Culley and Australian Securities and Investments Commission

[2008] AATA 588

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2008] AATA 588

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          N^o 2007/0817
  )          N^o 2007/0821

GENERAL ADMINISTRATIVE  DIVISION		)
Re		BRIAN CULLEY AND ANNE CULLEY

Applicants

And AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Respondent

DECISION

Tribunal Mr B.H. Pascoe, Senior Member

Date8 July 2008

PlaceMelbourne

Decision The Tribunal affirms the decision under review.

(sgd) B.H. Pascoe

Senior Member

CORPORATION – Director of more than two corporations wound up – unable to pay debts – disqualification for two years and one year respectively

Corporations Act 2001 – s 206F

Cullen v Corporate Affairs Commission (NSW) (1988) 14 ACLR 789

REASONS FOR DECISION

8 July 2008 Mr B.H. Pascoe, Senior Member

1. These are applications to review decisions of the respondent, Australian Securities and Investments Commission (ASIC) dated 14 February 2007 to disqualify the first applicant, Mr B. Culley, from managing corporations for a period of two years and the second applicant, Mrs A. Culley, for a period of one year. Both decisions were made pursuant to s 206F of the Corporations Act 2001 (the Act).

2.      At the hearing Mr Culley represented himself and Mrs Culley.  The respondent was represented by Mr A. Lewis of counsel.  Evidence was given by Mr Culley, Mr C. Papageorgiou, an accountant, Mr R. Praeger, a solicitor, Mr A. Dunner, the liquidator of a company of which Mr and Mrs Culley had been directors, and Mr W. Abeyratne, a liquidator of two companies in which they had both been directors.

3. Section 206F of the Act relevantly provides:

(1)ASIC may disqualify a person from managing corporations for up to 5 years if:

(a)within 7 years immediately before ASIC gives a notice under paragraph (b)(i):

(i)     the person has been an officer of 2 or more corporations; and

(ii)     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) … about the corporation’s inability to pay its debts; and

(b)ASIC has given the person:

(i)     a notice in the prescribed form requiring them to demonstrate why they should not be disqualified; and

(ii) an opportunity to be heard on the question; and

(c)ASIC is satisfied that the disqualification is justified.

…

(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.

Under s 533(1) of the Act a liquidator is required to lodge a report with ASIC if, among other things, it appears to the liquidator that the company may be unable to pay its unsecured creditors more than 50 cents in the dollar.

4. In the notice given by ASIC under s 206F(1)(b) to Mr Culley reference was made to four companies of which he had been a director, namely:

Oriental Experience Pty Ltd	(Oriental)
Construction Resources Pty Ltd	(Resources)
B.M.C Special Projects Pty Ltd	(Special Projects)
B.M. Culley & Associates Pty Ltd	(Associates)

5. Prior to, and at the hearing, ASIC sought to include a further company, Austbloom Pty Ltd (Austbloom), of which Mr Culley was the sole director when it was wound up. A report of the liquidation had been filed on 20 November 2006 estimating that there would be no dividend payable to unsecured creditors. The date of filing was nearly three months prior to the date of the decision under review but had been overlooked by the delegate of ASIC. It was argued by Mr Culley that Austbloom should not be considered by the Tribunal as it was not considered by the decision maker and notice under s 206F had not been given by ASIC. However, as this is a hearing de novo, the Tribunal is not limited to the information considered by the original decision maker. Mr Culley was well aware that the position regarding Austbloom would be put to the Tribunal at the hearing by raising this issue in its statement of facts and contentions served on Mr Culley nearly five months prior to the hearing and he was given a full opportunity to be heard in relation to Austbloom at the hearing. In any event s 206F allows the Tribunal to have regard to any other matters considered appropriate in considering his disqualification once he has passed the initial barrier of being an officer of two or more corporations relevant to the operation of that section.

