Errichetti and Australian Securities and Investments Commission
[2003] AATA 442
•15 May 2003
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2003] AATA 442
ADMINISTRATIVE APPEALS TRIBUNAL )
) No W2002/286
GENERAL ADMINISTRATIVE DIVISION ) Re PETER ROCKY ERRICHETTI Applicant
And
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Respondent
DECISION
Tribunal The Hon C R Wright QC., (Deputy President) Date15 May 2003
PlacePerth
Decision The Tribunal varies the decision of the delegate dated 11 July 2002 to the extent that the applicant is disqualified for a period of 12 months from 11 July 2002 from managing corporations without the leave of Australian Securities and Investments Commission. .
[The Hon C R Wright QC)
Deputy President
CATCHWORDS
Corporations – disqualification of director under s206F of Corporations Act 2001 – director’s conduct in management of business – whether disqualification in the public interest.
Laycock v Forbes and ASC (1997) 15 ACLC 1814 @ 1820
Blunt v CAC (1988) 6 ACLC 1077 @ 1079 (per Young J)
Re Dawson Print Group Limited [1987] 3 BCLC @ 604
Kardas v ASC (1998) 16 ACLC 1695 @ 1703
Byrnes and ASIC [2000] AATA 333, Healey
ASIC [2000] AATA 9
Re Douglas Construction (1988) BCLC 397 @ 402
Cullen v CAC (1989) 7 ACLC 121 @ 128
Dwyer v CAC (1989) 7 ACLC 743 @ 748
AWA v Daniels (1995) 37 NSWLR 438
Delonga v ASC (1995) 13 ACLC 246
Love v ASIC (2000) ACSR 363
Manning v Cory (1974) WAR 60
Sheslow v ASC (1994) 12 ACLC 740
Van Reesema v Flavell (1992) 7 ACSR 225
Corporations Act 2001 – s206F
REASONS FOR DECISION
15 May 2003 The Hon C R Wright QC., (Deputy President) The Application
1. The applicant seeks review of the decision of a delegate of the respondent given in Perth on 11 July 2002 whereby it was determined (i) that pursuant to s206F of the Corporations Act 2001 (“CA”), the applicant was a person liable to disqualification from managing a corporation for a period of up to 5 years; and (ii) that the applicant be disqualified for a period of 2 years and 6 months from the date of service of notice thereof upon him.
The Hearing
2. The application to review was heard in Perth on Thursday, 13 March 2003. The applicant was represented by Mr Donaldson of counsel. The respondent was represented by Mr M Benter. The Tribunal had before it the relevant s37 (“T”) documents in 2 volumes (Exhibit “A”). No additional oral or documentary evidence was presented by either party.
The Issues
3. In the original application to review it was claimed that the disqualification imposed on the applicant was excessive. However the ground was subsequently broadened as follows:
“1.1whether, having regard to all the circumstances of the case, the decision by the Respondent to disqualify the Applicant from managing a corporation under section 206F(3) of the Corporations Act 2001 (“the Decision”) should be set aside;
1.2in the alternative to 1.1, if the Decision is not set aside whether, having regard to all the circumstances of the case, the period of disqualification of 2 years and 6 months, effective from 11 July 2002, should be set aside and a lesser period be imposed.”
4. At the hearing, counsel for the applicant made it clear that there was no challenge to the delegate’s jurisdiction or lawful right to exercise the power conferred on ASIC by s206F of the Corporations Act 2001 (“the CA”). It was also made clear that there was no suggestion that the delegate had misapprehended the substance of the evidence or had taken account of irrelevant material. The basis of the attack upon his findings was that he had failed to draw appropriate inferences of fact as to some matters, that he had failed to display “commercial judgment” in drawing some inferences and that he viewed the applicant’s conduct as more serious than it was in fact, and, as a consequence, he imposed an excessive disqualification.
5. The CA s206F provides:
“Power to disqualify
(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.
Grounds for disqualification
(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.”
Background
6. On 27 March 2002, Peter Rocky Errichetti (“Mr Errichetti”) was issued with a notice to demonstrate under CA s206F why disqualification should not occur (“the Notice”). ASIC’s areas of concern giving rise to the issue of the Notice (“Areas of Concern”) were enclosed with the Notice as Attachment “A” (see paragraph 13 post). The relevant companies for the purposes of the Notice were Cabcar Pty Ltd CAN 082 006 915 (“Cabcar”) and Swan River Timber Co Pty Ltd CAN 065 324 138 (“Swan River’).
7. Mr Errichetti was appointed a director of:
(a)Cabcar on 19 March 1998 and was continuing as a director at the date of winding up; and
(b)Swan River on 24 June 1994 and was continuing as a director at the date of winding up.
It is not disputed that Mr Errichetti was a director during a period of twelve months prior to the commencement of the winding up of each corporation and consequently he was a relevant person for each of these corporate entities (being Cabcar and Swan River) within the provisions of s206F(a)(i) and (ii).
8. Cabcar was incorporated in Western Australia on 19 March 1998. Mr Garry Trevor, of Ferrier Hodgson, was appointed Provisional Liquidator of Cabcar pursuant to an Order of the Supreme Court of Western Australia on 3 June 1998 and official Liquidator on 15 July 1998.
9. Swan River was incorporated in Western Australia on 24 June 1994. Mr A L J Woodings, of Taylor Woodings, was appointed Liquidator on 17 July 1996 pursuant to an Order of the Supreme Court of Western Australia on the Petition of a creditor.
10. For both of the above corporations the liquidators lodged reports with ASIC under Corporations Law (“CL”) s533(1) about the inability of Cabcar and Swan River to pay their debts and further stating that each corporation may be unable to pay its unsecured creditors more than fifty cents in the dollar. Consequently, Cabcar and Swan River are relevant corporations within the terms of CA s206F(1)(a)(ii).
Related Bodies
11. There was no evidence before the delegate in the CL s533 Reports that there was any connection between Cabcar and Swan River, save for the fact that Craig Allan Hughes (“Mr Hughes”) was a director of both companies. No submission has been made that the failures of these companies were in any way related. Consequently, the appropriate finding is that Cabcar and Swan River were not related to one another.
12. A hearing into this matter was held under s51 of the ASIC Act before the delegate of ASIC on 7 June 2002.
13. ASIC’s Areas of Concern relating to Mr Errichetti’s directorship of Cabcar and Swan River during the relevant periods were attached to the Notice to Demonstrate sent to Mr Errichetti.
Cabcar
The principal concerns relating to Cabcar were as follows:
The Liquidator reported that:
1.1the directors failed to keep accounting records that correctly recorded and explained its transactions and financial position;
1.2the directors failed to maintain sufficient records to adequately explain all business transactions entered into by the company;
1.3inaccurate values indicated within Reports as to Affairs (RATA’s) provided by directors;
1.4the directors allowed the company to trade whilst insolvent; and
1.5the company was wound up with an inability to pay its debts.
SwanRiver
The principal concerns relating to Swan River, were as follows:
The Liquidator reported that:
1.1the directors failed to keep accounting records that correctly recorded and explained its transactions and financial position;
1.2RATA’s provided by the directors contained inaccurate estimates;
1.3the directors allowed the company to trade whilst insolvent;
1.4the company was wound up with an inability pay its debts; and
1.5poor management by the company’s directors.”
None of the foregoing facts or issues is in dispute.
The Decision under Review
14. The delegate’s decision was reduced to writing. He carefully discussed each issue and reviewed the evidence. He made his findings and announced his conclusions in the following terms:
“SUBSTANTIVE ISSUES: CABCAR
9.1Cabcar was incorporated on 19 March 1998 and traded as a booking agent providing limousine services. It had three directors namely, Mr Errichetti, Mr Hughes and Gerard Anthony Keating (“Mr Keating”).
9.2Mr Errichetti and Mr Keating had had some prior involvement with a similar limousine service operated by Klub Car Australia Pty Ltd (“Klub Car”) which had failed in February 1998 and it was decided to effectively take over Klub Car’s operations. Errichetti had been a franchisee of Klub Car.
9.3Cabcar was to operate under a partnership agreement (“the Partnership Agreement”) between its three directors Mr Errichetti, Mr Hughes and Mr Keating.
9.4It was intended that there would be no injection of capital into Cabcar by the directors and that the business would operate on a cash flow basis with no capital assets.
9.5Cabcar operated from leased premises and does not appear to have owned the computer systems purchased from Klub Car by Mr Errichetti, Mr Hughes and Mr Keating. Bookings were made by way of a Telstra Priority Service number. Cabcar had minimal office furniture/equipment and only employed 2 staff. Cabcar engaged approximately 20 limousine drivers as contractors on a casual basis.
9.6A special software package costing $38,000 (“the Software System”) which was to include debtors, bookings and receipts functions, including MYOB, had been ordered for Cabcar by Mr Hughes from Response Software in Sydney soon after Cabcar was set up but was not delivered until about 26 May 1998. A deposit of $8,000.00 had been paid but there is no indication that this payment was made by Cabcar.
9.7As a result of a dispute between Mr Keating on the one hand and Mr Errichetti and Mr Hughes on the other regarding the operation of the Cabcar business, some records and certain items of plant and equipment were removed from Cabcar’s offices by Mr Keating on 18 May 1998.
9.8There is a discrepancy in the material before me as to exactly when and how the Cabcar NAB Business Cheque Account was frozen. Mr Errichetti states it was frozen on 21 May 1998. Although Mr Keating in his affidavit refers to contact with the NAB prior to 25 May 1998 he states that he was only advised by the NAB that the account had been frozen on 25 May 1998. Mr Keating subsequently by facsimile letter of 25 May 1998 advised the NAB that transactions could still be processed provided all 3 Cabcar directors had signed the cheques.
