Covid NSW Grant Fraud - John Palasty jumps from Virtical’s sinking ship

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.

John Palasty at his home in East Hills in Sydney’s west. Dion Georgopoulos

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

In the matter of VIRTICAL PTY LTD

Civil

Supreme Court

Directions

Justice S Nixon

Supreme Court Sydney

Law Courts Building Court 7C Queens Square Sydney

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Covid small business grant fraud investigation: 658 charges laid, 14,300 businesses referred to police in fraud crackdown

Shock figures have laid bare the extent of fraudulent claims made to a Covid-19 era business grant program with police investigating thousands of cases that rorted the system at the expense of NSW taxpayers.

David Barwell

Shock figures have laid bare the extent of fraudulent claims made to a Covid-19 era business grant program with police investigating thousands of cases including interstate companies that rorted the system at the expense of NSW taxpayers.

A government crack force investigating fraudulent claims made to the Covid-19 microbusiness grant program has revealed almost one in four companies that applied for funds through the program are under investigation for alleged fraud.

The small business grants program enabled companies with an annual turnover between $30,000 and $75,000 that suffered a 30 per cent decline in turnover because of Covid restrictions to qualify for $1500 fortnightly payments.

The scheme paid out more than $784m to about 63,000 businesses in what was intended to help small traders weather successive lockdowns.

NSW Customer Service and Digital Government Minister Jihad Dib has now confirmed 14,300 applications for grant funding have been referred to police as a result of compliance activity. 

To date, more $15m has been clawed back by the government from fraudulent and ineligible applications, $52m in fraud has been prevented, 658 charges have been laid and 140 people have been convicted of defrauding the program.

This publication understands fraudulent claims have included cases where applicants from interstate purported to be from NSW to obtain the grants.

Other fraudulent activity has included identity theft, ABN hijacking as well as falsified documentation.

Service NSW said of the 14,300 applications referred to police for investigation, about 4500 applications have been referred to interstate law enforcement agencies – indicating a significant number of applicants in other states and territories were attempting to take advantage of a program designed to support NSW-based businesses.

Mr Dib said it was “deeply disturbing that significant fraud activity has been uncovered” and that the “criminal activity took place”.

“Any further matters where suspicious activity is identified will be referred to police for further action,” he said in a statement.

As part of the grants program, businesses applying for funds had been allowed to self-assess their eligibility and received funds automatically, on the proviso that their applications would be subject to future audits.

NSW Opposition Customer Service spokesman James Griffin recognised there had been “massive fraud” reported through the grant program, but raised concerns some businesses were being caught up in compliance blitz.

“Any businesses who took advantage of the micro grants should be caught and charged. Taking money from this worthwhile grant program is like stealing from a small business who actually needed the support,” he said.

“I am also aware of micro businesses, right across NSW, who have been trying their best to navigate being unfairly swept up in the fraud cases and are really struggling to get any support or information from ServiceNSW. 

“Good businesses are clearly being punished for the actions of dodgy operators.”

A Service NSW spokesman in a statement said the government took attempts to defraud financial support programs “very seriously”.

The spokesman said the government has put in place measures to support businesses selected for compliance checks and had followed up with companies to ensure all evidence related to their grant applications was in place, which was a condition of the grants to ensure taxpayer funds were spent responsibly.

“Service NSW understands these checks may be challenging for some customers and support is provided for customers who are experiencing hardship or who need assistance understanding the audit requirements or sourcing business documentation.”

The compliance audits have included a focus on businesses where discrepancies in paperwork were identified with referrals made to police when serious irregularities were identified.