Allan Vissenjoux and Australian Securities and Investments Commission
[2015] AATA 98
•24 February 2015
[2015] AATA 98
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2014/1520
Re
Allan Vissenjoux
APPLICANT
And
Australian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal John Handley, Senior Member
Date 24 February 2015 Place Melbourne The Tribunal affirms the decision under review
........[sgd]................................................................
John Handley, Senior Member
CORPORATIONS – sequestration order made against applicant’s estate on 28 May 2013 – applicant held a financial services representative license – applicant also self-employed as a home builder – debts from that business proved at $994,940 – banning order for three years because applicant insolvent under administration – responsibility of the respondent to regulate the financial services industry – importance of consumer confidence in licensed financial services providers – decision affirmed
Legislation
Corporations Act 2001 sections 9, 760A, 766A(1), 910A, 916A, 920A(1) and 920B
Australian Securities and Investments Commission Act 2001 section 1
Bankruptcy Act 1966 section 269
Cases
Tarrant and Australian Securities and Investments Commission (2013) 62 AAR 192
Drake and Minister for Immigration and Ethnic Affairs (No. 2) (1979) 2 ALD 634
Gray and Australian Securities and Investments Commission (2004) 86 ALD 230
Barry John Jenner [2007] SASC 263
Howarth and Australian Securities and Investments Commission (2008) 101 ALD 602
Secondary Materials
ASIC Regulatory Guide 98, Licensing: Administrative action against financial services providers
REASONS FOR DECISION
John Handley, Senior Member
24 February 2015
On 25 February 2014, a delegate of the respondent made a banning order against the applicant pursuant to section 920A of the Corporations Act2001. (Unless otherwise indicated, all references in this decision shall be to sections of the Corporations Act).
The delegate decided, in the exercise of the discretion available under section 920A, to make the banning order because, pursuant to section 920A(1)(bb), the applicant had become an insolvent under administration (as defined at section 9, being a person, who is a bankrupt and who has not been discharged). A decision has not been made that there was reason to believe that the applicant is not of good fame or character (section 920A(1)(d)).
The banning order prohibited the applicant from providing financial services until 29 May 2016 being a period of three years from the date the sequestration order was made (T3, page 25).
From 1 December 2010, until 30 October 2013 (T11, page 191), the applicant was recorded on the Financial Services Register maintained by the respondent and was allocated a representative number. He was, for the purposes of section 910A(a)(i) an authorised representative of a licensee, being Total Financial Solutions Australia Ltd (TFSA), which held an Australian Financial Services Licence. (On 3 October 2013, the applicant, trading as Finsol Australia Pty Ltd, applied to Sentry Financial Services Pty Ltd (Sentry) (T17, pages 260 to 276) as a sub-authorised representative. His association with Sentry will appear later in these reasons).
A Financial Services Guide published by TFSA (T18, page 281) records the financial services it authorised the applicant to provide (as required by section 916A) and the applicant did provide a financial service pursuant to that authority, by advising, dealing and engaging in all or some of the conduct listed at sections 766A(1)(a) – (f).
It is against that background that the delegate made the decision to prohibit the applicant from providing financial services.
Background
In addition to his practice as an authorised representative of TFSA, the applicant was also engaged in a home construction business. After many years of trading, the venture was unsuccessful. The report by the trustee to creditors recorded the applicant disclosed in his Statement of Affairs [SoA] … that the cause of his insolvency was due to adverse legal action, ill-health, domestic discord or relationship breakdowns and the inability to collect debts due to disputes, faulty work or bad debts (T6, page 90).
In his report to creditors, the trustee listed 90 creditors (T6, pages 96 to 97; Annexure A) who were owed $994,940. One creditor was the Australian Taxation Office (ATO) which was owed $185,096.
Policy and Legislation
The intent of the Australian Securities and Investments Commission Act 2001 (the ASIC Act), in so far as it concerns the regulation of financial services, extends beyond the conduct of persons and licensees within that industry. Its intent also has a focus on the protection of and confidence by consumers and investors in the persons and licensees who practise in that industry. The Objects of the ASIC Act at section 1(2)(b) compel the respondent in performing its functions and exercising its powers to strive to promote the confident and informed participation of investors and consumers in the financial system….
