Anderson and Companies, Auditors and Liquidators Disciplinary Board and Australian Securities and Investments Commission (Joined Party)
[2007] AATA 1540
•21 December 2006
DECISION AND REASONS FOR DECISION [2007] AATA 1540
ADMINISTRATIVE APPEALS TRIBUNAL )
) No W2006/379
| GENERAL ADMINISTRATIVE DIVISION | ) | ||
| Re | GARY JOHN ANDERSON | ||
Applicant
| And | COMPANIES, AUDITORS AND LIQUIDATORS DISCIPLINARY BOARD |
Respondent
| And | AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION |
Joined Party
REASONS FOR DECISION
| Tribunal | Mr S Penglis, Senior Member |
Date of Decision 21 December 2006
Date of Written Reasons 23 February 2007
PlacePerth
At the conclusion of the hearing of this application, the terms of the decision intended to be made and the reasons for that decision were stated orally.
The Respondent and the Joined Party have requested the Tribunal to furnish them with a statement in writing of the Tribunal’s reasons for its decision.
The oral reasons for decision have been transcribed by Auscript Australasia Pty Ltd, the Commonwealth Reporting Service.
A copy of the transcript of 21 pages, which has been edited by the Tribunal, is attached and is provided as a statement in writing of the Tribunal’s reasons for decision.
..........(Sgd. S Penglis)..........
Senior Member
I certify that the 4 preceding paragraphs are a true copy of the reasons for the decision herein of Mr S Penglis, Senior Member
Signed: ................(Sgd. R Riberi).............................
Associate
Dates of Hearing 18, 19 & 21December 2006
Date of Decision 21 December 2006
Written Reasons 23 February 2007
Counsel for the Applicant Mr M de Kerloy
Solicitor for the Applicant Mony de Kerloy
Counsel for the Respondent Ms W BuckleySolicitor for the Respondent Australian Government Solicitor
Counsel for the Joined Party Ms W Buckley
Solicitor for the Joined Party Australian Securities & Investments Commission
ORAL REASONS FOR DECISION (edited)
ADMINISTRATIVE APPEALS TRIBUNAL
MATTER No W2006/379
by S. PENGLIS, Senior Member
ANDERSON and COMPANIES AUDITORS AND LIQUIDATORS BOARD
PERTH, 21 DECEMBER 2006 [10.06am]
MR PENGLIS: The background facts of this matter are not contentious. They are conveniently set out in the applicant's Statement of Facts and Contentions. I read various paragraphs of that document, not all of them, which in my opinion sets out a useful summary of the background.
The applicant was born in 1954 and is currently 52 years of age. The applicant has a wife and two adolescent children who are entirely dependent upon the applicant. The applicant received a Bachelor of Business (Accounting) from the Western Australian Institute of Technology in 1972. He commenced employment in the accountancy profession that year. The applicant became a certified practising accountant on 4 February 1976.
On 1 February 1985 the applicant was registered as a company auditor. On 13 February 1991 the applicant became a chartered accountant. The applicant was registered as a company liquidator on 13 April 1992. On 30 November 1992 the applicant was registered as a member of the Insolvency Practitioners Association. On 13 August 1993 the applicant was registered as a trustee pursuant to the Bankruptcy Act. On 15 September 1998 the applicant was registered as an official company liquidator.
In 1996 the applicant established his own practice, Gary Anderson, Chartered Accountant, Insolvency and Recovery Services. The applicant's business employs 4 full time and 1 part time staff, all of whom are relying upon the applicant for their employment and, in particular, on the applicant's registration as an official liquidator. The applicant's business specialises in insolvency administration with approximately 90 per cent of the revenue generated by the practice stemming from insolvency appointments and the remaining 10 per cent from bankruptcy.
The applicant has been appointed to and finalised approximately 142 corporate administrations over the last 10 years.
The applicant has never been the subject of any form of disciplinary proceedings for his conduct as an accountant in the 34 years that he has practised in this field.
On 12 February 2004 a directors resolution was passed placing a company called Flowtime Pty Ltd into voluntary administration and appointing the applicant as administrator. The directors were unknown to the applicant.
On 16 February 2004 the applicant consented to act as administrator of Flowtime and contacted the directors of Flowtime requesting the books and records of the company.
On the same day the applicant issued to the directors a written notice of demand for delivery of the company's books and records and issued the notice for the first meeting of creditors.
On 23 February 2004 the first meeting of creditors of Flowtime was conducted. The applicant repeated his request to the directors for the company's books and records.
By this time the applicant had secured at least the following records:
The company's MYOB disc which contained a detailed record of the company's financial records. The company only traded for 11 months and the records which the MYOB disc contained were to 30 June 2003 and not beyond.
The company’s cheque books.
Copies of the company's balance sheet and profit and loss statement to 30 June 2003.
An asset search of the company.
Photographs of the company's assets and part of an asset register.
The applicant also spoke to the directors, creditors, and a lawyer representing those creditors (said to be preferential shareholders by the directors).
On 2 March 2004 the applicant received the director’s Report as to Affairs and a proposal for a deed of company arrangement.
On 4 March 2004 the applicant sent a report to creditors, including a notice of second creditors meeting and an administrator's report to creditors.
