Negri v Director General, Department of Finance and Services - [2013] NSWADT 258

Administrative Decisions Tribunal

New South Wales

Medium Neutral Citation: Negri v Director General, Department of Finance and Services [2013] NSWADT 258
Hearing dates: 8 May 2013
Decision date: 19 November 2013
Jurisdiction: General Division
Before: S Montgomery, Judicial Member
Decision:
The decision under review is affirmed.
The decision is to take effect 28 days from the date of these reasons

Catchwords: Property, Stock and Business Agents Act - Real Estate agent - cancellation of licence - disqualified person - fit and proper person to hold a licence
Legislation Cited: Administrative Decisions Tribunal Act 1997
Property, Stock and Business Agents Act 2002
Property, Stock and Business Agents Regulation 2003
Cases Cited: Australian Broadcasting Commission v Bond (1990) 170 CLR 321
Clarke v Commissioner for Fair Trading [2004] NSWADT 273
Dalkic v Director-General, Department of Services, Technology and Administration (GD) [2010] NSWADTAP 78
Davidson v Commissioner for Fair Trading [2004] NSWADT 200
Hughes & Vale Pty Ltd v New South Wales (No 2) (1955) 93 CLR 127
McBride v Walton (NSW Court of Appeal, unreported, 15 July 1994
McDonald v Commissioner for Fair Trading [2004] NSWADT 124
McDonald v Director General of Social Security (1984) 1 FCR 354
Saglimbeni v Commissioner for Fair Trading, NSW Office of Fair Trading [2008] NSWADT 1
Category: Principal judgment
Parties: Mark Angelo Negri (Applicant)
Director General, Department of Finance and Services (Respondent)
Representation: Counsel
C Webster SC (Respondent)
M Negri (Applicant in person)
F Campora (Respondent)

File Number(s): 123223

reasons for decision

GENERAL DIVISION (S MONTGOMERY, (JUDICIAL MEMBER)): This is an application by Mr Negri, the Applicant, for review of a determination by a delegate of the Respondent, made on 9 August 2012, to take disciplinary action under section 198 of the Property, Stock & Business Agents Act 2002 ("the Act").

The Applicant has held a real estate agents licence issued under the Act since May 1999. The delegate determined to cancel the Applicant's licence; to declare him to be a disqualified person within the meaning of the Act until 8 February 2018; and to disqualify him from being involved in the direction, management or conduct of the business of a licensee until 8 February 2018.

The Applicant has applied to the Tribunal for external review of that determination. The Applicant has the benefit of a conditional stay of the disciplinary action pending determination of the matter.

The delegate reconsidered the matter following remittal pursuant to section 65 of the Administrative Decisions Tribunal Act 1997 ("the ADT Act"). On 25 March 2013 the delegate determined:

I affirm, in accordance with section 192(1)(g) of the Act, the decision to cancel licence number 800811 held by Mark Angelo Negri;
I affirm, in accordance with section 192(1)(h) of the Act, the declaration that Mark Angelo Negri to be a disqualified person for the purposes of the Act until 8 February 2018; and
I affirm, in accordance with section 192(1)(1) of the Act, the disqualification of Mark Angelo Negri from being involved in the direction, management or conduct of the business of a licensee until 8 February 2018.

The matter then came back before the Tribunal for determination.

Background

Negri Real Estate Pty Ltd ("Negri Real Estate") was the holder of corporation licence under the Act, from September 1999 until September 2011. The Applicant was Negri Real Estate's nominated licensee in charge.

The Applicant was the sole director of Negri Real Estate from 30 July 1999 until he resigned in February 2012. On 9 February 2012, the Applicant became an undischarged bankrupt as a result of a debtor's petition. A liquidator of Negri Real Estate was appointed on 10 February 2012. That appointment was a result of petitioner court action taken by the Australian Taxation Office. On 22 February 2012 Mr Said Jahani, from the firm Grant Thornton, was appointed joint receiver manager over certain assets of Negri Real Estate in connection with a charge held by the National Australia Bank ("the NAB").

The Applicant was previously a director of four other licensed corporations. In January 2004 the Applicant became a director of Homesearch Pty Ltd ("Homesearch"). In July 2006 the Applicant became a director of Gladesville Real Estate Pty Ltd ("Gladesville Real Estate"). In May 2007 the Applicant became a director of Property Solutions (Eastwood) Pty Ltd ("Property Solutions"). In September 2009 the Applicant became a director of Smith Brothers Realty Pty Ltd ("Smith Brothers").

Administrators and Receiver/Managers of Homesearch were appointed in August 2010. A liquidator of Homesearch was appointed in October 2010.

A Smith Brothers administrator was appointed in August 2010 and a liquidator was appointed in October 2010.

A liquidator of Gladesville Real Estate was appointed in November 2010 and Receiver/Managers were appointed in December 2010.

Receiver/Managers of Property Solutions were appointed in December 2010.

In March 2011, a notice to show cause ("the 1st NTSC") was issued to the Applicant under section 195 of the Act, on the basis that he was prima facie a disqualified person under the Act by virtue of the external administration of Homesearch, Smith Brothers, Gladesville Real Estate and Property Solutions.

In April 2011, a delegate of the Respondent was satisfied that the Applicant took all reasonable steps to avoid the corporations becoming externally administered bodies corporate within the meaning of the Act and that it was appropriate to certify an exemption to the Applicant's prima facie status as a disqualified person, pursuant to section 16(2B)(c) of the Act.

The licences of the four corporations were cancelled permanently in April 2011. The Applicant resigned as a director of those corporations in May 2011.

The Applicant was permitted to retain his personal licence under the Act and was entitled to remain licensee in charge and a director of Negri Real Estate. At the time, the Applicant was not personally bankrupt and Negri Real Estate was not under any form of external administration.

Until 28 May 2012, the Applicant was the nominated licensee in charge for two corporations formerly licensed under the Act - ACN 149 903 524 Pty Ltd - formerly known as Vivid Property Pty Ltd ("Vivid"); and Rental Administration Pty Ltd ("Rental Admin"). The Applicant was a director of Vivid from 17 March 2011 until 9 December 2011 and a director of Rental Admin from 27 May 2011 until 9 December 2011.

Vivid was the holder of a corporation licence from May 2011 until May 2012. Rental Admin was the holder of a corporation licence from June 2011 until June 2012. The Applicant was nominated as licensee in charge under the Act for both Vivid and Rental Admin until he resigned in May 2012.

On 25 May 2012 the licences of Rental Admin and Vivid were suspended under section 191(d) of the Act, based on the fact that neither corporation had any licensed directors. Mr Jahani was appointed as Manager to both corporations under section 126 of the Act from 25 May 2012,

On 14 June 2012 a second Notice to Show Cause ("the NTSC") was issued to the Applicant pursuant to section 195 of the Act. The NTSC was based on the grounds set out under subsection 191(a) and section 191(d) of the Act.

In respect of section 191(a), the Delegate relied on the Applicant's apparent failure to advise the Respondent of a change in location for his principal place of business within the prescribed timeframe of fourteen days. The Delegate also relied on an apparent breach of section 30 of the Act, which relates to the Applicant using the business name 'Vivid Property' - a business name that was not registered to the licence holder.

In respect of section 191(d), the Delegate relied on the Applicant's bankruptcy and the external administration of Negri Real Estate, which prima facie made the Applicant a 'disqualified person' within the meaning of section 16 of the Act.

The NTSC also raised grounds of fitness and propriety under section 14 of the Act.

On 15 August 2012, the Applicant was served with a direction under section 30(4) of the Act not to use any form of the business name 'Vivid' or 'Vivid Property' due to possible confusion for consumers.

Applicable legislation

The Act provides for the licensing, regulation and discipline of persons or companies carrying on a business in the real estate industry. The legislation is intended to regulate the industry and to provide a measure of protection to consumers in their dealings with the industry.

In this case, the Tribunal is undertaking a review of the merits of the original decision. The role of the Tribunal is to make the correct and preferable decision having regard to the material before it, including any relevant factual material and any applicable written or unwritten law. It then confirms the original decision, varies it or sets it aside: section 63 ADT Act. The Tribunal makes its own decision in place of that of the relevant administrator, and there is no presumption that the decision of the administrator is correct: McDonald v Director General of Social Security (1984) 1 FCR 354 at 357.

Section 14 of the Act provides that a person is eligible to hold a licence only if the Director-General is satisfied that the person:

...

(b) is a fit and proper person to hold a licence and each person with whom the person is in partnership in connection with the business concerned is a fit and proper person to hold a licence, and

...

(d) is not a disqualified person, and

...

Section 16 of the Act provides that under certain specified circumstances a person is a disqualified person for the purposes of this Act.

