NextGen heading towards insolvency following unpaid AFCA determination
An application has been submitted to wind up NextGen Financial.
After grappling with multiple challenges, NextGen Financial Group is slated to undergo a hearing on 3 October. This comes in the wake of an application for its winding up filed by SMSF trustee WJ & V Drakoulis Super and marks the conclusion of a lengthy legal process that saw the two battle it out in the Federal Court.
Namely, in July the Federal Court ruled in favour of WJ & V Drakoulis Super after NextGen failed to answer an AFCA determination which said that it owed WJ & V Drakoulis Super the sum of $270,523.67 in relation to an investment loss due to inappropriate advice.
The court date came as a result of NextGen’s application which followed a statutory demand issued by WJ & V Drakoulis, in which the SMSF insisted that NextGen settle the amount of $270,523.67.
Subsequently, NextGen sought relief from the Federal Court, aiming to have the statutory demand set aside. Its argument rested on the premise that the AFCA determination, in and of itself, could not be enforced through a statutory demand.
NextGen contended that Drakoulis must secure a court order before a legally recognised debt could be established and subsequently owed.
But the court dismissed NextGen’s application, while the statutory demand essentially served as a preliminary step for the SMSF and granted it the right to initiate winding-up proceedings against NextGen if the debt remained unpaid.
Commenting on NextGen’s failure to answer the AFCA determination, Selina Nutley, partner at McMahon Clarke, said in a blog post last month that the statutory demand meant that NextGen had to pay or be deemed insolvent.
“If it doesn’t pay, Drakoulis will be able to pursue the liquidation of NextGen in a relatively straightforward fashion,” Ms Nutley explained.
Ultimately, she cautioned, that the overriding message of this case is that AFCA determinations are ignored at a licensee’s peril.
“Not only does failure to satisfy a determination give ASIC a clear basis for cancellation of an AFS licence, but it may also lead to a loss of control of a company through the placement of it in the hands of liquidators,” she said.
She also warned that liquidators are bound to investigate the reasons for the failure of a company, and directors may become indirectly liable for debts of the company, including AFCA determinations.
Speaking to ifa’s sister brand SMSF Adviser in July, leading SMSF lawyer Daniel Butler, director of DBA Lawyers, said NextGen’s failure to dispute the debt with AFCA, and the fact NextGen did not respond to the AFCA complaint, were additional grounds for the Federal Court to refuse its application.
NextGen was previously known as the FinancialLink Group and was for a time a part of Beacon Financial Group.
The firm, according to Wealth Data, was down to about 20 advisers as at September 2023.
