Holden and Australian Securities and Investments Commission
[2016] AATA 605
•15 August 2016
Holden and Australian Securities and Investments Commission [2016] AATA 605 (15 August 2016)
Division: TAXATION AND COMMERCIAL DIVISION
File Number: 2014/3886
Re: XAVIER DAVID HOLDEN
APPLICANT
And:AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
RESPONDENT
DECISION
Tribunal Deputy President S A Forgie
Date 15 August 2016
Place Melbourne
The Tribunal decides to:
affirm the decision of the delegate of the respondent dated 25 June 2014 and disqualifying the applicant from managing corporations for a period of three years.
………[sgd]…………….
Deputy President
CATCHWORDS – CORPORATIONS – disqualification order – applicant disqualified from managing corporations for a period of three years – decision affirmed
LEGISLATION
Administrative Appeals Tribunal Act 1975 s 39
Administrative Decisions (Judicial Review) Act 1977 ss 5 and 6
Australian Securities and Investments Commission Act 2001
Corporate Law Economic Reform Program Act 1999
Corporations Act 2001 ss 9, 46, 47, 48, 50, 179(1), 180(1), 180(2), 180(3), 182(1), 189, 201B(1), 201B(2), 201F(1)(a), 201F(1)(b), 201F(1)(c), 202A, 202C, 206, 206C-206EA, 206EB, 206F, 206F(4), 206G, 286, 475(1),530A(1), 533(1) and 533(2)CASES
Australian Securities Commission v Gallagher (1993) 11 WAR 105; 10 ACSR 43; 11 ACLC 286
AWA Ltd v Daniels trading as Deloitte Haskins & Sells (1992) 7 ACSR 759
Daniels v Anderson (1995) 37 NSWLR 438; 118 FLR 248; 16 ACSR 607
Drake and Minister for Immigration and Ethnic Affairs (No 2) [1979] AATA 179; (1979) 2 ALD 634
Duke Group Ltd (in liq) v Pilmer (No 5) (2003) 87 SASR 325
Gold Ribbon (Accountants) P/L v Sheers and Ors [2005] QSC 198
Murdaca v Australian Securities and Investments Commission [2009] FCAFC 92; (2009) 178 FCR 119; 258 ALR 223; 110 ALD 500
Re Aghili and Australian Securities and Investments Commission [2012] AATA 353Re Quinlivan and Australian Securities and Investments Commission [2010] AATA 113; (2010) 113 ALD 599
Rich v Australian Securities and Investments Commission [2004] HCA 42; (2004) 220 CLR 129; 209 ALR 271; 78 ALJR 1354
Scott v Australian Securities and Investments Commission [2010] FCA 424; (2010) 78 ACSR 399
Vrisakis v Australian Securities Commission [1993] 9 WAR 395
OTHER MATERIALS
Chambers 21st Century Dictionary, 1999, reprinted 2004, Chambers.
REASONS FOR DECISION
On 25 June 2014, a delegate of the Australian Securities and Investments Commission (ASIC) decided to disqualify Mr Xavier David Holden from managing corporations for a period of three years. ASIC served notice of its decision on Mr Holden on 1 July 2014. That meant that the period of Mr Holden’s disqualification took effect from that day under s 206F(4) of the Corporations Act 2001 (Corporations Act). He applied for review of that decision on 24 July 2014 and I have decided to affirm it.
ASIC’s DECISION
ASIC disqualified Mr Holden after three corporations of which he had been a director and secretary were wound up within 12 months of his ceasing to hold those positions. Those corporations were Queens Capital Group Pty Ltd (QCG), Tocker Pty Ltd (Tocker) and MPM Capital Pty Ltd (MPM). I have set out the dates on which Mr Holden held his positions in the table at [17] below. In each case, the liquidator appointed by the Court lodged a report under s 533(1) of the Corporations Act.
In its Statement of Facts and Contentions, ASIC summarised the import of the decision its delegate had made in relation to Mr Holden’s conduct as an officer of QCG, Tocker and MPM. The summary reads:
“(a) The applicant failed to perform his duties in respect of QCG and Tocker with the degree of care and diligence required by s 180 of the Corporations Act, namely by:
(i)failing to ensure that QCG and Tocker complied with their statutory obligations in relation to the lodgement of tax related information with the ATO;
(ii)allowing QCG to obtain a large amount of finance when it was in a poor financial position and was unlikely to be able to meet the relevant debts;
(iii)allowing QCG to guarantee significant finance facilities made available to Tocker when there was no apparent benefit to QCG in providing the guarantees; and
(iv)failing to monitor the conduct of Tocker’s business and its financial position.
(b)The applicant misused his position to either gain an advantage for himself or to cause detriment to QCG in contravention of s 182 of the Corporations Act, namely by:
(i)causing QCG to make a payment of $24,400 for the purchase of a Norman Lindsay painting which the applicant appears to have retained for his own, or another’s, benefit; and
(ii)causing funds in respect of three loans entered into by QCG to be paid to the applicant personally, and thereafter apparently used by the applicant for his own, or another’s, benefit.
(c)In contravention of s 344(1) of the Corporations Act, the applicant failed to ensure that QCG and Tocker kept complete and accurate financial records in accordance with s 286; and
(d)In contravention of s 530A(1) of the Corporations Act, the applicant failed to deliver all relevant books relating to QCG to the liquidator, or alternatively failed to tell the liquidator where the books were; and in the case of MPM, the applicant failed to provide any books to the liquidator.”[1]
[1] ASIC’s SFC at [17]
Mr HOLDEN’s CONTENTIONS
Mr Holden’s case had two main strands. One addressed the issues arising under s 206F. The second related to the process followed by ASIC’s delegate in his examination of Mr Holden and in reaching his decision. He prefaced his contentions with the following summary of facts. I will set out all but the first two and the last four as I have incorporated the others elsewhere in this section of my reasons:
“3. The companies significantly failed to meet obligations to the ATO and other statutory authorities.
4.The companies failed to keep accurate and adequate records.
5.The companies failed to produce significant records and information for the liquidator(s)
6.The companies were wound up with a significant loss
7.Accurate determination of the size and nature of the loss(s) is significantly hindered by the lack of records.”
Inadequate foundation established by liquidator and ASIC
At the hearing, Mr Holden argued that the liquidator had formed a pre-conceived view of him as a director. When the liquidator was frustrated by the lack of records, he proceeded to compile an inaccurate picture of what had happened and failed to investigate the affairs of the companies properly. The delegate of ASIC followed the same path, Mr Holden submitted. By not pursuing other lines of enquiry, both had placed him at a disadvantage. His disadvantage is compounded by the fact that he is unrepresented. None of his complaints to ASIC has been investigated so he is left with no basis for defending the allegations that he has been incompetent. He has no basis for putting forward his argument that he has been the victim of an orchestrated plot to take advantage of the companies to the advantage of another person or persons. In such a situation, it is not feasible for a reasonable person to take steps to prevent him or herself being the taken advantage of. It was not reasonable to foresee that it would happen. He is the only person to have suffered a sanction from the demise of the companies and yet he is the principal shareholder and the principal loser.
No basis for making disqualification decision
In the Statement of Facts and Contentions that he lodged on 9 October 2016, Mr Holden set out a number of contentions. He stated that some of his contentions were based on the ASIC’s findings. They were directed to his underpinning contention that:
“7) The sole cause of the failure of Tocker Pty Ltd MPM Pty Ltd and Queens Capital Group Pty Ltd was the conspiracy of fraud, theft and misappropriations carried out by David Jaffe and others, without the director’s [Mr Holden’s] knowledge or participation.
8) Given the high level of acumen and sophistication of deceit practiced by the authors of the conspiracy, it is reasonable to accept that a director could not reasonably have foreseen or prevented the corporate failures.”[2]
[2] Mr Holden’s SFC at page 4
Mr Holden said that his conduct as a director was always consistent with that required by the Corporations Act. He pursued his duties as director with diligence, prudence and regard to his obligations. In particular, he took all reasonable steps to ensure that the companies of which he was a director complied fully with the obligations. He took all reasonable care to ensure that company records were maintained and kept according to law and that they were available. At all times, he was actively involved in the affairs of the company and did not improperly advantage himself as a director.
In the course of setting out the details of his broad contention, Mr Holden gave some further information. Mr Holden contends that the failure of the three corporations was due to a deliberate and carefully planned conspiracy of frauds, thefts, misappropriations and deceit effected by a number of employees, agents and persons yet to be identified. He did, however, identify one person and the role performed by another: Mr Jaffe, as the financial controller, and by the Chief Financial Officer (CFO). It was so well orchestrated that it was beyond the capacity of a reasonable person acting as a director to discover the true state of affairs. The CFO had been his representative until the discovery of the true ANZ records in 2012. At that time, the true extent of the conspiracy became apparent.
With regard to his obligations to produce the corporations’ records, Mr Holden said that they had been kept as required but had been destroyed or withheld by the company officer responsible for their safe-keeping. This was a matter beyond his reasonable or foreseeable control. Delegation of the tasks of record-keeping and compliance to a fellow director who is also a qualified chartered accountant is an action of a responsible director. Mr Holden said that he witnessed what he believed to be “receipted documentation, monies debited from the companies accounts and bank statements.”[3] The delegate’s finding that he was a passive director who failed to supervise the people in charge is untenable. A finding that a reasonable director would, without any evidence or suggestion of impropriety, automatically assume that the corporations’ CFO would forge Australian Taxation Office (ATO) documents is equally untenable. So too is the suggestion that he should have contacted the ATO himself to check the validity of the documents. His failure to do that, Mr Holden contended, is not tenable as evidence of a director failing to do his duty.
