Centurion Custodian Funds Management Ltd and Australian Securities and Investments Commission
[2023] AATA 2223
•19 July 2023
Centurion Custodian Funds Management Ltd and Australian Securities and Investments Commission [2023] AATA 2223 (19 July 2023)
Division: TAXATION AND COMMERCIAL DIVISION
File Number(s): 2023/0386
Re:Centurion Custodian Funds Management Ltd
APPLICANT
AndAustralian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal:Senior Member G Lazanas
Date:19 July 2023
Place:Sydney
The reviewable decision is affirmed.
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Senior Member G Lazanas
CATCHWORDS
Corporations Act – where applicant holds Australian Financial Services Licence (AFSL) – where AFSL not used by the applicant – where ASIC cancels AFSL on basis applicant did not provide a financial service covered by licence within requisite period – where applicant has no imminent plans to use AFSL – exercise of discretionary power to cancel AFSL – whether applicant afforded procedural fairness by ASIC – decision under review affirmed
LEGISLATION
Acts Interpretation Act 1901 (Cth), s 13
Corporations Act 2001 (Cth), ss 5C, 761A, 766A, 912C, 912DB, 915B and 915C
Financial Sector Reform (Hayne Royal Commission Response— Stronger Regulators (2019 Measures)) Act 2020 (Cth)
CASES
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41
Centurion Custodian Funds Management Ltd and Australian Securities and Investments Commission [2023] AATA 1110
SECONDARY MATERIALS
Regulatory Guide 98 - ASIC’s powers to suspend, cancel and vary AFS licences and make banning orders
Explanatory Memorandum to Financial Sector Reform (Hayne Royal Commission Response – Stronger Regulators (2019 Measures)) Bill 2019
REASONS FOR DECISION
Senior Member G Lazanas
19 July 2023
INTRODUCTION AND ISSUES
Centurion Custodian Funds Management Ltd (CCFM), the Applicant, has applied to the Administrative Appeals Tribunal for a review of a decision made by a delegate of the Australian Securities and Investments Commission (ASIC), the Respondent, on 18 January 2023 to cancel CCFM’s Australian Financial Services Licence (AFSL). ASIC’s decision was made pursuant to s 915B(3A) of the Corporations Act 2001 (Cth) (the Corporations Act) (the Cancellation Decision).
Broadly, s 915B(3A), which was inserted into the Corporations Act in 2020, provides that ASIC may cancel a licence held by a body corporate, by giving written notice to the body, if the body corporate does not provide a financial service covered by the licence before the end of 6 months after the licence is granted.
CCFM accepted that the discretionary power for ASIC to cancel its licence was enlivened as it acknowledged it had never provided any financial services. However, CCFM argued that ASIC should not have exercised that discretionary power and cancelled its AFSL as its business model involves it maintaining its AFSL in case it is needed in the future. CCFM also argued that ASIC could have instead suspended its licence. CCFM further argued that it had not been afforded procedural fairness as ASIC had never initially informed CCFM that it was proposing to cancel CCFM’s AFSL, nor did it offer to hold an ASIC hearing.
ASIC maintains that following the amendments to the Corporations Act in 2020, ASIC may cancel a licence if it is not being used within a period of 6 months after the AFSL was obtained or, in this case pursuant to the relevant transitional provisions, 6 months after the amendments took effect. ASIC also submitted that suspension of CCFM’s licence was not permitted under the Corporations Act and, further, that there was no lack of procedural fairness having regard to the statutory provisions and the totality of the factual circumstances.
Accordingly, there are two key issues for determination by the Tribunal standing in the shoes of the original decision maker, as follows:
(a)First, should the Tribunal exercise the discretion in s 915B(3A) of the Corporations Act to cancel the AFSL in circumstances where the financial services covered by the licence have never been provided by CCFM?
(b)Secondly, has there been any lack of procedural fairness to CCFM in the making of the Cancellation Decision? If there has been a lack of procedural fairness, there is the subsidiary issue of whether any such shortcoming can be cured in any event by review in this Tribunal.
