Photo: Craig Walton has previously denied trading while insolvent. (Facebook)
The liquidator of a collapsed construction giant has found evidence it says indicates the company's director and founder knowingly traded while insolvent, according to a confidential report obtained by the ABC.
Walton Construction operated in Victoria, Queensland and New South Wales, and was placed into voluntary administration in October 2013 owing tens of millions of dollars to more than 1,000 subcontractors and suppliers, including plumbers and landscapers.
The liquidator says the Queensland branch of the company, Walton Construction (QLD) Pty Ltd, folded owing more than $18 million to subcontractors and suppliers.
The companies' director, Craig Walton, previously denied trading while insolvent and defended using the profitable Queensland arm of the company to prop up the faltering NSW and Victorian operations.
The ABC has obtained a confidential liquidator report from July 2016 relating to the Queensland branch that details alleged breaches of director duties by Mr Walton.
These include claims in the report for the state's construction watchdog, the Queensland Building and Construction Commission (QBCC), that Mr Walton used company money to pay bank debts that he had personally guaranteed, while the company continued to rack up debts to subcontractors.
Liquidator Grant Thornton submitted the report after a Federal Court public examination that began at the end of 2015.
An ABC report raised questions about the financial position of the company in the period before its collapse earlier that year.
Mr Thornton also alleges Mr Walton was aware the company was insolvent from the end of March 2013 — more than six months before the firm collapsed.
"Based on the information available to the director at the relevant time, we believe that a reasonable person would have suspected that the company either was, or was likely to become insolvent," the report states.
"Furthermore, as a consequence of the public examination, we have located a number of documents indicating that Mr Walton was actually aware the company was insolvent on or before March 31, 2013."
Auditor was told company would be able to pay debts
Mr Thornton states in the report a letter dated March 13, 2013 was sent to Mr Walton by the company's auditors, citing concerns the company may be trading while insolvent and seeking a response.
Under examination in the Federal Court, Mr Walton said both the Victorian-based company, Walton Construction Pty Ltd, and the Queensland branch didn't become insolvent until October 2, 2013.
The court heard legal advice was sent to the auditor later that month stating, "The company will be able to pay its debts as and when they become due and payable".
Mr Walton subsequently obtained similar advice from another set of lawyers.
But Mr Walton conceded under questioning that both lots of advice were provided without the lawyers having access to detailed financial information.
Former subcontractor says he's owed $500,000
Photo: Mr Hartshorn's business folded in 2013. (ABC News: Alexandra Blucher)
Former landscape business owner, Beau Hartshorn, said he was still owed more than $500,000 by the Queensland branch.
Mr Hartshorn said he started work at a new Coles supermarket site on the Sunshine Coast in April 2013.
He said he received one payment of almost $30,000 and had brought the job to "practical completion" when Walton's Queensland branch was put into voluntary administration.
Mr Hartshorn's business went into liquidation within weeks. He lost his home and his family was forced to live with relatives.
"I was thinking how was I going to tell my wife and my kids that pretty much we've lost everything in a day? And we had, we lost everything. Half a million dollars is a lot of money to lose," he said.
Mr Walton told the Federal Court it was his recollection no subcontractors were unpaid on that project as of September 5, 2013.
However, Mr Hartshorn said his company, Earthscapes Consulting, was not paid for invoices before that date, and the bulk of his bills were invoiced in late September.
The ABC has contacted Mr Walton and his lawyers for comment, but had not received a response by time of publication.
Queensland Government calls on ASIC to act
Queensland's Housing and Public Works Minister, Mick de Brenni, has called on the Australian Securities and Investment Commission (ASIC) to act if there is evidence of criminality.
"It [ASIC] needs to be making a decision about this investigation, taking the appropriate action, and if there are people involved in this who have committed crimes, then they ought to be punished," he said.
"The building and construction industry shouldn't be a place where rogue operators can come in, destroy the lives of other people, and simply get away with it."
The ABC understands the liquidator provided ASIC with information earlier this year relating to the public examination of Walton Construction, and the watchdog is currently considering whether action should be taken for the alleged breaches.
According to protocol, ASIC would then recommend any criminal charges to the Director of Public Prosecutions. ASIC has declined to comment.
Subcontractors effectively used to fund trading losses: report
The report also alleges Mr Walton may have engaged in the "improper use of position" — a potential breach of the Corporations Act.
It states he transferred money to a different company and used those funds to pay debts with the National Australia Bank, while the Queensland branch continued to rack up debts to subcontractors.
"Mr Walton was possibly motivated to continue trading the insolvent companies to remove the risk of personal exposure under personal guarantees to NAB," it states.
"As a result, Mr Walton received a direct financial benefit by effectively using subcontractors (which did not hold personal guarantees) and the company to fund WC's trading losses while the NAB debt and bank guarantee exposure was managed down by $7.9 million (based on managements security tracker worksheet)."
But when asked in the Federal Court whether, "continuing to fund Walton Construction would put Walton Construction Queensland at risk?", Mr Walton responded: "I believed that we could trade Walton Construction into a profitable state, and Walton Construction Queensland was very profitable in its own right."
The liquidator's report also expresses concern about the commercial basis for the transfer of assets from Walton Construction to another company just weeks before the collapse.
That company, Peloton Builders, was associated with the company's advisers, the Mawson Group.
Mr Walton told the Federal Court examination the transfer was in the best interests of employees and the creditors.
Tough new construction laws in Queensland
Mr de Brenni said the collapse of Walton Construction was the motivation for new laws passed last month that require project bank accounts, and give financial investigative powers to the QBCC.
The project bank accounts are, "designed to make sure that money from projects like the Walton project can't be diverted off into some other investment at the whim of the builder", he said.
Mr de Brenni said the new legislation strengthened the QBCC's ability to refuse "excluded individuals" a licence.
The law states anyone who is involved in a company failure in other jurisdictions or is the director of a company up to two years prior to a failure will be excluded from receiving a licence.
"I'd urge other state and territory ministers to consider a regime that reflects the strong powers that we've put in place here in Queensland around excluded persons," Mr de Brenni said.
The LNP supported the bill despite being critical of the new laws in Parliament....Read more