26 October 2018

Director's Duties: Adtraction Marketing Ltd v. Ehrenfeld

Sydney company director Gabriel Ehrenfeld barred by ASIC from managing any Australian corporation for five years from 2016 but not before he had plundered resources out of Auckland advertising agency Adtraction Marketing Ltd.  The High Court ordered repayment of $181,000 wrongly taken from Adtraction, now in liquidation insolvent owing creditors over two million dollars. 
The Australian Securities & Investment Commission’s five year ban followed Mr Ehrenfeld’s failure to comply with Australian corporations law and for what was described as his failure to show any insight or contrition into his behaviour.  This included mismanagement of Australian company Reeltime Media Ltd, a company used by Mr Ehrenfeld to fleece Auckland-based Adtraction Marketing in late 2013.
The High Court was told Mr Ehrenfeld bought into Adtraction Marketing in October 2013.  Adtraction had been operating for some nine years prior to his purchase. He promised big things: greater expertise through his Australian connections, back-office administrative support and an injection of AUD$100,000 fresh capital.  The capital injection never eventuated.  Evidence was given of cash filtered out of Adtraction Marketing almost as soon as he was installed as director.  Over a four month period, $228,500 was transferred to Australia in what Mr Ehrenfeld called a ‘squeeze and release’ methodology.  The ‘squeeze’ amounted to fees charged for provision of administration and financial services together with licensing fees all intended to sharpen cost centre focus; the ‘release’, supposed discounts for improved performance.  Justice Venning ruled there was no evidence to support most of the fees charged by Reeltime Media group.  A series of invoices for the supposed fees was created ex-post after the cash had been transferred and just prior to Mr Ehrenfeld putting Adtraction into liquidation.
Justice Venning ruled there was no commercial justification for $181,000 of the cash moved to Australia.  Many of the services invoiced were not provided.  Mr Enrenfeld was ordered to compensate Adtraction.  He breached duties as a director; failing to act in good faith and in the best interests of the company.
Adtraction Marketing Ltd v. Ehrenfeld – High Court (26.10.18)
18.213