Fearon and Australian Prudential Regulation Authority
[2006] AATA 918
•30 October 2006
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2006] AATA 918
ADMINISTRATIVE APPEALS TRIBUNAL )
) No A2005/316
GENEERAL ADMINISTRATIVE DIVISION ) Re CHRISTOPHER FEARON Applicant
And
AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY
Respondent
DECISION
Tribunal J.W. Constance, Senior Member Date30 October 2006
PlaceCanberra
Decision 1) The decision of the Australian Prudential Regulation Authority made 28 November 2005 confirming the disqualification of Christopher Fearon under subsections 120A(1) and (2) of the Superannuation Industry (Supervision) Act 1993 is affirmed.
2) The decision of the Australian Prudential Regulation Authority made 8 December 2005 confirming the disqualification of Christopher Fearon under subsection 131(1) of the Superannuation Industry (Supervision) Act 1993 is affirmed.
..............................................
J.W. Constance, Senior Member
CATCHWORDS
CORPORATIONS – Banning order – Applicant disqualified as trustee and auditor of superannuation entity – Whether Tribunal should accept enforceable undertaking – Failure to meet professional standards – Protection of integrity of superannuation system.
Superannuation Industry (Supervision) Act 1933 (Cth) ss 120A, 131
Goodman v Australian Securities and Investments Commission [2004] FCA 1000
Kamah v Australian Prudential Regulation Authority (2005) 147 FCR 516; [2005] FCAFC 248
Re Slee and Australian Prudential Regulation Authority [2006] AATA 206
Re Preuss and Australian Prudential Regulation Authority (2005) 87 ALD 629; [2005] AATA 748
Rich and Another v Australian Securities and Investments Commission (2004) 220 CLR 129; [2004] HCA 42
REASONS FOR DECISION
30 October 2006 J.W. Constance, Senior Member INTRODUCTION
1. Mr Fearon has practised as a Chartered Accountant in Canberra since 1981.
2. He is seeking a review of two decisions made by the Australian Prudential Regulation Authority under the Superannuation Industry (Supervision) Act 1933 (Cth). A decision made on 28 November 2005 disqualifies Mr Fearon from being a trustee, investment manager or custodian of a regulated superannuation entity or a responsible officer of a body corporate that is a trustee, investment manager or custodian of a regulated superannuation entity. A decision of 8 December 2005 disqualifies Mr Fearon from being an approved auditor of the purposes of the Act.
3. For the reasons which follow I have decided that both decisions should be affirmed.
EVIDENCE AND FINDINGS OF FACT
4. Unless otherwise stated the following findings of fact are made on the basis of the evidence of Mr Fearon. I am satisfied of these facts on the balance of probabilities.
5. Mr Fearon graduated with a Bachelor of Arts in Accounting from the Canberra College of Advanced Education in 1980. The following year he was admitted to the Institute of Chartered Accountants in Australia. In 1987 Mr Fearon commenced practising as an auditor.
6. During the late 1990s Mr Fearon started doing consultancy work in association with KLA Australia Pty Ltd, a management consulting firm. In 2001 he relocated his existing accounting practice to office space adjoining the premises of KLA Australia Pty Ltd. This space was leased from KLA Australia Superannuation Fund, a fund associated with KLA Australia Pty Ltd. Later that year Mr Fearon changed the name of his accounting practice to KLA Accounting. He continued to trade as a sole practitioner until 1 July 2005, when he entered a partnership.
7. In March 2001 KLA Australia Investments (No2) Pty Ltd was appointed trustee of the KLA Australia Superannuation Fund. As is common practice among accountants Mr Fearon arranged for his appointment as an original director of the company when it was established. By June 2001 there were six directors of the trustee company, including Mr Fearon. The other directors were Mr Neimanis, Mr Lilley, Mr Thomson, Mr Guild and Mr Wall. All of the directors, with the exception of Mr Fearon, were members of the fund. Mr Fearon was also appointed a director of KLA Australia Pty Ltd, the employer sponsor of the fund, in May 2001.
8. As Mr Fearon was not a member of the superannuation fund he was not eligible to be a director of the trustee company. He should have resigned as a director of the company upon its appointment as trustee of the fund and he described his failure to do so as "a serious oversight".[1]
[1] Exhibit A1.
