Boehm, N. v Australian Securities Commission
[1992] FCA 147
•24 MARCH 1992
Re: NORBERT BOEHM
And: AUSTRALIAN SECURITIES COMMISSION
No. V G3139 of 1991
FED No. 147
Corporations
COURT
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Jenkinson J.(1)
CATCHWORDS
Corporations - Companies - Management and administration - Directors and other officers - Disqualification - Convicted person - Leave of court to be director and take part in management - Principles upon which court acts.
Corporations Law - s.229(3)
Zuker v. Commissioner for Corporate Affairs (1981) V.R. 73
HEARING
MELBOURNE
#DATE 24:3:1992
Counsel for the Applicant: Mr. S.E. Marantelli instructed by
Dawson Kennedy and McDonald
Counsel for the Respondent: Ms. J. Nelson instructed by
Regional General Counsel for Victoria
JUDGE1
Application by a person convicted of serious fraud for the leave of the court to manage a corporation within 5 years after the conviction.
The applicant, whose age the evidence does not disclose, was convicted on his plea of guilty by the County Court of Victoria on one count of conspiracy to defraud and was on 15 May 1990 sentenced to imprisonment for four and a half years. A term of two and a half years was fixed as the period before the expiration of which he would not be eligible for release on parole. On 8 July 1991 he was released from prison.
The conspiracy was formed in connection with the export from this country of meat and meat products, in which business the applicant has been long and successfully engaged. The conspiracy was to defraud persons contracting to buy those goods from Steiger's Meat Supply Pty. Ltd. ("Steigers") by dishonestly supplying meat or meat products other than those contracted for. The learned judge of the County Court observed on sentencing the applicant and others : "The case is that the five of you, together with Steiger and Gabchek, agreed that cheaper varieties of meat would be introduced into what purported to be prime export meat ..... and it is obvious on the most favourable view to the prisoners that very substantial quantities of meat indeed were the subject of the matters coming within this count ..... you, Mr. Boehm ..... were one of the two instigators of the conspiracy and by far the most active participant ..... it is fair to describe you ..... as the organizer". The period during which the fraudulent conduct in effectuation of the conspiracy was alleged to have occurred was from January 1979 until December 1981. The applicant was charged with the offence in April 1982. The long interval between the laying of the information and sentence was the result of a number of causes, it appears.
The applicant described himself in an affidavit in support of this application as "Marketing and Sales Director" of Steigers before 1st September 1986. He deposed that thereafter until he was imprisoned he was the managing director of Steigers. Since his release from imprisonment he has been employed by Liberty Meat Exports Pty. Ltd. ("Liberty") as its "Sales and Purchasing Officer". There are two issued shares in Liberty, one held by the applicant's brother Rudolf Boehm and one by Rudolf Boehm's de facto wife. Those two are presently the only shareholders. The applicant deposed : "It is not proposed that I shall hold shares in Liberty". The business of Liberty is the boning and packaging of meat and meat products for export, not the exporting of such products. But a great deal of the evidence was directed to show that some Japanese importers of those products favour what has been packaged by Liberty, and that that favourable regard is very greatly enhanced by the applicant's connection with Liberty.
Liberty carries on business as trustee of a unit trust, the holder of the units in which holds them in trust on a discretionary trust of which Rudolf Boehm is the sole beneficiary. A balance sheet of the trust business as at 31 December 1991 discloses an excess of assets over liabilities in the sum of $392,630, and a profit and loss statement for the four months which ended on that date discloses a profit of $392,534 on gross sales of $13,509,107. About 150 persons are employed in the business.
The application was filed on 6 December 1991. A substantial affidavit sworn by the applicant on 11 December 1991 was filed in support of the application. That affidavit included the following:
"The purpose of my application herein is to seek the leave of this Honourable Court to be Liberty's managing director. The directors of Liberty wish to appoint me as its managing director. They inform me and I verily believe, and I feel that I can make a significant and worthwhile contribution to not only Liberty but to the Australian beef export industry."
