Hill and Australian Securities and Investments Commission

Hill and Australian Securities and Investments Commission [2017] AATA 352 (21 March 2017)
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2015/2658
Re:Derry Hill
APPLICANT

AndAustralian Securities and Investments Commission
RESPONDENT

DECISION
Tribunal:Professor R Deutsch, Deputy President
Date:21 March 2017
Place:Sydney

The decision under review is set aside and the Respondent is directed not to make a disqualification order under section 206F of the Corporations Act 2001 (Cth) in respect of the Applicant.
..............................[sgd]..........................................
Professor R Deutsch, Deputy President
CATCHWORDS
Corporations – banning order – Applicant disqualified from managing corporations for one year - whether requirements of s 206F have been met – whether Applicant’s behaviour warrants a banning order – whether Applicant’s conduct is causally related to losses suffered by creditors – Applicant was not involved in any breach of duty or intention to deceive - decision under review set aside
LEGISLATION
Corporations Act 2001 (Cth), ss 180, 206F, 439C 459A, 533(1)
CASES
Australian Securities and Investments Commission v Adler (2002) 168 FLR 253
Morley v ASIC [2010] NSWCA 331; 81 ACSR 285
Precision Plastics Pty Limited v Demir (1975) 132 CLR 362
REASONS FOR DECISION
Professor R Deutsch, Deputy President
21 March 2017
BACKGROUND

