Sphere Insurance Group’s liquidator has started court action over alleged breaches of director duties and other matters arising from trust and general account transactions.

Liquidator Tracy Lee Knight says in a report to creditors her investigations have identified transactions that raise concerns, “particularly regarding the conduct of the company’s director Peter Marten”.

The transactions include about $1.21 million in payments from the trust account “to or for the benefit of Mr Marten” and about $97,465 in payments from the general account to Mr Marten and former director Michael Patrick Barnes, the report says.

“On August 13 ... I commenced proceedings in the Federal Court of Australia against Mr Marten and Mr Barnes in relation to alleged breaches of directors’ duties and other claims arising from these transactions,” Ms Knight says.

Mr Barnes told insuranceNEWS.com.au today that he had no advance knowledge of any concerns with the company or trust fund, and the payment to him was the return of a loan he had provided to Sphere.

“It was just me getting my own money back,” he said. “But because the payment was made after January 1, it is being scrutinised by the liquidator.”

Mr Marten did not respond to requests for comment.

The court action seeks, among other relief, about $12 million compensation, or alternatively about $1.31 million. The liquidator is continuing to examine whether the company traded when insolvent.

The liquidator is liaising with the Australian Securities and Investments Commission, and the regulator is also investigating.

Ms Knight, from WCT Insolvency and Restructuring, was appointed liquidator on June 5, around the time the authorised representative network ceased trading.

Sphere’s director attributed its failure to alleged misappropriation of funds by a former authorised representative and inadequate books and records, the report says.

The liquidator points to factors including inadequate accounting and financial reporting practices, inadequate bank and trust account oversight, and potential reconciliation and audit deficiencies.

Significant payments and transfers from accounts including transactions subject to further investigation, substantial management fees, bonuses and other payments to key management personnel, and liabilities to insurers and other creditors are also identified.

“My investigations into the causes of the company’s failure, including the alleged misappropriation of funds identified by the director, the use and disposition of company funds and trust account monies, and the conduct of its officers and management are continuing,” Ms Knight says.

The liquidator estimates total creditor claims could be almost $17 million.

The company did not use accounting software and the liquidator understands business activity and financial statements prepared by an accountant are based mostly on management Excel spreadsheets rather than complete underlying records.

“In my view, the records maintained by the company are insufficient to properly record and explain its transactions, financial position and performance,” the report says.