But the applicant exhibited to that affidavit a letter to Liberty's solicitors dated 17 July 1991 from the Regional Director for Victoria of the Commonwealth Department of Primary Industries and Energy, which reads:
"I refer to recent correspondence on the subject of Mr Norbert Boehm and his employment by Liberty Meat Exporters Pty Ltd. I reiterate that the Australian Quarantine and Inspection Service
(AQIS) has strong reservations about the Fit and Proper Person status of Mr Boehm, following his recent conviction and imprisonment.
However, we are reluctantly prepared to permit Mr Boehm to undertake employment of the type you describe, subject to certain conditions. These conditions are:-
(1) Mr Boehm's role will be limited to negotiation and ordering purchases of product and the negotiation, arranging and marketing sales of product as set out in your letter;
(2) Mr Boehm will have no authority to direct any employee of the company other than his personal steno secretary, who will not have the authority to direct any other employee of the Company;
(3) Mr Boehm will have no management responsibilities or functions;
(4) Mr Boehm will not be permitted access to any production area of the registered establishment; and
(5) Mr Boehm will have no business dealings with the AQIS staff assigned to the registered establishment, nor be involved in discussions with AQIS staff on matters relating to the operations carried on at the registered establishment.
(6) Mr Boehm will have no financial interest in the Company. We will require formal acceptance in writing of these conditions, both from the Company and from Mr Boehm, prior to Mr Boehm commencing work at the registered establishment. In addition, AQIS inspection staff will be advised of the conditions and any digression from the approved arrangements will be reported to the Regional Office and could result in the withdrawal of inspection services, and/or the continuing registration of the establishment being placed in jeopardy. This decision should not be interpreted as a review of Mr Boehm's Fit and Proper status.
In addition, you should be aware that this approval applies only to the employment of Mr Boehm at Liberty Meat Exports Pty Ltd (Est 775) with its current registration and overseas listings. Any variation to registration or listing details will require a reconsideration of this approval.
If these conditions are acceptable to Mr Boehm and to the Company, you should return signed statements to that effect as soon as possible, in order to allow time for AQIS to advise inspection staff of the arrangements that are to apply, prior to Mr Boehm appearing at the registered establishment. This will avoid any confusion between the company and inspection staff when Mr Boehm arrives."
Another affidavit sworn by the applicant on 14 January 1992 was filed on 20 January 1992. That affidavit reads:
"1. I seek leave to refer to my affidavit sworn on the 11th day of December, 1991.
2. In paragraph 3, I deposed that I sought leave of this Honourable Court to be Liberty's Managing Director.
3. I have now been advised by the Directors of Liberty that they wish to retain Rudolf Boehm as Managing Director and appoint me as Sales and Purchasing Director.
4. I verily believe that if I were permitted to be Liberty's Sales and Purchasing Director, that my Japanese contacts would accept me as having a sufficiently senior position within the company to be the appropriate person to deal with. If I were appointed Sales and Purchasing Director of Liberty, who I believe would be able to increase the Japanese orders, increase the profitability of Liberty and increase the number of employees of Liberty.
5. For these reasons, I respectfully request the leave of this Honourable Court to be Liberty's Sales and Purchasing Director."
Exhibited to the applicant's first affidavit was a letter dated 19 November 1990 from Nobu Nakajima, described as the President of Nakajima Trading Co. Ltd. of Osaka. Concerning Mr. Nakajima a good deal is contained in several affidavits. An affidavit sworn on 10 February 1992 by Rudolph Boehm includes the following:
"7. During his employment with Liberty, the Applicant has had considerable dealings with Nobuo Nakajima of Nakajima Trading Company Ltd (hereinafter referred to as `Nakajima'). This is a Japanese import company. It imports various products from Australia, including meat, and distributes them throughout Japan. Approximately two-thirds of Liberty's turnover is represented by export sales and a substantial proportion of these sales are to Nakajima. Dealings between Liberty and Nakajima are arranged through Haywill Holdings Pty. Ltd., a meat export broker.