This case is about the behaviour of the Applicant in relation to his time as a director with 2 companies as expanded upon below.
The Respondent has taken the view that his behaviour was such that a banning order can and should be made against him pursuant to s 206F of the Corporations Act 2001 (‘the Corporations Act’).
The Applicant takes the view that the Respondent
·lacks the power to impose such orders as the requirements for the application of s 206F have not been met; and
·even if it has the power to impose such orders, should not make such an order as the Applicant’s behaviour does not warrant such an order.
CRITICAL FACTS
The directorship of the Applicant in respect of 2 companies in particular, namely Reed Constructions Australia Pty Limited and Heavy Machinery Pty Limited, has been raised by the Respondent.
However, the fact pattern in respect of 4 companies is potentially relevant and can be summarised as follows.
Reed Constructions Australia Pty Limited (RC)
On 6 July 1987, RC was incorporated.
From 21 August 1987 to 21 May 2014, Mr Geoffrey Reed was a director of RC.
From 16 July 1998 to 24 February 2012, Mr Derry Hill was a non-executive director and chairman of RC. He was also a member of the executive committee of RC which met monthly.
Around November 2010, RC had between 350 and 400 employees overseen by a substantial executive staff which included the Applicant and the executive staff participated in a number of management committees. However, the Applicant only sat on the executive committee.
At the end of 2011, RC was involved in approximately 25 substantial projects.
The Applicant’s primary role with RC was the giving of strategic advice to the executive team, in particular relating to the organisation of the staff and operations of RC so that as it grew it could effectively and profitably take on larger projects.
At all relevant times, the accounts of RC were audited by an external firm of accountants.
The last set of financial statements that were audited and signed off by the directors of RC before the Applicant resigned were the financial statements for the year ended 30 June 2011. Those accounts were audited by Pitcher Partners and dated 4 November 2011 and they recorded:
(a)profit before income tax expense of $24,114,770; and
(b)net assets of $99,478,915 including cash of $74,834,410.
On 16 April 2009, RC was awarded a contract by the New South Wales Department of Education Communities (DEC) the purpose of which was to carry out 402 school building projects across 355 schools in northern New South Wales (the DEC Contract).
On 8 December 2009, RC was awarded a substantial contract by the New South Wales Roads and Traffic Authority, subsequently renamed the Roads and Maritime Services (RMS) for the widening of 1.75 km of the Central Coast Highway between Serpentine and Carlton Roads (the CCH Contract), that contract having an initial value $21.4 million.
On 5 January 2010, RC was awarded a further contract by RMS for the widening of 3.2 km of the Great Western Highway between Woodford Station and Hazel Brooke Station on the Great Western Highway (the GWH Contract), that contract having an initial value $57.8 million.
On or about 31 May 2011, St George Bank advanced $7 million to RC on the basis of a commercial bill acceptance discount facility. This facility was offered only on condition that the applicant give a personal guarantee and indemnity in respect of the facility secured by first registered real property mortgage over his home in Mosman, Sydney. The Applicant subsequently granted a registered first mortgage over his home to St George Bank as security for the facility.
On 23 September 2011, RC presented a claim in respect of the GWH Contract for $30.3 million and on 12 October 2011, a claim in respect of the CCH Contract for 17.4 million.
No payments were made in respect of these claims.
On 20 February 2012, RMS formally rejected the claims.
As at February 2012 total unpaid claims in respect of the DEC, CCH and GWH Contracts was in the vicinity of $83.9 million.
On 24 February 2012, the Applicant resigned as a director of RC. At the time of the Applicant’s resignation, RC was in dispute with both RMS and DCE about payment claims in respect of the DEC Contract, the CCH Contract and the GWH Contract.
On 16 March 2012, DEC rejected RC’s claim amounting to $36.2 million in respect of the DEC Contract.
On 21 May 2012, and expert determination panel issued an interim expert determination respect of the DEC, CCH and GWH Contract in which it found favour of RC on liability in respect of a number of its claims.
Between 15 June 2012 and 9 July 2012 RC was in administration.
On 9 July 2012 the NSW Supreme Court ordered that RC be wound up pursuant to s 459A of the Corporations Act and a liquidator was appointed to RC. The issues in respect of the quantum that should be paid under the DEC, CCH and GWH Contracts had not been resolved at the time that the liquidator was appointed to RC.
Following the appointment of the liquidators to RC, St George Bank called on the guarantee which the applicant had given and the Applicant was accordingly required to pay to the St George Bank some $7 million from his personal funds in respect of bank facility.
On 17 January 2013 the liquidator lodged a Report with ASIC under s 533(1) of the Corporations Act estimating that RC may be able to pay zero cents in the dollar to its unsecured creditors who had no priority.
RC has not yet been wound up but is still in liquidation and is registered.
Heavy Machinery Pty Limited (HM)
On 12 August 2011, HM was incorporated. At all relevant times, HM was involved in the leasing of heavy earthmoving and construction equipment which it loaned to RC. RC, in turn, employed the equipment in a project involving the construction of the coal seam gas processing facility. In doing so it engaged in various contractual arrangements with McConnell Dowell Constructors (Aust) Pty Limited (MacDow).
HM acquired the relevant equipment pursuant to a finance lease agreement with the ANZ bank.
In June 2012, RC’s contract with MacDow was novated in favour of another company called Heavy Plant Leasing Pty Ltd (HP), a company of which the Applicant was not a director. As a result HP assumed RC’s rights and obligations under the lease of the relevant equipment from HM. HM’s only source of income with the lease payments made to it by HP.