As these reasons will explain, I have decided that the correct or preferable decision is that ASIC was correct to cancel CCFM’s licence as CCFM has never provided any financial services and there was no evidence that it was planning to provide financial services imminently. Separately, it is evident from a review of the factual circumstances and the relevant statutory provisions concerning ASIC’s powers that there was no lack of procedural fairness in ASIC’s approach and the making of the Cancellation Decision.
FACTUAL AND PROCEDURAL BRACKGROUND
The facts form a narrow compass and are not contentious. The following findings of fact are based on ASIC’s Statement of Facts, Issues and Contentions dated 15 June 2023 and T- Documents filed with the Tribunal, as well as various correspondence sent by CCFM, as referred to below.
The AFSL was first granted to CCFM (then known as Sterling Funds Management Ltd) on 20 May 2005. An amended AFSL was issued by ASIC on 5 January 2010 to reflect the change in its company name.
The AFSL authorised the provision of financial services including providing general financial advice in relation to interests in its own managed investment schemes and dealing in a financial product by issuing, applying for, acquiring, varying or disposing of interests in a managed investment scheme (limited to its own managed investment scheme).
It is not in dispute between the parties that CCFM has never provided any financial services pursuant to the AFSL that it has held for over 18 years. It is also not in dispute that ASIC does not rely on any wrongdoing or failure to comply with financial services legislation in support of the cancellation of CCFM’s licence.
On 16 November 2022, ASIC issued a notice pursuant to s 912C of the Corporations Act requiring CCFM to provide a statement in relation to certain matters (November 2022 Notice). Relevantly, the November 2022 Notice included the following questions:
1Has the Licensee ever provided any financial services since being granted an Australian Financial Services Licence (AFSL)? If the Licensee has not, why has the Licensee not provided any financial services since being granted an AFSL?
2If the Licensee has provided any financial services, provide the following information:
(a)The date on which the Licensee commenced providing financial services; and
(b)A description of each type of financial services provided by the Licensee.
3Has the Licensee ceased providing financial services? If yes…
On 29 November 2022, CCFM provided a response to the November 2022 Notice (November 2022 Response) which included, relevantly, the following information:
[Inanswer to Question 1 of the November 2022 Notice]
The license [sic] was originally intended to partner with Australian Industry Funds specifically ISPT, Industry Superannuation Property Trust, to jointly invest in two large property development[s] in Sydney that [were] being developed by Sterling Estates Pty Limited, Former Children’s Hospital, City Quarter, Camperdown and the Prince Henry at Little Bay Hospital, Little Bay. This joint venture did not go ahead; however it was and is thought that there would be other opportunities in property and infrastructure at some point and therefore decided to maintain the fund for future opportunities.
[Inanswer to Question 2 of the November 2022 Notice]
Thefund has never been fully activated and has never provided any financial services.
…
[Inanswer to Question 3 of the November 2022 Notice]
The fund has never been fully activated and has never provided any financial services. It may well do in the future if an opportunity arises in the property or infrastructure markets.
On 7 December 2022, the ASIC delegate with the title “Hearing Delegate, Chief Legal Office” in his signature block sent an email to Ms Annie Chatfield, who is the Chief Operating Officer of CCFM. The ASIC delegate stated that the matter had been provided to him for the purpose of considering whether CCFM’s licence should be cancelled under s 915B(3A) of the Corporations Act. The ASIC delegate invited CCFM to provide any further information to be considered in relation to the proposed cancellation by 2pm on 14 December 2022.
On the same day, 7 December 2022, Ms Chatfiled sent an email to ASIC referring to her telephone discussion with the ASIC delegate and stating, as follows:
I note your comment that the licences are not meant to be warehoused but to be activated and I also note the clause in the Corporations Act that upon on which you are relying, however since this has not been raised as an issue before now we will need more time to consider our position on the matter. (sic)
The ASIC delegate emailed Ms Chatfield later on 7 December 2022 providing CCFM an extension of time until 11 January 2023 for the provision of further information.