[3] Mr Holden’s SFC at page 2
ASIC’s POWER TO DISQUALIFY
Chapter 2D of the Corporations Act is concerned with officers and employees of corporations. It sets out some of their most significant duties but notes that duties are imposed under other Parts of the Corporations Act as well as by the general law.[4] Part 2D.3 is concerned with those officers who are directors of a company. Only an individual who is at least 18 years of age may be appointed as a director of a company.[5] Unless ASIC gives leave under s 206F or leave is granted by the Court under s 206G, a person who is disqualified from managing corporations under Part 2D.6 may not be appointed as a director.[6]
[4] Corporations Act; s 179(1)
[5] Corporations Act; s 201B(1)
[6] Corporations Act; s 201B(2)
Part 2D.6 provides for the disqualification of a person from managing corporations. In some instances, it provides for automatic disqualification[7] or by operation of the Australian Securities and Investments Commission Act 2001[8] and in others for disqualification by order of the Court.[9] ASIC is given power to disqualify a person from managing a corporation under s 206F. In so far as it is relevant to a person in Mr Holden’s position, it provides:
[7] Corporations Act; s 206B
[8] Corporations Act; s 206EB
[9] Corporations Act; ss 206C-206EA
“(1) ASIC may disqualify a person from managing corporations for up to 5 years if:
(a)within 7 years immediately before ASIC gives notice under paragraph (b)(i):
(i) the person has been an officer of 2 or more corporations; and
(ii)while the person was an officer, or within 12 months after the person ceased to be an officer of those corporations, each of the corporations was wound up and a liquidator lodged a report under subsection 533(1) … about the corporation’s inability to pay its debts; and
(b)ASIC has given the person:
(i)a notice in the prescribed form requiring them to demonstrate why they should not be disqualified; and
(ii)an opportunity to be heard on the question; and
(c)ASIC is satisfied that the disqualification is justified.
(1A)…
(2)In determining whether disqualification is justified, ASIC:
(a)must have regard to whether any of the corporations mentioned in subsection (1) were related to one another; and
(b)may have regard to:
(i)the person’s conduct in relation to the management, business or property of any corporation; and
(ii)whether the disqualification would be in the public interest; and
(iii)any other matters that ASIC considers appropriate.
(2A)-(5)…”
I note that, under s 533(1), a liquidator is required to lodge a report with ASIC if, in the course of a winding up of the company, it appears that the situation in any of the three paragraphs ss 533(1)(a)–(c) has occurred. One of those three situations is that the company may be unable to pay its unsecured creditors more than 50 cents in the dollar.[10] The liquidator must give ASIC access to information and documents as it requires and may lodge a further report specifying any other matter thought desirable to bring to ASIC’s attention.[11]
[10] Corporations Act; s 533(1)(c)
[11] Corporations Act; ss 533(1)(d) and (e) and (2)
When is a corporation related to another? A “related body corporate” in relation to a body corporate means a body that is related to it by virtue of s 50.[12] Where a body corporate is a holding company or subsidiary of another body corporate, they are related to each other. They are also related if a body corporate is a subsidiary of a holding company of another body corporate.[13] A “holding company” is a body corporate of which another body corporate is a subsidiary.[14] A “subsidiary” in relation to a body corporate, means a body corporate that is a subsidiary of that first mentioned body corporate by virtue of Division 6 of Part 1.2 of the Corporations Act.[15]
[12] Corporations Act; s 9
[13] Corporations Act; s 50
[14] Corporations Act; s 9
[15] Corporations Act; s 9
Section 46, which is included in Division 6, sets out the basic principle that:
“A body corporate (in this section called the first body) is a subsidiary of another body corporate if, and only if:
(a)the other body:
(i) controls the composition of the first body’s board; or
(ii)is in a position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the first body; or
(iii)holds more than one-half of the issued share capital of the first body (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital); or
(b)the first body is a subsidiary of a subsidiary of the body.”
Section 47 sets out circumstances in which the composition of a body corporate’s board is taken to be controlled by another body corporate but it is not intended to limit the circumstances in which a finding of control may be made. Section 48 sets out certain matters, to which regard must be had in determining whether one body corporate is a subsidiary of another. Those matters do not arise in this case.
PRECONDITIONS IN SECTION 206F(1) (a) AND (b) TO EXERCISE OF ASIC’S POWER
ASIC, and therefore the Tribunal on reviewing any decision made by ASIC under s 206F to disqualify a person from managing a corporation, must first be satisfied of the matters specified in s 206F(1). In this case, there is no dispute that those specified in ss 206F(1)(a) have been satisfied and I will set out the basis on which I have concluded that is so.
I will begin with the criteria prescribed in s 206F(1)(a). Within the seven years preceding 14 February 2014, Mr Holden had been an officer of two or more corporations. In the case of a corporation, the expression “officer” incorporates a wide range of persons when it is defined in s 9 of the Corporations Act. In this case, I note that a corporation’s director or secretary are among those regarded as a corporation’s officers by that definition.[16] On the basis of the Historical Company Extracts from data bases kept by ASIC, I find that Mr Holden has been a director and secretary of each of the following corporations for the periods indicated and so meeting the criteria in s 206F(1)(a)(i):
[16] Corporations Act; s 9, paragraph (a) of definition of “officer of a corporation”
Corporation
Director
Secretary
Notes
QCG[17]
1 November 2006 to 8 July 2014
1 November 2006 to 8 July 2014
Sole director and secretary until ASIC’s disqualification decision
Tocker[18]
17 January 2008 to 28 July 2013
17 January 2008 to 28 July 2013
A director and the secretary until Tocker’s deregistration
MPM[19]
19 October 2009 to 5 May 2013
19 October 2009 to 5 May 2013
Sole director and secretary until MPM’s deregistration
[17] T documents; T21 at 3365-3366
[18] T documents; T22 at 3375-3377
[19] T documents; T22 at 3386-3388
In order for s 206F(1)(a)(ii) to be met, each of the two or more corporations of which a person has been an officer, must have been wound up and a liquidator lodged a report under s 533(1) of the Corporations Act within a certain period. That period is either while the person was an officer or within 12 months of ceasing to be so. In concluding that the criteria in s 206F(1)(a)(ii) have been met, I make the following findings in relation to those matters in relation to the three corporations:
Corporation
Liquidator appointed
Report under s 533
QCG[20]
Mark William Pearce
16 July 2010 by order Supreme Court of Queensland[21]Report dated 30 January 2013[22] and supplementary report dated 4 October 2013[23]
As at 30 January 2013, estimated dividend to unsecured creditors to be 0 cents in dollar[24]
As at 4 October 2013, estimated dividend to unsecured creditors to be no more than 50 cents in dollar[25]
Tocker[26]
Mark William Pearce
12 March 2010 by order Supreme Court of Queensland[27]Report dated 18 May 2010[28] and supplementary report dated 6 January 2012[29]
As at 18 May 2010, estimated dividend to unsecured creditors to be 0 cents in dollar[30]
As at 6 January 2012, estimated dividend to unsecured creditors no more than 50 cents in dollar[31]
MPM[32]
Leonard Anthony Milner
6 April 2011 by order Supreme Court of Victoria[33]Report dated 17 October 2011[34]
Estimated dividend to unsecured creditors 0 cents in dollar[35]
[20] T documents; T21 at 3365-3366
[21] T documents; T10 at 2844
[22] T documents; T6 at 73-78
[23] Exhibit 2 at [5]-[7] and T documents; T7 at 79-1344
[24] T documents; T6 at 77
[25] T documents; T7 at 83
[26] T documents; T22 at 3375-3377
[27] T documents; T10 at 2774
[28] T documents; T9 at 1356-1362
[29] Exhibit 2 at [9]-[11] and T documents; T10 at 1363-2889
[30] T documents; T9 at 1361
[31] T documents; T10 at 1370
[32] T documents; T22 at 3386-3388
[33] T documents; T23 at 3389
[34] T documents; T12 at 2900-2914
[35] T documents; T12 at 2912
Section 206F(1)(b) requires ASIC to give Mr Holden a notice under s 206F(b)(i) requiring him to demonstrate why he should not be disqualified and giving him an opportunity to be heard by appearing in person or making a written submission. I find that ASIC gave him that notice on 14 February 2014 when it sent him a letter advising him of these matters and setting out its areas of concern.[36] Mr Holden attended a hearing before a delegate of ASIC on 2 May 2014.[37] He also provided written submissions on 9 May 2014.[38]
[36] T documents; T3 at 36-54
[37] T documents; T15 at 3276-3323
[38] T documents; T16 at 3324-3338
Mr Holden’s complaint that the delegate did not call Mr Jaffe to the hearing or to an examination does not detract from the fact that he was given notice as required by s 206F(1)(b)(i) and an opportunity to be heard by s 206F(1)(b)(ii). Section 206F(1)(b) does not prescribe what ASIC is required to do outside the confines of giving notice to the person whose disqualification is under consideration and giving that same person the opportunity to be heard. That section does not require ASIC to summon, or not summon, people to give evidence before it.
What is prescribed in s 206F and that is inherent in any exercise of the power is that ASIC “… is satisfied that the disqualification is justified.” That is the third criterion specified in s 206F(1)(c). If this were a judicial review proceeding in the Federal Court for review of the delegate’s decision under, for example, ss 5 or 6 of the Administrative Decisions (Judicial Review) Act 1977 (ADJR Act), issues beyond the bare requirements of s 206F(1)(b) and of the sort raised by Mr Holden in relation to procedural fairness might have been put forward.
Proceedings in the Tribunal are not, however, judicial review proceedings which are confined to errors in the administrative-decision making process. This Tribunal is concerned with the substance of the decision that has been made and, except to the extent that it might impinge upon its jurisdiction to hear an application, not with the procedures employed to reach that decision. The Tribunal’s role is to review the decision on its merits and to make “correct or preferable decision”.[39] That is to say, its role is to reach the decision that is the correct decision to make in law and on the evidence. Where the decision is a discretionary decision, there may be more than one correct decision. The Tribunal’s task then becomes one of selecting which of those decisions is the preferable decision to make. Again, the parameters of its task are determined by the statute and an analysis of the evidence in light of those parameters. In carrying out its task, the Tribunal is not asking itself whether the original decision-maker made the decision within these parameters. What it is doing is making the decision afresh without regard to what the original decision-maker did while making sure that it stays within the parameters established by the law and the evidence. It follows that, in reviewing ASIC’s decision, I am not investigating whether it kept within the parameters. What I must do is to make sure that I do so.