The indebtedness of HM under the ANZ finance lease arrangement was approximately $15 million and was secured by a fixed and floating charge over all of the assets of HM and HP.
HP performed works and submitted 13 progress claims with a value in excess of $32 million and MacDow paid HP in excess of $31 million.
Further progress claims were made in late 2012 and early 2013 but MacDow failed to make a payment in relation to any of those claims.
Approximately $115 million remained claimed but unpaid.
From 12 August 2011 to 21 May 2014, Mr Geoffrey Reed was a director of HM.
From 12 August 2011 to 24 February 2012 and from 2 March 2012 to 23 December 2013, Mr Derry Hill was a director of HM.
Between 14 March 2013 and 20 December 2013 HM was in administration.
On 20 December 2013 HM’s creditors resolved that the company be wound up pursuant to s 439C of the Corporations Act and liquidators were appointed to HM.
On 28 February 2014 the liquidator lodged a Report with ASIC under s 533(1) of the Corporations Act estimating that HM may be able to pay zero cents in the dollar to its unsecured creditors who had no priority.
HM has not yet been wound up but is still in liquidation and is currently registered.
RST Nominees Pty Limited (RST)
On 12 August 2011, RST was incorporated.
From 12 August 2011 to 21 May 2014, Mr Geoffrey Reed was a director of RST.
From 15 June 2012 to 20 July 2012, RST was in administration
On 20 July 2012 RST’s creditors resolved that the company be wound up pursuant to s 439C of the Corporations Act.
On 28 October 2013 the liquidator lodged a Report with ASIC under s 533(1) of the Corporations Act estimating that RST may be able to pay zero cents in the dollar to its unsecured creditors who had no priority.
RST has not yet been wound up but is still in liquidation and is registered.
Heavy Plant Leasing Pty Limited (HP)
On 29 June 2011, HP was incorporated.
From 29 June 2011 to 21 May 2014, Mr Geoffrey Reed was a director of HP.
From 14 March 2013 to 20 December 2013 HP was in administration.
On 20 December 2013, HP’s creditors resolved that the company be wound up pursuant to s 439C of the Corporations Act.
On 28 February 2014 the liquidator lodged a report with ASIC under s 533(1) of the Corporations Act estimating that HP may be able to pay zero cents in the dollar to its unsecured creditors who had no priority.
HP has not yet been wound up but is still in liquidation and is registered.
Action taken by the Respondent
On or about 12 June 2014, the Respondent gave the Applicant a s 206F(1)(b) notice and an opportunity to be heard and in response, the Applicant provided written submissions to the Respondent.
On 30 April 2015 a delegate of the Respondent disqualified the Applicant for a period of 1 year.
On 1 May 2015 the Respondent notified the Applicant of the disqualification which took effect that day.
ISSUES
In respect of the Applicant, there are two issues in dispute:
·First, there is an issue as to whether the Respondent has power to make an order under s 206F of the Corporations Act in circumstances where the companies in question have not been wound up at the time the order is made; and
·Secondly, even if the first issue is resolved in favour of the Respondent, there is a further issue as to what is the correct and preferable decision in respect of whether that disqualification order should have been made in respect of the Applicant and if so what the duration should have been.
PRELIMINARY ISSUE - CONTENTIONS
In respect of this preliminary issue, the Tribunal makes no decision as it is not necessary for the Tribunal to do so in light of the Tribunal’s decision on the substantive issue.
SUBSTANTIVE ISSUE
There are essentially four grounds for disqualification asserted by the Respondent as follows:
(a)That the Applicant did not ensure that RC held security in trust;
(b)That the Applicant did not prevent RC from providing false statutory declarations to support certain payment claims;
(c)That the Applicant did not ensure that RC paid PAYG instalments and superannuation;
(d)That the Applicant did not;
(a)satisfactorily attend to his role as a director of RC; or
(b)realise the inadequacies in the board and/or management of RC
Did the actions or inactions of the Applicant cause or significantly contribute to the failure of the relevant corporation.
Before considering each ground, as a more general observation the discretion that is embedded within s 206F of the Corporations Act to disqualify should not be exercised unless the director’s actions or omissions are shown to have caused or significantly contributed to the failure of the relevant corporation.
The basis upon which the Respondent seeks to justify its decision to disqualify the Applicant is that “Mr Hill’s conduct can be seen as causally related to losses suffered by creditors and ultimately the failure of the companies”: Submissions for ASIC dated 11 February 2016 (ASIC Submissions), para 37.
The case advanced by the Respondent is based to a significant degree on:
·the level of complaints about his powers of recollection [ASIC Submissions para 13]; and
·his failure to read and be familiar with the many of relevant documents [ASIC Submissions para 17].
However, even if such matters constitute breaches of duty, in order for such matters to support the case advanced by the Respondent they must be shown to have been causally connected to the failure of the companies.
In this case, the evidence suggests the companies in question failed, within a short period of time, not because of any management failures on the part of the Applicant,/ but as a result of what appears to be unjustified failure by third parties to pay contract claims.
In the case advanced by the Respondent there seems to be a surprising but conspicuous absence of any suggestion as to what it is that the Applicant could or should have done differently which, if he had done it, would have averted the corporate failure of the companies.
Further, for the reasons set out below, the individual complaints made by ASIC are without foundation, nor do they, either singly or in combination, justify a disqualification order in any event.
Reed Constructions
