Heesh and Companies Auditors and Liquidators Disciplinary Board and Australian Securities and Investments Commission
[2001] AATA 87
•8 February 2001
DECISION AND REASONS FOR DECISION [2001] AATA 87
ADMINISTRATIVE APPEALS TRIBUNAL )
) No N2000/822
GENERAL ADMINISTRATIVE DIVISION )
Re TIMOTHY PAUL HEESH
Applicant
And COMPANIES AUDITORS AND LIQUIDATORS DISCIPLINARY BOARD
Respondent
And AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Party Joined
DECISION
Tribunal Deputy President J Block
Date8 February 2001
PlaceSydney
Decision The decision under review is affirmed
..............[J Block]....................
Deputy President
CATCHWORDS
CORPORATIONS – Companies Auditors and Liquidators Disciplinary Board – suspension of registration of liquidator – whether failure to perform adequately and properly the duties of a liquidator
Corporations Law (Cth) – sections 232, 443A, 443BA, 443D, 448B, 451A, 1292
Kendle v Melsom (1998) 193 CLR 46
NEC Information Systems Australia Pty Ltd v Lockhart (1991) 22 NSWLR 518
Rogers v Whitaker (1992) 175 CLR 479
Re Young and Companies, Auditors and Liquidators Board & Australian Securities and Investments Commission (party joined) [2000] AATA 488
Bowstead and Reynolds on Agency (16th edition)
REASONS FOR DECISION
8 February 2001 Deputy President J Block
The decision under review in this matter is a decision by the Respondent dated 9 May 2000; in accordance with that decision, and in respect of which detailed reasons (T2) were provided, the Respondent ordered:
(a) firstly, that the Applicant's registration as a liquidator be suspended for a period of two months (and that order was itself suspended on terms which are not relevant to these Reasons); and
(b) secondly, that the Applicant pay the costs of the hearing, and which were agreed at an amount of $20,000.(a) Mr Murray, of the Australian Government Solicitor, appeared at the hearing on behalf of the Respondent; he was permitted to excuse himself on the basis that the Respondent would abide by the decision of this Tribunal.
(b) Mr T Lynch of Counsel, instructed by Mr T Williams, solicitor, appeared for the Applicant, while Mr J Priestley of Counsel, instructed by Mr Boland of the Australian Securities and Investment Commission ("ASIC") appeared for the Party Joined (referred to henceforth as ASIC).
(c) It was agreed between the parties that the matter would be argued on the papers and that no oral evidence would be called. The papers before the Tribunal included the T Documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975.
(d) It was common cause that the period of suspension referred to in paragraph 1(a) has expired. Moreover, as Mr Lynch conceded, I have no power, (having regard to the decision of Deputy President McMahon in Re Young and Companies, Auditors and Liquidators Board & Australian Securities and Investments Commission(party joined) [2000] AATA 448), to interfere with the costs order, which must stand if I am in favour of the Respondent and which must fail if I find against the Respondent.(a) I note by way of preface that the T Documents and exhibits before me are very lengthy. Moreover argument (and as set out previously, the hearing was confined to argument on the documents before me only) ensued for one and a half days. This matter is plainly one of some considerable importance to the parties, and so much so that it is entirely conceivable that this decision will be appealed. It is in these circumstances that I commence by setting out in full the detailed written contentions of the parties, and which were handed to me (most helpfully) in the case of the statements referred in this paragraph 3(a), at the commencement of the hearing. In this context:
(i) The Applicant's Outline (revised) dated 19 December 2000, reads as follows:
1.The appeal arises out of the circumstances of the voluntary administration of 3 companies:
(1) Cobe International P/L:
·administrator: G McDonald
·appointed: 6.1.95
T4.15, p119
(2) Venia Co P/L:
·administrators: P Rogers and G McDonald
·appointed: 5.6.95
T4.11, p138
(3) Attia Imports P/L:
·administrators: G McDonald and T Heesh
·appointed: 16.1.96
T4.28, p173
·ceased: 19.4.96
T4.37, p209
2.In respect of the Attia Imports administration, ASIC alleges that Heesh:
(1)did not disclose his firm's prior involvement with Cobe and Venia,
ASOFAC, 2.1
(2) did not report as required by s439A(4)(a) CL;
ASOFAC, 2.2
(3) in relation to the sale of Attia's business breached s232(4) CL,
ASOFAC, 2.5
(4) did not report as required by s438D(1) CL.
ASOFAC, 2.7
3.More generally, it alleges that he failed to involve himself in the administration at all, or in any proper manner.
ASOFAC, 6
4.The Applicant has always acknowledged that he took no part in the Attia administration.
T12, para 14
T20, p20.27
He says that was in accordance with an established practice at his then firm.
T12, para 10
5.It follows that factually the conduct complained of in 2(1) to (4) above was not his own, but rather that of his co-administrator Mr McDonald.
6.The principal issues in this appeal are whether Mr Heesh:
(1) had a ".. duty or function required by ...Australian law ..."s1292(1)(d)(ii)
to involve himself in the Attia administration, and(2) if there was such a duty, what was the involvement required by the law.
ASIC contends that there is such a requirement of law but does not identify its source or its content.
"Duty or function required by law"7.It is not part of ASIC's case that Heesh is vicariously liable for any deficiencies of McDonald's conduct.
T9, p294, para 2
8.(1) ASIC's complaint is that Heesh did "nothing in relation to the Administration".
T9, p2941 para 2
(2) It is not their case that Heesh concurred in the conduct of McDonald about which they complain.
(3) Nor is it part of ASIC's case that apart from s1292(1)(d)(ii) Mr Heesh is otherwise not fit and proper to remain registered.
(4) The proceedings against him are premised on a requirement of Australian law having been not complied with and nothing else.
9.Mr Heesh (together with Mr McDonald) was appointed:
"Joint Administrators, ...(each of them severally, and both of them severally), ..."
ss436C1 CL
451A1, CL10.An appointment either "jointy" and or "severally" or jointly with the capacity to exercise the Powers of the appointment "jointly and severally" is an appointment different in nature from on the act "jointly".
Bowstead-Reynolds on Agency, para 2-042
Kendle v Melsom (1998) 193 CLR 46
Gummow & Kirby JJ, para 40.4
Hayne J, para 62
NEC v Lockhart (1991) 22 NSWLR 518
Kirby P, p525.E
Meagher & Samuels JJ, p530.E11.An appointment in such terms authorised Mr McDonald to act independently of Mr Heesh in relation to the Administration (ie, severally).
12.The question that then arises is:
"what is the Austratian Law that required Mr Heesh to "involve" himself in McDonald's exercise of his own (several) authority as Administrator".
ASOFAC, para 6
13.If the nature of the appointment/power being exercised is one which does not have to be, and is not being, exercised collectively, then it is not and cannot be part of Australian law that the nature of the appointment/power brings with it a duty or function to "involve" oneself in the exercise of the appointment / power.
