Mehajer and Australian Securities and Investments Commission
[2016] AATA 621
•19 August 2016
Mehajer and Australian Securities and Investments Commission [2016] AATA 621 (19 August 2016)
Administrative Appeals Tribunal
ADMINISTRATIVE APPEALS TRIBUNAL )
) No: 2015/5815
TAXATION AND COMMERCIAL DIVISION )Re: Salim Mehajer
Applicant
And: Australian Securities & Investments Commission
RespondentDIRECTION
TRIBUNAL: Deputy President J W Constance
DATE OF CORRIGENDUM: 13 June 2018
PLACE: Sydney
IT IS DIRECTED, in accordance with subsection 43AA(1) of the Administrative Appeals Tribunal Act 1975, that the text of the decision in this application is to be altered such that the reference to “Solicitors for the Respondent” on page 24 of the decision is replaced with “Solicitors for the Applicant”.
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J W Constance
Deputy President
Division
Taxation & Commercial Division
File Number
2015/5815
Re
Salim Mehajer
APPLICANT
And
Australian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal Deputy President J W Constance
Date 19 August 2016 Place Sydney The reviewable decision made on 29 October 2015, being the decision of the Australian Securities and Investments Commission that Mr Mehajer be disqualified from managing corporations for three years from the date of service of notice of that disqualification, is affirmed.
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J W Constance
Deputy PresidentCATCHWORDS
CORPORATIONS - disqualification from managing companies - power to disqualify enlivened - where two companies wound up - where companies were related - whether disqualification justified - failure to exercise due care and diligence as a director - failure to keep adequate company records - hindering and delaying liquidation process - whether disqualification in the public interest - length of disqualification - reviewable decision affirmed
LEGISLATION
Corporations Act 2001 (Cth) ss 108, 206F, 286, 344(1), 475(5), 530A
CASES
Gabay and ASIC [2014] AATA 425
Guss and ASIC [2006] AATA 401
Minister for Immigration and Citizenship v Khadji and Another [2010] FCAFC 145
Quinliven v Australian Securities Investment Commission [2010] FCAFC 161Quinlivan and ASIC [2010] AATA 113; (2010) 113 ALD
REASONS FOR DECISION
Deputy President J W Constance
19 August 2016
INTRODUCTION
In 2008 SM Project Developments Pty Limited (“SMPD P/L”) and SM Engineering & Constructions Pty Limited (“SMEC P/L”) were incorporated. From the time of incorporation Mr Mehajer was a director of each company. He continued in these respective roles until the companies were wound up.
SMPD P/L was wound up on 22 February 2013. SMEC P/L was wound up on 5 July 2013.
As a consequence of these windings up and events which followed, on 29 October 2015 the Commission decided to disqualify Mr Mehajer from managing corporations for three years. The disqualification period commenced on 5 November 2015, being the day on which notice of the decision was given to Mr Mehajer.
Mr Mehajer has applied to the Tribunal to review the Commission’s decision. For the reasons which follow the decision under review will be affirmed.
There has been agreement between the parties as to most of the relevant facts in this matter. Unless stated otherwise, the findings of fact set out in these reasons are reproduced from the Statement of Facts and Contentions filed on behalf of the Commission and agreed to by Mr Mehajer in the Statement of Facts and Contentions filed on his behalf.
LEGISLATION
Section 206F of the Corporations Act 2001 (Cth) provides:
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.
…
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.
…
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.
THE ISSUES
It is not in dispute that the power to disqualify given to the Commission (and to this Tribunal in reviewing the Commission’s decision) has been enlivened. The conditions precedent to the exercise of the power in section 206F have been met.
The following issues arise for determination.
(a)Is disqualification of Mr Mehajer from managing corporations justified?
(b)If so, what is the appropriate period of disqualification?
THE GROUNDS UPON WHICH THE COMMISSION CONTENDS THE DISQUALIFICATION OF MR MEHAJER IS JUSTIFIED
The Commission relied upon the following grounds in support of its contention that Mr Mehajer should be disqualified:
(i)he failed to exercise the required due care and diligence as a director of SMPD P/L and SMEC P/L in contravention of section 180 of the Corporations Act;
(ii)he failed to ensure that SMPD P/L kept adequate records as required by section 286 of the Corporations Act in contravention of subsection 344(1) of that Act;
(iii)he hindered and delayed the liquidation process in relation to SMPD P/L and failed to assist the liquidator in relation to that process;
(iv)he failed to disclose to the Federal Court or the liquidator that the proofs of debt lodged in the liquidation of SMPD P/L were fabricated when he became aware of that fact.
