High-flying businessman Geoffrey Edelsten has settled his bankruptcy proceedings in the Australian Federal Court, with a deal that will see creditors receive just a few cents in the dollar.
Edelsten, a former doctor who is now better known for his red carpet appearances, filed for bankruptcy in the US in January 2014 and his US creditors applied to the Federal Court in October to have him bankrupted here too.
Fairfax reports Edelsten will settle the proceedings with a cash sum of just over $1 million to be paid to around 30 creditors, who are estimated to be owed more than $20 million.
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The Australian Tax Office is reportedly owed more than $14 million by Edelsten. However, an ATO spokesperson told SmartCompany the ATO cannot comment on any individual’s or entity’s tax affairs because of the confidentiality provisions in the Tax Administration Act.
If approved, the settlement will mean creditors will receive just a few cents in the dollar.
This is despite Edelsten reportedly splashing out $45,000 on a diamond engagement ring for partner Gabi Grecko last year. The flamboyant businessman proposed to Grecko at the Melbourne Cup in November.
According to an earlier Fairfax report, Edelsten has continued to live a luxurious life despite the bankruptcy proceedings, spending more than $48,000 a month on business class airfares, five-star hotels and designer jewellery.
But according to KPMG partner Carl Gunther, an insolvency and restructuring expert, it is possible for company directors to still have access to cash despite their companies failing or being declared personally bankrupt.
“Being bankrupt doesn’t mean basic accommodation can’t be provided for,” Gunther says.
Gunther says the amount of cash available to Edelsten’s creditors will depend on “where the money and assets reside” or which of his assets are subject to the bankruptcy proceedings.
“The trustee [of the bankruptcy] would have to be satisfied they have all the assets available to the benefit of the creditors,” he says.
Charles Bosse, case manager at Bankruptcy Experts, says it can often be confusing to see cases of “rich people who go bankrupt and don’t have to live in a cheap house and drive a Commodore”.
But Bosse says there are legal ways of selling or separating out assets so they are not subject to bankruptcy proceedings.
“It does seem to reek,” he says.
“But there are legal ways of doing it … and trustees will do their best to recover whatever assets or cash they can.”
Bosse says personal effects, such as household items, may also be excluded from bankruptcy proceedings, and it doesn’t matter if these items are worth $200,000 or $2 million.
SmartCompany contacted Edelsten but did not receive a response prior to publication. However, he told Fairfax the bankruptcy proceedings are “continuing” and he has “no say in what gets paid to creditors”.
*This article was updated on Friday February 13 to include a response from the ATO.