Lawrence Sullivan and Same Day Money Pty Ltd and Australian Securities and Investments Commission

[2013] AATA 592

[2013] AATA 592  

Division

GENERAL ADMINISTRATIVE DIVISION

File Numbers

2013/1096

2013/1239

Re

Lawrence Sullivan and

Same Day Money Pty Ltd

APPLICANTS

And

Australian Securities and Investments Commission

RESPONDENT

DECISION

Tribunal	Senior Member Bernard J McCabe
Date	23 August 2013
Place	Brisbane (heard in Cairns)

The decision under review regarding Mr Sullivan has been varied so he is now banned from engaging in credit activities for five years. The decision regarding Same Day Money Pty Ltd is affirmed.

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Senior Member Bernard J McCabe

CATCHWORDS

PRACTICE AND PROCEDURE – Cancellation of Australian Credit Licence – Banning order – Contravention of credit legislation – Fit and proper person – False statements in official documentation – Legislative and regulatory requirements not met – The decision under review regarding Mr Sullivan is varied – The decision under review regarding Same Day Money Pty Ltd is affirmed

LEGISLATION

Consumer Credit (Queensland) Act 1994 (Qld) ss 46 and 47

Credit (Commonwealth Powers) Act 2010 (Qld) s 32

National Consumer Credit Protection Act 2009 (Cth) ss 47, 55, 64, 69, 80, 225, 255

CASES

Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634

SECONDARY MATERIALS

ASIC Regulatory Guide 218 – Licensing: Administrative action against persons engaging in credit activities

ASIC Regulatory Guide 204 – Applying for and varying a credit licence

REASONS FOR DECISION

Senior Member Bernard J McCabe

1. The regulation of credit providers has come a long way since the occasion Jesus used his belt as a lash to drive money-lenders from the temple. These days, a person in the business of providing loans must comply with a statutory scheme overseen by the Australian Securities and Investments Commission (ASIC) and responsible state government agencies. The legislation includes a requirement that the owner of the business hold an Australian Credit Licence. If a licence holder (or a person engaged in credit activities under another person’s licence) contravenes the law or fails to meet the standards imposed by the law, ASIC may take action. It has a range of powers at its disposal, including powers to cancel the licence and ban individuals from engaging in credit activities.

2. A delegate of ASIC cancelled the licence held by Same Day Money Pty Ltd (“the company”) as it was not a fit and proper person to hold a licence, and because it had contravened obligations under the credit legislation. The delegate also decided to ban Mr Lawrence Sullivan, the sole director of the company, from engaging in credit activities for a period of four years because he had contravened credit legislation and was not a fit and proper person. Mr Sullivan and the company have asked the Tribunal to take another look at the facts and make fresh decisions.

3. I am satisfied the decision to cancel the licence of the company should be affirmed, and that Mr Sullivan should be banned from engaging in credit activities – albeit I think it is appropriate to ban him for a longer period. I explain my reasons below.

   THE FACTS

4. The company was incorporated in 2007. Mr Sullivan is (and was at all material times) the company’s sole officer and shareholder. An Australian Credit Licence was issued to the company in 2010. A copy of the licence is reproduced in exhibit one at pp 241-243. Mr Sullivan was identified as the key person in the licence who would perform duties on behalf of the licensee with respect to the credit business. Mr Sullivan is also recorded as the Responsible Manager of the company for the purposes of the legislation: exhibit one at p 244.

5. Mr Sullivan explained the business loaned relatively small amounts of money to people without security. He said there was a gap in the market: it was not a “pay day loan” business, and banks did not ordinarily lend such small amounts. Typically, applications would be made over the internet. While the business was based in Cairns, applications might come from further afield.

6. The business was small. Mr Sullivan said it did not have a large turnover, and he said it was not especially profitable. He said the company previously had two full-time employees and a 17 year old clerical assistant who worked casually. None of these individuals had qualifications or extensive experience in finance. Mr Sullivan explained in his evidence that he had an external accountant but he largely kept the books himself. He said the business was effectively run using a number of spread-sheets that recorded loans and repayments and other details. The spread-sheets were set up with the assistance of an information technology consultant. Mr Sullivan said the consultant had programmed in some incorrect formulae into the spread-sheets, which led to a number of problems that were not detected until inspectors from the Office of Fair Trading came calling. I will say more about that shortly.

7. Same Day Money was not a sophisticated operation.  Mr Sullivan conceded compliance was an issue. He said in his evidence that he was not always as diligent as he might have been in checking and completing documents. He said he had access to a lawyer, but suggested – unwisely, given what happened – the lawyer’s services were not really required.