9.9On 21 May 1998, Mr Errichetti received a cheque for $63,000.00 payable to Cabcar. He did not deposit this into the Cabcar account given the dispute between the directors.
9.10On 22 May 1998, Mr Errichetti and Mr Hughes gave notice to Mr Keating requesting his resignation as a director of Cabcar for breaching the Partnership Agreement.
9.11Cabcar effectively ceased trading from then on and Mr Keating subsequently filed a petition on 27 May 1998 to wind up Cabcar. A Provisional Liquidator was appointed on 3 June 1998 and Liquidator on 15 July 1998.
9.12It is common ground that the dispute between the directors affected Cabcar’s operations and resulted in the failure of Cabcar and its ultimate winding up.
9.13The CL s533 report (“Cabcar Report”) states at paragraph 6 that the dividend paid to unsecured creditors represented 28 cents in the dollar.
Failure to Keep Accounting Records (Concern 1.1)
10.1I am satisfied on the material before me that Cabcar’s directors, including Mr Errichetti, failed to keep accounting records that correctly recorded and explained its transactions and financial position.
10.2It is accepted by Mr Errichetti that the only records kept were bank statements, cheque butts, deposit books and job sheets. In addition, Mr Errichetti has not disputed the Liquidator’s finding in paragraph 3.3 of the Cabcar report that there were no records for the provision of services to conferences immediately prior to his appointment.
10.3It is submitted by Mr O’Brien and Mr Errichetti that the directors had properly monitored the company’s business operations, that proper interim records were maintained and that it was envisaged that those records would be transcribed to the computerised recording system which had been ordered, being the Software System referred to in paragraph 9.6 above.
10.4Whilst I accept that Cabcar had only been in operation for a short period of about two months, that does not detract from the need to maintain appropriate source documents (ie general ledger, receipts and payments journal) from the start as stated by the Liquidator at paragraph 8.10 of the Cabcar report. I also concur with the Liquidator’s opinion in paragraph 3.2 of the Cabcar Report that Cabcar was required by the CL to maintain all the books and records listed.
10.5Instead of maintaining the required documents, Cabcar had ordered an expensive sophisticated software system, which was yet to be delivered. I am also not satisfied that the basic records kept contained sufficient information to enable the requisite information to be transferred at a later stage to the Software System.
Failing to maintain sufficient records (Concern 1.2)
11.1 I am so satisfied that Cabcar’s directors, including Mr Errichetti, failed to maintain sufficient records to adequately explain all business transactions entered into by the company.
11.2The factors I have detailed above in relation to Concern 1.1 are equally applicable to this concern.
11.3On the material before me there is no indication that Cabcar kept proper records detailing the wages paid to its 2 employees, PAYE deductions, superannuation payments, rental for the premises and other outgoings. Mr Errichetti stated at the hearing that such records were maintained via the cheque book.
11.4In so far as concerns the operation of the Limousine business, whilst I accept that the A5 Job Sheets, contain sufficient records of the bookings, the driver and the charge for the service I do not accept Mr O’Brien’s submission that these amounted to sufficient interim records containing all the information required.
11.5Mr Errichetti has not alleged that any records existed which showed the cash flow of the business. The handwritten draft accounts for the week ending 30 April 1998 were an attempted reconstruction by Mr Keating and only prepared after he had taken possession of the documents from Cabcar’s offices.
11.6Similarly, the Jobs by Date printout of 29 May 1998 represents one page of a full list of all booking records that Mr Keating had taken possession of and which he was required to prepare for Mr Errichetti’s solicitors.
Inaccurate Values in RATA (Concern 1.3)
12.1Having considered the submissions and other material, I am not satisfied that Mr Errichetti deliberately included inaccurate values in his RATA, but rather that he included assets which may have belonged to the Partnership as opposed to Cabcar.
12.2The main discrepancy in the RATA’s is the inclusion by Mr Errichetti and Mr Hughes of the sums of $6,500.00 and $8,600.00 respectively as assets of Cabcar. Mr Keating does not include any such assets and the Liquidator states in paragraph 4.4(c) of the Cabcar Report that his investigations did not reveal any assets of this nature.
12.3Mr Errichetti makes reference to his evidence to computers, printers and a phone system in Cabcar’s office. His use of the expression “we” leads me to conclude that he treated the Partnership and Cabcar as one.
12.4Consequently, I make no adverse finding against Mr Errichetti on this issue save to comment that the outcome of the failure to maintain a plant and equipment ledger meant that it was not possible to identify Cabcar’s assets.
Insolvent Trading (Concern 1.4)
13.1I am satisfied on the material before me that the directors, including Mr Errichetti, allowed Cabcar to trade whilst insolvent.
13.2As stated by the Liquidator in paragraph 7 of the Cabcar Report, as a consequence of Cabcar not maintaining adequate books and records it would be presumed insolvent pursuant to CL s588E from the date of its incorporation.
13.3It is clear from the material before me that the intention of the directors was that there would be no up front payment or any capital contribution to Cabcar on its commencing to operate and that the limousine business would operate on a cash flow basis.
13.4I am at a loss to understand how prudent directors could expect to operate such a business on a cash flow basis, the more so when Cabcar had in some instances to pay for the hire of vehicles up front and had staff and office overheads, albeit minor.
13.5Mr Errichetti accepts that Cabcar’s Business Cheque Account was in debit on 7 occasions as listed in paragraph 24 of the Submissions. I note that the account was opened on 27 March 1998 and the first credit of $990.78 was deposited on 8 April 1998.
13.6The account first went into debit on 21 April 1998 and the debit balances on 30 April, 5 May and 6 May 1998 of $1,089.91,$2,664.60 and $2,488.60 respectively were significant given the small volume of funds coming in as shown on the Bank Statements.
13.7In addition, Cabcar had an ongoing liability for the balance of $30,000.00 for the Software System on order at a cost of $38,000.00.
13.8Mr O’Brien submits that at all material times Cabcar was able to pay its debts as and when they fell due. In support of this her refers to the fact that on 21 May 1998, when the Cabcar Account was frozen, it had a credit balance of $389.66, that Mr Errichetti received a cheque for $63,200.00 on 21 May 1998 and that at the date of winding up there was a surplus of $4,290.00 subject to the costs of winding up.
13.9It appears from the material before me that as at 27 May 1998, when the winding up petition was filed, Cabcar had liabilities of approximately $33,000.00 for drivers, had employed Mr Boyd, a Marketing Consultant, who was owed approximately $6,000.00 and had Group tax and superannuation liabilities.
13.10I am of the view that, notwithstanding the above submissions, Cabcar was technically insolvent from day one was it was trading on a cash flow basis without any injection of capital. In addition, the debit balances referred to in paragraph 13.6 above indicate that in any event insufficient cash flow was being generated and the directors allowed Cabcar to trade whilst insolvent.
Inability to pay debts (Concern 1.5)
14.1The factors I have detailed above in relation to Concern 1.4 are equally applicable to this concern.
14.2In addition, the affidavits filed in support of the winding up application by Mr Boyd and Mr Holmes and the Summons issued against Cabcar, demonstrate an inability to make payments when due.
14.3Consequently, I am satisfied that Cabcar was wound up with an inability to pay its debts given that the surplus of $4,290.58 did not include the costs of the winding up.
SUBSTANTIVE ISSUES: SWAN RIVER
15.1Swan River was incorporated on 24 June 1994 and its directors were Mr Errichetti and Mr Christopher Patrick Brady (“Mr Brady”). Its shareholders included Mr Errichetti, Mr Brady and Mr Hughes.
15.2Swan River’s principal activity was that of a “boutique timber supplier” which involved the purchase of timber which was then cut and prepared to the special requirements of customers.
15.3The initial injection of $130,000 capital by Mr Hughes was used to purchase machinery and raw materials to begin Swan River’s operations.
15.4The Liquidator has stated in his report (“Swan River Report’) that the initial working capital of $130,000 was insufficient to keep Swan River operating.
15.5I accept that the directors expected a further injection of funds totalling $250,000 which was to be received between December 1994 and June 1995 but this did not eventuate.
15.6In April/May 1995 Swan River had insufficient funds and Mr Hughes had to loan $15,000 to enable Swan River to purchase timber, at a total cost of $25,000.00 from Toscana Pty Ltd (“Toscana”) for an export contract with a Lebanese entity (“the Lebanese contract”). Subsequently, Swan River was not given vehicle access by Toscana, as verbally agreed, to collect the timber notwithstanding the payment of the initial $15,000.
15.7Consequently, Swan River could not fulfil the Lebanon Contract but did not pursue the matter against Toscana, after contacting its solicitors in August 1995, due to lack of funds.
15.8A further problem arose in August 1995 in relation to a contract with Advance Parquetry Floors, which withheld payment of $3,900.00 to Swan River owing to the supply of undergrade timber, even though it was subsequently replaced.
15.9In July/August 1995 Swan River purchased the old Bunbury Bridge timber for $10,000 but had to pay an additional $10,000.00 for transport to Perth and other associated costs. The timber turned out to be of a standard that was not commercially saleable.
15.10Mr Hughes had day to day management of the Swan River business but by November 1995 it had reached a stage where the directors no longer trusted each other and Mr Errichetti did not have confidence in Mr Hughes’ management.
