Henley and Australian Securities and Investments Commission
[2024] AATA 82
•30 January 2024
Henley and Australian Securities and Investments Commission [2024] AATA 82 (30 January 2024)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s):2023/1973
Re:Clive Henley
APPLICANT
Australian Securities and Investments CommissionAnd
RESPONDENT
DECISION
Tribunal:Senior Member G Lazanas
Date:30 January 2024
Place:Sydney
The decision under review is affirmed.
.................[SGD]....................
Senior Member G Lazanas
Catchwords
SUPERANNUATION – Self Managed Superannuation Fund (SMSF) – where applicant was disqualified from being an approved SMSF auditor – where false information was given by applicant about the auditor of the applicant’s own SMSF on two occasions – whether applicant a fit and proper person – specific and general deterrence - decision under review affirmed
Legislation
Superannuation Industry (Supervision) Act 1993 (Cth), ss 35B, 35C, 35D, 128F, 130F
Superannuation Industry (Supervision) Regulations 1994 (Cth), regulation 9A.06
Cases
Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321
Australian Securities and Investments Commission v Gilliland [2022] FCA 1421
Hughes & Vale Pty Ltd v New South Wales (No 2) (1955) 93 CLR 127
Secondary Materials
Australian Professional Ethics Standards 110 Code of Ethics for Professional Accountants
ASIC Regulatory Guide 243: Registration of self-managed superannuation fund auditors
Second Reading Speech to the Superannuation Laws Amendment (Capital Gains Tax Relief and Other Efficiency Measures) Bill 2012 (Cth)
REASONS FOR DECISION
Senior Member G Lazanas
30 January 2024
INTRODUCTION
The applicant, Mr Clive Henley, applied to the Tribunal for review of a decision by the respondent, Australian Securities and Investments Commission (ASIC) to disqualify him from being an approved self-managed super fund (SMSF) auditor pursuant to s 130F(2) of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act).
For the reasons set out below, I have decided that the decision is correct in all the circumstances.
RELEVANT STATUTORY PROVISIONS AND PRINCIPLES
The obligations on a trustee of a SMSF to prepare and lodge audited accounts for each year of income of the fund are set out in s 35B of the SIS Act. Section 35C of the SIS Act provides that for each year of income the trustee of a SMSF must ensure that an approved SMSF auditor is appointed to give the trustee a report in the approved form, of the operations of the entity for that year. Section 35D of the SIS Act provides that the trustee of a SMSF must additionally ensure that the Commissioner of Taxation is given a return in the approved form for each year of income.
As to the obligations on a SMSF auditor, s 128F(d) of the SIS Act prescribes that a SMSF auditor must “comply with the auditor independence requirements prescribed by the regulations”. Regulation 9A.06 of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) states:
For paragraph 128F(d) of the Act, the auditor independence requirements produced by the Accounting Professional and Ethical Standards Board Limited and set out in the APES 110 Code of Ethics for Professional Accountants (including Independence Standards) are prescribed for all approved SMSF auditors.
Paragraph R510.4 of Australian Professional Ethics Standards 110 Code of Ethics for Professional Accountants (APES 110) states:
Subject to paragraph R510.5, a Direct Financial Interest or a material Indirect Financial Interest in the Audit Client shall not be held by:
…
(b) An Audit Team member, or any of that individual’s Immediate Family;
…
Paragraph 521.6 A1(a) of APES 110 explains that a self-interest, familiarity or intimidation threat is created when a close family member of an audit team member is a director or officer of the audit client. Additionally, paragraph R523.3 of APES 110 states that a partner or employee of the firm shall not serve as a director or officer of an audit client of the firm.
Section 130F of the SIS Act provides for ASIC to order that an approved SMSF auditor be disqualified, or his or her registration be suspended. In particular, s 130F(2) of the SIS Act relevantly states that:
The Regulator may make a written order disqualifying a person from being an approved SMSF auditor, or suspending a person’s registration as an approved SMSF auditor, 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
…; or
…
(d) the person is otherwise not a fit and proper person to be an approved SMSF auditor for the purposes of this Act.
The SIS Act does not set out the matters to be considered in assessing whether a person is not a fit and proper person to be an approved SMSF auditor, however, some guidance can be found in ASIC’s Regulatory Guide 243: Registration of self-managed superannuation fund auditors (Regulatory Guide 243), as set out below.
THE FACTUAL BACKGROUND
Mr Henley was registered on 3 September 2013 as an approved SMSF auditor.
On 23 January 2023, ASIC decided to disqualify Mr Henley from being a SMSF auditor pursuant to s 130F(2) of the SIS Act. The disqualification took effect from 30 January 2023. That decision was then reconsidered pursuant to s 344(1) of the SIS Act and, on 16 March 2023, a delegate of ASIC confirmed the decision (the Decision).
On 23 March 2023, Mr Henley applied to the Tribunal for review of the Decision.
By way of further background, Mr Henley is, together with Jane Henley and Catherine Henley, a director of Jellner Pty Ltd, which is the corporate trustee of the Jellner Pty Ltd Superannuation Fund (the Jellner SF). Mr Henley and Jane and Catherine Henley are members of the Jellner SF.
