MIMA v Rajalingam

FEDERAL COURT OF AUSTRALIA

Australian Securities Commission v Forem Freeway Enterprises Pty Ltd
[1999] FCA 179

CORPORATIONS LAW – Company involved in retail sales of computers – respondent sole director and shareholder - large deposits paid by customers – failure to fulfil customers’ orders – inadequate financial records kept – information withheld from liquidator – absence of even informal record keeping – penalised for complaining – monies from customers often not banked – continuous stream of complaints – meagre attempts to remedy poor record-keeping – no material to rebut presumption of insolvency pursuant to s 588E – actual insolvency - company unable to pay debts as and when fell due – company cheques frequently dishonored – dishonesty and unreasonable behaviour – failure to keep financial records considered in relation to dishonest and unreasonable conduct – outstanding orders resulted in net liability – non payment of sales tax – absence of intention to defraud outright - does not preclude finding of unreasonable and dishonest behaviour – reasonable person would realise insolvency – conscious deception of customers – “cross-firing operation” – dishonest dealings with hire-purchase lender – trend in legislative regulation of greater concern to prevent directors’ misconduct – prohibition against managing corporation protective in nature – likely capacity of harm to public – prohibition not punitive – deterrence and hardship relevant to the question of penalty – legal capacity to manage not a matter of necessity but a privilege – whether permanent disqualification appropriate – no capacity to pay penalty – prejudice to rehabilitation considered – liberty to apply

Australian Securities Commission Act 1989: s 13
Bankruptcy Act 1966: ss 82(3AA), 149, 149A

Corporations Law:  ss 95A, 91A, 121, 286, 588E, 588G, 588H, 588J, 1317DA, 1317E, 1317EA, 1317EF, 1317F, 1317HA,

Chorley and Smart, Leading Cases in the Law of Banking (Sweet and Maxwell, London, 5^th ed, 1983) [referred to]

Friend v Corporate Affairs Commission and Another (1989) 7 ACLC 106 [cited]

NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 [referred to]

Re Tasmanian Spastics Association; Australian Securities Commission v Nandan (1996) 23 ACSR 743 [referred to]

Statewide Tobacco Services Ltd v Morley (1990) 2 ACSR 405 [cited]

AUSTRALIAN SECURITIES COMMISSION v FOREM-FREEWAY ENTERPRISES PTY LIMITED & ORS

NG 3199 of 1997

MADGWICK J
4 MARCH 1999
CANBERRA (HEARD IN SYDNEY)

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 3199 OF 1997

BETWEEN:	AUSTRALIAN SECURITIES COMMISSION Applicant
AND:	FOREM-FREEWAY ENTERPRISES PTY LIMITED First Respondent
NET ADMIN PTY LTD Second Respondent
KEITH DAVID MORTON Third Respondent

JUDGE:	MADGWICK J
DATE:	4 MARCH 1999
PLACE:	CANBERRA (HEARD IN SYDNEY)

THE COURT ORDERS THAT:

1.DECLARE pursuant to s 1317EA of the Corporations Law that the third respondent has contravened each of ss 232(2), (4) and 588G(2)(b) of the Corporations Law in relation to the first respondent by the following acts and omissions:

(a)procuring the solicitation and acceptance on behalf of the first respondent from members of the public of substantial sums…