15.11Consequently, Swan River ceased trading and on the application of a creditor, Bunnings Forestry Products Pty Ltd a Provisional Liquidator was appointed on 29 March 1996 and a Liquidator on 17 July 1996.
15.12The Liquidator concludes in the Swan River Report at Paragraph 6 that although the above matters contributed to Swan River’s failure, the principal reason was lack of working capital and poor management by the directors.
15.13The Swan River Report states at paragraph 16 that it is unlikely that Swan River will be able to pay its creditors a dividend.
Findings and Reasons
Failure to keep Accounting Records (Concern 1.1)
16.1It is not disputed that Swan River Failed to keep the required accounting records and that during its trading history no financial statements were prepared.
16.2A cash book was maintained however and this fact, together with the short trading history, caused the Liquidator to conclude in the Swan River Report that the offence of failing to maintain books and records was not serious.
16.3Mr O’Brien submitted on behalf of Mr Errichetti that the failure was not a serious failure, which would warrant disqualification.
16.4I am satisfied that the directors of Swan River, including Mr Errichetti, failed to cause proper accounting records to be maintained and in my opinion any such failure is cause for concern.
Inaccurate RATA’s (Concern 1.2)
17.1Following consideration of the material before me and the submissions, I am not satisfied that Mr Errichetti deliberately included inaccurate values in the RATA.
Insolvent Trading (Concern 1.3)
18.1The Liquidator concludes in paragraph 13 of the Swan River Report that the directors should have been aware that Swan River was insolvent no later than July 1995.
18.2Mr O’Brien has submitted, and Mr Errichetti confirmed this at the hearing that Mr Errichetti had a genuine belief at all times that the promised funds referred to in paragraph 15.5 would be received in the immediate future.
18.3I am of the view that there was no basis for Mr Errichetti’s belief, after June 1995, that the further funds would be forthcoming. Mr Errichetti stated at the hearing that come June 1995 “the lender was still prepared to lend but had changed - well, was reticent to lend”. Furthermore, it is significant that the overseas party is not named and no documents have been provided to support the fact that further funds would be forthcoming after June 1995.
18.4The fact that Swan River had to borrow $15,000.00 from Mr Hughes in April/May 1995, nearly a year after commencing business, is indicative of a cash flow problem and supports the Liquidator’s conclusion that the initial injection of capital was insufficient. Consequently, it is my view that the directors should have been aware that Swan River would become insolvent if it continued to trade without additional funds.
18.5In addition, it should have been evident to the directors after the problems with the Toscana, Advanced Flooring and Bunbury Bridge contracts that the business was not operating profitably.
18.6It is submitted by Mr Errichetti that the Toscana/Lebanese Contract was worth about $1.8 million over 12 months and would have returned a pre-tax profit of about $950,000.00. That may well have been the case, but the fact of the matter is the contract never got off the ground and was in my view too ambitious a venture for a small operation such as Swan River.
18.7It is not disputed that from July to November 1995 Cabcar incurred debts of $8,670.34.
18.8Mr O’Brien submitted that the directors of Cabcar had the financial support of Errichetti Nominees Pty Ltd and the directors’ own resources sufficient to allow it to meet its debts as and when they fell due. The Liquidator considers this issue in the Swan River Report at paragraph 14 and concludes that he was unable to locate any such evidence. I too am of the view that there is nothing before me to indicate that such support would be forthcoming.
18.9Consequently, I am satisfied that the directors, including Mr Errichetti allowed Swan River to trade whilst insolvent from July 1995.
Inability to pay Debts (Concern 1.4)
19.1The factors I have detailed above in relation to Concern 1.3 are equally applicable to this concern.
19.2It is not disputed that on liquidation a sum of $38,910.49 was outstanding to various creditors.
Poor management (Concern 1.5)
20.1The Liquidator concludes that one of the principal reasons for the failure was poor management.
20.2Mr Errichetti stated in an interview with Ms Michelle Margesson from Taylor Woodings and again at the hearing that he was not the day to day manager and that Mr Hughes was managing the business but he had ceased to have confidence in him.
20.3According to Mr Errichetti there was also a personality clash between Mr Hughes and Mr Brady.
20.4Mr O’Brien submits that there has not been a major breach of the directors’ responsibilities and that ASIC in its letter to the Liquidator stated it did not intend to investigate the matter. The fact that ASIC did not investigate identified breaches of the CL does not of itself lead to a conclusion that such offences were not serious as other criteria are also taken into consideration by ASIC in determining whether to investigate a matter.
20.5Given the problems between the directors set out above and its contracts, it is my view that Cabcar should have ceased trading in June/July 1995.
20.6I am of the view that there was poor management generally of Cabcar by its directors, including Mr Errichetti. It is significant that Cabcar entered into the various contracts without sufficient scrutiny, in particular the Bunbury Contract where the problems of transport and processing of the timber should have been evidence even to someone not an expert in the industry.
FINDINGS THAT DISQUALIFICATION IS JUSTIFIED
21.1I have given consideration as to whether I am required to follow what I will refer to as the “Sheslow Principles” and come to a finding that there was dishonesty, lack of commercial morality or gross incompetence before the making of a disqualification order.
21.2Establishment of dishonesty, lack of commercial morality or gross incompetence was not a precondition to determining that there were grounds for disqualification under the former CL s600.
21.3The cases of Laycock and Kardas affirmed that the power under the former CL s600 may be exercised simply because a person had been a director of two or more companies which had been unable to pay their unsecured creditors more than 50 cents in the dollar without there being a need to point to any particular default on the part of that person.
21.4Nevertheless, such failings are relevant to the length of any prohibition imposed.
21.5I am of the view that the factors set out above in relation to CL s600 are equally applicable to disqualification under CA s206F(1).
21.6In addition, CA s206F(1)(c) requires that I be satisfied that the disqualification is justified.
21.7In making such a determination, I must have regard to the factors set out in CA s206F(2)(a) and I have previously considered these in paragraph 6 above.
21.8Under CA s206F(2)(b), I may also have regard to the persons conduct in relation to the management, business or property of any corporation, and any other matters I consider appropriate.
CONCLUSIONS
22.1I find, in relation to the Cabcar Areas of Concern, that Mr Errichetti has failed to keep proper accounting records (1.1), failed to maintain sufficient records (1.2) and allowed Cabcar to trade whilst insolvent (1.4). I also find that Cabcar was wound up with an inability to pay its debts (1.5).
22.2I find, in relation to the Swan River Areas of Concern, that Mr Errichetti has failed to keep proper accounting records (1.1), failed to maintain sufficient records (1.2) and allowed Swan River to trade whilst insolvent (1.3). I also find that Swan River was wound up with an inability to pay its debts (1.4) and that it was poorly managed (1.5).
22.3Of particular concern is the fact that there was a failure to maintain proper accounts in relation to both Cabcar and Swan River. At the hearing I questioned Mr Errichetti as to his previous directorships of about 20 companies and his duties as a director. It was evident that, in so far as the keeping of accounting records were concerned, he still lacked the requisite knowledge in that he believed cheque books, cheque butts and deposit slips were sufficient.
22.4In addition, Mr Errichetti states he was not involved in the day to day management of Cabcar and Swan River and attributes the failure of both companies in part to disputes between the directors. It is pertinent to note that Mr Errichetti was prepared to again enter into a business relationship with Mr Hughes notwithstanding that in relation to Swan River he had previously stated that he had lost confidence in Mr Hughes.
22.5It was submitted on behalf of Mr Errichetti that I should not exercise my discretion and impose a period of disqualification because it is not necessarily in the public interest and the failings and breaches were not serious. In addition, it was submitted that Mr Errichetti currently manages three family companies namely, Errichetti Nominees, Errichetti Holdings and Kingcroft and any disqualification would have a severe impact on his elderly parents who are also directors.
22.6I find that Mr Errichetti has, with regard to both companies, failed to display some of the attributes required of a director by not being sufficiently involved in the day to day operations of the companies. It is not acceptable for a director to sick back and later seek to lay the blame for failure on the other directors. In addition the failure to ensure that proper accounts are maintained demonstrates a lack of competence and corporate responsibility.
22.7My paramount duty is to protect the public including creditors and employees of corporations. There is no question of my imposing a prohibition as a punitive measure.
22.8I have taken into consideration the fact that there is no onus of proof as such on Mr Errichetti but that he should in practical terms produce evidence necessary to persuade me that I should not issue a notice.
22.9On the basis of the material before me and after taking into consideration Mr Errichetti’s submissions I am satisfied that a disqualification is justified in this instance and that a notice of disqualification should be issued.
PERIOD OF PROHIBITION
23.1I am of the view that this is a relatively serious matter although it does not involve any dishonesty. I have noted the submissions put forward by Mr O’Brien that the breaches are at the lower end of the scale but do not accept that this is the case. In particular, the failure to maintain proper accounts in two instances is in my view a serious matter.
23.2In both instances Mr Errichetti has sought to shift the blame for the failures on the other directors and the discord between the directors.
23.3On the materials before me taking into account the submissions it is my view that the maximum period of disqualification would not be appropriate in this instance.
23.4I consider that this matter falls in the middle range and consequently a prohibition for a period of 2 years and 6 months is appropriate in the circumstances.
24.5My order is that a notice in writing be served on Mr Errichetti pursuant to section 206F(3) of the CA prohibiting Mr Errichetti from managing a corporation for a period of 2 years and six months from the date of service of the notice.
