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Administrators for collapsed airline Bonza say the company likely traded while insolvent, with the directors to be referred to the corporate regulator for possible investigation.
Bonza suspended all flights and entered voluntary administration on April 30.
The low-cost regional airline's staff were stood down and have since been sacked, as no buyers made an offer to rescue the company.
Bonza is likely to be liquidated at a creditors meeting to be held next week.
Creditors, including 323 staff and 71,399 customers, could walk away with nothing.
Hall Chadwick, the airline's administrators, last night released a damning 129-page creditors report detailing major flaws in the debt-riddled business.
The report says Bonza's four directors may have breached several sections of the Corporations Act, including by trading while the airline was insolvent.
The company had "significant" solvency and operational concerns as far back as November, the report says.
"[Bonza] may have been insolvent from 1 March 2024 and remained so up to and including the date of the administration."
Hall Chadwick says the Australian directors, CEO Tim Jordan and CFO Lidia Valenzuela, co-operated with the administrators while the two American directors from 777 Partners did not.
Bonza was reliant on its majority owner 777 Partners for funding.
Destined to fail
The report paints a picture of a company that was destined to fail.
Bonza planned to begin flying in June 2022 with three aircraft, before scaling up to eight planes by June 2023.
In the end, the airline didn't take off until February 2023 due to regulatory delays, and only had four aircraft by the time it collapsed in April this year.
Bonza never turned a profit. It lost $80 million this financial year on top of a $50 million loss last financial year, and owes the tax office about $2 million.
Creditors started issuing demands for immediate payment of outstanding invoices from as early as July 2023, the report states.
The Commonwealth Bank notified Bonza in June 2023 that it was ceasing the banking relationship.
The airline should have charged higher airfares, the report found, while noting Bonza was hamstrung by an exclusive arrangement to sell tickets through its app and not via third-party booking engines.
"The company's operations were not self-sustaining," the report said.
"[Bonza] was heavily reliant on funding from 777 Partners to continue its operations, which funding was sporadic and delayed.
"The company did not have sufficient resources to pay its debts as and when they fell due absent third-party support.
"The administrators consider that conducting public examinations of the directors may be required."
ASIC unlikely to prosecute: experts
Hall Chadwick will provide its findings to the corporate watchdog, the Australian Securities and Investments Commission.
Insolvency expert Michael Sloan said Bonza's failure "will be on ASIC's radar" given the high-profile nature of the collapse and the "serious and significant" allegations.
But he said the duration of potential insolvent trading was less than is often seen in other cases.
"ASIC often takes action only in the most egregious of circumstances, particularly if the liquidator has the means and ability to take action on behalf of creditors instead," Mr Sloan said.
Bradd Morelli, a registered liquidator, agreed the breaches are "serious" and will require more investigation by the liquidators.
"Generally ASIC will not take any action unless there is significant public interest in the matter, there are serious criminal breaches, or the directors have been directors of multiple failed companies," he said.
ASIC was contacted for comment.
No forensic audit
Due to Bonza's limited assets, creditors' best chance of getting paid could be through US$25 million insurance policies indemnifying the directors.
The Hall Chadwick report says they expect to issue demands to the directors "who may then likely claim on the insurance policy in respect to the demand".
The majority of Bonza's employees have not been paid since April and have been encouraged to submit a claim through the federal government's Fair Entitlement Guarantee.
The scheme is a "safety net" to for employees to receive unpaid wages and entitlements.
The report said the airline's records appeared to comply with the law, but noted they did not conduct a forensic audit.
Hall Chadwick is claiming almost $4 million in fees for its services so far, with hourly billing rates up to $1,000 an hour.
Administrators generally get paid before other creditors.
Creditors' meeting scheduled
A creditors' meeting will be held next Tuesday, with the administrators formally recommending that Bonza should be liquidated.
Mr Jordan owned 7.89 per cent of Bonza, while Ms Valenzuela owned 2.24 per cent.
777 Partners ultimately owned the remaining 89.87 per cent.
Mr Jordan is seeking $99,731 and Ms Valenzuela is claiming $107,052 in outstanding entitlements, while 777 Partners is claiming nearly $78 million.
Budget airline Jetstar will launch direct flights between the Sunshine Coast to Cairns in December after Bonza demonstrated there was strong demand for the route.
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