On 12 March 2004 the second meeting of creditors of Flowtime was held. As no resolution was passed, the administration and Mr Anderson's involvement came to an end on that date.
The total realisable value of assets held by Flowtime amounted to, at best, approximately $47,000, with creditors of approximately $260,000. In relation to creditors, one claimed security of up to $60,000, whilst the directors claimed that some creditors were in fact preferential shareholders.
The company's assets consisted of a mining lease near Mount Magnet, approximately 550 kilometres from Perth, which had a book value of $25,000. The mining lease had been offered for sale for the 6 months prior to the administration with interested parties invited to submit offers. No offers had been received. The balance of the company's assets was plant and equipment and cash of $4500.
On 30 August 2006 the Companies Auditors and Liquidators Disciplinary Board, which I will refer to in these reasons as the Board, made findings against the applicant and determined that the applicant:
Had failed within the meaning of section 1292 (2)(d)(ii) to carry out or perform adequately and properly duties or functions required by Australian law to be carried out or performed by a registered liquidator.
That is the first decision which the applicant seeks this Tribunal to review. When the Board made that determination, before making any orders pursuant to section 1292 of the Corporations Act, it indicated that it wished to receive submissions in relation to sanctions and costs. Submissions were then made by the parties in regard to sanctions and costs and on 15 November 2006 the Board gave its determination on those issues. For the reasons stated in its written decision, the Board made the following orders:
(a)The registration of the (applicant) as a liquidator be suspended for a period of 3 months commencing 60 days after this order takes effect.
(b)The (applicant) must give an undertaking that for each of the first six voluntary administrations to which he is appointed after the end of that period of suspension he will furnish to ASIC within one month after the second creditors meeting (under section 439A) a written report prepared by a registered liquidator of not less than 10 years standing and who has no prior professional or personal relationship with the (applicant) reporting on the adequacy of the investigation under section 438A(a), the report under section 439A(4)(a), and the statement under section 439A(4)(b) relating to that administration.
(c)The (applicant) pay 85 per cent of ASIC’s costs.
That is the second reviewable decision in respect of which the applicant seeks this Tribunal to review.
The relevant legislative provisions are contained in the Corporations Act. Section 1292(2)(d)(ii) effectively provides that:
The Board may, if it is satisfied on an application by ASIC for a person who is registered as a liquidator to be dealt with under this section that before, at or after the commencement of this section … that the person has failed, whether in or outside this jurisdiction, to carry out or perform adequately and properly… the duties or functions required by an Australian law to be carried out or performed by a registered liquidator, by order, cancel, or suspend for a specified period, the registration of the person as a liquidator.
The relevant “Australian law” for the purpose of these proceedings I apprehend to be section 439A(4) of the Corporations Act. That section provides as follows:
The notice given to a creditor under paragraph (3)(a) must be accompanied by a copy of:
(a)a report by the administrator about the company's business, property, affairs and financial circumstances;
(b)a statement setting out the administrator's opinion about each of the following matters:
(i) whether it would be in the creditor’s interest for the company to execute a deed of company arrangement;
(ii) whether it would be in the creditor’s interest for the administration to end;
(iii) whether it would be in the creditor’s interest for the company to be wound up
and his or her reasons for those opinions;
(c)if a deed of company arrangement is proposed, a statement setting out details of the proposed deed.
Also relevant is section 1292(9). I will not read that section, as it is lengthy, however, it is to the effect that where, on an application by ASIC, for a person who is a liquidator to be dealt with under section 1292, the Board is satisfied that the person has failed to carry out or perform adequately and properly any of the duties or functions mentioned, then, (relevantly for these proceedings in sub-section 2(d)) the Board may deal with a person in one or more of the following ways:
(a)by admonishing or reprimanding the person;
(b)by requiring the person to give an undertaking to engage in or refrain from engaging in specified conduct;
(c)by requiring the person to give an undertaking to refrain from engaging in specific conduct except on specific conditions.
The sub-section further provides that if a person fails to give an undertaking when required to do so or contravenes an undertaking when given, the Board may, by order, cancel or suspend for a specified period the registration of the person as an auditor, as a liquidator or as a liquidator of a specified body corporate, as the case may be.
During the course of the proceedings, for the purpose of amplification of section 1292(2)(d)(ii), my attention was referred to the decision of Tamberlin J, of the Federal Court of Australia in Dean Willcocks v Companies Auditors and Liquidators Disciplinary Board [2006] FCA 1438. Relevantly, at paragraph 24 of those reasons, his Honour said this:
The language of section 1292(2)(d)(ii) directs attention to the question of whether there has been a failure to adequately and properly carry out or perform the duties or functions required to be performed by a registered liquidator. The emphasis is on the adequacy level or sufficiency of performance of the function or role by the registered liquidator. In this case, the function to be performed is that of an administrator. To evaluate the level of performance is a question of fact and degree which calls for the application of a standard. It is not a qualitative consideration whether there has been performance, but rather calls for consideration as to the sufficiency of the acts or omissions of the administration. This is a task which calls for some acquaintance with professional standards applicable to the role of an administrator.