16 Disqualified persons

(1) A person is a disqualified person for the purposes of this Act if the person:

...

(1A) A person is also a disqualified person for the purposes of this Act (except for the purposes of eligibility to hold a certificate of registration) if the person:

(a) is an undischarged bankrupt, or

(b) at any time in the last 3 years was an undischarged bankrupt, applied to take the benefit of any law for the relief of bankrupt or insolvent debtors, compounded with his or her creditors or made an assignment of his or her remuneration for their benefit, or

(c) is, or was at any time in the last 3 years, concerned in the management of, or a director of, an externally-administered body corporate (within the meaning of the Corporations Act) except in a case of the voluntary winding up of the body corporate, or

...

(2B) The Director-General may exempt a person from the operation of subsection (1A) (a), (b) or (c) by:

(a) certifying, in the case of exemption from subsection (1A) (a), that the Director-General is satisfied that the person took all reasonable steps to avoid the bankruptcy concerned, or

(b) certifying, in the case of exemption from subsection (1A) (b), that the Director-General is satisfied that the person took all reasonable steps to avoid the bankruptcy or other financial difficulties concerned, or

(c) certifying, in the case of exemption from subsection (1A) (c), that the Director-General is satisfied that the person took all reasonable steps (while concerned in the management of, or a director of, the body corporate) to avoid the body corporate becoming an externally-administered body corporate.

...

(2D) In determining for the purposes of subsection (2B) or (2C) what reasonable steps could have been taken by a person to avoid a particular outcome, the Director-General is to have regard to the steps that could have been taken by the person from the time that the financial difficulties that gave rise to the outcome first arose.

...

Section 28 of the Act provides that a licensee must have a registered office within New South Wales. That section provides:

28 Registered office and address

(1) A licensee must have a registered office within New South Wales.

...

(3) The address specified in an application for a licence as the address at which the applicant proposes to carry on business (or, in the case of a licensee carrying on business at more than one place, the address specified in the application as the licensee's principal place of business) is taken to be the registered office of the licensee.

(4) Notice of any change in the location of the registered office must be lodged by the licensee with the Director-General within the time prescribed by the regulations.

Section 13A of the Property, Stock and Business Agents Regulation 2003 ("the Regulations") provides that for the purposes of section 28(4) of the Act, 14 days is prescribed as the time within which notice of any change in the location of the registered office must be lodged.

Section 30 of the Act relates to the use of a business name. That section provides:

30 Business names

(1) A licensee must not, either alone or together with other persons, carry on business as a licensee under a name or advertise or hold out that the licensee carries on business as a licensee under a name unless:

(a) the name consists of the name of the licensee and the name of each other person, if any, with whom the licensee is carrying on, or advertising or holding out that the licensee is carrying on, business as a licensee, or

...

(4) The Director-General may, by notice in writing to a licensee, direct that the licensee must not carry on business under a specified business name ...

Section 191 of the Act sets out certain grounds upon which disciplinary action can be taken against a person. It relevantly provides:

191 Grounds for disciplinary action

Disciplinary action under this Part can be taken against a person who is or was the holder of a licence or certificate of registration on any one or more of the following grounds:

...

(d) the person is a disqualified person or is otherwise not eligible under section 14 to hold a licence or certificate of registration,

(e) the person is not a fit and proper person to be involved in the direction, management or conduct of the business of a licensee,

...

(k) grounds specified in the regulations as grounds for the taking of disciplinary action against a person under this Act.

Section 192 of the Act sets out the types of disciplinary action that can be taken against a person. It relevantly provides:

192 Disciplinary action

(1) Each of the following actions is disciplinary action that the Director-General can take against a person under this Act:

(a) caution or reprimand the person,

(b) give a direction to the person requiring the person to give a specified undertaking to the Director-General as to the manner in which the person will conduct business or exercise functions under a licence or certificate of registration held by the person,

(c) give a direction to the person requiring the person to take specified action within a specified time in connection with the conduct of business or the exercise of functions under a licence or certificate of registration,

(d) impose a monetary penalty on the person of an amount not exceeding 100 penalty units in the case of an individual or 200 penalty units in the case of a corporation,

(e) impose a condition on the person's licence or certificate of registration,

(f) suspend the person's licence or certificate of registration for a period that does not exceed the unexpired term of the licence or certificate of registration,

(g) cancel the person's licence or certificate of registration,

(h) declare the person to be a disqualified person for the purposes of this Act, either permanently or for a specified period,

(i) disqualify the person from being involved in the direction, management or conduct of the business of a licensee.

...

Section 193 of the Act allows for an administrator (and by extension allows this Tribunal) to take no further action in respect of a matter, whether or not the matter is the subject of a complaint or a show cause notice and whether or not the administrator determines that there are grounds for taking disciplinary action in connection with the matter.

Where the delegate is of the opinion that there is reasonable cause to believe that there are grounds for taking disciplinary action against a person, a notice may be served requiring that person to show cause why disciplinary action should not be taken against them. Section 195 of the Act provides that the Director-General may take such disciplinary action against the person as is considered warranted.

In Clarke v Commissioner for Fair Trading [2004] NSWADT 273 the President of the Tribunal considered the question of whether the licence holder took 'reasonable steps' to avoid the bankruptcy or insolvency. He considered earlier decisions in the matters of Davidson v Commissioner for Fair Trading [2004] NSWADT 200 and McDonald v Commissioner for Fair Trading [2004] NSWADT 124 and stated at paragraphs [10] and [11]:

"In examining the question of whether the licence holder took 'reasonable steps' to avoid the bankruptcy or insolvency:

(i) A general inquiry into the wisdom or otherwise of the original financial dealings that ultimately ended in bankruptcy or insolvency is not contemplated by the Act. The point at which the inquiry commences is when the applicant was 'faced with the possibility' of bankruptcy or insolvency (Davidson at [20]) or was 'aware' or 'should have been aware' (McDonald at [21]) of that possibility. The focus is the steps taken to avoid the relevant event (see Smith at [17]) -in cases of the present kind, administration and later liquidation".

(ii) Subject to (i) in assessing reasonableness the Tribunal must examine all the relevant facts and circumstances.(McDonald at [25]).

(iii) The steps taken by the applicant must be objectively reasonable in the sense that they would be those taken by a 'reasonable person endowed with the knowledge and experience of the [applicant]'. (McDonald at [26-27]).

I considered the issue in Saglimbeni v Commissioner for Fair Trading, NSW Office of Fair Trading [2008] NSWADT 1 and I stated at paragraph [27];

"27 The test of "reasonable steps" is that of what a reasonable person endowed with Ms Saglimbeni's knowledge and experience would do. In applying this test I must consider two issues - (i) when did Ms Saglimbeni know, or ought she to have known, that the administration in question was a possibility? and (ii) what steps did she take to avoid that liquidation or administration? "

Fit and proper

The meaning of the phrase 'fit and proper person' was discussed by the High Court in Hughes & Vale Pty Ltd v New South Wales (No 2) (1955) 93 CLR 127, at [9], where Dixon CJ, McTiernan and Webb JJ said:

The expression 'fit and proper person' is of course familiar enough as traditional words when used with reference to offices and perhaps vocations. But their very purpose is to give the widest scope for judgment and indeed for rejection. 'Fit' (or 'idoneus') with respect to an office is said to involve three things, honesty knowledge and ability: 'honesty to execute it truly, without malice affection or partiality; knowledge to know what he ought duly to do; and ability as well in estate as in body, that he may intend and execute his office, when need is, diligently, and not for impotency or poverty neglect it.'

The meaning of the phrase was also discussed in Australian Broadcasting Commission v Bond (1990) 170 CLR 321, where Toohey and Gaudron JJ said at [36] of their judgment:

The expression 'fit and proper person', standing alone, carries no precise meaning. It takes its meaning from its context, from the activities in which the person is or will be engaged and the ends to be served by those activities. The concept of 'fit and proper' cannot be entirely divorced from the conduct of the person who is or will be engaging in those activities. However, depending on the nature of the activities, the question may be whether improper conduct has occurred, whether it is likely to occur, whether it can be assumed that it will not occur, or whether the general community will have confidence that it will not occur.

As their Honours recognised, at [66], whether a person is a fit and proper person involves a value judgement to be made in the context of the particular activity to be licensed.

In McBride v Walton (NSW Court of Appeal, unreported, 15 July 1994), the Court said where there is evidence of misconduct, there should be consideration of any explanation for that misconduct, its seriousness to the particular activity, the motivation of the person, whether the misconduct is an isolated incident, the person's underlying qualities of character, and the person's conduct since the incident and whether this demonstrates recognition of the misconduct and subsequent reform. The question may be whether improper conduct has occurred, whether it is likely to occur, whether it can be assumed that it will not occur, or whether the general community will have confidence that it will not occur.

