Mark Fawcett and Australian Securities and Investments Commission

[2009] AATA 346

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 346

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No. 2008/0982

GENERAL ADMINISTRATIVE DIVISION		)
Re		Mark Fawcett

Applicant

And Australian Securities and Investments Commission

Respondent

DECISION

Tribunal The Hon B Tamberlin QC, Deputy President

Date14  May 2009

PlaceSydney

Decision The decision under review is varied. Mr Fawcett should be disqualified and the appropriate term of disqualification under subsection 206F(3) of the Corporations Act2001 is a period of 15 months to operate from the date of service of notice of  this disqualification.

....................[sgd]..........................

The Hon B Tamberlin QC, Deputy President

CATCHWORDS

CORPORATIONS – Disqualification order from managing a corporation – whether applicant should be disqualified from managing a corporation – whether the disqualification period of the applicant is justified – the decision under review is varied

…

Corporations Act 2001 – sections 50, 206F, 1317B,

…

ASIC v Adler (2002) 20 ACLC 1146

Cullen v Corporate Affairs Commission (1989) 7 ACLC 121

…

REASONS FOR DECISION

14 May 2009 The Hon B Tamberlin QC, Deputy President

1. This is an application for review of a decision made by ASIC, dated 3 January 2008 that, under subsection 206F(3) of the Corporations Act 2001 (the Act), Mr Fawcett was disqualified from managing corporations for a period of three years without the leave of ASIC. This review application is brought under s 1317B(1) of the Act.

Section 206F provides:

206F  ASIC’s power of disqualification

Power to disqualify

(1)  ASIC may disqualify a person from managing corporations for up to 5 years if:

(a)  within 7 years immediately before ASIC gives a 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) (including that subsection as applied by section 526‑35 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006) 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)  To avoid doubt, the references in paragraph (1)(a) to corporations include references to Aboriginal and Torres Strait Islander corporations.

Grounds for disqualification

(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)  To avoid doubt, the references in subsection (2) to a corporation includes a reference to an Aboriginal and Torres Strait Islander corporation.

Notice of disqualification

(3)  If ASIC disqualifies a person from managing corporations under this section, ASIC must serve a notice on the person advising them of the disqualification. The notice must be in the prescribed form.

Start of disqualification

(4)  The disqualification takes effect from the time when a notice referred to in subsection (3) is served on the person.

ASIC power to grant leave

(5)  ASIC may give a person who it has disqualified from managing corporations under this Part written permission to manage a particular corporation or corporations. The permission may be expressed to be subject to conditions and exceptions determined by ASIC.

2.      A notice under s 206F(3) was issued on 3 January 2008 and served on 29 January 2008 so that the three-year disqualification operates from the latter date.

3.      On the hearing before me Mr Fawcett appeared in person and submitted that he should not have been disqualified or, alternatively, that the period of his disqualification was excessive.

Background Facts

4.      The factual background, subject to specific matters to which I refer below, is set out in the Delegate's decision and is as follows.

5.      In the last decade Mr Fawcett was an officer of four companies that were wound up. The liquidators reported that the companies may be unable to pay unsecured creditors more than 50 cents in the dollar.

6.      He was appointed a director of HBABPL Pty Ltd (HBABPL) on 26 February 1996 and ceased to be a director on 18 May 2006. The liquidator estimated that the dividend to unsecured creditors would be less than 11 cents in the dollar. Mr Fawcett was also a director of MGB Chadd Pty Ltd (Chadd) for the period 13 December 1993 to 18 May 2006. That company was wound up in May 2006 and the liquidator estimated that the dividend to unsecured creditors would be less than 11 cents in the dollar.

7.      Mr Fawcett was also a director of Murlform Pty Ltd (Murlform) for the period 23 October 2000 to 18 May 2006 and that company was wound up on 14 June 2006. Again the liquidator estimated that the dividend to unsecured creditors would be less than 11 cents in the dollar. Also, Mr Fawcett was a director of BNS Engineering Company Pty Ltd (BNS), in the period 31 January 2001 to 18 May 2006. That company was also wound up and the liquidator estimated that the dividend to unsecured creditors would be less than 11 cents in the dollar.

