Jarrett

[1999] FCA 503

FEDERAL COURT OF AUSTRALIA

Jarrett [1999] FCA 503

CORPORATIONS – directors’ duties – application for leave to act as director and manager of a corporation pursuant to s 229 Corporations Law – matters taken into account in granting leave

Corporations Law s 229

IN THE MATTER OF KENNETH CHARLES JARRETT

V 3096 of 1999

FINN J
MELBOURNE
21 APRIL 1999

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 3096 of 1999

IN THE MATTER OF KENNETH CHARLES JARRETT Applicant
JUDGE:	FINN J
DATE OF ORDER:	21 APRIL 1999
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.Leave is given pursuant to s 229 of the Corporations Law to Kenneth Charles Jarrett to act as a manager and director of Allans Music Group Pty Ltd ACN 082 019 341, on condition that:

(a)the leave is restricted to Allans Music Group Pty Ltd ACN 082 019 341

(b)within seven days of this order, a person registered as an auditor under the provisions of Part 9.2 of the Corporations Law be appointed as the auditor of Allans Music Group Pty Ltd ACN 082 019 341.

(c)Allans Music Group Pty Ltd ACN 082 019 341 cause to be prepared, audited and lodged with the Australian Securities and Investments Commission an Annual Financial Report as defined in s 295 of the Corporations Law, for the financial year of the company ending 30 June 1999.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 3096 OF 1999

IN THE MATTER OF KENNETH CHARLES JARRETT Applicant
JUDGE:	FINN J
DATE:	21 APRIL 1999
PLACE:	MELBOURNE

EX TEMPORE REASONS FOR JUDGMENT

1. This is an application by Kenneth Charles Jarrett for leave pursuant to s 229 of the Corporations Law to act as a manager and director of Allans Music Group Pty Ltd. The need for the application is as follows. In December 1993 Mr Jarrett was charged initially with a number of serious offences by the Director of Public Prosecutions. Ultimately he was charged with the offence of failing to act honestly in the exercise of his powers and discharge of his duties as a director with intent to deceive and defraud.

2. As set out in his affidavit filed with his application, the charge related (i) to the concealment of the true nature of equitable interests which he and others associated with the Elders group of companies had in convertible bonds issued by Elders in 1984, and (ii) to the concealment of the true reasons for two payments to Allen Robert Hawkins or associated companies totalling approximately $66.5 million which were disguised as being genuine foreign exchange hedging transactions.  To that charge, Mr Jarrett pleaded guilty on 20 June 1994.  Justice Coldrey of the Supreme Court of Victoria sentenced him to imprisonment for 18 months of which 12 months constituted a suspended sentence with the custodial sentence being served for the balance of the term. 

3. According to Mr Jarrett’s evidence, he was released from prison on 24 December 1994. He deposes that he was not provided with a certificate acknowledging his release by any relevant authority (cf s 229(4) of the Corporations Law). I am prepared to accept that at or about that date, Mr Jarrett was so released. The need for the application arises because of the provisions of s 229(3) of the Corporations Law which preclude Mr Jarrett from participating in the management of a corporation without the leave of the Court any time within five years of his release from prison.

4. For practical purposes, that five-year period has nearly expired in Mr Jarrett’s case.  The reason he has brought the present application relates on the evidence before me both to his wish to change the nature of his involvement in the company in question, and to the prompting of the current chairman of that company, a Mr Egan, who has filed an affidavit in these proceedings.  The circumstances of the application are in some respects unusual, if only because of the events to which the charges related.  It is unnecessary to recount in any detail the circumstances giving rise to Mr Jarrett’s conviction, nor the dealings in respect of which he pleaded guilty.  They have been the subject of examination by regulatory and investigative agencies in this country and have been widely reported.