On 11 January 2023, Ms Chatfield sent an email to the ASIC delegate, attaching a letter from Mr Patrick Yu, the Chief Executive Officer of the Centurion group of entities, with an annexure (January 2023 Response). In the January 2023 Response, CCFM stated, amongst other things, that its AFSL should not be cancelled because, relevantly, neither it nor its directors had ever:
·advertised in any form
·sort to raise any monies from any individuals or other corporations (sic)
·actually raised any monies
·engaged in misleading and deceptive practises in order to either promote business opportunities or raise funds (sic).
Also, in the January 2023 Response, CCFM acknowledged that adopting a strict reading of s 915B(3A) of the Corporations Act, CCFM did not comply with that provision as “it had not been fully activated”. CCFM also relevantly stated, as follows:
In our defence and by way of explanation our business model is to identify and tender for large infrastructure and property projects which upon success we would then roll into the fund and thereby activating it fully. To activate the fund before successfully securing a significant project would be, in our opinion, a high risk investment with serious potential of no financial return on invested monies. To give an example most of these tenders cost in the region of $4 million and there is no guarantee of success. We have endeavoured to set out examples in an appendix of the tenders and bids that we have worked on since the fund licence was acquired.
It suffices to note, in light of confidentiality orders made by the Tribunal with respect to certain commercially sensitive information that was before the Tribunal, that the appendix forming part of the January 2023 Response referred to several very high value projects. Broadly, these projects were described in the appendix as “potential investment opportunities” for CCFM and referenced, amongst other things, large infrastructure projects. The appendix also included dates of CCFM’s involvement in those potential investment opportunities as well as the duration of its involvement, including in the tendering process. CCFM’s involvement or status was also referenced, that is, in some cases, CCFM claimed to have been the underbidder. In respect of one project listed in the appendix, CCFM submitted in a letter filed with the Tribunal on 24 February 2023 that it “is still a live unsolicited offer” with a third party. CCFM argued that if CCFM’s licence were cancelled, it may be viewed adversely if further due diligence were to take place in relation to that live offer.
Significantly, however, CCFM did not advance any argument before me that it needed its AFSL if it was successful with respect to the abovementioned live project or any other project. Accordingly, I find that CCFM was not involved in any imminent projects in respect of which it would need to use its AFSL. Rather, it was concerned to maintain its AFSL should it need to use the licence at some time in the future. It was also concerned as to any reputational damage that may ensue following the Cancellation Decision. However, as stated at [10] above, there is no suggestion that the Cancellation Decision was made due to any wrongdoing on the part of CCFM.
CCFM also stated in its January 2023 Response that it believed it had always acted ethically and that over the last 18 years it had paid more than a total of $270,000 in relation to annual ASIC fees for the upkeep of the licence. Indeed, CCFM claimed that it had paid approximately $16,000 in fees to ASIC in the past 3 years which it wouldn’t have had to pay if ASIC had acted “in a timely and just manner” following the enactment of s 915B(3B). This led to CCFM agitating for reimbursement of its fees paid after 18 February 2020. It is appropriate at this juncture to clarify that the Tribunal has no jurisdiction to order ASIC to refund any fees. In any event, CCFM arguably had the benefit of the potential use of the licence and this was of considerable value because it was part of CCFM’s business model to have it in reserve.
As stated above, on 18 January 2023, the ASIC delegate made the Cancellation Decision. On the same day, the Cancellation Decision and the reasons for the Cancellation Decision were provided to CCFM.
On 20 January 2023, at the time of applying for review of the Cancellation Decision with the Tribunal, CCFM also sought a stay seeking to prevent ASIC from publishing notice of the Cancellation Decision in the ASIC Gazette.
On 4 May 2023, the Tribunal gave a decision refusing CCFM’s stay application. Deputy President McCabe relevantly observed that CCFM “accepted that a stay order directed to the underlying decision would have no practical effect since CCFM is not currently supplying financial services under the AFSL”: see Centurion Custodian Funds Management Ltd and Australian Securities and Investments Commission [2023] AATA 1110 at [5].