Additionally, the respondent has published Regulatory Guide 98, entitled Licensing: Administrative action against financial service providers (the Regulatory Guide) which in addition to recording its administrative powers in relation to compliance with provisions of the Corporations Act, also refers to matters the respondent will take into account when exercising its powers (T13, pages 196 to 219).
The Regulatory Guide also contains provisions reflecting the Objects of the ASIC Act, which are described as the responsibilities of the respondent in regulating persons and licensees in the financial services industry, to ensure that investors feel confident dealing with them (refer RG 98.6 and 98.7).
Any conduct of licensees and authorised persons which might adversely affect the reputation and integrity of the financial services industry could attract implementation of the Regulatory Guide.
In Tarrant and Australian Securities and Investments Commission (2013) 62 AAR 192 at [21], the Tribunal constituted by Kerr J (President) and Senior Member Redfern, had cause to consider the Regulatory Guide in an application to review a decision of the respondent which imposed a banning order. The Tribunal decided, notwithstanding that the Regulatory Guide was agency rather than high level ministerial policy… [t]he Regulatory Guides appear to be carefully calibrated documents produced by an agency which has responsibility for prudential regulation of the provision of financial advice. The policy appears sound.
The Regulatory Guide is in the nature of a policy issued by the respondent. I am satisfied, as the ultimate decision maker, that the Regulatory Guide is consistent with the Corporations Act. Adopting it as a guiding policy will not fetter or preclude consideration of the merits or interfere with my discretion, nor will it control the process of making the decision which will ultimately be reached. (Re Drake and Minister for Immigration and Affairs (No.2) (1979) 2 ALD 634 at 640-641; Gray and Australian Securities and Investments Commission (2004) 86 ALD 230 at [32]-[36]).
Issues
In my view, the issues to be determined by this review are
(a)whether a banning order should be made against the applicant by reason of him being an insolvent person under administration; if so
(b)whether the period of prohibiting the applicant from providing financial services of three years is appropriate or whether the period should be reduced or extended; and
(c)whether any period of prohibition from providing financial services should be subject to specified conditions.
The Evidence
At the outset, I will acknowledge that the applicant was facing a number of personal issues shortly before he became bankrupt associated with difficulty concerning the birth of his first child, a serious illness requiring surgery of his second child, an illness affecting his wife, instability in their marriage, he suffered depression and he was attempting to complete a law degree by correspondence from the University of New England.
Additionally, the applicant has worked in the financial services industry for about 14 years without any complaint ever being made to the respondent. His bankruptcy arose out of his construction business alone. It has not been decided by the respondent that he is not of good fame or character.
In a Statement of Facts, Issues and Contentions (SFICs) lodged prior to the hearing and in closing submissions, the respondent contended that the applicant failed to demonstrate any awareness of the nature, extent and significance of his conduct leading to the sequestration order. He ignored statutory obligations, failed to have regard for compliance with regulatory requirements and has not made any arrangements to assure consumers and investors that he would provide competent and appropriate financial advice.
The construction business
The applicant said he built between eight to 12 or 13 houses … at one given time over eight or nine years. The business was not incorporated. He said he employed a building manager who had control of the construction and management side of things and he believed that the job was being done properly. However, five years after he was first engaged, he discovered that the manager was poorly experienced and was covering a lot of issues up (Transcript, page 71).
In a statement completed by the applicant (ExhibitA1) at paragraph 11 he recorded:
The mere level of indebtedness cannot go to inform as to the circumstances of such indebtedness so as to inform as to whether there was or was not failure to exercise sound financial judgment. And whilst it is true that choices made by me, such as the decision to operate a building business, contributed to and indeed were causes sine qua non of my financial troubles, I do not concede to the Delegate’s perception of these circumstances and further observance as to the events would reveal that I was caught out by the failures of others that left me in an exposed position from which the exercise of sound financial judgment could not extricate me. And again, the nature of the errors by me which at their highest could be said to be poor choice and/or supervision tradespeople scarcely has relevance to my ability to exercise sound judgment in advising others on financial affairs.