The evidence does not demonstrate that RC’s failure was caused or contributed to by any act or omission on the part of the Applicant. Rather, it was caused by disputes across 3 major contracts, which resulted in third parties refusing to pay RC. This refusal to pay was arguably unjustified. Certainly, the refusal does not appear to be related to any alleged or established act or omission on the part of the Applicant.
In 2011, RC held 3 major construction contracts being the GWH Contract, the CCH Contract and the DEC Contract.
Prior to the refusal by RMS and DDC in late 2011 and early 2012 to make payments under those contracts, referred to below, RC was in good financial health. It had been expanding and prospering for many years. During the 2000s, the business grew from a relatively small construction company employing approximately 30 employees to a major enterprise employing between 350 to 400 employees, with a substantial executive staff, and managing between 25-50 projects at any one time.
The company’s financial health was reflected in its audited financial accounts for the years ended 30 June 2010 and 30 June 2011.
The last set of RC’s financial statements that were audited and signed off by the directors before the Applicant resigned were the financial statements for the year ended 30 June 2011.
Those accounts, which were audited by Pitcher Partners and dated 4 November 2011, recorded:
(a)profit before income tax expense of $24,114,770 (up from $20,014,719 in 2010);
(b)net assets of $99,478,915 (up from $82,758,107 in 2010);
(c)cash at end of financial year of $74.8 million (down from $130.3 million in
2010).
The Respondent attempted, both in cross examination of the Applicant and in submissions, to impugn the reliability of the 2011 audited accounts and therefore the Applicant’s reliance on those accounts. It asserts that the accounts were wrong and that net assets of 2011 should, in fact, be reduced by around $60 million to around $40 million. This is put on the basis that in Note 11 to the accounts, after the reference to total borrowings being $3.6 million, there appears a reference to “facilities” held with the company’s bankers in the amount of $57 million.
This attack seems to overlook the distinction between, on the one hand, a facility to borrow and, on the other hand, an actual borrowing. In determining the amount of actual borrowings, the question is whether, and if so, to what extent, the facility has been drawn down.
The accounts correctly disclosed the amount of the company’s actual borrowings ($2.1 million) in the relevant statement of financial position. The facility referred to in the notes is a facility to borrow more than the $2.1 million already borrowed.
On 23 September 2011, RC presented a claim in respect to the GWH Contact for $30.3 million. RMS disputed the claim and refused to pay it.
On 12 October 2011, RC presented a claim in respect to the CCH Contract for $17.4 million. RMS disputed the claim and refused to pay it.
On 20 February 2012 RMS formally, and finally, rejected both claims.
The Applicant resigned four days later, on 24 February 2012.
Prior to this time, the Applicant reasonably and genuinely believed that RC would recover all or substantially all of the moneys owing to it under the Government Contracts and was solvent. This reasonable and genuine belief was:
(a)based upon RC’s existing good relationship with NSW Government agencies and the Applicant’s experience that those agencies had historically negotiated any variations and disputes in good faith and ultimately paid in a timely manner. The Applicant gave specific and largely uncontradicted evidence on this matter;
(b)evidenced by the Applicant’s willingness to personally guarantee the St George Facility in the amount of $7 million which he was subsequently called upon to honour; and
(c)supported by the audited financial statements for the company for the year ended 30 June 2011.
The position of the company worsened after March 2012, after the Applicant had resigned as a director.
On 16 March 2012, the DEC formally rejected payment claims totalling $36.2 million in respect of the DEC Contract. Although there had been issues with payments under the DEC Contract since late 2010, which worsened over 2011, the Applicant expected the issues would be resolved. This was in accordance with his experience with New South Wales government agencies that variations were often questioned but usually negotiated and settled in an orderly way.
Unsurprisingly, the failure by RMS and the DEC to make payments to the company totalling $83.9 million had a catastrophic effect on RC’s cash flow and solvency. This does not appear to be disputed by the Respondent.
The liquidator concluded that it was from about this time in mid-March 2012 that RC may have been insolvent.
On 21 May 2012, an expert determination panel issued an interim expert determination in respect of the Government Contracts, in which it found for RC on liability in respect of a number of its claims. Issues of quantum under the Government Contracts had not been resolved at the time a liquidator was appointed to RC.
The Liquidator, having taken legal advice, also held the view that RC was entitled to recover moneys owing under the Government Contracts although it acknowledged that in a final distribution it might recover less than the claimed sum.
Importantly, there is nothing to suggest that the Applicant was somehow at fault in relation to the refusal of RMS and the DEC to make the payments under the Government Contracts.
Thus, the above evidence demonstrates, and the Tribunal concludes, that:
(a)the obvious and overwhelming cause of the collapse of RC was the failure by RMS and the DEC to make payments under the Government Contracts;
(b)the evidence does not support any finding that the Applicant was in any way responsible for the events which led to RMS and the DEC from withholding the payments under the Government Contracts;
(c)on the evidence put forward by the Respondent, the Tribunal cannot be satisfied that the manner in which RC was managed by the Applicant (to the extent that the Applicant was involved) was wholly or partly responsible for RC failing;
(d)those matters tend decisively, or at least strongly, against any disqualification order being imposed against the Applicant in respect of the affairs of RC.
Heavy Machinery Pty Limited