CONSIDERATION OF THE GROUNDS
The requirement in subsection 206F(2)(a) that regard must be had to whether SMPD P/L and SMEC P/L were related to one another
The Commission concedes that the two companies were related to each other for the purposes of the Act. Although this point was not argued, I shall proceed on this basis as it may be to Mr Mehajer's advantage for this to be so.
In Gabay and ASIC[1] Deputy President Tamberlin found that two companies were related by reason of their common shareholdings and directorships. In this matter Mr Mehajer was a director of each company at all relevant times.
[1] [2014] AATA 425 at para.17.
However the Full Court of the Federal Court referred to the difficulty in determining when two companies are “related’ in Quinliven v Australian Securities Investment Commission[2]:
There is some difficulty in defining the term “related” in s 206F(2). It may depend upon the definition of the term “related entity” in s 9 of the Act or upon the definition of the term “related body corporate” in s 50 of the Act. However it does not matter for present purposes. In our view the Tribunal simply assumed that most, if not all, of the companies in question were related, and that they were acting together in conducting their businesses. The Tribunal understood that the purpose of the requirement in s 206F(2)(a) was to ensure that a person was not disqualified simply because two or more corporations, engaged in the same enterprise, had failed. That view of the provision has not been challenged on appeal. The Tribunal’s assumption was plainly in Mr Quinlivan’s favour. Treating such relationships as established, the Tribunal then concluded that they did not cause it to take a different view of Mr Quinlivan’s conduct as a director. The Tribunal pointed out that the way in which the business of the group had been conducted had contributed to the likelihood of failure. Further, Mr Quinlivan had allowed one company in the group to go into liquidation although he need not have done so.
[2] [2010] FCAFC 161 at para. 39.
The parties differ as to the significance of the companies being related. Nevertheless it is clear that I must have regard to this circumstance.
It was argued on behalf of Mr Mehajer that the contrast between “must have regard to” in paragraph (a) of subsection 206F(2) and “may have regard to” in paragraph (b) of the same subsection signifies that the relationship of the companies ought to be accorded substantial weight in determining whether a disqualification is justified and, if so, the length of the disqualification period. The power to disqualify under section 206F is only enlivened in circumstances where a person has been an officer of at least two corporations and those corporations have both been wound up. I was referred to the observation of the Tribunal in Guss and ASIC[3] that this section is aimed at the person who is a “persistent failure”. In Quinlivan and ASIC[4] the Tribunal said “the operation of this section is triggered by evidence of a pattern of failure”.
[3] [2006] AATA 401 at [48]
[4] [2010] AATA 113; (2010) 113 ALD 599 at [70] – [71], [74].
As has often been said, the starting point in interpreting the words of a statute is the words actually used. In section 206F the words are “corporations …… related to one another….”. Whilst expressions used in particular decisions are appropriate in applying the law to particular facts, those expressions, so far as they do not appear in the statute, do not replace the words of the statute itself. Section 206F does not require that there be shown to have been a “pattern of failure” or “persistent failure”. What the section does require is that the decision-maker have regard to the fact that the companies were related, if this was the case. He or she is required to consider any relevant matter which arises from that fact, if established.
In Minister for Immigration and Citizenship v Khadji and Another[5] the Full Court of the Federal Court said, in part:
We respectfully agree with Sackville J in [Singh v Minister for Immigration and Multicultural Affairs (2001) 109 FCR 152] where his Honour pointed out that the expression “have regard to” is capable of different meanings depending on the context. As his Honour said at [54]:
….. the phrase “have regard to” can simply mean to give consideration to something (Shorter Oxford English Dictionary). In this sense a direction to a decision-maker to have regard to certain factors may require him or her merely to consider them, rather than treat them as fundamental elements in the decision-making process.
[5] [2010] FCAFC 145 at para.61.
Subsection 206F gives the decision-maker a very broad discretionary power in that he or she may have regard to any matter considered appropriate. In the absence of clear words in the statute indicating that the relatedness of two or more corporations must be given special weight, I can see no justification for such an interpretation.
Did Mr Mehajer fail to exercise due care and diligence as a director of SMPD P/L and of SMEC P/L in contravention of section 180 of the Corporations Act?
Facts
SMPD P/L was wound up with two unsecured creditors with an estimated debt exceeding $887,000, which included an Australian Tax Office liability of $886,701.71.
The ATO tax liability comprised:
(a)$884,379.71 for a running account deficit debt in respect of business activity amounts; and
(b)$2,322 for a judgment debt.
