of FTI,” he said. “Their findings are filled with innuendo.”
Park said Palmer “obviously has a number of concerns with the contents of our report and our findings with respect to his conduct and the position of Queensland Nickel overall”.
He said the “quickest and cleanest” way to recover $190m so far claimed by creditors – including QN staff owed about $73m – was to pursue repayments from Palmer’s joint venture companies that own the refinery.
If they do not pay up, the liquidator would seek a court order for a winding up and appoint another liquidator to sell off the refinery.
Separate action to claw back “uncommercial director-related” payments presents targets of varying promise. The Titanic project, which received $5.9m of QN money, and the Palmer United party held little prospect of recoverable funds, Park said.
“The best I’ve seen [of the Titanic] is a plastic model sitting in the offices of Mineralogy at 380 Queen Street,” Park said.
Another more complex legal bid to pursue Palmer and Mensink for allowing the company to trade while insolvent could expose Palmer to bankruptcy proceedings in a “worst-case” scenario, Park said.
FTI Consulting’s report alleges QN became insolvent by 27 November, when it defaulted on a debt to the rail company Aurizon, after which it incurred $225m in debt.
If Palmer were shown to be a shadow director and QN’s insolvency could be proven on a day-by-day basis, he could be personally liable for that debt. If he refused to cut a deal to pay, “worst case is we would take steps to bankrupt Mr Palmer and those assets then come into play for the benefit of Queensland Nickel”, Park said.
Administrators have compiled lists of Palmer’s and Mensink’s assets which may be “available to meet an insolvent trading claim if one was successfully pursued”.
The fallout for Palmer would “certainly flow through the greater empire and will no doubt be causing a cash squeeze”, he said.
But Palmer’s flagship company Mineralogy, with its royalty stream from a Western Australian iron ore joint venture, appeared likely to remain “very healthy financially”, Park said.
He said the “vast majority” of QN workers would receive their full entitlements under the commonwealth’s fair entitlements guarantee and as priority creditors in liquidation.
However, prime minister Malcolm Turnbull insisted Palmer should be the one making good the entitlements.
“That’s the very least he can do in these circumstances,” he said, noting that Palmer had held himself up as a great business leader and philanthropist.