14.(1) This is because such an implied duty or power would be inconsistent with a "several " exercise of it.
(2) It would convert a "joint and several" appointment/power back into a "joint" (only) appointment/power, ie the implication would be inconsistent with the express nature of the appointment/power.
15.This is recognised in the cases. In both Kendle v Melsom and NEC v Lockhart it was expressly acknowledged that the nature of "joint and several appointments" of receivers was such that the appointees acting "severally" rather than "jointly" might act inconsistently even in opposition to each other Kendle v Melsom, supra
Hayne J, para 63
NEC v Lockhart, supra
Kirby P, pp526.6 -527 A
Meagher &. Samuels JJA, pp529E -530D16.The practice engaged in by Heesh, allowing the co-appointee to lead and him being available in reserve, was exactly that contemplated by Kirby P, and is consistent with the "practical approach" assumed in the other judgments.
17.(1) The nature of "joint and several" authority does not establish a requirement of Australian law supportive of ASIC's case that Heesh had to involve himself in the particular matters in 2(1) to (4) above or generally.
(2) It is a notable feature of ASIC's ASOFAC that Heesh is responsible for all of McDonald's deficiencies in the Attia administration. ASIC does not content that the obligation for involvement is restricted to only some aspects of the administration.
18.The point in 17(2) is illustrated by ASOFAC 2.5: the sale of a business is the specific example of an exercise of several authority given in NEC v Lockhart at p530.
19.The authority to act "severally" is what can, and in this case does, distinguish administrators (and receivers also) from directors whose authority is collective only (ie, the "Board" not a Director).
20.Nor does s232(4) CL assist ASIC. In terms, it is directed to:
(1) the "exercise of powers and duties", and
(2) the level of skill and conscientiousness to be applied in any such exercise as may occur.
It does itself impose a duty or confer a function. Its terms assume that they are to be located elsewhere (ie in or outside the Corporations Law).21.The operation of s438D(1) is premised upon an Administrator having formed the specified opinion. There is no evidence that Mr Heesh ever formed that opinion and he was not cross-examined to suggest otherwise. ASOFAC 2.7 fails.
22.Nor does sub-s 439A(4) assist ASIC. The requirement of that provision is addressed to an Administrator who has convened the meeting directed by sub-s439A(1 ). Mr Heesh did not.
23.The real point of the ASIC application is the "general contention" ASOFAC para 6. The logical consequence of it is that even if Attia administration had been faultless Mr Heesh, because he did nothing in relation to it, would nevertheless have failed to adhere to a requirement of Australian law.
Professional Standards
24.The proposition in 23 is a direct challenge to established professional practice, not just in respect of administrators, but also receivers etc.
25.In addition to Heesh (see 4 above) there was expert evidence as to professional practice from Mr Hunter. It was to the effect that professional practice has been to appoint multiple administrators even in administrations such as Attia's. In those circumstances an appointee would lead. The other would be a reserve, acting only if and when required. In small administrations such as Attia's, he would not expect the reserve appointee to involve himself at all.
T11, intro and para 3.4
T20, pp 31.31, 32.30-34That evidence accords with Mr Heesh's own evidence.
26.There was no evidence disputing such a professional practice, and see also 15 and 16 above.
27.There is no evidence and no suggestion that either ASIC or either the ICA or the ASCPA have published guidelines etc about the responsibilities of "joint and several" appointees, or otherwise criticised the professional practice evidenced in these proceedings.
28.In these circumstances, it could not be concluded that Heesh's non-involvement contravened any relevant professional standard.
Penalty (if that point is reached)
29.There is:
(1) no express provision in the CL which expressly precluded the practice adopted in the Attia administration;
(2) no professional or regulatory publications dealing in any relevant way with the issue.30.Such authority as there was, and generally accepted professional practice, tends to support the availability of the lead/reserve appointee approach where the appointment is "joint and several".
31.Mr Heesh has always been frank about the facts of the matter.
32.If ASIC desires to change established professional practice it is not appropriate that it do so by the institution of disciplinary proceedings without first having publicised its view that the practice is contrary to a requirement of Australian law or otherwise not acceptable.
33.Not having done so there was an issue, if it is accepted that Mr Heesh acted in accordance with established professional practice, whether any penalty was appropriate, but in that circumstance the ASIC's application should have resulted in admonition or reprimand.
34.Such a result leaves Mr Heesh bearing ASIC's costs of the CALDB proceedings agreed at $20,000.
(ii) The Respondent's Outline of Submissions dated 10 April 2000, reads as follows:
Introduction
1.The applicant submits that the respondent, as an administrator, has not fulfilled his obligations under the Corporations Law and/or at common law by reason of the undisputed fact that (save for 30 minutes of recorded time as per the evidence of the applicant) he did nothing at all in connection with the administration the subject of the application and is thus in breach of section 1292 of the Law.
2.The respondent it is submitted has a duty to inform himself of the conduct of the administration to some degree. In the present case it is not necessary to determine precisely what "some degree" is, for whatever the standard, the respondent must be below it.
Duties and powers of a joint administrator
3.By section 82A of the Law an administrator is an officer of the company.
4.An administrator has significant powers over a company, pursuant to Division 3 of Part 5.3A of the Law; see especially sections 437A and 437D.
5.By divisions 4 and 5 of Part 5.3A an administrator has duties and powers as there set out; see sections 438A et seq.
6.By division 8 specific powers are given to the administrator. Protection is also afforded the administrator; see section 442E.
7.Division 9 deals with liability and indemnity.
8.Division 15 deals with removal, replacement and remuneration of an administrator. By section 449A the appointment of an administrator cannot be revoked.
9.By section 451A (1), two or more persons may be appointed as administrators of a company.
10.By section 451A (2) a function of the administrator may be performed by any of the "joint" administrators or by them together; and a reference in the Law to the administrator is a reference to whichever one of them as the case requires.
11.By section 52A of the Law if something is required to be signed it can be signed by the person's attorney under Power of Attorney.
Duties of officers
12.In Daniels v Anderson (1995) 37 NSWLR 438, the Court of Appeal considered the question of duties of directors to the company. At p 502 Clarke and Sheller JJA expressed the view that the duty is not accurately stated by saying a director does not have to become an auditor or other officer to determine whether management is deceiving him or her. Their Honours were of the view that the concept of a sleeping or passive director had not survived and was inconsistent with the company legislation; at 505C. Their Honours cited with obvious approval the reasoning of the US cases referred to at p503-4, which included the following opinions:
·A director cannot rely blindly on the judgment of others: 502G citing Bierman.
·Directors cannot set up the defence of lack of knowledge; at 503D citing Francis.
·If a director feels they have inadequate experience, they should either acquire it or refuse to act; at 503E per Francis.
