Bolton and Australian Securities and Investments Commission
[2015] AATA 977
•17 December 2015
Bolton and Australian Securities and Investments Commission [2015] AATA 977 (17 December 2015)
Division: TAXATION AND COMMERCIAL DIVISION
File Number: 2015/6020
Re: NICHOLAS FRANCIS JOHN BOLTON
APPLICANT
And:AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
RESPONDENT
DECISION
Tribunal Deputy President S A Forgie
Date 17 December 2015
Place Melbourne
The Tribunal decides to:
1.set aside the orders made on 19 November 2015 and extended on 1 December 2015;
2.refuse the applicant’s application for an order under s 41(2) of the Administrative Appeals Tribunal Act 1975 staying the operation or implementation of the decision of the respondent dated 6 October 2015 and disqualifying the applicant from managing corporations for a period of three years; and
3.refuse the applicant’s application for an order under s 35 of the Administrative Appeals Tribunal Act 1975.
……[sgd]……………….
Deputy President
CATCHWORDS – CORPORATIONS – disqualification order – applications for order staying operation or implementation of the disqualification order and for order prohibiting publication of information tending to identify the applicant – applications refused
LEGISLATION
Acts Interpretation Act: ss 2; 2C; 15AA
Administrative Appeals Tribunal Act 1975: ss 35; 41(1), (2), (3) and (6)
Australian Securities and Investments Commission Act 2001: 1(1) and (2)
Corporations Act: ss 9; 46; 47; 48; 49; 50; 50AA; 180(1); 182(1); 201B; 206F; 206G; 286(1) and 92); 344(1); 530A(1)
Income Tax Assessment Act 1936: s 161CASES
Australian Securities and Investments Commission v Adler and Others [2002] NSWSC 483; (2002) 42 ACSR 80
Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185; (2009) 181 FCR 130
Australian Securities and Investments Commission v Forge [2007] NSWSC 1489
Australian Securities and Investments Commission v PTLZ [2008] FCAFC 164; (2008) 48 AAR 559
Australian Securities and Investments Commission v Rich [2004] HCA 42; (2004) 220 CLR 129; 209 ALR 271; 50 ACSR 242
BrisConnections Management Co Ltd v Australian Style Investments Pty Ltd [2009] VSC 128; (2009) 23 VR 253
Federal Commissioner of Taxation v Brown [1999] FCA 1198
Coal and Allied Operations Pty Limited v Australian Industrial Relations Commission and Others (2000) 203 CLR 194; 174 ALR 585
Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577; 2 ALD 60
Finance Facilities Pty Ltd v Federal Commissioner of Taxation (1971) 127 CLR 106
Gillfillan & Ors v Australian Securities & Investments Commission [2012] NSWCA 370; (2012) 92 ACSR 460
Minister for Immigration and Multicultural Affairs v Eshutu (1999) 197 CLR 611; 162 ALR 577Nicholas v Commissioner of Corporate Affairs (1987) 5 ACLC 258
Re Australian Style Investments Pty Ltd as Trustee for Australian Style Investments Unit Trust and Commissioner of Taxation [2013] AATA 847
Re Boyle and Australian Securities and Investments Commission [2009] AATA 122
Re Bundy and Australian Securities and Investments Commission [2013] AATA 59
Re Guss and Australian Securities and Investments Commission [2006] AATA 401; (2006) 90 ALD 349
Re May and Australian Securities and Investments Commission [2012] AATA 515
Re Scott and Securities and Investments Commission [2009] AATA 798; (2009) 51 AAR 114
Sun v Minister for Immigration and Ethnic Affairs [1997] FCA 324
Windshuttle v Commissioner of Taxation [1993] FCA 553; (1993) 46 FCR 235; 93 ATC 4992; 27 ATR 88
OTHER MATERIAL
Macquarie Dictionary, revised 3rd edition, 2001
REASONS FOR DECISION
On 6 October 2015, a delegate of the Australian Securities and Investments Commission (ASIC) made a decision under s 206F of the Corporations Act 2001 (Corporations Act) disqualifying the applicant, Mr Nicholas Bolton, from managing corporations for a period of three years. Mr Bolton has applied for a stay of the operation or implementation of the decision under s 41 of the Administrative Appeals Tribunal Act 1975 (AAT Act) and an order under s 35 restricting the publication or other disclosure of his name. On 19 November 2015, I made interim orders under both provisions pending the hearing of the applications. Those orders were extended after the hearing on 1 December 2015. As I have decided to refuse both applications, those orders are set aside.
BACKGROUND TO ASIC’S DISQUALIFYING MR BOLTON
ASIC has power to disqualify a person from managing corporations if three criteria set out in s 206F(1) are met. One is that the person has been an officer of two or more corporations and:
“while the person was an officer, or within 12 months after the person ceased to be an officer of those corporations, each of the corporations was wound up and a liquidator lodged a report under subsection 533(1) (including that subsection as applied by section 526-35 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 about the corporation’s inability to pay its debts; …”[1]
[1] Corporations Act; s 206F(1)(a)
Mr Bolton is such a person. He has been a director, and so an officer,[2] of the following corporations in what may be called the “Style group” as well as nine other corporations. I have included the period during which Mr Bolton was a director and the date on which each was wound up.
[2] The word “officer” is defined in s 9 of the Corporations Act to include, among others, a director or secretary of the corporation: paragraph (a) of the definition.
Name before wound up
Period of Mr Bolton’s directorship
Date wound up
Name since wound up
(1)
Australian Style Pty Ltd (Australian Style)
13 March 2002 to 7 February 2011
7 February 2011
(2)
Australian Style Investments Pty Ltd (ASI)
11 June 2004 to
6 March 20146 March 2014
ACN 109 510 198 Pty Ltd
(3)
ACN 108 855 652
(ACN 108)1 September 2004 to 19 April 2013
19 April 2013
ACN 108 855 652 Pty Ltd
(4)
Australian Style Pty Ltd (Australian Style Services)
1 September 2004 to
4 February 20104 February 2010
In addition to the Style group of corporations, Mr Bolton has been director of nine other corporations from 16 August 2013 to 20 October 2013. Each of them was wound up on 19 May 2014. They were: 56 Nerang Street Pty Ltd, Retail Finance Group Pty Ltd, Qikbiz Finance Pty Ltd, Australian Money Exchange Pty Ltd, Appliance Finance Wizard Pty Ltd, AMX No 1 Pty Ltd and AMX Marketing Fund Pty Ltd, AMX Club Ltd (AMX Club) and PR Finance Group Ltd (PR Finance). Together, they are described as the “PR Companies”.
The second criterion is that ASIC has given the person a notice in a prescribed form requiring him or her to demonstrate why he or she should not be disqualified and giving the person an opportunity to be heard on that question.[3] Such a notice dated 5 June 2015 was served on Mr Bolton and he attended a hearing held by ASIC on 21 September 2015.
[3] Corporations Act; s 206F(1)(b)(
The third criterion is set out in s 206F(1)(c): “ASIC is satisfied that the disqualification is justified.” In deciding whether it is so satisfied, ASIC is required to have regard to the matters set out in s 206F(2):
“In determining whether disqualification is justified, ASIC:
(a)must have regard to whether any of the corporations mentioned in subsection (1) were related to one another; and
(b)may have regard to:
(i)the person’s conduct in relation to the management, business or property of any corporation; and
(ii)whether the disqualification would be in the public interest; and
(iii)any other matters that ASIC considers appropriate.”
Therefore, the first matter ASIC must consider in deciding whether disqualification is justified is whether any of the corporations referred to in s 206F(1) are related to one another. Subsidiaries and related bodies corporate are the subject of Division 6 of Part 1.2 of the Corporations Act. Section 50 sets out the circumstances in which a body corporate is related to another:
“Where a body corporate is:
(a)a holding company of another body corporate:
(b)a subsidiary of another body corporate; or
(c)a subsidiary of a holding company of another body corporate;
the first-mentioned body and the other body are related to each other.”
A “holding company”, to which reference is made in s 50, means “… in relation to a body corporate, … a body corporate of which the first body corporate is a subsidiary.”[4] A “subsidiary” “… in relation to a body corporate, means a body corporate that is a subsidiary of the first-mentioned body by virtue of Division 6I” of Part 1.2.[5] Section 46 of Division 6 provides that:
[4] Corporations Act; s 9
[5] Corporations Act; s 9
“A body corporate (in this section called the first body) is a subsidiary of another body corporate if, and only if:
(a)the other body:
(i)controls the composition of the first body’s board; or
(ii)is in a position to cast, or control the casting of more than one-half of the maximum number of votes that might be cast at a general meeting of the first body; or
(iii)holds more than one-half of the issued share capital of the first body (excluding any part of the issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital); or
(b)the first body is a subsidiary of a subsidiary of the other body.”
Without limiting s 46(a)(i), s 47 specifies particular circumstances in which the other body is taken to control the composition of the first body’s board. Section 50AA regulates the circumstances in which one entity controls another. Section 48 sets out particular matters that are to be disregarded in determining whether one body corporate is a subsidiary of another. Section 49 broadens the scope of those that will be considered a subsidiary of another.
The delegate decided that Australian Style, ASI, ACN 108 and Australian Style Services were related to one another. That followed from his finding that the shares issued by ASI and Australian Style were held by Australian Style Group Pty Ltd (ASG). The shares issued by ASG, Australian Style Services and ACN 108 were held by Australian Style Holdings Pty Ltd (ASH). ASH’s shares were held by Mr Bolton and Ms Georgia Bolton. The delegate also found that the shares issued by each of the PR Companies, other than PR Finance and AMX Club, were held by PR Finance. On that basis, each of the PR Companies, other than AMX Club, was related to each of the others. The delegate made no finding regarding the entities to whom PR Finance and AMX Club had issued shares.
The second set of matters that ASIC must consider in deciding whether disqualification is justified are set out in s 206F(2)(b). I set out the matters taken into account by the delegate at [15]-[17] below.
When ASIC has disqualified a person from managing corporations, it must serve a notice on that person advising him or her of the disqualification. That notice must be in the prescribed form. The disqualification takes effect from the time when that notice is served on the person.[6]
[6] Corporations Act; ss 206F(3) and (4)
An officer of ASIC, Ms Wong, arranged to serve notice of the disqualification on Mr Bolton. She sent that notice and related documentation to a process server on 8 October 2015. The process server made several unsuccessful attempts to serve the notice of disqualification upon Mr Bolton. On 4 November 2015, Ms Wong contacted Mr Bolton’s solicitor, Mr Milner, and discussed service options with him. She contacted him again on 6 November 2015 when Milner told her that his client had been travelling overseas. Arrangements were made for Mr Bolton to attend at ASIC’s Melbourne office on 10 November 2010 but he changed the arrangements due to his travelling to another State on that day. Service was ultimately effected on 17 November 2015.[7]
[7] Ms Wong’s affidavit sworn 30 November 2015
A person who is disqualified under Part 2D.6 of the Corporations Act, including s 206F, commits an offence if:
“(a) they make, or participate in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or
(b)they exercise the capacity to affect significantly the corporation’s financial standing; or
(c)they communicate instructions or wishes (other than the advice given by the person in the proper performance of functions attaching to the person’s professional capacity or their business relationship with the directors or the corporation) to the directors of the corporation:
(i)knowing that the directors are accustomed to act in accordance with the person’s instructions or wishes; or
(ii)intending that the directors will act in accordance with those instructions or wishes.”
MATTERS TO WHICH DELEGATE HAD REGARD UNDER SECTION 206F(1)(c) HAVING REGARD TO SECTION 206F(2)(b)
I have already referred to the delegate’s conclusion in relation to s 206F(2)(a) regarding related corporations at [7]-[10] above. The delegate then turned to those raised by s 206F(1)(c) requiring consideration of whether Mr Bolton’s disqualification from managing corporations was justified. The delegate gave reasons for concluding that Mr Bolton’s disqualification was justified having regard to matters raised by s 206F(2)(b). He concluded that he was satisfied that:
“(a) In determining whether disqualification is justified the relatedness of several of the companies is not material;
(b)Mr Bolton did not comply with several provisions of the Corporations Act 2001;
(c)Mr Bolton’s management of the affairs of ASI and Australian Style fell short of the standards that are required of someone in his position; and
(d)It is in the public interest that Mr Bolton be disqualified.”