Further, at paragraph 26, his Honour said this:
There is nothing in the language of section 1292(2)(d)(ii) which excludes regard to professional standards and codes when deciding whether the performance is a proper and adequate exercise of the office. The reference to proper and adequate invites the testing of performance against a relevant standard or bench mark of performance. The interpretation advanced for the applicant in my view is too narrow in requiring the identification of a specific duty directly imposed by legislation. The level of performance called for is that of "adequacy". The standard is that the duty must be performed "properly". The provision is designed to enable a Board representative of the commercial and accounting communities to consider whether the function has been adequately and properly carried out. To assist this, it is permissible, in my view, to have regard to the standards operative in a relevant sphere of activity.
I respectfully propose to adopt those remarks in the determination of this matter before me.
That then leads me to the Statement of Best Practice. Admitted into evidence in the proceedings before me was a document entitled: Statement of Best Practice. Its subheading was: Content of an Administrator's Report Pursuant to Section 439A(4) of the Corporations Law. It was said to be effective on 1 July 2001. It is a document prepared and published by the Technical Committee of the Insolvency Practitioners Association of Australia. I propose to read what I consider to be the relevant portions of the Standard.
Section 1 includes the following:
The Insolvency Practitioners Association of Australia is committed to quality and professionalism in the practice of insolvency and expresses that commitment through the adoption of insolvency practice statements ...”
Paragraph 3, under the heading “Background”, relevantly states that amongst other things:
The administrator's role in part 5.3A administration is best described as that of an impartial expert. The administrator's primary duty is owed to the company's creditors. In reporting, the administrator must -
and I emphasise that word
- investigate the company's business, property and affairs. The administrator is required to form an opinion as to whether it would be in the creditors' interests about each of the three alternative outcomes to the administration.
The next subheading is “Professional judgment”. Under it the following appears:
Companies to which administrators are appointed vary in size, business conducted, structure and type of creditors. The extent of investigations performed by an administrator is dependent on many factors. …”
Under section 7 headed “Content of the administrator's report” are the following statements under the subheading “7.1.2 Books and Records” as follows:
Failure to maintain books and records in accordance with section 286 of the law provides a rebuttable presumption of insolvency. This presumption can be relied upon by a liquidator in an application for compensation for insolvent trading and other actions for recoveries pursuant to Division 2 of Part 5.7B of the Law from related entities. Accordingly, it is considered material to a creditor’s decision concerning the company’s future.
The administrator’s report should incorporate an opinion as to whether the company’s books and records are maintained in accordance with section 286 of the Law.
Under the subheading “7.3.1 Directors’ report as to affairs”, is the following:
The administrator's report should outline the content of the Director's report as to affairs and include the Administrator's comments as to the administrator's estimate of realisable value of assets and liabilities.
Subheading 7.3.2 is entitled “Explanations for difficulties” and reads as follows:
The administrator's report shall include the directors’ explanation for the company's difficulties and the administrator's opinion on the reasons for the company's difficulties.
Under the subheading “7.4 Offences, voidable transactions and insolvent trading” is included the following paragraph:
The administrator's report should disclose the quantum of any voidable transactions identified during the transaction and may disclose the beneficiaries of those transactions.
It further states:
The administrator's report shall include comment regarding whether the company engaged in insolvent trading and may provide an estimate of the loss incurred by the company as a result.
Under the subheading “7.5 Estimated return from winding up” appears the following:
The administrator's report shall disclose
(i)the estimated return to creditors from a winding up of the company;
(ii)likely timing of the return to creditors from a winding up of the company; and
(iii)disclose (sic) the basis on which remuneration will be sought by the liquidator and an estimate of the likely costs of administering the winding up of the company.
And finally subheading “7.7 Administrator's recommendations” is in the following terms:
The administrator shall express an opinion and reasons for the opinion as to whether the option is in the creditors' interests in regard to each of the options available to the creditors to decide pursuant to section 439C of the Corporations Law.
The administrator should advise creditors in writing, if practicable, of any additional matter that comes to the administrator’s attention after the dispatch of the administrator’s report that a reasonable person would consider to be material to the creditors' decision.
In overview, the allegations against the applicant made by ASIC, which was given leave to appear as a joined party in these proceedings, were threefold. First, it is alleged that the applicant failed to get in and examine all of the books and records of the company. Second, that the applicant failed to take proper steps to get a valuation of the company's assets. Third, that the applicant failed to express an opinion as required by the Act.
Now, I emphasise the case by ASIC is not that he failed to do any of these things at all, but that he failed to do it properly or adequately. I propose to consider each of these three heads in reverse order.
Received into evidence was the applicant's Report to Creditors pursuant to section 439A(4)(a). The final page of that document, which is dated 4 March 2004 and signed by the applicant as Administrator, reads as follows:
1.In my opinion in accordance with section 439A(4)(b) of the Corporations Act 2001:
(a)It is possible for the company to execute a Deed of Company Arrangement and the directors have formulated a proposal for a Deed of Arrangement that on the face of it would result in a return better than if the company were to be wound up. Creditors will need to determine whether or not such a proposal is acceptable as an alternative to liquidation.
(b)It would not be in the creditors’ interest for the administration to end.