During the hearing, the applicant agreed that 43 of the creditors listed in the trustee’s report were either tradespersons or suppliers of materials or services associated with his construction business. However, he said there were instances where work performed by tradespersons had been defective, customers had refused to pay him and he incurred costs rectifying. He objected to some of those persons and entities being recorded as creditors because he disputed their claims, but conceded that their claims had been proved to the satisfaction of the trustee (Transcript, pages 35 to 36).
The applicant said that most of the debts recorded in the creditors’ list were incurred in the year before bankruptcy, many were disputed and some were negotiated. He said he was owed considerable sums of money but he could not afford the legal costs of recovery.
The applicant explained that one of the creditors in the list completed by the trustee was Citylink and Eastlink Business Vehicles and the sum recorded as owing is $35,602.50. He said that about $21,000 was incurred as toll charges associated with his vehicles used in the construction business travelling on toll roads. The balance of the sum recorded against those creditors is fines and interest on amounts unpaid. None of the vehicles had e-TAGs. He said he had asked his employees and contractors not to use toll roads, and if they did they would be responsible for toll charges; however no one would own up to who was using (the vehicles) and some of the drivers had left his employment. He said he had other staff that were supposed to be monitoring these things. He also said that he was unable to control the use of vehicles because at the time the charges were being incurred, he was dealing with the illness of (his) son (Transcript, pages 40 to 41).
In response to questions from me, the applicant said that he was not in a position to monitor the use of the vehicles because he was not in the office all the time (because he was doing other things and dealing with other matters), the persons using the vehicles had the keys and some of them were malicious (Transcript, page 69).
The ATO debt
I confess that the applicant’s evidence with respect to the ATO debt of $185,096 was difficult to follow.
From his evidence, it can be distilled that he did not operate an account to meet his tax liabilities as they fell due; he operated one integrated account which was responsible for payment of taxation from his financial service and construction businesses; personal and business income tax returns were not lodged for a five or six year period before bankruptcy; he was aware of his legal obligation to lodge a tax return each year and he admitted that he failed to comply with that obligation.
Specific questioning concerning actual payments of taxation was unclear save that the applicant said that he had arrangements in place for payment of tax when it fell due and several payments had been made, however when there was default, penalties and interest were levied which have been incorporated into the amount recorded in the creditors’ list. Most of the debt was unpaid goods and services tax (Transcript, pages 37 to 39 and 69 to 71).
Sentry
In his statement (at paragraphs 4 and 5(a) and (b)), the applicant recorded that prior to the banning order being made, he made enquiries of the respondent, by ringing its 1300 telephone number, three times, and on each occasion he was advised there is no regulation as to an automatic disqualification or denial of acceptance for an individual being an Authorized Representative due to bankruptcy.
Based on that advice he recorded that he made a submission for appointment to Sentry, as a sub-authorised representative, which was prepared to make that appointment (subject to its enquiries) if the banning order was revoked. He also recorded that Sentry were prepared to exercise detailed supervision and oversight on [his] activities… [which] would reduce any risk of harm to the public.
At paragraphs 10(c) and (d) of his statement, the applicant recorded that he had entered into an arrangement with Sentry that a condition of his appointment would be that he would not enter into another enterprise other than financial services, that his current study by correspondence to complete a law degree would be reduced, that he would strictly comply with any regime Sentry imposed, that he would complete compulsory industry training and satisfy the professional standards expected of authorised representatives.
He said those terms were embodied in a document that had been prepared but which had not been exchanged with the respondent or lodged with the Tribunal. When pressed on that issue he said he may have a copy of it in in a folder that he thought he may have brought with him to the Tribunal but which he had left in his car. He then volunteered that he may have an electronic copy of it. I asked him to open his laptop computer which he had brought with him to locate the document. He attempted to locate it but said he could not. He said his computer had crashed some weeks earlier and not all documents had been recovered.