[39] See Drake and Minister for Immigration and Ethnic Affairs (No 2) [1979] AATA 179; (1979) 2 ALD 634 at 636 per Brennan J, President. From time to time, his Honour’s words are misquoted so that they are read as requiring the Tribunal to make the “correct and preferable decision”. I respectfully note that misquoting the words in this way tends to suggest that every administrative decision reviewed by the Tribunal is a discretionary decision for a decision can only be both “correct and preferable” if there is more than one decision that could be made. That is clear from the meaning of the word “preferable”. It is an adjective meaning “more desirable, suitable or advisable; better”: Chambers 21st Century Dictionary, 1999, reprinted 2004, Chambers. Describing the task as being to make the “correct or preferable decision”, recognises that there are some decisions that have no discretionary element at all and others that do. In both instances, the boundaries within which the decision is made are formed by the law and the evidence. Those boundaries exist in determining the correct decision or, in the case of a discretionary decision, those decisions that are in the range of correct decisions. Where more than one decision would be correct, deciding upon which of those decisions is to be preferred is again made within the boundaries of the law and the evidence. An analysis of the relevant statutory scheme will determine those boundaries in law.
In carrying out the task of merits review, I must have regard to the procedural requirements of the Administrative Appeals Tribunal Act 1975 (AAT Act). Among them is s 39 requiring that, subject to qualifications that do not apply in this case, the Tribunal must ensure that every party to a proceeding before the Tribunal is given a reasonable opportunity to present his or her case and, in particular, to inspect any documents to which the Tribunal proposes to have regard in reaching a decision and to make submissions in relation to those documents. Mr Holden has asked the Tribunal to issue summonses to Mr Jaffe and it has done so. Mr Jaffe was required to produce documents and to give evidence. He answered both summonses and Mr Holden has had the opportunity to cross-examine Mr Jaffe. I understand that Mr Holden may feel that the evidence given by Mr Jaffe was less than satisfactory but he has had an opportunity to question Mr Jaffe as part of the presentation of his case in the proceedings in the Tribunal. I have provided the opportunity to him to present his case.
THE NATURE OF THE POWER TO DISQUALIFY
In deciding whether to exercise the power to disqualify given under s 206F(1), reference to previously decided cases will give an insight into the many and varied contraventions of the Corporations Act that lead to the disqualification of persons from managing corporations. McHugh J gave a number of examples in Rich v Australian Securities and Investments Commission.[40] While that insight is valuable Kirby J warned in the same case that:
“… the guidance to be obtained from other decisions with respect to the decisions for ordering disqualification and the period of disqualification is limited. Each decision is closely related to its own facts, which tend to be highly complex. Further, the circumstances of each defendant are special to that person …. [B]reaches of the Corporations Act, the circumstances of the breaches, including the number of persons and the value of the interests affected, may take many forms. In addition, the personal circumstances of persons in breach vary greatly …”[41]
[40] [2004] HCA 42; (2004) 220 CLR 129; 209 ALR 271; 78 ALJR 1354 at [47]; 151-152; 286-287; 1365
[41] [2004] HCA 42; (2004) 220 CLR 129; 209 ALR 271; 78 ALJR 1354 at [53]; 155-156; 289-290; 1367
Those circumstances and interests must be viewed in light of the purpose for which the power of disqualification was conferred on ASIC. That purpose was summarised by the Full Court of the Federal Court in Murdaca v Australian Securities and Investments Commission[42] (Murdaca):
“ASIC’s power to disqualify a person from the management of corporations must be exercised for the purposes for which it was granted. Those purposes are the protection of all those persons who deal with corporations from the consequences of the actions of those corporate officeholders who, either through incompetence or dishonesty or a combination of the two, bring about failure of corporations and thus cause loss to others (Rich v Australian Securities and Investments Commission (2004) 220 CLR 129 at [47]-[50]) and the maintenance of professional management standards in the public interest (Visnic v Australian Securities and Investments Commission (2007) 231 CLR 381 at [11] and [26]).”[43]
[42] [2009] FCAFC 92; (2009) 178 FCR 119; 258 ALR 223; 110 ALD 500; North, Kenny and Foster JJ
[43] [2009] FCAFC 92; (2009) 178 FCR 119; 258 ALR 223; 110 ALD 500 at [101(b)]; 143; 246; 522
The following year, Middleton J expressed the same approach in this way in Scott v Australian Securities and Investments Commission[44] (Scott):
“ Once the requirements of s 206F(1)(a) and (b) have been met, the decision whether or not the person should be disqualified involves the exercise of a discretion by ASIC. This stage of the process involves a merits consideration, in the course of which ASIC must decide whether it considers that disqualification is justified, bearing in mind the purposes for which a s 206F disqualification power is conferred. ASIC must be ‘satisfied that the disqualification is justified’ under s 206F(1)(c) having regard to any matters that ASIC considers appropriate under s 206F(2).”[45]
[44] [2010] FCA 424; (2010) 78 ACSR 399
[45] [2010] FCA 424; (2010) 78 ACSR 399 at [5]; 401-402
Beyond being a necessary jurisdictional element to the exercise of the disqualification power, are the liquidator’s reports under s 533(1) to be given some particular relevance? The answer is that they should not. Their lodgement is simply one element in the jurisdictional framework of facts that must be in place before the power is exercised. As the Full Court said in Murdaca, they do not have any particular status or weight. Indeed, ASIC, and so this Tribunal on review, is not obliged to have regard to them at all although it may assess their worth and decide whether to do so in a particular case. [46]
[46] [2009] FCAFC 92; (2009) 178 FCR 119; 258 ALR 223; 110 ALD 500 at [101(c) and (d)]; 143; 246-522
Section 206F does not predicate the exercise of the power to disqualify a person from managing corporations upon his or her having been in breach of any particular provision of the Corporations Act. In Scott, Middleton J approved a passage from the reasons for decision of the Tribunal in Re Quinlivan and Australian Securities and Investments Commission:[47]
“ In my view, the approach taken by the tribunal in Quinlivan v Australian Securities and Investments Commission (2010) 113 ALD 599 ; [2010] AATA 113 (Quinlivan) was correct when it explained the relationship between s 206F and other parts of the Corporations Act which impose duties on the directors. In Quinlivan, the tribunal stated as follows (at [70]):
[70] We are not obliged to identify specific breaches of duty or contraventions of the law in order to pass judgment on the adequacy of Mr Quinlivan’s performance for the purposes of section 206F. See re Guss v Australian Securities and Investments Commission (2006) 90 ALD 349 ; [2006] AATA 401 at paragraph 48 per Deputy President Olney. While evidence of contraventions were obviously relevant to a decision to disqualify, the section has a different focus. The operation of the section is triggered by evidence of a pattern of failure. As the Tribunal explained in Re Andrews v Australian Securities and Investments Commission [2006] AATA 25 at [23].
‘[23] The provision was apparently enacted on the assumption that involvement in one failure might simply be unfortunate, but involvement in two or more separate failures could suggest carelessness and other breach of duty.’”[48]
[47] [2010] AATA 113; (2010) 113 ALD 599
[48] [2010] FCA 424; (2010) 78 ACSR 399 at [12]; 402
ASIC’s PROCESS AND DECISION-MAKING
Mr Holden expressed the view that ASIC’s delegate conducted the hearing in a manner designed both to take advantage of a person who was not represented and to reach a predetermined finding. Furthermore, the liquidator’s report is inaccurate and additional funds have since been located and fraudulent transactions uncovered. Potentially, this reduces the debts by millions of dollars.
Mr Holden complained that the delegate had not summoned Mr Jaffe to clarify matters and it had not investigated his complaints that Mr Jaffe and others were involved in the frauds. The delegate, Mr Holden alleged, had refused to acknowledge the role played by Mr Jaffe in the failure of the corporations or to investigate the culpability of Mr Jaffe and others.
QUEENS PARADE PTY LTD AND QUEENS CAPITAL GROUP PTY LTD
In this section of my reasons, I set out the findings that I have made regarding various matters relating to the affairs of QCG, Tocker and MPM.
QCG and its predecessor, QPPL
Based on the material in the Supplementary Report and on Mr Holden’s evidence, I find that QCG was previously known as Queens Parade Pty Ltd (QPPL) and was incorporated on 9 January 2002. Ms Phoebe Mao, who owned the single share issued in the corporation, was its sole director and secretary.[49] QPPL acquired a property on Queens Parade at Clifton Hill (Queens Parade property). Later, QPPL entered a contract with Australian Posters Pty Ltd (Australian Posters) leasing space on the exterior walls of the property for a period of five years from 1 October 2005 to 30 September 2010 with an option to renew for a further five years. The annual rent payable to QPPL was $4,666.68 plus GST and subject to annual CPI increases.[50]
[49] T documents; T21 at 3367
[50] T documents; T7 at 195-197
In the meantime, on 23 February 2003, Ms Mao entered a contract for the purchase by either her or her nominee of the Mt Macedon Hotel (Hotel) for the sum of $250,000.[51] The contract permitted transfer of the property to her nominee, QPPL. QPPL became the registered owner of the Hotel on 7 August 2003.
[51] T documents; T7 at 169-189
On 1 November 2006, Ms Mao transferred her share to Mr Holden. She ceased to be QPPL’s director and secretary. Mr Holden assumed both those positions in QPPL on 1 November 2006. The corporation retained its name until 3 April 2009 when it became known as QCG.[52]
[52] T documents; T21 at 3364-3365
Tocker Pty Ltd
Tocker was incorporated on 13 February 1989. Mr and Mrs Tocker and Mr Bartlett were directors from that date until 17 January 2009, in the case of Mr Bartlett, and 19 January 2009, in the case of Mr and Mrs Tocker. Mr Holden was appointed a director the year before, on 17 January 2008. He continued as its sole director until 28 July 2013. On 16 February 2009, QCG became the sole shareholder in Tocker.[53]
[53] T documents; T20 at 3375-3384
MPM Capital Pty Ltd
MPM was incorporated after Mr Holden took control and ownership of QPPL and before it changed its name to QCG. It was incorporated on 13 November 2007 with Ms Mao as both its sole director and secretary.[54] One hundred shares were issued in the corporation. Initially, those shares were held by Ms Mao but, since 28 October 2009, have been held by QCG. A title search of the Queens Parade property shows that MPM became its sole registered proprietor on 31 December 2007.[55]
[54] T documents; T23 at 3388-3389
[55] T documents; T7 201-202
Mr Pearce noted in his Supplementary Report that Global had advised him that it had initially lent QCG the sum of $250,000 on 26 March 2010. That amount was increased to $400,000 on 6 April 2010. Mr Pearce’s conclusion would seem to be that Global held a charge over QCG but that QCG was not a guarantor.