Applicant’s Case/The Respondent’s Case
15. In presenting the applicant’s case before the Tribunal, Mr Donaldson kept substantially to the applicant’s, Facts, Issues, Contentions and Submissions filed by the applicant’s solicitors on 11 March 2003. The respondent’s Statement of Facts, Issues and Contentions in reply was filed on 12 March 2003. The respondent’s document is essentially drafted as an answer to the applicant’s and consequently it is appropriate to deal with each contention as a separate item. At all events this is the way in which I propose to approach the issues.
A. Cabcar Pty Ltd
Contention 1
16. “That the Cabcar NAB Cheque Account was unable to be operated by Mr Errichetti as and from May 1998.”
17. It was submitted for the applicant that the evidence referred to by the delegate in paragraph 9.8 of his reasons was not inconsistent with this contention and was not inconsistent with the conclusion that Mr Errichetti was not able to bank the cheque for $63,000 referred to in paragraph 9.9 of the reasons on 21 May 1998.
18. The respondent does not dispute that the Cabcar NAB Cheque Account “was frozen on or about 21 May 1998”, but contends that “from 25 May 1998 the account may have been able to be used for receipts and payments subject to all directors of Cabcar agreeing.”
19. Reference was made by both parties to the affidavit of Gerard Anthony Keating sworn 26 May 1998 in which he said at paragraphs 42-44:
“I have today been in contact with Glenn Smith, the manager of the National Australia Bank branch at Osborne Park, who has advised me that no attempts have been made to deposit a cheque in the NAB account for $63,000 or any sum over the past few days. I am informed by my solicitor and verily believe that Glenn Smith said to my solicitor that Errichetti has attended in the last few days at the offices of the National Australia Bank in Osborne Park and was in possession of a cheque but that he did not ask to deposit that cheque. Glenn Smith has also advised that the balance of the NAB account as at the close of business on 24 May 1998 was approximately $300.00.
I have had cause to be in contract with Glenn Smith over the past few weeks and appraised him of the fact that there is a dispute between the current directors and shareholders of Cabcar and that all cheques issued from the account should only be honoured if all three current directors have signed the cheque. Glenn Smith advised me on Friday 25 May 1998 that he had frozen the NAB account pending the resolution of the dispute. This action was not taken at my request.
On 25 May 1998 I sent a letter by facsimile to Glenn Smith stating that as a director of Cabcar I had no objection to the use of the NAB account to process transactions provided that all cheques issued by Cabcar are only honoured if all three directors have signed the cheque. Annexed hereto and marked “GAK12” is a copy of a letter to Glenn Smith dated 25 May 1998.”
20. In one sense this dispute appears to be a storm in a tea cup because the delegate drew no inference of dishonesty against Mr Errichetti as a consequence of his not paying the cheque into the Cabcar account at that time, but it is a factor in assessing the financial position of Cabcar at the time it ceased trading and was put into liquidation. It is not contested that the cheque was paid to the benefit of the creditors of Cabcar.
21. For my own part however, I find it difficult to believe that the “freezing” of the Cabcar account as described by Mr Keating would have prevented anyone seeking to deposit funds into that account from doing so.
Contention 2
22. “That all bank statements, cheque butts and deposit books in respect of the Cabcar NAB Cheque Account were maintained”.
23. The applicant submits that this conclusion is established by paragraph 3.1 of the Liquidator’s Report (T63 i.e. Exhibit “A” p.63).
24. To this the respondent responds:
“(a)The claim that all such documents were maintained is without evidentiary support;
(b)The reference to the Liquidator’s report at page T63 does not assist in establishing that all such documents were maintained (contrary to the applicant’s submissions, the alleged “fact” does not “emerge” from the Liquidator’s report); and
(c)In any event, the maintenance of such documents does not satisfy the requirements of section 286 of the Corporations Act.”
25. The respondent says that it was never established how accurate the documents in question were.
26. The relevant passage from the Liquidator’s report says:
“3.1 The company maintained the following records:
(a) bank statements;
(b) cheque butts;
(c) deposit books; and
(d) job sheets.
3.2It is my opinion that Cabcar should have also maintained the following books and records to properly monitor the company’s business operations:
(a)general ledger;
(b)creditors ledger;
(c)debtors ledger;
(d)plant and equipment ledger; and
(e)cash book.
3.3Whilst Cabcar had only been trading for a short period of time the directors should have maintained sufficient records to adequately explain all the business transactions entered into by the company. This did not occur. In particular, I note that Cabcar provided its service for a number of conferences held in Perth immediately prior to my appointment and no records were maintained of bookings, contractors engaged or receipts.”
The Liquidator was appointed on 3 June 1998.
27. I am unable to agree with the applicant’s submission. The accuracy or otherwise of all cheque butts and deposit books cannot be assumed, but on the other hand there is no basis for concluding they were significantly inaccurate. I think it may be assumed that bank statements are highly likely to be accurate.
Contention 3
28. “That Cabcar manually maintained job sheets which accurately recorded all work undertaken by Cabcar in the course of its business and that the job sheets are an accurate record [of] the matters recorded thereon”.
29. The applicant referred to paragraph 11.4 of the reasons, and footnote 17, which in turn referred to Document 23FF at page 346 of Exhibit “A”.
30. The respondent’s response to this contention was as follows:
“(a)The claim that such documents accurately recorded all work undertaken by Cabcar is without evidentiary support;
(b)in fact, the information set out in the Liquidator’s report is quite contrary to the applicant’s claim in this regard (see pages T63 to T64); and
(c)in any event, the maintenance of such records does not satisfy the requirements of the Corporations Act.”
31. In my opinion the delegate’s conclusions cannot be faulted. I agree with the respondent.
Contention 4
32. “That a software system that would have provided all necessary accounting functions had been ordered”.
33. The system in question was under order at an agreed price of $38,000. A deposit of $8,000 had been paid. The system was not received until 26 May 1998.
34. The applicant submits that the Liquidator’s Report (Exhibit “A” at p66) supports this conclusion.
35. The respondent says:
“(a) there is no evidence capable of supporting a contention that the software package: would have provided all necessary accounting functions.
“(b)in particular, there is no direct evidence in relation to the actual capabilities of the computer software package;
(c)the applicant’s evidence before the Delegate was to the effect that, inter alia:
(i)software package “had to be developed and it had to evolve” (page T489 at line 45);
(ii)the liquidator did not ultimately acquire the software package (page T491 at line 27);
(iii)the total cost of the software package was $38,000 of which only $8,000 had been paid (page T536 at line 15); and
(iv)the software was a “four or five staged” package and was very extensive (page T536 at line 25 and following);
and consequently there is substantial doubt as to the capabilities of the package, precisely what was delivered and what the immediate capabilities of the system would have been;
(d)as set out above, the liquidator of Cabcar found there to be deficiencies in the primary source documents, notably an absence of any documents in relation to the conference work undertaken by Cabcar immediately prior to the Liquidator’s appointment. If such primary source documents were not available, the software package would presumably be unable to prepare accounts; and
(e)the software package was never actually implemented during the life of the company, consequently the applicant’s claims as to the capabilities of the software are entirely speculative and irrelevant.”
36. In my opinion the Liquidator’s report does not support the applicant’s contention. In my opinion the respondent’s contentions are correct, but I must say I would be astonished if a system costing $38,000 could not supply the accounting needs of an operation such as Cabcar.
Contention 5
37. “That the directors of Cabcar including Mr Errichetti, intended at all material times that there be no capital contribution to the business which would operate on a cashflow basis”.
38. This is the effect of the finding of the delegate (see paragraph 13.3 of the reasons) and is not disputed by the respondent.
39. However the respondent points out that this does not excuse any failure to maintain proper accounting records or trading while insolvent.
Contention 6
40. “That Cabcar NAB cheque account was overdrawn on the occasions outlined in Document 26 and referred to in paragraph 13.5 of the Reasons.”
41. This is not disputed.
Contention 7
42. “That on 21 May 1998 the Cabcar NAB cheque account was in credit”.
43. This is not disputed. The credit balance was $389.66.
Contention 8
44. “That as at the date of winding up Cabcar there was [a] surplus of funds available to creditors.”
45. This contention is based upon paragraph 4.5 of the Liquidator’s report (Exhibit “A” page 65) which says:
“4.5 Therefore, the statement of the company’s financial position as at the date winding up (subject to the costs of winding up) was as follows:-
$
Assets
Sundry Debtors
Cash at Bank
25,057
35,561
Total Assets Available
$60,618
Liabilities
Unsecured Creditors
(56,328)*
Surplus (Deficiency) Subject to Costs of Winding up
$4,290
*claims totalling $22,338 rejected for dividend purposes.”
46. The respondent submits that the contention fails to appreciate the true effect of the Liquidator’s findings viz:
“(a)While the Liquidator stated at paragraph 4.5 of his report that there was a surplus of $4,290 subject to the costs of the winding up, it is apparent from the balance of the report that such amount does not take into account all debts owed by the company;
(b)the Liquidator reported that based on the combination of the Reports as to Affairs submitted by the directors of Cabcar, the total creditors’ claims could be as high as $96,332.39 (paragraph 6.1 on page T66);
(c)however the table at 4.5 of the Liquidator’s report includes only the amount of $56,328 in respect of the proofs of debts received by the Liquidator up tot he date of his report following his notice to creditors of an intention to declare a first and final dividend (see paragraph 6.2 on page T66);
(d)the Liquidator also rejected creditors’ claims in the amount of $22,388 for dividend purposes (paragraph 6.1 on page T66);
(e)on the basis of the figures included in the Report as to Affairs submitted by the applicant, Cabcar had a deficiency of assets in the amount of $38,823, without taking into account the costs of winding up (see page T64);
(f)as set out at paragraph 7.1 of his report (page T66) the Liquidator was ultimately unable to positively determine the insolvency date of Cabcar given its failure to maintain proper records; and
(g)in light of the above, any contention that there was a surplus of assets at the date of winding up cannot be substantiated and appears contrary to the material in the Liquidator’s report.”
