When Restructuring Becomes Asset Stripping

In a significant 2024 decision, the Federal Court of Australia considered the collapse of TSK QLD Pty Ltd, a Queensland-based recruitment and labour-hire company servicing the mining and energy sectors.

Its business depended heavily on accounts receivable generated from supplying labour to large commercial clients, with those receivables forming the company’s primary asset base.

The Court later found that, rather than stabilising the business, a coordinated restructuring arrangement was implemented that had the substantive effect of removing valuable assets from the company at a time when creditors’ interests were exposed.

background

By 2021, TSK was under severe financial strain. Cash flow pressures had escalated, liabilities were accruing, and the company’s capacity to meet debts as they fell due was materially impaired. It was in this environment that TSK engaged an external accountant-adviser, presented as a restructuring specialist, to assist in managing its financial position.

What followed was a sequence of interrelated transactions that later became the subject of court proceedings.

Transactional steps

Step 1 – Financial distress and advisory control.

At the time the restructuring measures were implemented, TSK was insolvent or approaching insolvency. This timing was legally significant. The Court later examined whether the company’s financial position engaged insolvency-based protections for creditors and heightened duties for officers and advisers.

The external adviser assumed a central role in developing and executing the restructuring strategy.

The degree of reliance placed on that adviser, and the extent of their involvement beyond traditional advisory functions, became a key factual issue.

Step 2 – Purported sale of business and receivables.

TSK purported to sell its business operations and accounts receivable, said to be worth approximately

AUD 11.2 million, to a corporate vehicle controlled by TSK’s then chief executive officer.

Although framed as a commercial transaction, the Court later examined whether the sale transferred real value to TSK or instead removed its principal assets while leaving creditors exposed. The related-party nature of the transaction required close scrutiny.

Step 3 – Debt collection arrangement.

Concurrently, TSK entered into a “debt collection” agency agreement with entities associated with the external adviser. Under this arrangement, those entities were appointed to collect TSK’s receivables from clients.

In practice, the structure of the agreement meant that receivables were collected but not returned to TSK. Incoming funds were diverted to the adviser, senior management, and their associated entities, rendering the receivables effectively valueless to the company itself.

Step 4 – Movement of funds and creditor impact.

Across 2021, approximately AUD 10.3 million was removed from TSK through the combined operation of the sale and collection arrangements.

During this period, unsecured creditors received no benefit from the transactions and had no realistic opportunity to protect their interests. The company’s asset base was depleted while liabilities remained outstanding.

Step 5 – Administration, liquidation, and proceedings.

In 2022, TSK entered voluntary administration and subsequently liquidation. The liquidators commenced proceedings to recover the diverted funds.

The litigation was pursued against those alleged to have orchestrated or benefited from the transactions, including the external adviser and his associated entities, referred to as the Whitehouse defendants. Claims against the director and senior management were resolved separately.

Legal Considerations

Creditor-defeating dispositions

(Corporations Act 2001 (Cth), ss 588FDB, 588FE)

The central legal framework applied in this case was the creditor-defeating disposition regime introduced by the 2020 insolvency reforms.

Section 588FDB defines a creditor-defeating disposition as a disposition of company property for less than market value, where the effect is to prevent, hinder, or significantly delay creditors’ access to that property in a liquidation.

The Court examined whether:

• The accounts receivable and business assets constituted “company property”.

• The purported sale and collection arrangements resulted in TSK receiving less than market value.

• The practical effect of the transactions was to place assets beyond the reach of creditors.

Where a creditor-defeating disposition is established, section 588FE empowers the Court to make orders undoing the transaction and requiring the return of property or compensation.

Insolvency and timing

The application of these provisions depended on TSK being insolvent, or becoming insolvent, at or around the time the transactions occurred. Evidence of cash flow deficits, unpaid liabilities, and the absence of viable alternatives informed the Court’s assessment of insolvency proximity.

Timing was critical in determining whether the protections for creditors were engaged and whether the transactions fell within the statutory reach-back period.

Role of advisers and third parties

(Corporations Act 2001 (Cth), s 588FG and related principles)

Although directors owe primary duties, the legislation also permits recovery against third parties who are recipients of, or facilitators in, creditor-defeating dispositions.

The Court examined whether the external adviser and associated entities:

• Were active participants in structuring and implementing the transactions

• Received the benefit of diverted funds

• Knew, or ought reasonably to have known, of TSK’s financial position and the effect on creditors

This analysis moved beyond passive advice and into whether the adviser’s conduct contributed to the stripping of value from the company.

Directors’ duties in insolvency proximity

(Corporations Act 2001 (Cth), ss 180–184, 588G)

Although not all duty claims proceeded to trial, the factual matrix engaged established principles governing directors’ conduct when insolvency looms. Once insolvency is likely, directors must prioritise creditor interests and avoid transactions that prejudice their position.

The related-party sale and redirection of receivables were assessed against these standards in understanding how the transactions were authorised and implemented.

Professional significance

The TSK proceedings demonstrate how ordinary commercial instruments, receivables, debt collection arrangements, and internal transfers, can be repurposed to defeat creditor claims. The case underscores the breadth of the creditor-defeating disposition regime and its capacity to reach advisers and associated entities where they are embedded in the flow of funds rather than operating at arm’s length.