QCG (or QPPL) and the Mt Macedon Hotel
On 4 September 2008, QPPL and Mitchell Holdings & Investments Pty Ltd (Mitchell) entered a lease agreement relating to the Hotel. The lease was for a term of five years commencing on 1 September 2008. The rent payable was $20,000 per month commencing on the completion of the building works on a date agreed between QPPL and Mitchell.[56]
[56] T documents; T7 at 204-220
QPPL borrowed $150,000 from South Eastern Secured Investments Ltd (SESIL) and secured by a mortgage dated 9 January 2007 over the Hotel. Mr Holden was the guarantor of the loan.[57] There were subsequent borrowings and consequent variations to that mortgage dated 8 November 2007 and 16 October 2008 as well as personal guarantees given by Mr Holden on 8 November 2007 ($250,000) and 13 October 2008 ($400,000).[58] In all, the loans totalled $800,000. A sum of $128,157.99, being part of the first loan of $150,000 was paid by cheque to Mr Holden. Parts of the second two loans to QPPL were paid by electronic funds transfer (EFT) to Mr Holden. Those amounts were $246,500.64 and $363,046.89 respectively.[59]
[57] T documents; T7 at 247
[58] T documents; T7 at 244-249
[59] T documents; T7 at 250-255
When QCG, as QPPL was then called, defaulted on repayments of the loan from March 2009,[60] SESIL took possession of the Hotel. As at 19 July 2010, SESIL was owed $931,735.55. A Warrant of Possession was executed on or about 13 August 2010.[61] Receivers and Managers had been appointed to SESIL at that stage. The Hotel was sold at auction for $1,740,000 and settlement took place on 8 June 2011. After deduction of the moneys then owed by QCG, amounting to $1,234,387.43, and adjustments, the sum of $543,690.07 remained payable to QCG.[62]
[60] T documents; T13 at 2935
[61] T documents; T13 at 2935
[62] T documents; T7 at 256-257
Initially, there were six interested parties in the balance of the proceeds of the sale of the Hotel. Two of them, Ms Mao and Mitchell, did not pursue them and I have, for the purposes of this case, disregarded the claim made by the liquidator of QCG. The other three claimants were Go Getta Equipment Funding Pty Ltd (Go Getta), Bank of Queensland (BoQ) and Global Investments Pty Ltd (Global). I will set out the details of their claims below.
Five creditors of QCG
In this section of my reasons, I set out my findings in relation to five creditors of QCG whether incurred under that name of under its previous name, QPPL.
Go Getta
On 20 April 2009, QPPL entered an agreement with Go Getta to hire various sound and lighting equipment. Go Getta would install the equipment at the Hotel. The minimum term of the rental agreement was one year but the annual rental for each of the subsequent three years was agreed between them. That rental was payable in monthly instalments of $1,062.66. The equipment would be returned to Go Getta at the conclusion of the term.[63] The equipment was valued at $115,121.60.[64] Go Getta collected equipment to the value of $61,995 from the Hotel premises.[65] The vendor of the sound and lighting equipment was Tocker.[66]
[63] T documents; T7 at 284-296
[64] T documents; T7 at 290-291
[65] T documents; T13 at 2915
[66] T documents; T7 at 293
Global Investments Pty Ltd
Global Investments Pty Ltd also asserted that it was entitled to a part of the proceeds of the sale of the Hotel. I will come back to this below but note for the moment that the liquidator settled its claim for $20,000.[67]
[67] T documents; T7 at 96-98
Westpac Banking Corporation
The Westpac Banking Corporation (Westpac) entered an agreement with QCG for the financing of the purchase of four motor vehicles[68] and a Kobelco Excavator. The total amount financed was $178,657.92 repayable in monthly instalments of $4,962.72 over a three year period beginning on 14 January 2009.[69] As at 14 August 2010, the amount remaining unpaid was $130,603.05.[70]
[68] Holden R8 Maloo Utility, Subaru Sedan, BMW Sedan and Holden SV6 Sedan
[69] T documents; T7 at 938-939
[70] T documents; T7 at 938-939
BMW Group Finance Services
QGC as QPPL entered into two finance agreements with BMW Group Finance Services (BMW). Both were for the purchase of motor vehicles. One related to the purchase of a Lexus for $96,000 and was dated 3 December 2008. The total amount payable under the agreement was $126,000.40 payable in 60 monthly payments each of $1,433.34 and with a final payment of $30,000. Mr Holden signed the agreement as guarantor. The monthly instalments were payable by Direct Debit from an account in the name of Strategic Business Advisors Pty Ltd.[71] As at 4 August 2010, the sum of $85,900.26 remained outstanding.[72]
[71] T documents; T7 at 928-933
[72] T documents; T7 at 100
On 10 March 2009, QCG as QPPL entered a contract with BMW for the purchase of a Nissan Patrol Wagon. The purchase price was $49,875. The total amount of the loan was $62,975.90 repayable in 60 monthly instalments of $809.69 and a final payment of $14,395.90. The instalments were paid by Direct Debit from an account in the name of Tocker. Mr Holden signed the guarantee in his own name.[73] As at 11 June 2010, QCG owed BMW the sum of $56,506.88. The liquidator noted that BMW had since recovered the vehicle but was unaware of the amount realised when it exercised its power of sale.[74]
[73] T documents; T7 at 909-912
[74] T documents; T7 at 100
QCG and its bank accounts
QCG had two bank accounts. One, with the Commonwealth Bank of Australia (CBA) was used for the receipt of rental payments by Australian Posters for the use of exterior wall space at the Queens Parade property owned by MPM.
QGC had a second bank account with the ANZ Bank (ANZ account), which it had opened on 26 February 2009. Mr Pearce assessed the account and its funds at the time that QCG incurred the liabilities to each of the five creditors, other than Global, I have examined in the previous paragraphs. The state of the account at the time each liability was incurred is set out in the following table prepared by Mr Pearce[75] but it is important to note that, as I have found at [46] and [47] above, the liabilities incurred by QCG to BMW were not paid from the ANZ account.
[75] T documents; T7 at 104
The Direct Debit authority given to Westpac indicates that the repayments came from accounts held by Tocker.[76] Those payments are shadowed in the following table.
[76] T documents; T7 at 909-912 and 928-933
Date of Finance Agreement
Financier
Amount Financed
$Monthly Repayment
$Cash at Westpac at date of Agreement
Date of Initial Dishonour/
DefaultDate of Last Payment
Amount Owing
9 Oct 08
SESIL
800,000.00
6,166.66
4,411.49
10 Mar 09
11 Aug 09
Paid out
3 Dec 08
BMW
126,000.00
1,433.34
3,974.79
N/A
Unknown
Unknown
14 Jan 09
Westpac
178,657.92
4,962.72
5,523.65
15 Nov 09
14 Oct 09
130,603.05
10 Mar 09
BMW
62,976.00
809.69
6,003.65
12 Nov 09
9 Oct 09
Unknown
21 Apr 09
Go Getta
115,121.60
4,604.86
7,408.20
Jul 09
Aug 09
Unknown
Liabilities incurred by Tocker for which QCG was guarantor
QCG was guarantor for hire purchase agreements that Tocker entered with Macquarie Leasing Pty Ltd (Macquarie) and the St George Bank (St George).
A. Macquarie
Beginning with Macquarie, it and Tocker entered four hire purchase agreements and QCG and Mr Holden were guarantors in relation to each. The first related to a Ford Panel Van on 3 June 2009. The total amount of Tocker’s liability was $35,060.88.[77] Mr Holden completed a Statement of his Assets and Liabilities. Among them, he listed his shares in, at the time QPPL, valued at $4.5m and personables, including artwork, valued at $240,000.[78] Payment was by direct debit from the ANZ account as it was for the other three agreements.[79]
[77] T documents; T7 at 946
[78] T documents; T7 at 955
[79] T documents; T7 at 960, 986, 999 and 1047
The second and third were dated 10 June 2009 and the fourth 11 June 2009. These related to the acquisition of sound and lighting equipment whose purchase price was $43,330.00 plus a deposit of $18,570.00,[80] $46,784.87 plus a deposit of $20,035.23[81] and $69,367.60 plus a deposit of $29,728.95.[82] The repayments on all four agreements were to be made monthly in 24 instalments. The precise day on which the repayments were to be made differed by a day or two reflecting the different days on which the agreements had been made. That does not alter the pattern of payments which was, for all four agreements:
[80] T documents; T7 at 966
[81] T documents; T7 at 992
[82] T documents; T7 at 1027
Contract date
Number of instalments
Payments commencing from:
June 2009
September 2009
October 2009
3 June 2009
24
24 x $1,460.87
10 June 2009
24
3 x $1,803.31
1 x $7,430.58
20 x $1,803.31
10 June 2009
24
3 x $1,945.60
1 x $8,016.88
20 x $1,945.60
11 June 2009
24
3 x $2,886.95
1 x $11,895.73
20 x $2,886.95
Mr Pearce was unable to ascertain how much of the liabilities remained outstanding when he lodged his Supplementary Report in relation to QCG[83] but later confirmed as an amount of $135,012.21 by Macquarie in a letter to Mr Pearce dated 3 August 2011.[84]
[83] T documents; T7 at 101
[84] T documents; T7 at 1858-1859
B. St George
Tocker had three agreements with St George in March 2009. Each related to the purchase of a motor vehicle being a Holden Calais, a Toyota Hiace or an Isuzu FSR. The amounts originally financed, excluding finance charges were $46,990.00,[85] $18,231.20[86] and $70,751.20.[87] As at 23 March 2010, a total of $121,100.27 remained outstanding.[88]
[85] T documents; T7 at 1053-1055
[86] T documents; T7 at 1057-1059
[87] T documents; T7 at 1061-1063
[88] T documents; T7 at 1050-1051
Date of contract
Number of instalments
Payments commencing from:
March 2009
April 2009
16 March 2009
48
1 x $1,552.82
47 x $1,147.82
31 March 2009
24
1 x $2,376.29
23 x $785.38
31 March 2009
36
1 x $8,252.17
35 x $2,070.35
C. Bank of Queensland
Tocker sought finance from the Bank of Queensland and a Commercial Hire Purchase Agreement was reached between them on 17 April 2009. Under that agreement, Tocker was the hirer and Bank of Queensland the financier of a Holden Calais motor vehicle. The purchase price was $46,311.20 and the total rental, payable monthly for 47 months, was $55,464.48.[89] QCG and Mr Holden were both guarantors and signed the guarantee on 17 April 2009.[90]
[89] T documents; T7 at 671-674
[90] T documents; T7 at 675
Similar financing arrangements were made in relation to the hire purchase of a Hyster forklift ($62,737.44),[91] an additional Holden Calais ($57,644.16)[92] and sound and lighting equipment ($108,224.88[93] and $525,339.72[94]). Mr Pearce recorded that the amount outstanding when he prepared his report in respect of these four agreements when added to the original agreement was $706,758.16.[95] As at 13 April 2010, an amount of $706,758.16 remained outstanding.[96] Again, QCG and Mr Holden were guarantors.
