Adam Maley and Australian Securities and Investments Commission

[2013] AATA 924

[2013] AATA 924 

Division	GENERAL ADMINISTRATIVE DIVISION
File Number	2013/3089
Re	Adam Maley
APPLICANT
And	Australian Securities and Investments Commission
RESPONDENT

DECISION

Tribunal	Senior Member Bernard J McCabe
Date	20 December 2013
Place	Brisbane

The decision under review is affirmed.

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Senior Member Bernard J McCabe

CATCHWORDS

CORPORATIONS – Officers – Director of two or more companies wound up through insolvency - Disqualification from managing corporations – Directors conduct – Public interest – Decision under review affirmed.

LEGISLATION

Corporations Act 2001 (Cth) ss 206F, 286, 588 G

Administrative Appeals Tribunal Act 1975 (Cth) s 41(2)

CASES

Andrews and Australian Securities and Investments Commission [2006] AATA 25

Boyle and Australian Securities and Investments Commission [2009] AATA 122

REASONS FOR DECISION

Senior Member Bernard J McCabe

20 December 2013

1. Mr Adam Maley was the director of a number of companies that failed. On 29 May 2013, a delegate of the Australian Securities and Investments Commission decided Mr Maley should be disqualified from managing corporations for two years. The power to disqualify is found in s 206F of the Corporations Act 2001 (the Act). Mr Maley says he should not have been disqualified, and he has asked the Tribunal to revisit the matter.

2. Mr Maley argued he was not really involved in the corporations that failed, so he should not be held responsible for what happened to them. Through his counsel, he argued there was insufficient evidence of his involvement in the companies to warrant disqualification. But he did not make this point in person. Mr Maley did not attend the hearing, and he declined to give evidence.

3. The decision to disqualify Mr Maley for two years should be affirmed. I explain my reasons below.

   THE EVIDENCE IN RELATION TO THE FAILED COMPANIES

4. The applicant, Mr Maley, was an officer of five different companies that were subsequently wound up on the grounds of insolvency. The companies and the relevant dates were:

Company Name	Dates as Director	Date of Liquidation
ACM Employment Pty Ltd (ACN 135 401 151) (ACM)	16 February 2009 – 10 February 2011	8 March 2011
ACM Employment No. 2 Pty Ltd (ACN 137 063 355) (ACM 2)	12 May 2009 – 10 February 2011	8 March 2011
Maller Holdings No. 2 Pty Ltd (ACN 137 062 170) (Maller 2)	12 May 2009 – 10 February 2011	8 March 2011
Ella Enterprises Pty Ltd (ACN 111 430 007) (Ella)	11 March 2005 – 2 February 2006	17 July 2009
Ellby Trading Pty Ltd (ACN 085 927 957) (Ellby)	11 July 2003 – 27 December 2009	9 June 2005

1. In each case, the liquidators reported possible offences, including a failure to maintain adequate books and records in contravention of s 286 of the Act, and insolvent trading in breach of s 588G. No dividends were paid. (The applicant was also an officer of Selmada Investments Pty Ltd between 11 July 2003 and 18 December 2011. That company was deregistered on 18 December 2011 because of a failure to pay fees. There is little information available in relation to that company. I do not propose to have regard to the demise of that company for the purposes of the present exercise.)

2. Mr Hutson, the liquidator of ACM Employment Pty Ltd, ACM Employment No. 2 Pty Ltd and Maller Holdings No. 2 Pty Ltd, provided a statement (exhibit R7) and gave evidence at the hearing. He explained in his statement that he had filed reports with the Commission pursuant to s 533 expressing the view that the companies had failed because of insufficient cash flow and poor strategic management: at [9]. While acknowledging Mr Maley had ceased to be a director of those companies at the time they were placed in liquidation, his statement makes it clear (at [10]-[12]) that many of the problems may have been present while Mr Maley was still an officer.