The position is even more stark in the case of HM.
HM’s insolvency was caused by MacDow’s sudden and unexpected failure to pay a number of HM’s progress claims totalling some $66 million in the period January to March 2013.
Prior to MacDow’s failure to pay those HM’s progress claims, there was no basis for any concern that MacDow would fail to make those payments.
MacDow’s unexpected failure to pay those HM progress claims was a matter outside the control of the directors of HM.
In the circumstances, the Tribunal is satisfied that:
(a)HM’s failure was not caused or contributed to by any breach of duty or any act or omission on the part of the directors of HM;
(b)there was no breach of duty by the directors of HM including the Applicant and no finding of such a breach of duty was made by the delegate;
(c)on the evidence put forward by the Respondent, the Tribunal cannot be satisfied that the manner in which HM was managed was wholly or partly responsible for the HM failing;
(d)these matters tend decisively, or at least strongly, against any disqualification order being imposed against the Applicant in respect of the affairs of HM.
INDIVIDUAL GROUNDS OF COMPLAINT NOT ESTABLISHED
The Applicant in this case was a non-executive director. It is clear from the case law that a non-executive director may be reliant on management and other officers to a greater extent than an executive director: Morley v ASIC [2010] NSWCA 331; 81 ACSR 285 at [807]. Beyond this, no general statement can be made as to the standard expected of a non-executive director: Morley at [807].
The enquiry which must be made is an objective one, which focuses on what an ordinary person, with the knowledge and experience of the director, must be expected to have done in the circumstances if he or she was acting on his or her own behalf: Morley at [807], citing Australian Securities and Investments Commission v Adler (2002) 168 FLR 253 at [372].
In this case, the Applicant was a non-executive chairman whose role in the company was to provide high level, strategic advice and support to the executive team. The Applicant’s curriculum vitae describes him as having a “senior advisory role”.
The advice he was to provide and provided related particularly to the organisation of the staff and operations of RC so that, as it grew, it could efficiently and profitably take on larger projects.
The question raised here is, in respect of each of the areas of complaint identified by the Respondent, what is it that the Applicant is expected to have done differently? What specific steps should he have taken that he did not in fact take?
The Applicant was reliant on management, in particular to ensure that RC was complying with its contractual and regulatory obligations. This is particularly underscored by the fact that:
(a)RC was a very large enterprise, employing between 350-400 employees and having, at any one time, between 25 and 50 construction projects;
(b)RC had a substantial executive staff, whose roles and responsibilities are set out in the relevant company chart;
(c)all of the executive staff of RC, with one exception, reported directly to the managing director, Mr Reed;
(d)the Applicant had no staff reporting to him, other than a Mr Hirst, who reported to the Applicant only in respect of the company’s building at North Sydney and some property development matters unrelated to the company’s construction projects.
The Applicant attended monthly executive committee meetings. Management staff and project managers gave specific reports on particular matters. Monthly management accounts were distributed, with a report on each project recording monthly revenue and cost, as well as a consolidated report prepared by the company’s financial controller of the cash position of RC at the end of each month.
In addition, the Applicant periodically attended meetings concerning the progress of individual construction projects in which RC was engaged. These meetings almost exclusively concerned operational, rather than financial, matters.
The Applicant relied on the company’s financial controller and accounting staff, and its external auditors, Pitcher Partners, to prepare and to audit sound and reliable financial accounts.
The Applicant made a conscious effort to step back from day-to-day management in March 2005 and again in 2010, when his wife was seriously ill. This is accepted by the Respondent (Respondent’s Statement of Facts and Contentions dated 29 October 2015), para 26(f)).
It is convenient now to turn to each of the grounds relied upon by the Respondent.
Ground 1 (ASIC Submissions paras 24-26):
That the Applicant did not ensure Reed Constructions held security in trust
No issue was ever raised with the Applicant by the executive board of RC or any other RC staff member as to whether RC was complying with its obligations under certain contracts to hold security money and retention money on trust.
The Applicant gave evidence on this point which does was not challenged in any specific way in cross-examination.
The Respondent failed to produce any contrary evidence, including in the minutes of project management meetings referred to above.
In these circumstances, the Applicant’s evidence should be accepted: Precision Plastics Pty Limitedv Demir (1975) 132 CLR 362 (‘Precision Plastics’).
The contractual requirement in the relevant contract for retention of security and retention money to be held in trust is buried deep in the contractual documents. The obligation is contained in clause 31 of one contract (see Suppmentary T-documents, Tab 76, page 1584), which in turn incorporates by reference clause 37 of another sub-contract ( see T-documents Vol 1, Tab 14, page 164).
The question arises whether the Applicant, despite having no notice from executive or other RC staff that the company was not complying with this requirement, nevertheless ought to have been aware that that was the case.
More accurately, one might argue that the question is whether a reasonable person in the position of the Applicant, despite the lack of notification of non-compliance, nevertheless ought to have been aware that the company was failing to comply with the contractual requirement to hold monies on trust.
In this case, the evidence does not support an affirmative answer to this question.
A reasonable person in the position of the Applicant was entitled to rely on the management and executive staff and officers, including the managing director, Mr Reed, and the contracts management staff to report to him any issues or concerns with respect to non-compliance by the company with a particular contractual term.