8. Inspectors from the Office of Fair Trading conducted a compliance check on the company in 2010. Apparently the inspectors were conducting routine inquires to make sure the statutory cap on interest rates payable under credit contracts was being observed. Mr Sullivan was asked to provide a number of credit contracts. Those were delivered to inspectors on 28 October 2010. Inspectors also asked how many loan contracts had been entered into with Queensland residents. An email response from the company in Mr Sullivan’s name said there were only nine contracts with Queenslanders. Inspectors subsequently executed a search warrant at the company’s premises. After analysing the haul of seized documents, inspectors were satisfied (a) up to 476 contracts had been entered into with Queenslanders, so the assurance that there were only nine contracts was wrong; and (b) some of the details on the copies of the contracts provided to inspectors on 28 October 2010 had been altered before they were handed over. Entries relating to interest rates, establishment fees and brokerage fees had been reduced on the copies provided to inspectors. When challenged, the company responded that there was an error in relation to the number of contracts that was the product of a misunderstanding: exhibit one at p 176. The response said the alterations made to the contracts were in order to ensure the company complied with its obligations under ‘Federal Privacy Legislation’. The investigation also revealed the company was charging excessive rates of interest on a large number of contracts in contravention of s 32 of the Credit (Commonwealth Powers) Act 2010.

9. The company and Mr Sullivan were both charged with obstructing an inspector and making false or misleading statements to the inspectors in contravention of the Consumer Credit (Queensland) Act 1994. They both pleaded guilty to the charges on 28 June 2012 and were fined.

10. Mr Sullivan said he was dealt with harshly in the criminal proceedings. He made a complaint to the Crime and Misconduct Commission about the conduct of the inspectors from the Office of Fair Trading. He suggested in his written submissions to the Tribunal he was hopeful of having the verdicts set aside. He insisted none of his clients lost any money as a result of the unintentional errors in the calculation of interest in breach of the statutory caps. He also pointed out other, larger institutions had made mistakes he said were comparable but he claimed they were treated more leniently.

11. One would have thought it was obvious the convictions would have implications for Mr Sullivan’s status as a “fit and proper person”, but it is unclear whether he appreciated the problem. The company failed to report the convictions in an annual compliance certificate that it lodged on 10 October 2012. A copy of the certificate is reproduced in exhibit one at p 282ff. The licence holder certified it was not aware that any of its “fit and proper people” (that is, Mr Sullivan) had been the subject of “administrative, civil or criminal proceedings or enforcement action”. The form was signed by Mr Sullivan in his capacity as a director of the company. That statement was clearly false: Mr Sullivan was convicted of the charges referred to earlier on 28 June 2012. At the hearing, Mr Sullivan argued he was not aware the charges were criminal charges, so he thought he was not required to report them. That seems an unlikely misunderstanding. (He told me at the hearing he did a police check and obtained a certificate showing he had no convictions as at 17 April 2013, however that search was undertaken long after the events in question and could not have contributed to any misunderstanding.) Even if I accept he was confused about the nature of the proceedings against him in June 2012, I cannot ignore the fact the compliance certificate referred to “administrative, civil or criminal proceedings or enforcement action”. Mr Sullivan must have realised he was required to disclose the outcome of the proceedings, however they were characterised in his mind. Either he was deliberately untruthful in answer to the question in the compliance form, or he did not read what he was asked – a conclusion which does him no credit. The company made a false statement and Mr Sullivan was its author.

12. The company also purported to authorise Lawvan Investments Pty Ltd, another company controlled by Mr Sullivan, as its representative. The form containing the purported authorisation was lodged by Mr Sullivan on 5 May 2011. Section 64 of the National Consumer Credit Protection Act 2009 (the Credit Act) says an authorisation is of no effect if a number of requirements under the legislation are not met. One requirement is an obligation to participate in an approved external dispute resolution scheme. It turned out Lawvan was not a member of an approved scheme, so the purported appointment was of no effect. It is an offence under s 69 to purport to appoint someone as a representative if the authorisation is of no effect. It followed the company breached that provision, and Mr Sullivan, as the author of the conduct, was also in contravention of the law.