(c)It would be in the creditors’ interest for the company to be wound up but subject to the directors not formulating a proposal for a Deed of Company Arrangement.
2.I am also required to state my reasons for this opinion, and these are:
My staff and I have investigated the company’s affairs, and concluded that:
(a)The company has ceased trading. Given that the directors and an associated entity intend to stand aside from any distribution to creditors in the event that a Deed of Company Arrangement was accepted the Deed of Company Arrangement would likely result in a better return to creditors than if the company were to be wound up.
(b)If the administration were to end, then control of the company reverts back to the directors and the company will find itself in the same position as it was prior to my appointment. That is, the company is insolvent and would likely remain so and, in all likelihood, it would simply be a matter of time before a creditor makes an application to the Court to have the company wound up and, in the meantime, the company’s assets may be dissipated.
(c)In lieu of the above, it would be in the best interests of the creditors to pass a resolution that the company be wound up. The liquidator of the company would be required to:
(i) wind up the affairs of the company;
(ii) provide for a fair and equitable distribution of the company's remaining property amongst its creditors in line with statutory insolvency priorities; and
(iii) conduct an examination of the circumstances giving rise to the liquidation, perhaps revealing unfair preferences or the possibility of other potential recoveries.
During the course of the proceedings there was some discussion as to whether or not the word "not" ought appear in paragraph 1(b). It was suggested that the word "not" ought not to have been there. In my view the word "not" was clearly intended to be there. One of the recommendations that needs to be determined by an administrator is whether or not the company should simply come out of administration and revert back to its prior existence without a deed of company arrangement and without a winding up. It is clear that, for the reasons in fact given in paragraph 2(b) it was the applicant’s opinion that it would not be in the creditors interests for the administration to end. In other words, it would not be in the creditors interests for nothing to happen and the company simply to revert back to where it was prior to the administration. In my opinion, therefore, there can be no criticism of the applicant’s expression of his opinion with respect to the question of whether or not it was in the best interests for the creditors for the administration to end.
There was some criticism levelled by ASIC in regard to the recommendation with respect to the winding up. That criticism, in essence, was twofold. First, that the articulation of the opinion in paragraph 1(c) was unclear because it said that it would be in the creditors interest for the company to be wound up, but was then qualified by the words "subject to the directors not formulating a proposal for a deed of company arrangement" (when in fact such a proposal, albeit in bare terms, had by then been articulated).
That criticism was reinforced in the submissions of ASIC by the reasons given for the opinion expressed in paragraph 2(c) where it was said "in lieu of the above it would be in the best interest of creditors to pass a resolution that the company be wound up". Again, that was criticised on the basis of the words "in lieu of the above it would be in the best interests of the creditors to pass a resolution that the company be wound up" was inconsistent with the recommendation that on the face of it the deed of company arrangement would provide a better return to creditors than if the company were in fact wound up.
Section 439A(4)(b)(iii) requires the applicant to make a statement setting out his opinion about each of the matters set out therein and the reasons for that opinion and, in particular, whether it would be in the creditors interests for the company to be wound up. Although in my view unhappily worded, I am of the opinion that the applicant satisfied that obligation. He has stated in sufficient, although not in the clearest, terms that it would be in the creditors interests for the company to be wound up should the directors not proceed with their proposal for a deed of company arrangement.
The words "in lieu of the above" in the reasons given for the opinion are, again, unhappily worded but to me reasonably convey the proposition that in lieu of a deed of company arrangement being entered into, then it would be in the best interests of the creditors for the company to be wound up.
I therefore do not accept the findings of the Board that the articulation of the opinion with respect to whether or not the company ought be wound up was not an adequate and proper discharge of his duties imposed by section 439A(4)(b)(iii) of the Act. I certainly do agree with the Board's criticisms of the wording and, note that those criticisms were accepted to a large part by the applicant in his evidence before the Tribunal. I do not, however, find that the extent of the wording constituted a breach of a duty.
I then turn to paragraph 1(a) of the report. In my opinion the applicant has failed in his duty to properly and adequately comply with the requirements of section 439A(4)(b)(i), namely to state an opinion (and reasons) as to whether it would be in the creditors interests for the company to execute a deed of company arrangement. One can certainly ascertain from the words used by the applicant that on the face of the foreshadowed deed of company arrangement it would provide a better return for creditors than if the company were to be wound up. However, whereas the applicant for (b) and (c) used the very clear words that are used in the section, namely that it would or would not be in the creditors interests for something to occur, he did not use those words in regard to (a). He has simply articulated the fact that:
(a)it is possible for the company to enter into a deed of company arrangement;
(b)the directors have formulated a proposal for a deed of company arrangement;
(c) on the face of it, that would result in a far better return than if the company were to be wound up.
But the applicant has not gone beyond the face of the deed of company arrangement. He has not considered matters such as whether or not if the company was wound up there may be other avenues for recovery that would ultimately result in a better result to creditors than if the deed of company arrangement were accepted. The deed of company arrangement provided, on the face of it, a better return than if the company were to be wound up because the directors were not going to participate in the distribution. The applicant has not considered anything deeper than the face of the deed of company arrangement and in my opinion has not expressed an opinion that he is required to express by the Act. Indeed, in my view the matter is compounded by the concluding sentence in paragraph (1)(a) which reads as follows:
Creditors will need to determine whether or not such a proposal is acceptable as an alternative to liquidation.