SMPD P/L incurred its tax liability as follows:
(a)in May 2010, SMPD P/L sold 9 individual townhouses at 30-32 Livingstone Road, Lidcombe (“the Lidcombe property”) for $4,475,000.00 including GST of $315,183.00;
(b)SMPD P/L failed to declare the GST payable on the sale of the Lidcombe property in that:
(i)its May 2010 business activity statement lodged with the ATO on 6 June 2010 recorded “nil” for the tax period when the Lidcombe property was sold; and
(ii)its business activity statements from 1 December 2009 to 31 March 2011 lodged with the ATO recorded “nil” for GST payable;
(c)in its 2010 income tax return SMPD P/L reported a payment to associated persons of $899,000.00, which was apparently directors fees, but did not withhold $400,075.00 in PAYG tax; and
(d)claimed input tax credits totaling $36,500.00 for payments to SMEC P/L in October and November 2009, after SMEC P/L’s registration for GST was cancelled.
In 2012, the ATO conducted an audit of SMPD P/L’s tax affairs for the period 1 July 2009 to 30 June 2011. On 30 April 2012 (after the audit commenced) SMPD P/L lodged an amended business activity statement for the tax period 1 to 31 May 2010 to report GST payable referred to above.
On 3 July 2012, the ATO notified Mr Mehajer (as the Public Officer of SMPD P/L) of the following:
(i)SMPD P/L had a business statement activity liability of $351,690.00; and
(ii)$382,224.50 in penalties had been imposed.
On 13 August 2012, SMPD P/L’s accountant lodged with the ATO a request to waive the penalties. On 6 September 2012, the ATO informed the accountant that the request had been refused.
On 3 October 2012, the ATO served a statutory demand on SMPD P/L at its registered office at 1A Childs Street, Lidcombe. On 4 December 2012, the ATO applied to wind up SMPD P/L. The company was wound up on 22 February 2013. The ATO debt was still outstanding.
Between June 2012 and December 2012 the Applicant used SMPD P/L’s money to make the payments set out in the Table below, rather than pay SMDP’s debt to the Tax Office. At the time Mr Mehajer acknowledged that the GST component of the debt was owed by SMDP P/L; he was only seeking to negotiate the penalties and interest.
Date Amount Payee/Recipient 01/06/12 17,5000.00 Cash 01/06/12 3,000.00 Salim Mehajer 04/06/12 1,980.00 Gemstar Automotive 04/06/12 21,000.00 Alaaeddin Maezouk Salama Elsayed Ramadan 06/06/12 50,932.06 Cash 28/06/12 5,000.00 Lightstream Electrical & Excavations 02/07/12 1,600.00 Mohammad Kanj T/As M K Eagle Tyre Services 03/07/12 1,100.00 ChameeonFX Studio 06/08/12 1,100.00 Stoneart Aust Pty Ltd 31/10/12 70,000.00 Cash/Tenjay Pty Ltd 01/11/12 51,702.50 Premier Pools Pty Ltd 02/11/12 9,350.00 Cash 06/11/12 60,000.00 Cash 06/11/12 54,000.00 Cash 08/11/12 2,650.00 Cash 08/11/12 13,500.00 Cash 09/11/12 13,850.00 Cash 16/11/12 4,800.00 Cash 16/11/12 7,500.00 Cash 22/11/12 2,600.00 Medya Media Pty Ltd T/As Turkish News Weekly 23/11/12 8,380.00 Cash 27/11/12 6,435.00 Mance Arraj Engineering Pty Ltd T/As HKMA Engineers 28/11/12 2,600.00 Gadaila Pty Ltd T/As AGR Tyres & Wheels 30/11/12 5,000.00 Salim Mehajer 30/11/12 5,800.00 Salim Mehajer 03/12/12 27,000.00 Cash 03/12/12 10,000.00 Cash 03/12/12 20,000.00 Rafi Noori 04/12/12 20,000.00 Ahmad Rima 05/12/12 50,000.00 Mary Kanj 05/12/12 20,000.00 Premier Pools Pty Ltd 07/12/12 10,000.00 Premier Pools Pty Ltd 20/12/12 2,500.00 Aysha Amelia Mehajer
Included in the payments referred to above are payments to Mr Mehajer's credit card totalling $8,800.00, cash withdrawals in excess of $275,000 and payments to Premier Pools Pty Ltd of over $81,000. The contract with Premier Pools Pty Ltd in respect of which the payments were made was for the construction of a pool at premises owned in part by Mr Mehajer. When examined by the Liquidator as to the payment to Premier Pools Pty Ltd, Mr Mehajer failed to give a satisfactory explanation as to the reason for this payment.[6]
[6] Exhibit R1 pp.843-844
SMEC P/L was wound up with 5 unsecured creditors with estimated debts totaling $448,419.86, which included an ATO liability of $159,026.74 for a running balance account deficit debt in respect of business activity amounts.