Beginning with the issues raised by s 206F(2)(b)(i), the delegate’s findings in relation to Mr Bolton’s conduct in relation to the management, business or property of any corporation were:
(1)Deficiencies in Style Group
The liquidator of each of ASI, Australian Style, Australian Style Services and ACN 108 estimated that, at the time of their winding up when Mr Bolton had been a director for a substantial period of time, each had a deficiency as shown in the following table. The delegate considered that it was likely that a substantial portion of each company’s deficiency had arisen while Mr Bolton was a director of each and was attributable, at least in part, to his management:
Body corporate
Deficiency as reported by liquidator
Deficiency attributable to unsecured creditors
Australian Style
$6,811,314
$4,900,556
ASI
$2,055,096
$2,070,096 including the Australian Taxation Office (ATO) for $871,242.26
ACN 108
$1,201,092
$1,201,092
Australian Style Services
$1,371,569
$1,087,926
(2)Deficiencies in PR Companies
The liquidator of each of the PR Companies had estimated that, at the time of their winding up, each had a deficiency as shown in the following table. The delegate considered that it was unlikely that a substantial portion of each company’s deficit arose while Mr Bolton was a director as he had been a director only between 18 August 2013 and their winding up on 20 October 2013.
Body corporate
Deficiency as reported by liquidator
Deficiency attributable to unsecured creditors
56 Nerang Street Pty Ltd
$6,276,289
Nil
Retail Finance Group Pty Ltd
$6,276,525
$236
Qikbiz Finance Pty Ltd
$6,426,289
$150,000
Australian Money Exchange Pty Ltd
$7,638,054.59
$1,352,803.97
Appliance Finance Wizard Pty Ltd
$6,363,577
$87,288
AMX No 1 Pty Ltd
$6,975,912.06
$616,740.96
AMX Marketing Fund Pty Ltd
$6,277,953
$1,664
AMX Club
$6,277,953
$1,664
PR Finance
$10,823,476
$4,547,187
Each of the deficiencies, the delegate found, included an amount of $6,276,289 owed to a secured creditor. He inferred that one of the companies had incurred the debt and that the others were liable for it as guarantors.
(3)Failure to lodge Business Activity Statements and income tax returns
The delegate found that Mr Bolton had not complied with s 180(1) of the Corporations Act to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if he or she were a director of a corporation in the same circumstances.
(a)ASI had not lodged Business Activity Statements (BASs) for the quarters beginning 30 June 2012 and ending 31 December 2013. He also found that it had not lodged income tax returns for the years ending 30 June 2009, 2010, 2011, 2012 and 2013. Noting that Mr Bolton had stated that the income tax returns had not been lodged as ASI was in dispute with the ATO over the BASs, the delegate found that this was not a reasonable basis for failing to lodge them. Consequently, Mr Bolton was in breach of s 180(1).
(b)The delegate found that Australian Style had neither lodged BASs for the quarters ending 30 September 2010 and 31 December 2010 nor income tax returns for the years ended 30 June 2009 and 2010. He found that Mr Bolton’s reasons for Australian Style’s failures did not excuse them and, consequently, concluded, Mr Bolton was in breach of s 180(1).
(4)False Business Activity Statement
The delegate concluded that, on 12 November 2009, ASI lodged a BAS signed by Mr Bolton and relating to the 30 June 2009 quarter. It was lodged by ASI as trustee for the Australian Style Investment Unit Trust (ASI Unit Trust) and did not report any GST liability relating to a payment made to ASH under a deed between ASI and Thiess Pty Ltd and John Holland Pty Ltd, together referred to as TJ. I have set out the background to this matter at [51] below. The delegate was satisfied that Mr Bolton had not complied with s 180(1) in causing ASI’s BAS for the quarter ending 30 June 2009 to be prepared and lodged with the ATO in circumstances where he knew that its contents might be “significantly false”[8] (and were false) but did not take appropriate measures to obtain proper legal advice as to whether its contents were in fact false.
[8] Reasons for decision dated 6 October 2015 at [62]
(5)Failure to take reasonable steps to keep written financial records
Section 344(1) provides that a director of, among others, a company, contravenes it if he or she fails to take all reasonable steps to comply with, or to secure compliance with, among others, Part 2M.2 of the Corporations Act. Among the provisions found in Part 2M.2 is s 286. Section 286(1) provides:
“A company … must keep written financial records that:
(a)correctly record and explain its transactions and financial position and performance; and
(b)would enable true and fair financial statements to be prepared and audited.
The obligation to keep financial records of transactions extends to transactions undertaken as trustee.”
The financial records must be retained for 7 years after the transactions covered by the records are completed.[9]
[9] Corporations Act; s 286(2)
Section 530A(1) provides:
“As soon as practicable after the Court orders that a company be wound up or appoints a provisional liquidator of a company, or a company resolves that it be wound up, each officer of the company must:
(a)deliver to the liquidator appointed for the purpose of the winding up, or to the provisional liquidator, as the case may be, all books in the officer’s possession that relate to the company, other than books possession of which the officer is entitled, as against the company and the liquidator or provisional liquidator, to retain; and
(b) if the officer knows where other books relating to the company are – tell the liquidator or provisional liquidator where those books are.”
A thing that is in a person’s custody, or under his or her control, is in the person’s possession.[10]
[10] Corporations Act; s 86
The delegate found that, in relation to ASI, which had been wound up on 6 March 2014, Mr Bolton had not delivered its books to its liquidator. He set out details of letters dated 13 March 2014 and 24 April 2014 written by the liquidator to Mr Bolton notifying him of his obligation. On 9 May 2014, Mr Bolton sent an email saying: “I have had a great deal of trouble getting financials out of a previous accountant, and am trying to get these together for you.” The issue was discussed at a meeting of Mr Bolton and the liquidator on 18 August 2014. This was followed by a further letter from the liquidator to Mr Bolton on 28 August 2014 in which she wrote: “I acknowledge your advice that you are in possession of books & records held for the company. As advised previously, it is your obligation to deliver the same to me as soon as possible.”
Earlier, on 20 August 2014, the liquidator had written to Woodland & Associates whom she understood to be ASI’s accountants. Those accountants replied: “We have been in contact with Nicholas Bolton regarding this entity, to our knowledge the company acted only in the capacity as trustee for a trust. As such we do not hold any financial records.”
At the date of ASIC’s hearing on 21 September 2015, no books had been delivered to ASI’s liquidator.
In a letter dated 25 September 2015, Mr Bolton’s then legal representative confirmed that “… Mr Bolton has now retrieved and delivered to [the liquidator of ASI] a large quantity of documents comprising the books and records of ASI.”
In his statement to ASIC, Mr Bolton said that ASI was, at all times, a trustee of a trust and that he had advised the liquidator of ASI that the relevant books were trust books held by the accountants. Although he did not believe that the liquidator was entitled to trust records, he had advised his solicitors that he was content for his accountants to provide the liquidator with all records in relation to ASI regardless of whether they were trust records.
The delegate concluded that he was satisfied that there were books of ASI in existence and that Mr Bolton had not delivered them to ASI’s liquidator as soon as practicable after ASI was wound up on 6 March 2014.
(6)Dishonoured cheques
The delegate noted that Westpac had advised that a cheque dated 6 September 2010 for $93,905.55 had been dishonoured because there were insufficient funds in the account. On 30 December 2010, Westpac advised that a cheque dated 4 January 2011 for $21,052.89 had been dishonoured for the same reason.
The delegate was satisfied that Mr Bolton had not complied with s 180(1) in causing or allowing amounts to be debited from Australian Style’s account so that the balance in the account fell below what was required to honour unpresented cheques.
(7) ASI’s gift of $4,500,000
Section 182(1) of the Corporations Act provides that:
“A director, secretary, other officer or employee of a corporation must not improperly use their position to:
(a)gain an advantage for themselves or someone else; or
(b) cause detriment to the corporation.”
This matter related to the payment of $4,500,000 by TJ to ASH under a deed entered into between TJ and ASI. It is referred to at [16(4)] above and [51] below. The delegate decided he was:
“… satisfied that ASI could have caused the full amount of $4,500,000 to be paid to it, ASI was under no obligation to cause some or all of the amount of $4,500,000 to be given to ASH and that ASI in so doing gifted the amount of $4,500,000 to ASH.
I am satisfied that Mr Bolton did not comply with s 182(1) in causing ASI to gift the amount of $4,500,000 to ASH in circumstances where the rationale for the making of the payment to ASH was to avoid set offs, it was likely that some of [sic] all of the amounts owing to trade creditors and related parties were owing on 8 April 2009 when ASI entered the deed, and it was likely that ASI would require assets to meet a probable income tax liability arising from the payment of $4,500,000.”[11]
[11] Reasons for decision dated 6 October 2015 at [67]-[68]
The delegate also considered whether Mr Bolton’s disqualification was justified having regard to whether it would be in the public interest. This is raised by s 206F(2)(b)(ii) as part of the consideration under s 206F(1)(c) as to whether disqualification is justified. He gave no weight to Mr Bolton’s submission that he earns his livelihood from his capacity to manage corporations and to disqualify him, even for a short period, would be to deprive him of his primary source of income. The delegate took into account the number and nature of the non-compliances with the Corporations Act that he had found and his finding that Mr Bolton’s conduct fell short of the standards of someone in his position. He referred to a statement made by Mr Bolton saying:
“While I believe that all of my actions are justifiable, to the extent that ASIC has any residual concerns, I wish to do whatever I can to address those concerns.”
The delegate found this statement to represent Mr Bolton’s misperception of his conduct. He considered Mr Bolton’s conduct in light of the principles in Nicholas v Commissioner of Corporate Affairs,[12] Australian Securities and Investments Commission v Adler and Others[13] and Re Guss and Australian Securities and Investments Commission[14] and concluded that it is in the public interest that Mr Bolton be disqualified for a period.
TRIBUNAL’S POWER TO STAY A DECISION
[12] (1987) 5 ACLC 258 at 265 per O’Bryan J
[13] [2002] NSWSC 483; (2002) 42 ACSR 80 at [56]; 97 per Santow J
[14] [2006] AATA 401; (2006) 90 ALD 349 at [48]; 364-365 per Olney DP
The Tribunal’s power to make a stay order
When a person makes an application to the Tribunal for review of a decision then, generally, the mere fact that application has been made neither affects the operation of the decision nor prevents the decision-maker from implementing that decision.[15] A party to a “proceeding”,[16] may request that the Tribunal make an order affecting the operation or implementation of the decision. Section 41(2) sets out the circumstances in which the Tribunal has power to make an order of this kind:
“… if the Tribunal is of the opinion that it is desirable to do so after taking into account the interests of any persons who may be affected by the review, make such order or orders staying or otherwise affecting the operation or implementation of the decision to which the relevant proceeding relates or a part of that decision as the Tribunal considers appropriate for the purpose of securing the effectiveness of the hearing and determination of the application for review.
Note:…”
Once it has made an order under s 41(2), the Tribunal may vary or revoke that order.[17]
[15] Administrative Appeals Tribunal Act 1975 (AAT Act); s 41(1)(b)
[16] The word “proceeding” is widely defined in the AAT Act but includes an application for review (AAT Act; s 3(1)) but not a proceeding in the Social Services and Child Support Division: AAT Act; Note to s 41(1).
[17] AAT Act; s 41(3)
An order that has been made under s 41(2) or varied under s 41(3):
“(a) is subject to such conditions as are specified in the order; and
(b)has effect until:
(i)where a period for the operation of the order is specified in the order – the expiration of that period or, if the application for review is decided by the Tribunal before the expiration of that period, the decision of the Tribunal on the application for review comes into operation; or
(ii)if no period is so specified – the decision of the Tribunal on the application for review comes into operation.”[18]
[18] AAT Act; s 41(6)
In Re Scott and Securities and Investments Commission,[19] Downes J as President of the Tribunal considered the matters to which the Tribunal needs to have regard in considering an application under s 42. They include:
[19] [2009] AATA 798; (2009) 51 AAR 114
“In considering the application, it is appropriate for me to consider a range of matters, including:
1. The prospects of success.
2. The consequence for the applicant of the refusal of a stay.
3. The public interest.
4.The consequences for the respondent in carrying out its functions depending upon whether a stay is granted or not.