The fact they did not do so does not demonstrate a failing on the part of the Applicant, much less a contravention of s 180 of the Corporations Act as asserted by ASIC.
This does not strike me as a case in which there has been a systemic failure at the company level to have in place procedures and policies to ensure that contractual requirements were complied with.
The company in fact had in place personnel and reporting lines to ensure that there was compliance with contracts.
In the absence of any systemic failure at RC, and the fact that the Applicant’s attention was not drawn to any problem with respect to the requirement to hold monies in trust, it cannot properly be concluded that a reasonable person in the Applicant’s position should, despite the lack of notification, nevertheless have been aware of the non-compliance by RC and taken steps to correct that non-compliance.
Accordingly, this ground is not made out.
Ground 2 (ASIC Submissions paras 27-31):
That the Applicant did not prevent Reed Constructions from providing false statutory declarations supporting payments
Much the same reasoning applies to the Respondent’s second ground.
The Respondent’s submissions on this issue proceed upon the unstated premise that employees of RC were submitting statutory declarations that were false and that the Applicant must have or should have known them to be false.
This premise is not established by the evidence.
The Respondent’s submissions, and cross-examination of Mr Hill, were devoid of any attempt to unearth how it could be concluded that the statutory declaration must have been false and how it is that the Applicant ought to have been aware of that fact.
The cross-examination, for example, proceeded without reference to the statutory declaration or the terms of the relevant contract.
The Respondent’s submissions assert without explanation that merely because, by September 2011 RC had significant unpaid creditors, then, necessarily, there must have been statutory declarations being made in support of payment claims that were wrong. That does not follow.
The Applicant’s evidence was that:
(a)whilst he was aware that the company’s usual practice was to submit statutory declarations in support of progress payment claims, he was not aware of the particular form of a statutory declaration required by the relevant contract; and
(b)at no time prior to his resignation as a director was any issue with any statutory declaration brought to his attention; and
(c)no suggestion was ever made that RCA staff made or may have made statutory declarations that were not true and correct in all respects [Aff. para 76].
This evidence was not challenged. No evidence to the contrary was led.
The Applicant’s evidence should therefore be accepted (Precision Plastics).
The question is therefore whether a reasonable person in the position of the Applicant nevertheless “ought to have been aware” that employees of the company were submitting statutory declarations that were false.
Before such a finding could be made, there would need to be a series of necessary, anterior findings to the effect that the Applicant:
(a)ought to have been aware of the requirements for the making of the relevant statutory declarations;
(b)ought to have been aware of the “obligations of the Contract under the Contract relating to Security of Payment”;
(c)ought to have been aware that those obligations were not being complied with by RC;
(d)knowing those things ought, as a result, to have been aware that the statutory declarations which were being made by RCA under the relevant contracts were false, or made enquiries about those matters.
It is not reasonable to suppose or expect that a person in the position of the Applicant, despite not having being informed of any issue with respect to statutory declarations, nevertheless should have been aware of all of the matters set out in the previous paragraph.
Further,
(a)there was no systemic failure at RC to have in place procedures and policies to ensure that contractual requirements were complied with;
(b)a reasonable person in the position of the Applicant was entitled to rely on the management and executive staff, including the managing director, Mr Reed and the responsible contracts management staff, to report to him any non-compliance by the company with a particular contractual term; and
(c)the fact they did not do so does not demonstrate either a failing on the part of the Applicant or a contravention of s 180 of the Corporations Act as asserted by the Respondent.
In these circumstances, this ground is not made out and does not support a disqualification order.
Ground 3 (ASIC Submissions para 32):
That the Applicant did not ensure that Reed Constructions paid PAYG and superannuation
In January and March 2012, some of RC staff instructed the company’s payroll service provider Aussiepay not to pay superannuation and PAYG for certain months: (ASIC’s Statement of Facts and Contentions, paras 22(f), 24).
In these circumstances, ASIC asserts that Mr Hill breached s 180 of the Corporations Act by failing to ensure that RCA paid its statutory liabilities, including PAYG and superannuation months: (ASIC’s Statement of Facts and Contentions, para 25).).
The Applicant’s unchallenged evidence was that:
(a)he believed that RC was meeting its State and Commonwealth taxation obligations;
(b)at no time prior to his resignation as a director of RC was any issue of delayed or non-payment of RC’s State or Commonwealth taxation liabilities ever brought to his attention;
(c)he neither authorised, nor was he aware of, any proposal to withhold payment of superannuation entitlements or PAYG tax instalment amounts;
(d)he had no knowledge of certain emails sent on 23 January 2012 and 15 March 2012 which would have provided him with the relevant information and the email of 15 March 2012 which he did see was sent and seen by the Applicant after he had ceased to be a director of RC.
The deduction by RC of PAYG and superannuation amounts from its employees’ wages were operational matters about which the Applicant was not consulted.
There is no basis for any finding that the Applicant “ought to been aware” of the proposal to withhold PAYG and superannuation payments.
There appears to be no suggestion in the Respondent’s contentions to suggest what it is that a reasonable person in the position of the Applicant would or should have done in the circumstances that was not done by the Applicant.
In these circumstances, the ground is not made out.