SMPD P/L failed to lodge the following documents with the ATO within the required time:
(a)annual GST return for the financial year ended 30 June 2011;
(b)income tax return for year ended 30 June 2011.
I am satisfied that Mr Mehajer and/or others on his behalf, made substantial payments from the funds of SMPD P/L at the same time as it was in debt to the ATO for GST in respect of the sale of the Lidcombe property. SMPD P/L failed to make provision for payment of the GST from the proceeds of the sale or from alternative sources. Instead it lodged with the ATO a Business Activity Statement indicating that no GST was payable.
During the hearing before the delegate of the Liquidator held on 21 July 2015[7], Mr Mehajer claimed that he did not intend to liquidate SMPD P/L. He also claimed that he wished to negotiate with the Tax Office to reduce the amount of the debt owing by having the interest and penalties waived. It was put on his behalf that in late 2012 he mistakenly operated under the belief that he was in a position to negotiate with the ATO by paying what he regarded as the tax owing and negotiating a waiver of the penalties.[8]
[7] Exhibit R1 p.104-186.
[8] Transcript 08/04/2016 p.3.
Mr Mehajer relied upon his affidavit filed in the Federal Court of Australia and which was lodged with the Tribunal by the Commission under section 37 of the Administrative Appeals Tribunal Act.[9]The affidavit was affirmed by Mr Mehajer on 30 June 2014; he was not questioned as to the contents of this affidavit before me.
[9] Exhibit R1 p.245.
In the affidavit Mr Mehajer states that in or about July 2012 he requested the companies’ accountant, Mr Diwaker, to prepare a letter to the ATO advising that the directors of SMPD P/L have agreed “on paying the GST owing to the exclusion of penalties and interest”.[10]
[10] Exhibit R1 p.246.
I am satisfied that Mr Diwaker wrote to the Australian Taxation Office on 13 August 2012 asking that the penalties and general interest charges be waived.[11] The letter included the following:
Mr Mehajar was at the time new to the business industry. He is the director of both company [sic] mentioned in the interim report. We had advised that the accounts of both companies’ had been mixed up unintentionally. The reason was when there was a payment due to suppliers; client had paid them from which ever company had funds available at the time and assumed that the expense belonged to the company from which it was paid from. This recklessness is also not denied by the client. ….. Also the client is willing to pay whatever GST and Income Tax they are liable for.[12]
[11] Exhibit R4 , annexure 5.
[12] Exhibit R4, annexure 5.
By letter of 28 August 2012[13] addressed to SMPD P/L at the Accountant’s address, the Deputy Commissioner of Taxation advised that the general interest charge would not be remitted and that the penalty amount of $108,600.40 was overdue which should be paid as soon as possible. SMPD P/L was advised further:
We also took into account the fact the company acquired property in July 2010 for a sale price of $870,000. Debtors who choose not to pay a taxation liability or use available funds to acquire assets or to pay other creditors basically delay payment of the tax debt by their own action.
Additionally, the primary debt remains unaddressed with no indication given as to how or when this will be paid.
[13] Exhibit R4, annexure 6.
On 13 December 2012 Mr Mehajer’s sister sent an email to Mr Diwaker asking him to confirm that a letter would be sent to the ATO advising that the directors had agreed to pay “the GST owing, excluding the penalty and interest fees charged.’[14]
[14] Respondent’s Additional Evidence p.312.
SMPD P/L was wound up on 22 February 2013. Mr Mehajer says that he was unaware of the winding up proceedings until 23 February 2013 when he received a telephone call from the Liquidator’s office. It appears that the reason for this was that the Commission had not been advised of a change of the address of the company’s registered office. Mr Mehajer says that he would have funded SMPD P/L to make payments had he been provided with the originating process.[15]
[15] Exhibit R1 p.247.
Counsel for Mr Mehajer referred me to a file note made by a member of the Liquidator’s office of a discussion with Mr Mehajer on 25 February 2013. The note included “object to it and pay can find payment from another company account”.[16]
[16] Exhibit A4, annexure8.