[91] T documents; T7 at 693-695
[92] T documents; T7 at 717
[93] T documents; T7 at 758
[94] T documents; T7 at 793
[95] T documents; T7 at 96
[96] T documents; T7 at 656, 676, 696, 720 and 774
The repayments were payable under the agreements as follows:
Date of contract
Number of instalments
Payments commencing from month contract entered
17 April 2009
48
48 x $1,460.87
17 April 2009
48
48 x $1,307.03
20 July 2009
24
24 x $4,509.37
11 June 2009
36
36 x $14,592.77
D. Capital Finance Australia Ltd
QCG and Mr Holden were guarantors of a hire purchase agreement between Capital Finance Australia Ltd (Capital Finance) and Tocker for the purchase of a BMW wagon for the sum of $36,000. The agreement was dated 11 September 2009 and a total amount of $42,251.04 was repayable in 36 instalments of $1,173.64 each. The first of the instalments was payable in September 2009.[97] As at 24 March 2010, the balance payable was $40,048.76.[98] As at 5 August 2011, the balance remaining was $37,770.78.[99]
[97] T documents; T10 at 2097
[98] T documents; T10 at 2096
[99] T documents; T10 at 2161-2162
E. Go Getta
In addition to entering a contract for hire with QPPL,[100] Go Getta also entered contracts with Tocker. The first of those contracts, dated 7 April 2009, was for the hire of various sound and lighting equipment by Tocker trading as Proline Productions. QCG, Mr Holden and MPM were guarantors. Monthly rental payments were $2,296.38. The total value of the goods was $248,775.[101]
[100] See [43] above
[101] T documents; T7 at 298-308
The recitals to a Deed of Extension of Guarantee and Indemnity (DEGI) between QCG, as guarantor, begin with a reference to the earlier agreement between Go Getta and Tocker dated 7 April 2009. Go Getta entered the agreement with Tocker at QCG’s request. On or about 3 June 2009, Go Getta had, again at QCG’s request, entered a Master Rental Agreement with Tocker. Under the Master Rental Agreement, Go Getta had, again at QCG’s request, entered agreements with eight other entities. Those eight other entities were sub-contractors of Tocker. The agreements made with those sub-contractors were shown as dated between 12 March 2009 and 24 June 2009 for various amounts. They totalled $648,689.[102] As at 5 June 2009, QCG acknowledged at cl 1.2.1 of the DEGI that its liability to Go Getta as a result of the contract between Tocker and Go Getta was $212,084.02 for rent and $559,693.34 as the then current value of the rental goods.[103] The total liability guaranteed by QCG under the DEGI was, therefore, $1,420.446.36. Go Getta lodged a caveat on the Hotel to protect its interests under the various agreements.
[102] T documents; T7 at 648-654
[103] T documents; T7 at 649
When Mr Pearce prepared his supplementary s 533(2) report dated 4 October 2013, he noted that the equipment valued at $559,693.34 was missing and that the rent of $212,064.02 was outstanding.[104]
[104] T documents; T7 at 95
Failure by QCG, Tocker and MPM to meet statutory obligations in relation to taxation
Mr Holden has admitted that QCG, Tocker and MPM significantly failed to meet their taxation obligations as well as other statutory obligations. He has not challenged Mr Pearce’s findings at [5.2.6] of his Supplementary Report in relation to QCG’s failure to lodge income tax returns.[105] In view of that and in relation to QCG, I find that it did not lodge any taxation returns in the time that Mr Holden was its director. The only taxation returns it has lodged were lodged for the income year ending 30 June 2006, which was due before he became its director, and for the income year ending 30 June 2010, which was due after it was wound up. The only Business Activity Statement (BAS) lodged on behalf of QCG was lodged in respect of the quarter ending 30 June 2010. Again, that was a quarter ending after QCG had been wound up.
[105] T documents; T7 at 98-99
Mr Pearce also addressed Tocker’s failure to meet its taxation obligations in his report lodged on 10 January 2012. Again, Mr Holden has not challenged his conclusion that Tocker has not lodged a BAS for any of the months from October 2009 to March 2010 or income tax returns for the income years ending 30 June 2008, 2009 and 2010.[106] BAS for February and March 2010 and the income tax return for the year of income ending 30 June 2010 were not due for lodgement until a date after Tocker was wound up.
[106] T documents; T10 at 1390
Purchase of Norman Lindsay painting entitled “Rita”
A Tax Invoice dated 28 July 2010 and issued by Sotheby’s Australia (Sotheby’s) is addressed to “Xavier Holden QCG Limited”. It describes a painting being:
“Norman Lindsay (1879-1969), Rita, oil on canvas board, signed ‘NORMAN LINDSAY’ lower right, 32.7 x 23.5 CM”[107]
The Tax Invoice reflected the details that Mr Holden had given to Sotheby’s on 17 April 2010 when he registered and was given a Paddle No. The purchaser was described as Mr Holden and his company as QCG. Mr Holden supplied the number of a Visa Card in the name of Xavier David Holden but ticked the box noting that he would arrange an alternative payment method if he were successful.[108]
[107] T documents; T7 at 1070
[108] T documents; T7 at 1069
Mr Holden successfully bid for the Rita painting on 20 April 2010 and payment was made from QCG’s ANZ account on 21 April 2010.[109] The successful bid was $20,000 but, after the addition of the premium and additional GST on that premium, the total paid for the Rita painting was $24,400.
[109] T documents; T7 at 1067
In a letter dated 9 August 2010 to Mr Pearce, Mr Jaffe said that the Rita painting was purchased as payment to Mr Holden for director’s fees.[110] Mr Pearce did not accept Mr Jaffe’s explanation pointing to the fact that Mr Holden had included QCG’s name on the registration form. Had he been purchasing the painting in his own name, there would have been no reason for him to do that. Therefore, relying on ss 483(1) and 530A(1), Mr Pearce required Mr Holden to deliver the Rita painting to him.[111] When Mr Holden failed to do that, Mr Pearce applied for, and obtained, an order from the Supreme Court of Queensland ordering that Mr Holden deliver to Mr Pearce the Rita painting.[112]
[110] T documents; T7 at 1080
[111] T documents; T7 at 1083
[112] T documents; T7 at 1096-1097
Mr Pearce served notice of the order on Mr Holden and received in response an email stating:
“… The Painting was also inaccurately described as a company asset, and is subject to a finance agreement to cover legal costs relating to MPM Pty Ltd, and as a result is currently not in my possession. I have written to the party holding the painting and asked them to froward [sic] their documentation to your office. …”[113]
[113] T documents; T7 at 1103
In the written submission that Mr Holden made to ASIC’s delegate on 9 May 2014, Mr Holden wrote:
“… The painting was purchased in accordance with the method recommended by the company’s Finance director and Chartered Accountant. I later used the painting as security for a loan to finance injunctive legal proceedings in an attempt to prevent the assets of MPM Pty Ltd being to [sic] plundered by Global.
I informed the liquidator of these circumstances, (with full details) including a statement by David Jaffe, and the Solicitor, Morris Milder, who acted injunctive proceedings. The liquidator elected not to contact the pledge holder of the asset, but seek an order from the Supreme Court. Nor did he notify the court of the information supplied to him that I was no longer in possession of the painting.
Since at the time I reasonably believed the company to be profitable, and solvent, and since I was the sole director and shareholder, I saw no impropriety in Mr Jaffe’s advice for the company to buy the painting on my behalf. I assumed that Mr Jaffe may have seen some legitimate tax advantage in the method of purchase.
…
… I also supplied the full details of Peter Bowen CPA, who advanced the sum of $10,000 as agent for the lender (pledge holder) and also provided full details of the legal fees and legal action on MPM on behalf for which the $10,000 was used. This was confirmed by Mr Morris Milder, solicitor who was witness to the transaction.”[114]
[114] T documents; T16 at 3328
I note that s 202A provides that the directors of a company are to be paid the remuneration that the company determines by resolution. This is in addition to any travelling or other expenses they incur in attending directors’, committee or general meetings or in connection with the company’s business.
Provision of records to liquidator and duty to assist liquidator
Mr Pearce sent a letter addressed to Mr Holden regarding QCG on the day he was appointed its liquidator i.e. 16 July 2010. He asked Mr Holden to submit a report under s 475(1) of the Corporations Act setting out QCG’s assets and liabilities as at that date and verifying that report. Mr Pearce required Mr Holden to return the report and verification statement within 14 days but noted that the time limit might be extended if there were special reasons for doing so. He also required Mr Holden to deliver QCG’s books and records.[115] Under s 530A(1), each officer of a company that is being wound up has an obligation to:
“(a) deliver to the liquidator appointed for the purposes of the winding up, or to the provisional liquidator, as the case may be, all books in the officer’s possession that relate to the company, other than books possession of which the officer is entitled, as against the company and the liquidator or provisional liquidator, to retain; and
(b)if the officer knows where other books relating to the company are – tell the liquidator or provisional liquidator where those books are.”