On 16 May 2023, notice of the Cancellation Decision was published in the Gazette. ASIC also issued a media release on 23 May 2023 in respect of the abovementioned Tribunal’s decision to refuse CCFM’s stay application.[1]
THE LEGISLATIVE FRAMEWORK
[1] ASIC indicated in the media release that the substantive matter regarding the review of the Cancellation Decision would be heard by the Tribunal on 10 July 2023 but this was later rescheduled by the Tribunal to
11 July 2023.
The core provision in respect of which the first issue depends is the interpretation and application of s 915B(3A) of the Corporations Act. However, it is necessary to first provide some relevant contextual background.
Section 912DB of the Corporations Act provides:
Obligation to notify ASIC if licensee does not provide financial service
(1) If a financial services licensee does not provide a financial service covered by the licence before the end of 6 months after the licence is granted, the licensee must lodge a notification with ASIC:
(a) in the prescribed form; and
(b) before the end of 15 business days after the end of the 6 months.
Note: Failure to comply with this subsection is an offence: see subsection 1311(1).
(2) An offence based on subsection (1) is an offence of strict liability.
Note: For strict liability, see section 6.1 of the Criminal Code .
Section 915B of the Corporations Act has the heading ‘Immediate suspension or cancellation’ and separately makes provision for where a licence is held by an individual, a partnership or a body corporate. Relevantly, where a licence is held by a body corporate, ss 915B(3) and (3A) relevantly state:
s 915B Immediate suspension or cancellation
…
(3) ASIC may suspend or cancel an Australian financial services licence held by a body corporate, by giving written notice to the body, if:
(a) the body ceases to carry on the financial services business; or
…
(3A) ASIC may also cancel an Australian financial services licence held by a body corporate, by giving written notice to the body, if the body does not provide a financial service covered by the licence before the end of 6 months after the licence is granted.
Section 915B(3A) was inserted by the Financial Sector Reform (Hayne Royal Commission Response — Stronger Regulators (2019 Measures)) Act 2020 (Cth) (the Amending Act) and came into force on 18 February 2020.
Sections 1664(1) and 1664(3) of the Corporations Act relevantly set out the transitional operation and application of s 915B(3A), amongst other provisions, in circumstances of an existing AFSL. Section 1664(1) expressly applies amendments in the Amending Act, including s 915B(3A), to a “financial services licensee whose licence was granted before, on or after the commencement date”. Section 1664(3) provides that in relation to an AFSL that was in force immediately before the commencement of the relevant amendment the 6 months referred to in, inter alia, s 915B(3A) “begins at the start of the commencement day”. The relevant 6 months period for existing AFSLs therefore expired on 18 October 2020.
Other relevant statutory provisions that are relevant to CCFM’s assertion that ASIC acted precipitously in making the Cancellation Decision and did not afford CCFM with procedural fairness are referred to below.
SHOULD THE LICENCE BE CANCELLED?
By its terms, s 915B(3A) expressly grants ASIC the power to cancel an AFSL held by a body corporate by giving written notice to the body corporate of that decision where the requisite circumstances exist, that is, where the body corporate does not provide a financial service covered by the licence during the relevant period. There are relevantly similar provisions in the Corporations Act where the licensee is an individual (s 915B(1A)) or a partnership
(s 915B(2A)) that were introduced at the same time as s 915B(3A). Importantly, there is no scope for suspension of the licence under s 915B(3A) even though ASIC may suspend or cancel a licence under s 915B(3) if the body corporate ceases to carry on the financial services business. In this regard, the heading to s 915B which is ‘Immediate suspension or cancellation’ is not an operative provision of the Corporations Act (per s 13 of the Acts Interpretation Act 1901 (Cth) and s 5C of the Corporations Act). In any event, the heading does not suggest that every subsection in s 915B provides for both suspension and cancellation of a licence.
It is tolerably clear that the only prerequisite for enlivening the discretionary power to cancel a licence pursuant to s 915B(3A) is that the body corporate holding the licence did not provide a financial service covered by the licence before the end of 6 months after the licence is granted (or, as in this case, before 18 October 2020, due to the transitional provisions referred to at [29] above).