Conclusion
Based on the facts set out above I am satisfied that Mr Mehajer did fail to exercise due care and diligence as a director of both SMPD P/L and SMEC P/L. In reaching this conclusion I have had regard to:
·his failure to make proper provision for payment of the tax debts incurred by the companies;
·his failure to ensure that SMPD P/L lodged accurate tax returns in a timely manner;
·his failure to properly manage the expenditure of SMPD P/L so as to enable it to meet its liabilities and to avoid being wound up;
·his failure to ensure that SMPD P/L lodged the necessary notices to ensure that the address of its registered office for service of statutory demands and other documents were received by the company;
·his failure to ensure that SMPD P/L maintained proper records of its expenditure;
·his failure to ensure that the funds of SMPD P/L were used for the benefit of the company.
I am satisfied that these failures by Mr Mehajer were in contravention of section 180 of the Corporations Act 2001.
Did Mr Mehajer fail to ensure that SMPD P/L kept adequate records as required by section 286 of the Corporations Act in contravention of subsection 344(1) of that Act?
Facts
Following the winding up of the company Mr Mehajer was required to:
(a)provide the Liquidator with a report as to the affairs of the company (Corporations Act 2001 s 475(5)); and
(b)deliver to him books and records that related to SMPD P/L (s 530A).
Mr Mehajer failed to provide the liquidator with the report within 14 days of 26 February 2013 as required and did not do so until on or about 2 July 2013. He delivered limited books and records to the liquidator at the same time, but those books and records:
(a)in the opinion of the liquidator did not meet the standards expected of a company operating the type of business operated by SMPD P/L ;
(b)were inadequate and incomplete, in that :
othere were no up-to-date statements or management accounts;
othere was no debtor ledger;
othere was no correspondence with creditors and legal representatives;
othere were no source documents, such as invoices and ledgers; and
othere were no accounting information, books and records from 2010 onwards.
The books and records that Mr Mehajer provided to the Liquidator were insufficient in that:
(a)they did not explain cash cheque transactions and payments to various third parties and neither Mr Mehajer nor the liquidator was able to ascertain the purpose of some transactions;
(b)the liquidator was unable to properly adjudicate on creditor claims;
(c)the Liquidator was unable to determine the extent of the liabilities of SMPD P/L;
(d)the Liquidator was unable to prepare accounts for the company.
On 25 June 2014, Mr Mehajer engaged GBR Accounting to prepare SMPD P/L’s financial records for 2011, 2012 and 2013, which were also provided as supplementary materials to the Liquidator.
Conclusion
On the basis of the facts set out I am satisfied that Mr Mehajer failed to ensure that SMPD P/L kept adequate records in contravention of subsection 344(1) of the Corporations Act 2001.
Did Mr Mehajer hinder and delay the liquidation process in relation to SMPD P/L and fail to assist the liquidator in relation to that process?
Facts
On 10 September 2013, Mr Mehajer pleaded guilty and was convicted of the offences of:
(a)failing to provide a report to the liquidator within 14 days of the winding up order and was fined $500; and
(b)failing to provide all the books and records in his possession to the liquidator as soon as practicable after the winding up order.
Conclusion
Based on these convictions and the evidence referred to earlier in these reasons, I am satisfied that the lack of properly maintained books and records; the delay in eventually providing the books and records and the failure to provide the required report affected the liquidator's ability to conduct the liquidation process.
Did Mr Mehajer fail to disclose to the Federal Court or the Liquidator that the proofs of debt lodged in the liquidation of SMPD P/L were fabricated once he became aware of that fact?
Facts
On 29 January 2014, at the first meeting of the creditors of SMPD P/L, the legal representative of the company presented the liquidator with 27 proofs of debt, of which 15 were related party claims. These facts were not agreed but Mr Mehajer did not give evidence to contradict the assertions on behalf of the Commission. On the basis of the liquidator’s report I am satisfied of the facts alleged by the Commission in this paragraph.
Mr Mehajer did not verify the accuracy of these 27 proofs of debt before they were lodged.
With respect to the unrelated party claims a review by the Liquidator as at 4 August 2014 disclosed the following inconsistences:
(a)$252,450 was claimed by A-Link Technology for IT services in circumstances where SMPD P/L did not own any computers at the date of the liquidation or at the date the invoice was raised;
(b)$87,477 (GST inclusive) was claimed by ALM Homeproducts Pty Ltd in circumstances where the invoice was not in the format of a complying tax invoice and the creditor was not registered for GST;
(c)$60,500 was claimed by Anping Yan in relation to 38 John Street, Lidcombe (a property owned by SMPD P/L) which was not purchased by SMPD P/L until after the date of the invoice;
(d)$88,000 was claimed by Aysha Learmonth in circumstances where the invoice had discrepancies as to the registered name of the business;
(e)$42,350 (inclusive of GST) was claimed by Nikee Sawyer in circumstances where GST registration did not occur until after the date of the invoice;
(f)$198,000 was claimed by Moshy Furniture Pty Ltd in circumstances where at the date of the invoice in 2009 the company’s name was Iraqi Marketing Pty Ltd and the name change did not occur until 2012;
(g)$169,070 was claimed by Pacific Buildings Development Pty Ltd where the invoice was not in a format that complied as a tax invoice;
(h)$9,900 was claimed by Trixle Group Pty Ltd for advertising on 3 March 2008 prior to the incorporation of that company and of SMPD P/L in May 2008; and
(i)$49,500 (inclusive of GST) was claimed by Zhinar Architects Pty Ltd in circumstances where the invoice was not a complying tax invoice and the company was incorporated after the date of the invoice.