    ASIC’S DECISION TO BAN MR SULLIVAN

13. ASIC has the power to make a banning order against a person engaged in credit activities in a variety of circumstances set out in s 80(1) of the Credit Act. In so far as they are relevant to this case, those circumstances include:

    (d) if the person has:

    (i) contravened any credit legislation; or

    (ii) been involved in a contravention of a provision of any credit legislation by another person; or

    (e) if ASIC has reason to believe that the person is likely to:

    (i) contravene any credit legislation; or

    (ii) be involved in a contravention of a provision of any credit legislation by another person; or

    (f) if ASIC has reason to believe that the person is not a fit and proper person to engage in credit activities…

14. Mr Sullivan has contravened credit legislation (namely ss 46 and 47 of the Consumer Credit (Queensland) Act 1994). It follows the discretion to make a banning order in s 80 has been enlivened by reason of s 80(1)(d)(i). The delegate noted Mr Sullivan also contravened the credit legislation when it filed the compliance certificate which failed to disclose the criminal proceedings against the company and Mr Sullivan. (The delegate’s decision refers to a contravention of s 255(2). I assume that is an error, and that the delegate intended to refer to s 225(2).) The delegate also found Mr Sullivan was not a fit and proper person to engage in credit activities. Section 80(2) says this last finding can only be made after having regard to a number of factors including:

    ·the matters set out in paragraphs 37(2)(a) to (f) and subparagraph 37(2)(g)(i) in relation to the person;

    ·any criminal conviction of the person, within 10 years before the banning order is proposed to be made; and

    ·any other matter ASIC considers relevant…

15. The matters in s 37 do not assist in this case. But the fact of the criminal convictions is certainly a matter of some weight, as is Mr Sullivan’s response to those convictions. Mr Sullivan has shown little sign of contrition in relation to those matters: while he pleaded guilty to the charges, he has said more recently he did not realise the convictions were a criminal matter and he has complained to the Crime and Misconduct Commission in the hope the convictions will be set aside. Most importantly, he continued to argue before the Tribunal that the changes he made to the contracts which ultimately led to the charges were innocent. That makes no sense: the alterations were plainly part of an attempt to mislead the investigators. The details he altered in the contracts related to interest rates, establishment fees and brokerage fees. This is not the sort of information one would focus on if one were genuinely concerned to protect the privacy of the customers, even assuming that was an appropriate concern when dealing with inspectors exercising powers under a statute. I was left with the clear impression Mr Sullivan’s behaviour in relation to the contacts was designed to cover his trail, and it does him no credit that he persists in his denials.

16. The delegate also referred to ASIC’s Regulatory Guide 204 – Applying for and varying a credit licence, which discusses the concept of a “fit and proper person” for the purposes of the credit legislation: RG 204.177. The guide suggests a person:

    ·must be competent in the sense he or she possesses appropriate knowledge, skills and experience;

    ·must exhibit good character, diligence, honesty, integrity and judgment;

    ·must not be disqualified by law from operating a credit business;

    ·not be affected by an undisclosed conflict of interest.

17. I accept the discussion in the guide fairly summarises the requirements. I am also satisfied the evidence establishes Mr Sullivan does not meet a number of the requirements:

    (a)He does not have appropriate knowledge and skills: he has only basic book-keeping skills and relied upon others to develop spread-sheets that contained errors which he could not check (and did not think to have checked). I accept he took immediate steps to recalculate the interest when the error was pointed out and made refunds to his customers where appropriate, but the error should not have been made and there was no system in place to detect errors that were made; and

    (b)He did not exhibit diligence in the way he completed paperwork (like the compliance certificate when he did not respond correctly to the question about convictions – a generous gloss on his evidence) or sought to have Lawvan appointed as a credit representative when it did not comply with the rules, and he was dishonest and lacking in integrity when he altered documents that he provided to inspectors.

18. While the power to make a banning order has been enlivened, it remains to be seen whether it should be exercised, and – if it is to be exercised – for how long the order should last.

19. Banning orders are not made to punish an individual. That is the province of the criminal law. Mr Sullivan made it clear he thinks he has suffered enough, and feels ASIC is treating him unfairly. He pointed to less stringent regulatory action taken against two large financial institutions who made errors in the calculation of interest that he claimed were similar to his own; he also insisted no one was hurt because the errors in interest rate calculation were corrected and refunds were made, and he added that he has now resolved to consult his solicitors and an external risk management firm on a more regular basis.

20. Most of Mr Sullivan’s submissions missed the point. Credit providers play an important role in the economy, and rogues can undermine confidence in the financial system and hurt individual consumers. The poor and unsophisticated are especially vulnerable. The legislative scheme, and banning orders in particular, are designed to protect consumers and promote efficiency and confidence in the integrity of credit providers.