8. Mr. Nakajima has informed me and I verily believe that he is concerned by the fact that, at present, the Applicant does not occupy a senior position with Liberty. It is my belief and opinion, based on experience in the area, that Japanese companies are reluctant to deal with a company unless the person who represents the company occupies a senior managerial position. The position of Sales and Purchasing Officer is not such a position.
9. I have been informed by Mr. Nakajima and verily believe that it would be appropriate for the Applicant to be a director of Liberty, and that if Liberty wants to increase its turnover by further development of the Japanese market it will be necessary for the Applicant to be involved in that development. I am concerned that Mr. Nakajima is embarrassed by the fact that he is not dealing with a director of Liberty and that he may see this as an insult.
10. I have also been informed by Mr. Nakajima and verily believe that he is desirous of pursuing negotiations with a joint venture between Nakajima and Liberty. Mr. Nakajima is prepared to enter such discussions only on the basis that he deals with the Applicant as it is with him that the relationship has been established and built over the years. I do not believe that it is appropriate for the Applicant to be conducting these negotiations whilst he is only the Sales and Purchasing Officer and I cannot see the negotiations proceeding if he is not granted leave to be Liberty's Sales and Purchasing Officer."
Mr. Nakajima's letter, addressed "To Whom It May Concern", is in these terms:
"We are Jakajiima Trading Ltd. large Japanese company specialising in meat business. We have many distributions including supermarkets throughout Japan and including Korea. I Nobu Nakajima am president and very well known to Steiger's Meat Supply and most importantly Mr. Norbert Boehm.
Over last 4 years we had much successful business with Mr. Norbert Boehm due to his honourable character and expertize. However since April this year quality of product from Steiger's has suffered greatly and business reduced. This is due to Norbert Boehm's absence from factory, without his presence we feel our hard work and efforts wasted. We wish to expand business and invest in Australia with Mr. Boehm, however this must be done by April 1991 as this is when Japan government will liberalise meat market. Therefore we request Mr. Boehm be released to work at Steiger's soonest otherwise we have no confidence to buy meat or make investments."
An undated letter similarly addressed from Del Daros, a director of Haywill Holdings Pty. Ltd., was exhibited to the applicant's first affidavit. That letter reads:
We are Haywill Holdings Pty Ltd an Australian meat exporter. We have traded with Steiger's Meat Supply (Aust) Pty Ltd and Mr Norbert Boehm for many years. Over the last 5 years Mr Boehm and myself have spent considerable time and cost to develop a new product for Australian meat in the Japanese and Korean markets, this is a high quality product which in the past the Japanese companies would manufacture themselves in Japan. Due to Mr Norbert Boehm's expertize and his ability to obtain the personal trust and confidence of the main importers we managed to obtain about 22% of the market in Japan over the last 2 years. However over the last 6 to 7 months due to inferior product our share has dropped to 14% and the Japanese have started looking to New Zealand to replace the same product. If Mr Norbert Boehm would be allowed to work and oversee the production at Steiger's the Japanese importers will return immediately to place orders, otherwise we may lose this market to New Zealand.
Based on above we request you consider early release or work release for Mr Boehm."
Each of Messieurs Nakajima and Daros has sworn an affidavit filed in support of the application. Mr. Nakajima's affidavit includes the following:
"2. I have known the Applicant, Mr. Norbert Boehm, for about 10 years. During that period, I have gained a deep trust and respect for him both personally and in business.
4. Since his release from prison in July 1991 I have had considerable business dealing with Mr. Boehm as Liberty's Sales and Purchasing Officer.
5. Nakajima is a distributor of various food products throughout Japan. It is often necessary to introduce suppliers of products to my Japanese customers or potential customers. It is very important that these people are able to establish a relationship of trust with the ultimate suppliers. It is not appropriate for me to introduce a Sales and Purchasing Officer to my customers or potential customers as the chief representative of an ultimate supplier. Japanese business custom requires that a person in Mr. Boehm's capacity who is introduced to these people ought to occupy a more senior managerial position, at lease as a Director. This currently represents a disadvantage for Mr. Boehm and Liberty in their dealings with my company, and, in turn, its dealings with its customers and potential customers.