With respect to the related party claims a review by the Liquidator as at 4 August 2014 disclosed the following inconsistences:
(a)$175,700 was claimed by Downtown Project Developments Pty Ltd in circumstances where an invoice for $22,440 was provided for the whole claim of $175,700;
(b)$118,500 was claimed by Mehajer Bros Pty Ltd for fit out and technical equipment for 38 John Street, Lidcombe in circumstances where an independent valuation report indicated that there was no such fit out or equipment;
(c)$132,000 was claimed by S.E.T Services Pty Ltd for ducted air conditioning at 38 John Street in circumstances where an independent valuation report indicated there was no ducted air conditioning at the property;
(d)$139,700 was claimed by Sydney Project Group Pty Ltd which was dated 24 April 2011 in circumstances where the company was not incorporated until 21 February 2012;
(e)$173,500 was claimed by Zenah Project where an invoice of $38,500 is provided for the whole claim and did not comply with a tax invoice;
(f)$82,500 was claimed by Khadijah Mehajer for secretarial services in circumstances where the invoice was dated after GST registration had been cancelled;
(g)$59,400 was claimed by Khaled Mehajer for waterproofing of 38 John Street in circumstances where the invoice is dated prior to the purchase of 38 John Street; and
(h)$446,994 was claimed by Mohammed Mehajer and Amal Mehajer in circumstances where two different tax invoices ($215,994 and $187,000) relating to 38 John Street were dated prior to the date the property was purchased;
With respect to the related party claims:
(a)Mr Mehajer was a director and shareholder of each of the following companies:
oDowntown Project Development Pty Limited;
oMehajer Bros Pty Limited;
oS.E.T Services Pty Limited;
oSydney Project Group Pty Limited; and
oZenah Project Developments Pty Limited;
(b)Mr Mehajer’s own proof of debt, for $180,000; was signed by him and was not accompanied by any supporting material;
(c)Mr Mehajer signed the proof of debt form in respect of the claim by Mehajer Bros Pty Limited.[17]
[17] This allegation was not admitted by Mr Mehajer. I am satisfied of this fact based on the Liquidator’s Supplementary Report. Mr Mehajer did not give evidence contradicting this allegation.
The Liquidator was unable to determine the validity of the creditors’ claims on the basis of the books and records that Mr Mehajer provided to him and taking into account the inconsistences.
The Liquidator issued notices for public examinations to the directors of SMPD P/L and a number of the purported creditors. After the notices for the public examinations were issued, the Liquidator was advised that:
(a)three claimed creditors had never worked with the company and did not have debts owed by the company;
(b)one creditor had a debt owed by a related company but was advised to seek payment in respect of this liquidation.
On 30 June 2014, Mr Mehajer commenced proceedings in the Federal Court to stay the liquidation. In the course of the stay application, Mr Mehajer swore affidavits dated 30 June 2014 and 10 July 2014.
On 5 or 8 September 2014, an interlocutory application was filed seeking to discharge a number of purported creditors from the public examination proceedings. An affidavit affirmed by Mr Ahmad Yaseen (described as SMPD P/L’s General Manager/Sub-contractor) was filed in support of the application. In the affidavit, Yaseen affirmed that he completed 20 of the proofs of debt which were submitted to the Liquidator on 29 January 2014.
The public examinations commenced on 9 September 2014 and the following admissions were made by Mr Yaseen:
(a)he created about 20 false proofs of debt, invoices and proxies and he signed them on behalf of the purported creditors without authority;
(b)at some point after 6 May 2014 but before 30 June 2014 he told Mr Mehajer what he had done.
In the Statement of Facts and Contentions filed on his behalf, Mr Mehajer did not agree with the allegation that he knew of the falsity of the claims before 30 June 2014. Mr Mehajer did not give evidence in relation to this allegation. However during questioning by the delegate on 10 September 2014 he said that by June 2014 he was aware that some of the proofs of debt had been forged by Mr Yaseen.[18]
Conclusion
[18] Exhibit R1 p.921.
