LZ15 and Australian Securities and Investments Commission
[2016] AATA 247
•1 March 2016
LZ15 and Australian Securities and Investments Commission [2016] AATA 247 (1 March 2016)
Division
TAXATION AND COMMERCIAL DIVISON
File Number
2016/0912
Re
LZ15
APPLICANT
And
Australian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal Senior Member R W Dunne
Date 1 March 2016 Date of
Written Reasons19 April 2016
Place Adelaide The stay orders ought by the applicant pursuant to section 41(2) of the Administrative Appeals Tribunals Act 1975 (Cth) are granted. The operation and implementation of the decision under review is stayed and the respondent’s obligation pursuant to section 1274AA of the Corporations Act 2001 is stayed.
........... [Sgd] .......................................................
Senior Member R W Dunne
CATCHWORDS
PRACTICE AND PROCEDURE – applicant for stay of decision – relevant considerations – prospects of success – public interest – stay granted.
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth) ss 35, 41(1) and (2)
CASES
PQHL and Australian Securities Investments Commission [2015] AATA 1032
Australian Securities and Investments Commission v Administrative Appeals Tribunal and Another [2009] FCAFC 185
Australian Securities and Investments Commission v Adler [2002] NSWSC 483
Bundy v Australian Securities and Investments Commission [2013] AATA 59REASONS FOR DECISION
Senior Member R W Dunne
19 April 2016
INTRODUCTION
On 19 February 2016, the applicant applied to this Tribunal to review a decision of the Australian Securities and Investments Commission (“Commission”) disqualifying him from managing corporations for the period of three years (“Banning Order”), pursuant to s 206F(1) of the Corporations Act 2001 (Cth) (“Corporations Act”).
At the time he applied to the Tribunal for review of the decision, the applicant also applied for an order staying the execution of the Commission’s decision until the finalisation of the proceedings before the Tribunal. He also applied for orders in accordance with s 35 of the Administrative Appeals Tribunal Act 1975 (“AAT Act”) that:
(a)the applicant be referred to by pseudonym “LZ15” in all pleadings, statements, applications, affidavits and any other documents filed in this matter at the Tribunal;
(b)pending the determination of the review by the Tribunal against the Banning Order, the Commission be restrained from publishing or communicating in any way or by any means notice of the Banning Order;
(c)no person or entity other than the solicitors for the applicant and the respondent, its employees, solicitors, and counsel be granted access to the file in these proceedings, evidence or any material given by the applicant to the respondent and matters contained in documents lodged with the respondent without an order of the Tribunal;
(d)until further order of the Tribunal, the respondent is to remove all references to the decision under review from any of its publications, alerts and the public register;
(e)publication of the names of the applicant and of any material tending to identify him be restricted to the parties and their legal representatives; and
(f)all hearings in relation to the applicant and the respondent shall take place in private.
I heard these interlocutory applications on 1 March 2016 and the following directions were made:
Upon the undertaking given by the Applicant to this Tribunal (set out below) and until further order, the Tribunal orders:
1.Pursuant to s 41(2) of the Administrative Appeals Tribunal Act 1975 (Cth) (“the AAT Act”):
a.the further operation and implementation of the decision under review is stayed; and
b.the Respondent’s obligation pursuant to s 1274AA of the Corporations Act 2001 is stayed.
2.Pursuant to s 35 of the AAT Act:
a.the Applicant be described by a pseudonym for the purpose of the application;
b.publication of the name of the Applicant and or any material tending to identify him be restricted to the parties, their legal representatives, and the members and officers of the Tribunal in the course of their duties;
c.publication of the evidence given before the Tribunal and of matters contained in documents lodged with the Tribunal be restricted to the parties, their legal representatives, and the members and officers of the Tribunal in the course of their duties; and
d.to the extent necessary, the Respondent remove any reference to the decision under review from any of its publications, alerts and the Public Register.
IT IS NOTED that, upon granting the stay, the Applicant undertakes:
1.to refrain from acting as a director of any corporate entity pending the resolution of these proceedings;
2.to arrange for the appointment of two independent co-directors (i.e. directors who are not immediate family members, or related by marriage) in respect of the companies listed in the attached schedule described as Confidential Schedule 1 (which was forwarded to the Tribunal by the Applicant’s solicitors), within 7 days of the making of these orders;
3.to arrange for the filing of documents with the Respondent giving effect to paragraph 2 of this undertaking within 7 days of the making of these orders; and
4.not to use his shareholding(s) to remove an independent director pending further order.
I now provide in writing my reasons for making the stay orders.
BACKGROUND
The following facts are largely based on the respondent’s Outline of Submissions dated 1 March 2016, supplemented by the Outline of Applicant’s submissions also received on that day. As the hearing involved an interlocutory application for a stay pursuant to s 41(2) of the AAT Act the applicant was not present. During the course of the hearing, reference was made to affidavits filed by both the applicant and the solicitors for the applicant in relation to the making of the Banning Order. Unfortunately, these affidavits were not available to me for perusal, but their content was explained by counsel for the parties.