9. In 2002 the Authority conducted a review of the superannuation fund. This review was carried out in exercise of the Authority’s supervisory powers under the Superannuation Industry (Supervision) Act1993. On 9 May 2002 the Authority wrote to the directors of the trustee of the fund advising them of the results of the review and seeking that a number of concerns be addressed. Briefly these concerns were:
· the trustee’s failure to satisfy the equal representation rules;
· the fund had no formal procedures for the appointment of member representatives;
· the trustee’s failure to formulate an investment strategy;
· the fund was in breach of the in-house asset provisions;
· the trustee had failed to lodge the 2001 Annual Return;
· the trustee did not have adequate fraud control;
· the directors of the trustee did not understand their responsibilities and obligations under the Act;
· the Members Information Statement did not fulfil the member disclosure requirements;
· the trustee had not maintained records of all meetings where deliberations and decisions in other matters affecting the fund were discussed.
The directors were asked to submit an action plan to address these concerns.
10. Amongst other things the directors were asked to explain what action had been taken to arrange for the appointment of an auditor of the fund and to advise when the 2001 APRA annual return would be lodged. By that stage the annual return was considerably overdue.[2]
[2] Exhibit A2, T21.
11. By e-mail of 10 June 2002 Mr Thomson advised the Authority: "Audit. In progress. The auditor is looking at the consequences of issues raised in your letter." [3] Between June 2002 and February 2004 the Authority contacted the directors by telephone and by letter on a number of occasions seeking that the outstanding issues be addressed. In July 2003 officers of the Authority visited the offices of the trustee company.
[3] Exhibit A2, T22.
12. By letter of 27 February 2004 the Authority wrote to Mr Fearon and each of the other directors of the trustee company pointing out that they had failed to resolve the issues raised in the review and that the 2001, 2002 and 2003 Annual Returns had not been filed. The letter included the following advice:
"I have come to the preliminary view that you are not a fit and proper person to be a trustee, investment manager or custodian or a responsible officer of a trustee, investment manager or custodian and other superannuation entity.
I have therefore, come to the preliminary view, you should be disqualified from holding such office pursuant to subsections 120A(1), 120A(2) and 120A(3) of the [Superannuation Industry (Supervision)] Act…… Any information or material, which you believe is relevant to this decision, should be provided to me as soon as practicable and, in any event, no later than close of business on 19 March 2004”.[4]
[4] Exhibit A2, T52.
13. This advice to the directors caused considerable concern, and brought about some action to address the various matters which had been raised. Mr Fearon made enquiries of other accountants in an endeavour to have the necessary audit carried out but he could not obtain the services of an accountant who could do the required work quickly. Although the deadline given by the Authority related to the provision of information in relation to the proposed disqualifications, Mr Fearon and the other directors formed the view that if the outstanding matters could be attended to quickly, further action by the Authority may be avoided.
14. Prior to March 2004 Mr Thomson had undertaken the task of preparing the financial statements necessary for the audit to be carried out. In March 2004 Mr Fearon took responsibility for completing the financial statements and undertaking the audit. He acknowledged that "this was done in a big rush." [5]
[5] Transcript of Proceedings, 31 July 2006, p. 41.
15. On 19 March 2004 Mr Fearon caused one of his employee’s to prepare and lodge with the Australian Securities and Investments Commission a notice that Mr Fearon had resigned as a director and secretary of the trustee company on 15 March 2001. It is not clear when Mr Fearon resigned but it was certainly no earlier than 2004. Mr Fearon’s evidence was that he resigned prior to starting work on the accounts and the audit. There is no written resignation from these positions by Mr Fearon.
16. In his statement of 12 May 2006 filed in these proceedings, Mr Fearon acknowledged that he was not in a position to be an independent auditor because he was a director of the employer sponsor, KLA (Australia) Pty Limited, and had been a director of the trustee company. In giving evidence he said that he should not have conducted the audit and that he was wrong in backdating the time of his resignation in the notice to the Commission. I am satisfied Mr Fearon deliberately falsified the notice of his resignation to deceive both the Authority and the Commission.