47. The Liquidator was appointed on 3 June 1998. His report to ASIC is dated 9 January 2002. Paragraphs 6.1 to 7.2 of his report are in the following terms:
“6. CREDITORS’ CLAIMS AND PROOFS OF DEBT
6.1The combination of the RATA’s submitted by the directors of the company which relates to ordinary unsecured creditors.
6.2To date I have only received proof of debts totalling $56,328 following my notice to creditors of my intention to declare a first and final dividend. Claims totalling $22,388 were rejected by me for dividend purposes. The dividend paid to admitted creditors represented 28 cents in the dollar.
7.DETERMINATION OF INSOLVENCY DATE
7.1Due to the failure of the company to maintain proper records, it is not possible from the data available to positively determine the insolvency date of the company.
7.2I note however that as a consequence of Cabcar not maintaining adequate books and records, Cabcar would be presume insolvent pursuant to section 588E of the Law from the date Cabcar was incorporated on 19 March 1998 through to the date of provisional liquidation on 3 June 1998. This represents a period of only 2.5 months trading.”
48. The applicant’s contentions depend on the bottom line of paragraph 4.5, but that is at best ambiguous in light of the material referred to by the respondent. There is no explanation immediately apparent why $22,338 in proofed debts were not admitted for dividend purposes. It is also unclear why admitted creditors were paid only 28 cents in the dollar. It may be, and probably is, as a consequence of the deduction of the Liquidator’s costs of winding up, a process which apparently took 3½ years to complete. Whatever may be the correct view of these matters, it is fairly clear that the contention advanced by the applicant does not support a view that creditors were not prejudiced by the delinquencies of the directors.
Contention 9
49. “Mr Errichetti has not be charged with any offence arising from his directorship of Cabcar in respect of Cabcar.”
50. This is not disputed by the respondent. However the respondent says it is an irrelevant fact. It may have some relevance to the issue of disqualification.
Contention 10
“(a)Although, consistent with the finding of the decision-maker at paragraph 11.1 of the reasons and the conclusion at 3.2 of the LIQUIDATOR’S REPORT (at T63) that ledgers were not maintained, these were documents that could have been readily created from the manually maintained job sheets, bank statements, cheque books and deposit books, see conclusion at 3.1 of the LIQUIDATOR’S REPORT (at T63).
(b)Cabcar had been trading for a period of effectively 2 months prior to the terminal problems coming to a head. This can be seen from (for instance) the table at 2.3 of the LIQUIDATOR’S REPORT (at T63).
(c)An accounting package that would have provided all such services had been ordered and was in fact delivered on 26 May 1998.
(d)Accordingly, to the extent that there had been a failure to maintain such records, this was solely a timing issue.
(e)This timing issue arose over a very short period of time (2 months).
(f)This timing issue arose in a context of a wholly unforseen and cataclysmic fallout between directors which resulted in the winding up of the company.
(g)The basic manually maintained job sheets, bank statements, cheque books and deposit books would have enabled the accounts to have been prepared once the accounting package arrived. Proof of this can be found in the fact that the liquidator was able to prepare the closing accounts readily as is apparent from part 4 of the LIQUIDATOR’S REPORT, see T64-65.
(h)Looking at part 4 of the LIQUIDATOR’S REPORT (T64-65) it is doubtful whether a more transparent liquidation has ever occurred.
(i)It can not be doubted that once the accounting package arrived, if not for the monumental breakdown in relations between directors, the source material could have been inputted to the system and all would have been well.
(j)With respect, the decision-maker’s conclusion in this respect displays a lack of commercial experience, judgment and sensitivity to the practicalities of the establishment and initial operation of a small business. Within s206F(2)(b)(i) and (ii) proper regard was not had to Mr Errichetti’s conduct in these matters. With respect, the conduct of the directors was near faultless, had it not been for the unforseen and major breakdown within the partnership/director group.”
51. The respondent’s reply to these contentions is as follows:
“In relation to the contention at paragraph (a) of the applicant’s submissions to the effect that ledgers could have been “readily created from the manually maintained job sheets, bank statements, cheque books and deposit books”:
(a)there is no evidence capable of supporting any such contention that ledgers could have been “readily created”;
(b)in fact, the evidence indicates there would have been difficulties in creating proper books of accounts based on the raw source documents by reason of, inter alia:
(i)the Liquidator’s finding that Cabcar did not maintain “sufficient records to adequately explain all the business transactions entered into by the company” (at T63); and
(ii)the Liquidator’s specific finding that:
“… Cabcar provided its services for a number of conferences held in Perth immediately prior to my appointment and no records were maintained of bookings, contractors engaged or receipts.” (at T63 to T64)
(c)the reference to a “conclusion” at 3.1 of the Liquidator’s report (at T63) is nonsensical. There is no conclusion in paragraph 3.1 of the Liquidator’s report. That paragraph merely notes that Cabcar maintained certain records, namely bank statements, cheque butts, deposit books and job sheets. There was no finding by the Liquidator that such records were complete and accurate (in fact, as set out above, there were clear deficiencies in those records); and
(d)as set out above, there was no cogent evidence as to the capabilities of the computer system proposed to be implemented by Cabcar.
In relation to the contentions at paragraphs (b) to (e) of the applicant’s submissions to the effect that the failure to maintain proper books of account was only a timing issue of some 2 months duration:
(a)for the reasons set out above, the applicant’s claim that financial records could have been prepared upon receipt of the software package are purely speculative;
(b)also for the reasons set out above, there are substantial doubts as to whether accurate financial records could ever have been prepared, particularly given the Liquidator’s findings in relation to deficiencies in the company’s documents;
(c)to the extent the applicant maintains that the delay was only 2 months, there is no cogent evidence before the Tribunal as to how much longer it would take for proper accounting records to be prepared, even assuming the software package was received and functioned as intended;
(d)the obligation under the Corporations Act is for a company to maintain proper accounting records in order to “disclose or exhibit the financial position of the company at all times at any time”: Manning v Cory [1974] WAR 60 at 62. Any delay in doing so represents a breach of section 186; and
(e)as the company never in fact prepared any proper accounting records, the applicant’s claims in this regard are speculative and irrelevant.
The contention at paragraph (f) of the applicant’s submissions is irrelevant. The alleged fallout between the directors of Cabcar in no way excuses the failure to maintain proper financial records from the outset.
In relation to the contentions at paragraph (g) of the applicant’s submissions to the effect that the manually maintained source documents would have enabled the accounts to be prepared once the accounting package arrived:
(a)for the reasons set out above, the applicant’s claim that financial records could have been prepared upon receipt of the software package are purely speculative;
(b)also for the reasons set out above, there are substantial doubts as to whether accurate financial records could ever have been prepared, particularly given the Liquidator’s findings in relation to deficiencies in the company’s documents;
(c)the claim that “proof of this can be found in the fact that the liquidator was able to prepare the closing accounts readily” is simply fanciful;
(d)the Liquidator reported, among other things, that the directors failed to maintain sufficient records to adequately explain all the business transactions entered into by the company;
(e)based upon the contents of his report, the calculations by the Liquidator appear to have been based primarily upon the information received by him following his appointment, including the Reports as to Affairs and the proofs of debt submitted by creditors; and
(f)there is no basis for suggesting that the calculations by the Liquidator in any way suggest that the primary source materials retained by Cabcar were adequate – this is clearly contrary to the Liquidator’s findings.
The contention at paragraph (h) of the applicant’s submissions is a self-serving statement without basis and entirely contradicted by the evidence. The Liquidator’s report is plainly contrary to such contention. Among other things, the Liquidator:
(a)found that the directors failed to maintain sufficient records to adequately explain all the business transactions entered into by the company (at T63);
(b)found, in particular, that Cabcar failed to maintain any records of bookings, contractors engaged or receipts in relation to the services provided to conferences in Perth immediately prior to the Liquidator’s appointment (at T63 to T64); and
(c)by reason of the company’s failure to maintain proper records, was unable to positively determine the insolvency date of the company (at T66).
The contention in paragraph (i) of the applicant’s submissions is a self-serving statement without basis and contrary to the evidence, in particular the findings of the Liquidator in relation to the deficiencies in the records and source material maintained by Cabcar.
In relation to the contentions in paragraph (j) of the applicant’s submissions:
(a)the claim that the delegate’s decision “displays a lack of commercial experience, judgment and sensitivity to the practicalities of the establishment and initial operation of a small business” is without merit;
(b)to the extent the applicant submits, in effect, that a company should be excused from having to comply with the requirements of the Corporations Act by reason of being a “small business”, such submission is without merit;
(c)the claim that proper regard was not had to the applicant’s conduct is without merit; and
(d)for the reasons set out above, the claim that the “conduct of the directors was near faultless” is simply fanciful.”
52. In dealing with these contentions it is not a case in which either one or other can be wholly accepted or rejected. Both cases are like the curate’s egg – good in parts. Specifically it may be said that the contentions that this was only a “timing issue” and the liquidation was extremely “transparent” are gross over simplifications. True it is that the directors dispute was the precipitating cause for the winding up but in a sense this was fortuitous and can hardly be taken as a factor going to Mr Errichetti’s credit. I do not accept that the computerised accounting system would have cured the ills of the company had it been available earlier. It was obviously an ambitious accounting project which it represented, but its virtues were never tested in practice.