There is no dispute that the prerequisite for the exercise of power has been met in this case because CCFM accepts that no financial services were ever provided under the AFSL prior to the Cancellation Decision.[2] This is where “financial service” has the meaning given in Div 4 of Pt 7.1 of the Corporations Act per s 766A, including the provision of financial product advice, dealing in a financial product, and operating a registered scheme, amongst other things. A “financial services business” (which is relevant to s 915B(3)(a)) is defined in s 761A to be “a business of providing financial services”.
[2] An issue that may arise from s 915B(3A) of the Corporations Act is whether it allows ASIC to cancel a licence where a financial service covered by the licence has not been provided within the relevant period, where the licence covers a number of financial services. That issue should be determined in a case where it squarely arises.
.
There was also no dispute between the parties that, as a matter of ordinary statutory construction, the word “may” in the statutory provision means that ASIC retains a discretion whether or not to cancel an AFSL in circumstances in which financial services have not been provided 6 months after the relevant date. In other words, s 915B(3A) does not mandate ASIC cancel the AFSL once the power has been enlivened.
The scope of the discretion provided in s 915B(3A) is a matter of statutory construction. It is self-evident that the section does not expressly provide that there are any particular factors that ASIC (or the Tribunal) must take into account when making a decision whether to cancel a licence under s 915B(3A).
ASIC referred to the Explanatory Memorandum to Financial Sector Reform (Hayne Royal Commission Response – Stronger Regulators (2019 Measures)) Bill 2019 (EM) for the Amending Act that introduced s 915B(3A). The EM refers at paragraphs [4.71] and [4.83] to the amendments addressing the opportunities for entities engaging in “warehousing” or commoditisation of AFSLs. “Warehousing” refers to the fact that an entity was able to apply for a licence without any intention of commencing the provision of financial services authorised by the licence. Rather, the entity had the intention to sell the licence. The EM also states at paragraph [4.71] that the ASIC Enforcement Review Taskforce found there was a lack of certainty as to when a licensee should have commenced business after being granted a licence.
ASIC submitted, however, that the EM should not, as a matter of statutory construction, be used to limit the circumstances in which ASIC could cancel a licence where there have been no financial services provided by the relevant date. I agree with ASIC’s submission as there are no limitations on the terms of s 915B(3A). Indeed, the meaning of s 915B(3A) is not ambiguous or obscure requiring recourse for the purpose of statutory interpretation to any extrinsic materials in reliance on s 15AB of the Acts Interpretation Act 1901 (Cth). The proper approach to statutory interpretation begins with a consideration of the text itself: see Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41.
It follows that s 915B(3A) of the Corporations Act does not require evidence of warehousing or any other nefarious activity occurring, for the discretionary power to be exercised. The discretion is broad and is intended to provide flexibility to ASIC to cancel a licence where it is not put to use promptly. ASIC volunteered that if there is evidence that a licensee is about to begin providing financial services and has been delayed by factors beyond its control, ASIC is not compelled to cancel the licence under s 915B(3A) and the provision allows ASIC to adopt a pragmatic approach. ASIC argued that such a scope is consistent with the regulatory objectives of Chapter 7 of the Corporations Act, in particular, those set out in s 760A of the Corporations Act, including to promote “(a) confident and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those products and services…” There is considerable merit in ASIC’s stance as it is consistent with the fair and reasonable exercise of a broad discretionary power.
Further, it is also clear that when s 915B(3A) is considered as part of Chapter 7 of the Corporations Act, that the legislative regulatory scheme established by that Chapter envisages that AFSLs are issued by ASIC and used by licensees promptly to provide financial services on an ongoing basis. Plainly, it makes no sense for the licences to remain dormant under a regulatory regime that holds licensees accountable for the actual provision of financial services.
ASIC also referred me to other statutory provisions in the Corporations Act that reinforce its position. Section 912DB of the Corporations Act extracted at [26] above, (an amendment introduced in the same tranche of amendments as s 915B(3A)), requires licensees to notify ASIC if no financial services are provided within 6 months of the relevant licence being granted. Additionally, ss 915B(1)(a), 915B(2)(a) and 915B(3)(a) separately provide for the cancellation of an AFSL if the licensee ceases to carry on the financial services business. These provisions provide a coherent approach with respect to licensees that have not provided a financial service within the relevant period or have ceased to carry on the financial services business.
