Preliminary investigations by the administrators of Novo IT have suggested there may have been offences and voidable transactions, according to a Deloitte report to creditors obtained by CRN.
The administrators understood that prior to the appointment of administrators, Novo IT's business operations stopped trading and a new entity, Novo IT Australia, began operating under a direct service agreement. Shares valued at $250,000 were provided to Novo IT as part of the agreement. However, this transfer of business did not receive the Australian Taxation Office's approval, according to the report.
"In our opinion this transfer represents an uncommercial transaction and would be voidable as to a liquidator if so appointed. As such, we have included the transaction as recoverable in all liquidation scenarios," the administrators said.
As previously reported by CRN, Novo IT director Stephen Chapman said that the company in administration, Novo IT Pty Ltd, was "one of our non-trading subsidiaries" and that the "principal trading entity, Novo IT Australia Pty Limited, a wholly owned subsidiary of the group, is unaffected".
The administrators also investigated transactions relating to shareholder loan accounts identified in Novo IT accounts. According to the report to creditors, investigations revealed the directors withdrew funds from the company which was recorded in a shareholder loan account.
"The loan account was periodically cleared and noted as a working capital loan owing from ICT Vision Investment Holdings Pty Ltd. We understand that this may be payment for the directors’ salaries. Our investigations into these transactions are continuing with the assistance of the directors," the administrators stated.
The administrators also identified more than $80,000 in payments to the NSW Office of State Revenue (OSR). According to the report, this could mean that an "unfair preference" was given to the OSR if it is found that the company was insolvent at the time the payments were made.
The administrators have stressed that the investigations are only preliminary and are seeking further information relating to the transactions.
There was 37 percent decrease in Novo IT's sales revenue from the 2015 and 2016 financial years. The fall was attributed to the company’s decision to diversify revenue streams and build direct relationships with clients as opposed to relying solely on the marketing arrangement with Telstra and a sales director retired from the business resulting in a decline in sales revenue.
The report revealed that the agreement with Telstra represented 60 percent of Novo IT's referral business.
Deed of company arrangement
The directors have submitted a deed of company arrangement (DOCA) as expected. The administrators have recommended creditors to approve the DOCA as they believe this would provide a bigger return to creditors as well as continued employment by most of the employees.
A Deed Fund will be established of up to $609,312 and the DOCA proposal includes the extinguishment of the $1.8 million debt with the ATO.
If the ATO votes in favour of the DOCA, its debt will be extinguished along with the debts of unsecured creditors and they will be required to remove their security interests, as required by the DOCA from both the company and its associated entities: ACV (NSW) Pty Ltd, Devplus Pty Ltd & ICT Vision Investment Holdings Pty Ltd.
Current employees would not have been included in the DOCA and therefore will not be considered a priority if their situation changes.
Novo IT is a managed services provider, formerly known as AVC and was founded 28 years ago. The MSP partners with major vendors including AWS, Cisco, Dell, Microsoft and Telstra.
The company's directors appointed David Ian Mansfield and Neil Robert Cussen from Deloitte Financial Advisory as voluntary administrator on 23 May.