The issue for determination by the Tribunal

The issue for determination is whether the delegate of the Director General made the correct and preferable decision. This is to be determined having regard to any relevant factual material and any written or unwritten law: section 63(1) of the ADT Act.

The questions raised on the application are:

(1) whether the Applicant is a "disqualified person"

(2) whether the decision should be made to exempt the Applicant under section 16(2B) of the Act; and

(3) whether the Applicant is a fit and proper person to hold a licence under the Act and if not, the appropriate period of disqualification.

The Respondent's case

The Respondent relies on a bundle of material filed pursuant to section 58 of the ADT Act. In particular it relies on the affidavits of Mr Jahani and the annexures to his affidavits. A summary of its position is set out in the reasons given on its reconsideration of decision dated 25 March 2013. The delegate set out the background to the determination and the findings and considered that additional material that had been provided in relation to the application to the Tribunal. She then set out her conclusions resulting from her reconsideration. In regard to the additional material the delegate stated:

4. Additional material considered

(a) In undertaking my consideration, I have been briefed with a number of additional documents which were not available to me at the time of making my Determination, as follows:

4.1 Additional Documents submitted by the Applicant

Submissions of the Applicant submitted to the ADT at the stay hearing of the review matter;

Affidavit of the Applicant sworn 6 September 2012;

Affidavit of the Applicant sworn 20 December 2012;

Affidavit of Brian Pickup sworn 21 December 2012; and

Affidavit of the Applicant sworn 1 February 2013.

Full set of section 58 documents, including additional documents supplied by Said Jahani to NSW Fair Trading, in connection with the Supreme Court proceedings involving the Applicant, Vivid, Rental Admin and Negri Real Estate.
Sales Inspection Report and Exclusive Agency Agreement dated 31 October 2012 with Trading Company One.
Business card supplied to consumer in respect of above transaction on 31 October 2012, with name Vivid Real Estate.

5. Analysis of Additional material

5.1 Submissions of the Applicant submitted to the ADT at the stay hearing of the review matter

(a) The crux of the Applicant's submissions made to the ADT are as follows:-

The Applicant and Mrs Negri have no assets left as all their property has gone to pay the NAB, Bank West and smaller creditors;
None of those creditors are consumers i.e. clients of the Applicant's agencies;
The point of the Act, and disciplinary proceedings is not to protect banks who have the capacity to protect themselves through valuations, securities and other contractual arrangements;
That the Delegate did not put ASIC records she obtained as part of the show cause process to the Applicant before she made her decision;
Submits that the delegate should not have re-investigated the matters set out in the 1st NTSC issued to the Applicant;
That the Delegate should not have relied on documents supplied in relation to the Supreme Court proceedings and if she intended to, she should have disclosed this to the Applicant and allowed him the opportunity to respond prior to making her decision;
The Determination makes no direct mention of the fact that not one of the Applicant's customers from any agency has lost a penny and all annual reporting and audit requirements have been met and there are no trust irregularities shown.

5.2 Consideration

(a) In relation to the above, there were no allegations that trust funds were missing and the Delegate did note that in the Applicant's submissions in response to the 2nd NTSC that the Applicant had submitted:

'The trust accounts of which he had control have been kept in accordance with the Act and audit statements have been filed as required by Fair Trading'.

(b) The Delegate did not assert that the protection of banks was a paramount consideration but stated:

`The purpose of the penalty is not to punish Mr Negri but to protect consumers and the reputation of the profession so that consumers and traders, including banks, can feel safe in their dealings with licensed professionals'.

(c) What I was considering as the Delegate was that it is not just trust account misappropriations which cause the public (including traders and other agents) and consumers concern in terms of the industry. If financial failure, and corporate insolvency, were not important criteria in assessing whether applicants should hold, or existing licensees continue to hold, licences under the Act, the legislature would not have made the disqualified person provisions set out under section 16 which relate to Corporate insolvency and bankruptcy.

(d) In relation to the Delegate embarking on further enquiries after receiving the Applicant's submissions, section 197 of the Act provides that the delegate:

`may conduct inquiries and make investigations in relation to the mailers to which a show cause notice relates and the submissions, if any made by or on behalf of the person to whom the show cause notice relates in relation to those matters' as the delegate 'thinks fit'.

(e) The Applicant made certain submissions about the Supreme Court proceedings and about what led to the financial insolvency of Negri Real Estate and/or the bankruptcy of the Applicant.

(f) Clearly, this power enables a delegate to investigate matters raised to ascertain the truth and veracity of submissions made. In this case the Delegate assessed, inter alia, publicly available documents from the ASIC website. Investigations and documents were also obtained from Said Jahani, Fair Trading's appointed manager to Vivid and Rental Admin.

(g) In relation to investigating matters set out in the 1st NTSC, the nature of the Applicant's submissions in relation to the 2nd NTSC made some examination of the external administrations considered in the 1st NTSC to be reconsidered.

(h) This is not to say that the 1st Determination should be set aside, but in terms of assessing the steps taken since the Applicant's financial difficulties first arose and given his assertion that the second submissions follow on from where his first submissions ended.

(i) Since the Applicant essentially asserted that his financial difficulties arose, at least in part, due to the debt of the earlier companies, it is hard to consider the Applicant's current financial difficulties in isolation from the earlier companies.

(j) These submissions make it extremely difficult, especially given their general nature to assess the applicability of the exemptions provided for under section 16(2B) of the Act.

5.3 Affidavit of the Applicant sworn 6 September 2012

(a) The Applicant's affidavit in summary asserts as follows:

As at September 2008, the Applicant held total capital of approx $5 million, including the companies which were the subject of the first NTSC;
He also had a real estate portfolio and family home at 40 Royalist Road, Mosman; The Applicant has not borrowed any money since 2008, which was when he purchased Smith Bros;
BankWest funded the purchase of Smith Bros;
On 19 December 2008, the Applicant entered into a deed with the NAB that he would sell his properties by 31 March 2009 or have refinance in place by 28 February 2010;
Various properties were sold and further deeds were entered into with the NAB;
In December 2009, the Applicant explored the possibility of refinancing with another Bank through his accountant and a mortgage broker;
The NAB sold various rent rolls for the companies which were the subject of the 1st NTSC, below market value and placed these companies into liquidation;
Bankwest sold Smith Bros for a reduced price;
The property portfolio and the home of the Applicant were also disposed of. The Mosman property was sold in September 2010 for $1,485,000;
The Applicant discusses at length the financial difficulties facing the companies which were the subject of the 1st NTSC;
Relevantly, the Applicant states that on 5 August 2010, he placed Homesearch into voluntary administration and retained Hall Chadwick to advise him in dealing with the debts. Stephen Gladman became the administrator;
The Applicant indicates that there was a debt to the ATO and that Mr Gladman hoped to enter into a Deed of Company Arrangement, however, the NAB appointed Said Jahani as receiver a month later because the Administrator had stopped paying the NAB's debt;
In July 2011, after becoming dissatisfied with the NAB's management of the first group of companies, the Applicant 'switched the managements of Negri Real Estate P/L to Rental Administration P/L so that I could control the sale and achieve a greater reduction in the debt to NAB. At this stage it was still feasible that, with appropriate management of the sale of the Negri Real Estate rent roll, my debt to the NAB could be reduced and the bankruptcy could be avoided;
On 4 October 2011, the Applicant appointed Bradfield Bentley to assist in negotiations with creditors in order to avoid bankruptcy;
The Applicant paid Bradfield Bentley $38,000 for 'services';
On 1 November 2011, a bankruptcy notice was issued by Axton & Quaid;
On 14 November 2011, the Applicant advised Axton & Quaid that he was in the process of borrowing money from family to settle outstanding rent;
The Applicant states that 'It was still feasible at this stage that bankruptcy could be avoided through the injection of funds from our family';
In respect of steps taken the Applicant submits that 'I believe that my continued attempts to renegotiate my debts with both NAB and BankWest, either on my own or with the ultimately fruitless assistance of Hall Chadwick and Bradfield Bentley, and my struggle to maintain some control over sale of assets both demonstrate that I undertook all reasonable attempts to avoid the bankruptcy. Unfortunately, these attempts were constantly undermined by the dismissive and neglectful attitude of Mr Jahani towards achieving suitable prices for the sale of our asset. As a result I was compelled to file a Debtors' Petition on 9 February 2011 (sic).

5.4 Consideration

(a) The Applicant's affidavit focuses strongly on historical financial matters which had already been determined in the 1st NTSC process. In his submissions in response to that NTSC the Applicant had submitted that things were back on track and the NAB were happy with arrangements in relation to Negri Real Estate.

(b) Within a short period after that, both a liquidator and receivers were appointed to Negri Real Estate and on 9 February 2012, the Applicant filed for bankruptcy.