5.Whether the application for review would be rendered nugatory if a stay were not granted.
6.Other matters that are relevant, amongst which I would include the length of time that the ban has already been in place and the gap between today and the hearing of the application.”[20]
[20] [2009] AATA 798; (2009) 51 AAR 114 at [4]; 115
While these are relevant matters, I respectfully suggest that care must be taken not to take the six matters as a checklist of all that is relevant in coming to a decision whether or not to make an order under s 41(2). To do so would, I suggest, be to disregard other matters to which regard must also be had. It would also be to run the risk of confusing the matters to which s 41(2) states must be had with the broader range of matters to which regard must also be had in making the discretionary decision.
I will begin with the expressly stated statutory obligation to take “… into account the interests of any persons who may be affected by the review …”. The matters listed in the second and fourth items in Scott are relevant to ascertaining those interests but, I respectfully suggest, may bring into play a broader group of persons than the applicant and the respondent, to whom reference is made in those items. In a case such as this, it would include the shareholders of the corporations of which the person is an officer. In a case under the Aged Care Act 1997, those affected by the review of a decision to revoke an approved provider’s approval as a provider of aged care services would include not only the approved provider, who would be the applicant in the Tribunal, and the decision-maker, who would be the respondent, but also those receiving aged care services. It might be said that those persons would be considered in the context of the public interest but it seems to me that s 41(2) expressly highlights their interests. It requires their interests to be taken into account just as it requires regard to be had to those of the applicant and the respondent.
I also suggest that the consideration in item 2 - “The consequence for the applicant of the refusal of a stay.” – is framed more narrowly than the question that s 41(2) requires to be asked. Section 41(2) requires that account be taken of the “interests of the parties”. They may require a consideration of the consequences of the granting of a stay as well as those of refusing a stay. Granting a stay may, for example, lead to an applicant’s accruing a sizeable debt and being unable to repay it if ultimately unsuccessful when the decision has been reviewed.
I also suggest that the itemisation of the issues in Scott tends to distract from the duty imposed by s 41(2) to ask the relevant question i.e. whether, after taking into account the interests of any persons affected by the review:
(1)“… the Tribunal is of the opinion that it is desirable to ...” (emphasis added);
(2)make such order or orders:
(a) “… staying or otherwise affecting the operation or implementation of the decision … of a part of the decision as the Tribunal considers appropriate for the purpose of securing the effectiveness of the hearing and determination of the application for review.” (emphasis added)
What is “desirable” is that which is “advisable”[21] having regard to the interests of those affected by the decision. It is a discretionary decision. The more broadly based constraints of discretionary power were considered by Windeyer J in Finance Facilities Pty Ltd v Federal Commissioner of Taxation.[22]He did so in the context of s 46(3) of the Income Tax Assessment Act 1936:
“… If the scope of the permission be not circumscribed by context or circumstances it enables the doing, or abstaining from doing, at discretion, of the thing so authorized. But the discretion must be exercised bona fide, having regard to the policy and purpose of the statute conferring the authority and the duties of the officer to whom it was given: it may not be exercised for the promotion of some end foreign to that policy and purpose or those duties. …”[23]
[21] Macquarie Dictionary, revised 3rd edition, 2001, The Macquarie Library Pty Ltd
[22] (1971) 127 CLR 106
[23] (1971) 127 CLR 106 at 134
The particular legislative context in which a discretionary power is conferred will reveal the more narrowly based constraints applicable to the exercise of that particular power. Constraints of this type were described by Gleeson CJ, Gaudron and Hayne JJ in Coal and Allied Operations Pty Limited v Australian Industrial Relations Commission and Others:[24]
“‘Discretion’ is a notion that ‘signifies a number of different legal concepts’ …. In general terms, it refers to a decision-making process in which ‘no one [consideration] and no combination of [considerations] is necessarily determinative of the result’ …. Rather, the decision-maker is allowed some latitude as to the choice of the decision to be made …. The latitude may be considerable as, for example, where the relevant considerations are confined only by the subject matter and object of the legislation which confers the discretion …. On the other hand, it may be quite narrow where, for example, the decision-maker is required to make a particular decision if he or she forms a particular opinion or value judgment.”[25]
[24] (2000) 203 CLR 194; 174 ALR 585
[25] (2000) 203 CLR 194; 174 ALR 585 at 204-205; 591-592 and see also Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577; 2 ALD 60 at 590; 70 per Bowen CJ and Deane J and 602; 80 per Smithers J
Items 1, 3, 5 and 6 of the list in Scott are, in my view, more directly relevant to the broader issue relating to the exercise of the discretion. So too are the objects of the scheme of regulation provided for in the Australian Securities and Investments Commission Act 2001 (ASIC Act) and the Corporations Act.
While this was not expressly recognised in Scott, in a joint judgment with North J in the earlier case of Australian Securities and Investments Commission vPTLZ,[26] Downes J had expressed the view that the public interest may be relevant saying:
“ It does not follow from the absence of any reference to the public interest in s 41(2) that that interest might not be relevant to an application under the section, but what is clear is that the principle that proceedings should be held in public must be taken as the basis of consideration of an application under s 35(2) while the only statutory obligation under s 41(2) is confined to merely taking into account the interests of persons who may be affected. The statutory requirement under s 35(3) is both wider and deeper than under s 41(2).”[27]
[26] [2008] FCAFC 164; (2008) 48 AAR 559; Black CJ, North and Downes JJ
[27] [2008] FCAFC 164; (2008) 48 AAR 559 at [42]; 567
Having regard to the context in which North and Downes JJ wrote the passage, it seems clear that they meant that to say that “the only [express] statutory obligation under s 41(2) is confined to merely taking into account the interests of persons who may be affected.” There are implicit statutory obligations and they themselves identified the public interest as a relevant consideration. I respectfully suggest that having regard to the public interest is inherent in the obligation to come to an opinion that it is “desirable” to make an order under s 41(2) after taking those interests into account. Also inherent in that obligation is an obligation to have regard to the terms of the particular decision and the wider scheme of the legislation under which the decision was made. To some extent, those matters will be relevant in considering the interests of the decision-maker but they are also inherent in a consideration of the public interest for there is a public interest in the proper administration of the law.
That this is what North and Downes JJ had intended to say is clear from the joint judgment of Downes and Jagot JJ in Australian Securities and Investments Commission v Administrative Appeals Tribunal.[28] They said:
“… [C]areful consideration … must be given by the AAT in any exercise of power under s 41(2) of the AAT Act to the balance of competing rights and interests struck by Parliament as embodied in the terms of the Corporations Act, particularly the balance between the rights and interests of the recipient of the banning order and of the public including existing and potential future clients of the recipient of the banning order. As we have said the scheme which the provisions of the Corporations Act embody – with the potential making of a banning order to remain private unless and until the ASIC decides to make such an order after having given the recipient an opportunity to be heard – is not mere statutory background or a neutral factor in the process of the formation of the required opinion about what is desirable under s 41(2) of the AAT Act. The scheme which Parliament has established in the Corporations Act, and the public interest in the right of the market to know relevant information as soon as practicable, must be treated as a fundamental element in the decision-making process required under s 41(2) of the AAT Act.”[29]
[28] [2009] FCAFC 185; (2009) 181 FCR 130; Moore, Downes and Jagot JJ
[29] 2009] FCAFC 185; (2009) 181 FCR 130 at [71]; 147-148
I will now turn to the scheme of the Corporations Act in so far as it is relevant in this case. ASIC administers those laws of the Commonwealth or of a State or Territory as confer functions and powers on it.[30] The Corporations Act is such a law. Section 1(2) of the ASIC Act directs ASIC to strive to achieve certain outcomes in performing its functions and exercising its powers. Among those outcomes are those requiring that ASIC:
(a)maintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy; and
(b)promote the confident and informed participation of investors and consumers in the financial system; and
(c)-(e)…; and
(f)ensure that information is available as soon as practicable for access by the public; and
(g)…”
[30] ASIC Act; s 1(1)(a)
Provisions of this sort have been described as “general exhortatory provisions”.[31] They are intended to be facultative and not restrictive.[32] Whether regard would be had to them in interpreting another provision of the enactment may be open to debate in some instances but not so in the case of s 1(2) of the ASIC Act. Section 1(3) provides:
“This Act has effect, and is to be interpreted, accordingly.”
That provision must be read as applying both to the objects set out in s 1(1), which would be taken into account in interpreting the legislation in any event,[33] and s 1(2) setting out the exhortatory provisions.
[31] Sun v Minister for Immigration and Ethnic Affairs [1997] FCA 324 per Lindgren J
[32] Minister for Immigration and Multicultural Affairs v Eshutu (1999) 197 CLR 611; 162 ALR 577 at 628; 588 per Gleeson CJ and McHugh J and 659; 613 per Hayne J and see also similar views expressed by Gaudron and Kirby JJ at 635; 592-594
[33] Acts Interpretation Act 1901; s 15AA
The only qualifications that a person must have in order to be a director of a company are those set out in s 201B of the Corporations Act. The person must be an individual, and so not a corporate or other entity. That person must be at least 18 years of age. Finally, unless the person’s appointment as a director is made with permission granted by ASIC under s 206F or with leave granted by the Court under s 206G, the person may not be a person who is disqualified from managing corporations under Part 2D.6. There are no educational requirements imposed and a person is not required to demonstrate any relevant skills or knowledge relating to the management of a corporation. There is no requirement to be a fit and proper person to carry out the duties of a director.
That is not to say that the person’s skills, knowledge and suitability are irrelevant to the role of a director for the Corporations Act imposes a range of duties upon them. Putting aside disqualification because of disqualification under other legislation or under the law of a foreign jurisdiction,[34] assessment of the person as a director comes about by reference to the way in which he or she discharges his or her duties as a director and by reference to any failure of a corporation of which they have been an officer in the previous seven years or any corporation that has been wound up being unable to pay its debts.[35] The way in which a person discharges his or her duties as a director is relevant when considering disqualification under s 206F. These factors are also relevant when regard is had to the Court’s power to disqualify. Section 12GLD of the ASIC Act, for example, gives the Court power to make an order disqualifying a person from managing corporations if satisfied that the person has committed, attempted to commit or been involved in a contravention of Subdivisions C or D of Division 2 of Part 2 of that legislation and if disqualification is justified. In broad terms, those Subdivisions relate to unconscionable conduct and consumer protection. Just as ASIC is required to do under s 206F(2)(b)(i), the Court is required to have regard to the person’s conduct in relation to the management, business or property of any corporation as well as any other matter it considers appropriate.[36]
[34] Corporations Act; ss 206EA and 206EAA
[35] Corporations Act; ss 206D and 206F(1)(a)(ii)
[36] See also s 206EB of the Corporations Act providing that a person is disqualified from managing a corporation if an order made under s 12GLD is in force.
In Australian Securities and Investments Commission v Rich[37] (Rich), Santow J reviewed previous authorities relating to disqualification orders and summarised the propositions that could be gleaned from them. He did so in the context of the Court’s powers under ss 206C and 206E. Under s 206C, the Court may disqualify a person if a declaration has been made under either the Corporations Act or the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act). Section 206E provides that the Court may disqualify a person from managing corporations where the person has been an officer of a body corporate that has contravened the Corporations Act or the CATSI Act, has contravened that Act or the CATSI Act or been an officer of a body corporate that has done something that would have contravened ss 180(1) or 181 of the Corporations Act had the body corporate been a corporation. Before turning to factors relevant to the length of any period of disqualification that should be imposed, his Honour said:
[37] [2002] NSWSC 483; (2002) 42 ACSR 80; 20 ACLC 1146
“The cases on disqualification gave orders ranging from life disqualification to 3 years. The propositions that may be derived from these cases include:
(i) 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: Australian Securities and Investments Commission v Hutchings (2001) 38 ACSR 387 at 395 Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561 Australian Securities Commission v Forem-Freeway Enterprises Pty Ltd (1999) 30 ACSR 339 at 349–50 Australian Securities Commission v Donovan (1998) 28 ACSR 583 at 602 Australian Securities Commission v Roussi (1999) 32 ACSR 568 at 570–1 Re Strikers Management Pty Ltd; Australian Securities Commission v Dimitri (unreported, Fed C of A, Burchett J, No NG 3789 of 1996, 7 May 1997, BC9702133) Re Tasmanian Spastics Association; Australian Securities Commission v Nandan (1997) 23 ACSR 743 at 751.