The whole purpose of the relevant section is for the administrator to provide some guidance to the creditors. In my view the applicant failed to do so and he has failed to do so in a manner that in my opinion constitutes a breach of his duty.
I therefore uphold the finding of the Board in regard to the expression of the opinion insofar as it relates to section 439A(4)(b)(i) of the Act. I should make the observation that in forming that view I have not overlooked the expression of opinion in paragraph (2)(a) of the Statement, but in my opinion that takes the matter no further and does not remedy what I consider to be the failure to comply with the first part of the duty, namely to make a recommendation or express an opinion as to whether or not it would be the creditors interests for the company to execute a deed of company arrangement.
For the sake of completeness I note that it was submitted by Mr de Kerloy, counsel for the applicant, that the proper construction of section 439A(4) is not that the applicant needs to express a view as to which of the three alternatives ought be accepted but is to express an opinion with respect to each of the three stated options. I accept that submission. The gravamen of my finding is, however, the fact that in my view the applicant did not express an opinion as to whether or not it was in the creditors' interests to execute a deed of company arrangement.
I then turn to the criticism that the applicant failed to obtain a valuation of the company's assets. Mr de Kerloy impressed upon the Tribunal the importance of having regard to the realities of the situation and the fact that the applicant was an experienced company administrator and that in his experience, exercising his professional judgment, there was no point expending the company's sparse cash resource in having a valuer attend on site to conduct a valuation of the assets, remembering that they were at Mt Magnet. Whether or not that is correct - and for the purpose of these reasons I am prepared to accept the proposition - the difficulty for the applicant is that during the course of the proceedings before the Board an expert report was filed on behalf of the applicant by a Mr Nilant.
Mr Nilant was given a full briefing in respect of this matter. His opinion was not sought in a vacuum. Attached to his report was a full list of the documents that he had been provided, so the opinion that he has expressed was in the light of the actual facts of the matter, not, as I have said, in a vacuum. Mr Nilant was asked to respond to, amongst others, the following question:
What steps would a reasonable practitioner have taken to obtain a valuation of Flowtimes, assets of the mining lease?
To that Mr Nilant made various remarks but relevantly, in paragraph 10 of his report, he said this:
In my opinion, in the absence of funding a reasonable practitioner would attempt by reference to any available fixed assets register and photographs of the fixed assets at the mine site, to obtain a “site unseen” view as to the probable values, if possible. The values attributed in the books and records should give some indication upon which a professional judgement as to possible values and materiality should be made. Inquiries should be made from an experienced auctioneer and valuer whether any opinion can be expressed and whether the mine site and works may perhaps be known to such person.
One of the issues in the proceedings before me was as to the sufficiency of the asset register. The only evidence of an asset register was some entries on the MYOB printout. They were far from satisfactory. Nevertheless, I am prepared to accept for the purpose of these reasons that that was the only document available to the applicant that bore any semblance to an asset register. It was submitted to the Tribunal by Mr de Kerloy that one of the difficulties with the applicant complying with what Mr Nilant indicated, was the absence of an asset register or a sufficient asset register.
Whilst I accept that difficulties arose because of the nature of the so-called asset register, I do not accept that that is in itself a reason for the applicant not having done that which Mr Nilant states a reasonable practitioner would have attempted to do. He had photographs and he had access to the directors. He could have, quite easily in my view, provided to the valuer the photographs and a list of any other assets that he had been informed by the directors comprised part of the company's assets but which were not the subject of photographs.
Whether or not at the end of the day the exercise would have come to anything or changed the events as they occurred is not to the point. The fact of the matter is that Mr Nilant, the applicant's own expert, has effectively stated that to have properly and adequately discharged his duties, the applicant ought to have at least attempted to obtain a site unseen valuation. He did not do so. I am of the view that that again constitutes a breach of his duty to adequately and properly carry out that which he is required to do, namely to report about the company's business, property, affairs and financial circumstance as provided by section 439A(4)(a). Accordingly, although for different reasons, I therefore uphold the Board's finding in regard to the issue of valuation.
The third ground of complaint was, as I have indicated, a failure on the part of the applicant to get in and examine the books and records of the company. Much of the time before the Tribunal was occupied with reference to the transcript of the proceedings before the Board and whether or not various findings of the Board in regard to the particular documents ought be upheld. I approach these reasons on a far simpler basis. ASIC provided a Statement of Facts and Contentions. Paragraph 17, without reading the references to the documents provided under section 37 of the Administrative Appeals Act, reads as follows:
That the applicant did not properly inspect the books and records of the company, as he admitted in the section 19 examination and the Report and which the evidence accepted by the Board established that the applicant did not:
(a)examine or review the cheque butts for the period after 30 June 2003 until appointment;
(b)get in or examine the bank statements;
(c)did not examine the cashbook or cash journal or cash outflows;
(d)get in or examine the statutory records in particular the share register;
(e)get in or examine the documents that relate to the mining lease or the assets;
(f)get in and examine employee records;
(g)get in and examine any other documents setting out the transactions post 30 June 2003.