·Directors have a continuing obligation to remain informed about the corporations activities; 503E per Francis
·The sentinel asleep at the post adds nothing to the enterprise he is charged to protect; 503G per Francis. ,
·A director is not an ornament. A director cannot protect himself behind a paper shield bearing the motto "dummy director"; 504C per Francis.
13.In CBA v Friedrich (1991) 5 ACSR 115 at 126 per Tadgell J it was held that a director is required to keep abreast of the company's affairs. His Honour had considered that the obligations on directors had become greater with the increased complexity and size of corporations and the greater amounts of money they involve.
14.ln Statewide Tobacco Services v Morley (1990) 2 ACSR 405 it was held that a director is expected to take a diligent and intelligent interest in the information either available to them or which they might with fairness demand from the executives or other employees and agents of the company.
15.In respect of all of the above it is to be noted that the fact that there may be more than one director does not relieve any of the other directors of their responsibility.
Duties of liquidators and receivers
16.In short, the role of the liquidator is to get in the assets of the company and distribute them amongst the creditors. In so doing, the liquidator has a duty, stated broadly, to act with common sense and judgment. There is upon the liquidator fiduciary obligations (eg to not make a profIt for himself), and a duty to act with care and skill.
17.More than one liquidator can be appointed; see section 473(8) and sections 495(1), 499(2) and 506(4).
18.Section 506(4) is in similar terms to section 451A(2), and provides that where there are several liquidators the powers available can be exercised by one or more of them as determined at the time of the appointment, or in default of such determination by any number not less than two.
19.There is no comparable provision in respect of court appointed liquidators.
20.The obligation on joint court appointed liquidators is to act jointly; see McPherson 4th Edition at 296.
21.The position of the liquidator is that of an office; see Sydlow v Kotselas (1996) 65 FCR 234 at 238.
22.The position with privately appointed receivers is in accordance with the terms of the appointment; that is, joint receivers must act jointly, several receivers may act severally.
23.This however is a distinction without a difference in the present case. In Kendle v Melsom (1997) 16 ACLC 466, the High Court discussed the nature of the powers of receivers and managers appointed "jointly and severally". This case is instructive and is authority for three important points:
·Joint receivers do not have to concurrently perform all acts in the receivership, but do have to resolve on the general course of the receivership (p470 par 10)
·Joint receivers are jointly liable for the discharge of the duties of receiver and manager (p470 par 10)
·The office of receiver is property, and cannot be held jointly as well as severally (see p472 par 20), though powers can be exercised by one or more of the persons appointed to the office (see p475, par 40).
24.It is submitted that this same analysis describes the position of court appointed receivers.
25.Further, this analysis is in line with the views expressed in Sydlow above.
26.More significantly, it is submitted that this analysis describes the position of Messrs McDonald and Heesh. Further, this submission sits well with the terms of section 451A (2), which should be interpreted as referring to the one "office" of administrator; see especially sub section (2)(a).
Summary
27.Each of the positions of director, receiver and liquidator are offices. Each has responsibilities and functions. To discharge their obligations the office holders need to act. The same is the position with administrators.
28.The respondent suggests that in a joint administration, one administrator can act without the need for consent or approval of the other, and that liability can thus be avoided. It is submitted that this must be wrong; both are responsible for the discharge of the duties of the office.
29.In any event, if this argument of the respondent was to be made good, the "innocent" administrator needs to show that he has acted properly. This would not be shown if he has done nothing at all.
The expert evidence
30.The report of Mr Hunter describes what is, in his opinion, the best practice of insolvency practitioners. This is not the correct test; see Rogers v Whitaker (1992) 175 CLR 479 at 488.
31.The Hunter report:
(a)Acknowledges the need for active engagement in at least some circumstances; par 5.4(a)(I);
(b)Demonstrates that there is nothing added by his approach compared to section 52A; par5.4(b);
(c)Is misleading in its references to "joint" in making comparisons to directors; par 4.4(d) and (e) and 7.3 (d).
32.By comparison the Love report sits well with the views of the High Court expressed in Kendle; see pages 10 and 15.
The issue
33.The question remains for the Tribunal to determine whether it is acceptable and within the bounds of section 1292 of the law for an administrator to do nothing.
34.Indeed, the case of the applicant can be put as high as to say, regardless of whether the conduct of Mr McDonald is made out, the conduct of the respondent is still not adequate and proper. That the conduct complained of occurred could well be described as a symptom of have the disease of having a "sleeping", or "dummy" joint administrator.
Conclusions
35.It is submitted that a joint administrator cannot disown the acts of a joint appointee by saying he/she took no part in the administration. It is submitted that such a stance acknowledges a breach of the duty to be informed, and blind faith in other people or firm procedures, with no active steps being made, without so much as an inquiry being made by the joint administrator, is no defence.
(b) On the second day of the hearing Mr Priestley, on behalf of ASIC, furnished me with further, and also helpful, written submissions entitled "ASIC Submissions on Adjourned Hearing 30.01.01", which, again for the sake of completeness, are repeated in these Reasons as follows:
1.There are two arguments that need to resolved. One is the interpretation of section 1292. The second concerns the nature of a joint and several appointment.
A. The interpretation of section 1292 and in particular the words:
...the person has failed, whether within or outside Australia, to carry out or perform adequately and properly ……… any duties or functions required by an Australian law to be carried out or performed by a registered liquidator.
a) The applicant Mr Heesh puts forward a view that this means that 1292 is only activated if there is some inadequacy by him in carrying out an act. This is plainly not so.
b) What the underlined words do is identify the actor. The words qualify the person who is able to fit the section. Only a person who is allowed by Australian law to perform a particular act by virtue of their status as a registered liquidator comes wit in the section. This construction of the section makes sense because sub par (i) catches the conduct of a liquidator acting as a liquidator; sub par (ii) ensures that if a liquidator behaves inadequately or improperly in doing something that only a liquidator can do, but not in the role of liquidator, then the provisions of 1292 still have effect. On such other role is as an administrator. The section should be interpreted as saying:
'the person has failed, whether within or outside Australia, to carry out or perform adequately and properly any duties or functions of an administrator. '
c) There is thus no need to find some requirement of Australian law beyond section 1292 that has not been adequately performed.
d) Further the applicant's argument imports into section 1292 words that it does not have. Once the above interpretation is accepted, it is clear t ere is no need for the act complained of to be done by Mr Heesh. The reason that Mr Heesh needs to import words into the section that are not there is because as enacted the section does not mean what he argues it to mean.
e) The interpretation contended for by the applicant is tortuous; that contended for by ASIC is logical and straightforward.
f) In any event the SOFAC identifies breaches by the applicant of sections 4380, 439A and 232.