(ii) The banning order is designed to protect the public by seeking to safeguard the public interest in the transparency and accountability of companies and in the suitability of directors to hold office: Australian Securities Commission v Roussi, above, at 570; Re Gold Coast Holdings Pty Ltd; Australian Securities and Investments Commission v Papotto (2000) 35 ACSR 107 at 112.
(iii) Protection of the public also envisages protection of individuals that deal with companies, including consumers, creditors, shareholders and investors: Australian Securities Commission v Roussi at 570; Re Gold Coast Holdings Pty Ltd, above, at 112; Re Tasmanian Spastics Association, above, at 751.
(iv) The banning order is protective against present and future misuse of the corporate structure: Australian Securities Commission v Donovan, above, at 603.
(v) The order has a motive of personal deterrence, though it is not punitive: Re Magna Alloys & Research Pty Ltd (1975) 1 ACLR 203 at 205; Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd, above; Australian Securities Commission v Donovan at 607; Re Tasmanian Spastics Association at 751.
(vi) The objects of general deterrence are also sought to be achieved: Australian Securities Commission v Donovan at 602.
(vii) In assessing the fitness of an individual to manage a company, it is necessary that they have an understanding of the proper role of the company director and the duty of due diligence that is owed to the company: Australian Securities Commission v Donovan at 607.
(viii)Longer periods of disqualification are reserved for cases where contraventions have been of a serious nature such as those involving dishonesty: Australian Securities Commission v Donovan at 605–7.
(ix)In assessing an appropriate length of prohibition, consideration has been given to the degree of seriousness of the contraventions, the propensity that the defendant may engage in similar conduct in the future and the likely harm that may be caused to the public: Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd; Australian Securities and Investments Commission v Parkes (2001) 38 ACSR 355 at 386; Australian Securities Commission v Forem-Freeway Enterprises; Australian Securities Commission v Roussi at 570–1.
(x) 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 conduct: Australian Securities Commission v Donovan at 607; Australian Securities and Investments Commission v Parkes, above, at 386.
(xi) A mitigating factor in considering a period of disqualification is the likelihood of the defendant reforming: Australian Securities Commission v Forem-Freeway Enterprises at 351.
(xii)The eight criteria to govern the exercise of the court's powers of disqualification set out in Commissioner for Corporate Affairs (WA) v Ekamper (1987) 12 ACLR 519 have been influential. It was held that in making such an order it is necessary to assess:
• character of the offenders;
• nature of the breaches;
• structure of the companies and the nature of their business;
• interests of shareholders, creditors and employees;
• risks to others from the continuation of offenders as company directors;
• honesty and competence of offenders;
• hardship to offenders and their personal and commercial interests; and
• offenders’ appreciation that future breaches could result in future proceedings.
Australian Securities Commission v Roussi at 570–1; Re Gold Coast Holdings Pty Ltd at 111;
(xiii)-(xv)…”[38]
[38] [2002] NSWSC 483; (2002) 42 ACSR 80 at [56]; 97-98; 261
In Rich v Australian Securities and Investments Commission,[39] the majority judgment noted that previous authorities, which included those to which Santow J had referred and which concerned “… how the appropriate period of disqualification should be set, rightly focused upon why the orders sought might be made and what purposes might be achieved by their making.”[40] Earlier in their judgment, they had said:
“ If a disqualification order is made, the person against whom the order is made ceases to be a director, alternate director, or a secretary of a company (s 206A(2)), unless given permission under s 206F or s 206G of the 2001 Act to manage the corporation concerned. The order for disqualification thus causes the person against whom it is made to forfeit any office then held in a corporation and forbids that person from holding office in a corporation for the duration of the disqualification order. Those consequences, whether taken separately or in combination, when inflicted on account of a defendant’s wrongdoing, are penalties. …”[41]
In a separate judgment, McHugh J referred specifically to the summary of relevant factors set out by Santow J and concluded that:
“… Those factors also support the conclusion that the jurisdiction exercised under this part of the Corporations Act cannot properly be characterised as purely protective.”[42]
[39] [2004] HCA 42; (2004) 220 CLR 129; 209 ALR 271; 50 ACSR 242
[40] [2004] HCA 42; (2004) 220 CLR 129; 209 ALR 271; 50 ACSR 242; 1198 at [38]; 147; 282-283; 253-254 per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ
[41] [2004] HCA 42; (2004) 220 CLR 129; 209 ALR 271; 50 ACSR 242; 1198 at [37]; 147; 282; 253
[42] [2004] HCA 42; (2004) 220 CLR 129; 209 ALR 271; 50 ACSR 242; at [52]; 155; 289; 260
The nature of the orders that may be made under s 41(2)
The order that the Tribunal may make under s 41(2) is an operation staying or otherwise affecting the operation or implementation of the decision to which the relevant proceeding relates for the purpose of securing the effectiveness of the hearing and determination of the application for review. Clearly this gives the Tribunal the power to make an order staying the operation of the decision itself. In Australian Securities and Investments Commission v Administrative Appeals Tribunal, the Full Court of the Federal Court held that the Tribunal’s power extended to staying or otherwise affecting the operation of acts or events that are ancillary to, or consequential upon, the decision under review. As Moore J said after referring to the scheme of the Corporations Act:
“… The context, in its broadest sense … is a legislative scheme which permits the AAT to review decisions on their merits made under enactments and make a decision in substitution of that of the primary decision-maker, operative (unless the AAT otherwise orders) from the time of the original decision-maker: s 43(6), which may involve setting aside the original decision (see s 43(1)(c)). If the decision of the primary decision-maker enlivens statutory provisions creating consequences of the type I have been discussing, it would be an entirely natural and obvious part of the statutory scheme for the AAT to have power to modify or prevent those consequences in circumstances where the decision of the primary decision-maker might later be set aside.”[43]
[43] [2009] FCAFC 185; (2009) 181 FCR 130 at [5]; 133
IS IT DESIRABLE TO MAKE AN ORDER UNDER s 41(2) OF THE AAT ACT?
In this section of my reasons, I will consider the interests of those affected by the review of the decision disqualifying Mr Bolton from managing corporations for a period of three years before turning to other factors that are also relevant in considering whether it is desirable to make an order staying or otherwise affecting the operation or implementation of that decision.
Interests of those affected by review of the decision
Clearly, Mr Bolton has interests affected by the decision. As a consequence of the decision, he is not permitted to manage a corporation unless ASIC has given him permission to do so under s 206F or the Court has granted him leave to do so under s 206G. For the purposes of his applications for stay and confidentiality orders, I accept that he may suffer some damage to his reputation. Mr Bolton has said in his affidavit dated 19 November 2015 that he has a relatively high profile within the business community due to ASI’s involvement with Brisconnections in 2009 and so with TJ. He believes that it will be very difficult for him to overcome reputational damage caused by the disqualification order and that, as a result, the damage to his business activities is likely to be so extensive that there would be no benefit in his being restored to his former directorships or undertaking new directorships.
Mr Bolton has been a director of Keybridge Capital Limited (Keybridge), which is a funds manager, and is currently its Managing Director and one of its two executives. It is a listed public company. He acknowledges that there are four other experienced directors on Keybridge’s board. At the executive level, Mr Bolton states that he is intimately involved in the management of its day to day affairs and has the greater knowledge of the company. Should he be required to step aside as a director, the other executive would be required to take over his role. That, together with his no longer being able to be Keybridge’s Managing Director, will be likely to have a material adverse impact on its affairs, Mr Bolton said. At the personal level, there is also a risk that, if he were required to stand aside, he would not be returned to his former position as Managing Director of Keybridge if he were successful in having the disqualification order set aside. In his Affidavit sworn on 30 November 2015, Keybridge’s Chairman of Directors, Mr Alan Moffat supported Mr Bolton’s view of the possibility of his not being reappointed as the Chief Executive Officer (CEO) even if he were successful in having the disqualification order set aside.[44]
[44] Affidavit of Mr Moffat dated 19 November 2015 at [17]
As it is a body corporate[45] and so a “person” within the meaning of s 2C of the Acts Interpretation Act 1901, ASIC is a person who may have interests affected by the review of its decision. It has an interest in maintaining the integrity of the system of corporate regulation that is provided for in the Corporations Act and ASIC Act. That does not mean that its interest lies in defending the decision it has made and that is now under review. To do so would be contrary to the system of review that is provided for by Part 9.4A of the Corporations Act when read with s 25 of the AAT Act and that is part of the system of corporate review. Defending the decision would also be contrary to ASIC’s responsibility to use its “… best endeavours to assist the Tribunal to make its decision in relation to the proceeding.”[46] What it does mean is that ASIC continues to have an interest in striving to ensure that the financial system has certain features as it is required to do under s 1(2) of the ASIC Act and is inherent in the regulatory scheme provided in the ASIC Act and the Corporations Act. One of those features is that the entities within that system and those who deal with that system operate in a way that is in the interests of commercial certainty, cost reduction and efficiency as well as in the development of the economy. Another is that investors and consumers are able to participate in that financial system both confidently and appropriately informed. Before it can give any consideration to exercising its power to disqualify a person from managing corporations for certain periods or at all, ASIC must necessarily monitor what is happening in the financial system. In monitoring corporations’ compliance with their statutory obligations, ASIC is also monitoring those who direct and manage the activities of those corporations. Having come to the view that there are grounds on which its power to disqualify should be exercised and having made a decision to exercise its power, ASIC continues to have an interest in ensuring the integrity of the financial system while the decision remains under review.
[45] ASIC Act; s 8
[46] AAT Act; s 33(1AA)
Keybridge, too, is a person whose interests are affected by the decision under review. That arises from the fact that Mr Bolton is a director of it as well as its CEO. In the following passage from his affidavit of 19 November 2015, Mr Bolton also drew in the interests of any companies with which he might be involved[47] or involved in the future:
“I believe that the publishing of the Disqualification Order will have an immediate and irreparable effect on my reputation. As a result of the publishing of the Disqualification Order, people will likely view me and, possibly the companies to which I am a director, in a negative light. I also believe that it will likely jeopardise current and future business opportunities for me and the companies that I am involved in whatever the outcome of the Tribunal’s review of the decision. In particular, it may jeopardise a material transaction that Keybridge is currently working on.
As Keybridge Capital is a funds manager, who professionally manages the funds of third parties, the credibility of the company and its personnel is critical to its success. I believe that the publishing of the Disqualification Order may cause damage to this business, and as a result to Keybridge Capital’s shareholders and 16 staff, that could not be rectified by a subsequent reversal of such order. If Keybridge Capital’s clients become aware of the Disqualification Order, I believe that Keybridge Capital will likely lose business and I do not expect those clients to return if the decision is ultimately overturned.”[48]
[47] Among other companies of which Mr Bolton is a director are AS Staff Pty Ltd (under external administration), Bridge Financial Pty Ltd, Bridge Property Investments Pty Ltd, Bridge Infrastructure Capial (Midlum) Pty Ltd, Keybridge Funds Management Pty Ltd and MB Finance Pty Ltd: Affidavit of Mr Bolton sworn 19 November 2015 at [7]
[48] Affidavit of Mr Bolton sworn 19 November 2015 at [12]-[13]
Mr Andrew Moffat has been a non-executive director and the Chairman of Keybridge since 7 March 2014. In his affidavit sworn on19 November 2015, he said that, if the disqualification order were not stayed, Keybridge is likely to suffer prejudice. Of all the executives at Keybridge, Mr Bolton has the greatest knowledge. He is assisted in his duties by the Chief Financial Officer and other executives. Unless the disqualification order is stayed, Keybridge will need to appoint an Acting CEO or equivalent in the interim. That is likely to be another of its executives but one who is less experienced than Mr Bolton.