6.      Mr Culley said that he had been in the business of construction management for over 27 years and had been responsible for some $2.4 billion of construction.  He had involvement with Government departments, developers, contractors etc and believed he was well respected in the industry for his professional approach.  He said that Resources, Special Projects and Associates were related companies which failed as a result of non-payment by developers.  Resources was solely an employer of labour.  Special Projects had been formed to act as a head contractor on two projects, one of which failed.  Associates acted as construction manager under contract with a developer for a fee.  In relation to one project at Harrison Beach, Associates acted as head contractor for a 70 unit residential building funded by bank finances.  Mr Culley said that the funding was arranged as a result of a Japanese client having agreed to purchase 32 of the units.  At a late stage, the Japanese withdrew from the agreement resulting in the bank cancelling the finance.

7.      In relation to Oriental, Mr Culley said that this company operated a Chinese restaurant in a shopping centre originally developed for a client in Queensland.  The client was bought out and Mr Culley retained a major interest in the centre.  A previous tenant had operated the restaurant but, after he vacated the premises, it was decided that it was appropriate to retain a restaurant tenant so Oriental, in which Mr Culley had a one-third interest, commenced its operation.  He said that the managing director was Mr B. Jakeman who oversaw the day to day operation of the business.  Mr Culley said that, being resident in Melbourne, he was not involved in management, his role being solely to decide policy and assist Mr Jakeman.  The manager was a Mr Lee who was recommended by Mr Jakeman.  The company ceased trading in March 1998 and Mr Culley maintained that all liabilities had been met at that date.  Mr Culley said that some two years later.  Mr Lee made a claim for alleged non-payment of wages.  The claim was contested by Oriental but Mr Lee was successful in a court action some four years later.  The company went into administration on 27 October 2004 as it had no funds to meet the claim.  Mr Culley blamed Mr Lee for the demise of Oriental.

8.      Austbloom carried on a business of marketing cut flowers grown on a property previously owned by Mr Culley near Horsham, Victoria.  Mr Culley maintained that he lost a substantial sum of money as a result of negligent actions of a solicitor which depleted his personal assets and required him to sell the farming property.  After the sale he formed a new company to lease back the property and continue the business of providing cut flowers primarily for export.  He maintained that the cause of Austbloom’s failure was a combination of the prolonged drought and adverse movement in foreign exchange rates.  Mr Culley said that the company had been an employer of local labour and that he had personally paid some creditors of Austbloom to retain their goodwill for the new company formed.

9.      Mr Culley disputed some of the figures shown in the reports of liquidators but was unable to explain how the differences arose.  Much of his argument related to an exclusion of intercompany debts within the companies involved in construction management or development.

10.     In considering the net deficiencies of each of the companies which were liquidated there is some confusion between the figures provided by the directors in the Report As To Affairs, those provided by the liquidator in his report and those by Mr Culley for the purposes of this hearing.  However, the position appeared to be:

Oriental
Assets	Nil
Unsecured Creditors	$  62,867 (including Mr Lee $43,700)
Resources
Assets	$  15,626
Liabilities	$177,108 (including Australian Taxation Office $108,650)
Special Projects
Assets realised	$    6,565
Liabilities	$827,251
Associates
Assets	$    34,100
Liabilities	$1,465,217 (including $862,005 Australian Taxation Office)
Austbloom
Assets	Nil
Liabilities	$336,019 (including Mr Culley $150,000 and Australian Taxation Office $121,350)

11.     Mr Culley submitted that the failure of all of the companies was the result of circumstances beyond his control including non-payment by developers, drought, exchange rate movement and failure of a manager to properly manage a restaurant.  He emphasised on several occasions his long unblemished record, the total amount of construction work in which he had been involved and the fact that there were no allegations against him for fraud or dishonesty.  He maintained that, as soon as practicable after the solvency problems were recognised, the directors took action to place the companies into voluntary administration.  He maintained that discussions were held with the Australian Taxation Office since March 1999 in an effort to negotiate a basis of payment after it was recognised that Associates, in particular, was in financial difficulty.  He submitted that he had acted in a responsible manner.