The Jellner SF lodged its SMSF annual return for the 2020-21 income year on 14 October 2021, and reported the audit was completed by Mr Henry Cooper on 4 October 2021. In truth, however, Mr Cooper was not engaged by the Jellner SF and did not audit it for the 2020-21 year. This was discovered by the Australian Taxation Office (ATO).
Between 14 October 2021 and June 2022, Mr Henley became aware that Mr Cooper (who he identifies as a friend) was no longer a registered SMSF auditor. Accordingly, on 10 June 2022, the Jellner SF lodged an amendment to its 2020-21 SMSF annual return, updating the auditor details to Mr Henley.
Mr Henley, being both a director of the corporate trustee, and a member of the Jellner SF, was prohibited from auditing the Jellner SF pursuant to s 128F(d) of the SIS Act, regulation 9A.06 of the SIS Regulations and APES 110.
On 10 October 2022, the ATO spoke with Mr Henley by telephone. Relevantly, Mr Henley advised the ATO that “[n]o one audited the fund. The fund is not operating and I didn't want to pay $450 to have my fund audited as there is nothing in it. I put the auditor’s name on the annual return and then found out he was no longer auditing funds, so changed the auditor details.”
On 20 October 2022, the ATO sent Mr Henley a letter notifying him it was considering referring him to ASIC. The ATO attached a position paper to the letter setting out its position in relation to Mr Henley’s conduct. In response to that position paper, Mr Henley stated by email to the ATO dated 25 October 2022, as follows:
Jellner P/L SMSF has been inoperative since 2019.
My SMSF auditor Harry Cooper has now retired.
I was aware that as a SMSF auditor I was unable to audit my Fund.
As laws change I checked online to see if this was still the case and I couldn't find that it was.
As the Fund is inactive I lodged the Annual Return with myself as auditor.
I now find that this is incorrect and have appointed Jeannette Skeets as the registered SMSF auditor.
On 4 November 2022, the ATO referred the matter to ASIC.
On 5 December 2022, ASIC wrote to Mr Henley setting out its concerns and inviting him to make submissions.
Mr Henley responded to ASIC by email on 5 December 2022 stating:
I made a mistake.
As laws constantly change I looked but failed to find one's own SMSF audit signoff details on line.
When I became aware of my error I immediately appointed Jeannette Skeats as auditor.
The audit was signed off on 4th November 2022.
Mr Henley further submitted by email dated 9 December 2022 that he brought a wealth of rare experience to being a SMSF auditor. Some local accountants also provided glowing references to ASIC in support of Mr Henley.
On 23 January 2023, ASIC decided to disqualify Mr Henley from being an SMSF auditor pursuant to s 130F(2)(d) of the SIS Act, finding him not to be a fit and proper person to be an approved SMSF auditor.
On 25 January 2023, Mr Henley requested that ASIC reconsider its decision.
On 16 March 2023, ASIC confirmed the decision to disqualify Mr Henley.
THE ISSUES BEFORE THE TRIBUNAL
The essential issue for determination by the Tribunal is whether Mr Henley’s conduct indicates that he is not a fit and proper person to be a SMSF auditor. If so, was it appropriate for ASIC to have disqualified Mr Henley from being an approved SMSF auditor.
IS MR HENLEY A FIT AND PROPER PERSON TO BE A SMSF AUDITOR?
The expression “fit and proper person” is not defined in the SIS Act. In Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321, Toohey and Gaudron JJ stated at 380:
The expression “fit and proper person”, standing alone, carries no precise meaning. It takes its meaning from its context, from the activities in which the person is or will be engaged and the ends to be served by those activities. The concept of “fit and proper” cannot be entirely divorced from the conduct of the person who is or will be engaging in those activities. However, depending on the nature of the activities, the question may be whether improper conduct has occurred, whether it is likely to occur, whether it can be assumed that it will not occur, or whether the general community will have confidence that it will not occur. The list is not exhaustive but it does indicate that, in certain contexts, character (because it provides indication of likely future conduct) or reputation (because it provides indication of public perception as to likely future conduct) may be sufficient to ground a finding that a person is not fit and proper to undertake the activities in question.
In Hughes & Vale Pty Ltd v New South Wales(No 2) (1955) 93 CLR 127 at 156, Dixon CJ, McTiernan and Webb JJ held, as follows:
… The expression “fit and proper person” is of course familiar enough as traditional words when used with references to offices and perhaps vocations. But their very purpose is to give the widest scope for judgment and indeed for rejection. “Fit” (or “idoneus”) with respect to an office is said to involve three things, honesty knowledge and ability: “honesty to execute it truly, without malice affection or partiality; knowledge to know what he ought duly to do; and ability as well in estate as in body, that he may intend and execute his office, when need is, diligently, and not for impotency or poverty neglect it”...