I pause to again state that the relevance of post 30 June 2003 is that the MYOB document which the applicant was provided did not extend beyond that date. In other words, there were no transactions post 30 June 2003 in that document.
In the course of the hearing I enquired of Mr de Kerloy specifically as to the applicant's position with respect to each of those items. Mr de Kerloy conceded, in my opinion fairly and rightly so, that the evidence did establish that the applicant did not examine or review the cheque butts for the period after 30 June 2003 and nor did he get in or examine the bank statements.
With respect to the cash book or cash journal or cash outflows, there was a debate as to whether that occurred for the period prior to 30 June 2003 but there was acceptance that he did not do so with respect to the period after 30 June 2003. It was accepted that he did not get in or examine the statutory records, in particular the share register. It was accepted that he did not get in or examine the documents that related to the mining lease insofar as he did not carry out a search of the lease. However, I note that there was evidence before the Board that suggested that the lease may not have in fact issued or a transfer of the lease may not have been perfected and so, therefore, title deeds may not well have existed in the possession of the directors.
Again, there was some discussion before me in regard to whether or not the applicant had failed to get in and examine employee records. I am satisfied on the evidence that there were employee records. There was reference to employees in the applicant's report and I think it is fair to infer that as a consequence there would have been records relating to those employees.
Now, Mr de Kerloy, in the course of his submissions on behalf of the applicant, made much of the fact that this was a company with limited funds, that there was a particular purpose for the administration, and that particular purpose was to effectively try and break a deadlock that existed between two groups of stakeholders. He made reference to and impressed upon me the fact that there was a small number of stakeholders who basically understood the company, its structure and its assets, and that only four creditors attended the creditors meeting.
He submitted and impressed upon me that the real issue of concern to creditors was in fact conveyed and understood by them. He submitted that the professional approach to an administration where the affairs and financial state of the company are basically straightforward and known to the major stakeholders and where there is a specific purpose of issue in mind is necessarily different to the administration of, and he gave two examples, companies such as Grubb and Westpoint. He submitted that, here, the evidence given by Mr Anderson and the directors was that the position of the company was known and was not in dispute. The key issues were the parlous state of the company's finances and that any forward movement was being stymied by the dispute between the directors and certain shareholders who claimed the status of certain preference shareholders; that they had been misled by the directors when investing money into the company.
In my view, none of those matters can justify a failure to comply with the clear duties imposed upon an administrator by the Corporations Act when read in conjunction with the Statement of Best Practice. For example, as I have indicated, under Section 3 it is said that:
In reporting, the administrator must investigate the company's business, property and affairs. The administrator is required to form an opinion as to whether it would be in the creditors interest about each of the three alternative outcomes to the administration.
From the evidence that I have read below and his section 19 examination, the applicant was well aware that ordinarily the matters that ASIC complained he did not do, would have been done by him. In my view he cannot justify his failure to do so by reference to the limited nature or the unusual reasons for his appointment. And a good example of this, is manifest in the applicant's report under section 3.3 dealing with books and records. As I made the observation during the course of the hearing, there is no criticism being levelled, and in my view rightly so, of the applicant in these proceedings that he by his report misled the creditors as to what he had done. In the section dealing with books and records, he clearly stated that he had not yet had the opportunity to inspect the company's books and records. He then expressed a view that:
It is my understanding that the records of the company are relatively limited, given the size and nature of the business and activities conducted by the company.
Further on in paragraph 6.1.1 he says - and this is under the heading: “Offences, Voidable Transactions and Insolvent Trading”:
Given the limited time frame available to me and in the absence of any books and records I have not been able to adequately investigate these matters. However, if the company were to be wound up, the liquidator will carry out such investigations during the course of the winding up.
The reason why the applicant was not able to provide any opinion – an opinion that in my view is central to any administration – as to whether or not there had been a failure to maintain books and records in accordance with section 286 so as to provide a rebuttal presumption of insolvency or whether or not there had been any offences, voidable transactions and insolvent trading undertaken, even on a preliminary basis, was because he simply chose not to inspect the company's books and records.
This was not a case where the company's books and records were significant. By his own words the applicant has stated that:
They are relatively limited.
I understand the explanation given by the applicant as to why he did not do what, in my view, he ought to have done, but that provides no defence. In my view, he has failed in his duty and he has done so consciously. For all those reasons I propose to affirm the reviewable decision dated 30 August 2006.
I then turn to the reviewable decision dated 15 November 2006. The relevant test is conveniently found, albeit in the case of a company director, in the High Court of Australia decision in Rich v Australian Securities and Investments Commission (2004) 220 CLR 129. In that decision the High Court rejected the proposition (previously articulated in Australian Securities and Investments Commission v Kippe (1996) 20 ACSR 697) that the purpose of that order is solely to protect the public rather than punish. In his decision in Rich, McHugh J referred to numerous propositions formulated by Santow J in Re HIH Insurance Limited: in provisional liquidation;Australian Securities Investments Commission v Adler (2002) 42 ACSR 80. Amongst those propositions were the following:
· disqualification orders are designed to protect the public from the harmful use of the corporate structure or from use that is contrary to proper commercial standards;
· the banning order is designed to protect the public by seeking to safeguard the public interests in the transparency and accountability of companies and a suitability or directors to hold office;
· the order has a motive of personal deterrence, though it is not punitive;
· general deterrence as an object of the legislation;
· it is necessary to balance the personal hardship to the defendant against the public interest and the need for protection of the public from any repeat of the defendant’s conduct.