3. In cross-examination, Mr Hutson agreed he had not spoken with Mr Maley or Mr Waller, the director who formally took over the companies before liquidation. Mr Radcliff, on behalf of Mr Maley, criticised the extent and rigour of the liquidator’s investigation. Mr Radcliff argued there was too much uncertainty about the affairs of the companies to simply accept the assertions of the liquidator. Mr Radcliff made essentially the same submissions about the evidence provided by Mr Pearce, the liquidator of Ella Enterprises Pty Ltd, and his employee, Mr Beck.

4. If there were gaps in the information provided by the liquidators, they could have been answered one way or another if Mr Maley had presented himself. He might also have summonsed Mr Waller to give evidence, but that did not occur. Mr Maley and Mr Waller did provide written statements that were tendered in evidence. I will have more to say about those shortly.

5. Mr Bultitude also provided a statement (exhibit A1) and gave evidence at the hearing. Mr Bultitude was a director of Ellby Trading (and Selmada Investments Pty Ltd). He claimed Ellby was effectively his company. He claimed Mr Maley did not play an active role as an officer of the company and only accepted an appointment as a personal favour. Mr Bultitude said he needed the applicant to act as a guarantor of a loan. He was unable to recall details of the loan or loans in question in cross-examination. Mr Bultitude said Mr Maley should have been removed as a director but it was an oversight on his part.

6. Mr Bultitude was obviously a close friend of the applicant. He appeared concerned to protect Mr Maley and act as his advocate. He demonstrated a detailed knowledge of the applicant’s affairs that bespoke a close relationship even though he professed to only have a general understanding of Mr Maley’s other businesses. At the same time, his recollection of the affairs of Ellby was poor. I am satisfied his evidence should be treated with caution.

7. Ms Boffey also provided a statement (exhibit A4) and gave evidence on behalf of the applicant. She is employed by the applicant’s current accountant. In her statement, she asserted the applicant was doing an excellent job managing the affairs of a number of other companies with which he is involved.  When she was called to give evidence, she agreed she did not work on any of those files, and had no direct knowledge of the affairs of those companies or the applicant’s performance as a manager. It transpired the only time she met Mr Maley was when he came into the office one day while she was working at the reception desk.

8. I am satisfied Ms Boffey’s evidence is of no assistance and ought to be disregarded.

9. That leaves only the statements of the applicant and Mr Waller. Mr Waller is an associate of Mr Maley. He was appointed as director of the failed companies in place of Mr Maley just before they were placed in external administration. Mr Chesterman, for the Commission, said I should disregard both statements because it would be unfair to rely on them when the authors did not make themselves available for cross-examination.

10. I agree. In the circumstances, it would be unfair to the Commission to rely on evidence that it did not have the opportunity to test by way of cross-examination. I therefore propose to disregard exhibits A2 and A3. I would add I am entitled to assume the applicant’s failure to give evidence or summons Mr Waller means Mr Maley believed the evidence would not assist his case.

    THE DISCRETION IN SECTION 206F

11. The power to disqualify in s 206F is available if a person has been an officer of at least two companies that have failed within the last seven years. As I explained in my reasons in Andrews and Australian Securities and Investments Commission [2006] AATA 25 (at [23]):

    The provision was apparently enacted on the assumption that involvement in one failure might simply be unfortunate, but involvement in two or more separate failures could suggest carelessness or other breach of duty.

12. I am satisfied the power to disqualify is enlivened in this case. The formal requirements in s 206F(1) have all been met: the applicant has been a director of at least two companies which have been wound up in insolvency in the last seven years. Liquidators’ reports have been filed under s 533, and the Commission followed the appropriate “show cause” process. The only question that remains to be addressed is whether disqualification is justified for two years, or for some other period, or at all.

13. Section 206F(2) says I must have regard to whether the companies in question were related to one another, and I may have regard to:

    (i) the person's conduct in relation to the management, business or property of any corporation; and

    (ii) whether the disqualification would be in the public interest; and

    (iii) any other matters that ASIC considers appropriate.