(c) This affidavit only mentions in passing the financial issues facing Negri Real Estate and the only 'step' effectively described in the Affidavit was the transfer of the rent roll of Negri Real Estate to Rental Admin.

(d) This step was set aside in the Supreme Court and the assets of Negri Real Estate were returned to Negri Real Estate from Rental Admin.

(e) I cannot accept that the step of transferring the encumbered assets of one legal entity to another without paying any consideration or obtaining appropriate consent from the charge holder, is in fact a reasonable step.

(f) In terms of the bankruptcy, the Affidavit does not go into any details as to what steps were taken to avoid the bankruptcy other than paying $38,000 for advice. What was involved in the services of Bradfield Bentley were not set out. Who Axton & Quaid are is also not set out. I gather from inference they may have been owed rent for the Carlingford Office premises occupied by Negri Real Estate.

(g) Based on the lack of detail in this Affidavit I am unable to make a determination on whether the steps undertaken were reasonable or even when the financial difficulties that led to the bankruptcy first arose.

(h) For example I would need to know what Bradfield Bentley did, and what they recommended and whether the Applicant followed their advice.

(i) Accordingly, I cannot provide an exemption from the disqualification provisions based on this affidavit.

5.5 Affidavit of the Applicant sworn 20 December 2012

(a) This affidavit of the Applicant discusses in summary:

Why he put Homesearch into voluntary administration and how he relied on the advice of Stephen Gladman:
When he put Homesearch into voluntary administration the joint administrators required him to execute a deed of indemnity and guarantee for their fees;
By July 2011, Negri Real Estate was not in receivership but he was concerned that Said Jahani might take control of the rent roll and so he incorporated Rental Admin;
He did not shift or transfer documents from Negri Real Estate to Rental Admin and 'all records remained under the Shipway Realty Umbrella';
Notwithstanding this the Applicant acknowledges 'that what I did in transferring the Negri Real Estate Pty Ltd rent roll to Rental Administration Pty Limited was not correct, however, at the time my sole concern was to sell the rent roll for its true market value and maximise the amount received from the only remaining rent roll and reduce as much as possible the NAB debt and avoid bankruptcy';
The Applicant asserts that when the NAB commenced the Supreme Court proceedings against him seeking return of the rent roll 'I agreed to their orders on the first return date and executed consent orders to return to them the rent roll'.

5.6 Consideration

(a) Fair Trading has filed extensive evidence in its s58 documents from the NAB relating to the Supreme Court proceedings. Said Jahani, one of the joint receivers for Negri Real Estate deposes in an affidavit of 29 February 2012, that prior to the commencement of the Supreme Court proceedings, on 22 February 2012 a person purporting to be the Applicant indicated that he would not be co-operating with the receivers.

(b) In an affidavit dated 22 March 2012, Mr Jahani asserts that at the time of executing the 'Consent orders' on 8 March 2012, the Applicant was no longer a director of Rental Admin or Vivid Property.

(c) ASIC records verify that the Applicant resigned as a director for Rental Admin and Vivid Property on 9 December 2011.

(d) At the time the consent orders were executed, Malcolm Negri, the Applicant's father was the sole director. Accordingly, the Applicant was in no legal position to return the assets of Rental Admin to Negri Real Estate Pty Ltd.

(e) On 19 March 2012, Malcolm Negri resigned as a director of Rental Admin and Vivid Property and the assets had not been returned to Negri Real Estate.

(f) Without exploring the entire bundle of documents supplied by Said Jahani to Fair Trading in connection with the Supreme Court proceedings, it is clear that while executing the consent orders transferring assets back to Negri Real Estate, as first named defendant, the Applicant did not have any legal ability to transfer the rent roll back and this did not happen.

(g) It is also clear that Rental Admin and Vivid Property did not sell the rent rolls and then return the money to the NAB, instead they traded the rent roll until control reverted to the Joint Receivers.

(h) However, by 25 May 2012, Vivid Property and Rental Admin had no directors, and no legal personal representatives. Landlords and Tenants whose management agreements were held by those companies, mostly Rental Admin as I understand it, had no legal personal representative or licensed agent to manage their rental management agreements.

(i) Accordingly, on 25 May 2012, Fair Trading suspended both companies' licences under the Act as they had no directors and no licensed agent to supervise or conduct their business. Said Jahani was appointed manager under the Act for both companies given his experience with Negri Real Estate.

(j) Accordingly, while I note the Applicant's repeated assertions that the trust accounts were kept in order and that no clients have lost money, I note that these consumers were effectively abandoned by the Applicant with no licensed agent able to manage their interests.

(k) I do not find that this affidavit contains reasonable steps to avoid the external administration of Negri Real Estate. In fact by transferring its secured assets to a third party company or companies, he made the liquidation of Negri Real Estate inevitable, by taking, for no consideration, its most valuable asset.

(k) As a result I do not find anything in this affidavit which enables me to exempt the Applicant under section 16(2B) of the Act.

5.7 Affidavit of Brian Pickup sworn 21 December 2012

(a) With his Affidavit of 20 December 2012, the Applicant provided a copy of an affidavit of Brian Pickup as an expert who has annexed a report.

(b) The report can be summarised as follows:

The Applicant was an owner and director of several companies which conducted real estate agencies;
The rent rolls of these businesses had been purchased by the companies using borrowed funds;
Due to a series of circumstances the companies owned by the Applicant were placed into liquidation;
Once in liquidation, the Applicant could no longer control the sale of assets or the payment of liabilities and as a result the Applicant voluntarily became bankrupt;
Mr Pickup was engaged to determine whether the Applicant 'took all reasonable steps to avoid bankruptcy;
Mr Pickup's conclusions are
'in my opinion, once the companies in which Mr Negri had an interest were placed into liquidation, Mr Negri's ability to control his own outcome was extremely limited. In the first instance Mr Negri appears to have taken steps to avoid bankruptcy. However, once he lost control of the trading entities it was inevitable that he would become bankrupt'.
In forming his opinion Mr Pickup has had reference to various documents including reports relating to Homesearch, Smith Bros, Negri Real Estate, Gladesville Real Estate, and Property Solutions.

5.8 Consideration

(a) Mr Pickup's report deals only with the steps taken to avoid bankruptcy, and not to avoid the external administration of Negri Real Estate. Both these matters are disqualifying.

(b) The report does not detail any steps that were taken by the Applicant to avoid bankruptcy and does not separate the external administration of the first group of companies from the external administration of Negri Real Estate.

(c) Based on these limitations I find it of limited use in determining whether I should be satisfied that the Applicant took all reasonable steps to avoid the external administration of Negri Real Estate or his bankruptcy.

5.9 Affidavit of the Applicant sworn 1 February 2013

(a) This affidavit of the Applicant was supplied in response to correspondence from Fair Trading's Solicitors dated 21 December 2012, which stated that in addition to Fair Trading's existing section 58 bundle of documents, it intended to rely on two additional documents in undertaking its reconsideration. One was a sales inspection report and exclusive agency agreement dated 31 October 2012 in the name of Trading Company One supplied to clients of the Applicant being John and Mary Brogan. The second was a photocopy of business card supplied to the same client's of the Applicant by the Applicant in October 2012 which uses the business name Vivid Property in apparent contravention of the Direction served by Fair Trading on 15 August 2012.

(b) Fair Trading had also made separate enquiries from the Applicant as to how the debt to the ATO shown in his bankruptcy papers had arisen.

(c) The Applicant's affidavit submits as follows:-

In relation to the ATO debt, it arose when Homesearch could not pay all of its business activity statement payments when they fell due as a result of the Global Financial Crisis;
Homesearch entered into a payment arrangement with the ATO, but when it could not keep up the payments the ATO commenced proceedings against Homesearch;
In relation to Trading Company One, he is not employed and has never worked for it;
He is a sole trader under the name Mark Negri Real Estate;
The Applicant says that he made a full disclosure to John and Mary Brogan about his licence and bankruptcy.
After Mr and Mrs Brogan raised a concern about the safety of their deposit monies, and as a courtesy' to his father, he made arrangements to enter into a conjunction agreement with Trading Company One to sell the property;
He asserts that the agreement provided that Trading Company One would hold the deposit as 'stakeholder;
The Applicant says he was authorised by his father, and the director, of Trading Company One to enter into the agreement as an 'authorised representative';
He submits he disclosed the 'conjunction' agreement to Mr and Mrs Brogan and advised them that Trading Company One would retain the deposit funds for the sale of their property;
The incorrect licence number on the agreement was an error made by him;
As to the address for Trading Company One being the Applicant's registered office and not its place of business in Fair Trading's licensing database, he says he was instructed that his father was going to change the address to his business premises;
The public register now reflects Trading Company One having his 'current business address being Level 9, 123 Epping Road, North Ryde;
In relation to the business card, he says he supplied it to Mrs Brogan because the contact details were the same but states he said to Mrs Brogan 'But you understand I'm not trading under Vivid, this is an old card and the details are wrong other than the phone, fax and mobile';
Since the date of the Tribunal's order he had only carried on the business of a real estate agent in New South Wales using his name;
The Applicant's father is willing to release Mr and Mrs Brogan from their agency agreement with Trading Company One if they wish.