The applicant said that the arrangements he had made with Sentry followed discussions he had had with its development and compliance managers. He said they were aware that he was presently subject to a banning order and was attempting to have it set aside. He said they had told him to approach them when the outcome of this review was known and his position with Sentry as a sub-authorised representative would be held for him. The applicant said he last spoke with the development manager in October or November 2014. He did not intend (nor did he) call the development manager or the compliance manager to give evidence on his behalf because he had already utilised so much of their time that I felt guilty to ask them to do… anything further for me… (Transcript, page 32).
Whether applicant would notify clients of his bankruptcy
At the hearing on 14 February 2014 before a delegate of ASIC (the ASIC hearing), the applicant was advised that his bankruptcy alone caused the respondent to consider whether a banning order should be imposed. He was then asked to respond to a proposition that consumers may feel that a person who’s bankrupt shouldn’t be providing financial advice.
The applicant said that bankruptcy… sounds worse than what it actually is. However, he understood that his clients would be looking at his ability to do what I’m saying I’m going to do for them and look after their best interests.
When he was asked whether he intended to inform clients that [he is] an undischarged bankrupt, the applicant replied not unless I’m absolutely required to. He added:
I don’t honestly believe – if I was given the choice, my answer would be to you to say I don’t believe it’s any of their business, so to speak, purely because it’s not related to this industry….. But it just so happens in financial services, being bankrupt doesn’t look as good. But so long as I’m not bankrupt for fraudulent reasons, I believe there’s no issue. (T9, pages 162 to 166).
In his evidence during this review the applicant said that if the delegate had asked him the question do you realise that you must inform your clients of the bankruptcy and will you be doing this?, he said his answer would have been yes (Transcript, page 21).
In cross-examination the applicant was asked whether he was advised by his trustee that he was obliged under section 269 of the Bankruptcy Act 1966 (the Bankruptcy Act) that if he obtained money for goods and services from a client in the sum of $3,000 or more, he would be committing an offence if he did not disclose to the client that he was an undischarged bankrupt. He said he did not believe that he was given that advice nor could he recall whether documents supplied to him by his trustee contained that information. When he was asked whether he maintained his earlier evidence that he would not disclose his bankruptcy unless he was absolutely required to, he said if he did receive remuneration of $3,000 or more, he would then make that disclosure.
The applicant reaffirmed his earlier evidence that unless a financial services provider had become bankrupt for fraudulent reasons or misconduct, he did not believe that consumers would be as concerned (Transcript, pages 53 to 56).
In his SFICs (at paragraph 13) and in his statement (Exhibit A1, at paragraph 13) the applicant referred to a finding made by the delegate upon his responses to the question of whether he would disclose his bankruptcy to clients. He recorded that her finding (at paragraph 23) implied a tendency to mislead the public and he had been given incorrect advice by officers of the respondent, prior to the ASIC hearing, which he said was grossly unjust. This issue will be discussed below.
Whether the applicant understood the purpose of the ASIC hearing
In his SFICs and statement, each in paragraph 9, the applicant said that the ASIC hearing …had been presented to [him] and been approached by [him] simply as a discussion, an informal discussion as to how the bankruptcy might affect [his] position and to present reasons as to why a banning order should or should not be enforced. Accordingly [he] was led to believe ASIC’s intention was to assist [him] in the processing of not placing a banning order and that there were consideration in instances where extenuating circumstances of bankruptcy that a banning order was not enforced.
In his statement, he added:
Far to the contrary when the matter proceeded I discovered to my shock and horror that it was being treated as my one and only opportunity to argue against the placing of a banning order which was being considered to be the most unavoidable result of the meeting, and indeed was the result of the meeting. In short I was ambushed.
I am not required to review whether the ASIC delegate made the correct or preferable decision on the information that was before her. My responsibility is to review the application on the material that was before me at the hearing in this Tribunal.
However, the applicant said during the hearing in this Tribunal (and alluded in documents lodged by him prior to the hearing) that he was given certain advice by officers of the respondent prior to the ASIC hearing concerning the documents that he should bring to the ASIC hearing. He also said that the advice given concentrated on whether as a bankrupt, consideration would be given by the delegate to whether he was a fit and proper person. It was on the basis of those discussions that he said he was ambushed (Transcript, page 63).