Mr Moffat said that Mr Bolton performs his duties at Keybridge under the supervision of the board. Among the board’s other responsibilities are its responsibilities for:
“(a) approving and monitoring the progress of major investments, capital expenditure, capital management acquisitions and divestitures;
(b)approving and monitoring financial and other reporting;
(c)reviewing and ratifying systems of risk management, internal compliance and control, and legal compliance to ensure appropriate compliance frameworks and controls are in place;
(d)monitoring and ensuring compliance with legal and regulatory requirements and ethical standards and policies; and
(e)monitoring and ensuring compliance with best practice corporate governance requirements.”[49]
[49] Affidavit of Mr Moffat sworn 30 November 2015 at [11]
The board has various procedures and protocols in place to ensure that Mr Bolton performs his role as CEO responsibly, diligently and in the best interests of Keybridge. Some of them were described by Mr Moffat:
“(a) Senior management at Keybridge Capital, which the Applicant (as CEO) supervises, has delegated authority from the board to deal with assets and manage transactions up to $1 million in value (which equates to less than 3% of Keybridge Capital’s net assets). Keybridge Capital’s top 8 assets are over $1 million in value. The board has delegated authority for assets or transactions valued up to $5 million to an Investment Committee. The members of this committee are myself, the Applicant and Antony Sormann, a director of Keybridge Capital. We each have the right in relation to matters dealt with by the Investment Committee, to require any matter to be referred to the Company’s board rather than be dealt with by the Investment Committee. The board has sole authority for any assets or transactions above $5 million in value. Pursuant to Keybridge Capital’s constitution, any transaction also requires dual signatories in order to proceed.
(b)Keybridge Capital has an Audit, Finance and Risk Committee (AFRC), which is a committee of the board that comprises non-executive directors, which, amongst other things, assists the board to fulfil its responsibilities in relation to such things as financial reporting, business policies and practices, legal and regulatory compliance and internal risk control and management systems. Keybridge Capital’s auditors, KPMG, also sit on meetings of the AFRC. The Applicant, as CEO of Keybridge Capital, is answerable to the AFRC.
(c)Keybridge Capital also has a Code of Conduct, which applies to all directors, including the Applicant as Managing Director, and senior executives of Keybridge Capital. A copy of this Code dated 25 June 2015 is annexed ….
(d)Keybridge Capital has a Financial Management Policy, which sets out guidelines for management to apply in relation to the business’ finances. Under this policy, management must report to the AFRC on compliance with the policy. A copy of this policy is annexed …
(e)I am also informed by the Chief Financial Officer of Keybridge that the Applicant does not have access to operate Keybridge Capital’s bank accounts.”[50]
[50] Affidavit of Mr Bolton sworn 30 November 2015 at [13]
As to the business of Keybridge, Mr Moffat expressed the opinion that the disqualification order:
“… may cause damage to its business that could not be remedied by the application for review succeeding. It is possible that people may view Keybridge Capital in a negative light as a result of the publishing of the Disqualification Order. There is also a risk that disclosure of the Disqualification Order to the market may negatively affect investors of Keybridge Capital.”[51]
[51] Affidavit of Mr Moffat dated 19 November 2015 at [8]
In his second affidavit sworn on 30 November 2015, Mr Moffat said that, if the Tribunal does not stay the disqualification order and extend the confidentiality order, Keybridge will, in accordance with its continuous disclosure obligations under the ASX Listing Rules, disclose to the market that the disqualification order has been issued. He added:
“The fact that ASIC has made the Disqualification Order constitutes price sensitive information. Based on my experience of the market, which exceeds 20 years, there is a real risk that disclosing this information will negatively affect the value of Keybridge Capital’s shares and, therefore, adversely impact the shareholders of Keybridge Capital. As Keybridge Capital’s business comprises the management of third parties’ funds, the credibility and reputation of its personnel is vital. The Disqualification Order might be misunderstood by investors as reflecting upon the business operated by Keybridge Capital.
Aurora Funds Management Limited (AFML) is a funds manager, which is 100% owned by Keybridge Capital. AFML manages approximately $120 million of funds. Research analysts, such as Zenith and Lonsec, are due to undertake their review of the ratings of the funds managed by AFML over the next few months. If an announcement has to be made by Keybridge Capital about the Disqualification Order, there is a significant risk that the ratings of AFML’s funds will be negatively affected, which will directly impact AFML’s ability to attract and retain funds under its management.
Even if the Disqualification Order is stayed, but the Interim Confidentiality Orders are not extended, upon the announcement being made, it is also possible that the research analysts may immediately put the funds’ investment grade ratings to an ‘under review’ status, pending the outcome of the review of ASIC’s decision. This is also likely to cause material damage to AFML’s ability to attract and retain funds, which is unlikely to be remedied by the application for review succeeding.”[52]
[52] Affidavit of Mr Moffat dated 30 November 2015 at [7]-[9]
A fourth group of persons whose interests may be affected by the decision has been identified by Mr Moffat. They are those who have invested, or who may invest, in Keybridge. They are people whom Parliament wants to be confident and informed when they are participating in the financial system.
OTHER RELEVANT CONSIDERATIONS
Prospects of success
In this section of my reasons, I will set out matters relevant to the consideration of Mr Bolton’s prospects of success on review of the decision. I have set out those matters on which the delegate made findings and which were addressed by Mr Bolton in his affidavits.
The authorities establish that a consideration of the merits of the substantive or substantial application does not translate into a requirement to undertake a full consideration of the merits of a substantive application on an interlocutory proceeding such as an application for an extension of the time within which to lodge an application for review of a decision. Von Doussa J explained the relevance of issues relating to the merits of the substantial application in Windshuttle v Commissioner of Taxation.[53] His Honour said:
“The issue which the AAT was required to consider was whether, for the purposes of the exercise of the discretion under s 188A [of the Income Tax Assessment Act 1936], the applicant’s case had prospects of success, and what those prospects were. It is sufficient for that purpose, if the parties chose to so argue their case, to merely identify the factual assertions which the applicant made in the objection, and then to consider whether the application of the law to those assertions would bring about the result for which the applicant contends. In other words the assertions can, if the parties so choose, be treated as pleadings are treated where an application is made to strike out an action on the ground that the pleadings disclose no cause of action. On an application of that kind the true existence of the facts alleged in the pleadings is not explored by evidence. That is left for the trial if there is an arguable case on the pleadings. It would, of course, have been open before the AAT for the Commissioner to attack the history of the transaction asserted by the applicant. If it could have been demonstrated that an essential part of that history was wrong, that would go directly to the prospects of success to the objection. However the Commissioner chose not to attach [sic] the veracity of the facts alleged by the applicant, and this is understandable having regard to judicial pronouncements to the effect that where the issue is whether leave should be given to extend time it is inappropriate for the tribunal concerned to embark on a full scale trial of the merits of the underlying question which will be agitated only if time is extended. See Barrett v Minister for Immigration, Local Government and Ethnic Affairs (1989) 18 ALD 129 at 130, Repatriation Commission v Tuite (1992) 37 FCR 571 at 577. It would not be appropriate on an application to extend time to seek to attack the facts alleged on the ground that the credit of the applicant, or that of supporting witnesses, should not be accepted. Arguments of that kind are best left for later consideration if and when an extension of time is granted. Only where there is some obvious and easily demonstrated flaw in the applicant's case would it be appropriate to challenge the factual basis for the asserted claim on an application to extend time.”[54]
A. ASI’s failure to declare GST in BAS for quarter ended 30 June 2009
[53] [1993] FCA 553; (1993) 46 FCR 235; 93 ATC 4992; 27 ATR 88
[54] [1993] FCA 553; (1993) 46 FCR 235; 93 ATC 4992; 27 ATR 88 at [26]; 243-244; 4999 and 95 and approved by Federal Commissioner of Taxation v Brown [1999] FCA 1198 at [12] per Drummond, Sackville and Hely JJ
A.1 Background
I will begin by summarising events leading to the delegate’s finding that ASI had failed to declare GST in the BAS it lodged for the quarter ended 30 June 2009. In Re Australian Style Investments Pty Ltd as Trustee for Australian Style Investments Unit Trust and Commissioner of Taxation[55] (Re ASI), Deputy President Alpins considered whether the delivery of irrevocable proxies made by ASI upon the execution of a deed was a “financial supply” or a taxable supply for the purposes of the A New Tax System (Goods and Services Tax) At 1999 (GST Act). She decided that it was a taxable supply and affirmed the Commissioner’s assessment of GST and of penalties. I have taken the following summary of facts relating to events leading to the supply from her reasons for decision but note that they were not in issue in this hearing:
[55] [2013] AATA 847; Deputy President Alpins
(1)The issue arose out of events related to the activities of the BrisConnections Investment Trust and the BrisConnections Holding Trust (the Trusts). The BrisConnections Management Co Ltd (BMC) was the responsible entity for the Trusts.
(2)The Trusts constituted a managed investment scheme registered under the Corporations Act 2001 (Corporations Act) and listed on the Australian Stock Exchange.
(3)Together with a range of associated trusts and companies, the Trusts had been granted a concession to design, construct, operate, maintain and finance a major infrastructure in Brisbane known as the Brisbane Airport Link Project (Project).
(4)Thiess Pty Ltd and John Holland Pty Ltd, together referred to as TJ, are two wholly owned subsidiaries of Leighton Holdings Pty Ltd. TJ were participants in an unincorporated joint venture formed for the purpose of the Project and engaged in its design and construction.
(5)In its capacity as trustee of the Australian Style Investments Unit Trust (ASI Unit Trust), ASI acquired 77,400,933 stapled units in the BrisConnections Investment Trust, being one of the Trusts, engaged in the Project. ASI acquired those units between November 2008 and early 2009.
(6)In early 2009, ASI requisitioned meetings of the Trust’s unit holders to consider and vote on various resolutions it proposed. One of the resolutions put forward by ASI was to wind up the Trusts. Another was to amend the Trusts’ constitutions and to replace BMC as their responsible entity. BMC issued notice of the meeting on 5 March 2009.
(7)BMC instituted proceedings in the Supreme Court of Victoria seeking declaratory and related relief but its applications were dismissed by Robson J on 2 April 2009.[56]
[56] BrisConnections Management Co Ltd v Australian Style Investments Pty Ltd [2009] VSC 128; (2009) 23 VR 253
(8)On 8 April 2009, ASH, ASI, Mr Bolton and TJ made a deed (Deed). Clause 1 of the Deed provided:
“At the request of ASI and Bolton, TJ agrees to pay $4,500,000 to ASH on the Payment Date if and only if Bolton and ASI each perform in full all of their obligations as set out below and the conditions precedent set out in clause 2 below are satisfied before that date, and subject to clause 3 of this deed.”[57]
[57] Affidavit of Mr Bolton sworn 1 December 2015; Annexure NB-8
Clause 4 provided that ASI agreed that it would, among other matters:
“(a) deliver to TJ or its nominee on 8 April 2009 irrevocable proxies in respect of all of the ASI Units authorising and directing TJ to vote all of ASI Units against each of the Resolutions in the form attached or such other form as is satisfactory to TJ (ASI Proxies);
(b)not attend the 14 April Meeting and will not revoke or purport to revoke any of the ASI Proxies or take any other action that might affect the validity or exercise by TJ of the ASI Proxies;
(c)…
(d)except where the payment under clause 1 is due and payable but is not paid on the Payment Date[[58]] and remains unpaid, not to take or propose any action, and ensure that none of its related entities or associates take or propose any action, to support the Resolutions (whether by issuing statements or materials, soliciting proxies or otherwise), or to seek to achieve the outcomes sought by the Resolutions by any other means, either before, at or after the 14 April Meeting; and
[58] “Payment Date means the date that is the later of 15 April 2009 and the date that is 1 business day after the date on which the 14 April Meeting is closed”: Deed at Annexure NB-8 to Mr Bolton’s affidavit sworn 1 December 2015
(e)…”
Clause 5 set out Mr Bolton’s obligations under the Deed including:
“(a) procure that ASI and all of its related entities and associates comply with and act consistently with ASI’s undertakings in this deed;
(b)not attend the 14 April Meeting or take any action that might affect the validity or exercise by TJ of the ASI Proxies;
(c)not take or propose any action to support the Resolutions (whether by issuing statements or materials, soliciting proxies or otherwise) or to seek to achieve the outcomes sought by the Resolutions by any other means, either before, at or after the 14 April Meeting; and
(d) ...”
