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Late last week, the Supreme Court of Queensland ordered Fredericks to be removed as trustee of a private investment trust in which his former business partner and Brisbane lawyer, Phil Heraghty, had invested seed capital in 2007.
Fredericks has since stepped down from his duties at the real estate media and technology business he founded and Gail Pemberton has resumed the position as interim OTH CEO.
Heraghty claims he has been pursuing Fredericks for OTH information and basic accounts since June 2011, on the grounds he invested $50,000 in the company when it was still a small start-up operation.
Heraghty, represented by Russells managing partner Stephen Russell, told the court that Fredericks has not produced a financial statement in seven years of business and has been using trust money for personal purposes, namely paying off a MasterCard account and transferring funds to a joint account with his wife.
Fredericks filed an affidavit admitting to serious breaches of trust earlier this week, a backflip from the stance he has been taking since mid-June where he was claiming he complied with all obligations.
Justice Alan Wilson labelled Fredericks’ record keeping as “atrocious”.
“It is appropriate to record the trustee’s paucity of record keeping … indeed atrocious record keeping, which has to be read with the other unusual issues which have excited the applicant’s concerns,” says Wilson.
Wilson says there are “compelling reasons” for Fredericks to pay indemnity costs to Heraghty.
“Trustees shoulder special responsibilities, charges and obligations and it is inconceivable that Mr Fredericks did not understand his obligations,” says Wilson, the last part in reference to Fredericks being a solicitor.
Fredericks asked for more time to put the affairs of the trust in order, but Wilson has removed him as trustee and replaced him with liquidator and accountant Ginette Muller of FTI Consulting.
Heraghty’s representation, Stephen Russell, says the court case should serve as a cautionary lesson for directors of public companies.
“This is a salutary lessons that directors of public listed companies must apply the same standards to their private affairs as is expected in relation to their administration of public listed entities,” says Russell.
Despite Fredericks stepping down from his duties for the time being, a spokesperson from OTH says the matter “doesn’t impact the business operationally”.
“It isn’t a matter for the company and rather a personal matter between Michael and a business partner,” she says.
Fredericks is being represented by HWL Ebsworth, which refused to comment to Brisbane Business News on the matter while court proceedings are still being played out.
OTH's share price dropped 7.84 per cent to 47 cents per share immediately following the announcement of Fredericks stepping down.
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