17. Mr Fearon has stated that he decided to conduct the audit for a number of reasons:
· he was unable to obtain another auditor who was willing to undertake the audit quickly;
· he was under pressure from the Authority to have the audit undertaken and the returns lodged;
· he had agreed to take on responsibility as accountant of the fund and needed to have the returns and audit finalised;
· it was likely the directors would be disqualified and the assets of the fund frozen.
He also said that at the time he had a heavy workload and was experiencing personal pressure arising from the breakdown of his marriage. I accept Mr Fearon's evidence in this regard.
18. There is no doubt that in undertaking the audit Mr Fearon acted improperly. The Act requires that the audit be carried out by an “approved auditor” and to qualify as such Mr Fearon was required to comply with the standards of the Institute of which he was a member. By reason of his directorship of the trustee company he was not independent and in performing the audit he was in breach of the Rules and Standards of the Institute. An auditor is required to comply with professional standards even though those standards are not prescribed by statute: Goodman v Australian Securities and Investments Commission [2004] FCA 1000.[6]
[6] At Paragraph 25-26.
19. Apart from the matters arising from the facts set out above, there are a number of other aspects of Mr Fearon 's evidence which are of concern.
20. Mr Fearon was appointed a director of the trustee company in March 2001. In his statement of 12 May 2006 he informed the Tribunal that following his appointment “I had no involvement in the running of the Trustee Company. The only director’s duties I performed after that date were the signing off and submission of ASIC documents.” [7] When asked by Counsel for the Authority as to his performance of the various duties of a director he replied "really just signing the documents" [8] and that he could not recall being part of the effective decision-making of the trustee company. On further cross- examination, Mr Fearon admitted that he performed a number of duties as director in addition to the signing of documents. He said that what he meant was that “I really had nothing to do with the management of the assets of the superannuation fund." [9] I am satisfied that Mr Fearon did play an active management role in the trustee company and that he endeavoured to minimize this role in representations to the Authority and initially, to this Tribunal.
[7] At Paragraph 24.
[8] Transcript of Proceedings, 31 July 2006, p. 28.
[9] Transcript of Proceedings, 31 July 2006, p. 46.
21. By letter of 13 March 2001 Mr Fearon represented himself to the Authority as the contact person who was available to receive and deal with inquiries in respect of the fund.[10] In May 2003 and July 2003 Mr Fearon received letters from the Authority which raised serious concerns about the matters requiring attention by the trustee. Mr Fearon did not reply to these letters nor did he advise the Authority that he was not the appropriate person to receive them. Nevertheless, when Mr Fearon wrote to the Authority in November 2005 providing information in support of his request for a reconsideration of the decision that he be disqualified as an approved auditor, he denied that he was ever the spokesperson for the trustee.[11]
[10] Exhibit A2, T43.
[11] Exhibit A2, T7.
22. Mr Fearon initially misunderstood the complexity of the audit which he undertook. At the time he undertook the audit he should have been aware of the complexities arising from the existence of a unit trust and non-complying loans. He now knows it was a much more complicated audit than he originally believed.[12]
[12] Transcript of Proceedings, 31 July 2006, p. 38.
23. In evidence Mr Fearon stated that Mr Thomson had been asked to prepare the financial statements but had not done so and that it was necessary that Mr Fearon complete the financial statements in order to conduct the audit. He said that in 2004 he prepared them for all three years, namely 2001, 2002 and 2003. [13] When Mr Fearon was shown a copy of the 2001 accounts which was signed and dated 20 February 2002, he was unable to explain how this had occurred in view of his earlier evidence. He did not think that they had been backdated. He said that he did not complete them in 2002. Mr Fearon was also unable to explain how the financial accounts for 2002 and 2003, which he said he had prepared in March 2004, were signed by two directors and dated 30 January 2004.
[13] Transcript of Proceedings, 31 July 2006, p. 41.
