ATO found pub empire made ‘fictitious’ GST refund claims
John Palasty jumps from Virtical’s sinking ship
Max Mason, David Marin-Guzman and Larry Schlesinger
Developer John Palasty is attempting to distance himself from Virtical’s collapsing hospitality empire, stepping down and selling his shares to a man who is a director of multiple failed companies.
Virtical has been rapidly unravelling since The Australian Financial Review revealed two weeks ago that the Tax Office is investigating more than a dozen of its companies over more than $100 million in GST refund claims – a sum that required it to spend $1 billion on development.
Mr Palasty was not the head of the group when the claims were made.
The pub owner and developer exploded onto the Sydney and Melbourne hospitality scene last year after spending more than $125 million on iconic pubs in just four months, including Sydney’s The Republic, Kinselas and The Courthouse, as well as Melbourne’s The Adelphi Hotel.
The company pitched itself as a burgeoning hospitality empire based around a strategy of snapping up trophy venues and revitalising them with multimillion-dollar renovations.
However, Virtical filed documents with the corporate regulator on Thursday claiming Mr Palasty sold his shares for just $4 and stating that his resignation was dated September 5.
The Financial Review sent its first set of questions to Virtical and Mr Palasty regarding GST claims under ATO investigation on September 4 and received a reply the following day.
Virtical’s former managing director Mark Toma previously claimed on the website for his new finance firm that he netted $45 million when he sold the company to his business partner Mr Palasty in November 2023. Virtical’s new sole shareholder and director is a 27-year-old man from Mount Hunter, a rural town 70 kilometres south-west of Sydney.
Australian Securities and Investment Commission records show the man, who the Financial Review has chosen not to name, is currently a director of 15 companies, and has previously held a further 22 directorships.
Many companies the man has been a director of have been liquidated or deregistered, and one has two payment defaults and two legal actions. Many have a registered office in the same building as Virtical in Alexandria, in Sydney’s inner west.
Since the Financial Review published its investigation earlier this month, Virtical’s main financier has stepped in to protect its money.
Bond Finance – run by Sydney’s Morello family – has tipped The Republic, The Adelphi Hoteland Hotel Australasia on the NSW south coast into administration. It issued Virtical a default notice on $90 million in mortgages and gave the developer a month to pay up, or else it will move to sell its mortgaged properties.
Sources who were not authorised to speak publicly said Bond Finance enforced a personal guarantee on Mr Palasty on Wednesday. This gave the financier control of all his shares, including those in Virtical.
Virtical filed the share sale document and resignation advice on Thursday, stating it had occurred on September 5.
On Friday, documents filed with the corporate regulator showed Mr Palasty resigned from a range of other Virtical group companies associated with properties in Eden, Newcastle in NSW, Queensland’s Gold Coast and Bateman’s Bay on the NSW south coast. The same man has been installed as sole shareholder and director. Similarly, the document said the sales and resignations happened on September 5.
Mr Palasty’s lawyers, Kennedys Law, and his external public relations representative did not respond to a long list of questions sent on Thursday morning.
The Australian Taxation Office fined a Virtical group company $1.8 million for “intentional disregard” of the law over GST refund claims it made for purportedly developing a block of land in Tasmania that it did not own, according to a damning audit obtained by the Financial Review earlier this week.
The ATO audit found that $20 million worth of claimed development expenses on the Tasmanian property did not happen.
The completed audit, the first to be revealed from the ATO investigation, flies in the face of Mr Palasty’s denials that the group was under an audit or ATO investigation. The fine is potentially the tip of the iceberg for the property investor.
Mr Palasty says he is in dispute with the ATO and denies any wrongdoing.
Last week, the Financial Review also revealed Virtical has failed to pay hospitality staff superannuation all year.
17 Oct |
9:15 am |
2024/00233398 |
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