On 13 July 2015, the Commission’s delegate issued a notice to the applicant to demonstrate why disqualification pursuant to s 206F(1) of the Corporations Act should not occur. On 28 September 2015, the applicant’s solicitors made submissions to the Commission. On 18 February 2016, the Commission disqualified the applicant from managing corporations for the period of three years. On that day, the Commission’s delegate issued her reasons for decision. In considering whether the disqualification was justified, the delegate found that:
(a)The applicant had been a director of 18 companies that had been wound up with unsecured creditors in a seven-year period.
(b)There were unpaid statutory debts in relation to certain companies (Company A and Company B), including amounts unpaid to the Australian Taxation Office (“ATO”) by Company A and Company B.
(c)There was a failure to lodge income tax returns in relation to Company A.
(d)There was a failure to keep proper books and records in relation to Company A and Company B.
(e)There was a failure by certain of the companies to cooperate with liquidators.
Since 1980, the applicant has been in the scaffolding erection and labour hire business. The business is conducted through a group of companies, either directly or through family trusts. The applicant is described as the owner and operator of the companies and is a director, or director and secretary, of each or most of the companies in the group. The business directly or indirectly employs, or pays fees to approximately 40 sole traders, small companies or partnerships. It has 120 current contracts and/or projects in various stages of development. Some contracts/ projects are due to be completed within months. Some very large contracts/projects are unlikely to be completed in less than four years.
During the past 15 years, he has successfully built, and sold, more than 15 different developments in Queensland and New South Wales. Other than with respect to routine maintenance issues of a minor nature, none of the completed development projects has resulted in successful claims against, or complaints with respect to, the quality of the work performed, or the ethical integrity of the applicant. The overwhelming majority, in number and quantum, of suppliers of goods or providers of services on any project, in number and quantum, have been paid. No actions or suits, against the applicant, or any entity controlled by him has resulted from any of the completed projects.
The applicant’s main trading company in the scaffolding arm of the business has contracts to the value of over $3,000,000 per month, and is on target to produce a net profit from the 2016 financial year of between $3-4,000,000. It currently employs over 150 people and if the applicant is disqualified, that company is unlikely to survive. The applicant’s disqualification would also jeopardise all building contracts, current debt support from the bank and all building contracts currently in place. The entire group’s solvency is also directly dependent on the survival of the scaffolding business and the successful completion of the building projects under control of the applicant. The cash flow generated by the scaffolding business enables the development projects to be undertaken and completed despite the lengthy period during which there is a complete or partial absence of cash flow. Without that financial support, the development projects could not continue. The development projects could possibly survive the applicant’s disqualification, but the scaffolding business could not. The companies in the group will be in default pursuant to the terms of their scaffolding and building contracts. Trade and other unsecured creditors, many of whom are sole traders or small family businesses, will not be paid if the group ceases to carry on business. Approximately 250 full-time employees across the group will lose their jobs.
The applicant has consistently employed from 130 to 250 people at any time over the past 15 years, and has never failed to pay wages or other entitlements to any of his employees. Although companies associated with the applicant have been wound up, with debts to the ATO, those companies have not failed to discharge their obligations to the ATO in accordance with their legal obligations to employees.
Businesses conducted through the companies that are controlled by the applicant have turned over in excess of $500,000,000. From that turnover, wages of approximately $100,000,000 have been paid to employees. Approximately $200,000,000 has been paid to contractors and sub-contractors. Suppliers of materials have been paid approximately $150,000,000. Income, payroll and GST payments to the ATO over this period are in excess of $40,000,000. Bank debt of approximately $190,000,000 has been repaid in accordance with the bank’s requirements.
Prior to receiving the ASIC notice, the applicant was unaware of any suggestion that the liquidated companies had failed to provide their books and records to liquidators. Some of the individual insolvencies reveal a number of common features:
(a)the employees and contractors were paid their entitlements by the companies;
(b)as the absence of claims against, or arising out of the liquidations suggests, unsecured unrelated creditors were dealt with equitably, having regard to the impact of secured creditors’ charges over funds which were received by the companies; and
(c)in most cases, the applicant’s related companies remained as the largest unpaid unsecured creditors.
Most of the debts to the unsecured companies were to related companies within the group. As the ultimate beneficial owner of the group, directly or indirectly through family trusts, the applicant has personally borne, or will bear, a very substantial burden of the corporate debts which have influenced ASIC’s decision to issue the applicant with a notice pursuant to s 206F of the Corporations Act.
LEGISLATION
Subsection 41(2) of the AAT provides:
(2)The Tribunal may, on request being made by a party to a proceeding before the Tribunal (in this section referred to as the relevant proceeding), if the Tribunal is of the opinion that it is desirable to do so after taking into account the interests of any persons who may be affected by the review, make such order or orders staying or otherwise affecting the operation or implementation of the decision to which the relevant proceeding relates or a part of that decision as the Tribunal considers appropriate for the purpose of securing the effectiveness of the hearing and determination of the application for review.