[115] T documents; T7 at 1117-1124
Mr Holden did not deliver the books leading Mr Pearce to apply for, and obtained, an order from the Supreme Court of Queensland ordering that Mr Holden and Mr Jaffe each deliver to Mr Pearce all of QCG’s books and records that were in their custody, care and/or control. Mr Holden was also ordered to deliver the Lexus Sedan, Holden R8 Maloo Utility, Subaru Sedan, BMW Sedan, Kobelco Excavator and Holden VZ SV6 Sedan. Mr Jaffe was ordered to deliver all books and records within his custody, care and/or control and all property of the QCG.[116] The books that Mr Jaffe produced were, in Mr Pearce’s opinion, unusually small in volume and did not include a MYOB file.[117] Mr Jaffe’s evidence at the hearing as to the loss of the books did not take the matters any further.
[116] T documents; T7 at 1096-1097
[117] T documents; T7 at 114
IS Mr HOLDEN IN BREACH OF THE CORPORATIONS ACT?
In this section of my reasons, I will draw on the findings I have set out above.
The Rita painting
Section 202C relates to companies having only a single director and single shareholder. It provides:
“A person who is the only director and the only shareholder of a proprietary company is to be paid any remuneration for being a director that the company determines by resolution. The company may also pay the director’s travelling and other expenses properly incurred by the director in connection with the company’s business.”
There is no evidence of QCG’s having made a resolution of this sort at any time. The absence of such a resolution is consistent with his statement to ASIC’s delegate that he saw no impropriety in the purchase of the Rita painting. The company was, he believed, profitable and solvent and he was its sole director and shareholder. What I find is that Mr Holden has failed to appreciate is that QCG is a legal entity separate from himself. Its interests are not a reflection of his interests. Its finances are not his finances. While there is nothing to suggest that QCG could not pay Mr Holden director’s fees in kind by way of the Rita painting, any decision to that effect had to be a decision made by QCG in accordance with the law. It was not a decision that could be made simply by Mr Holden’s noting the name of QCG under his name when he registered for the auction at Sotheby’s. There was no basis on which funds could be transferred to Sotheby’s to pay for the Rita painting.
That brings me to s 182(1) of the Corporations Act which provides:
“A director, secretary, other officer or employee of a corporation must not improperly use their position to:
(a) gain an advantage for themselves or someone else; or
(b) cause detriment to the corporation.”
When completing the registration form for the Sotheby’s auction, Mr Holden presented himself as connected with QCG. He did not present himself as purchasing the Rita painting on his own behalf. Certainly, he gave details of a credit card in his name but nominated that an alternative method of payment would be provided were he a successful bidder. These matters, when taken with the absence of any resolution relating to the payment of director’s fees to him, lead me to conclude that Mr Holden purchased the Rita painting on behalf of QCG and not on his own behalf. By appropriating it to his own use and then to act as security for a loan he secured to assist another corporate entity, MPM, Mr Holden has, I find, used his position as director of QCG to use its funds first for his own purposes and so for his own benefit. He has used those funds to purchase an artwork for his own pleasure and then used it to obtain a loan, which he has directed to purposes other than those relating to QCG.
Financial records
Section 286 of the Corporations Act provides that:
“(1) A company, registered scheme or disclosing entity must keep written financial records that:
(a)correctly record and explain its transactions and financial position and performance; and
(b)would enable true and fair financial statements to be prepared and audited.
The obligation to keep financial records of transactions extends to transactions undertaken as trustee.
(2)The financial records must be retained for 7 years after the transactions covered by the records are completed.
(3)An offence based on subsection (1) or (2) is an offence of strict liability.”
Mr Holden said that he relied on Mr Jaffe to maintain the financial records. Mr Jaffe was summoned to produce those records and to give evidence. The upshot is that he has none. Mr Holden’s position is that he should be able to rely on a Chartered Accountant to maintain the records correctly. In that way, he seeks to absolve himself of responsibility. I will return to that.
Although there is very little in the way of financial records, QCG’s Balance Sheet and Profit and Loss Statement for the period 1 July 2008 to 31 December 2008 were in evidence.[118] The non-current assets were shown as $5,064,298.00 on the Balance Sheet[119] with that figure including both the Queens Parade property ($2,843,150) and the Hotel ($1,852,340).[120] By that time, the Queens Parade property had been transferred to MPM on 31 December 2007 and so well before the period covered by the Balance Sheet.
[118] T documents; T10 at 1892-1900
[119] T documents; T10 at 1895
[120] T documents; T10 at 1897
Mr Holden explained the discrepancy by saying that QCG effectively owned the Queens Parade property because it owned the shares in MPM.[121] His explanation is another illustration of his not appearing to understand that each corporation is a separate legal entity. An entity’s, or a person’s, owning shares in a corporation does not mean that the entity or person owns a beneficial interest in the particular assets owned by the corporation or any of them. The corporation owns the assets and the entity or person owns a share of the corporation in the same proportion as the entity’s or person’s shares represent to the whole of the shares issued by the corporation. The liability of the entity or person owning shares in a corporation such as QCG as an owner is limited by the value of the shares it issued.
[121] See also Mr Holden’s explanation to the delegate: T documents; T16 at 3300
The Current Assets on the Balance Sheet as at 31 December 2008 showed cash assets of $181,342.76.[122] The statement for the CBA account showed that the account was in credit to the extent of $3,974.49 as at 30 December 2008 and $5,523.65 as at 2 January 2009.[123]
[122] T documents; T10 at 1895
[123] T documents; T7 at 568-570
The Profit and Loss Statement shows income totalling $226,698. It was said to be derived from commissions ($20,000), management fees ($80,000) and rent ($126,698) as at 31 December 2008.[124] On the documentary evidence, the only sources of income received by QCG were from its leasing the Mt Macedon Hotel and all relevant licences, plant and equipment to Mitchell and from advertising billboards situated on the Queens Parade property. The second source of income was not, however, available to QCG as the Queens Parade property had been transferred at the end of the previous year to MPM. The first source of income is also doubtful for the contract between QCG and Mitchell was that the rental payments were only payable on the completion of the building works at the Hotel. There is no evidence that those repairs were ever completed and so no evidence of a trigger point that would require Mitchell to pay rent.
[124] T documents; T10 at 1896
The discrepancies in the figures shown in the Profit and Loss and Balance Sheets and reality are significant. I note that Mr Jaffe has, at the conclusion of the Balance Sheet for QCG stated that:
“On the basis of the information provided by the directors of QUEENS CAPITAL GROUP PTY LTD, we have compiled in accordance with APS 9: Statement on Compilation of Financial Reports the special purpose financial report of QUEENS CAPITAL GROUP PTY LTD for the period ended 31 December 2008, comprising the attached Statement of Financial Performance and Statement of Financial Position.
The specific purpose for which the special purpose financial report has been prepared is set out in Note 1. …
…
The special purpose financial report was prepared for the benefit of the Directors and Members of QUEENS CAPITAL GROUP PTY LTD and the purpose identified above. We do not accept responsibility to any other person for the contents of the special purpose financial report.”[125]
No Note 1 appears in the material.
[125] T documents; T10 at 1900
A statement of that sort does not excuse discrepancies of the sort made in this Balance Sheet. As it says, it is made for the benefit of the directors. Mr Holden’s disclosure statement to Macquarie regarding his personal assets and liabilities six months later in June 2009 reveals his understanding that QPPL’s assets included the Queens Parade property. His statement his shares in QPPL were worth $4.5m would be consistent with the entry in the Balance Sheet that QPPL’s assets amounted to $4.5m. That figure did not, of course, have regard to the liabilities QPPL had incurred. Mr Holden cannot be heard to say that he was misled by Mr Jaffe in this matter. Mr Jaffe has stated that he has prepared the financial documents for the purposes of the directors of QCG and on the information provided by those directors. Even if that were not so, Mr Holden should have been well aware that the Queens Parade property had been transferred to MPM in December 2007 and that he had signed various hire purchase agreements either on behalf of QCG or as guarantor for Tocker.
Whether it was calculated to or not, Mr Holden’s Statement of Assets and Liabilities given to Macquarie necessarily misled it as to the state of QCG’s financial affairs. Had Mr Holden had access to a Balance Sheet for QCG that accurately reflected its true financial situation, it might have assisted him in giving the correct information to Macquarie for that is one of the purposes of keeping proper financial records. As Deputy President Tamberlin said in Re Aghili and Australian Securities and Investments Commission:[126]
“… The obligation to keep financial records and proper accounts is directed to ensure that the accounts and the financial position of the company are at all times sufficient to enable a person to say where in a financial sense the company is placed. It is not enough that records kept might enable a competent accountant to reconstruct and produce accounts long after the happening of the events to which the primary records relate such as cheque books, receipts and the like. The section is designed to prevent officers from ‘flying the company blind’ and upon its crash, and without having information capable of sustaining the opinion, then claiming they thought they were in a better financial position: see Manning v Cory [1974] WAR 60 at 62.”[127]
[126] [2012] AATA 353
[127] [2012] AATA 353 at [33]
Application of borrowed moneys and goods acquired on hire purchase
Based on my earlier findings, I find that, between January 2007 and October 2008, QCG borrowed a total of $800,000 from SESIL. In his submission to ASIC lodged on 9 May 2014, Mr Holden said that the funds were invested to create income and cash flow because QCG was asset rich but income poor and was in danger of being wound up. The Nissan Patrol was purchased under a financing arrangement with BMW to be a company vehicle. It constituted part of the investment to create an income generating subsidiary.[128]
[128] T documents; T16 at 3327
What Mr Holden does not explain is the role of the Nissan Patrol in creating an income generating subsidiary. He did explain in his written submission to ASIC’s delegate that Tocker was an income producing subsidiary for QCG. That would explain why QCG financed Tocker’s stock and equipment. It would be consistent with QCG’s being one of the three guarantors to the agreement reached between Go Getta and Tocker on 3 June 2009. Mr Holden’s position that Tocker was an income producing subsidiary for QCG would be consistent with the statement made in the Recitals to the DEGI that Go Getta had entered the agreement at QCG’ request. Despite their consistency with his stated position, Mr Holden states that his signature was forged on some of the Go Getta documents.