6. I am also considering negotiating a joint venture with Liberty which would substantially increase sales of meat exports to Japan. I am prepared to conduct these negotiations only with Mr. Boehm and no other director of Liberty since I do not have a sufficient relationship with either of the two present directors. If he remains as Liberty's Sales and Purchasing Officer, I do not propose to conduct any negotiations towards the joint venture.
7. I anticipate that Nakajima will have sufficient Japanese customers to increase its import of meat products substantially. It purchases these products from New Zealand, Australian and American suppliers. If Mr. Boehm remains as Liberty's Sales and Purchasing officer, I am inclined to look to the American and New Zealand suppliers because of the difficulty which his junior position places me in with my customers and potential customers."
The affidavit of Mr. Daros supports the considerations advanced by Mr. Nakajima and includes the following:
"4. Due to Mr. Norbert Boehm's expertise and his ability to obtain the personal trust and confidence of the main importers Haywill was able to obtain approximately twenty-two percent
(22%) of the Japanese market. However, when Mr. Boehm was in prison our share of the Japanese market decreased to approximately fourteen percent (14%) and my Japanese customers looked to New Zealand to replace Australian product. Since Mr. Boehm has been released from prison he has been able to convince my Japanese customers that Liberty's product is superior quality to the Japanese replacement product.
5. Since the deregulation of the Japanese market in April 1991 the demand for meat from the Australian market and the retail prices have fallen dramatically. There is also indications that Japan is receiving a substantial amount of product from America and New Zealand and this trend is likely to continue. I am very concerned that the demand for Australian product will further decrease.
6. Since deregulation of the Japanese market it has become more important that Australian exporters have a trusting relationship with Japanese customers. These relationships need to be used to their full extent to ensure that America and New Zealand do not take any more of the Australian market. The relationship between Mr. Boehm, Mr. Nakajima and other Japanese customers can be used to increase Australian exports of meat to Japan.
7. I am concerned that the Japanese I deal with may be insulted by the fact that Norbert Boehm is not a Director of Liberty. The Japanese hold much weight in the fact that they are dealing with a senior person in a company. It is not appropriate to have a President of a Japanese company deal with a mere employee of an Australian company. It would be appropriate for Norbert Boehm to be a Director of Liberty.
8. Norbert Boehm works very hard to ensure that the quality of the meat produced by Liberty is extremely high. This is appreciated by my Japanese customers. If Norbert Boehm was a Director of Liberty I believe I could work with him to increase the level of exports my company makes to Japan. I would not see that the Japanese would have any objection or feel uncomfortable with receiving product from Liberty if Mr. Boehm was a Director of Liberty."
In his first affidavit the applicant deposed to the characteristics, trends, dangers and opportunities of the Australian meat export trade with Japanese importers and to his ability substantially to advance Liberty's, and this country's, interests if he were clothed with managerial power and status. The affidavit included this passage:
"Japan has a unique culture which is crucial to why I should be allowed to act as Marketing and Sales Director of Liberty. The role of law in business in Japan is relatively unimportant. I believe that the Japanese are prepared to overlook my past. What is important is my relationship with Japanese importers."
Section 229(3) of the Corporations Law provides:
"A person who has, whether before or after the commencement of this Part, been convicted:
(a) on indictment of an offence against an Australian law, or any other law, in connection with the promotion, formation or management of a body corporate or corporation; or
(b) of serious fraud; or
(c) of any offence for a contravention of section 232, 590, 592, 595, 996 or 1307, of Part 6.6 of Division 2 of Part 7.11, or of a previous law corresponding to any of those provisions; shall not, within 5 years after the conviction or, if the person was sentenced to imprisonment, after release from prison, without the leave of the Court, manage a corporation."
The expression "serious fraud" means "an offence involving fraud or dishonesty, being an offence:
(a) against an Australian law or any other law; and
(b) punishable by imprisonment for life or for a period, or maximum period, of at least 3 months".