B. The effect of a joint and several appointment on the responsibility of an administrator.
a) ASIC's position is set out in its earlier submissions. Suffice to say a distinction needs to be made between function and responsibility. Function is a matter decided between the joint administrators. Responsibility is something both are burdened with.
b) To say that this means there is no difference between a joint appointment and a joint and several appointment is plainly wrong. The distinction remains that with a joint appointment, the function cannot be divided up; with a joint and several appointment function can be divided up. There is nothing odd let alone wrong in both styles of appointment having the same feature so far as responsibility is concerned.
c) So much is recognised by the much talked of case of Kendle v Melsom. That case recognises that appointments such as the one of the applicant are appointments to an office; see par 33; further such an office cannot be held severally; see at par 20. It also recognises the dichotomy referred to above; see Gummow and Kirby JJ at par 38, the analysis at par 40 and par 41
d) It should also be noted that Kendle is capable of distinction from the present case. That case concerned whether the acts or function of a receivers had been correctly exercised. The case did not concern administrators, it did not concern section 1292. The case was not decided on issues relating to responsibility as opposed to function. Importantly however, as noted above, that distinction is recognised.
2. Taken to their logical extreme the position of the applicant on both arguments amount to saying neither administrator need do anything and if so neither will be responsible.
3. There are two other matters which were discussed on the first day that require some short comment.
A. Firstly, the references to agency by the applicant are a misnomer. Both administrators are principals. The argument is simply a device seeking to create a situation where it is permissible to do nothing. Because of the nature of the appointment this is not possible.
B. Secondly, the applicant criticised the report of Mr Love. The criticism seems to be that there is no basis for the opinions expressed. The opinions expressed address the contentions of ASIC and in particular the matters which should have been attended to by an administrator acting adequately and properly. In circumstances where the complaint is that nothing was done, there is little of a factual nature that could be recorded in the report. As it is, the report does consider the administration and each of the contentions. It is submitted that this approach, together with a consideration of the resume of Mr Love gives a solid basis for the views he expressed. It should also be noted that no challenge by way of cross examination was made to the report.
4.The inescapable conclusion is that:
a) As a result of accepting the appointment as an administrator, the applicant was responsible for the administration.
b) The administration had serious and unchallenged defects.
c) The applicant bears responsibility for that conduct.
d) The applicant in defence of the allegations asserting such responsibility can say only that he did nothing. This is a position sought to be justified by the arguments in A above.
e) For the reasons given above and elsewhere, such arguments fail.
5. The tribunal should find that the decision of the Board was correct and dismiss the application.
(c) It should be noted that at the hearing before the Respondent, ASIC was in fact the Applicant, and it is for this reason that the outline referred to in paragraph 3(a)(ii) purports to have been made by the Applicant. All references in it to the applicant should be construed as references to the Respondent.
(d) In respect of the outline of submissions by the Respondent referred to in paragraph 3(a)(ii) of these Reasons, Mr Priestley accepted that the reference to section 52A of the Corporations Law ("the Law") should be treated as deleted, given that at the relevant time that section was not operative.
(e) There is one other matter of a preparatory nature which can usefully be set out at this stage. In order to ensure that these Reasons conform, so far as references to sections in the Law are concerned, with the decision under review, I intend to use the section references contained in the documents before me. There has, in the interim, been a reorganisation of some sections of the Law, and so that some of the relevant sections are numbered differently, but there is no substantive difference. By way of one example only, the provisions of section 232(4) of the Law are now found in section 180(1), while the definition of "officer" is now found in section 9.
The facts fall within a narrow compass and can usefully be summarised as follows:
(a) On 15 January 1996, the Applicant and his partner, Mr Geoffrey McDonald ("Mr McDonald"), were appointed, pursuant to section 436C of the Law, as Joint Administrators of Attia Imports Pty Limited ("the Company"); their appointment reads in full as follows:As the secured creditor of the Company, pursuant to a charge dated 9 August 1994 held over substantially the whole of the Company's property, we appoint on 16 January 1996, Geoffrey McDonald and Tim Heesh of Level 29, 31 Market Street, Sydney, in the State of New South Wales, as Joint Administrators of the Company (each of them severally and both of them jointly) in accordance with Section 436C of the Corporations Law.
(T4.28, page 173)
(b) It was arranged between Mr McDonald and the Applicant that Mr McDonald would attend to the administration and that the Applicant would accept appointment in a reserve or "backup" capacity, and in case of need only. In fact relevant time sheets indicate that the Applicant recorded time spent of thirty minutes only in respect of the affairs of the Company under administration, and that the Applicant does not recollect what was done or effected in relation to the Company at that time.
(c) There does not appear to be any doubt that in a number of important respects, and in relation to the administration of the Company, Mr McDonald acted improperly. He was himself the subject of a disciplinary hearing; by consent, his registration as a liquidator was suspended for a period of nine months, and he was ordered to pay costs which amounted to $50,000.
(d) It is common cause between the parties that the Applicant was not himself directly involved in the improper acts of Mr McDonald. His own evidence was that there were systems in place designed to prevent at least some of those improper acts, and in particular any conflict of interest; however, the Applicant did not take steps of any nature in order to ensure that those systems were implemented.
(a) Other documents referred to during the hearing include:
(i)A report by Mr Andrew Love, an experienced and reputable company liquidator dated 13 September 1999;
(ii)A report (T11) by Mr Lawrence Brian Hunter, also an experienced and reputable company liquidator dated 8 March 2000; and
(iii)A supplementary report by Mr Love dated 18 August 2000
(b) The specific actions which are relevant to this decision are set out in full in the decision of the Respondent dated 1 May 2000 (T2, pages 8-15); the first four contentions considered by the Respondent are contained at page 9 of the Respondent's decision (T2, page 13); they read as follows:
"1. The Joint Administrator (Heesh) did not adequately disclose the extent of his and / or his Firm's prior involvement with the affairs of Attia, Cobe and Venia, and the respect mortgages of those companies, in relation to his appointment to Attia.
2. The Joint Administrator (Heesh) failed to report about Attia's business, property, affairs and financial circumstances as required by s.439A(4)(a) of the Law and further and in the alternative failed to exercise due care and diligence as required by s.232(4) of the Law by:(i) failing to adequately disclose the position of the chargee that had excercised its rights under the Attia charge prior to the appointment of the voluntary administrators;
(ii) failing to disclose that the chargee had purportedly exercised rights in respect of Attia's assets over which its charge did not extend;
(iii) failing to determine the liability of the chargee and / or its agent for unpaid group tax and sales tax claimed as owing by Attia;
(iv) failing to adequately disclose the status of the chargee's claim against Atta;
3. The Joint Administrator (Heesh) failed to exercise due care and diligence in the negotiations for the sale of Attia's business and further and in the alternative failed to exercise due care and diligence as required by s.232(4) of the Law in those negotiations.
4. The Joint Administrator (Heesh) of Attia failed to make a report to the then ASC in accordance with s.438D(1), when he appeared to be of the opinion that certain offences may have been committed by certain officers of the companies"
The fifth contention was one of a general nature and to the effect that "at no time was (the Applicant) involved in a proper and adequate manner, in the conduct of the Administration referred to above in connection with the matters as set out above" (T13, page 27).