24. In March 2004 Mr Fearon provided the completed audit reports to the trustee and members of the superannuation fund and to the Authority. These reports appear in Exhibit A2, document T7. In the reports, Mr Fearon certified that the fund complied with various legislative provisions which are clearly inapplicable to the fund he was auditing. These were fundamental errors. In one case certification was made in relation to a provision which dealt with self-managed superannuation funds which was irrelevant to the audit he conducted. In cross-examination Mr Fearon was asked "and so the idea of compliance with section 17A is just nonsense, isn't it?" He replied "absolutely, yes."[14] He acknowledged that he certified, to both the Authority and the members of the fund, compliance with certain provisions for which certification was completely incorrect.[15] Mr Fearon also incorrectly reported that the trustee had determined that the fund was not a reporting entity.[16]
Evidence of Mr Thomson
[14] Transcript of Proceedings, 31 July 2006, p. 60.
[15] Transcript of Proceedings, 31 July 2006, p. 61.
[16] Transcript of Proceedings, 31 July 2006, p. 75.
25. Mr Thomson gave evidence that he became a director of KLA Australia Pty Limited in early 2001. He was also a member of the KLA Australia Superannuation Fund. He confirmed that as the Authority was pressing the trustee company to lodge annual returns and because of the threat to disqualify the directors, Mr Fearon was asked to prepare the annual statements and to conduct the audit.
26. Mr Thompson resigned as a director of the trustee in April 2003 as he was leaving the business. As a result of his decision to leave, his relationship with some up his colleagues was strained and from that time he directed enquiries from the Authority to Mr Fearon. He believed that until the time of his resignation it was his responsibility to prepare the financial reports for the trustee. After his resignation he had no interest in who was responsible for this task from that time onwards. He could not recall the state of preparation of the financial reports at the time of his resignation.
Evidence as to Mr Fearon’s state of health
27. Dr Stevens, Clinical Psychologist, first assessed Mr Fearon on 5 October 2005. Mr Fearon was referred to Dr Stevens by his solicitors for the purpose of obtaining a report for these proceedings. Dr Stevens has provided treatment to Mr Fearon since the initial referral and was continuing to do so at the time of the hearing. At the initial consultation Mr Fearon was subjected to a number of psychological tests. Dr Stevens provided reports of 20 October 2005 [17] and 24 July 2006.[18]
[17] Exhibit A2, T7, p.121.
[18] Exhibit A5.
28. In October 2005, Dr Stevens diagnosed Mr Fearon as suffering from a Major Depressive Disorder, Chronic. He assessed the condition as moderate-severe on a range of mild-moderate-severe. The diagnosis was fully supported by the results of the psychometric testing. In his report of 20 October 2005 Dr Stevens stated:
“He exhibits insight into the repercussions of his actions, he has also indicated social maturity in accepting responsibility and has previously exhibited a willingness to independently self-correct his errors of judgment.
I think it is important to understand the nature of clinical depression in relation to the impulsive actions in relation to the audit of the super fund. He was not aware of how much his mental health had deteriorated, and was over-relying on coping through over-work in his professional practice. Gradually his judgment was affected, with impulsive poorly considered actions under stress. This is largely situational and does not reflect defects in character. I think that he would be unlikely to repeat such an action if he can be assisted to recover from depression and find better coping mechanisms."
Dr Stevens recommended 6-8 sessions of counselling. At the time of the hearing Mr Fearon was undertaking these sessions on a weekly basis.
29. When Dr Stevens provided a second report on 24 July 2006 he was of the opinion that Mr Fearon would not meet the criteria for Major Depressive Disorder. His diagnosis at the time of the second report was “Major Depressive Disorder Recurrent in remission” and his opinion was that Mr Fearon was likely to fully recover especially if he could make significant changes in his balance of work and leisure.[19] Importantly, Dr Stevens concluded that "I do not see that his depressive symptoms are disabling to any degree such as to significantly affect the quality of his work at present or in the foreseeable future..... I think that there is a very low risk of any further problems in this area of his professional practice”.
[19] Exhibit A5.
30. Dr Stevens gave evidence and confirmed the views he had expressed in his reports. His opinions were not challenged by the Authority. Having heard and observed Mr Fearon in the witness box and having heard the opinions of Dr Stevens I accept the evidence of Dr Stevens. I am satisfied that there is now a very low risk that Mr Fearon will repeat the errors he has made in the past should he again be in the position to act as an auditor and/or a trustee of superannuation funds. I am also satisfied that he is genuinely undertaking and is benefiting from the counselling being provided by Dr Stevenson. Having said this, it is clear on the evidence, that at the time of the hearing, further counselling would be of benefit.
