DIRECTORS of the collapsed Mowbray College may face legal action after it was
revealed the private school may have traded while insolvent by incurring up to
$12 million in debt.
In a letter seen by The Age, liquidator Jim Downey said his preliminary view
was Mowbray College may have been insolvent since 2007.
He said he and the school may have a claim against directors and officers for
breaching their duty under the Corporations Act to prevent Mowbray from trading
while insolvent.
Up to 1200 students and 200 staff were shocked to learn in June their school
would close within days.The prep to year 12 school received almost $15
million from the state and federal governments in 2010, according to the My
School website.
Mr Downey said the directors may also face legal claims in relation to family
deposits, prepaid school fees and expenditure on a joint venture with an
international school in China.
The potential legal action comes as the federal and state governments have
vowed to do more to prevent the closure of private schools, including minimum
requirements for ongoing financial viability.
In the letter to directors, Mr Downey said the college was obliged to deal
with family deposits as a bond held in trust until the last student finished
their education at the school.
However, he said the school placed the deposits, of between $800 and $2000
per family, into an overdraft account, in breach of its obligations as a
trustee.
In March this year it was estimated Mowbray College was carrying a liability
of $1.2 million in unsecured family deposits, which had not been set aside for
fee payers.
The school had also deposited prepaid school fees into the overdraft account
that should also have been held in trust.
‘‘The effect of this was that upon Mowbray’s insolvency, it was in no
position to repay prepaid fees, notwithstanding its obligation to do so,’’ Mr
Downey wrote.
Between 2008 and 2012 the school board authorised almost $1.2 million in
payments to Hua Mao Multicultural Educational Academy in China.
Mr Downey said the benefits to Mowbray under the Hua Mao agreement were
opaque and the school received little benefit.
He said the directors may face legal action for failing to assess the risk
and depriving Mowbray of $1.2 million that should have been used to meet the
school’s capital needs.
Mowbray College recorded losses every year from 2007 to 2011 apart from 2010,
totalling almost $5 million.Mr Downey said there were a number of facts and
events that indicated Mowbray traded while insolvent. As early as March 2009, an
internal email between directors said Mowbray was facing severe financial
difficulties and would be insolvent within four months unless there was a
‘‘radical change’’.
In June 2009, director John Wallace said in an email to director Steven
Howard: ‘‘if we don’t get the savings … then sustaining the college
financially will prove impossible without borrowing more money (a big ‘if’ given
our current debt level and the NAB are aware our transport loses [sic] are one
of the two elephants in the tent, the other being our total wage costs/teacher
to student ratios)’’.
During 2011 to 2012 business manager Nicole Bradshaw consistently queried
whether Mowbray was trading while insolvent. She was told not to
worry.