Section 91A defines what, for the purposes of s.229(3), constitutes managing a corporation such as Liberty, thus:
"A person manages a local corporation if the person, in this jurisdiction or elsewhere, is a director or promoter of, or is in any way (whether directly or indirectly) concerned in or takes part in the management of, the corporation.
Section 229(5) provides:
"When granting leave under this section, the Court may impose such conditions or restrictions as it thinks fit and a person shall not contravene any such condition or restriction."
In my opinion the foregoing provisions of the Corporations Law are sufficiently similar to s.122 of the Companies Act 1961 (Vic.) to justify my treating as applicable to those provisions what the Full Court said of the latter section in Zuker v. Commissioner for Corporate Affairs (1981) VR 73 at 77:-
"The purpose of the section is to prevent certain persons from taking part in the promotion, direction or management of a company. The section achieves that purpose by making it an offence for persons who fall within the categories described in it to be a director or promoter of or in any way directly or indirectly concerned in the management of a company. The policy of the section is clearly not to be regarded as punitive: the punishment for the offences described in the section is prescribed by the statutes or other laws creating the offences and is imposed by the Court before which the person is convicted. The policy of the section is rather to protect the public against the further activities in the field of companies of persons who have been convicted of particular offences. It is not possible to express the policy of the section more explicitly for the offences described in it do not fall into any readily definable class. Those described in para. (a) form a class concerned with corporations. Those in para. (b) may have nothing to do with corporations. Paragraph (c) describes a number of offences created by the Companies Act itself as well as an offence created by the Securities Industry Act but not all of the offences so described involves dishonesty or other moral failing. Paragraph (d) refers to an offence created by a sub-section now repealed dealing with the contracting of a debt where an officer of a company who was party to the contracting had no reasonable or probable ground of expectation that the company would be able to pay the debt.
The section has been considered and applied in a number of cases at first instance, chiefly in New South Wales, where substantially similar views have been expressed. The first reported case under the section appears to have been Re Ferrari Furniture Co. Pty. Ltd. and the Companies Act, (1972) 2 NSWLR 790, a decision of Street, J. (as he then was) in which his Honour applied his own earlier decision under s.117 (the section dealing with undischarged bankrupts), viz. Re Altim Pty. Ltd., (1968) 2 NSWR 762, at p 764. We were also provided with a copy of an unreported decision of Street, C.J. in Eq. in Re Magna Alloys and Research Pty. Ltd. (18 October 1973) which is to the same effect. Reference may also be made to the decision of Zelling, J. in Re Maelor Jones Pty. Ltd.
(1975), 1 ACLR 4; 11 SASR 322, and to the decision of Bowen, C.J. in Eq. in Re Magna Alloys and Research Pty. Ltd. (1975), 1 ACLR 203, where his Honour summarized his view of the section and the Court's function under it in these words (at p 205): `The policy to which s.122 gives effect is that a person convicted of an offence of any of the types specified in that section is not to be permitted to act as a director or to take part in the management of a company. The section is not punitive. It is designed to protect the public and to prevent the corporate structure from being used to the financial detriment of investors, shareholders, creditors and persons dealing with the company. In its operation it is calculated to act as a safeguard against the corporate structure being used by individuals in a manner which is contrary to proper commercial standards.
`The court is given jurisdiction to grant leave to a person, notwithstanding the prohibition, to act as a director or to take part in the management of a company, but an applicant who comes seeking leave bears the onus of establishing that the general policy of the legislature laid down in the section ought to be made the subject of an exception in his case (Re Ferrari Furniture Co. Pty. Ltd., (1972) 2 NSWLR 790; Re Magna Alloys and Research Pty. Ltd., 18 October 1973, Street, C.J., in Eq.: Re Macquarie Investments Pty. Ltd. (1975), 1 ACLR 40; Re Maelor Jones Pty. Ltd. (1975), 1 ACLR 4).