After referring to those propositions, McHugh J, at paragraphs 52 and 53 of his Honour’s reasons for decision, said as follows:
“52. Both Santow J’s list of propositions and the comments of the Victorian Court of Appeal indicated that the factors taken into account in the criminal jurisdiction – retribution, deterrence, reformation, contrition and protection of the public – are also essential to determining whether an order of disqualification should be made under the Corporations Act and, if so, the appropriate period of disqualification. Those factors also support the conclusion that the jurisdiction exercised under this part of the Corporations Act cannot be properly characterised as purely as protective.
53. A good example of the approach of Judges in this particular area of the law is found in the judgment of Bryson J in re One.Tel Ltd (in liq): Australian Securities and Investments Commission v Rich (2003) 44A CSR 682. His Honour’s reasons show that the jurisdiction cannot be categorised as purely protective. They reflect an approach that can be found in many other cases concerning the disqualification from office of company officers. Amongst matters Bryson J thought were relevant were the second defendant’s age and stage of career which disqualification will fall, the office held, the extent of the second defendant’s responsibilities in terms of the value of assets, the complexity of the activities and the number of people within the range of adverse affects of the second defendant’s breaches of duty … His Honour warned that the guidance to be obtained from other decisions with respect to the reasons for ordering disqualification and the period of disqualification is limited. Each decision is closely related to its own facts, which tend to be highly complex. Further, the circumstances of each defendant are special to that person … .”
I respectfully propose to adopt the remarks of Santow J and McHugh J to which I have referred.
Mr de Kerloy submitted that if I were to find (as I have found) that the Board's decision dated 30 August 2006 ought be upheld, I should nevertheless conclude that the public interest does not require the applicant to be suspended. In doing so he relied upon section 1292(9) of the Act.
That gives the Board (and now me) certain options if I consider it appropriate. One of those options is to admonish or reprimand a person. Counsel for the applicant accepted that if I were to not suspend the applicant, a reprimand, which is a higher form of dissatisfaction than admonishment, would be appropriate. To that extent there was common cause between the parties before me. The question, however, is whether or not a reprimand would be sufficient in all the circumstances, having regard to the matters to which I have referred.
In my view they are not, but nor, for that matter, was it suggested by either counsel before me that a reprimand of itself would be sufficient. To that end during the course of the hearing a Minute of proposed supervision orders was handed up by counsel Ms Buckley, counsel for ASIC. I will not read the entirety of that Minute but it in effect provided for a longer period of supervision than the Board had ordered and for a period of continuing professional education.
There were some submissions made with respect to the appropriateness of the Minute in the event that I was satisfied that a suspension was not required. In particular, Mr de Kerloy made submissions to the effect that the period referred to in the proposed amendment was too onerous and also that part of the supervision order was not practicable. Although they were my words, not his, that was what I apprehended to be the substance of his submission.
I propose to deal with the supervision order first and then consider whether or not it is a sufficient sanction in my view in this case.
The first part of the proposed supervision order that was in controversy was the period and number of appointments to which it ought apply. The Minute handed up provided for the longer period of 12 months or the next 10 appointments as administrator that the applicant accepts. It provides that within 6 months of each such appointment, the applicant is to obtain and serve on ASIC a written report from a registered company liquidator as to various matters.
The second part of the Minute provided that the applicant not sign any report issued pursuant to section 439A of the Corporations Act unless and until he has obtained at his own expense and served on ASIC a written report from a registered company liquidator approved in writing and advanced for the purpose by ASIC, certifying that the report has been prepared to a standard acceptable to that registered company liquidator. Again, for the purpose of considering whether or not a period of suspension is required, I will take into account as well.
The third part of the Minute, which was not the subject of any contest, was that within 12 months of the date of the order or such further period as ASIC shall agree in writing in the event of sufficient appropriate continuing professional development being available the applicant will complete an additional 12 hours of continuing professional development in the area of adequate proper performance of the duties as an administrator and/or liquidator. Such additional CPD to be provided by CPAA, ACAA or IPAA or such other entity as may be agreed by ASIC. The costs of such additional CPD to be met by the applicant.
The question, therefore, is whether orders in those terms adequately deal with the matters that Santow J or McHugh J have identified.
I accept for the purpose of these reasons that to suspend the applicant will impose on him significant financial hardship. During the course of these proceedings I received evidence tendered on behalf of ASIC in regard to the possibility of what was described as a locum being appointed by the applicant at his cost to, in effect, carry on his administrations during the period of any suspension. I accept that is a possibility but I am not persuaded that it is a probability. Indeed, in fairness, when I put that proposition to Ms Buckley, counsel for ASIC, she accepted that the evidence could not be put any higher than that.