These contentions suggest that the applicant was denied procedural fairness when he was before the delegate. For reasons which I will record later, I am not satisfied that the applicant was ambushed, as he alleges, nor do I believe that the ASIC hearing was procedurally unfair. The discussion that follows is relevant in my view to whether the applicant comprehended then, and whether he comprehends now, the statutory regime administered and supervised by the respondent, his capacity to interpret documentation supplied to him and his ability therefore to practice in the financial services industry. An examination of the documents provided to the applicant, before the ASIC hearing, is therefore necessary.
A number of documents were delivered personally to an address which was understood by the respondent to be occupied by the applicant on 10 February 2014. Those premises were occupied by the applicant’s father who took delivery of them (T8, page 126). One of the documents notified him of the ASIC hearing which would be convened on 4 March 2014 at the respondent’s office. It is obvious that the applicant obtained the documents that were left with his father because he contacted the decision-maker, and the hearing was brought forward, at his request, to 14 February 2014.
The documents (T7, pages 115 to 125) comprised a letter of 3 February 2014, signed by the delegate, advising the applicant that the respondent was concerned that he was an insolvent person and consideration would be given, pursuant to section 920A(1)(bb), whether he should be banned from providing financial services. The letter recorded that before any decision was made he would be given the opportunity to appear with or without representation to make submissions in the hearing which would be convened privately. He was also notified that if a banning order was made he may be prohibited permanently or for a specified period from providing financial services. He was advised the hearing would be conducted informally, it was not a compulsory process and an opportunity would be given to him, if he chose to attend, to present evidence and submissions, without the rules of evidence applying.
A document attached to the letter (Attachment A) indicated that the respondent was aware that a sequestration order had been made on 28 May 2013 and a SoA had been lodged with the Official Receiver on 6 September 2013. Sections 920A(1)(bb) and 920B were recited. An information sheet was also attached to the letter under the letterhead of the respondent describing the procedures at the hearing in terms similar to the content of the letter from the delegate of 3 February 2014.
In his evidence in this review, the applicant said (Transcript, page 21) when he attended the hearing he was
only armed with information that I gathered from ASIC based on phone calls that I had made to ASIC, and at the time I was given guidance which was somewhat different to what the delegate had told me when I arrived at the hearing. And the hearing, I felt was put to me on the basis of a discussion to go through points that – perhaps to work through the issue of bankruptcy and whether I can stay within the industry, rather than initial banning.
In cross-examination (Transcript, pages 60 to 61, 63 and 65 to 66) the applicant agreed that he read and understood the documents that were prepared by the respondent under cover of its letter of 3 February 2014. He said he had discussions with the delegate, in relation to documents provided to him because he felt more comfortable speaking with her and obtaining advice concerning the documents that he should bring to the meeting. He said during the hearing the delegate said she would have to take into consideration a fit and proper person [sic]. And that’s what I mean by being ambushed. When pressed on this issue the applicant conceded on the day of the hearing that the delegate told him that she did not need to consider whether he was a fit and proper person. However later, the applicant said he did not rely on the fit and proper person issue as his objection to the process of the ASIC hearing, in its entirety, however he did rely on it … for the purpose of the issue of the banning itself. He said:
[h]ad I been given the correct advice from the beginning, perhaps I may not have continued with application [to Sentry] and there would be no banning order, and therefore I would not been considered all over the internet, therefore I would not be gazetted all over the internet, therefore I would not be on a website under misconduct and therefore I may be able to get another job in another form.
Conclusion and Reasons for Decision
In my view, the combined effect of Chapter 7 at Part 7.6 of the Corporations Act and section 920A, in so far as investors and consumers are concerned, is to give an assurance that financial services licensees conduct themselves and their practice to uphold the objects of the legislation – fairness, honesty and professionalism and the promotion of confident and informed decision-making by consumers of financial products and services … (section 760A(b)).