(9)The parties met their obligations under the Deed and, on 14 April 2009, notice was given to ASIC to the effect that TJ had collectively obtained power to exercise the right to vote attached to ASI’s units.
(10)The meeting of unit holders in the Trusts was held on 14 April 2009 and none of the resolutions put to the meeting was passed.
(11)Correspondence was exchanged between Blake Dawson, solicitors for TJ, and Lander & Rogers, then solicitors for ASI and Mr Bolton. As there was some suggestion that there might be a challenge to the outcome of the meeting held on 14 April 2009, Blake Dawson proposed that the sum of $4,500,000 be paid into Lander & Rogers’ trust account. Blake Dawson’s letter, dated 15 April 2009, included the following passage:
“Separately, as our clients may only be obliged to pay an amount to Australian Style Holdings Pty Ltd, our clients will require evidence of a payment direction from Australian Style Holdings Pty Ltd to your firm, as well as a tax invoice from Australian Style Holdings Pty Ltd upon release of funds from your trust account.”[59]
[59] [2013] AATA 847 at [12]
(12)Lander & Rogers responded to Blake Dawson on the same day. The response included the following passage:
“Nor is there any obligation to provide evidence of payment or a tax invoice. If however your client will pay GST, our client is in a position to provide an invoice for the amount due plus GST (namely $4.95m inclusive of GST). That invoice, if required, will follow payment.
We have instructions to receive the funds on behalf of Australian Style Holdings Pty Ltd.”[60]
[60] [2013] AATA 847 at [13]
(13)On 15 April 2009, TJ paid $4.5 million to ASH.
(14)On 23 April 2009, Blake Dawson wrote to Lander & Rogers stating:
“I note that we have not received the tax invoices requested. When will they be provided?”[61]
On 17 June 2009, Blake Dawson repeated its request when it advised Lander & Rogers that, if it did not receive the invoice by 24 June 2009, its clients would take such further steps as they considered necessary. Those steps might include their approaching the Commissioner to ask for a private ruling that he treat the Deed as a tax invoice.
(15)Deputy President Alpins noted that she had not been given any evidence that a tax invoice had been given to TJ.[62]
(16)ASI was registered for GST in its capacity as trustee of ASI Unit Trust. On 2 December 2009, ASI lodged a Business Activity Statement (BAS) for the ASI Unit Trust for the quarterly period ending 30 June 2009. The BAS was signed by ASI’s employee and bookkeeper on 12 November 2009. No amounts were reported with respect to total sales, GST on sales or GST instalment. ASI reported non-capital purchases of $257,848 and claimed a refund of GST on purchases in the amount of $23,441.[63]
(17)The Commissioner assessed ASI in its capacity as trustee as liable to pay a GST net amount for the quarterly period ending 30 June 2009 reflecting additional GST in the amount of $409,091. He imposed an administrative penalty in the amount of 50% of the GST shortfall amount (i.e. $204,545.50) on the basis that the shortfall amount resulted from recklessness as to the operation of a taxation law.[64]
[61] [2013] AATA 847 at [16]
[62] [2013] AATA 847 at [16]
[63] [2013] AATA 847 at [17]
[64] [2013] AATA 847 at [18]
A.2 Deputy President Alpin’s decision on review
Deputy President Alpins affirmed the Commissioner’s objection decision affirming his assessment on the basis that ASI had made a supply to TJ under the Deed and that it was a taxable supply for the purposes of the GST Act. The interest that was the subject of the supply was a chose in action comprising the rights of action under the Deed in respect of the promises in cl 4 and, in particular, the promise to deliver the irrevocable proxies to TJ.
Mr Bolton gave evidence at the hearing before Deputy President Alpins regarding the correspondence between Lander & Rogers and Blake Dawson. She considered that evidence in the following passage from her reasons for decision:
“ I accept Mr Bolton’s evidence that the applicant obtained legal advice with respect to its GST liability. It seems very likely that would occur at some stage, if only in addressing the applicant’s prospects of success in this proceeding. However, no evidence was given as to when the applicant obtained such advice. Furthermore, I note that Mr Bolton’s evidence about that legal advice appeared in the final sentence of his witness statement, following evidence concerning the period from the lodgement of the BAS in December 2009 until the issuing of the Commissioner’s objection decision in February 2011. It is the only evidence in that section of the witness statement which does not refer to any date. Therefore, I am not satisfied that the applicant obtained legal advice at the relevant time, being prior to the lodging of the BAS.
Furthermore, no evidence of the content, nature or source of that legal advice was adduced, nor was any such written advice before the Tribunal. (As the applicant only relied upon evidence of the fact that legal advice had been obtained about the transaction and did not disclose its substance or content, it was not disputed that there had not been a waiver of privilege in that regard (see Switchcorp Pty Ltd v Multiemedia Limited [2005] VSC 425 at [12])). Accordingly, the mere fact that the applicant obtained legal advice does not assist the applicant in demonstrating that the shortfall amount did not result from recklessness – it cannot be assumed that the applicant was advised that the transaction did not attract liability to GST.”[65]
[65] [2013] AATA 847 at [125]-[126]
A.3 Evidence at the stay hearing
In his written statement to ASIC dated 21 September 2015 to the Tribunal, Mr Bolton said:
“… I am not a tax accountant or lawyer, and I generally tend to rely on my advisers in relation to such matters. At no time did Lander & Rogers provide advice to ASI to the effect that GST may be payable on the proposed settlement payment.
I therefore proceeded to cause ASI to sign the settlement deed on the assumption that no GST was payable. Had I been advised that GST was or may be payable, I would have insisted that the payment be grossed up for GST so as to avoid any doubt.
… I was advised prior to the lodgement of the BAS that GST was not payable. ASI in fact only lodged its BAS for the quarterly tax period ending June 2009, on 2 December 2009. Relying on that advice I provided substantial funds to ASI (approximately $400,000) to enable it to contest the ATO’s assessment in the AAT proceedings. …”[66]
[66] Statement dated 21 September 2015 at [23]-[25]
In an affidavit sworn on 1 December 2015, Mr Bolton said:
“24. … prior to the lodgement of the BAS, advice was sought from Lander & Rogers as to whether GST was payable.
25.On 21 April 2009, I was copied to an email from Lander & Rogers to ASI’s accountants. Annexed and marked ‘NB-8’ is a copy of this email.”
In that same statement, Mr Bolton made the following statements:
“It follows that although I did not turn my mind to whether GST was payable, and relied entirely on my lawyers, at the time the settlement payment was made, ASI did anticipate having sufficient funds available to it to meet any liabilities.”[67]
[67] Statement dated 21 September 2015 at [26(f)]
Annexure NB-8 is an email written by Mr Bill Brown at Lander & Rogers to Mr Peter Vasta at CFMC and copied to Mr Bolton at ASI and Mr Kent at CFMC. The substance of the emails is:
“Attached is a copy of the deed dated 8 April 2009 between Nick, ASI, ASH on the one hand and Thiess Pty Ltd and John Holland Pty Ltd (TJ) on the other.
Also attached is a letter from the lawyers acting for TJ, who you will see asked for a tax invoice for the payment. This is the very first mention of GST/tax. It was not mentioned or discussed during negotiations leading up to the exchange of the deed.
In our response to that part of the letter, we said (by email):
Nor is there an obligation to provide evidence of a payment direction or a tax invoice. If however your client will pay GST, out client is in a position to provide an invoice for the amount due plus GST (namely, $4.95m inclusive of GST). That invoice, if required, will follow payment.
Subsequent to that, we were asked for ABN details of Nick, ASI and ASH, which were provided to the lawyers acting for TJ. We were pressing for payment above all else at the time.
In a further email to us, the lawyers for TJ said:
Without prejudice to any of their rights, our clients have in good faith made payment by bank transfer to your firm’s trust account yesterday. Would you please confirm receipt by return.
Our clients do require a tax invoice or invoices from ASI and Mr Bolton addressed to our clients in accordance with the GST legislation. Would you please email this to us as soon as practicable.
After we received payment into our trust account of $4.5m, we emailed back to the TJ lawyers a confirmation that we had received the funds but added:
We note GST was not added. Is there any reason for that?
In the latest email from TJ’s lawyers on 16 April, they say:
In relation to GST, our client’s obligation under the deed was to pay $4.5 million. There is no requirement under the deed, the GST legislation or elsewhere to pay any additional amount in respect of any GST liability your clients might have. Your clients have an obligation to provide a tax invoice, as requested, under the GST legislation. That obligation is not dependent upon an additional amount in respect of GST being paid by our clients. Please provide the requested tax invoices to us promptly.
I have not responded to that.
Hope you can follow this cut and paste. I look forward to your call.”
A.4 Prospects of success
While I am mindful that this is not the appropriate time to make any findings of fact, it is clear from the passage from Von Doussa J’s judgment in Windshuttle that I may rely on a simple factual assertion by an applicant which, if later supported by evidence, would favour the result he or she seeks. The difficulty that I have in this case is that, Mr Bolton has made a statement in his affidavit of 1 December 2015, that “… prior to the lodgement of the BAS, advice was sought from Lander & Rogers as to whether GST was payable”. This addresses timing of the advice he sought but does not address the issue that he would want to establish i.e. that he was advised that ASI was not liable to pay GST following the settlement with TJ and so has discharged his duties with the degree of care and diligence that a reasonable person would exercise in his position as ASI’s director. The emails that he annexes point to a contrary conclusion. That conclusion is that he was made aware that GST was payable but the issue was whether JT should have paid an amount to ASI to cover ASI’s liability. That seemed to have been overlooked in negotiations. The email does not address any advice that Mr Bolton might have been given at that or a later time to the effect that ASI was not liable to pay GST or advice as to what ASI should have disclosed on its BAS relating to the 30 June 2009 quarter.
In his earlier statement dated 21 September 2015, Mr Bolton had addressed the content of the advice when he said that he had been “… advised prior to the lodgement of the BAS that GST was not payable.” He makes no statement as to the source of his advice and so whether it was legal or other advice. Mr Bolton makes clear that he subsequently had legal advice that he relied upon in pursuing the application in the Tribunal that led to the decision in Re ASI.
Unlike Windshuttle, this is not a case in which I have a single factual assertion which, if later substantiated on the evidence, would bring about the result that Mr Bolton wants i.e. that he has acted with due care and diligence as required by s 180(1) of the Corporations Act. Instead, I have separate statements that, even when read together, do not amount to the factual assertion that Mr Bolton would need to make good at a hearing. It may be that he can make that assertion at a later date and can lead appropriate evidence but, at this stage, he has not done so and he has very low prospects of success on this issue until he does.
B. Failure to lodge Business Activity Statements and income tax returns
In his statement to ASIC dated 21 September 2015, Mr Bolton acknowledged that he had been slow in lodging BASs. His acknowledgement does not go towards explaining why he failed to ensure that ASI and Australian Style complied with their obligations under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to lodge a BAS for each tax period by the dates set out in s 31-8. As s 31-5 makes clear, their liability arose whether their net amount for the tax period was zero and whether or not they were liable for GST on any taxable supplies that were attributable to the relevant tax period.
As to his not having lodged income tax returns for ASI for a period of five years and for Australian Style for two years, Mr Bolton’s explanation was that:
“… I note that Australian Style joined a consolidated tax group on 1 July 2008. Following this consolidation, there was a complication with the group’s accountants. Specifically, there was an issue as to whether Australian Style Investments Pty Ltd was trading in its own right or only as a trustee of the trust and this caused a delay in submitting income tax returns.”[68]
This was contrary to the requirement in s 161 of the Income Tax Assessment Act 1936 to lodge a return for these years of income. Without more evidentiary background, it is difficult to see how this provides an adequate explanation of the length of the period over which the failure occurred. ASI’s director might reasonably be expected to know of the capacity in which the company was trading. The failure to lodge income tax returns began with the returns due for the income year in which ASI was party to the deed with TJ under which $4.5 million was payable to it.