14. I shall deal firstly with the question of whether the companies were related. The legislation requires that I consider this issue because the behaviour of a director of several failed companies might appear worse than it is if the companies which collapsed were so closely connected and interdependent that their demise was really part of the one episode of failure.

15. The companies all had a common director: Mr Maley. Beyond that, the Commission pointed out there is little evidence of them being related to one another so that their fates were somehow intertwined. To the extent the companies were related, I do not think the evidence establishes this consideration counts in the applicant’s favour.

16. I turn next to Mr Maley’s conduct as a director of the failed companies. The liquidators’ reports confirm the companies were mismanaged. The books and records were in an unsatisfactory state and the companies traded while insolvent. A number of them owed substantial amounts of money to creditors at the time of their demise, including the Commissioner of Taxation. That is a matter of real concern.

17. Mr Maley claims (in the statements I declined to admit into evidence) that he was not, in fact, involved in the management of the companies that failed. I do not think it makes any difference for present purposes whether he was involved or not. If he was, the mismanagement was all his own. But if he was not actively involving himself in the affairs of the companies - if he was a passive director who failed to supervise the people he left in charge – he is still culpable. In either event, the mismanagement occurred on his watch.

18. I turn next to the question of public interest. There is undoubtedly a public interest in weeding out directors with a track record of failure. Mr Radcliff, for Mr Maley, pointed out his client played a pivotal role in the horse transport business. There was some discussion of this during the course of the hearing, and during Mr Bultitude’s evidence in particular.

19. Mr Maley currently runs the largest transporter of race horses on the east coast of Australia. When the applicant applied for a stay of the decision under s 41(2) of the Administrative Appeals Tribunal Act 1975, I was told the entire industry might grind to a halt if he was excluded from the business. It was suggested the absence of the applicant’s services would lead to chaos. Chaos is rarely in the public interest.

20. I am not satisfied from the evidence provided by Mr Maley that his disqualification would lead to the collapse of the racing industry, although I accept it would occasion some difficulty for his business. It is unclear why that business could not be sold. The applicant also indicated he was considering restructuring the business and carrying it on as a sole trader. In any event, I am satisfied the public interest, on balance, favours disqualification.

21. I am not aware of any other matters that ought to be taken into account.

    THE APPLICANT SHOULD BE DISQUALIFIED

22. The Commission was right to disqualify the applicant from managing a corporation for two years. I have settled on a period of two years in light of the decisions of the Tribunal in comparable cases, like Boyle and Australian Securities and Investments Commission [2009] AATA 122. In that case, the applicant was the manager of several companies that failed whilst owing money to the Commissioner of Taxation, amongst others. There was no suggestion of dishonesty, but the applicant demonstrated a poor grasp of what was expected of a director. I think the same could be said of Mr Maley’s performance.

23. I considered extending Mr Maley’s period of disqualification in light of his failure to attend the hearing and explain his conduct. That failure confirmed he had not come to terms with his bad behaviour. After consideration, I decided a two year disqualification would provide ample opportunity for him to reflect on the error of his ways.

24. The decision to disqualify the applicant was stayed by order of the Tribunal and with the consent of the parties on 1 July 2013. I am satisfied the decision should take effect 28 days after the date of these reasons. That will allow the applicant time to make transitional arrangements in relation to his current business interests.

    CONCLUSION

25. The decision under review is affirmed. It will take effect and be implemented within 28 days of the date of these reasons.

I certify that the preceding 29 (twenty -nine) paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe.

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Associate

Dated 20 December 2013

Date of hearing	26 September 2013
Date final submissions received	17 October 2013
Counsel for the Applicant	Mr G Radcliff
Solicitors for the Applicant	Paramount Legal
Counsel for the Respondent	Mr D Chesterman
Solicitors for the Respondent	Australian Securities and Investments Commission