It will be noted that the specific acts in question involve, inter alia, a conflict of interest, a failure in relation to a report, and the manner in which the business of the company was sold. On the basis that Mr McDonald did not contest allegations against him (similar to those set out in the four contentions quoted above) at his own disciplinary hearing, it is reasonable to assume that the acts in question were established. Indeed, and having regard to the documents before me, the conflict of interest was one which cannot be regarded otherwise than as serious; furthermore the manner in which the business was sold is indicative of a concern on the part of Mr McDonald that the price be sufficient to cover his fees.
Put in very simple terms, the issue between the parties is as to whether the Applicant can be held responsible, having regard to a number of provisions of the Law, for the misconduct of his partner and co-administrator Mr McDonald. The Applicant contends that since he himself played no part of the administration, and since the appointment was made on a joint and several basis, and bearing in mind that it was agreed between him and Mr McDonald that Mr McDonald would carry out the administration, he, the Applicant, cannot be held responsible. Mr Lynch referred in particular in this context to a passage from Bowstead and Reynolds on Agency (16th Edition), and in respect of which Article 11 on page 59 reads as follows:
CO-AGENTS
(1)Where an authority is given to two or more person, it is presumed to be given to them jointly, unless a contrary intention appears from the nature or terms of the authority, or from the circumstances of the particular case.
(2)Where an authority is given to two or more persons severally or jointly and severally, any one or more of them may execute it without the concurrence of the others.
Again, put in simple terms, the Respondent contends that a co-administrator (albeit a co-administrator appointed on a several basis) cannot be heard to say that he discharges his duty by doing nothing at all.
I include in this paragraph 7 a number of provisions of the Law which are relevant in relation to these Reasons. The sections of the Law are as follows:
Section 232 Duty and liability of officer of corporation
(1)In this section:
officer, in relation to a corporation, means:
(a)a director, secretary or executive officer of the corporation;
(b)a receiver, or receiver and manager, of property of the corporation, or any other authorised person who enters into possession or assumes control of property of the corporation for the purpose of enforcing any charge;
(c)an administrator of the corporation;
(ca) an administrator of a deed of company arrangement executed by the corporation;
(d)a liquidator of the corporation; and
(e)a trustee or other person administering a compromise or arrangement made between the corporation and another person or other persons.
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(4)In the exercise of his or her powers and the discharge of his or her duties an officer of a corporation must exercise a degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation's circumstances.
Section 443A. General debts
(1) The administrator of a company under administration is liable for debts he or she incurs, in the performance or exercise, or purported performance or exercise, of any of his or her functions and powers as administrator, for:
(a) services rendered; or
(b) goods bought; or
(c) property hired, leased, used or occupied.(2) Subsection (1) has effect despite any agreement to the contrary, but without prejudice to the administrator's rights against the company or anyone else.
Section 443BA. Certain taxation liabilities
(1) The administrator of a company is liable to pay to the Commissioner of Taxation:
(a)each amount payable under a remittance provision because of a deduction made by the administrator; and
(b)without limiting paragraph (a), so much of each amount payable under a remittance provision because of a deduction made by the company during the administration as equals so much of the deduction as is attributable to a period throughout which the administration continued;even if the amount became payable after the end of the administration.
(2) In this section: remittance provision means any of the following provisions of the Income Tax Assessment Act 1936:
(a)section 221F (except subsection 221F (12)) or section 221G (except subsection 221G (4A));
(b)subsection 221YHDC (2);
(c)subsection 221YHZD (1) or (1A);
(d)subsection 221YN (1);
and any of the provisions of Subdivision 16-B in Schedule 1 to the Taxation Administration Act 1953.
unpaid amount, in relation to an estimate, has the same meaning as in Division 8 of Part VI of the Income Tax Assessment Act 1936.Section 443D. Right of indemnity
The administrator of a company under administration is entitled to be indemnified out of the company's property for:(a)debts for which the administrator is liable under Subdivision A or a remittance provision as defined in subsection 443BA (3); and
(b)his or her remuneration as fixed under section 449E.
Section 448B. Administrator must be registered liquidator
A person must not consent to be appointed, and must not act, as administrator of a company or of a deed of company arrangement unless he or she is a registered liquidator.Section 451A. Appointment of 2 or more administrators of company
(1) Where a provision of this Law provides for an administrator of a company to be appointed, 2 or more persons may be appointed as administrators of the company.
(2) Where, because of subsection (1), there are 2 or more administrators of a company:
(a)a function or power of an administrator of the company may be performed or exercised by any one of them, or by any 2 or more of them together, except so far as the instrument or resolution appointing them otherwise provides; and
(b)a reference in this Law to an administrator, or to the administrator, of a company is, in the case of the first-mentioned company, a reference to whichever one or more of those administrators the case requires.
Section 1292. Powers of Board in relation to auditors and liquidators
(1)The Board may, if it is satisfied on an application by the Commission for a person who is registered as an auditor to be dealt with under this section that, before, at or after the commencement of this section:
(a)the person has:
(i) contravened section 1288 or a corresponding previous law; or
(ii) ceased to be resident in Australia;
(b)a registration of the person under a previous law corresponding to Division 2 has been cancelled or suspended;
(c)the person has been dealt with under a previous law corresponding to subsection (9) of this section; or
(d)the person has failed, whether within or outside Australia, to carry out or perform adequately and properly:
(i) the duties of an auditor; or
(ii) any duties or functions required by an Australian law to be carried out or performed by a registered company auditor;
or is otherwise not a fit and proper person to remain registered as an auditor;
by order, cancel, or suspend for a specified period, the registration of the person as an auditor.(2)The Board may, if it is satisfied on an application by the Commission for a person who is registered as a liquidator to be dealt with under this section that, before, at or after the commencement of this section:
(a)the person has:
(i) contravened section 1288 or a corresponding previous law; or
(ii) ceased to be resident in Australia;
(b)a registration of the person under a previous law corresponding to Division 2 has been cancelled or suspended;
(c)the person has been dealt with under a previous law corresponding to subsection (9) of this section; or
(d)that the person has failed, whether within or outside Australia, to carry out or perform adequately and properly:
(i) the duties of a liquidator; or
(ii) any duties or functions required by an Australian law to be carried out or performed by a registered liquidator;
or is otherwise not a fit and proper person to remain registered as a liquidator;
by order, cancel, or suspend for a specified period, the registration of the person as a liquidator.
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(It is to be noted that the term "officer" as defined in section 232(1) of the Law, includes for the purposes of section 232(4) of the Law, an administrator or liquidator)
(a) There was considerable and lengthy discussion of the High Court decision in Kendle v Melsom (1998) 193 CLR 46. It may be noted that the Respondent referred in its reasons with approval to a statement by the minority (Brennan CJ and McHugh J at 54), reading as follows:
The powers are reposed in the plurality jointly because they must together resolve on the general course of the receivership and because they are to be jointly liable for the discharge of the duties of receiver and manager. But the implementation of their resolution of the course of the receivership can be left to one of their number……
(b) Kendle v Melsom related to the appointment of receivers, also on a joint and several basis. The Tribunal accepts that the position of receivers and administrators are analogous, and so that Kendle v Melsom is both relevant and binding. However, it is of course the majority decision which is of particular relevance.