There is, therefore, a real prospect that if the applicant is suspended it will have a substantial effect on him, his employees and also the companies in respect of which he holds administrations. That, however, it was submitted, is the nature of the beast. That, it was submitted, is the price one pays for making a conscious decision not to carry out that which I have held the applicant was duty bound to do. The applicant’s breach of duty was not one which, in my view, could properly be described as an unfortunate oversight, error or mistake. Whilst I understand the explanation for it, it was a conscious decision.
Although I have held it irrelevant for the purpose of a defence, when it comes to the question of penalty, the reasons why this occurred are matters I may have regard to. I can well understand, although it does not excuse, why the applicant did what he did. He is someone who has had considerable experience and has had an immaculate disciplinary record to date. That must count in his favour. What counts against him is the fact that one would expect that a practitioner of his seniority would know better.
At the end of the day I need to protect the public. That is my first and foremost duty. I am not here to punish the applicant. However, I am to have regard to the message that needs to be sent to persons who are administrators of companies as to what they can expect if they consciously fail to breach their duty. That is clearly the mandate that is given to me by the High Court of Australia. In my view the conduct of the applicant is serious. It requires a substantial penalty. Although not put to me in such words, I apprehended Mr de Kerloy's submissions to be that the penalty imposed by the Minute that was handed up by ASIC is a substantial penalty, a sufficient penalty in all the circumstances and will operate as a sufficient deterrent.
It should be noted that whatever the result of these proceedings, it was accepted by Mr de Kerloy that the third order of the Board will remain, names that is that the applicant pay 85 per cent of ASIC's costs before the Board. I have received no evidence as to what those costs would be but I do note that the matter took some days before the Board and I do note that counsel was briefed by ASIC and I think it's fair to assume that those costs will not be nominal. I also note that the applicant has incurred costs in defending the proceedings below in which he engaged Senior Counsel and has engaged counsel to appear for him today, again all at a cost.
The cost to the applicant in undertaking at his own cost the sort of supervision that ASIC has proposed as being the order that ought be made if I was minded not to make a suspension order should not be overlooked. Nor too should there be overlooked the fact that this matter has been gazetted and that the publicity is itself a matter that no doubt will affect adversely the applicant.
I think the impact that all of this has had on the applicant is best expressed in his own words. Included in the section 37 documents was the transcript of the proceedings before the Board on 15 November 2006 when the Board delivered its decision on penalty. The applicant was there represented by Mr Harrison. Mr Harrison said this:
Mr Chairman, there was one aspect. Mr Anderson merely wishes from a personal viewpoint to put a very brief statement to the board about his personal position, the position he's in today and the order. He would like to speak to you about his position. It is not so much a challenge in any way to the orders but merely a comment from a personal point of view.
The Chairman allowed him to do so, on the basis that it would be brief and the applicant said this:
Thank you, Mr Chairman and members of the board. This matter has gone on for almost three years. I take these things incredibly personally. As I've said in the examination or the hearing, I don't like making mistakes. I endeavoured when I first received the section 19 examination notice to establish what the issue was.
The applicant went on to deal with certain events which I don't propose to read. He then says:
“It has been an incredible period of my life and one I sincerely regret.”
It was submitted by Ms Buckley, counsel for ASIC, that the evidence given by and the submissions made on behalf of the applicant both below and before me indicated a failure on his part to properly appreciate what he has done wrong. As I said during the course of the hearing, it is not the fact that the applicant has sought to defend himself that is the issue, but it is what has been said by him and on his behalf during that process to which Ms Buckley, was referring and, in my view, with some justification.
It seems to me that the applicant still does not fully comprehend the error of his ways. The issue is, however, whether or not a supervision order would properly address that or whether it requires more. Does the public interest require someone in the position of the applicant to be suspended or is the public interest satisfied merely by having the supervision orders proposed by ASIC?
Having given the matter careful consideration, I have come to the view that the public interest does not require the applicant to be suspended. I am of the view that what is required in this sort of case are orders designed to make sure that there is no recurrence of this. They are not light orders. They will impose a substantial burden upon the applicant both by way of time and by way of cost. I am of the view that the supervision orders proposed send an appropriately severe signal to members of the profession as to what they can expect if conduct of this nature is carried out by them.
The fact that I have not made or do not propose to make a suspension order should not in any way be seen by the applicant or anyone reading these reasons as in any way condoning what has occurred or in any way diminishing the serious light in which they ought be viewed. Serious as they are, in all the circumstances, I am satisfied that suspension is not required.
Satisfying myself that suspension is not required, I then turn to identify what is the appropriate order that does not work unduly onerously on the applicant whilst at the same time preserving the public interest. Does, for instance, the public interest require a period of 12 months and the next 10 appointments? Does the public interest require that the applicant not be able to sign a section 439A report unless and until he has obtained a written report from a registered company auditor - liquidator? I am of the view that guidance should be taken in this regard from the Board itself. I am of the view that the appropriate order should be one that is in similar but harsher terms to that which was crafted by the Board. In my opinion, it should apply to the first 10, not 6, voluntary administrations. The applicant should, however, be given 2 months, not 1, in which to produce the reports.
I will now hear Counsel as to the exact form of the orders to be made in light of these reasons.
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