On this basis I am satisfied that Mr Mehajer was aware of the forgeries no later than June 2014 and failed to disclose this information to the Liquidator and to the Federal Court at the earliest opportunity available to him. In addition he failed to disclose this information in the affidavits affirmed by him on 30 June 2014 and 10 July 2014.
In the absence of evidence from Mr Mehajer I am unable to determine when he first became aware that some of the proofs of debt were false. I am satisfied that at least he was careless when he perused the proofs before they were presented to the Liquidator.
DISCUSSION REGARDING DISQUALIFICATION
In considering whether a disqualification is appropriate in the circumstances of this matter it is not the role of the Tribunal to punish Mr Mehajer for any conduct found to be contrary to the Act or otherwise inappropriate. The purpose of any disqualification imposed is to protect members of the public and public institutions from such conduct. As is set out in section 206F I may have regard to Mr Mehajer’s conduct “in relation to the management, business or property” of the companies involved, and “whether the disqualification would be in the public interest”. I may also have regard to any other matters considered appropriate.
It is not necessary that I determine whether Mr Mehajer's conduct was in breach of any of the provisions of the Corporations Act. However, as I have found that his conduct did breach sections of the Act this is a relevant factor to take into account[19]
[19] Guss and Australian Securities and Investment Commission [2006] AATA 401 at [45]-[49] inclusive.
I am satisfied that Mr Mehajer’s management of both SMPD P/L and SMEC P/L together with his conduct in relation to their business and property, fell far short of what is reasonably expected of a director.
I do not accept that Mr Mehajer was unaware that SMPD P/L was liable to make a substantial payment of GST as a result of the sale of the Lidcombe property. He was not a newcomer to business at the time of this transaction. Whatever his knowledge of the return prepared by the accountant, it was his responsibility as a director to ensure that an accurate return was lodged.
During the examination of Mr Mehajer on behalf of the Liquidator Mr Mehajer was questioned as to his knowledge of the payment of $899,000.00 to the directors of SMPD P/L. His response in part was:
I - again, I would not be able to comment on that because my lack of understanding when it comes to accounts – now – and the accounting field. Now, I can’t really comment on that – whether it’s an issue or not. I’ve never – I’ve never been interpreted or guided that this is an issue.
…..
My explanation as mentioned earlier is I believe is due to the incompetence from the accountant.[20]
[20] Exhibit R1 pp.850-852.
Once SMPD P/L incurred the tax liability, Mr Mehajer was personally responsible for the payment of large sums of money by the company for which he can offer no reasonable explanation. These included the payment of over $81,000.00 for a swimming pool installed at premises at least part-owned by him personally. I am satisfied that Mr Mehajer was aware that this was not a proper use of the company’s funds.
Mr Mehajer either instituted many transactions, or at least authorised them by signing cheques, depleting the company’s funds at a time when it owed a significant debt to the ATO. Counsel for Mr Mehajer argued that Mr Mehajer wished to negotiate with the Tax Office in ignorance of the action taken to wind up the company. This may be so, but I do not consider that ignorance brought about by disregard of his responsibilities as an officer of the company excuses Mr Mehajer’s conduct. Although he made some, albeit limited, attempt to negotiate a settlement, he did so at all times on his own terms – that the Tax Office waive the penalties and interest imposed. If, as he said was the case, the company was in a position to pay the tax assessed, he did nothing to effect payment of at least this amount.
Further, it was put that “another important consideration …… when considering disqualification or its length, is that leaving aside the directors themselves, there is only one substantial creditor, namely the ATO.”[21] It was further argued that, at the date of liquidation, a very large proportion of the debt was represented by administrative penalties and interest. In my view this argument is without merit. There is no suggestion that the debt was incorrectly calculated. The fact that it was owed to the ATO does not reduce its importance nor somehow make it of less concern. Like all tax payers, the company was required by law to pay its proper contribution to the public coffers.
[21] Transcript 08/04/16 Mr Pathan p. 7.
Notwithstanding his protestations that he did not want SMPD P/L to go into liquidation, Mr Mehajer allowed SMEC P/L to suffer the same fate, at a time when it also owed a significant amount in tax. He did not offer any explanation as to why the funds, which he says are available but which were not used to at least reduce the SMPD P/L debt, were not used to prevent the liquidation of SMEC P/L, almost five months later.