(c) The majority decision in Kendle v Melsom (per Gummow and Kirby JJ at 60-64) reads (relevantly) as follows:
The office of receiver
This plurality of persons, being the Receivers in the present case, was appointed to an office, rather than to several offices. The latter would have been the case if, for example, with respect to each of distinct portions of the mortgaged premises, an appointment had been made. Each such appointment might have been of one individual or of a plurality of individuals jointly. Here, the Receivers were appointed to "the mortgaged premises", not to any part thereof. They took their office jointly, notwithstanding the addition in cl 2 of the Appointment of the words "and several" to the term "joint". This follows from the nature of an office at common law.
The term "office" when used in a statutory or constitutional provision will take its meaning from that provision. As to the common law, it has been said that:"OFFICES, which are a right to exercise a public or private employment, and to take the fees and emoluments thereunto belonging, are also incorporeal hereditaments: whether public, as those of magistrates; or private, as of bailiffs, receivers, and the like."
In the same passage, Blackstone went on to state that an office-holder might have an estate in the office, either to him and his heirs, or for life, or during pleasure, or, with some exceptions, for a term of years. In that context and in the light of the basic principles outlined later in these reasons, it makes no sense to speak of an office, and thus of property, as being held "jointly and severally" rather than as being held jointly.
Some offices are of their nature insusceptible of appointment in favour of more than one individual. In respect of other offices, a joint appointment may be made. However, with respect to joint appointees, questions have arisen whether "as to their office, [there is] but one person" so that upon the death of one the office is vacated. Those authorities are not of particular assistance in the present case. This is because cl F3 of the Charge itself deals with situations which arose in the past. It does so by providing that the Bank may remove any receiver and "in case of the removal retirement or death of any such receiver may appoint another in his place".
It is to be noted that the pleadings in this litigation present no issue as to the nature of any proprietary interest of the Receivers in the proceeds of enforcement of the Charge. Clause F7 specifies the manner of application of moneys "received by any such receiver or by the Bank" under the Charge. The system of priorities ends with the payment of any surplus moneys to Velcrete. There is no issue as to the nature of the obligations of the Receivers to account under cl F7. However, consistently with the joint nature of their office, of which the requirement to account is an incident, we would treat the Receivers as bound under cl F7 jointly with respect to moneys received by them and by each of them.
The terms of the appointment and the charge
It is appropriate now to consider more fully the terms both of the Appointment and of the relevant provisions of the Charge.
Clause 1 of the Appointment specifies the taking of three steps by the Bank in exercise of its powers and authorities under the Charge. First, cl 1 states that the Bank appoints Mr Melsom and Mr Robson to be receivers and managers of the assets of Velcrete to which we have referred. It follows from what has been said above that a joint appointment of the Receivers to their office was validly made. Secondly, cl 1 states:"AND the Bank hereby confers upon and vests in you during the term of your appointment hereunder all and every power authority and discretion vested in the Bank under or by virtue of the [Charge] (other than the power of appointing receivers and managers) so far as the same may be lawfully delegated together with all and every power authority and discretion conferred upon a receiver and manager as well as by the [Charge] as by statute and otherwise howsoever". (Emphasis added)
The Receivers submit that this conferred upon them, as against Velcrete, the powers in the exercise of which they performed the acts in respect of the assets of Velcrete which it alleges were tortious. Thirdly, cl 1 provides for the computation of the remuneration of the Receivers, identifying this as "your remuneration".
The first element in cl 1 is to be distinguished from the second. As we have emphasised, the first is an appointment to an office, whilst the second is concerned with the specification of the powers which are to attach to that office and be exercised by the office-holder.
The exercise of powers by the Receivers
We have indicated earlier in these reasons that the issues on the pleadings in this case do not involve the binding of Velcrete, with respect to third parties, by the activities of the Receivers. Nor does any question arise as to the enjoyment by Velcrete after default under the Charge and the execution of the Appointment, and as against third parties, of a right to immediate possession of the mortgaged premises sufficient to support an action in trespass or conversion against third parties. Rather, the issues concern the exercise, adversely to Velcrete, by the Receivers of the powers ceded by Velcrete in the Charge granted by it to the Bank in consideration of the advances and accommodation provided to it. In particular, par (a) of cl F3 of the Charge conferred a power to take possession of, collect and get in the whole or any part of the mortgaged premises. The ceding by Velcrete of this and the other relevant powers was coupled with the creation of the Charge over the assets in question and is to be seen as the concession of leave and licence to those later validly appointed by the Bank as Receivers. The effect of the grant of the interest created by the Charge, coupled with the leave and licence, was to render consensual as against Velcrete acts which otherwise would have been tortious. It is in this respect that it becomes necessary to consider the application of the term "joint and several".
Clause F3 stipulates that it is "every ... such receiver" who may be empowered by the Bank in the fashion described above. The term "such" identifies a receiver of the mortgaged premises, a receiver appointed to part thereof only, and also each of a plurality of persons who together are appointed to be receiver of the mortgaged premises or part thereof. Upon the true construction of the Charge and the Appointment, these powers are conferred and may be exercised by each of the Receivers whether or not those included in the plurality of receivers act collectively as to all of them, collectively as to some of them, or individually as to any one or more of them. It is "every ... such receiver" being "so appointed" who, "without any consent on the part of [Velcrete]", has the powers enumerated in pars (a)-(o) of cl F3.
The understanding of that construction is not advanced, and may be retarded, by emphasis upon the expression "joint and several". It is an appropriate description of the effect of the Appointment that the Receivers were appointed jointly to their office. However, the powers, authorities and discretions referred to in cl 1 of the Appointment as capable of conferral upon them under the Charge were, in accordance with cl F3, and therefore in accordance with the Appointment which adopted them, susceptible of exercise by either or both of the Receivers. The source of their powers to deal with the assets of Velcrete is to be traced from the Appointment made by the Bank to the Charge granted by Velcrete and so ultimately to Velcrete itself. The consequence is to provide the Receivers and each of them with the answer to the claims in tort brought against them by Velcrete and the other appellant. The answer is that the acts complained of were committed with the leave and licence of Velcrete.
The statement in cl 2 of the Appointment that "their appointment hereunder is joint and several" is to be understood in the particular sense explained above. So understood, there is no element of invalidity in cl 2 or the Appointment as a whole.
Agency
The agency of the Receivers involves its own considerations which are not in point on the particular issues arising on this appeal. However, agency was at stake in a number of the authorities to which we were referred. It is appropriate for an understanding of those authorities to deal briefly with the matter.