That is not to say that Mr Holden has acted properly. There is nothing in the evidence that shows how QCG derived income from its acting as guarantor in these circumstances. There are no business records indicating receipt of income from Tocker or from any other source. Furthermore, there are no records of an agreement between QCG and Tocker that would lead QCG to have any entitlement to, let alone any expectation, of receiving income. There is no basis on which I can find that QCG’s agreeing to act as guarantor in relation to Tocker’s financial obligations under the contract with Go Getta would bring any benefit to QCG. I find that Mr Holden has not treated QCG and Tocker as separate legal entities as he should have with their own separate assets and liabilities and income streams. Rather, he has treated them simply as separate elements of the same vehicle. This is an approach similar to that he adopted when valuing his share in QCG on a basis that included the Queens Parade property that had been transferred to MPM sometime before.
Mr Holden walks away from the acquisitions financed by St George, Bank of Queensland, Macquarie and Capital Finance saying that the documents are largely fraudulent. On their face, I find that the documents all relate to the purchase of goods and equipment by Tocker with QCG as the guarantor or one of the guarantors. They appear to be standard contracts of their type. Mr Holden’s signature appears on relevant documents with slight variations but those variations do not, on their face, take them outside what would seem to be normal variations in any person’s signature. In saying that, I do not profess to have any expertise in handwriting. Mr Holden has not produced any evidence to support his statement that that the documents were forged.
In relation to financing by the Bank of Queensland, Mr Holden states that the financing is subject to dispute. Had the broker been honest, he said, the finance was to be legitimately used for the purchase of income generating trading stock.[129] Mr Holden has not given any details or suggested that the financing was not used to acquire two Holden Calais motor vehicles, a Hyster forklift and sound and lighting equipment. That is to be contrasted with the BMW that was financed by Capital Finance. Mr Holden points to others, including Mr Jaffe, as using the vehicle and states that he knew nothing of it until contacted by Capital Finance in his capacity as guarantor.
[129] T documents; T16 at 3327
In stating that the transactions with by St George, Bank of Queensland, Macquarie and Capital Finance are largely fraudulent, Mr Holden does not address the fact that payments of nine of the ten instalments due each month from the agreements between Tocker, on the one hand, and Macquarie, St George or Bank of Queensland, on the other, are shown in the bank statements produced by ANZ in relation to Tocker’s account. The only two instalments that I have not identified in those accounts relate to the agreement between Tocker and the Bank of Queensland dated 11 June and amounting to $14,592.77 and to that with Capital Finance and relating to monthly instalments of $1,173.64. I have set out examples of where the other instalments are shown in Tocker’s statement for the month of July in relation to all but instalments due under the contract with the Bank of Queensland dated 20 July 2009. That is to be found in the August 2009 statement. They appear in the following table:
Date of contract
Financier
Amount of instalment
T document reference
3 June 2009
Macquarie
$1,460.87
T13 at 3195
10 June 2009
Macquarie
$1,803.31
T13 at 3196
10 June 2009
Macquarie
$1,945.60
T13 at 3196
11 June 2009
Macquarie
$2,886.95
T13 at 3196
16 March 2009
St George
$1,147.82
T13 at 3196
31 March 2009
St George
$785.38
T13 at 3200
31 March 2009
St George
$2,070.35
T13 at 3200
17 April 2009
Bank of Queensland
$1,460.87
T13 at 3190
17 April 2009
Bank of Queensland
$1,307.03
T13 at 3197
20 July 2009
Bank of Queensland
$4,509.37
T13 at 3203
11 June 2009
Bank of Queensland
$14,592.77 not identified in Tocker’s ANZ account
1 September 2009
Capital Finance
$1,173.64 not identified in Tocker’s ANZ account
My point in identifying where the instalments appear in an ANZ statement is that it reflects the other statements obtained from the ANZ. The deduction of the instalments from Tocker’s ANZ account was clearly shown in those statements. If, as Mr Holden states, those agreements, or any of them, were entered fraudulently, the entries clearly appeared in the statements and presented themselves to be queried. By this time, Mr Holden had been the sole director of Tocker for some six months. Had the agreements been entered fraudulently, the ANZ statements put him on notice. On the evidence that I have, I do not accept that the agreements were entered fraudulently or that QCG became guarantor of the relevant agreements without his consent.
Failure to manage the affairs of QCG and of Tocker with care and diligence
The findings I have made in the previous section of my reasons are also relevant in considering Mr Holden’s actions in relation to his management more generally of QCG and of Tocker. I have made findings already regarding the borrowings made by QCG and its acting as guarantor for liabilities incurred by Tocker. Some $915,120.61 was borrowed by QCG from SESIL and Go Getta and it had to finance monthly repayments totalling $10,771.52 from its Westpac account in respect of them. At the time it incurred the debt with Go Getta, QCG had only $7,408.20 in its Westpac account. That was insufficient to pay the two instalments as they fell due just as the sum of $4,411.49 had been insufficient to fund one repayment instalment when QCG borrowed $800,000 from SESIL.
Clearly, it was not in a position to fund the repayments to SESIL or Go Getta let alone the repayments due to BMW and Westpac, which are shown in the table at [50] above. QCG itself recognised that and those payments, totalling $15,502.09, were repaid from Tocker’s account. How those repayments of QCG’s debts were intended to benefit Tocker is not apparent from any material relating to either company.
Duty to exercise powers with care and diligence
In his statement to the delegate, Mr Holden reiterated his position that he had no knowledge of a number of agreements said to have been signed by him. He believed that, by appointing a qualified Chartered Accountant, Mr Jaffe, as financial controller and director as well as a sole bank signatory, and an experienced General Manager, Mr Milton Hill, he had more than adequately safeguarded against mismanagement. He attended sales meetings and witnessed activity and stock levels consistent with Mr Jaffe’s reports. He relied on those reports.
In his evidence, Mr Jaffe said that he had spent very little time on the affairs of QCG. It was a passive investment company and it did not engage in any activities. Mr Jaffe said that he had very little to do with QCG other than to take Mr Holden’s telephone calls. Mr Holden asked Mr Jaffe to explain particular payments in Tocker’s General Ledger beginning 10 March 2009 to 25 June 2009. Mr Jaffe, who states that he has misplaced or lost all relevant files, said that he could not explain the payments without them. He could not recall details of loans obtained by QCG.
Mr Jaffe did recall being in charge of Tocker’s cheque books. One was for major transactions and the other for day to day use. He said that he only signed cheques on Mr Holden’s instructions. When Mr Holden asked him why Mr Jaffe needed to attend the bank with him, Mr Jaffe told him that he could not explain the reasons. It was just the way that they did things at that time. It would be at Mr Holden’s request that he would meet him at the bank just as it would be at his request that he wrote Cash cheques and gave them to him. Mr Holden had also given him authority to pay bills. Without access to his files, which he had not been able to locate, it was essentially the case that Mr Jaffe’s evidence could not assist.
Even though he could not obtain from Mr Jaffe the detailed evidence and the acknowledgements that he would have liked from Mr Jaffe, Mr Holden cannot lay the blame at Mr Jaffe’s door. Even though one of the contractors, Mr Kosta Sivov, whom Tocker engaged has subsequently been found guilty of 13 counts of obtaining financial advantage by deception and one of furnishing false information, Mr Holden cannot attribute blame to them for his failure to keep a close and careful eye on what was ultimately his responsibility.
Under s 180 of the Corporations Act, Mr Holden had obligations to act with care and diligence. Section 180(1) provides:
“A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:
(a)were a director or officer of a corporation in the corporation’s circumstances; and
(b)occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.”
Section 180(2) refers to the “business judgment rule”. The expression “business judgment” means “… any decision to take or not take action in respect of a matter relevant to the business operations of the corporation.”[130] If a director or other officers of a corporation make a business judgment, they are taken to have met the requirements of s 180(1) and their equivalent duties at common law and in equity in respect of that business judgment if they:
“(a) make the judgment in good faith and for a proper purpose; and
(b)do not have a material personal interest in the subject matter of the judgment; and
(c)inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and
(d)rationally believe that the judgment is in the best interests of the corporation.
The director’s or officer’s belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold.”
[130] Corporations Act, s 180(3)
These duties do not mean that directors must reach every decision on the basis of their own knowledge, expertise and skills. The business judgment rule encapsulated in s 180(2) recognises that directors need to inform themselves on the subject matter on which they must make judgments. In order to fulfil their duties under s 180(1), they must do so to the extent that they reasonably believe appropriate. Section 189 sets out circumstances in which that reliance will be taken to be reasonable in certain circumstances:
“If:
(a)a director relies on information, or professional or expert advice, given or prepared by:
(i) an employee of the corporation whom the director believes on reasonable grounds to be reliable and competent in relation to the matters concerned; or
(ii) a professional adviser or expert in relation to matters that the director believes on reasonable grounds to be within the person’s professional or expert competence; or
(iii) another director or officer in relation to matters within the director’s or officer’s authority; or
(iv) a committee of directors on which the director did not serve in relation to matters within the committee’s authority; and
(b)the reliance was made:
(i)in good faith; and
(ii)after making an independent assessment of the information or advice, having regard to the director’s knowledge of the corporation and the complexity of the structure and operations of the corporation; and
(c)the reasonableness of the director’s reliance on the information or advice arises in proceedings brought to determine whether a director has performed a duty under this Part or an equivalent general law duty;
the director’s reliance on the information or advice is taken to be reasonable unless the contrary is proved.”
