GRD v BJD - [2018] WASC 374

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   GRD -v- BJD [2018] WASC 374
CORAM:   MASTER SANDERSON
HEARD:   ON THE PAPERS
DELIVERED          :   4 DECEMBER 2018
PUBLISHED           :   4 DECEMBER 2018
FILE NO/S:   COR 160 of 2018
BETWEEN:   GRD
Plaintiff
AND
BJD
Defendant

Catchwords:

Corporations - Application by plaintiff bankrupt to act as director - Turns on own facts

Legislation:

Corporations Act 2001 (Cth)
Superannuation Industry (Supervision) Act 1993 (Cth)

Result:

Application granted

Category: B

Representation:

Counsel:

Plaintiff	:	On the papers
Defendant	:	On the papers

Solicitors:

Plaintiff	:	Butcher Paull & Calder
Defendant	:	In person

Case(s) referred to in decision(s):

Australian Securities & Investment Commission v Adler (2002) 42 ACSR 80
Chye v Australian Securities & Investment Commission [2012] FCA 1405

MASTER SANDERSON:

By originating process lodged 17 September 2018 the plaintiff seeks leave of the court under s 206G of the Corporations Act 2001 (Cth) to be a director of a corporation. At present he is an undischarged bankrupt. By par 2 of the originating process the plaintiff seeks relevantly the following orders:
(a)An order granting him leave to act as Director of, and to manage, Semohour Pty Ltd (ACN: 155 172 642) ('Semohour') or any other corporation which may replace it as Trustee of Controlled Risk Superannuation Fund ('the Fund') which is a self‑managed superannuation fund under the following conditions:
i.Semohour must not engage in any trading activity in any capacity other than as trustee of the Fund;
ii.The accounting work for the Fund is to continue to be performed by Tommasco Fico; and
iii.ASIC is to be given notice in writing at least 21 days before the filing of any application by GRD to vary the conditions in (i) and (ii), above.
In support of his application the plaintiff has sworn two affidavits, the first dated 17 September 2018 and the second dated 20 November 2018. The defendant is the former wife of the plaintiff. She opposes the application. She has sworn two affidavits, the first on 25 October 2018 the second on 26 November 2018. These four affidavits comprise the evidence upon which this decision is based.
A person who becomes bankrupt is, under s 206B(3) of the Corporations Act, disqualified from managing a corporation. Under s 206A(2) when a person is disqualified from managing a corporation he or she automatically ceased to be a director. Section 206G gives the power to the court to grant leave to a disqualified person to manage a corporation. That section is in the following terms:
206GCourt power to grant leave
(1)A person who is disqualified from managing corporations may apply to the Court for leave to manage:
(a)corporations; or
(b)a particular class of corporations; or
(c)a particular corporation;
if the person was not disqualified by ASIC.
(2)The person must lodge a notice with ASIC at least 21 days before commencing the proceedings. The notice must be in the prescribed form.
(3)The order granting leave may be expressed to be subject to exceptions and conditions determined by the Court.
Note: If the Court grants the person leave to manage the corporation, the person may be appointed as a director (see section 201B) or secretary (see section 204B) of a company.
(4)The person must lodge with ASIC a copy of any order granting leave within 14 days after the order is made.
(5)On application by ASIC, the Court may revoke the leave. The order revoking leave does not take effect until it is served on the person.
The plaintiff has complied with the requirements of s 206G(2). The conditions which are anticipated by the originating process if leave is granted were conditions proposed by Australian Securities and Investment Commission (ASIC). On the basis that an order is made subject to these conditions ASIC raises no objection to leave being given to the plaintiff to manage Semohour.
There are only two members of the Controlled Risk Superannuation Fund (the Fund) ‑ the plaintiff and the defendant. Although it does not figure in the application in its present form, there is another company which is relevant to this application. Aquarisk Pty Ltd (Aquarisk) is trustee of the Aqua Culture Unit Trust (the Trust). Prior to his bankruptcy the plaintiff was a director of Aquarisk. The units in the Trust are owned by Semohour in its capacity as trustee of the Fund. The shares in Aquarisk are held by the plaintiff and the defendant.
The Fund was established by way of Trust Deed dated 23 June 1995. A copy of the Trust Deed and the Deed of Retirement, Appointment and Variation to the Fund are found as attachment GRD4 to the plaintiff's first affidavit. According to the plaintiff, and it is not disputed by the defendant, the assets of Aquarisk include a property in Sandy Gully and a cheque account with a credit balance of approximately $50,000. These appear to be the extent of the assets owned by the Fund.