If those objectives are not met, a licensee is at risk of a banning order. In Howarth and Australian Securities and Investments Commission (2008) 101 ALD 602 at [152] the Tribunal decided the purpose of a banning order is to ensure that members of the public are protected from those who do not meet the standards of behaviour or otherwise expected of a person engaged in the provision of financial services. There is nothing on the face of Pt 7.6 generally or of ss 920A and 920B in particular that suggests that the purpose of imposing a banning order is intended to be punitive.
It therefore follows that if the professional standards expected by the Corporations Act are not satisfied, financial services licensees are at risk of being banned from practise.
In this application, the applicant before, during and subsequent to the hearing (by his written submissions) maintains that he has been found by the respondent not to be a fit and proper person. Section 920A(1)(d) does empower the respondent to make a banning order if it has reason to believe that a person is not of good fame and character. No such finding has been made nor was it ever alleged
It has never been contended against the applicant that he has committed any offence in relation to the conduct of his practice and his evidence of never having a complaint against him in his professional capacity as a provider of financial services was unchallenged.
This review is entirely concerned with whether the decision to impose a banning order on him, because he became insolvent under administration (bankrupt) pursuant to section 920A(1)(bb) was the correct or preferable decision.
The Regulatory Guide records that administrative action will be considered if it is required to protect investors and deter financial services providers from engaging in misconduct (T13, page 209). RG 98.44, records a banning order is likely to be imposed if the respondent has serious concerns about the licensee… This is particularly so in instances where there is a need to protect the public and where conduct may result in investor detriment. RG 98.45 refers to Table 1 recording factors that may be taken into account and Table 2 which records examples of the types of conduct which might cause detriment and the potential consequences from that conduct.
A relevant factor in Table 1, in the circumstances of this application, is [t]he expected level of public benefit. A relevant consideration under that factor is [t]he protective effect to the public and reinforcement of the integrity and reputation of the financial services industry. Table 1 also, in the context of this application, records a discretionary factor entitled Mitigating factors where relevant considerations are identified as [w]hether there would be any personal hardship if the banning order was made; [w]hether the misconduct relates to an isolated complaint and consumers have generally not suffered substantial detriment and [w]hether the misconduct was inadvertent and the person undertakes to cease or correct the conduct.
The use of the words conduct and misconduct at T13, page 209 and within Table 1 are, in the circumstances of this application, unfortunate. A better descriptor would have been the word conduct, used consistently. However, there is nothing to support a contention repeatedly made by the applicant that the respondent’s website records the word misconduct against his name. He did not produce a print copy of that entry.
A copy of the Personal Search Name Extract published by the respondent and found at T11, dated 23 April 2014 records the applicant as AFS Banned/Disqualified Person commencing 25 February 2014. There was no evidence of that entry having changed since it was published online. The word misconduct is not recorded.
In his closing submissions at paragraph 1(h)(i) he provided a copy of an extract from a website, Crimenet.org which records the names of a number of persons under the heading of Professional Misconduct. The applicant’s name appears. Other than a hyperlink to view details (which could not be opened) nothing else is recorded against him. Nothing points to this website having any association with the respondent or it being responsible for the information published.
Table 2 records that a banning order could be made for a period of less than three years if it arose from conduct which is the result of carelessness or inadvertence or a person has fully cooperated with the respondent to remedy a contravention or there has been [n]o loss (or minimal loss) to a client. A banning order between 3 and 10 years could be made for a number of stated reasons, but relevant to this application they would be, in my view, the [a]dverse impact on confidence in or the integrity of a financial market; [i]ncompetence, irresponsibility or a high level of carelessness but with the possibility that the person may develop requisite skills and abilities; and [d]isregard for the law and compliance with regulations.
I am satisfied that the applicant has had a disregard for and failed to comply with the relevant law and regulations. I am also satisfied he has acted irresponsibly and carelessly at a high level.
As a member of the financial services community, the applicant’s indebtedness to the ATO of $185,096 clearly points to a person who failed to meet his lawful obligations to pay tax, and also in this case, goods and services tax (GST). I acknowledge that some of that sum includes penalties and interest but that was imposed only because of his failure to pay taxes when due. Additionally, he did not file income tax returns for a five or six year period before bankruptcy. In his SoA lodged with the Official Receiver on 6 September 2013, the applicant recorded that he had been the director of two companies, Viss Group Pty Ltd and Stonehenge Mortgages Pty Ltd, from which he had resigned in November/December 2011 and March 2013 respectively but had not prepared financial statements or tax returns (T5, pages 85 and 86).