[68] Mr Bolton’s statement dated 21 September 2015 at [33]
C. Finding that a gift given by ASI to ASH
Mr Bolton addressed the delegate’s finding that ASI had made a gift of $4.5 million to ASH in his affidavit dated 1 December 2015. This arises from the terms of the Deed that “At the request of ASI and Bolton, TJ agrees to pay $4,500,000 to ASH on the Payment Date …” on certain conditions. That sum, less legal fees, was in fact paid to ASG and not to ASH, which, Mr Bolton said, did not have a bank account.
Mr Bolton then addressed how the sum of $4.5 million had been treated in ASI’s books of accounts. Initially, he said that the sum had been recorded in the accounts of ASI in its own capacity but that, following a finding by the ATO that ASI was acting in its capacity as trustee of ASI Unit Trust, the accounts were amended accordingly. As at 30 June 2009, the accounts showed that ASG owed ASI approximately $4.7 million and that was recorded in the intercompany loans ledger as an intercompany loan by ASI to ASG in that amount. That amount, Mr Bolton said, included the net amount received from Lander & Rogers following the settlement between ASI and TJ.
No mention is made of the Deed made on 8 April 2009 among ASH, ASI, Mr Bolton and TJ. Clause 1 of the Deed is to the effect that, at the request of ASI and Mr Bolton, TJ agreed to pay ASH the sum of $4.5 million subject to certain conditions. Certainly, that agreement raised issues regarding the consideration, if any, that ASH had been given for the payment as none was evident in the Deed to which it was a party. The failure to pay ASH appears, on its face, to answer the delegate’s concerns regarding a gift.
What it does not answer are concerns about ASI’s being left in a situation in which it did not have the funds to cover the GST or income tax liabilities. Even if there was a dispute about who should pay it, GST had been on the table after TJ paid the $4.5 million in settlement monies.
D. Failure to produce books
In his statement dated 21 September 2015, Mr Bolton has set out a chronology of correspondence that he had with the liquidator regarding the production of ASI’s books and records. The correspondence began with a letter written by the liquidator dated 13 March 2014. It was sent to an address at which Mr Bolton said he did not live but he did receive the same letter in email form. As he was travelling, he did not review it, he said. On 24 April 2014, Mr Bolton received an email from 24 April 2014 noting that Ms Robyn-Lee Erskine had been appointed the liquidator of ASI. The email also advised Mr Bolton that he was required to submit a report as to the affairs (RATA) of ASI. Further correspondence is exhibited to the affidavit of Ms Judith Birch, an officer of ASIC.
Among the correspondence, was an email attaching a director’s questionnaire sent to the liquidator’s office on 31 May 2014. It advised that Mr Bolton wanted to obtain legal advice regarding the omission of any mention of GST in the Deed. He said that he had provided information about the location of ASI’s books and records and had noted that:
“Discreet [sic] records for this company may be available. I have had trouble locating as its bookkeeper ceased working a number of years ago and there has been an office move and material fragmentation of data. Also, the main computer image has been unfortunately lost.”[69]
On 11 June 2015, the liquidator reminded Mr Bolton that he had not provided a RATA in respect of ASI. Following further correspondence, he provided that on 7 July 2014. A meeting was arranged for 18 August 2014 to discuss the whereabouts of ASI’s books and records. He told them that they were held by they were held by Woodland & Associates but that firm advised the liquidator on 10 September 2014 that ASI was the trustee of a trust and it did not hold any financial records.
[69] Mr Bolton’s statement dated 21 September 2015 at [20(g)]
Mr Bolton wrote a further email dated 24 September 2014 to the liquidator in which he said:
“I have been made aware that you had not received all of the Australian Style Investments Pty Ltd books and records, notwithstanding my understanding that you would procure these items from our accountants and lawyers.
I understand that it is my duty as Director to ensure you actually received these, and I had quite unfortunately incorrectly assumed that you had since collected these direct from the source. Please accept my apologies for my role in this confusion.”[70]
[70] Affidavit of Ms Birch sworn 30 November 2015 at JVB-1
Mr Bolton attached to his email the Trust Deed, 2008 Financials prepared by CFM, 2009 and 2010 Workpapers prepared by CFM together with a MYOB file. The liquidator responded to Mr Bolton’s email in a letter dated 30 November 2015. She advised that the records were “… still inadequate as the electronic MYOB file appears to have been altered.”[71] and required Mr Bolton to provide her with the following documents:
[71] Affidavit of Ms Birch sworn 30 November 2015 at JVB-1
“∙ Previous back up of the company’s electronic MYOB file;
∙Financial reports for 2009, 2010, 2011 and 2012;
∙Evidence of the payment of $4.5 million by Thiess Pty Ltd and John Holland Pty Ltd (‘TJ’) to Australian Style Holdings (‘ASH’);
∙A copy of the Deed Agreement;
∙A copy of the BAS lodged for the quarter ending 30 June 2009 and 31 December 2009;
∙Explanation as to why under the Deed, this payment was made to ASH in place of the company;
∙An accounting of what happened to the funds; and
∙Bank statements for 2009, 2010, 2011, 2012.”[72]
[72] Affidavit of Ms Birch sworn 30 November 2015 at JVB-1
Mr Bolton explained the difficulties with the MYOB in an email he wrote to the liquidator on 1 December 2015:
“I believe you should have much of the information you have requested in the pack already provided; however I will get concise copies to you as requested. I will also ask for a reprint of the bank statements from the bank for you.
As for the ‘altered’ MYOB file, I believe what you may be referring to is the unhelpful feature of that particular version of MYOB that ‘rolls’ years forward, I believe with the right version of MYOB (i.e. the other version related to the file) you can ‘roll back’. In any case, the data should be available through the working file print outs. I’ll follow up with our accountant (copied) to see what help they can provide.
As always, I’m more than happy to assist wherever possible.”[73]
[73] Affidavit of Mr Bolton sworn1 December 2015 at NB-7
Assuming that Mr Bolton is correct in his understanding of the way in which the MYOB records may be accessed, he has not addressed the issue that arises under s 503A(1). That issue is whether he has complied with his duty under that section to provide the books and records in his possession to the liquidator and to tell her of the whereabouts of any other books or records “as soon as practicable” after ASI was wound up. ASI was wound up on 6 March 2014 and Mr Bolton is still arranging for the delivery of records to the liquidator well over eighteen months later. He has put forward evidentiary material about his actions in producing records but has not put forward evidentiary material pointing to eighteen months and more amounting to a period that is “as soon as practicable” if it should prove to be the case that he has produced all records as required or advised the liquidators of the whereabouts of others of which he is aware.
The public interest
In the case of Re Guss and Australian Securities and Investments Commission,[74] Deputy President Olney had said:
“The public has a very real interest in the competence and integrity of those who manage corporations.”[75]
The reason for this was explained by Deputy President Hack in Re Boyle and Australian Securities and Investments Commission,[76] Deputy President Hack:
“That is so because the statute generally limits the personal liability of directors. Where it is shown that a director has no real appreciation of what is required, there is a public interest in preventing that director from managing corporations, all the more so when that director has on two occasions failed to pay revenue debts and has used money earmarked for that purpose to keep businesses operating.”[77]
[74] [2006] AATA 401; (2006) 90 ALD 349
[75] [2006] AATA 401; (2006) 90 ALD 349 at [47]; 364
[76] [2009] AATA 122
[77] [2009] AATA 122 at [30]
In the same vein is the passage from the judgment of White J in Australian Securities and Investments Commission v Forge:[78]
“… A disqualification order is protective of the public for the period of disqualification against misconduct by the person disqualified. However, that is not its only purpose. The object of general deterrence is also of great importance. That object is served by the public disapproval of the impugned conduct being marked not only by a declaration that the conduct has contravened the Act, but by an order for disqualification of the contravener from managing a corporation either for a fixed period or for life. The shame or embarrassment which accompanies such an order is not designed as punishment, although it might have that effect, but serves as a general deterrent to others who might be tempted to breach their duties as directors or officers of a company. …”[79]
[78] [2007] NSWSC 1489
[79] [2007] NSWSC 1489 at [103]
In Re Bundy and Australian Securities and Investments Commission,[80] Deputy President Tamberlin took a similar approach but emphasised that:
“In deciding whether a stay should be granted, the Tribunal should take into account the public interest, and particularly the need to protect consumers of financial services. Other relevant matters include the prospects of success of the application for review; the consequences for the Respondent in carrying out its functions and for those whose interest may be affected by the review.”[81]
[80] [2013] AATA 59
[81] [2013] AATA 59 at [5]
A few years later, Sackville AJA, with whom Beazley and Barrett JJA agreed, gathered together a number of principles from various authorities relevant to a determination whether to impose a disqualification and, if so, for what period. He did so in Gillfillan & Ors v Australian Securities & Investments Commission:[82]
[82] [2012] NSWCA 370; (2012) 92 ACSR 460
“ It follows from what has been said that general deterrence and the need to uphold proper standards of corporate behaviour may be very important factors in determining whether a disqualification should be imposed and, if so, for what period. In the CA Penalty Judgment in the present case, this Court disqualified Mr Morley, the former chief financial officer of JHIL, for a period of two years for his failure to advise the Board of the limited nature of the review of the Cashflow Model conducted by PwC and Access Economics (‘the cash flow analysis contravention’). The Court said this (at [125]-[126]):
‘125. Accepting that the need for personal deterrence is low, nonetheless general deterrence is in our view an important consideration given the nature and significance of the cash flow analysis contravention. As well, it is necessary that relief be granted appropriate to mark significant failure in performance of the duties of a senior executive of a large public corporation and to maintain public confidence in the law’s upholding of corporate standards.
126. In a picturesque phrase, in Re One.Tel (In liquidation) ... (at [26]) Bryson J observed that ‘[n]o-one should be sacrificed to the public interest’. ... Protection of the public, including by general deterrence, is at the heart of disqualification orders, and a delinquent officer against whom a disqualification order is made is not sacrificed. The phrase is a reminder that the public interest and the need to protect the public from repeated conduct or like conduct of others is balanced against the hardship to the officer. In our view, the balance requires a period of disqualification."
In Australian Securities and Investments Commission v Beekink [2007] FCAFC 7; 238 ALR 595, at [92], the Full Federal Court observed, obiter, that deterrence may be of equal importance in cases of neglect or carelessness as in cases of misfeasance. The Court also emphasised (at [112]) that the propositions advanced by Santow J in ASIC v Adler are merely guidelines and that each case must turn upon its own circumstances.
The High Court judgments in Rich v ASIC and the authorities referred to there identify common elements in sentencing criminal offenders and in making disqualification orders under the Corporations Act. It is therefore not surprising that courts in civil penalty proceedings have applied the parity and totality principles frequently used in the sentencing of criminal offenders: ASIC v Adler, at [128]-[130], per Santow J.”[83]
[83] [2012] NSWCA 370; (2012) 92 ACSR 460 at [183]-[185]; 505-506
SHOULD ASIC’S DECISION BE STAYED?
Deciding whether to stay a decision under s 41(2) is not a task that can be achieved by precisely weighing the considerations that fall on one side or the other of a ledger. It is less precise than that for it requires a consideration of whether it is “desirable” to make such an order “for the purpose of securing the effectiveness of the hearing and determination of the application for review”.
In essence, Mr Bolton’s position is that the hearing of his application for review will be rendered nugatory if the disqualification remains in place. His reputation will be damaged and he will not be able to recover from that position when the disqualification order is ultimately set aside. The damage is likely to be so extensive that there will be no benefit in his being restored to his former directorships or in his undertaking new directorships. The damage to him will also be reflected in the damage to Keybridge, of which he is a director and CEO. Mr Moffat supports his position and, as matters stand, there is no evidence that his reputation will not be damaged.
It may be that Mr Bolton’s reputation will be tarnished if ASIC’s decision becomes known but there is no basis put forward for supporting the view that tarnish of that sort may not be overcome in the future. The fact that he was only 19 years of age when he first became a director and how he behaves in the future may ultimately lead others in the corporate world to be more forgiving of any failures than they might be if he were older. Given Mr Moffat’s support and the fact that Mr Bolton is a substantial shareholder in Keybridge, Mr Bolton’s statement that the damage to his reputation will be unlikely to be overcome even if he is successful seems a little exaggerated.