`The court in exercising its discretion will have regard to the nature of the offence of which the applicant has been convicted, the nature of his involvement, and the general character of the applicant, including his conduct in the intervening period since he was removed from the board and from management. Where, as here, the applicant seeks leave to become a director and to take part in the management of particular companies the court will consider the structure of those companies, the nature of their business and the interests of their shareholders, creditors and employees. One matter to be considered will be the assessment of any risks to those persons or to the public which may appear to be involved in the applicant's assuming positions on the board or in management.' We adopt that passage as a correct statement of the law. It has already been applied in Victoria by McInerney, J. in Re Zim Metal Products Pty. Ltd. (1977), 2 ACLR 553.
These statements of principal do not of course seek to indicate all the matters which a judge must take into account in determining whether to grant leave under the section. But they serve to fix the area of enquiry."
I do not find the evidence of Mr. Nakajima persuasive. His readiness to declare his company's intention to withdraw from otherwise desired commercial relationships if the advantage he seeks for the applicant be not conferred raises doubt in my mind about the reliability of his testimony. If his admiration of the applicant's skill in the meat industry and his trust in and respect for the applicant are as great as he represents, Mr. Nakajima might be expected to seek ways to overcome the difficulties which are said to attend the applicant's lack of appropriate standing rather than to diminish or sever his company's business connections with the applicant. Nor does the evidence of Mr. Daros and Mr. Rudolph Boehm persuade me that those difficulties will substantially diminish the applicant's effectiveness in increasing the volume of trade in meat and meat products between Australia and Japan. It was to the inferiority of the meat product that Mr. Daros attributed, in his letter requesting the applicant's early release from prison, the decline from 22 per cent to 14 per cent of "the Japanese market" which he claims Haywill Holdings Pty. Ltd. suffered when the applicant was in prison. Neither the duration nor the nature of Mr. Rudolph Boehm's experience of the meat industry or of Japanese commercial customs and attitudes is disclosed by the evidence. Although the applicant has deposed that, since the offence for which he was imprisoned was committed, he has committed no criminal offence and has been diligent, law-abiding, successful and very hard working in the meat industry, there is little else in his affidavits to induce an expectation that he will in the future observe the standards of honesty required of a director of an Australian company, or a belief that he has realised the importance of observing those standards. I am left after a careful consideration of the evidence with the conviction that there is a real risk at present that the applicant will engage in dishonest practices in the industry in which he is involved. The consequences for him of his commission of the offence are not shown by the evidence to have been so painful as to make it unlikely that he would again risk punishment for any dishonesty in the future. I accept that s.229(3) is not punitive and that denial of the leave which it contemplates in order to punish an applicant would be a misuse of the power to grant or withhold leave. But it is not in my opinion a consideration irrelevant to the exercise of the power that at the time when the power is to be exercised the adverse effects on the applicant of his conviction have not been so grave as to constitute a strong deterrence from future commercial dishonesty. In weighing that consideration I have not overlooked the circumstance that the applicant will remain for some time liable to serve the balance of his term of imprisonment if he breaches a condition of his parole. If he were to engage in any dishonest conduct in his management of a company in the meat export trade, there would be risk of loss by shareholders and creditors, and also risk of loss to the Australian community if his misconduct were to harm the Australian export trade in meat.
I am not persuaded by the evidence that the economic advantages, to Liberty - and so to Mr. Rudolph Boehm - and to the meat export trade with Japan, likely to be gained by clothing the applicant with management powers or with directorial status would be substantial, notwithstanding all the evidence of the magnitude of those advantages. None of those who gave the evidence was without an interest in the fate of the application.
It was submitted that conditions and restrictions could be imposed, in exercise of the power conferred by s.229(5), which would sufficiently secure the interests which it is the policy of s.229(3) to protect. But any useful condition or restriction would either deprive the applicant of a capacity which in my opinion a director of a company should have or would be of such a kind that only the applicant would know whether or not it was being complied with.
The application will be dismissed. Such an order does not, of course, preclude a further application at a later time.
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