5. What for present purposes is important to note is the assistance provided by Mr Jarrett to especially the National Crime Authority in its examination of those dealings and the laying of charges against others.  The nature of that assistance is attested to in an affidavit of Mervyn Alan Keehn which I have given leave to be filed in this application.  Mr Keehn is the regional director in charge of the Melbourne office of the National Crime Authority.  He deposes, in confirmation of Mr Jarrett’s affidavit, that Mr Jarrett provided full and frank cooperation with the National Crime Authority in connection with its investigations, and he indicated he had no objection to Mr Jarrett being given leave of the court to act in the capacity of director of a corporation.  Likewise, not only was Mr Jarrett given indemnities from further prosecution in respect of the dealings inquired into, the Victorian Director of Public Prosecutions agreed as well not to oppose any application which Mr Jarrett might make in the future under any relevant law to continue as a director of a corporation. 

6. The company in respect of which leave is sought, Allans Music Group Pty Ltd, was incorporated in 1998.  It carries on the business of retailer of musical instruments and print music.  This business was acquired from the administrator of another company.  It was acquired by a consortium of investors of which Mr Jarrett either directly or through a family company is one.  The company only has four issued shares.  Mr Jarrett’s involvement with the company has been restricted to the provision of financial consultancy services.  What he is seeking is to be able to act as a manager and to assume the role of chief executive of the Allans’ business.  As I have indicated, that desire is supported by the current chairman of the company.

7. Turning now to the matters of which I should take account in considering Mr Jarrett’s application – the more significant of these are conveniently tabulated in Ford and Austin - obviously the nature of the offence for which he was convicted is of particular importance. Given its subject matter, there can be no doubt as to its significance to the investing public. I need hardly emphasise this disqualification provision exists in the Corporations Law to protect the public, not to punish Mr Jarrett. Nonetheless I am satisfied that Mr Jarrett is conscious of the magnitude of the offence, an offence to which he pleaded guilty, that he dissociated himself from the affairs of Elders in 1990, that he provided the assistance to which I have already referred and that he has suffered punishment in respect of it, as well as the significant personal and public dishonour he acknowledges.

8. I am satisfied on the basis of the testimonial support provided for Mr Jarrett and from Mr Egan's affidavit that there is no reason today to call Mr Jarrett’s character into question.  Further, it is the case that the company in respect of which the leave is sought is far removed in its structure and activities from the company in respect of which Mr Jarrett was convicted of an offence.  Notably it is a proprietary company with only four shareholders.  It is not a company which invites public subscription for its shares.  In my view, the risk to those associated with the company and the risk to the public of Mr Jarrett assuming a position on the board of Allans is not one of any significance.

9. I should note that, as is required by s 229(6) of the Corporations Law, notice of his intention to make this application was served on the Australian Securities and Investments Commission. The Commission, subject to conditions to which I will refer in a moment, indicated that it did not oppose Mr Jarrett being permitted to take part in the management of the company. The conditions which have been accepted by Mr Jarrett and have been confirmed by Mr Egan are, first, that the leave given by the Court will be restricted to his participation in the management of the Allans Music Group Pty Ltd ACN 082 019 341; secondly, that within seven days of the order granting leave under s 229(3) of the Corporations Law, a person registered as an auditor under the provisions of Part 9(2) of the Corporations Law be appointed as the auditor of Allans; and thirdly, that Allans cause to be prepared, audited and lodged with the Australian Securities and Investments Commission an annual financial report as defined in s 295 of the Corporations Law for the financial year of the company ending 30 June 1999.

10. The application made by Mr Jarrett is necessarily restricted to Allans, and any leave I give will accordingly be so restricted.  Mr Egan in his affidavit has confirmed that an auditor of Allans has been appointed, and that that auditor will be instructed to audit Allans’ financial report in the manner sought in the conditions.  In the circumstances then, I am prepared to give the leave sought by Mr Jarrett in his application to act as a manager and director of Allans Music Group Pty Ltd subject to the conditions specified by the Australian Securities and Investments Commission to which I have previously referred.

I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn.

Associate:

Dated:             21 April 1999

Counsel for the Applicant:	Mr G Chettle
Solicitor for the Applicant:	Nathan Kuperholz
Date of Hearing:	21 April 1999
Date of Judgment:	21 April 1999