I am satisfied also that Mr Mehajer failed to fulfil his obligation to ensure that SMPD P/L maintained proper records. I am satisfied that the Liquidator was unable to accurately determine the reasons for payments made from SMPD P/L and/or the recipients of those payments. I am satisfied that at least some of those payments, in particular payments made to Mr Mehajer’s credit card and payments for the swimming pool, were of direct benefit to him.
Mr Mehajer put forward as an excuse for his failure to act earlier in relation to the liquidation of SMPD P/L, his lack of notice of the proceedings. This was caused by the company’s failure to advise the Commission of a change in its registered office. Again, this is a matter for which Mr Mehajer was ultimately responsible.
Even after SMPD P/L was placed in liquidation, Mr Mehajer failed to comply with the law in that he failed to provide the necessary report and documents to the liquidator within the prescribed time. To this extent at least, he hindered the liquidator in carrying out his role.
Mr Mehajer denied responsibility for the conduct of others, and in particular for the conduct of Mr Yaseen who prepared the fraudulent proofs of debt. Even if Mr Mehajer had no knowledge of the preparation of these documents, it again illustrates a lack of management of the company. There is no explanation for Mr Mehajer’s delay in advising the Federal Court and the Liquidator of the forged proofs of debt.
Considerable weight was sought to be put on the argument that between 2010 and 2014 Mr Mehajer was between 24 and 28 years of age and had little practical experience in the matters in which he became involved. It was put that SMPD P/L and SMEC P/L were the first companies with which he was concerned and that the development in which they were engaged was the only business venture of any real size that he had undertaken to manage on his own account.
Rather than provide a reason for not disqualifying Mr Mehajer from acting as a director of a company for a period, this situation highlights the need for such a disqualification in the public interest as a means of protecting others from his incompetence. I am not satisfied that Mr Mehajer has learnt from his experience or that he has undertaken steps to improve his performance in future. Perhaps Mr Mehajer could have given evidence which may have informed me on these and other issues but he chose not to. At no time did I have the opportunity to assess his credibility in relation to any of the explanations for his conduct put forward on his behalf.
The most generous interpretation of the evidence in this matter is that Mr Mehajer adopted a cavalier approach to his management of the companies which included their responsibility to creditors and his duties to ensure that the companies met their legal obligations. He was also cavalier in his attitude to the disposal of the funds of SMPD P/L.
Earlier in these reasons I have set out why I take the view that it is not essential that there be shown to be a “pattern of failure” or “persistent failure” before it is appropriate to impose a period of disqualification. In this matter, most of the conduct which warrants disqualification was in relation to SMPD P/L. However, as I have already found, the preconditions for the exercise of the power to disqualify have been met.
In my view the conduct of Mr Mehajer in managing the affairs of SMPD P/L, together with his allowing SMEC P/L to be wound up also owing a significant tax debt, warrants disqualification. Should I be wrong in this approach I am satisfied that the conduct of Mr Mehajer in relation to the indebtedness of the two companies does demonstrate a pattern of failure.
For these reasons I have decided that the decision to disqualify Mr Mehajer from managing corporations is the preferable decision.
PERIOD OF DISQUALIFICATION
It was put on behalf of Mr Mehajer that the period of disqualification should be “substantially less than three years.”[22]There were no reasons advanced in support of this argument.
[22] Applicant’s Statement of Facts, Issues and Contentions para. 32.
Taking into account all of the evidence, I am satisfied that a disqualification of three years from 5 November 2015 is the preferable decision. Mr Mehajer's conduct was not so serious as to warrant the maximum disqualification, but a substantial period is appropriate to protect the public and to allow Mr Mehajer time to properly acquaint himself with the duties of a director of a company and his obligations to those with whom the company may transact. I take into account that Mr Mehajer argued that his conduct could be explained by his young age and inexperience. It would be of benefit to all concerned if he undertook formal training before again embarking on the management of the business of a corporation.
CONCLUSION
The reviewable decision made on 29 October 2015, being the decision of the Australian Securities and Investments Commission that Mr Mehajer be disqualified from managing corporations for three years from the date of service of notice of that disqualification, will be affirmed.
So that there is no confusion, the disqualification period shall be taken to have commenced on 5 November 2015.
I certify that the preceding 82 (eighty-two) paragraphs are a true copy of the reasons for the decision herein of Deputy President J W Constance.
.................[sgd].......................................................
Associate
Dated 19 August 2016
Dates of hearing 7-8 April 2016 Date final submissions received 8 April 2016 Counsel for the Applicant Mr P English and Mr G Rich Counsel for the Respondent Mr G Kennett and Ms A Avenell Solicitors for the Respondent Korn MacDougall Legal Pty Ltd
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