Evidence as to character
31. There is evidence before me that Mr Fearon is generally regarded as a man of good character and professionally competent.
32. Ms Gail Freeman, a Fellow of the Institute of Chartered Accountants in Australia, provided a statement[20] which was not challenged by the Authority. Ms Freeman expressed the opinion that Mr Fearon is an honourable and upright person who she believes made an error of judgment which he now acknowledges. Ms Freeman has known Mr Fearon since 1973 as a professional colleague and for some time as a student. Since 1987 Ms Freeman has been a Councillor on the Council of the ACT Division of the Institute and on two occasions was the President of that organisation.
[20] Exhibit A6.
33. Mr Thomson, in his statement of 12 May 2006 [21] said that he had known Mr Fearon both professionally and socially for over 20 years. In his judgment Mr Fearon was a person of good fame and character who was caught in circumstances in which he acted to make good problems caused by others. Mr Thomson also gave evidence of Mr Fearon’s work with CrimeStoppers, the Police Citizens Youth Club and Rotary International. Mr Fearon is also an active worker for the Salvation Army Red Shield appeal and is the honorary auditor for a number of charitable organisations.
[21] Exhibit A7.
34. I am satisfied that Mr Fearon is, and is generally regarded as, a man of good character who plays an active role in the community.
Continuing Education
35. Within the past 12 months Mr Fearon has attended courses directly relevant to the duties of an auditor and trustee of superannuation funds.
STATUTORY BACKGROUND
36. Section 120A of the Act outlines the circumstances in which the Authority may disqualify individuals:
(1) The Regulator may disqualify an individual if satisfied that:
(a) the person has contravened this Act or the Financial Sector
(Collection of Data) Act 2001 on one or more occasions
(whether before or after the commencement of this section);
and
(b) the nature or seriousness of the contravention or
contraventions, or the number of contraventions, provides
grounds for disqualifying the individual.
(2) The Regulator may disqualify an individual who is, or was
(including before the commencement of this section), a responsible
officer of a trustee, investment manager or custodian (the body
corporate) if satisfied that:
(a) the body corporate has contravened this Act or the Financial
Sector (Collection of Data) Act 2001 on one or more
occasions (whether before or after the commencement of this
section); and
(b) at the time of one or more of the contraventions, the
individual was a responsible officer of the body corporate;
and
(c) in respect of the contravention or contraventions that
occurred while the individual was a responsible officer of the
body corporate—the nature or seriousness of it or them, or
the number of them, provides grounds for the disqualification
of the individual.
37. Section 131 relevantly provides in relation to auditors:
Disqualification order
(1) The Regulator may make a written order (disqualification order)
disqualifying a person from being an approved auditor for the
purposes of this Act if:
(a) the person has failed, whether within or outside Australia, to
carry out or perform adequately and properly:
(i) the duties of an auditor under this Act or the regulations;
or
(ii) any duties required by a law of the Commonwealth, a
State or a Territory to be carried out or performed by an
auditor; or
(iii) any functions that an auditor is entitled to perform in
relation to this Act or the regulations or the Financial
Sector (Collection of Data) Act 2001; or
(b) the person is otherwise not a fit and proper person to be an
approved auditor for the purposes of this Act.
….
Revocation
(5) The Regulator may revoke a disqualification order. The
Regulator’s power to revoke may be exercised:
(a) on the Regulator’s own initiative; or
(b) on written application made by the disqualified person.
ISSUES FOR DETERMINATION
38. There appear to be three possible outcomes in this matter:
· the decisions under review be affirmed which would mean that Mr Fearon continues to be disqualified indefinitely;
· the decisions under review be set aside and Mr Fearon be permitted to immediately act as an auditor and/or trustee of superannuation funds; or
· the decisions under review be set aside and the Authority accept undertakings from Mr Fearon to prevent his acting as an auditor and trustee of superannuation funds for a specified period.
39. The Authority has urged on me that the first of the above is the preferable decision. In his Statement of Facts and Contentions Mr Fearon, argued that the second outcome would be appropriate however this was not pressed at the hearing. For reasons I will set out, I do not consider that a decision which brought about the second outcome would be preferable in this case.