The evidence about whether the applicant would disclose to his clients, that he was undischarged (if he was permitted to practise before he was discharged from bankruptcy) was wholly unsatisfactory. At worst, the evidence points to the applicant believing that he did not have any obligation to do so and he would not make that disclosure. At best, when he was acquainted with the provisions of section 269 of the Bankruptcy Act he said he would make that disclosure but, almost as if he was dismissive of the obligation, said most of the fees that he would charge would be in the $1,500 to $2,000 range (that is less than $3,000) because his practice was the sort of in the retail end of mums and dads and stuff (Transcript, pages 53 and 54). Later in his evidence he said that had the delegate asked him whether he realised that he must inform clients of his bankruptcy, he agreed he would do so.
I think it is inconceivable that a person licensed to provide financial services can enjoy the trust of the respondent or the confidence of consumers or investors when they fail to comply with their lawful obligations.
On balance, I think the conduct recorded above does demonstrate a high level of carelessness and probably incompetence or irresponsibility. He failed to pay income and GST, failed to lodge tax returns (for many years), did not complete financial statements for two corporations of which he was previously a director and conceded his obligation under section 269 of the Bankruptcy Act only when acquainted with it.
On review of all the evidence in this proceeding I think the cause of the applicant becoming insolvent and having debts of $994,940, was his inability or failure to properly manage and control his personal and business affairs, principally being his construction business.
In his SoA, the applicant declared he was a sole trader of the business La Vie Homes. In his evidence to the delegate he said he conducted that business between 2000 and 2011. In his evidence in this review he said he conducted that business for eight or nine years. During that time he was also an authorised representative and conducted business on behalf of TFSA. There were serious concerns about the health of his children and his wife, his marriage was disintegrating, he was studying law by correspondence and his own health was declining.
It is not difficult to comprehend in those circumstances that by the absence of competent staff and managers of his building business, it was destined to fail. And it did. The applicant could not possibly have been expected to properly manage and control that business. He should not have allowed it to continue to operate and should have seen and acted upon the emerging warning signs. It would appear that his personal and business affairs were out of control and he was unable or could not afford to devote appropriate time to manage the business and implement change.
The applicant said that he did not realise until after a period of five years that his building supervisor was incompetent. He said he incurred huge debts to Citylink and Eastlink because his employees and contractors improperly used his vehicles contrary to his instructions. He suffered regular interruptions to an adequate flow of receipts of income, apparently because of poor quality work or disputes and therefore incurred considerable debts to contractors, suppliers and the ATO.
On reflection, of course solutions to these issues would have been more attention to the work undertaken by the supervisor or to have replaced him; to take control of the keys of the vehicles, or have the vehicles fitted with e-TAGs in the absence of suitable staff managing the use of the vehicles and engaging a competent bookkeeper or financial controller to manage his finances.
In a decision of the Supreme Court of South Australia, ReBarry John Jenner [2007] SASC 263, a practising barrister petitioned for his own bankruptcy but also sought permission to continue to practise as a lawyer. Whilst the application might be distinguished from the present by regard to the petitioner’s occupation and the legislation under consideration, comments by Debelle J at [16] remain applicable to the present application, namely:
The indebtedness of the applicant is so substantial that it raises serious questions as to his competence to practise. It points to either serious financial incompetence or an inability to keep proper oversight of his financial affairs or both. His income tax liabilities suggest a lack of financial judgement ….
The applicant’s mismanagement and carelessness over many years has caused loss to many tradespersons, contractors and suppliers of materials. As a sole trader, he alone was responsible. He did not exercise competent management, supervision or judgement.
Having been given a statutory permission to practise in the financial services industry he has offended the objective of consumers and investors having confidence in that profession and has potentially tarnished the reputation and integrity of others that provide a professional and competent practice. Realistically, how could any consumer or investor perceive him as upholding his statutory obligations in professional practice when his personal financial management has been so poor.