The plaintiff and the defendant have been separated since March 2015 and were granted a divorce order on 16 July 2016. The plaintiff says, and again the defendant does not dispute, that the defendant has never been involved in the management or control of either Aquarisk or Semohour. In his second affidavit, the plaintiff says that he and the defendant have reached an in principle agreement in the Family Court which would allow the defendant to 'roll out' of the Fund. At present the Fund is not compliant with the Superannuation Industry (Supervision) Act 1993 (Cth) because under s 17A of that Act each member of the Fund must be a director of the trustee. Unless the plaintiff is authorised to act as a director that position will not change when the defendant departs the Fund.
In his first affidavit, the plaintiff sets out the circumstances in which he became bankrupt. It is not necessary for me to detail the evidence. It is sufficient if I say that a business which he was conducting was adversely affected by competition and failed. The plaintiff was a guarantor of the debts of the business. When the guarantee was called up he was unable to meet the liabilities and was forced into bankruptcy.
In her affidavit the defendant calls into question both the business acumen of the plaintiff and his honesty. She alleges that certain decisions in relation to the business were taken without her knowledge and to her detriment. Apart from acknowledging the defendant's claims I am not in a position on an application such as this to make any adverse finding as to the plaintiff's honesty. All that can be said is that the plaintiff was solely responsible for managing a business which failed and led directly to his bankruptcy.
On an application such as this the plaintiff bears the onus of establishing that the prohibition should not apply. The policy of the legislation is to protect the public and to deter offending. The policy is not punitive: see Australian Securities & Investment Commission v Adler (2002) 42 ACSR 80 [56].
The matters which will be considered in an application for leave are set out in multiple cases and include:
(a)protection of the public and any shareholders;
(b)nature of the disqualification;
(c)applicant's character and conduct since the disqualification;
(d)the structure of the company and the nature of the business;
(e)the potential for repetition of contraventions;
(f)the risk to survival of the company; and
(g)the effect of any third parties of the company being unable to have the benefit of the applicant's knowledge.
These broad categories cover the situation where disqualification arises not only as a consequence of bankruptcy but for other reasons. Insofar as bankruptcy is concerned, the courts look to the circumstances in which the debts giving risk to the bankruptcy were not paid and the extent to which an applicant cooperated with the trustee in bankruptcy: see Chye v Australian Securities & Investment Commission [2012] FCA 1405. Hardship is unlikely to be a persuasive ground as a disqualification order contemplates hardship to the person subject to the order.
Looking at the defendant's evidence, it is difficult to see precisely on what basis she raises an objection to the plaintiff being a director of Semohour. Taken at its highest, the defendant alleges the dishonesty of the plaintiff makes him unfit to manage a corporation. As I have indicated above I am not in a position to make any findings on this allegation of dishonesty. But beyond that, not having the plaintiff as a director of Semohour means the Fund is non‑compliant and that may have adverse consequences for both the plaintiff and the defendant. Without analysing the position in detail, the taxation concessions offered to self‑managed superannuation funds may not be available to the Fund. While that would be a penalty for the plaintiff it would also be a penalty for the defendant. It is not clear from her evidence whether the defendant (who is self‑represented) has fully appreciated the consequences of this application being refused.
In the end I am satisfied that the order sought by the plaintiff ought be made. Semohour has a very limited role and there is no prospect of it being a trading corporation. Once a financial settlement is reached in the Family Court proceedings between the plaintiff and the defendant, the plaintiff will be the sole beneficiary of the Fund and the defendant will not be at risk were there to be any mismanagement of the corporation on the part of the plaintiff. Furthermore, the conditions imposed by ASIC would offer protection to any persons who might be affected by the plaintiff being involved in the management of the corporation.
Accordingly then I will make the order as proposed in the originating process. I would however note in passing that order does not extend to the plaintiff being a director of Aquarisk. Quite how that will affect the operations of the Fund is not clear from the evidence. In any event, I mention that company only for the avoidance of doubt as to whether or not any leave given to the plaintiff extends beyond Semohour. It does not.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
DG
ASSOCIATE TO MASTER SANDERSON
4 DECEMBER 2018