40. Counsel for Mr Fearon argued that the preferable decision is that the decisions under review be set aside and the Authority accept undertakings from Mr Fearon as to his future conduct. The first undertaking which has been offered by Mr Fearon is that he would not act, or seek to act, as a trustee, investment manager or custodian of a superannuation entity or a responsible body that is a trustee, investment manager or custodian of a superannuation entity, other than a self-managed superannuation fund of which he and any prospective spouse were the only members. In relation to the position of auditor, Mr Fearon offered to undertake that he would request from the Institute of Chartered Accountants in Australia a quality review of his practice; that he would not, for a period of time to be specified, act as an auditor of a superannuation fund under the Superannuation Industry (Supervision) Act 1993 and that within a specified time he would undertake 40 hours of training in the responsibilities of auditors and in the conduct of audits of superannuation funds. Mr Fearon offered that the undertakings be for a period of three years from the time of his original disqualifications in each case.
41. The issue for determination therefore is whether
(a) the decisions to disqualify Mr Fearon should simply be set aside and decisions that Mr Fearon not be disqualified be substituted; or
(b) the preferable decision is that the Authority accept undertakings from Mr Fearon in the terms outlined above for specified periods.
In neither case would Mr Fearon be free to immediately resume acting as an auditor of superannuation funds and/or the role of trustee of such funds.
DETERMINATION OF THE ISSUES
42. It is clear that the powers of disqualification given by sections 120A and 131 of the Superannuation Industry (Supervision) Act 1993 are intended to protect the public from the actions of those who do not meet the standards required of them as auditors and trustees, rather than to punish the individuals concerned: Kamah v Australian Prudential Regulation Authority 147 FCR 516; Re Slee and Australian Prudential Regulation Authority [2006] AATA 206. However to protect the public there must be a clear message given that conduct such as that undertaken by Mr Fearon will give rise to a substantial penalty. I agree with the submission of Counsel for the Authority that the financial integrity and the prudential management of superannuation funds is dependent upon auditors and trustees and their professional independence, honesty and integrity in the way in which they carry out their functions. I also agree with his submission that:
".......superannuation generally these days forms an incredibly important part of the financial security of this nation. It has reached a point now where enormous amounts of money are invested in superannuation and it is done for the purposes of securing the financial interests and retirement abilities of the Australian population as it grows older, …… and the security of the money to achieve those funds to be there in the times of retirement is what underlies the whole operation of superannuation and its importance for the future is why the government gives very significant tax concessions to enable and encourage people to invest in superannuation for their future."
43. I am satisfied that Mr Fearon's conduct was such as to require action to protect the public and the integrity of the superannuation system. Mr Fearon failed over a number of years to comply with obligations placed on him as a director of the trustee of the fund and repeatedly failed to comply with requests of, and to heed the warnings of, the Authority. When Mr Fearon finally did take action he took steps to deliberately deceive both the Authority and the Australian Securities and Investment Commission as to the time of his retirement as a director of the trustee company. This was done to enable him to carry out an audit which he knew he should not have undertaken in any event. When he did carry out the audit he failed to exercise reasonable care and to meet the necessary professional standards. Whilst his actions have been explained as being a result of a combination of circumstances, his actions cannot be excused.
44. The Tribunal stands in the shoes of the original decision maker, in this case the Authority, the regulatory authority under the Act. However, in doing so, it is necessary that the decision be made in light of the circumstances which exist at the time the decision is reviewed. I have therefore given careful consideration as to whether, at the time of this decision, it is appropriate that Mr Fearon be disqualified under one or both of the sections of the Act to which I have previously referred. I have taken into account that Mr Fearon has sought professional help from Dr Stevens and that at the time of the hearing was continuing to attend counselling sessions and that he has undertaken additional professional training. I have also taken into account that Mr Fearon genuinely regrets his actions and it is unlikely that he will repeat his past mistakes. On the other hand, Mr Fearon does not appear to fully appreciate even yet the importance of being accurate in the information he has provided in relation to this matter. I have set out in my findings of fact, instances in which Mr Fearon has not paid the attention he should in providing material, whether by way of oral evidence or otherwise, to the Authority and to the Tribunal.