5.10 Consideration

(a) In relation to the ATO debt of Homesearch, the Applicant does not explain how this debt became transferred to him, however, I assume it must be some sort of directors liability for tax.

(b) In relation to the Applicant's claim that he was entering into a conjunction agreement I find this not to be the case. Fitness and Propriety includes consideration as to whether a particular licence holder has the requisite skills and knowledge to carry out the duties of a licensed agent. Therefore, I would expect an agent such as the Applicant to know that this agreement is not a conjunction agreement. The form used by the Applicant was issued by the Real Estate Institute of NSW ('the REI'). The form was an exclusive agency agreement. The REI issues a form SA00500 for conjunction agreements. The Applicant used an Exclusive Agency Agreement SA00200. There are a number of problems with the agreement. These problems may disentitle the Applicant or Trading Company One to commission on sale of the subject property due to the operation of section 55 of the Act. These problems or issues include:

Wrong form (clause 3.i provides, in effect that if the Applicant sells the property, Trading Company One could technically claim full commission and he could also claim full commission).
An assertion that the Sole Agent is Trading Company One P/L trading as Mark Negri', this is clearly wrong and misleading;
Wrong licence number for the Trading Company One (this can disentitle an agent from commission); and
At the relevant time the wrong trading address for Trading Company One;
Not signed by an officer of Trading Company One (and therefore possibly not binding or legally effective.

(c) Consumers are entitled to know what agent they are dealing with and section 55 of the Act, (together with the Regulations especially Clause 13); makes it clear that the legislature has very strict requirements about agency agreements.

(d) In this case, regardless of what they have been told by the Applicant, Mr and Mrs Brogan may be unclear as to who the licensed agent was and to whom they owe commission, if anyone. The purported offer to release them from the contract by Malcolm Negri is not in my view relevant.

(e) The Applicant's assertions at the least concern me in terms of his understanding of the Act and the general law, but concern me more as it appears that the Applicant may be attempting to mislead Fair Trading (and Mr and Mrs Brogan) about the true nature of the agreement and the parties thereto. Presumably, the Applicant listed the subject property under his name using his signage, as I am not aware of any listings on the internet by Trading Company One at any time. This is further cause for concern. I am not aware of whether the subject property has now been sold, but should the Applicant proceed with his ADT appeal it would be beneficial to the Tribunal to know whether and to whom commission was paid.

(f) In relation to the business card issue, after being served with a direction under the Act, I would have thought that the Applicant would ensure that he does not use any stationery of any kind with the words Vivid Property or Vivid. In any event, I note his explanation.

6. Reconsideration

(a) The findings made in the Determination issued to the Applicant which are in dispute centre primarily around three issues:

1. Whether the Applicant breached sections 28 and 30 of the Act; in relation to trading location and business name issues;

2. Whether the Applicant is a disqualified person within the meaning of section 16 of the Act, in relation to the external administration of Negri Real Estate and in terms of his personal bankruptcy or whether there is a basis to exempt the Applicant from the operation of these provisions based on 'steps taken' to avoid each event; and

3. Whether the Applicant is eligible to hold a certificate of registration or a licence under the Act on fitness and propriety grounds.

(b) In making the Determination, as Delegate, I considered the above matters and found that the Applicant had not shown cause as to why disciplinary action should not be taken against him under the Act on the following grounds:

Section 191(a) in that the Applicant had contravened this Act or any other Act administered by the Minister, or the regulations under any such Act; and
Section 191(d) in that the Applicant was a disqualified person based on his bankruptcy and the external administration of Negri Real Estate and that he was not eligible to hold a licence or certificate of registration on fitness and propriety grounds.

(c) For the reasons detailed above, I find no reason to alter my original findings. The Applicant has not address the original breaches of the Act, presumably because he now asserts that those matters have been remedied. However, I still find those matters proven, but at the lower end of the scale.

(d) In relation to the presumption of the Applicant as a disqualified person based on his bankruptcy and the external administration, I am still not satisfied that I am in a position to provide an exemption to the Applicant based on steps taken. I simply do not have enough information to enable me to do so.

(e) The Applicant clearly had a number of complex credit, corporate and financial arrangements. At one time he controlled a large number of agencies. I do not wish to open the issue of the first group of companies, which were dealt with under the 1st NTSC, but clearly by the time the Applicant made his submissions in response to the1st NTSC he was in financial difficulty at a personal level. I suspect things were not as he asserted, 'going well' and 'back on track, While that may well have been the Applicant's belief, as Delegate, trying to assess the steps that were taken to avoid the bankruptcy and the external administration of Negri Real Estate was very difficult to assess and evaluate.

(f) Even the Applicant's own expert, Mr Pickup, says that the bankruptcy arose as a result of the earlier companies going into external administration. If this is true, then I would need to go back to analyse the reasons for the exemption under the 1st NTSC and I do not consider this appropriate.

(g) If I ignore Mr Pickup's evidence and rely instead on the Applicant's assertions that the bankruptcy and external administration could have been avoided even after the collapse of the earlier companies, I am still not sure of any details about steps taken or their reasonableness.

(h) In relation to Negri Real Estate, the Applicant's removal of the rent roll to another entity or company without the consent of the chargee would have contributed substantially to its receivership and its liquidation. In effect, it was left with no assets or business, simply debts, when the Applicant transferred its rent roll away.

(i) Accordingly, I remain unable to exercise my discretion and l find the Applicant a disqualified person based on his bankruptcy and on the external administration of Negri Real Estate.

(j) In relation to the issue of fitness and propriety, l am now more confirmed in my view that the Applicant is not a fit and proper person to hold a licence or certificate, based on the contents of Fair Trading's section 58 bundle, and the Applicant's own submissions.

(k) I do not consider that the Applicant has engaged with Fair Trading with proper candour and honesty. For example, his assertion of signing the consent orders in the Supreme Court proceedings on the first occasion infers co-operation with the receivers. However, nothing could be further from the truth because by then he could not legally ensure that the companies complied with the orders, as he had resigned months earlier from both corporations.

(I) His conduct in leaving consumers who had listed the managements of their properties with Rental Admin with no directors and no one to manage their interests does not reflect positively on him.

(m) In relation to the issue of the listing of the Brogan Property, I am simply not satisfied on the evidence that the Applicant's evidence is true. I consider his conduct more likely than not to have been effectively licence lending from his father's corporation. This conduct is serious and had the potential to mislead Mr and Mrs Brogan and may well reflect on their right to claim on the property compensation fund should there be an issue with their deposit. This is because it is simply impossible to ascertain who the listing agent is from the documents and the documents are clearly flawed.

(n) I do not consider that the Applicant's submissions demonstrate an understanding of the seriousness of his conduct and I do not consider that he expresses remorse in relation to his conduct. The only acknowledgement of any 'incorrect behaviour' is in respect of his assertion in his affidavit of 21 December 2012 at paragraph 21 that 'I acknowledge that what I did in transferring the Negri Real Estate Pty Limited rent roll to Rental Administration was not correct'. Even in saying that the Applicant provides excuses for his conduct which are not backed up by the evidence because he did not sell the rent roll and provide the money to the NAB. He ran these businesses as a going concern and refused to co-operate with the receivers when they discovered what he had done.

(o) Even if his subsequent conduct, of resigning as a director and abandoning its customers, had not occurred, I consider that the deliberate transfer of a valuable assets away from a secured charge-holder is wrong conduct, even if the charge holder is a large bank.

(p) I affirm my earlier finding that the Applicant is not eligible under section 14 to hold a licence or certificate on fitness and propriety grounds.

Mr Jahani's evidence

Mr Jahani provided two affidavits in relation to his dealings with Negri Real Estate, Vivid Property and Rental Admin and in particular his dealings with the Applicant. The annexures to his affidavits document the management of those companies.