Ground 4 (ASIC Submissions paras 7-13)
That the Applicant did not;
(a)satisfactorily attend to his role as a director of RC; or
(b) realise the inadequacies in the board and/or management of RC
None of the matters relied on by the Respondent in respect of this ground form a legitimate basis to justify disqualification.
In particular, as to the state of the finances of RC, the Applicant relied to a large extent upon the audited accounts, which were prepared and audited by a substantial reputable firm, namely Pitcher Partners.
Further, whilst it is common ground that RCA was experiencing difficulties in the second half of 2011, the Applicant had a reasonable basis to consider that it would be able to trade out of its difficulties as he reasonably expected that the NSW Government agencies would honour their contractual obligations albeit after having questioned some of the charges which may have been moderated as a result.
In paragraph 8 of ASIC’s Submissions, the complaint is that “minimal thought seems to have gone into increasing Reed Construction’s board”. The company had a managing director and a large number of executive officers and supporting staff who administered the affairs of the company. It is far from apparent that increasing the number of directors would have made any difference to the fate of the company. The fact that the board comprised only two directors is not a matter that justifies disqualification. Indeed, it is not surprising that it was not brought to account by the delegate when making her determination.
Mr Hill was not challenged in cross-examination as to whether or not he could properly be described as a non-executive director. There was some cross- examination about him being described in tender documents as “Chairman” (T-documents, T1 pp46/13-p47) but a Chairman is usually understood to be non-executive unless described as “Executive Chairman”.
The Respondent also submitted that the Applicant, by seeing management accounts and attending project management meetings, gained knowledge about operational matters.
Even though that may be the case, it does not follow that the Applicant can or should be taken to have operational, day-to-day involvement or responsibility in the running of the company.
Minutes were kept of the project management and some of these minutes are in evidence [see e.g. T-documents, Vol 2 Tabs 36, 37, 38, 40, 41, 42, 43, 45]. Tellingly, however, the Respondent has not pointed to any entries in those minutes - or adduced evidence of other minutes - which suggest that the Applicant was alerted to matters about which the Respondent assert that the Applicant should have been aware. The absence of any such evidence undermines the basis of the Respondent’s complaint that the Applicant ought to have been aware of the operational matters (such as failure to remit PAYG, false statutory declarations) which are relied upon by the Respondent in seeking a disqualification order.
It supports the Applicant’s evidence that he was not aware of such matters, those matters not having been raised with him by the executive or operational staff of the business. If those matters were not brought to the Applicant’s attention at project management meetings which he attended, upon what grounds can he legitimately be criticised?
The nub of the Respondent’s submission concerning the Applicant’s process and involvement in respect of the Government Contracts is essentially to the effect that the Applicant ought to have read and absorbed each contract, in full, before signing it.
The underlying premise on which this submission is based is that non-executive directors (or even directors) of corporations entering into substantial contracts must read and understand them as a matter of general practice. In the real world that is fanciful. Non-executive directors of large companies, including public listed companies, do not (and cannot be expected to) read the detail of contracts into which the company is proposing to enter. That is left to the responsible executive staff and officers, if necessary with external advice from lawyers and other advisers. To impose such an obligation on directors, including non-executive directors of public companies, would be absurd. It would add massively to the burdens of non-executive directors and be a significant disincentive to acting as a non-executive director.
Relevantly, the evidence demonstrates that:
(a)at the end of 2011: RCA had approximately 50 substantial projects (25 “active” and a further 25 “unfulfilled and in the maintenance period”(T-documents, T1 p 52/12-24);
(b)each of these projects would have had its own individual contractual requirements;
(c)the Applicant was neither involved in, nor should he be expected to have been involved in the negotiation of the contracts;
(d)material terms of the contracts were reported to the executive committee by way of epitomes. The Applicant’s evidence was that the epitome’s comprise the contract cost, the contract value, who the project manager would be and “non-boilerplate” terms (T-documents, T1 p 60);
(e)the obligations imposed on RC under the relevant contracts were vast in number and diverse in nature (Supplementary T-Documents Tab 76);
(f)RC had dedicated executive staff for administering these contracts and ensuring that RC complied with them. For example:
ocontracts manager [Quoc Tam Nguyen]( see delegate’s reasons [74] at p. 25);
ocontractor’s authorised person - Matthew Quinn (Supplementary T-Documents Tab 76, p 1628);
ocontractor’s senior executive - Paul Wise (Supplementary T-Documents Tab 76 p.1629]);
othere was also a project manager for each job.
There is no basis for a finding of any dereliction of duty by the Applicant in respect of the RC’s entry into contracts.
At paragraph 13 of ASIC’s Submissions, the Applicant’s powers of recollection are attacked. This is apparently a credit submission but the Applicant’s evidence was not otherwise the subject of any substantial dispute. It is not clear the extent to which the Respondent seeks to make any broader point about the Applicant’s ability to recall matters relating to the administration of the companies. Those events took place more than four years ago. During cross-examination, the Applicant was asked at length and in considerable detail about a large number of obtuse and apparently irrelevant matters, often without being shown documents to refresh his recollection (e.g, see T- documents, T2 p. 35/1-47; 54/46-55/23; 58/43-60/8).
The point of this cross-examination was difficult to discern.