Although decided shortly before the business judgment rule was introduced in s 180(2) by the Corporate Law Economic Reform Program Act 1999, the judgment of Clarke and Sheller JJA in Daniels v Anderson[131] continues to be relevant in explaining the extent of the legislative duty:
[131] (1995) 37 NSWLR 438; 118 FLR 248; 16 ACSR 607
“The modern cases to which we have referred, set in the context of a legislative pattern of imposing greater responsibility upon directors, demonstrate that the director’s duty of care is not merely subjective, limited by the director’s knowledge and experience or ignorance or inaction. The duties of a director are eloquently explained in the judgment of Pollock J, giving the opinion of the Supreme Court of New Jersey, in Francis v United Jersey Bank 432 A 2d 814 (NJ 1981). The relevant legislative context was different. …But the judgment exposes by reference to other cases what is generally expected of directors not only in the United States but in Australia and elsewhere. In our opinion, this has become what the law requires of directors.
Pollock J said (at 821-823):
‘ As a general rule, a director should acquire at least a rudimentary understanding of the business of the corporation. Accordingly, a director should become familiar with the fundamentals of the business in which the corporation is engaged: … Because directors are bound to exercise ordinary care, they cannot set up as a defence lack of the knowledge needed to exercise the requisite degree of care. If one ‘feels that he has not had sufficient business experience to qualify him to perform the duties of a director, he should either acquire the knowledge by inquiry, or refuse to act.’ …
Directors are under a continuing obligation to keep informed about the activities of the corporation. Otherwise, they may not be able to participate in the overall management of corporate affairs: … Directors may not shut their eyes to corporate misconduct and then claim that because they did not see the misconduct, they did not have a duty to look. The sentinel asleep at his post contributes nothing to the enterprise he is charged to protect: …
Directorial management does not require a detailed inspection of day-to-day activities, but rather a general monitoring of corporate affairs and policies: … Accordingly, a director is well advised to attend board meetings regularly. …
While directors are not required to audit corporate books, they should maintain familiarity with the financial status of the corporation by a regular review of financial statements. …
The review of financial statements, however, may give rise to a duty to inquire further into matters revealed by those statements: … Upon discovery of an illegal course of action, a director has a duty to object and, if the corporation does not correct the conduct, to resign. …
A director is not an ornament, but an essential component of corporate governance. Consequently, a director cannot protect himself behind a paper shield bearing the motto ‘dummy director’: …”[132]
These principles have been approved in subsequent cases such as Gold Ribbon (Accountants) P/L v Sheers and Ors[133] and Duke Group Ltd (in liq) v Pilmer (No 5).[134]
[132] (1995) 37 NSWLR 438; 118 FLR 248; 16 ACSR 607 at 503-504; 308-309; 666-667(authorities omitted)
[133] [2005] QSC 198 at [78] per Muir J
[134] (2003) 87 SASR 325 at 338
The principles do not mean that a director must give continuous attention to every detail in the management of the affairs of a corporation. By the same token, a director may rely on information or advice provided by another in making decisions as a director but may not use that reliance as a total defence to an allegation of failing to carry out a director’s duties. Reliance may be relevant but not a whole answer to such an allegation. Directors are:
“… obliged to obtain at least a general understanding of the business of the company and the effect that a changing economy may have on that business. Directors should bring an informed and independent judgment to bear on the various matters that come to the board for decision.”[135]
They are also:
“… expected to attend all meetings unless exceptional circumstances, such as illness or absence from the State prevent him or her from doing so: cf Harper and Browne, The Duties and Liabilities of a Director in 1973 (1973) 47 ALJ 447 at 451‑452.”[136]
[135] AWA Ltd v Daniels trading as Deloitte Haskins & Sells (1992) 7 ACSR 759 at 864-865 per Rogers CJ in Commercial Division
[136] Vrisakis v Australian Securities Commission [1993] 9 WAR 395 at 405 per Malcolm CJ
These passages were, with others, quoted with approval by Clarke and Sheller JJA in Daniels v Anderson. Their analysis underlined the point that such expressions of a director’s duties do not establish inflexible statements of it. They said:
“ The insolvent trading cases demonstrate that ignorance is no longer necessarily a defence to proceedings brought against a director. In some respects, at least, the director must inform himself or herself about the affairs of the company.
There is no doubt reason for establishing a board which enjoys the varied wisdom of persons drawn from different commercial backgrounds. Even so a director, whatever his or her background, has a duty greater than that of simply representing a particular field of experience. That duty involves becoming familiar with the business of the company and how it is run and ensuring that the board has available means to audit the management of the company so that it can satisfy itself that the company is being properly run. The board may be assisted by sub-committees consisting of its members, including non-executive directors: see generally, Sievers, Farewell to the Sleeping Director, (1993) 21 Australian Business Law Review 111 at 115-117.
In our opinion the responsibilities of directors require that they take reasonable steps to place themselves in a position to guide and monitor the management of the company. The board of AWA met only once a month for half a day. But to our mind the board should meet as often as it deems necessary to carry out its functions properly. The question is what in the particular case are the duties and responsibilities of the directors and then what time is required of them as a board to carry out these duties and responsibilities. It is not a matter of tailoring the extent of the duty or function to pre-fixed intervals between board meetings.”[137]
[137] (1995) 37 NSWLR 438; 118 FLR 248; 16 ACSR 607 at 500-501; 306; 664
A similar view of the duty was taken by the Full Court of the Supreme Court of Western Australia when Pidgeon J, with whom Franklyn and Walsh JJ agreed, said that a director is expected to be:
“… sufficiently informed of the company’s affairs to make an independent judgment and to take appropriate action if the matters did not proceed as matters should proceed in a merchant banking company. This would be the duty owed to the company. It would be the duty the depositors, depositing on the faith of his presence, would see him as performing. In particular, they would expect him to ask the necessary questions if facts arose that would put him on inquiry. His position therefore, as a non-executive director, would not absolve him from having the basic knowledge to which I have already referred.”[138]
[138] Australian Securities Commission v Gallagher (1993) 11 WAR 105; 10 ACSR 43; 11 ACLC 286 at 117; 55; 295-296
On the evidence, I find that Mr Holden has delegated responsibility for the management of QCG and Tocker to others. He has done so simply on the basis that they were, or he thought that they were, capable of doing so. It is clear from my findings regarding the ownership of the Queens Parade property, the payment of one company’s liabilities from another’s bank accounts and the adoption of liabilities as a guarantor for no apparent benefit to the company acting as guarantor and the acquisition of the Rita painting all show that Mr Holden does not understand the essential character of a company as an independent legal entity. He does not understand it as an independent legal entity which is owned by its shareholders but which acquires ownership and incurs liabilities quite separately and apart from its shareholders. His lack of understanding is also apparent from the way in which he sees himself as a victim of the failure of QCG and Tocker. As he sees matters, he is the only person to have suffered a sanction from the demise of the companies and yet he is the principal shareholder and the principal loser. Not a thought has Mr Holden spared for the losses suffered by the financiers, who extended credit, or by the companies’ creditors[139] generally of those separate and independent legal entities.
[139] In addition to the financiers, other creditors included the ATO ($1,806.56), Macedon Ranges Shire Council ($29,645.39) and the State Revenue Office ($62,573.39): T documents; T7 at 98-99 and 269. Mr Pearce estimated that QCG had a net deficiency of $2,296,938.00: T documents; T7 at 91. Tocker owed approximately $549,648 to unsecured creditors and was wound up with an estimated net deficiency of $2,317,001: T documents; T10 at 1379.
Mr Holden said that he had seen some financial documents but it is equally clear that he does not examine the financial records that there were. If others were using the companies to assist them to carry out fraudulent activities, Mr Holden could have seen that quite easily in the bank statements. He could have seen the incorrect statement of QCG’s assets in the Balance Sheet. The parlous state of QCG’s finances would have been apparent before he entered any further agreements to purchase stock or vehicles.
Mr Holden’s choice was to rely on Mr Jaffe. If all went well, his business judgment would never have been called into question. As it is, all has not gone well and his business judgment has been called into question. In the absence of his having taken basic steps to inform himself with regard to what was happening in relation to the business of the companies and choosing to act solely on reports provided by Mr Jaffe, Mr Holden has not familiarised himself with the business so that he had a sound or rational basis for making the decisions that would be in the best interests of the corporation. There is no rational basis for any belief he might have that his decisions were in the best interests of any of the corporations. I find that Mr Holden has not discharged his duties as a director with the degree of care and diligence that a reasonable person would have exercised in his position. He was in breach of s 180 of the Corporations Act.
SHOULD THE POWER TO DISQUALIFY BE EXERCISED?
I am satisfied that Mr Holden’s disqualification from managing corporations is justified. He has been a director of three failed corporations. They have failed in circumstances that have revealed Mr Holden’s lack of understanding of the nature of corporations and of their independence from their shareholders and from each other. He has not, I find, understood the nature of his responsibilities and duties as a director or the degree to which those responsibilities and duties required him to have a knowledge of the business and operations of those corporations. He has not understood that the role of a director in today’s world is such that he cannot delegate his responsibilities to others. Mr Holden regards himself as a victim of the failure of the corporations but he is a victim, at least to some extent be it great or less great, by his own hand. There are others who are victims but innocent of any wrongdoing. They include the ratepayers of the Macedon Ranges Shire and the Australian taxpayers not to mention smaller creditors who may have been caught up in the corporations’ failures. At a more esoteric level, public confidence in the corporate structure is another victim.
Having regard to all of these matters and to the findings I have made throughout these reasons, I have decided that Mr Holden should be disqualified from managing corporations. Therefore, I affirm the decision of the delegate of ASIC dated 25 June 2014.
I certify that the one hundred and ten preceding paragraphs are a true copy of the reasons for the decision herein of
Deputy President S A Forgie.
Signed: ……….......................[sgd]...............................
Associate
Date of Hearing 7 and 25 September 2015
22 and 23 February 2016
Date of Decision 15 August 2016
ApplicantSelf-represented
Counsel for the Respondent Mr Sam Rosewarne
Solicitors for the Respondent Ms Judith Birch and Mr Aldo Paciocco
Australian Securities and Investments Commission
0
13
5