Mr Jahani provided a report to the Respondent in accordance with the terms of his appointment as Manager of Rental Admin and Vivid Property. The report, dated 19 June 2012, stated:

1. General Background and Conduct of the Business

As you are aware, Negri Real Estate operated property management and sale functions until July 2011, at which time Mr Negri attempted to transfer the residential rent roll to Rental Admin and commence sales from Vivid Property without the knowledge or consent of the secured creditor, National Australia Bank Limited, of Negri Real Estate.
Shortly after our appointment as Receivers over Negri Real Estate, our investigations revealed assets belonging to Negri Real Estate were being held as trust property by Rental Admin and Vivid Property. This includes the residential rent roll. Accordingly, we were able to secure a judgement from the Supreme Court of NSW to this effect.
Following our investigation and seeking judgement orders from the Supreme Court of NSW, assets were deemed to belong to Negri Real Estate and are being held as trust property by Rental Admin and Vivid Property. This includes the residential rent roll.
As you are aware, we are continuing to trade Rental Admin and its property management business from Shipway Realty's office at Shop B3, Carlingford Village Shopping Centre, 372 Pennant Hills Road, Carlingford NSW 2118 whilst we endeavour to sell the residential rent roll and have retained two full time property managers who were employed by Rental Admin prior to my appointment.
Vivid Property has ceased to sell properties and does not have any active sales listings. We provide further comments below in relation to sales listing and Mr Negri's activity through Vivid Real Estate Pty Ltd, another entity recently incorporated by Mr Negri.

...

2. Sale of residential rent roll

As you are aware, we are in the advance stages of negotiating a sale of the residential rent roll which is held as trust property by Rental Admin on behalf of Negri Real Estate.
Unfortunately, we have not exchanged a sale contract with the preferred purchaser, Andrew Nazarov of DFJ Real Estate, by the expected date of 4 June 2012 as detailed in our email correspondence on 29 May 2012. We are continuing to work with the preferred purchaser and hope to exchange a sale contract shortly.

3. Notification of Appointment as Manager

As mentioned above, we did not exchange sale contracts with the preferred purchase by 4 June 2012 as anticipated. Accordingly, on 5 June 2012 we conducted a mail out to all landlords and tenants currently managed by Rental Admin ...
No correspondence has been sent in relation to Vivid Property as we are not aware of any sales listings held in the name of Vivid Property. We provide further comments below in relation to sales listing and Mr Negri's activity through Vivid Real Estate Pty Ltd.

4. Investigation of Vivid Real Estate Pty Ltd

As you are aware, Mr Negri is currently an undischarged bankrupt. ...
As previously advised, we have very limited books and records relating to Vivid Property. With the information available we have not been able to evidence any sales listings existing in the name of Vivid Property.
In addition, we have been advised by Mr Negri that no sales listings are in the Name of Vivid Property and that he is conducting property sales through an entity by the name of Vivid Real Estate Pty Ltd. ...
Following our review of the Vivid Property website ( which we believe is under the control of Vivid Real Estate Pty Ltd, there are 12 properties being advertised for sale. We have been able to locate three sales agency agreements that relate to these properties ...
These sales agency agreements have been executed under the personal name/license number of Mr Negri, rather than under Vivid Property's corporation license number. Accordingly, Vivid Property is not in control of these sales listing and therefore we do not believe we are in a position to send a notice advising of the appointment of Said Jahani as Manager of Vivid Property.

Annexures to Mr Jahani's report document the events to which he referred in the report. Earlier reports were also provided by Mr Jahani's office to the Respondent. Those reports, dated 11 May 2012 and 29 May 2012 are contained in the Respondent's filed material, as are copies of affidavits filed in the Supreme Court proceeding and the order granted on 9 March 2012 in those proceedings.

In an affidavit filed in the Supreme Court proceeding Mr Jahani referred to a conversation that Mr Jahani had with the Applicant in which the Applicant asserted that he would not co-operate with the receivers.

The evidence that the Applicant refused to co-operate with the receivers has not been challenged.

There does not appear to be any dispute in relation to the Respondent's assertion that the Applicant attempted to transfer the residential rent roll of Negri Real Estate to Rental Admin, without the knowledge or consent of the secured creditor, National Australia Bank Limited, with the view to selling the rent roll.

The Respondent's submissions

As noted above in the excerpt from the Respondent's reconsideration of decision, concerns have been raised about the Applicant's subsequent dealings with consumers. Particular reference is made to an agreement entered with John and Mary Brogan ("the Brogans") and the use of a Vivid business card. The Respondent contends that these matters are relevant to the question of whether the Applicant is a fit and proper person to be the holder of a licence under the Act.

It is not in dispute that the Applicant was served with a direction under section 30(4) of the Act not to use any form of the business name 'Vivid' or 'Vivid Property' due to possible confusion for consumers. The Respondent submits that his use of a Vivid business card was contrary to that direction.

The Respondent further submits, as noted in the Respondent's reconsideration of decision, that there are a number of problems with the form of agreement used by the Applicant. As was also noted, considerations as to whether a particular licence holder has the requisite skills and knowledge to carry out the duties of a licensed agent are relevant to the question of whether the Applicant is a fit and proper person to be the holder of a licence under the Act.

The Applicant's case

The Applicant relies on his own evidence. He appeared at the hearing, gave evidence and was cross-examined. He provided a number of affidavits and also provided written submissions.

The Applicant contends that he is not a disqualified person for the purposes of the Act because he took all the reasonable steps that he could have taken to avoid the bankruptcy and to avoid Negri Real Estate becoming an externally-administered body corporate.

The Applicant's evidence is that he took the following steps:

Selling all his properties, including the family home;
Attempts to refinance. He said that this proved fruitless due to the state of the economy at the time, due to the Global Financial Crises;
Attempts to trade out of the situation. He said that when all the companies except Negri Real Estate were in receivership he attempted to get back into sales and earn the money to pay the debt back. However he found the market very different and more competitive to that which he had previously experienced and while he could earn a living he could not earn enough to pay the debt and penalty interest to the NAB;
Attempts to sell the rent roll and strata roll assets of Homesearch, and the rent rolls of Gladesville Real Estate P/L, Property Solutions P/L and Negri Real Estate;
Obtained and acted upon professional advice from accounting firm Hall Chadwick. The advice was to put the companies into administration. A Deed Of Company Arrangement was proposed with the view that the companies could emerge with reduced debt and the ability to continue on with a refreshed balance sheet and therefore higher profits. The higher profits could then be used to pay down debt to the bank.

Appointed Bradfield Bentley to negotiate with both the National Australia Bank and BankWest in an attempt to obtain a payment arrangement that would enable the debts to be paid off over a period of time. This proved to be fruitless.

He did not provide details in relation to the nature of the professional advice that he received or details of the steps that he took to act on that advice.

The Applicant contends that in July 2010 he had total assets of $7,549,391 with a net worth of $2,567,961. He further contends that with that equity, all the debts could have been paid in full if the receiver had exercised care and competence when selling the rent rolls and strata roll.

In August 2010 Mr Jahani was appointed as receiver of Homesearch P/L. He was then progressively appointed to Gladesville Real Estate, Property Solutions and Negri Real Estate. The Applicant contends that Mr Jahani did not exercise care or competence in selling the rent rolls and strata roll assets. As a result the asset sales suffered demonstrably and did not recover anywhere close to what could and should have been recovered. The Applicant further contends that word quickly spreading throughout the marketplace that 'Shipway Realty' was in receivership and that this made competing for business very difficult. As a result the other businesses quickly went down hill.

The Applicant also contends that the NAB had refused to exercise a reasonable commercial decision and lend another $80,000 so that he could finish the subdivision of 6 Talinga St Carlingford. He argued that had this been done an extra $440,000 would have been realized to reduce debt to the NAB and the debt to the bank would have been substantially reduced.

The Applicant's evidence is that he had already negotiated a sale of the Homesearch strata roll to Ace Body Corporate at the time when Mr Jahani was appointed to Homesearch in August 2010. All that was required was completion of the sale and he encouraged Mr Jahani to do so as quickly as possible. However, the Applicant contends that Mr Jahani appointed an agent to sell the strata roll and advertised the strata roll for sale. Ace Body Corporate withdrew their offer and the strata roll was not sold. As a result a substantial amount of the value of the Homesearch assets was lost.

The Applicant further contends that Mr Jahani sold the Gladesville Real Estate rent roll for $950,000 when the rent roll was valued at around $1.4 million at the time of the sale.

The Applicant argued that the property sales realised the prices they should have. It was the business asset sales overseen by Mr Jahani that caused the debt to blow out and hence made it simply impossible to satisfy the debts.

The Applicant's evidence is that he went from having net assets of over $2.5 million in July 2010 to the total amount of his bankruptcy of $2.9 million on 9 February 2012. He said that the loss is principally attributed to:

The fees charged by Grant Thornton - Mr Jahani's firm;
The lack of funds recovered from the rent roll asset sales;
Penalty interest charged by the NAB and BankWest; and
The forced sale by BankWest of the Smith Bros. rent roll

The Applicant's evidence is that he considered it likely that a large portion of the value of the Negri Real Estate assets would also be lost if Mr Jahani was in charge of the sale.