As far as the Tribunal is concerned the Applicant presented as a highly credible witness who answered the questions put to him honestly and with as much accuracy as he could manage having regard to the fact that he was recalling events of some four years passed and which during a time of considerable stress to him and his family.
At paragraphs 14-17 of ASIC’s Submissions, complaint is made about the Applicant’s “attitude” to the Government Contracts. Whilst it is difficult to identify the kernel of the complaint, it appears to be that the Applicant failed to ensure that the performance of the contracts “needed to be watched, monitored and well maintained”.
Precisely what it is that a reasonable person in the position of the Applicant was expected to do in terms of “watching, monitoring and maintaining” the contracts, is not explained and is not from where I sit readily apparent without more cogent explanation.
Again, it is worth repeating that the Applicant at the relevant time and without the benefit of our old and trusted friend “Mr Hindsight”, had what can best be described as a reasonable and legitimate expectation that the RMS and the DEC would eventually comply with their contractual obligations. He could not reasonably be expected to have anticipated that they would not so comply on such a grand and comprehensive scale.
CONCLUSIONS
There are a number of considerations that are important and relevant (though to differing degrees) in this case as follows:
(a)The Applicant is of good character and has a long and distinguished business career.
(b)For the great majority of the Applicant’s tenure as non-executive director and Chairman, the company prospered and grew and satisfied its obligations to stakeholders including creditors and employees;
(c)at no time did the Applicant act dishonestly in any way;
(d)at no time did the Applicant act with any intention to deceive;
(e)at no time did the Applicant act with impropriety;
(f)at no time was the Applicant aware of dishonesty, intention to deceive or impropriety on the part of others;
(g)the Applicant was not involved in any breach of duty that involved any intention to deceive or any pattern of behaviour of non-disclosure.
(h)the Applicant has given assistance exploring potential claims by RC against the New South Wales Government agencies, including obtaining legal advice and the pursuit of litigation funding so that RC’s liquidators can bring those claims (see Affidavit of Applicant, paras 90-93).
(i)the Applicant is retired and has no present intention of ever again managing a corporation. He brings this application principally to vindicate his reputation.
(j)the Applicant lost $7 million of his personal money in the collapse of the companies in consequence of providing his own home as security for the company’s facilities.
There is no “pattern of failure” established on the facts. RC and HM failed within a relatively short period due to matters outside the control of the Applicant.
None of the breaches of duty alleged by the Respondent are established by the evidence. A disqualification order is not justified in the circumstances of this case.
DECISION
The decisions under review are set aside and the Tribunal orders that no disqualification order is made.

I certify that the preceding 163 (one hundred and sixty -three) paragraphs are a true copy of the reasons for the decision herein of Professor R Deutsch, Deputy President

...........................[sgd]..................................
Associate
Dated: 21 March 2017

Dates of hearing: 21 and 22 December 2015, 8 March 2016

Date final submissions received: 6 May 2016

Counsel for the Applicant: Mr A Harding

Solicitors for the Applicant: Mr R Tassell, Pikes and Verekers Lawyers

Counsel for the Respondent: Ms M Avenell

Solicitors for the Respondent: Mr N Goodstone

[2017] AATA 352

21 March 2017

Key Legal Topics

Areas of Law

Administrative Law

Commercial Law

Statutory Interpretation

Legal Concepts

Judicial Review

Causation

Standing

Procedural Fairness

Remedies

Statutory Construction

Dates of hearing:	21 and 22 December 2015, 8 March 2016
Date final submissions received:	6 May 2016
Counsel for the Applicant:	Mr A Harding
Solicitors for the Applicant:	Mr R Tassell, Pikes and Verekers Lawyers
Counsel for the Respondent:	Ms M Avenell
Solicitors for the Respondent:	Mr N Goodstone