The agency from Velcrete, rather than the Bank, had the peculiar incidents referred to in the authorities. With respect to dealings by the Receivers with third parties, liability was imposed upon Velcrete rather than upon the Bank or the Receivers personally. If the Bank itself had taken possession of the property over which it held the Charge, in equity and as mortgagee in possession it would have become the manager of property in which Velcrete was still interested. As mortgagee in possession, the Bank would have owed duties to Velcrete, including a strict liability to account. In the Charge, this situation was avoided by provision for the appointment by the Bank of the Receivers and their treatment as agents not of the Bank but of Velcrete. Further, this agency of the Receivers was such that their acts would bind Velcrete in relation to third parties.
The term "joint and several" may be used to indicate the scope of the agency conferred upon a plurality of persons. In particular, it may indicate that all or any one of them may act so as to bring a third party into a contractual relationship with their principal. Thus, in Guthrie v Armstrong, there was a conferral by an underwriter upon a number of persons "jointly and separately" of a power of attorney and it was said:"Here, a power is given to fifteen persons jointly and severally to execute such policies as they or any of them shall jointly or severally think proper. The true construction of this is ... that the power is given to all or any of them to sign such policies, as all or any of them should think proper."
(d) Hayne J, who formed part of the majority, gave a separate judgment in which he said (at 66-68):
For my part I do not consider that much assistance can be gained from considering whether the respondents were appointed to an office, or from considering what might be understood to be the incidents ordinarily associated with an office. Where, as here, the respondents were appointed as receivers and managers it is important to recall not only that the duties and powers of a receiver are different from those of a receiver and manager but also that it was once commonplace to make separate appointments of receivers and of managers. Thus, in In re Manchester and Milford Railway Co; Ex parte Cambrian Railway Co Jessel MR referred to what he described as "in practice, I believe, [the] general rule" where a receiver had been appointed to a railway company of appointing as manager "either the directors ... or some of them, or the secretary, so as to keep the management in the board of directors". Nor did he see any difficulty about appointing more than one person as manager. Of course, these statements were made in a context of appointment of receivers and managers by the court rather than pursuant to contract and the power of the court to make such appointments stemmed from the Railway Companies Act 1867 (UK) (30 & 31 Vict c 127). But for present purposes, those differences are not important. The offices concerned there, and here, are very similar. Thus, notwithstanding the fact that the context differs, I consider that the practice of which Jessel MR speaks casts doubt on the validity of arguing from what is said to be the singularity of an office of receiver, or receiver and manager, to the manner of exercise of powers by those who hold the office.
As presently framed, the statement of claim alleges simply that "the defendants" did certain things. No allegation is made to the effect that one of those defendants acted at any time without the concurrence of the other. If then, as I consider to be the case, the mortgage permitted the appointment of more than one person as receiver and manager, unless cl 2 of the Bank's appointment makes the whole appointment bad, the conclusion that the Bank might validly appoint more than one person as receiver and manager, and has done so, may be sufficient answer to the appellants' claim. And I should say at once that even if I were of the view that the mortgage did not permit the Bank to appoint receivers and managers otherwise than to act in all respects jointly, I would sever cl 2 of the Deed of Appointment. I do not accept that if faced with the choice of appointing only jointly or not at all, the Bank would have chosen to refrain from making any appointment.
In my view, however, the Bank was not limited by its mortgage to appointing more than one receiver only on terms that those receivers act jointly. It is to be regretted that the question was not put beyond doubt by the mortgage but although the definition clause in the mortgage (cl F31) twice deals with the case of two or more mortgagors or debtors (and makes plain that their covenants and agreements "shall bind them and every two or more of them jointly and each of them severally") the mortgage is silent about the exercise of powers by, or the liabilities of, multiple receivers.
It is suggested with respect, that Hayne J appears to have accepted that a receivership does constitute an office even though a part of the passage quoted might be thought to connote the contrary.
(e) The majority decision in Kendle v Melsom appears to me to be authority for the proposition that an appointment of co-administrators constitutes the conferral of an office, which is of necessity joint, and so that the words as to severalty are not, at least for this purpose relevant. The majority recognised also that, duties could, as between co-administrators, be allocated between them and so that it was not necessary that each act be carried out by all of the co-administrators. The majority decision cannot in my view be read in such a manner that where in relation to any one administrator, a specific act or duty is allocated to one of them separately, the other or others of them have no responsibility whatever. It is true of course that the respective positions of receivers and administrators can differ; two persons could be appointed separately as receivers to deal with separate assets; this is not so in respect of two administrators. But their respective positions are analogous as regards the holding of an office.
(f) The majority decision in Kendle v Melsom case also considered in some detail the relevance of agency, and in a manner which clearly indicates that this concept is distinguishable. An agent is given a mandate to do a specific act in accordance with the powers and authority conferred on him. Such an appointment may be contrasted with an appointment of an administrator, whose powers, duties, and responsibilities are prescribed by the Law. In any event and as contended by Mr Priestley, the administrators were principals and not agents.
(a) Section 1292(2)(d)(ii) relates to disciplinary proceedings against a person who is a registered liquidator. It is of course true to say that the Applicant was appointed in respect of the Company as a co-administrator; however and having regard to section 448 of the Law, he could be appointed as an administrator only because he was a registered liquidator. Were he not a registered liquidator he would not have been able to accept an appointment as an administrator. Mr Priestley drew a distinction (appropriate in my view) between the "actor" and the "act". I note that I entirely agree with clause 1A of the submissions of ASIC referred to in paragraph 3(b) of these Reasons.
(b) An administrator is an officer as defined in section 232(1) of the Law. Section 232(4) of the Law requires an officer to perform his duties and responsibilities in the manner prescribed in that section, that is, in the manner in which a reasonable person in a like position would act in the circumstances.
(c) The Applicant contends that since he had no duties or responsibilities, his failure to perform any of them cannot be in breach of section 232(4) of the Law. In my view that argument cannot be tenable. Section 451A of the Law allows two or more administrators to perform their functions in such manner as they agree, unless the instrument of appointing them specifies otherwise. An appointor could therefore require two or more appointees to act jointly; where he does not do so, the co-administrators may indeed allocate duties between them. Section 451A of the Law is not inconsistent with the decision in Kendle v Melsom. But duties and functions are always distinguishable from responsibility. Mr Priestley (aptly in my view) used the term "dichotomy" to distinguish the responsibility which administrators bear from their functions and acts, as such, which need not (unless their appointment specifies otherwise) be performed jointly.
(d) To argue, as does the Applicant, that he does bear any responsibility at all, precisely because he reached an agreement with his co-administrator Mr McDonald, that Mr McDonald would do all of the work is not, in my view, tenable. If, as the Applicant argues, he was appointed purely as a reserve or a "backstop", in case of need, then the desired effect could be achieved through the issue of an appropriate power of attorney. The Applicant was not obliged to accept appointment; however, when he did, he automatically accepted the responsibility to act as a reasonable person in a like position would act in the circumstances, and that responsibility remained of force and effect throughout the administration.
