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The directors of a luxury cruise company that left customers thousands of dollars out of pocket after going bankrupt may be forced to repay more than half a million dollars of illegally accrued debt if any insolvent trading occurred.
Key points:
The directors of a cruise company could be liable for around half a million dollars
Island Escape Cruises went into receivership last year, after it cancelled cruises with little notice
A report from an administrator reveals an investigation into whether the company was insolvent trading
Island Escape Cruises NZ advertised voyages along the Kimberley coast before cancelling in mid-2022 with little notice, leaving customers devastated — and without a refund.
Its Australian counterpart went into voluntary administration late last year after creditors voted to wind up and sell assets.
The multimillion-dollar superyacht Island Escape was put up for sale in an attempt to recover funds and pay off debts incurred.
The company's finances are under review by administrator BCR Advisory.
Its most recent report, seen by the ABC, outlines potential claims against directors if the company was trading while insolvent.
In the report, administrator Dane Skinner said directors could be liable for the debt incurred if insolvent trading occurred.
"Based on my investigations, my best estimate is that the company has been insolvent since May 2022 to August 2022, when the vessel was arrested by the Federal Court of Australia," he wrote.
"I believe that insolvent trading can be established at this time with a potential claim against the director, shadow director or parent company of up to $586,820."
It is unclear how the debts were incurred. However, Mr Skinner said reimbursements could be required.
"The director and shadow director may be liable to compensate the company for losses incurred when trading the company while it was insolvent," he wrote.
University of Western Australia legal and business expert Richard Winter said directors could be in breach of their legal obligations even if they did not know a company was insolvent.
"Being a director, you don't get a free pass," he said.
"It's irrelevant that they don't actually know [they were insolvent]. It's what a director in their position should know.
"If you're not going to reach that standard of care, that's your problem."
Mr Skinner's review is also investigating whether the company made any unfair preference payments.
These are payments to an unsecured creditor with an advantage over other creditors and can be voided in some situations.
"My limited investigations have identified to date potential unfair preference payments totalling $12,500," he said.
Investigations are still ongoing and Mr Skinner's findings will be submitted to ASIC for further review.