The Applicant had received advice from Bradfield Bentley that he could possibly negotiate directly with the NAB. If he could sell the rent roll himself he could ensure the best price was achieved and he could use the proceeds to pay back the NAB. He also could potentially avoid substantial receivers fees. With this in mind, he set up Rental Admin and encouraged the landlords to sign a new management agency agreement with that company.

The Applicant asserts that he had not hidden the rent roll. It continued to trade as Shipway Realty, continued to trade from the same premises and continued with the same staff. He stated that his intention was always to prevent the involvement of Mr Jahani in the sale of the rent roll, to sell the rent roll for the highest price possible and use the funds to reduce debt to the bank. However, he did not have the opportunity to sell the rent roll and pay the proceeds to the NAB prior to February 2012 when Negri Real Estate was placed into receivership.

In relation to the Respondent's contention that transferring the Negri Real Estate rent roll to Rental Admin made the liquidation of Negri Real Estate inevitable, the Applicant contends that the liquidation was inevitable regardless of whether the company had a rent roll or not due to the fixed and floating charge held by the NAB, the quantum of debt the NAB was claiming and the penalty interest the bank was charging.

In relation to the Respondent's contention that the Applicant failed to advise it of his new trading address, the Applicant's evidence is that he ceased to be licensee and also to attend the premises at Carlingford on around 3 May 2012. He advised the Respondent of his new trading address at Cremorne on 28 May 2012, 11 days longer than the period that is provided for in the Act. His evidence is that he had a lot on my mind at the time that caused him to be late with the notice. He submitted that it is a minor issue.

In relation to the Respondent's contention that the Applicant's use of the trading name Vivid Property was contrary to a direction given to him, the Applicant's evidence is that the company ACN 149 953 504 P/L (formerly named Vivid Property P/L) traded as a licensed agent. This company had nothing to do with the NAB and held no assets. It was a sales business only and had no rent roll. He stated that Mr Jahani included it in the legal proceedings of Negri Real Estate and took control of the business.

The Applicant contends that the NAB never had any right to the name Vivid Property. His evidence is that Vivid Real Estate P/L changed its name to Vivid Property P/L on 5 June 2012, with the intention of continuing to trade using the Vivid Property name. He stated that he advised the Respondent on 22 May 2012 and again on 30 May 2012 that he was authorized to trade as Vivid Property and that he would be doing so. He further stated that when he received notification from the Respondent that he was not to trade as Vivid Property he ceased to do so. The Applicant stated that he does not believe there was any contravention of the Act in this matter.

The Applicant referred to the affidavit supplied by Brian Pickup and noted that the steps taken to avoid the bankruptcy ultimately proved fruitless and he submitted that this also meant that each of the companies was destined to enter liquidation.

Mr Pickup's report, addressed to the Applicant's solicitor Mr Dicembre, stated:

1. Introduction

1.1. I refer to your request for me to review certain documents and comment on whether in my opinion Mr Negri took all reasonable steps to avoid his bankruptcy.

2. Information Provided

2.1. Annexure 1 to this report details the information provided to me.

3. Background

3.1. Mr Negri was an owner and director of several companies which earned their income from the management rental properties for landlords. That is, the companies owned real estate agencies and "rent rolls".

3.2. The rent rolls had been purchased by the companies using borrowed funds.

3.3. The borrowings were in the names of the companies and on occasions Mr & Mrs Negri. Where the borrowings were in the name of Mr & Mrs Negri the company which owned the rent roll asset was repaying the loan.

3.4. Due to a series of circumstances the companies owned by Mr Negri were placed into liquidation. At this point, the powers of the directors were removed and conferred on the liquidator. The liquidator had the right to dispose of assets and apply funds without reference to Mr Negri.

3.5. Mr Negri could no longer control the sale of assets or the payment of liabilities, including personal liabilities which had been on-lent to companies. Thus Mr Negri voluntarily became a bankrupt.

4. Conclusion

4.1. You have requested that I review documents and comment if in my opinion Mr Negri took all reasonable steps to avoid bankruptcy.

4.2. In my opinion, once the companies in which Mr Negri had an interest were placed into liquidation, Mr Negri's ability to control his own outcome was extremely limited.

4.3. In the first instance Mr Negri appears to have taken steps to avoid bankruptcy. However, once he lost control of the trading entities it was inevitable that he would become a bankrupt.

In relation to the Respondent's contention that there were a number of irregularities in regard to the Applicant's dealings with the Brogans, the Applicant contends that the Brogans were very clear about who they were appointing to act for them in the sale of their property. He further stated that it was clearly written on the agency agreement. They were also well aware of how the property was to be advertised and who would be doing the advertising. The Applicant denied the Respondent's contention that there was licence lending from the Applicant's father, Malcolm Negri, in relation to the Applicant's dealings with the Brogans. He stated that Malcolm Negri was a licensed real estate agent at the time, and that Trading Company One and the Applicant were both licensed at the time.

He stated that he took all reasonable steps to avoid the bankruptcy, and that Steven Gladman of Hall Chadwick, Anthony Dicembre of McGrath Dicembre, Barrister Philip Beale and Brian Pickup of Moore Stephens Chartered Accountants are all of the same opinion that there was nothing else he could have done to avoid the bankruptcy. He further stated that he is unsure about what else he could have done.

The Applicant conceded that moving the Negri Real Estate rent roll into Rental Admin was not the correct course of action however he contends that at the time he was watching the value of the business being destroyed. He placed the blame for that on Mr Jahani and stated that he did not want to have any further dealings with Mr Jahani.

In relation to the NAB, the Applicant contends that not only did the NAB perform substantial due diligence prior to lending the money to him and the various companies, they were well aware of the way Mr Jahani was handling the sales. He submitted that the fact that the NAB kept appointing Mr Jahani as receiver shows that either no one in the bank took responsibility for appointing him or whoever did appoint him did so with no regard for the results he was producing; and that the bank was unconcerned about the losses Mr Jahani sustained.

The Applicant further contends that the Act is not designed to protect banks. Banks are huge organisations that look after themselves. He submitted that the protection of the consumer is the philosophical cornerstone of the legislation and none of the Applicant's customers has lost money.

The Applicant contends that he acted appropriately under very difficult circumstances for himself and his family. He stated that he takes his responsibilities as a licensed real estate agent very seriously and that he acted with the correct intentions at all times, namely to pay back the money owed. He submitted that he should be permitted to keep his licence.

Consideration

As noted above, the issues for consideration relate to whether the Applicant is a "disqualified person" and whether the Applicant is a fit and proper person to hold a licence under the Act.

Is the Applicant a disqualified person?

Where a person is, or was at any time in the last 3 years, been a director of a corporation to which an external administrator was appointed, other than on a voluntary winding up, they will be a disqualified person unless the Respondent (and by extension this Tribunal) is satisfied that they should be exempt. The Tribunal may exempt them by certifying that they took all reasonable steps to avoid the external administration, having regard to the steps that could have been taken by the person from the time that the financial difficulties that gave rise to the outcome first arose.

In Saglimbeni v Commissioner for Fair Trading, NSW Office of Fair Trading I considered the issue of the approach to determining whether all reasonable steps were taken to avoid the body corporate becoming an externally-administered body corporate taken from the time that the financial difficulties that gave rise to the outcome first arose. I concluded at paragraph [27];

"27 The test of "reasonable steps" is that of what a reasonable person endowed with [the Applicant's] knowledge and experience would do. In applying this test I must consider two issues - (i) when did [the Applicant] know, or ought she to have known, that the administration in question was a possibility? and (ii) what steps did [the Applicant] take to avoid that liquidation or administration? "

I note that the Act has been amended since the decision in Saglimbeni however, in my opinion the approach remains applicable see Dalkic v Director-General, Department of Services, Technology and Administration (GD) [2010] NSWADTAP 78 at paragraphs [22] to [28].

When did the Applicant know, or ought he to have known, that the administration/ bankruptcy in question was a possibility?

The Applicant relies on Mr Pickup's report in support of his assertion that he took all reasonable steps to avoid bankruptcy. Mr Pickup has had reference to various documents including reports relating to Homesearch, Smith Bros, Negri Real Estate, Gladesville Real Estate, and Property Solutions. However, neither the Applicant nor Mr Pickup identify specifically when the Applicant became aware that the external administration was a possibility.

The Applicant contends that in July 2010 he had total assets of $7,549,391 with a net worth of $2,567,961. He further contends that with that equity, all the debts could have been paid in full if the receiver had exercised care and competence when selling the rent rolls and strata roll.

Mr Jahani was appointed to Homesearch in August 2010. The Applicant made a number of assertions in regard to how Mr Jahani performed his role in regard to the various companies and how that impacted on the Negri Real Estate. These concerns should have alerted him to the potential risk of external administration.