CONSIDERATION
In deciding whether to grant the stay of the decision under review in this matter, I gained considerable assistance from the decision of Deputy President Constance in PQHL and Australian Securities and Investments Commission[1].As was made clear in PQHL, making an application to the Tribunal does not affect the operation of the decision under review: see subs 41(1) of the AAT Act.
[1] [2015] AATA 1032.
In Australian Securities and Investments Commission v Administrative Appeals Tribunal and Another,[2] the Full Court of the Federal Court considered the powers given to this Tribunal by subsection 41(2). The Full Court said, in part:
50The power in s 41(2) of the AAT Act is to make an order staying or otherwise affecting the operation or implementation of a decision under review. The power is conditional on the making of a request and the holding of an opinion by the AAT. The required opinion is that it is desirable to make the order. The AAT may only form this opinion after taking into account “the interests of any persons who may be affected by the review”..
51The nature of the decision under review will affect the identification of the “interests of any persons who may be affected by the review”…
53… For the AAT to form an opinion under s 41(2) of the AAT Act (that it would be desirable and in the “interests of any persons who may be affected by the review” to make an order staying or otherwise affecting the operation or implementation of ASIC’s decision) these elements of the statutory regime, and the balance between the competing interests that they represent, must be treated as a fundamental element in the weighing of the competing considerations…
[2] [2009] FCAFC 185.
The Commission’s Argument
As was detailed in the Commission’s Outline of Submissions in relation to the interlocutory application, in deciding an application under subs 41(2) it is appropriate for the Tribunal to have regard to the following issues:
(a)the applicant’s prospects of success of the application for review;
(b)the consequences for the applicant if the stay were, or were not granted;
(c)whether it is in the public interest to grant or refuse to grant a stay;
(d)the consequences for ASIC in carrying out its functions depending on whether a stay is granted or not and for those whose interests may be affected by the review; and
(e)whether or not the review application, if successful, would be rendered nugatory or pointless if a stay were not granted.
Analysis
Without having any of the evidence available, I was unable to form a view as to the prospects of success in the substantive application for review. As both parties acknowledged, it is not for the Tribunal to attempt to conduct a preliminary trial of the issues in a case such as this. It does not appear to be in dispute that some of the companies in the group owed significant sums for unpaid income tax and goods and services tax to the ATO. However, there may be many other factors to be taken into account at the substantive hearing.
On the material that is available, it is likely that the applicant’s business interests in the group will be significantly adversely affected before the final hearing, should the stay not be granted. Moreover, I am unable to take into account the possible effect on the applicant’s reputation and the consequent impact on the affairs of the businesses in the group.
In my view, the question of the public interest is again a major consideration in this application. Such was the case in PQHL, which involved similar factual situations. The applicant has controlling interests in companies within the group, being those companies in both the scaffolding arm and the developments arm. As was highlighted on behalf of the Commission, Santow J in Australian Securities and Investments Commission v Adler[3] noted that disqualification orders are designed to protect the public from the harmful use of the corporate structure or from use that is contrary to proper commercial standards. Moreover, as was noted by Deputy President Tamberlin in Bundy v Australian Securities and Investments Commission[4], the need to protect consumers and customers is a matter of particular importance when assessing public interest impacts. Again, for the Commission, it was submitted that there is a significant public interest in the Banning Order remaining in place which outweighs the consequences for the applicant if a stay were not granted.
[3] [2002] NSWSC 483
[4] [2013] AATA 59
Notwithstanding these considerations, which were of considerable weight in PQHL, in the applicant’s case they are in my view, on balance, outweighed by the public interest in protecting the employment of those employees of the companies and contractors working in both the scaffolding arm and the developments arm of the applicant’s businesses. With the undertakings that have been given by the applicant in paragraph 3 above, I am prepared to accept that the public interest sought to be advanced or protected by the Commission is in reality satisfied.
It is important that this matter can be heard by the Tribunal as soon as possible. The decision under review was made on 19 February 2016. The applicant applied for review on 19 February 2016, immediately after he was notified of the decision. Unfortunately, I am not in a position to know when the substantive application for review will be heard. However, I am confident that a final decision will be made without delay. The circumstances where the application for review was made promptly, where significant material in 17 or 18 folders has been provided in support of the applicant’s submissions and where relatively short time should elapse before hearing and final decision, all support the making of the stay order.
CONCLUSION
The stay orders sought by the applicant should be made.
I certify that the preceding 23 (twenty-three) paragraphs are a true copy of the reasons for the decision herein of Senior Member R W Dunne ........ [Sgd] .............................................
Admin Assistant
Dated 19 April 2016
Date of hearing 1 March 2016 Advocate for the Applicant
Solicitors for the Applicant
Mr I Coleman QC
Mr D Brown
Brown and Partners SolicitorsAdvocate for the Respondent
Solicitors for the Respondent
Ms N Hodgson
Mr A Paciocco
ASIC
Chief Legal Office, Melbourne
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