As there was no evidence before the Tribunal that CCFM will commence providing financial services imminently, the correct and preferable decision is to exercise the discretion to cancel CCFM’s AFSL under s 915B(3A) of the Corporations Act. CCFM’s argument that ASIC delayed in exercising its discretionary power and that counts against ASIC and weighs in favour of a decision not to cancel the licence is not persuasive. There is nothing in the Corporations Act requiring ASIC to immediately cancel an AFSL once the power is enlivened. Nor does the fact that ASIC has not immediately cancelled the licence create any sort of expectation for the licensee as to any action ASIC may or may not take in the future.
WAS THERE A LACK OF PROCEDURAL FAIRNESS?
CCFM raised several issues about the process adopted by ASIC leading up to the Cancellation Decision and argued that there was a lack of procedural fairness by ASIC.
CCFM argued with respect to the November 2022 Notice, that ASIC did not indicate at that point that ASIC was considering cancellation of its licence. ASIC is correct to point out that it was not necessary for ASIC to explain the purpose of its questions asked of CCFM as the notice was issued pursuant to s 912C, which is broad in nature.
CCFM needed to provide truthful answers, in any event, so the fact ASIC did not inform CCFM of the purpose of its enquiries was not to the point. Regardless, ASIC subsequently did notify CCFM that it was considering cancelling CCFM’s AFSL and provided an opportunity for CCFM to provide further information. This was prudent and appropriate in all the circumstances in order for ASIC to properly inform itself as to CCFM’s plans with respect to the use of the licence before exercised its discretionary power. As it happens, CCFM provided a written response to ASIC (see [16-18] above).
CCFM further argued that ASIC failed to provide CCFM with an opportunity for a hearing before the Cancellation Decision was made. Again, ASIC is correct to point out that there is no requirement for CCFM to have been provided with a hearing under s 915B(3A). On the contrary, s 915B(3A) provides for immediate cancellation on written notice to the body corporate. Furthermore, to the extent that CCFM considered it was entitled to a hearing, ASIC states it had misconstrued the attachment to the November 2022 Notice which outlines that a hearing will be held if there was a failure to give information to ASIC following the s 912C notice. It is unfortunate that the ASIC delegate who invited CCFM to make submissions in relation to the proposed cancellation of its licence had a title ‘Hearing Delegate, Chief Legal Office’ which also likely contributed to CCFM’s misunderstanding that ASIC would provide a hearing. However, nothing turns on that title alone.
To the extent that CCFM additionally sought to rely on Regulatory Guide 98 - ASIC’s powers to suspend, cancel and vary AFS licences and make banning orders (RG 98) and an extract from the “Information about the Notice of Direction” that was provided to CCFM with the November 2022 Notice, it appears that CCFM had confused and or conflated parts of RG 98. For example, in relation to the reference of an opportunity for a hearing in the “Information about the Notice of Direction”, when properly read in context, the passages relied upon by CCFM are limited to cancellations under s 915C of the Corporations Act, and nowhere does ASIC indicate that a hearing will be held before any cancellation of a licence. The ASIC delegate’s email of 7 December 2022 (see [13] above) made clear which section he was considering.
In all the circumstances, the Tribunal finds that there was no breach of procedural fairness by ASIC prior to the Cancellation Decision.
DECISION
For the reasons set out above, the decision under review being the Cancellation Decision dated 18 January 2023 made by the ASIC delegate pursuant to s 915B(3A) of the Corporations Act in relation to CCFM’s licence is affirmed.
49. I certify that the preceding 48 (forty-eight) paragraphs are a true copy of the reasons for the decision herein of Senior Member G Lazanas
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Associate
Dated: 19 July 2023
Date(s) of hearing:
11 July 2023
Advocate for the Applicant:
Ms A Chatfield
Counsel for the Respondent:
Ms A Garsia
Solicitor for the Respondent:
Mr R Chiarella, Legal Services, ASIC
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