James and Australian Securities and Investments Commission

[2018] AATA 4431

James and Australian Securities and Investments Commission [2018] AATA 4431 (24 October 2018)

Division:TAXATION & COMMERCIAL DIVISION

File Number(s):      2018/3388

Re:David James

APPLICANT

AndAustralian Securities and Investments Commission

RESPONDENT

DECISION

Tribunal:Deputy President Bernard J McCabe

Date:24 October 2018

Date of written reasons:        26 November 2018

Place:Sydney

For the reasons given orally at the conclusion of the hearing of this matter, the Tribunal refuses to make an order under subsection 41(2) of the Administrative Appeals Tribunal Act 1975 to stay the decision under review.

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Bernard J McCabe, Deputy President

CATCHWORDS

PRACTICE AND PROCEDURE - application to stay decision of Australian Securities and Investments Commission - decision prohibited applicant from managing corporations for a period of 3 years - prospects of success - consequences for shareholders - consequences for unsecured creditor - consequences for respondent - other remedies - stay application refused.

LEGISLATION

Administrative Appeals Tribunal Act 1975 ss 35, 37, 41

Corporations Act 2001 ss 206F, 206G

CASES

Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 183

Scott and Australian Securities and Investments Commission [2009] AATA 798

WRITTEN REASONS FOR ORAL DECISION

Deputy President Bernard J McCabe

26 November 2018

1. A decision was made and reasons were given orally at an interlocutory hearing in this matter. The written reasons which follow are distilled from the transcript of the hearing.

2. This is an application for an order that stays the operation and implementation of the decision that is subject to review. The decision is a decision to disqualify the Applicant from continuing to manage any corporation for a period of 3 years.

3. It is a truism that section 41(1) of the Administrative Appeals Tribunal Act 1975 (“the Act”) makes clear that in the absence of a stay order, the decision of the primary decision maker goes into effect unless and until the Tribunal makes an order under 41(2) of the Act.

4. Subsection 41(2) is available for a particular purpose. The key words which inform the purpose are the last two lines of the subsection. The power is available “for the purpose of securing the effectiveness of the hearing and determination of the application for review”.

5. Once I am satisfied the stay is sought for a proper purpose, I must have regard to a number of different interests. There might be a number of individuals whose interests are affected and it is appropriate that I have regard to all of those interests to the extent that I am able. This power has been discussed in a number of well-known authorities including Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185 and Scott v Australian Securities and Investments Commission [2009] AATA 798; (2009) 551 AAR 114 (“Scott”)).

6. In Scott at [4], Downes J, the former President of the AAT, explained the reasoning process that one follows when considering an application under subsection 41(2) of the Act. His Honour concluded a number of factors would ordinarily be relevant, including the prospects of success at the final hearing, the consequences for the applicant if the stay is refused, and the public interest – a broad-ranging concept.

7. In this case, the applicant’s prospects of success on the substantive application are unclear. I am not prepared to say the applicant has no prospects, particularly since it’s not appropriate for me to conduct a mini-hearing.

8. The consequences for the applicant if a stay is not granted are obviously an important consideration in such a case – but those consequences are unclear. He argues he needs to remain in a position to control the affairs of Douglas Hawkins Pty Ltd so he can continue to supervise the conduct of the company’s litigation. He referred to proceedings in a number of jurisdictions although he is also a party to a number of those disputes in his own capacity. Yet the Applicant doesn’t have a legal or equitable interest in the company in question and could presumably be replaced as a director at any time by his estranged wife who controls the shares in the company. If he can be readily removed as a director, it is unclear how authorising him to remain as a director advances his cause or that of the company.

9. It appears the applicant is interested in vindicating or protecting the interests of his mother who was an unsecured creditor of the company. There may be some benefit to him which might be affected, depending on what happens to that company in the litigation although it is not entirely clear how that would play out in the circumstances. It’s not immediately clear that his interests will be directly affected. The precise nature of his mother’s interests and how they might be affected is also unclear.

10. I don’t have before me any clear evidence about the current position of Douglas Hawkins Pty Ltd. That is perhaps unsurprising if the Applicant is no longer a director of that company and is unable to deliver any information about the company. So it is difficult to know how the other creditors of that company might feel and whether their interests might be advanced or indeed prejudiced if the Applicant were to be permitted to remain in charge of that company.

11. I should say that two other things might be relevant. One is the alternatives open to the company and its creditors who wish to protect their interests if the applicant is not available to manage the litigation – assuming for now that his ongoing involvement with the company was consistent with its interests. Creditors of the company can always bring winding up proceedings to protect the asset base. There’s also the possibility that a Court of competent jurisdiction might intervene if it forms the view that the interests of the company were not being properly taken into account. It would appear that it’s not an option for the court to make an order section 206G of the Corporations Act 2001 (Cth), but there are other orders that a court can feasibly make if it believes it appropriate to do so.

12. The other interest that I mention potentially is of course ASIC’s interest. I have to say, I’m not particularly troubled by an argument that ASIC will somehow be discredited in the eyes of the regulated community if a stay order is made.  There is no reason to suppose ASIC will have difficulty explaining itself if a stay were granted while the proceedings are ongoing.

13. What does all that come to? In the circumstances, I am not persuaded that the stay is necessary to secure the effectiveness of the hearing and the determination of the application for review. Even if the applicant is denied the opportunity to remain involved in the management of Douglas Hawkins Pty Ltd in the short term, he presumably wishes to challenge the 3 year ban and the utility of that review will not be affected by my decision on the stay. But I would not order the stay if I were satisfied the applicant had a proper purpose in mind. I am not satisfied the applicant established a clear threat to his own interests. Other creditors of Douglas Hawkins Pty Ltd (including the applicant’s mother) have alternative remedies open to them to protect their interests. As for the company itself: the applicant is a party to the litigation involving the company. If he were to become concerned that the company’s interests were being compromised, he can bring that concern to the attention of the relevant court which is free to make appropriate tailored orders that would respond to any particular problems the court detects in the way in which those proceedings are conducted.

14. In those circumstances, I am not inclined to make the orders that are sought under subsection 41(2) of the Act. If the Applicant wishes to make an application to ASIC under subsection 206F(5) of the Corporations Act 2001, then it can do so of course but there’s an interesting question as to whether in fact I am able to make orders under 206F(5) at this juncture. It seems to me that one would ordinarily order a stay if one was minded to provide some relief, rather than pursuing orders under 206F(5), assuming that that power was open to me, although I am not persuaded to make an order under 206F(5) if I did have such a power.

15. That’s not to say that further information might be made available to ASIC and through that process, the matter may come back to the Tribunal. We can deal with any application at the appropriate time in the event of relevant changes in circumstances.

16. I will not make any orders under subsection 41(2) of the Act. The Applicant has indicated that it is not pursuing orders under section 35, and that at this stage I’m not minded to make any orders with respect to section 37.

I certify that the preceding 16 (sixteen) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe

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Associate

Dated: 26 November 2018

Date of hearing:	24 October 2018
Counsel for the Applicant:	Mr I Coleman SC
Solicitors for the Respondent:	Mr A Paciocco - ASIC