I emphatically reject the proposition that the delegate (the decision-maker) displayed commercial naivety or lack judgment and sensitivity as alleged. The undercapitalised nature of the Cabcar business was fraught with danger from the outset and the conduct of the directors was far from “faultless”. It is nonetheless possible and appropriate to observe that if the directors had not quarrelled, if the computer programme was up and running from the outset, and if the project had been appropriately capitalised, the business may have prospered, but on the whole the respondent’s contentions are valid and sustainable. I should also say that in my opinion the decision of the delegate bore the hallmark of careful analysis and moderation and, apart from the proposition contained in paragraph 13.10 (first sentence), his conclusions on issues of fact appear to me to be appropriate and fully justified by the evidence. I am aware, of course, that I am engaged upon a rehearing on the merits, but as I have had no new evidence placed before me, it is entirely appropriate that I should look at the delegate’s Reasons to see if there are any obvious issues upon which he and I should disagree. With the single exception mentioned above and, as will be seen later, his conclusions on the question of length of disqualification, there is nothing of significance between us.
Contention 11
53. “Failure to keep records of employees could have been remedied by reconstruction from the bank records and would have been regularised upon receipt of the accounting package.”
54. In paragraph 11.3 of the delegate’s Reasons, he said:
“11.3On the material before me there is no indication that Cabcar kept proper records detailing the wages paid to its 2 employees, PAYE deductions, superannuation payments, rental for the premises and other outgoings. Mr Errichetti stated at the hearing that such records were maintained via the cheque book.”
55. At page 55 of the Transcript of Evidence (Exhibit “A” page 535) Mr Errichetti said:
“--- We - we had - we eventually employed two - two women, yes ---
Where were the records of wages paid, superannuation, PAYE deductions kept as no details of that? --- No, what - what - no, quite right. What actually - what occurred at that stage was - it was detailed in the - in the - in the chequebook specifically as per their wages. The superannuation had not been - I mean, I don’t - I didn’t ran - I didn’t run the business as far as those sorts of issues go. However, superannuation in those days I think was 5 per cent or 4 per cent. It wasn’t quite the same as it was now.”
56. The respondent submits that this contention is ill-founded and repeats that it would not have been possible to say what the position of the company was in relation to overheads. It was also repeated that the suggestion that the accounting package would have “regularised” the position is speculative.
57. I agree with the respondent that the delegate’s assessment of the effect of the evidence was correct. This was really just an extension of the submission that the accounting package would have cured most of the company’s ills. I have discussed that contention in previous paragraphs.
Contention 12
“The conclusion at paragraph 13.2 of the Reasons in respect of insolvent trading arise solely from the presumption arising by reason of s588E. if regard is had to the LIQUIDATOR’S REPORT it is clear, however, that the liquidator did not consider this conduct to contravene the relevant provisions of the Corporations Law.
Indeed, it is quite wrong to draw any conclusion as to “insolvent trading” from the section of the LIQUIDATOR’S REPORT referred to relevantly by the decision-maker at paragraphs 13.1 and 13.2 of the Decision.
Part 7 of the LIQUIDATOR’S REPORT (see T66) relates to determining a date for insolvency. The conclusion is that by reason of the financial records, this was the date of incorporation. It is notable that, as the LIQUIDATOR’S REPORT makes explicit, this conclusion is drawn solely for the purpose of determining a necessary date for the purposes of the report and that it was set by reason of a presumption.
It is notable also that the period of trading was considered by the liquidator to be slight – “only 2.5 months trading” (T66).
The decision-maker quite properly concluded that this insolvency was “technical” only, see 13.10 of the Reasons.”
58. The respondent’s answers to these propositions are as follows:-
“(a)The contention to the effect that issues of insolvent trading arise solely from the presumption under section 588E is without merit;
(b)In the report of the Liquidator, he stated that he was unable to positively determine the date of insolvency by reason of the failure by the company to maintain proper records;
(c)On the basis of the failure to keep proper records, the company was presumed insolvent in accordance with section 588E and there is no evidence before the Tribunal capable of rebutting that presumption;
(d)However, the detail of the Liquidator’s report indicates that the potential creditors of the company could be as high as $96,332.39.
(e)Based on the figures included in the Report as to Affairs prepared by the applicant, there would have been a deficiency of assets in the amount of $38,823.00;
(f)The contention that the delegate found that the insolvency was only “technical” is without merit; and
(g)On the basis of the matters set out above and the information in the Liquidator’s report, it was open to the delegate to find that the applicant had permitted Cabcar to trade whilst insolvent.
59. I agree with the respondent. The finding of insolvent trading should not be disturbed.
Contention 13
60. “It is erroneous for the decision-maker to have concluded, as he did at 13.10, that the overdrawing of the account constituted insolvent trading. It is wrong to suggest that on every occasion that a business goes into overdraft on its trading account that it is trading whilst insolvent. It is trite that a bank by honouring cheques which have the effect of placing an account into overdraft authorise the overdraft to the extent of the overdrawing.
61. On all occasions the overdrawn amounts were minute. On the date of the falling out, the account was in credit. By parity of reasoning, this would “prove” that the company was not trading whilst insolvent at this time.”
62. The respondent’s response was as follows:
“(a)The overdrawn amounts were not “minute” when compared to the low level of cash flow;
(b)A bank account repeatedly being overdrawn can be an indicator of a company’s inability to pay its debts as and when they fall due;
(c)Here, there was no formal overdraft facility approved (page T537);
(d)The fact that a company may have a credit balance at the date of winding up does not, as suggested by the applicant, establish that it was not trading whilst insolvent. Instead, it is necessary to consider the debts due and payable; and
(e)Here, the credit balance at the date of winding up was only $389.66.”
63. I agree with the applicant that overdrawing the account does not, per se, constitute insolvent trading, but that is not what the delegate said. At paragraph 13.10 of his Reasons he said:
“13.10I am of the view that, notwithstanding the above submissions, Cabcar was technically insolvent from day one as it was trading on a cashflow basis without any injection of capital. In addition, the debit balances referred to in paragraph 13.6 above indicate that in any event insufficient cashflow was being generated and the directors allowed Cabcar to trade whilst insolvent.”
64. I, for my part, I would express my conclusion as to these issues as follows:
Cabcar was technically insolvent from its first day of trading by virtue of the s588E presumption.
64. There was never a formal overdraft facility at the bank.
65. The company lacked tangible assets which could have been available to creditors in the event of liquidation.
66. The “cashflow no capital” basis of trading, with the bank account frequently slipping into overdraft demonstrates that the operation was never better than marginal and in all probability was actually, as well as technically, insolvent throughout the greater part of its existence of only 2½ months as a trading entity.
Contention 14
67. “All of this is to be understood in the context of the final position of the company in the matter; that the winding up of this company resulted in a surplus of $4,290.00, see Reasons 14.3; LIQUIDATOR’S REPORT paragraph 4.5 (at T65). The only reason that all creditors were not paid in full was because of the costs of the liquidation.
68. It is difficult to conceive of any company “surviving” the costs of liquidation. This is particularly so in respect of very small businesses, which this was due to its embryonic state.”
69. The respondent makes the following points in reply:
“(a)The contention that there was a surplus of $4,290.00 as at the date of winding up appears to be based upon the Liquidator’s report (Document 5) and, in particular, paragraph 4.5 of that report (page T65);
(b)To the extent the contention is based on the Liquidator’s report, it fails to appreciate the effect of the liquidator’s findings;
(c)As set out above, the calculated surplus of $4,290 does not take into account all debts owed by the company;
(d)The Liquidator reported that based on the combination of the Reports as to Affairs submitted by the directors of Cabcar, the total creditors’ claims could be as high as $96,332.39 (paragraph 6.1 on page T66);
(e)On the basis of the figures included in the Report as to Affairs submitted by the applicant, Cabcar at the date of winding up had a deficiency of assets in the amount of $38,823, without taking into account the costs of winding up (see page T64);
(f)In the light of the above, any contention that there was a surplus of assets at the date of winding up cannot be substantiated and appears contrary to the material in the Liquidator’s report.”
70. I have already commented briefly on these issues in paragraph 48 above. The simple fact is that creditors amounting in the value to $33,990 received only 28 cents in the dollar after liquidation costs were taken into account. The reasons why other debtors amounting to $22,338 were excluded from a dividend is not clear from the liquidator’s report and has not been clarified since.
Contention 15
71. “The conclusion at 13.4 of the Reasons displays a complete misunderstanding of the reality of embarking upon business ventures. Many small businesses are conducted in their initial stages on a cash negative basis. Many rely upon overdraft facilities from the business bankers to become established and survive in the short term. It is evidence from T350-355 that the business account went into overdraft on several occasions, all for small amounts. All cheques present were honoured.
72. In this case the fact that differentiated this business from a multitude of others is that this business, unlike others, experienced a complete breakdown due to a falling out amongst the incorporated partners within 2 months of the business commencing.”
73. The respondent says that these matters are irrelevant and do not in any way excuse the failure of the company to comply with the requirements of the Corporations Act. I agree. It seems to me there is a vast difference between a properly negotiated overdraft with collateral security and/or guarantees and the type of ad hoc overdrawing that occurred here where cheques could have been dishonoured at any time by the bank.