The evidence that Mr Bolton has put forward does not lead me to conclude that his prospects of ultimately establishing that he has not committed any breaches of his duty as a director, let alone multiple breaches of the corporations law, are good. Those breaches do not all arise out of a single event but are spread across a period and across more than one company. The incorrect BAS, for example, was a single event relating to one company but it calls into question whether he obtained advice to support his actions. The failure to lodge tax returns was not a single failure and related to two companies as did the failure to lodge BASs.
Where the companies with which he has been involved have failed, their failure has not occurred at the same time but over a period from the year 2010 to 2014. Mr Bolton has spoken of two reasons for failure of two of those companies. He has explained how Australian Style Services had been hacked and lost its licence to operate. Another company in the group was the victim of a fraudulent customer who stole over $3.5 million of services. The group lost a number of key financing agreements, its investment assets suffered significant losses and it was otherwise generally negatively affected by the Global Financial Crisis. Beyond these broad statements, Mr Bolton has not addressed the reasons for failure of two of the corporations.
Rather than failure, Mr Bolton preferred to focus on his successes. Speaking of the period before the failures of the companies, Mr Bolton said that, between 2001 and 2009, he successfully ran a group of private companies. At their peak, those companies collectively employed over 50 people, Mr Bolton said. Throughout his last six years, Mr Bolton said that he has learned many lessons and made mistakes. He has paid millions in personal guarantees and made good. In recent years, companies of which he is a director have also had tremendous successes. He concluded:
“… At all times, I believe I have acted honestly and reasonably using my best commercial judgment for my shareholders and creditors. To the extent that I may be or have been deficient in any area as a company director, I am committed to resolving such deficiencies.’[84]
[84] Statement dated 21 September 2015 at [12]
What he has done in previous years does not alter my conclusion that Mr Bolton’s prospects of success are not strong as the evidence stands at the moment. If Mr Bolton were a director of a small family company whose shareholders were fully apprised of the situation, it might be that Mr Bolton should be permitted to continue to act as its director. Keybridge, however, is a public listed company. That was the situation in Re May and Australian Securities and Investments Commission[85] when Deputy President Hack made a decision granting a stay of a disqualification decision on condition that Mr May managed only one corporation and that corporation remained trustee of his family superannuation fund.
[85] [2012] AATA 515
Keybridge is in a completely different position from a corporation that is the trustee of a single family’s superannuation fund. It is involved in the investment of funds channelled through it by investors. This raises the interest of those investors and the wider interest of the public generally in the continued viability of the company, of its investments and projects funded by those investments. Management of a company is not all about commercial judgment. Commercial judgment must be underpinned by compliance with the regulatory framework that balances protection of the financial system and those who engage in it with the need to give corporations sufficient flexibility to carry out their businesses. The public interest requires that directors comply with the regulatory framework and the evidence I have does not point to Mr Bolton’s understanding the nature of his responsibilities. The way he has approached his obligations to produce ASI’s books to the liquidator are an example. If I were to stay the operation or implementation of the disqualification order, the evidentiary material does not point to his observing his obligations. Those difficulties are not overcome by the Code of Conduct for directors and senior executives, Financial Management Policy or Board charter adopted by Keybridge on 25 June 2015.
Mr Bolton has also expressed concerns about Keybridge if he is not permitted to continue as a director. As he has said himself, however, there are four other experienced directors on Keybridge’s board. There are staff to take Mr Bolton’s place, Mr Moffat said, but they are less experienced. This is short of saying that there is no one to take Mr Bolton’s role and short of saying that there is a risk to the continued effective running of the business.
Mr Crutchfield QC with Ms van Proctor of counsel for Mr Bolton referred to a decision by Deputy President Hack to stay the operation of ASIC’s decision to cancel an Australian Financial Services Licence (AFSL) held by Opus Capital Limited (Opus): Re Opus Capital Limited and Australian Securities and Investments Commission[86] (Re Opus). Opus is a specialist fund management company managing property investment schemes. As a condition of its licence, Opus was required to hold Net Tangible Assets (NTA) of not less than 0.5% of assets calculated in accordance with other condition on the AFSL. ASIC found that Opus had not maintained its NTA and so was in breach of s 912A of the Corporations Act. Its breach was the basis on which ASIC cancelled its AFSL. Whether or not Opus was in fact in breach depended on whether regard could be had to deferred tax assets and sale and performance fees in calculating NTA. If they could not be included, Opus was in breach but if they could, it was not. Deputy President Hack concluded:
“… I regard the public interest as favouring a stay. The state of affairs that occasioned the cancellation decision has existed for some 20 months. The Commission does not point to any adverse consequence to any person as a result of that state of affairs. Refusal of a stay will likely cause considerable concern to the 5,000 investors, many of whom are unlikely to be able to come to grips with the nuances of the Commission’s decision and will simply regard it as an adverse judgment about Opus’s solvency. Where the matter can be heard within a very short space of time the public favours a stay.”[87]
[86] [2010] AATA 694; (2010) 117 ALD 608
[87] [2010] AATA 694; (2010) 117 ALD 608 at [21]; 613
The case of Re Opus and this are quite different. Putting aside the current unavailability of early hearing dates at the moment, Re Opus concerned a single state of affairs. Certainly, it was a state of affairs that had existed for 20 months or so. In this case, however, I am concerned with multiple actions or inactions extending over a period of up to five years and occurring in the management of more than one company. There was no suggestion in Re Opus that Opus was likely to fail. In this case and disregarding the PR Companies, four companies have gone into liquidation while Mr Bolton was a director.
Mr Moffat has referred to the possible effect an announcement of Mr Bolton’s disqualification might have on Aurora Funds Management Limited (AFML), which is fully owned by Keybridge. I have set out the relevant passage from Mr Moffat’s affidavit at [47] above. He focuses on the potential for AFML’s fund rating being downgraded if the disqualification order is known and, as consequence, AFML’s ability to attract and retain funds being adversely affected. This evidence in itself points to where the public interest lies. Mr Moffat’s evidence focuses on the consequences of a disqualification order’s being made public and does not mention the consequences of the fact of its having been made in the first place. The consequences of disclosure do, however, point to the consequences of the order’s having been made at all. The potential impact on AFML is not framed by Mr Moffat in terms of the disqualification’s order being stayed or not stayed. This suggests that the potential effect on AFML’s fund rating is not a matter that is affected by the grant or otherwise of an order staying that disqualification order. The effect of the disqualification order is the same in this context whether stayed or not stayed. What is not static is whether it is known about. That suggests that the very fact of the disqualification order is a relevant factor in the assessment of AFML’s fund rating and, whether it is stayed or not, retains that relevance.
Having regard to the matters I have considered, I do not think it desirable to make an order staying the operation or implementation of the decision in order to secure the effectiveness of the hearing. While Mr Bolton’s interests will be affected in the short term, any long term effect on them if he were successful in his application are much more debateable. The prospects of his having a successful outcome are, on the material presented, not strong. At the same time, those dealing with Keybridge and placing their funds for investment need to be protected as does the integrity of the financial system. Keybridge’s remaining experienced directors will remain together with its staff. It is true that the Tribunal cannot presently offer a hearing within a few days even if both parties were prepared for that but efforts will be made to hear the matter as expeditiously as possible. The balance favours the disqualification order’s staying in place. Therefore, I have decided to refuse Mr Bolton’s application for an order under s 41(2) of the AAT Act.
SHOULD AN ORDER BE MADE FOR NON-PUBLICATION OR NON-DISCLOSURE?
Generally, the hearing of a proceeding must be in public but s 35 provides for exceptions.[88] Sections 35(2), (3) and (4) provide for the types of orders the Tribunal may make in framing exceptions restricting publication or disclosure of certain information. Section 35(5) provides:
“In considering whether to give directions under subsection (2), (3) or (4), the Tribunal is to take as the basis of its consideration the principle that it is desirable:
(a)that hearings of proceedings before the Tribunal should be held in public; and
(b)that evidence given before the Tribunal and the contents of documents received in evidence by the Tribunal should be made available to the public and to all the parties; and
(c)that the contents of documents lodged with the Tribunal should be made available to all the parties.
However (and without being required to seek the views of the parties), the Tribunal is to pay due regard to any reasons in favour of giving such a direction, including, for the purposes of subsection (3) or (4), the confidential nature (if applicable) of the information.”
[88] AAT Act; s 35(1)
Section 35 was considered by the Full Court of the Federal Court in Australian Securities and Investments Commission v Administrative Appeals Tribunal but, at that time, the provision was yet to be amended by the Tribunals Amalgamation Act 2015. The amendments, though, did not make any substantive changes and the statements made by Downes and Jagot JJ, with whom Moore J agreed, remain applicable:
74 Again, we think it is important to emphasise certain aspects of the statutory provisions. Although s 35(1) is subject to the balance of the section, it establishes a norm. The norm is that the proceedings before the AAT shall be in public. This norm is reinforced by the requirements of s 35(3) which expressly confirm the principle that it is desirable that hearings be held in public. It follows that when deciding whether it is satisfied that it is desirable to exercise its powers under s 35(2), the AAT is required to form a state of satisfaction which recognises the existence of the norm and the values it is intended to protect. This, no doubt, is why Brennan J in Re Pochi and Minister for Immigration and Ethnic Affairs (1979) 36 FLR 482 at 510 described the power in s 35(2) to depart from this norm as one to be exercised ‘sparingly’. It also explains the approach in Australian Securities and Investments Commission v PTLZ (2008) 48 AAR 559; [2008] FCAFC 164 at [6], [41] and [42] (an appeal to the Full Court of the Federal Court from the decision of the AAT in Re PTLZ and Australian Securities and Investments Commission (2008) 100 ALD 648; [2008] AATA 106) emphasising that the words of s 35(3) require this principle of the desirability of hearings to be in public to be ‘the basis’ of the AAT’s consideration of adopting a different approach (in contrast, for example, to ‘a basis’ for that consideration).
75 Suppression orders are rarely made in courts, even though publicity undoubtedly disadvantages the parties. Criminal proceedings are a good example. In the AAT itself facts which parties would not wish to be published and which may disadvantage them are frequently published. Social security applications are a good example. The reason these matters are not kept secret is the overriding importance of justice being administered openly and in public. It is not readily apparent why persons in businesses should be treated differently even when, for example, employees may be disadvantaged.
76 When measured against the existence of the norm of a public hearing and the scheme established by the Corporations Act with respect to banning orders, it is apparent that the AAT would need some cogent reason by reference to the particular case to depart from the ordinary requirement of a public hearing. It is difficult to accept that harm (even serious harm) to the recipient’s reputation resulting from public awareness of the banning order will be a sufficiently cogent reason to justify the grant of a stay in most cases. This is because the risk of harm of this type is inherent in the nature of a banning order.”[89]
[89] [2009] FCAFC 185; (2009) 181 FCR 130 at [74]-[76]; 148-149
The evidence given by Mr Moffat regarding AFML and the potential for its fund rating to be downgraded and so its ability to attract and retain funds to be adversely affected if the disqualification order is known is the very reason the disqualification should remain in the public arena. Mr Bolton is a director of a publicly listed company: Keybridge. AFML is wholly owned by Keybridge and a funds manager. A disqualification order is a serious step for ASIC to take. It is important that the review of ASIC’s decision to make that disqualification order be open to public scrutiny. The public needs to be able to satisfy itself that the proper steps are followed and the proper considerations taken into account by the Tribunal in performing its role in the regulatory framework established by the corporations law. It also needs to know that ASIC is exercising its powers and carrying out its duties under that law in a manner consistent with the objects of the Corporations Act. The proceedings in the Tribunal provide an opportunity for scrutiny of that sort.
Having regard to all these matters, I have concluded that I should not make an order under s 35 of the AAT Act and that the proceedings should remain in public.
I certify that the ninety three preceding paragraphs are a true copy of the reasons for the decision herein of
Deputy President S A Forgie,
Signed: ………....................[sgd]..................................
Personal Assistant
Dates of Stay and Confidentiality Hearing 19 November 2015 and 1 December 2015
Date of Decision 17 December 2015
Counsel for the Applicant Mr PD Crutchfield QC with Ms C van Proctor
Solicitor for the Applicant Arnold Bloch Liebler
Counsel for the Respondent Dr P Bender
Solicitor for the Respondent Ms Judith Birch
Australian Securities and Investments Commission
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