Prominent Wollongong lawyer Aaron Kernaghan is being investigated for potential breaches of company law amid revelations his law firm is $420,000 in debt.
Mr Kernaghan’s legal practice, Kernaghan and Associates Pty Ltd, of which he was the sole director, was placed into liquidation by the Supreme Court in March for failing to pay its tax bill.
Subsequent investigations by liquidators RSM revealed the company had debts totalling $525,972 as of March 10.
The bulk of the debt – almost $450,000 – is owed to the ATO. A further $45,000 is owed to employees and $32,000 to trade creditors.
Meantime, the company’s assets are estimated at $104,465, including $85,000 in fees owed from Mr Kernaghan’s work at the Child Abuse Royal Commission.
Liquidators have told ASIC they believe the company’s failure was caused by “poor financial control, poor management of accounts, poor strategic management of the business and inadequate cash flow or high cash use”.
Furthermore, in a report to creditors obtained by the Mercury, RSM partner David Kerr said investigations of the company’s financial situation “suggest a potential breach of section 180 [of the Corporations Act 2001]” – namely, that directors “exercise their powers and discharge their duties with due care and diligence”.
“I am of the opinion that due care and diligence was not exercised in ensuring financial records were adequately maintained and that the company was in a position to repay its creditors,” Mr Kerr wrote.
“It appears that expenses such as rent on the company’s premises and employee superannuation were left unpaid for a significant amount of time while the director attempted to negotiate with the ATO.”
Mr Kerr also formed the opinion the company had breached laws relating to financial record keeping.
Mr Kernaghan has since purchased back the company’s business name, intellectual property rights, equipment, telephone account and vehicle and continues to practice as a sole trader.
He represents dozens of private and Legal Aid clients, including Robert Nikolovski, who is accused of orchestrating the killing of Wollongong underworld figure Darko Janceski in 2011.
Mr Kernaghan provided the following statement to the Mercury: “On 10 March, 2016, Kernaghan and Associates Pty Ltd was wound up.
“The company had entered into and was complying with a payment plan with the ATO regarding its then debt.
“Kernaghan and Associates has completed an extensive restructure in order to maximize the excellent service to our clients and our community for which we are known.”