In October 2011 the Applicant appointed Bradfield Bentley to assist in negotiations in an effort to avoid bankruptcy. A bankruptcy notice was issued on 1 November 2011 but the Applicant still considered that it was still feasible that bankruptcy could be avoided.

In my view, the Applicant should have been aware that the administration of Negri Real Estate was a possibility well before the Australian Taxation Office or the NAB moved against it. In August 2010 he attended a meeting at the offices of Hall Chadwick in relation to the financial status of the various companies. He accepted the advice given by Steven Gladman. I have not got the details of that advice but it is apparent that the advice proved to be overly optimistic. Attempts to negotiate with the NAB were unsuccessful. In my view this should have alerted the Applicant to the economic conditions confronting the real estate industry generally and the possibility that the difficulties confronting the various companies might extend to Negri Real Estate. That would have been the appropriate time to act to ensure that Negri Real Estate's assets were secure. It would have been prudent to take steps to sell the rent roll assets in light of that knowledge.

In light of the circumstances surrounding the administration of Homesearch, Smith Brothers, Gladesville Real Estate and Property Solutions, and the issues that were ultimately raised in the 1st NTSC, it is reasonable to expect that the Applicant should have been acutely aware that the administration of Negri Real Estate was a possibility.

The Applicant places the blame for the failure to achieve a reasonable return for the assets on Mr Jahani. However, in my view the situation was probably irretrievable by the time Mr Jahani was appointed.

What steps did the Applicant take to avoid the administration/ bankruptcy?

The Applicant identifies the Global Financial Crisis and the economic conditions confronting the business community as the principle cause of his and the company's difficulties. He says that he took all reasonable steps that he could have taken to avoid the administration.

The Applicant relies on his own evidence of the steps that he took in an effort to repay debts. These include selling all his properties; attempting to refinance; attempting to trade out of the situation; attempting to sell the rent roll and strata roll assets; obtaining and acting upon professional advice from Hall Chadwick; and appointing Bradfield Bentley to negotiate with the Banks. He did not provide details of the advice that he obtained or how he acted upon that advice.

As has been noted above, a notice to show cause was issued to the Applicant in March 2011. That notice concerned the issue of whether the Applicant was a disqualified person under the Act by virtue of the external administration of Homesearch, Smith Brothers, Gladesville Real Estate and Property Solutions. The Applicant was given an exemption under section 16 (2B) of the Act at that time.

Mr Pickup points to the earlier companies going into external administration as a significant factor leading to the Applicant's bankruptcy. I have insufficient evidence of the reasons for the exemption under section 16 (2B) or a basis on which I am able to determine the significance of the earlier administrations for the Negri Real Estate external administration or the Applicant's bankruptcy.

I do not consider that Mr Pickup's report clarifies that issue. As the Respondent has noted, Mr Pickup's report deals only with the steps taken to avoid the Applicant's bankruptcy, and not the steps taken to avoid the external administration of Negri Real Estate. Further, the report does not detail any steps that were taken by the Applicant to avoid his bankruptcy and does not separate the external administration of the first group of companies from the external administration of Negri Real Estate.

In my opinion, a reasonable person endowed with the Applicant's knowledge and experience would have acted much earlier to seek professional advice in relation to Negri Real Estate and to dispose of Negri Real Estate's assets in an effort to meet the company's debts and avoid external administration. If the Applicant is correct in his assessment of the value of the assets, as at July 2010, that would have been achievable if he had acted earlier. Because he did not act in a timely manner, the external administration was inevitable. The Applicant's bankruptcy then followed.

On the material that is before me I am unable to be satisfied that the Applicant took all reasonable steps to avoid the external administration of Negri Real Estate or his bankruptcy. It follows that the Applicant a 'disqualified person' within the meaning of section 16 of the Act.

Is the Applicant a fit and proper person to hold a licence?

Section 191 provides that one of the grounds for taking disciplinary action against a licence holder is that "the person is not a fit and proper person to be involved in the direction, management or conduct of the business of a licensee".

Whether a person is fit and proper for a particular purpose will depend on the legislative context. In the context of the Act, honesty and financial propriety are essential requirements.

Where there is evidence of misconduct, it has been held that relevant factors in determining a person's fitness and propriety are (a) the person's explanation for the misconduct, (b) its seriousness to the particular activity, (c) the motivation of the person, (d) whether the misconduct is an isolated incident, (e) the person's underlying qualities of character, and (f) the person's conduct since the incident and whether this demonstrates recognition of the misconduct and subsequent reform: see McBride v Walton per Kirby P, at paragraphs [21] to [26], and Powell JA, at paragraphs [59] to [73]).

In this matter the issue arises because of the July 2011 transfer of the rent roll of Negri Real Estate to Rental Admin. The transfer was made without the knowledge or consent of the NAB, the secured creditor. The Applicant contends that the transfer was made with the view to selling the rent roll. The Applicant's explanation for the misconduct was that he was concerned that Mr Jahani might take control of the rent roll. He stated that his intention was to sell the rent roll for its true market value and maximise the amount received, to reduce as much as possible the NAB debt and avoid bankruptcy.

However, as the Respondent has noted, the Applicant did not sell the rent roll and provide the proceeds to the NAB. He ran the businesses as a going concern and refused to co-operate with the receivers when they discovered what he had done.

The transfer of the rent roll was clearly a serious matter. The NAB was a secured creditor and it was not consulted in regard to the transfer. There is no doubt that if it had been consulted it would not have agreed to the transfer. In fact the NAB ultimately commenced Supreme Court proceedings and succeeded in obtaining the return of the rent roll.

I agree with the Respondent's contention that while the Applicant acknowledged that what he did in transferring the rent roll was not correct, he has not demonstrated an understanding of the seriousness of his conduct. I do not consider that he has genuine remorse in relation to his conduct. He continues to hold the NAB and Mr Jahani responsible for his circumstances.

The misconduct appears to be an isolated incident and arose in circumstances that have not re-occurred. However, as has been noted above, the Respondent has identified later incidents in which the Applicant engaged in conduct that give rise to concern. This includes the use of the Vivid name and his dealings with the Brogans. In my view, these incidents suggest that the Applicant is prepared to engage in conduct that he considers in his best interests without regard to the protective objects of the Act. This is reflective of the Applicant's underlying qualities of character. I also consider that this conduct raises questions in regard to whether the Applicant has the requisite skills and knowledge to carry out the duties of a licensed.

I am not aware of positive conduct by the Applicant that would offset my concerns in this regard. In my view, the Applicant's contention that no consumers have suffered any loss from his conduct is not a satisfactory answer to the issues that the Respondent has identified.

On the evidence before me I am not satisfied that the Applicant is a fit and proper person to be involved in the direction, management or conduct of the business of a licensee.

In the circumstances, it is my view that the Respondent's determination is the correct and preferable one. It should therefore be affirmed.

I note that a stay is in place. The conditions of the stay should remain in place until such time as this decision takes effect.

Order

The decision under review is affirmed.

The decision is to take effect 28 days from the date of these reasons.

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Decision last updated: 19 November 2013

Medium Neutral Citation:	Negri v Director General, Department of Finance and Services [2013] NSWADT 258
Hearing dates:	8 May 2013
Decision date:	19 November 2013
Jurisdiction:	General Division
Before:	S Montgomery, Judicial Member
Decision:	The decision under review is affirmed. The decision is to take effect 28 days from the date of these reasons
Catchwords:	Property, Stock and Business Agents Act - Real Estate agent - cancellation of licence - disqualified person - fit and proper person to hold a licence
Legislation Cited:	Administrative Decisions Tribunal Act 1997 Property, Stock and Business Agents Act 2002 Property, Stock and Business Agents Regulation 2003
Cases Cited:	Australian Broadcasting Commission v Bond (1990) 170 CLR 321 Clarke v Commissioner for Fair Trading [2004] NSWADT 273 Dalkic v Director-General, Department of Services, Technology and Administration (GD) [2010] NSWADTAP 78 Davidson v Commissioner for Fair Trading [2004] NSWADT 200 Hughes & Vale Pty Ltd v New South Wales (No 2) (1955) 93 CLR 127 McBride v Walton (NSW Court of Appeal, unreported, 15 July 1994 McDonald v Commissioner for Fair Trading [2004] NSWADT 124 McDonald v Director General of Social Security (1984) 1 FCR 354 Saglimbeni v Commissioner for Fair Trading, NSW Office of Fair Trading [2008] NSWADT 1
Category:	Principal judgment
Parties:	Mark Angelo Negri (Applicant) Director General, Department of Finance and Services (Respondent)
Representation:	Counsel C Webster SC (Respondent) M Negri (Applicant in person) F Campora (Respondent)
File Number(s):	123223