Contention 16
74. “It is notable that the decision-maker completely overlooked the evidence of Mr Errichetti at T490 to the effect that Mr Keating was in fact the principal of the business. Mr Errichetti was a mere driver and supplied one car. In this respect he was as much a victim as other creditors.”
75. The respondent says:
“(a)That the contention that the applicant was “a mere driver” is fanciful and mischievous;
(b)The applicant was a director of the company from it s commencement until the time of its winding up;
(c)The evidence of the applicant clearly establishes that he was involved at the outset in the establishment of the company and its business operations;
(d)The involvement of the applicant in the management of Cabcar was clearly established in the partnership deed at pages T406 and following; and
(e)The applicant’s evidence was also that he has been a director of some 20 companies and was clearly aware of his duties as a director (page T539).”
76. The applicant’s contention is without substance. The respondent’s contentions are irrefutable.
B. Swan River Timber Co Pty Ltd
Contention 1
77. The applicant contended that in addition to the facts found by the delegate, the following findings should be made:
“(a)At all material times Swan River maintained a cash book which accurately recorded all business transactions of Swan River, see Reasons 16.1 and 16.2.
(b)Mr Errichetti had at all material times a genuine belief that the a further injection of funds to the extent of $250,000 was to be received by Swan River between December 1994 and June 1995 [c.f. Reasons paragraph 18.2].
(c)The Toscana/Lebanese Contract would if it had proceeded have generated revenue of approximately $1,800,000.00 over a 12 month period, resulting in a pre-tax profit of approximately $950,000.00. [c.f. Reasons paragraph 18.6].
(d)The total debts of Swan River incurred in the period July to November 1995 was $8,670.34.
(e)Mr Errichetti was not involved in the management of Swan River [c.f. Reasons paragraph 20.2].”
78. The respondent answers these contentions as follows:
“(a)There was no evidence before the Commission, nor is there evidence before this Tribunal, to establish that the cash book “accurately recorded all business transactions of Swan River” (emphasis added).
The accuracy (or otherwise) of the cash book has not been established.
The keeping of a cash book does not satisfy the requirements to maintain proper financial records.
(b)Such alleged belief appears to be without basis.
The applicant’s evidence before the delegate was to the effect that, inter alia:
(i)following the failure of the Toscana/Lebanese contracts, the lender “was reticent to lend” (Transcript at T506); and
(ii)due to a lack of available assets, the funds required for the business could not be borrowed locally (Transcript at T527).
From the evidence it appears there was no contract with the proposed lender or any other obligation to provide the additional funding of $250,000.
(c)There is no cogent evidence to support the estimated revenue and profit figures.
In any event, the Toscana/Lebanese contract appears from the evidence to have been largely speculative.
The applicant’s evidence before the Delegate was to the effect that, inter alia:
(i)the sale of timber to the Lebanese customer was initially contingent upon obtaining access to the Toscana property (pages T503 to T504);
(ii)the initial agreement with Toscana was for the purchase of $25,000 worth of timber only (page T503, line 42);
(iii)only $15,000 was paid to Toscana in order that Swan River could try and get some stock for processing (page T528);
(iv)after some initial collection and timber, Toscana cut off access (page T504);
(v)the contract with Toscana was primarily a verbal contract (page T512 at line 33) with some exchange of letters (page T528 at line 25), however those letters are not in evidence before the Tribunal; and
(vi)no legal action was taken against Toscana; and
The applicant also gave evidence to the effect that Swan River “didn’t have the ability to do very large contractual work” (page T527).
(d)No dispute.
(e)(i) The applicant would attend meeting with the other directors of Swan Timber at the company’s premises “two, sometimes three, times a week” and probably at least once a week (pages T503, T526);
(ii)During those meetings, the directors would discuss the company’s financial concerns (page T526);
(iii)The directors also talked on the phone a lot (page T526);
(iv)The applicant was involved in part of the contractual negotiations between Swan Timber and Toscana (page T505);
(v)The applicant also did some of the accounting for Swan Timber and helped prepare the cashbook (page T531); and
(vi)The applicant probably maintained the cashbook at least every 7 to 10 days.”
79. I agree with the respondent’s contentions in respect of each and every contention advanced by the applicant. I do not reject the applicant’s claim that Mr Errichetti had a genuine belief that a further $250,000 would be forthcoming, but it appears to have been founded upon hope rather than substance. Likewise the estimated pre-tax profit from the Toscana/Lebanese contract seems to be fairly speculative. It is nonsense to suggest Mr Errichetti had no management role in Swan River – clearly he did.
Contention 2
80. “The Liquidator did not consider the failure to keep accounting records to be a serious matter. As with Cabcar the records that were kept would have enabled these accounts to be prepared.
81. The respondent replies:
“(a)Based on his submissions, the applicant does not dispute that Swan River failed to maintain proper records as required by the Corporations Act;
(a)The failure to maintain proper records is considered by the respondent to be a serious matter (cf Liquidator’s comment).
(b)The failure by Swan River to maintain proper records must be considered in light of the similar failure by Cabcar; and
(c)The contention that “As with Cabcar, the records that were kept would have enable these accounts to be prepared” is without basis.”
82. The Liquidator of Swan River said this:
“My examination of the Company’s books and records indicates that the Company maintained a cashbook. However no general ledger was maintained nor financial statements prepared.
Accordingly, I consider that an offence has occurred in regard to the maintenance of the Company’s books and records. However given the Company did maintain a cashbook and it only traded for a very short period, I do not consider the offence to be serious.”
83. In light of the fact that the company traded for about 2 years, the concluding remarks are a little surprising. In context I think the offence was significant. During most of the final year of trading the company was insolvent.
Contention 3
84. “Even if the reasoning of the liquidator in respect of the date of the commencement of insolvency is accepted (see T114), it is evident that the alleged offending trading was minor and the sum involved minor, $8,670.34.”
85. The respondent says:
“(a)Based on his submissions, the applicant does not dispute that Swan River traded while insolvent.
(b)In his report, the Liquidator found that Swan River was insolvent no later than July 1995.
(c)For Swan River, the Liquidator’s report also discloses that there would be a substantial shortfall in assets; and
(d)Trading whilst insolvent is considered by the respondent to be a serious matter.”
86. The Liquidator’s report said this:
“As noted in section 12 of this report it appears that the Company was insolvent no later than July 1995 and that the Directors should have suspected same. Therefore the Directors have committed an offence by allowing the Company to continue to incur credit up until July 1996. Further due to a lack of funds it has not been possible to pursue an action against the Directors in this regard. However the offence does not appear to be serious because the known quantum of debt incurred after this date was only $8,670.34 since July 1995. Finally the directors may well argue that at all times it had the financial support Errichetti Nominees Pty Ltd sufficient to allow it to meet its debts as and when they fell due. I however have been unable to locate any such evidence.”
87. The Liquidator’s report seems fair and balanced. The seriousness or otherwise of the director’s offence is to some extent a subjective judgment. In relative terms the offence does not appear to have been of significant gravity.
C. The Penalty
88. The initial submission was that no penalty was called for. I reject this. Mr Errichetti was not a novice. He was actively engaged in each company in management responsibilities. View collectively his delinquencies were not minor, insignificant, or technical. There was a substantial degree of culpability on his part in his failure to observe the minimum standards of directorial responsibility as identified in the Liquidator’s reports and the findings of the delegate.
89. He and his fellow directors chose to participate in their business enterprises in such a manner that their personal liability to creditors was limited in the event of failure. Those who chose to incorporate rather than trading as a partnership must observe the recognised standards of accountability. Mr Errichetti did not.
90. The Corporations Law s206F(2)(ii) requires that consideration must be given to whether or not disqualification is in the public interest. This process should not be considered from the viewpoint of infliction of punishment, but rather, from the perspective of the protection of the public.
91. I am also of the opinion that disqualification is called for to achieve this objective. The applicant says two and a half years is too long. Reference was made to numerous cases in which there have been judicial pronouncements as to the relevant factors to be taken into account.
92. The applicant referred to:
“Laycock v Forbes and ASC (1997) 15 ACLC 1814 @ 1820 (Per Goldberg J) approving Blunt v CAC (1988) 6 ACLC 1077 @ 1079 (per Young J), and applying Re Dawson Print Group Limited [1987] 3 BCLC @ 604 (per Hoffman J). See also Kardas v ASC (1998) 16 ACLC 1695 @ 1703 (per Heerey J), Byrnes and ASIC [2000] AATA 333, Healey and ASIC [2000] AATA 9”
Re Douglas Construction (1988) BCLC 397 @ 402.
Cullen v CAC (1999989) 7 ACLC 121 @ 128; and Dwyer v CAC (1989) 7 ACLC 743 @ 748
.
93. The respondent referred additionally to:
AWA v Daniels (1995) 37 NSWLR 438
Delonga v ASC (1995) 13 ACLC 246
Love v ASIC (2000) ACSR 363
Manning v Cory (1974) WAR 60
Sheslow v ASC (1994) 12 ACLC 740
Van Reesema v Flavell (1992) 7 ACSR 225
94. One of the more recent and useful discussions of principle appears to me to be that found in the judgment of Heerey J in the Federal Court in Kardas v Australian Securities Commission (1998) 16 ACLC 1, 695 at 1,703 – 1704; 29 ACSR 304 at 312 where His Honour said:
“Counsel submitted that the delegate failed to make any findings as to gross incompetence, a lack of appreciation of commercial reality, a cynical disregard of the trading disadvantages of limited liability, dishonesty, lack of scruples, untrustworthiness or irresponsibility.