21. While I note Mr Sullivan claimed he has learned from his experience and will run the business differently in the future, I am not satisfied he has demonstrated any genuine insight into his errors. In particular, he has continued to attempt to defend the indefensible behaviour that resulted in the criminal convictions against him in 2010. The regulatory system cannot function if individual participants are dishonest, and behaviour that suggests an individual is not committed to being open and honest with the regulator is of grave concern. I think a banning order is the only appropriate course; I do not have any confidence Mr Sullivan would rapidly and diligently address the shortcomings that have been identified if he were merely suspended. A banning order will protect the public from the risk he poses.

22. ASIC’s Regulatory Guide 218 – Licensing: Administrative action against persons engaging in credit activities suggests (at table 2 on p 19 of the guide) the factors which might be taken into account when determining the specific period of banning. There is no reason why I should not apply that policy: Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 per Brennan J at 644. I accept Mr Sullivan does not have a prior record of misconduct, and that the company’s customers were not out-of-pocket after refunds were given. I also note his promises to run the business differently in the future. Even so, the conduct I have found includes dishonesty. The table suggests a banning order of 3-10 years is appropriate. In all the circumstances, I think Mr Sullivan should be banned for five years given the dishonesty was of a serious kind and the applicant does not appear to have accepted responsibility or expressed genuine contrition or insight into his offending.

    ASIC’S DECISION TO CANCEL THE LICENCE OF SAME DAY MONEY PTY LTD

23. The power to suspend or cancel a licence after a hearing is found in s 55 of the Credit Act. The general criteria governing the exercise of the discretion are found in s 55(1). Three of the criteria are potentially relevant in this case:

    (a) the licensee has contravened an obligation under section 47 (which deals with general conduct obligations of licensees); or

    (b) ASIC has reason to believe that the licensee is likely to contravene an obligation under that section; or

    (c) ASIC has reason to believe that the licensee is not a fit and proper person to engage in credit activities; …

24. Where the decision-maker is considering the application of criteria (b) and (c) to a corporation, s 55(2) says one must consider a range of matters including:

    (b)…

    (i) the matters set out in paragraphs 37(2)(a) to (f) in relation to the person; and

    (ii) whether ASIC has reason to believe that any of the persons referred to in paragraph 37(2)(h) in relation to the person is not a fit and proper person to engage in credit activities;

    (c) any criminal conviction of the person, within 10 years before the licence is proposed to be suspended or cancelled;

25. As it happens the matters referred to in s 37(2)(a)-(f) are not relevant to the company. The real problem for the company lies in the role of Mr Sullivan. He is the sole director, officer and shareholder. He runs the company’s business, and is its responsible manager. I have already found he is not a fit and proper person and that he should be banned from engaging in credit activities for five years. It is difficult to see how the company could remain in business as a credit provider while Mr Sullivan remains a key person in the operation. The company has also failed to meet its obligations under the credit legislation, as evidenced by:

    ·its convictions under ss 46 and 47 of the Consumer Credit (Queensland) Act 1994,

    ·the purported authorisation of Lawvan to act as a representative which is a contravention of s 69 of the Credit Act;

    ·offering credit with interest that exceeded the statutory cap in contravention of s 32 of the Credit (Commonwealth Powers) Act 2010.

1. In all the circumstances, I am satisfied the company has contravened its obligations under s 47 of the Credit Act and – given its own convictions and the record of Mr Sullivan – it is not a fit and proper person to hold a credit licence. I do not think a licence suspension would be appropriate while Mr Sullivan remains involved in the company: if the company were to come under new, independent management, the situation might be different. For now, the objectives of the legislative scheme and the licensing regime that I have already discussed make it clear the only appropriate course is to cancel the Australian Credit Licence of Same Day Money Pty Ltd.

   CONCLUSION

2. I have varied the decision to ban Mr Sullivan from engaging in credit activities from four years so that he is now banned from engaging in credit activities for five years. I affirm the decision to cancel the Australian Credit Licence of Same Day Money Pty Ltd.

3. There is an interesting question over whether the company needs the benefit of a further stay in order to finalise existing contracts. It has had the benefit of a stay order in relation to the decision while these proceedings have been on foot. On one view, the company may be entitled to collect any monies owing under the existing contracts and deal with those contracts following a cancellation without breaking the law. Unfortunately, I did not have the benefit of a contested argument on this question. In those circumstances, and to avoid doubt, I conclude the decision to cancel the Australian Credit Licence shall not take effect until 28 days after the date of this decision to allow the company time to finalise or assign any outstanding contracts provided that the applicant does not solicit or enter into any new business during that period.        

I certify that the preceding 28 (twenty -eight) paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe.

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Associate

Dated  23 August 2013

Date of hearing	11 June 2013
Applicant	In person
Counsel for the Respondent	Mr G Coveney
Solicitors for the Respondent	ASIC