12.     It is relevant to note that a total of some $1,092,000 was owing to the Australian Taxation Office by three of the companies.  Particularly in the case of Associates the debt included unpaid tax instalments deducted from employee salaries, goods and services tax and income tax.  Much of the debt goes back to at least 1999 where there is evidence of negotiations with the tax office.  It appears likely that some of the debt goes back to earlier years.  The Courts, in cases such as Cullen v Corporate Affairs Commission (NSW) 1988 14 ACLR 789 have viewed the non-payment of taxes, particularly those deducted from salaries, very seriously. As said by Young J in Cullen:

… In this Court over the last 20 years at least, Judges have been extremely reluctant to grant adjournments in winding up proceedings where it appears that there is a claim for outstanding group tax because the group tax is part of the employees' wages which have been withheld to be paid to the tax office on behalf of the employees. They are, for all intents and purposes, trust moneys which do not belong to the company. If the company directors use these moneys for trading purposes, it shows a complete lack of appreciation of this situation and a serious lack of commercial morality. In England the non payment of such moneys has been highlighted perhaps above all other factors as showing that a director is not fit to continue his profession, …

While Mr Culley may have sought negotiation’s with the Australian Taxation Office it would appear that little or no payments were made to reduce the debt and it was well over two years after much of the debt was due by Associates before voluntary administration and subsequent liquidation occurred.  It was noted that Mr Culley appeared to be of the view that the unpaid tax was not significant in relation to the total of his 27 year career and taxes paid.  It is particularly relevant that, in the case of Austbloom, Mr Culley arranged to pay out local creditors to retain their goodwill for a successor company while leaving $121,350 owing in taxes.

13. It is noted that Mr Culley made application for a stay of the decision pursuant to s 41(2) of the Administrative Appeals Tribunal Act 1975. The application was refused on 13 June 2007.  The decision to disqualify Mr Culley for two years was made on 14 February 2007.  As a consequence he has been effectively disqualified for almost 17 of the 24 months pursuant to the decision.  The disqualification of Mrs Culley for one year has elapsed.  While these periods are not directly relevant in the Tribunal coming to a correct or preferable decision they do impact on the alleged detriment suffered by Mr and Mrs Culley by reason of the disqualification.

14.     While Mr Culley may argue that the reason for the insolvency of each company were beyond his control it is not clear that appropriate action was taken in a timely manner.  Mr Culley’s evidence was that his primary business had been construction development.  However, it would appear that the insolvencies of Resources, Special Projects and Associates resulted from these companies moving away from construction management and becoming head contractors and part owner of developments.  In all cases including Oriental and Austbloom it would appear that the companies had inadequate capital to deal with losses.  In Oriental and Austbloom there are clear inferences from the liquidators that these had been a failure in management and record keeping.

15.     Mrs Culley had been a director of Oriental, Resources and Associates.  While she did not give evidence, it is clear from the evidence of Mr Culley that, while she did not have an active role in the companies, she was involved in discussions relating to the operations and aware of the financial difficulties being faced.

16. On balance, and having fully considered the evidence given at the hearing, I am of the view that Mr and Mrs Culley satisfy the provisions of s 206F of the Act and the decisions to disqualify for two years and one year respectively were justified. Consequently, the decision should be affirmed.

I certify that the sixteen (16) preceding paragraphs are a true copy of the reasons for the decision herein of
Mr B.H. Pascoe, Senior Member

Signed:    Dianne Eva

Clerk

Dates of Hearing  21 January 2008 & 22 January 2008 
Date of Decision  8 July 2008
Self Represented  Mr Brian Culley
Counsel for the Respondent     Mr Anthony P. Lewis
Solicitor for the Respondent     Ms Judith Birch, ASIC