8.      In the decision of the Delegate, there is a detailed analysis and history of the financial position each of the companies and its management and its records. The Delegate reached the conclusion that Mr Fawcett had failed to ensure that this company paid its debts, including taxes_; and that this failure was a breach of the standards of commercial morality expected of persons in the position of a company director. The Delegate did not accept Mr Fawcett's submissions that Mr Fawcett was unable to assist the Administrator in relation to the companies’ records, due to his medical condition, in relation to financial records and the conclusion drawn was that financial and other records were either not kept or that the information was not given to the Liquidator.

9.      The Delegate found that Mr Fawcett failed to keep accounting records that showed the financial dealings of the company. The Delegate did not accept as sufficient the explanation proffered by Mr Fawcett as to the reasons why the company failed to keep financial records as required by the Act. Importantly, the Delegate was satisfied that the company was not able to meet its financial obligations and that Mr Fawcett permitted the company to trade while it was insolvent.

10.     In relation to the company HBABPL the liquidator reported that this company's failure was attributable to under-capitalisation and consecutive years of trading losses together with inadequate cash flow. Also he found that this company did not remit compulsory employer superannuation contributions from 1 July 2005 and did not pay New South Wales payroll tax as and when it fell due. The Delegate also found that Mr Fawcett permitted this company to trade while it was insolvent and found that Mr Fawcett failed to ensure that the company kept proper books and records and failed to deliver them to the administrator. Failure to pay statutory debts is an important adverse consideration: see Cullen v Corporate Affairs Commission (NSW) (1989) 7 ACLC 121 at 127.

11.     In relation to the company Murlform the Delegate found that Mr Fawcett failed to comply with his director's duties regarding the keeping of financial records and the payment of taxation liabilities. She made similar findings in relation to the company BNS.

12.     In reaching her conclusion as to disqualification the Delegate had particular regard to the fact that Mr Fawcett had permitted companies to incur debts in respect of two of the companies when he ought to have been aware that they were insolvent and that he failed to ensure payment of taxes, and the maintenance and retention of books and records together with the fact that he did not assist the liquidator. These were regarded as serious breaches of his duty as a director. Accordingly, the Delegate decided that the conduct warranted a period of disqualification for three years while noting that the maximum period was five years.

13.     The Delegate stated that the total deficiency of assets of the four corporations over liabilities as being a total of $14.1 million. Each company owed substantial debts to the Australian Taxation Office and significant amounts of superannuation entitlements were also owed.

Review Hearing

14.     The hearing on review is by way of hearing on the merits. I must determine what is the correct and preferable decision. Apart from written submissions by Mr Fawcett, a long list of health and psychological problems, and a number of alleged adverse experiences, and a report as to the question whether the corporations were “related”, no new evidence was placed before me. Mr Fawcett has made a number of specific complaints about the Delegate’s reasons for decision, which I have taken into account, and I now turn to deal with these.

15.     The first matter raised is an allegation that his medical condition was not taken into consideration. This is not correct. In fact, the extreme health problems which Mr Fawcett said prevented him from continuing to run his business were referred to in paragraphs 16, 23, 26, 27 and 55 of the Reasons For Decision. I am not persuaded they were not properly considered and I have taken them into account.

16.     In assessing whether a person's conduct in relation to the management, business or property of a corporation is acceptable, it is appropriate to take into account considerations relating to the person’s health, both physical and mental and also to mitigating circumstances such as might bear on an appraisal of the conduct of that person. However, having considered the detailed list of difficulties and medical conditions experienced by Mr Fawcett and making, due allowance for them, I consider that they are outweighed in the present circumstances by the specific matters referred to in the Delegate’s decision concerning the management of the corporations, and the apparent neglect of Mr Fawcett in relation to records. On the material before me I find these matters to have been established.

17.     The second matter advanced by Mr Fawcett was that the real value of the business was not taken into consideration and that one business was sold at a gross undervalue. Mr Fawcett did not produce any evidence which could reasonably support either allegation and accordingly I do not accept them as having any significance in my review in this application. A similar allegation of sale at an under-value was made by him in relation to the disposition of equipment on the basis that there had been inadequate advertising and management of the sale and also he referred to the removal of equipment. Again, Mr Fawcett did not produce any evidence or point to any specific matter which would warrant any significant weight being given to this allegation.