The prehearing documents and the evidence of the applicant persistently point to him distinguishing his professional and personal affairs and as a consequence of that distinction, coupled with the absence of any complaint over the last 14 years, it was submitted that his personal bankruptcy was an irrelevance to his professional practice.
This is probably best explained by reciting part of the applicant’s own evidence in this review (Transcript, page 23):
And just referring to the consumer confidence, the layman person would think that – consumer confidence is driven by misconduct and penalties for that misconduct, whereas in my situation, it has been confirmed that there has been no misconduct, and therefore a consumer dealing with someone like myself and declaring the bankruptcy, in my opinion would have little effect to their confidence in dealing with me, given that I have had a 14 year history track record of good conduct without any client’s complaints, even during a time that was very difficult.
I am troubled by that evidence because it does suggest that the applicant does not understand the stature that he holds by the license to practise in the financial services industry. He fails to understand his statutory and practise responsibility and is not acknowledging the adverse perception that his financial mismanagement has cast on the integrity and reputation of the profession and on him. In my view, it also fails to recognise or at least acknowledge that consumers of financial advice will be influenced not only by their perception of an authorised representative or a licensee but their confidence will also be influenced, by the advice given, the reputation of the person, demonstrated efficiency, stability and service of practice and whether the inability of the person to exercise sound and competent personal financial management indicates that these objectives cannot be achieved at a professional level. I think it is very unlikely that consumer confidence is driven only by misconduct and penalties, as the applicant apparently believes.
I have given serious thought to whether the period of the banning order should be reduced from three years as the respondent’s delegate decided. It is important that the duration of such an order not be crushing. Additionally, a reduction in the period of the banning order should only be made, subject to it being manifestly excessive, if the Tribunal on review is confident that an applicant has to date demonstrated conduct and/or given assurances that the inherent trust, by reducing the period, will not be offended.
I do not think that the period of the banning order should be extended but I am satisfied that the three-year period under review should be affirmed. There was no submission made that any decision in relation to a banning order should have conditions attached. I suspect if the applicant does intend to return to practice that the respondent will impose some conditions and in those circumstances that issue should be considered by it, as the regulator and conditions should not be determined by me.
The applicant spoke of a number of discussions that he had had with senior persons at Sentry and arrangements that he had entered into with it that would be fulfilled at the expiration of the banning order. That of course suggests that should the banning period be reduced, he would return to the financial services industry. However he did not call those persons and the opportunity to determine whether the applicant had also satisfied those persons that he was worthy of return to the profession could not be determined. If they had been called and had given evidence of their preparedness to engage the applicant with limitations on and supervision of his practice, this outcome may have been different.
I also fear that the applicant has not yet, despite no longer being in practice or operating a business, been able to manage himself and his circumstances sufficient to give me confidence that he would be a competent practitioner in the financial services industry. I refer to the appalling lack of attention given by the applicant to this application as it moved through the Tribunal’s case management pathway.
An application he made to stay the decision under review was adjourned after he arrived late, without documentation and in the absence of his legal representative. There was consistent and multiple failure to comply with Tribunal directions and a failure to attend at a directions hearing when consideration was being given to his application being dismissed. The application was dismissed but later reinstated. Directions were again issued and (again) the applicant failed to comply.
The absence of diligence in prosecuting his application in this Tribunal is similar to the absence of diligence in management of his personal financial affairs.
On balance therefore I cannot be confident that the applicant is capable, currently, of exercising an appropriate level of judgement and professionalism sufficient to permit him to return to the financial services industry before 29 May 2016, as the delegate decided.
Decision
I affirm the decision under review.
I certify that the preceding 85 (eighty-five) paragraphs are a true copy of the reasons for the decision herein of John Handley, Senior Member .....[sgd]...................................................................
Associate
Dated 24 February 2015
Date(s) of hearing 19 January 2015 Date final submissions received 30 January 2015 Applicant In person Counsel for the Respondent Naomi Hodgson Solicitors for the Respondent Aldo Paciocco, ASIC
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