45. Notwithstanding the steps taken by Mr Fearon since the disqualifications were initially imposed, it is not preferable that the decisions to disqualify be set aside and that there be no further restriction on his entitlement to act as either an auditor or a trustee. Continuing restrictions are necessary to protect the public and the integrity of the superannuation system.
46. It therefore becomes necessary to consider whether it is preferable to set aside the decisions under review and to decide that undertakings restricting Mr Fearon's ability to practise in either role be accepted. In appropriate circumstances the Tribunal may accept undertakings: Australian Securities and Investments Commissionv Daws [2006] FCA 723.[22]
[22] At Paragraph 22.
47. This is not a case in which the acceptance of undertakings would be appropriate. Subsections 120A(5) and 131(5) provide that the Authority may revoke Mr Fearon 's disqualifications. These powers to revoke may be exercised on the Authority's own initiative or on written application by Mr Fearon. If I set aside the disqualification orders and accept undertakings for specified periods I would be usurping the powers given to the Authority. These powers are to be exercised in the light of the circumstances which exist at the time they are exercised. At that time the Authority can take into account such matters as Mr Fearon's having undertaken further counselling and/or training and any conduct of Mr Fearon subsequent to this hearing which is relevant to his fitness to act in the positions. I should not fetter the exercise of the discretion given to the Authority by the Parliament by determining now the time that Mr Fearon will be fit to resume the duties in question.
48. If I had decided that an acceptance of undertakings was an appropriate course, I would not have been prepared to accept an undertaking which would have allowed Mr Fearon to act in relation to a superannuation fund in which he and/or a prospective spouse had an interest. As I have already stated, part of the purpose of this legislation is to protect the integrity of the superannuation system. This principle is as equally applicable to funds for the benefit of Mr Fearon as anyone else. In addition, a prospective spouse of Mr Fearon is equally entitled to protection. I agree with the statement of Member Allen in Re Preuss and Australian Prudential Regulation Authority (2005) 87 ALD 629:
“ In the circumstances of this case I agree with the contentions made on behalf of the respondent that an undertaking is not an appropriate way to deal with the matter. I have already referred above to the importance of superannuation and the need to maintain confidence in the system. There is also a substantial tax payer interest in how superannuation funds are administered and it is not possible to say that a superannuation fund, even a self managed one, is an entirely private matter. I have no doubt that the applicant's wife trusts him in much the same way as many of the members of the AISF would have trusted him -- and to that extent there is an element of protection required for his wife." [23]
[23] At p. 651.
49. Had it been appropriate to accept undertakings I am of the view, notwithstanding the offer of three years by Mr Fearon, that an appropriate period for such undertakings would have been two years from the time of the initial decisions. In Rich and Another v Australian Securities and Investments Commission (2004) 220 CLR 129 the High Court considered the various factors to be taken into account in determining the length of disqualification under the provisions of the Corporations Act 2001 (Cth).Taking into account the circumstances that gave rise to Mr Fearon taking on the role of auditor, the role of the other directors of the company, that the assets of the fund were not depleted and that Mr Fearon made no financial gain from his actions I am of the view that a period of two years in each case would have been appropriate.
DECISION
50. The decision of the Australian Prudential Regulation Authority made 28 November 2005 confirming the disqualification of Christopher Fearon under subsections 120A(1) and (2) of the Superannuation Industry (Supervision) Act 1993 is affirmed.
51. The decision of the Australian Prudential Regulation Authority made 8 December 2005 confirming the disqualification of Christopher Fearon under subsection 131(1) of the Superannuation Industry (Supervision) Act 1993 is affirmed.
I certify that the 51 preceding paragraphs are a true copy of the reasons for the decision herein of J.W. Constance, Senior Member.
Signed: .....................................................................................
Joe Meagher, AssociateDate/s of Hearing 31 July & 1 August 2006
Date of Final Submissions 24 August 2006
Date of Decision 30 October 2006
Counsel for Mr Fearon Mr W Arthur
Solicitor for Mr Fearon Dibbs Abbott Stillman
Counsel for the Respondent Mr G McCarthy
Solicitor for the Respondent Australian Prudential Regulation Authority
8
0