This argument was based on a misconception. Insofar as Sheslow decided that, before a prohibition can be ordered under s600(3), there must be a finding of gross incompetence, lack of appreciation of commercial morality etc etc, or that a director can avoid such an order by merely establishing the absence of these particular factors, then in my respectful opinion it misstates the law. The existence or otherwise of such matters is doubtless relevant for the exercise of the discretion under s600(3).
But that it is a very different thing from saying, as the counsel in the present case and Sheslow appear to say, that these various matters constitute some kind of statutory criteria.
In Laycock v Forbes (1997) 15 ACLC 1, 814 at 1,821 Goldberg J said, after referring to Blunt v Corporate Affairs Commission (No 2) (1988) 6 ACLC 1,077 at 1,079 the English case of Re Dawson Print Group Ltd (1987) 3 BCLC 601 at 604 and Dwyer National Companies and Securities Commission (No 2) (1989) 7 ACLC 743 at 746:
‘However, these considerations [ie breach of standards of commercial morality or ‘really gross incompetence’] are not found in the terms of the legislation. Section 533 requires a liquidator to lodge a report if it appears to him in the course of the winding up of a company that an officer may have been guilty of an offence, that a person who has taken part in the management or winding up of a company has misapplied money or been guilty of any negligence, default or breach of duty or that the company may be unable to pay its unsecured creditors more than fifty cents in the dollar. The matters set out in s533 are disjunctive so that a liquidator may simply report on the fact that a company may be unable to pay its unsecured creditors more than fifty cents in the dollar without reporting on any particular matter in respect of a director. It seems to me therefore that it does not necessarily follow that a disqualification order can only be made after there is established some conduct which is in breach of standards of commercial morality or involves gross incompetence. As s600(2) entitles the Commission to give a notice to a person who is a relevant person in relation to two or more relevant bodies it seems to me that the legislation contemplates that it would be open to the commission to serve a notice on a person prohibiting him or her from managing a corporation simply because that person had been a director of two or more companies which had been unable to pay their unsecured creditors more than fifty cents in the dollar. Putting the matter another way, the power given to the Commission under s600 may be exercised because of the fact of such an association independently of pointing to any particular default on the part of the person to whom the notice is addressed.
I respectfully agree with His Honour. I would add that it is important not to lose sight of the circumstances which must exist before s600 can apply, namely that a liquidator has reported on the existence of one or more of the serious matters referred to in s533 in relation to two or more companies of which the person concerned was a director. As Lady Bracknell might say, to lose one company may be regarded as a misfortune, to lose two looks like carelessness. The bare fact of s533 reports being made in respect of two or more companies has been seen by Parliament as sufficient to raise the question whether the director concerned should, for the protection of the public, be prevented for a substantial period from benefiting directly or indirectly from the privilege of limited liability.
It would be inconsistent with the legislative purpose to read into the plain words of s600 some further pre-conditions such as ‘gross incompetence’. After all, unsecured creditors can suffer just as much loss from ordinary incompetence.”
95. The applicant submits that unlike several of the cases included in the above lists there was no evidence here of dishonesty by Mr Errichetti in respect of either company. It was also submitted that in respect of Cabcar there was no breach of commercial morality, no recklessness and no gross incompetence.
96. The applicant also submits:
“It is evident from cases such as Re Douglas Construction (1988) BCLC 397 @ 402 (per Harman J) that the concern of the provision (and its equivalents) is to protect the public against the abuse of the privilege of limited liability and to ‘rip off the public and cheat the authorities’.
It is difficult to conceive that the public requires protection from Errichetti. At worst it can be said that he has been a director of 2 companies that have maintained all necessary preliminary or source accounting papers but have not translated these to formal accounts.
The penalty imposed was, it is submitted, beyond the scope of that which emerges from decisions such as those in Cullen v CAC (19989) 7 ACLC 121 @ 128 (per Young J). This matter it is submitted on a scale from trivial to serious overwhelmingly closer to the former than the latter. See also Dwyer v CAC (1989) 7 ACLC 743 @ 748 (per Young J).”
97. The respondent’s submission included the following:
“1.The evidence establishes that for the 2 companies involved, the applicant failed to comply with a number of requirements under the Corporations Act.
2.In respect of Cabcar, the Liquidator of Cabcar reported, inter alia, the following matters:
(a)the directors failed to keep accounting records that correctly recorded and explained the company’s transactions and financial position;
(b)the directors failed to maintain sufficient records to adequately explain all business transactions entered into by the company;
(c)inaccurate values were included in the Reports as to Affairs (“RATAs”) provided by the directors;
(d)the directors allowed the company to trade whilst insolvent; and
(e)the company was wound up with an inability to pay its debts.
3.In respect of Swan River, the Liquidator reported, inter alia, the following matters:
(a)the directors failed to keep accounting records that correctly recorded an explained the company’s transactions and financial position;
(b)inaccurate estimates were included in the RATAs provided by the directors;
(c)the directors allowed the company to trade whilst insolvent;
(d)the company was wound up with an inability to pay its debts; and
(e)poor management by the company’s directors.
4.The matters raised in the applicant’s submissions fail to adequately address the matters of concern set out in the reports of the Liquidators.
5.The problems associated with the 2 companies largely stem from a failure by each company to maintain proper financial records in accordance with the Corporations Act. Of substantial concern to the Delegate was that this failure was common to both companies.
6.In Manning v Cory [1974] WAR 60, Burt J considered the requirement in section 161 of the Companies Act 1961 to keep such books as are necessary “to exhibit and explain the transactions and financial position of the trade or business of the company”. His Honour held that:
`The evident policy of that requirement is that the accounts should disclose or exhibit the financial position of the company at all times and at any time. They must be such as to enable one to say at any point of time where, in a financial sense, the company is, and it is not enough that they be such as to enable a competent accountant by producing a set of accounts long after the happening of the events to which they, ie, the cheque butts, receipts and so on relate, to say where ie has been and to establish the fact that it is then insolvent and are unable to carry on.’ (at 62).
7.Simply maintaining primary source documents such as those referred to in the applicant’s submissions is inadequate. See also: AWA Ltd v Daniels (1995) 37 NSWLR 438; Love v ASC [2000] WASCA 404; Reesema v Flavell (1992) 7 ACSR 225.
8.It is respectfully submitted that the evidence of the applicant before the Delegate demonstrates a failure to appreciate the requirements of the Corporations Act in this regard, notwithstanding that the applicant has been a director of some 20 companies and claims, in effect, to be well aware of his duties as a director.
9.In his reasons, the delegate noted that in accordance with the decision in Kardas v Australian Securities Commission (1998) 16 ACLC 1,695, it is not necessary to establish dishonesty, lack of commercial morality or gross incompetence as a precondition to determining that there are grounds for disqualification. However such matters may be relevant to the exercise of discretion as to the period of disqualification.
10.On the basis of the matters set out above, there were clear and serious failures by the applicant to fulfil his duties as a director of each Cabcar and Swan River. It is respectfully submitted that in light of the evidence before the Tribunal, the failures by the applicant, particularly in respect of the failure to maintain proper financial records, constituted recklessness and/or incompetence.
11.In addition to the matters set out in the reports of the Liquidators of Cabcar and Swan River, the respondent submits that the evidence before the Tribunal demonstrates a lack of appreciation on the part of the applicant in relation to the requirements of the Corporations Act.
12.The power of the Tribunal on review includes all of the powers open to the Commission. Consequently, in the event the Tribunal considers that a period of disqualification is appropriate, it may order any period up to 5 years.
13.However, the maximum period of disqualification ought to be reserved for `defaults of a serious nature such as dishonesty or a large number of defaults not substantially alleviated by appropriate remedial action and/or convincing assurances that they would [not] recur’: Re Civica Investments Ltd [1983] BCLC 456.
14.In the circumstances of this matter, the respondent respectfully submits that the disqualification period of 2 years and 6 months as determined by the Delegate is appropriate.”
98. It is quite apparent from the authorities that the relative seriousness of the misconduct of the director and the extent of the loss or harm which may fairly be sheeted home to that delinquency must be taken into account in assessing the duration of the disqualification.
99. The balancing process is not always easy and there is such diversity in the misbehaviour reported in the decided cases that no clear tariff or range can be deduced. Some extremely bad cases have been dealt with by the imposition of what seem to me to be relatively short periods of disqualification.
100. I agree with the applicant’s submission that his misconduct falls in the lower end of any discernible scale of penalty which may be assessed. This does not mean that I reject the respondent’s arguments as to penalty. They are all perfectly valid and relevant. But the essential thing to do is to fix a disqualification which fits into the scale to the extent that such a scale is discernible from the cases. Whilst there are certain difficulties in doing this (which I have mentioned above) I am of opinion that a period of one year is appropriate. The decision under review will be varied accordingly.
101. The applicant is disqualified for a period of 12 months from 11 July 2002 from managing corporations without the leave of ASIC. It is noted that the applicant made an application to suspend the operation of the period of disqualification imposed by the delegate pending the determination of the application to review, but this application was discontinued before any order was made.
I certify that the 101 preceding paragraphs are a true copy of the reasons for the decision herein of The Hon C R Wright QC., (Deputy President)
Signed: K L Miller (Administrative Assistant)
Date/s of Hearing 13 March 2003
Date of Decision 15 May 2003
Counsel for the Applicant Mr Donaldson
Solicitor for the Applicant Wilson & Atkinson
Counsel for the Respondent Mr M BenterSolicitor for the Respondent Australian Securities and Investments Commission
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