In paragraph 243.37 of Regulatory Guide 243, ASIC states that in considering whether a person is fit and proper, ASIC will have regard to their “honesty, integrity and good reputation”. ASIC will also have regard to the person’s “overall capability” and whether the person is likely to contravene the obligations of an approved SMSF auditor. Paragraph 243.38 sets out a non-exhaustive list of matters which may indicate that a person is not a fit and proper person to be a SMSF auditor, and relevantly includes that:
(a) you have not carried out or performed adequately and properly the duties and functions of an approved SMSF auditor;
…
(g) you have been obstructive, misleading or untruthful in dealing with regulatory bodies or a court;
(h) you have failed to deal with conflicts of interest appropriately;
…
ASIC submitted that Mr Henley’s conduct, as well as his response to the Decision, raised a number of concerns about his fitness and propriety to be a SMSF auditor. His conduct also falls in the categories identified in Regulatory Guide 243 as being indicative of a lack of fitness and propriety.
Mr Henley twice provided false information to the ATO. First, he claimed that Mr Cooper audited the Jellner SF for the 2020-21 income year when this was not the case. His conduct included providing an annual return to the ATO which stated Mr Cooper audited the Jellner SF and providing a false date for the purported audit report. Secondly, Mr Henley claimed he personally audited the Jellner SF for the 2020-21 income year when he did not, which involved again providing a false date for the purported audit report.
ASIC accepted Mr Henley’s statements that neither he nor Mr Cooper audited the Jellner SF. However, it was concerned about Mr Henley’s competence and knowledge about independence obligations. Also, ASIC was concerned that Mr Henley did not know where or how to locate information about the independence of a SMSF auditor. Mr Henley stated that, prior to writing his own name down as auditor, he was aware that he was unable to audit his own fund, but that he “looked online” and could not see that it was still the case. Reasonable and competent SMSF auditors would be aware that they were prohibited from auditing their own fund, being the most fundamental of independence requirements, and should be able to readily identify and access APES 110 to confirm or clarify those obligations.
I find that Mr Henley’s conduct indicated dishonesty (both as a SMSF auditor and in his capacity as director of a trustee) and a lack of competence. Mr Henley also showed no insight as to the seriousness of his conduct. On 17 March 2023, following the Decision, Mr Henley wrote an email to ASIC stating:
The audit of my dormant SMSF was successfully completed, without incident, before the ASIC investigation was commenced.
No compliance issues were found during the audit.
No third party was adversely impacted by the slight delay in reappointing an independent auditor.
Mr Henley has repeatedly sought to downplay his conduct as a “mistake” and, in doing so, he failed to acknowledge that he had not once, but twice, deliberately given false information to the ATO. He claimed to have “fixed it” even before ASIC became involved but conveniently overlooked the fact that he appointed a new auditor only after the ATO had alerted him to their investigation, as the abovementioned sequence of events demonstrates. This in itself gave rise to some concern about Mr Henley’s integrity. Besides acknowledging he made a mistake, Mr Henley did not show remorse.
Accordingly, I am satisfied Mr Henley is not a fit and proper person to be a SMSF auditor as he failed to demonstrate diligence, competence and integrity commensurate with the importance of the role of a SMSF auditor.
SHOULD MR HENLEY BE DISQUALIFIED AS A SMSF AUDITOR?
I also agree that Mr Henley should be disqualified as a SMSF auditor having regard to all the circumstances, including from both a specific and general deterrence perspective.
I have taken into account the fact that the SMSF industry is regulated to protect the integrity of the superannuation regime and SMSFs are the largest sector in the superannuation industry. In the Second Reading Speech to the Superannuation Laws Amendment (Capital Gains Tax Relief and Other Efficiency Measures) Bill 2012 (Cth), it is stated that SMSF auditors “play a vital role in maintaining the integrity of a major sector of the superannuation system.”[1] Mr Henley’s casual attitude to his misconduct did not inspire confidence that if allowed to continue to act as a SMSF auditor, he wouldn’t again ignore some professional obligations, especially where he viewed the outcome as harmless as he did here. He had argued to AISC that “[n]o third party was adversely impacted by the slight delay in reappointing an independent auditor”. It follows that disqualification is the appropriate sanction, so that if Mr Henley is to act again as an approved SMSF auditor, it should only occur once he has satisfied ASIC that his deficiencies have been addressed as per s 130F(10) of the SIS Act.
[1] Commonwealth, Parliamentary Debates, House of Representative, 19 September 2012, 11169 (Bill Shorten, Minister for Financial Services and Superannuation and Minister for Employment and Workplace Relations).
Finally, general deterrence is a necessary consideration in determining whether a disqualification is appropriate: see Australian Securities and Investments Commission v Gilliland [2022] FCA 1421 at [29]-[36]. The disqualification is justified as it must be firmly communicated to the industry that the making of false statements to a regulatory body is unacceptable, irrespective of the circumstances, and there are serious consequences.
DECISION
The Tribunal affirms the decision under review.
I certify that the preceding 38 (thirty-eight) paragraphs are a true copy of the reasons for the decision herein of Senior Member G Lazanas
.............[SGD]......................
Associate
Dated: 30 January 2024
Date(s) of hearing: Hearing on the papers Advocate for the Applicant: Self-represented Counsel for the Respondent: F J Bentley
Solicitors for the Respondent: A Paciocco, Australian Securities and Investments Commission
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