(e) The Applicant argues that the Respondent is obliged to specify how the Applicant should have acted, or in other words what steps he should have taken. There is no legislative warrant for such a contention. Where a person is obliged in accordance with a statutory provision to act in a reasonable manner having regard to the circumstances, the circumstances may of course vary from case to case. One thing appears to me to be altogether beyond doubt and that is that a duly appointed administrator cannot contend that he acted reasonably when he did nothing at all, and where in effect he adopted a "Nelsonian blind eye" approach. Assume by way of hypothesis, (admittedly extreme), that Mr McDonald had misappropriated all of the assets of the Company; it is surely not tenable for the Applicant to argue that he bears no responsibility whatsoever. The Applicant contends also that the matter can be tested by assuming, again by way of hypothesis, that Mr McDonald had acted in all respects correctly; he went on to contend that in these circumstances he (the Applicant) would not be obliged to do anything at all. That contention would then suggest that since he is obliged to do nothing where his co-administrator acts correctly, similarly he is obliged to do nothing when his co-administrator acts incorrectly. That this argument also is untenable is obvious. It could be likened to the analogy of a nightwatchman who falls asleep at his post or deserts his post. The fact that the place which he has been engaged to guard is then not in fact robbed, cannot have the effect that the nightwatchman is not in breach of his duties. Mr Priestley contended, and I agree, that there is a logical extreme which results from the Applicant's contention; that logical extreme is that if neither of the administrators does anything at all neither is responsible.
(f) The dichotomy for which Mr Priestley contends is in my view correct. It must be remembered that, in relation to co-administrators, there are rights as well as responsibilities. The Applicant could never have argued that he was not liable for debts incurred (within section 443A of the Law) by Mr McDonald or for tax obligations (within section 443BA of the Law) incurred by Mr McDonald. Similarly, the Applicant would not presumably argue that he has no right of indemnity within section 443D of the Law or for that matter no right to remuneration. The more one analyses the Applicant's contentions, the more it becomes clear that they cannot be well-founded.
There is of course a clear difference between directors and administrators. Directors do act jointly; there are other distinctions clearly enunciated by the Respondent in its decision; (T2, page 11). But there are also points of similarity; a director and an administrator are each charged with fiduciary duties, and if a director cannot discharge his duties by being a "dummy" director then a fortiori an administrator cannot do so. It must be remembered that an administrator takes office at a point in time when the Company is in a crisis situation, and so that, if anything, additional vigilance is required.
As between the reports by Mr Love and the report by Mr Hunter, I much prefer the Love report which appears to me to accord with High Court authority. The Hunter report is open to criticism on a number of grounds, and including:
(a) Mr Hunter states that his report is founded on the premise that the charges against Mr McDonald were not established. That premise was not well-founded; he was asked presumably to prepare a report as to the responsibility of one co-administrator assuming that the other co-administrator had acted improperly. And in any event Mr Hunter should, having regard to the orders made against Mr McDonald, have accepted that the charges were well-founded.
(b) Mr Hunter argues that there is an industry practice which allows one co-administrator to perform all of the relevant functions. However, Rogers v Whitaker (1992) 175 CLR 479 (a unanimous decision of the High Court) is authority for the proposition that an industry practice cannot of itself be a defence against a failure to take proper care. In their joint judgment, Mason CJ, Brennan, Dawson, Toohey and McHugh JJ said (at 487):In Australia, it has been accepted that the standard of care to be observed by a person with some special skill or competence is that of the ordinary skilled person exercising and professing to have that special skill . . . But, that standard is not determined solely or even primarily by reference to the practice followed or supported by a responsible body of opinion in the relevant profession or trade . . .
(c) Perhaps most relevantly, Mr Hunter does not grapple with the dichotomy question referred to earlier in these Reasons. It may well be that it often occurs that one of two co-administrators agrees to do all of the work. But that does not, and never can, absolve the other co-administrator of all responsibility. I note also in any event I agree entirely with Mr Priestley's contentions as contained in clause 3B of the submissions referred in paragraph 3(b) of these Reasons.
(a) Mr Lynch drew my attention to a passage from the judgment of Meagher JA in NEC Information Systems Australia Pty Ltd v Lockhart (1991) 22 NSWLR 518 at 530:
…the appointment of several receivers might lead to inconvenient results in situations where, for example one receiver authorises the sale of assets on certain conditions and another receiver authorises the sale of that asset on different conditions. It is true that theoretically such a situation might arise, but commonsense would suggest that it would be remote theoretical possibility, and one which in any event would not be insoluble (for example by application to the court for direction). In any event the mere existence of a remote theoretical possibility does not, in my view, overwhelm the real practical commercial advantages which would flow from a several receivership.
I do not agree that that judgment is authority for anything other than the fact that, at least in theory, two receivers, or for that matter two administrators, could attempt to act in conflict with each other, and as a consequence of which directions by the court may be needed.
(b) As I understand Mr Lynch's argument, he contended that section 1292(2)(d)(ii) of the Law does not empower disciplinary proceedings to be taken against the Applicant. I do not consider that there is any merit in that conclusion. I again refer to the "actor" and "act" contention by Mr Priestley, and again note that I agree with clause 1A of the submissions referred to in paragraph 3(b) of these Reasons.
(c) Mr Lynch argued that if I am against his client on the main issue, I should find that there should not be any penalty at all. I do not agree with this contention. Mr McDonald was guilty of misconduct which was serious; the Applicant did nothing at all and I have found that he was not entitled or able to abdicate his responsibility. The penalty must clearly be lighter than that which was imposed on Mr McDonald; the penalty imposed by the Respondent on the Applicant was, in my view, appropriate and I do not therefore intend to disturb it. Mr Lynch drew my attention to the possibility of other adverse consequences to the Applicant; I do not think that such a possibility is a relevant factor so far as the Tribunal is concerned.
In summary, and in my opinion:
(a) The reasoning contained in the Respondent's decision was in general correct.
(b) The Applicant when he accepted appointment as an administrator accepted responsibilities in addition to the right or power to perform functions.
(c) There were serious defects in the administration, and a defence that by arrangement the Applicant did nothing at all (and thus performed no functions as such), cannot absolve the Applicant of his responsibilities in that capacity.In all the circumstance the decision under review is affirmed.
I certify that the 14 preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President J Block
Signed: ............[M Ryan]............................................
AssociateDates of Hearing 20 December 2000 & 30 January 2001
Date of Decision 8 February 2001
Counsel for the Applicant Mr T Lynch
Solicitor for the Applicant Mr T Williams
Solicitor for the Respondent Mr M Murray
(of the Australian Government Solicitor)
Counsel for the Party Joined Mr J Priestley
Solicitor for the Party Joined Mr Boland(of the Australian Securities and Investments Commission)
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