18.     In his written submission dated 27 July 2008 Mr Fawcett refers to a statement during an interview regarding the Tax Department and says it was taken out of context. But he did not press this, on the review before me, as having any significant weight.

19.     A third matter raised by him is the hardship which the disqualification has caused to him particularly having regard to the fact that he has been disqualified as a director from May 2006 as a consequence of his being made bankrupt. He submitted that when the period of disqualification under his bankruptcy is taken into account, together with the three year disqualification period under the Corporations Act 2001, the result is clearly excessive. There is an indication that he will be discharged from his bankruptcy in May 2009 and on the delegate’s decision he will be disqualified for a further period until 29 January 2011.

20.     Counsel for ASIC submits that this bankruptcy disqualification is not a significant consideration. However, in considering the relevant circumstances, it is appropriate to take it into account in deciding the period of disqualification under s 206F(3), because it bears directly on the protective effect of the appropriate disqualification period. The maximum prescribed period under s 206F of the Act is five years and having regard to the bankruptcy period the overall effect of the delegate’s decision will be to impose a period of disqualification on Mr Fawcett close to or about the maximum period.

21.     On the hearing before me Mr Fawcett has expressed regret and contrition in relation to the position of his employees, and I accept that subjectively he is appreciative of the impact of his actions and failures. However, as Counsel for ASIC correctly submits, the purpose of the disqualification provisions is to protect members of the public including employees and is not directed to penalise managers of corporations: see ASIC v Adler (2002) 20 ACLC 1146 at [85], and cases there cited. In this case she points out there have been serious breaches of duty and failures to comply with statutory provisions designed to protect the public from reckless conduct and disregard of basic commercial standards of management.

22.     I accept this submission and consider that there should be disqualification under s 206F but taking into account the bankruptcy disqualification I think that 15 months is appropriate.

23.     Mr Fawcett also challenged, on the review hearing, the Delegate’s finding that the total deficiencies in respect of the companies was in excess of $14 million and he said that at most the deficiency was in the order of $3 million. However, he did not adduce any additional evidence or point in detail to any specific evidence to make good this submission. His broad allegation was that there had apparently been double-counting in arriving at the figure of $14 million. In the absence of any detailed submission in relation to this matter I am not persuaded that the contention is made out. Moreover a deficiency in the order of $3 million which he accepts is a very large deficiency, and even if Mr Fawcett were correct on this lower figure it would not affect my conclusion.

24.     Mr Fawcett also contends that the four companies comprised a single group and that they are “related” and that this should be taken into account in evaluating the conduct. Counsel for ASIC says, and I agree, that the companies are not related within the meaning of s 50 of the Act and that therefore no weight can be given to this consideration. I do not consider that the companies are related within the meaning of s 50 of the Act.

25.     Even if the companies can be considered to be “related” by reason of common directorship and personal control by him, the conduct and failures of Mr Fawcett outlined above are such as to warrant a significant period of disqualification from management of corporations. In reaching this conclusion I have taken into account the view furnished by the applicant from Lawlor Partners as to whether the activities are related, and the fact that to some extent the activities were related in a general sense.

26.     Taking into account the material before me and the submissions, together with the fact that he has effectively been disqualified since his bankruptcy in 2006, I consider that Mr Fawcett should be disqualified and that the appropriate term of disqualification under ss 206F(3), is a period of 15 months to operate from the date of service of notice of this disqualification.

I certify that the 26 preceding paragraphs are a true copy of the reasons for the decision herein of  The Hon B Tamberlin QC,  Deputy President

Signed:         ..........[sgd]..................................
  Associate

Date/s of Hearing  20 April 2009
Date of Decision  14 May 2009
Appearance for the Applicant   Self-represented
Counsel for the Respondent     Ms M Allars
Solicitor for the Respondent     Mr C Walter;
  Australian Securities and Investments
  Commission