O'Sullivan v ASIC - [2017] AATA 644

O'Sullivan and Australian Securities and Investments Commission [2017] AATA 644 (2 May 2017)
Administrative Appeals Tribunal
ADMINISTRATIVE APPEALS TRIBUNAL               )
  )         No: 2015/0837-0838
TAXATION AND COMMERCIAL DIVISION             )
Re: Michael O'Sullivan
Applicant

And: Australian Securities & Investments Commission
Respondent
DIRECTION
TRIBUNAL:               Professor R Deutsch, Deputy President
DATE:   30 May 2017
PLACE:                     Sydney

The Tribunal directs the Registrar, pursuant to subsection 43AA(1) of the Administrative Appeals Tribunal Act 1975, to alter the text of the decision in this application as follows:
1.the decision on page 1 by deleting “Shaw” and inserting “Sean”;
2.the index on page 11 by deleting “Shaw” and inserting “Sean”;
3.the heading between paragraphs 720 and 721 by deleting “Shaw” and inserting “Sean”;
4.paragraph 721 by deleting “Shaw” and inserting “Sean”;
5.paragraph 748 by deleting “Shaw” and inserting “Sean”.

..................................[sgd].................................
Professor R Deutsch, Deputy President
Division:TAXATION & COMMERCIAL DIVISION
File Number(s): 2015/0837
2015/0838

Re:Michael O'Sullivan
APPLICANT

AndAustralian Securities and Investments Commission
RESPONDENT

DECISION
Tribunal:Professor R Deutsch, Deputy President
Date:2 May 2017
Place:Sydney

The Tribunal affirms the decision of the Australian Securities and Investments Commission dated 16 February 2015 prohibiting Mr O’Sullivan from providing financial services for a period of seven years under s 920A(1)(e) of the Corporations Act 2001 (Cth).
The Tribunal sets aside the decision of the Australian Securities and Investments Commission dated 16 February 2015 made under s 206F of the Corporations Act 2001 (Cth) and in substitution decides that under s 206F of the Act, Mr O’Sullivan is disqualified from managing a corporation for a period of five years with the qualification that Mr O’Sullivan is permitted to remain as a director of three private companies, namely, Bernard Shaw Holdings Pty Ltd, Provident Asset Management Pty Ltd and Amira Holdings Pty Ltd, provided that at no time are those companies involved in any activities which involve persons or entities that are not part of Mr O’Sullivan’s immediate family.
....................................[sgd]....................................
Professor R Deutsch, Deputy President
CATCHWORDS
CORPORATIONS – director – company – debentures – loans – construction loan – arrears – disqualified from managing corporations – failed to discharge duty with required degree of care and diligence – failure to obtain up to date valuations of property – excessive loan to valuation ratio – capitalised interest – changed maturity date of loan – lack of provisioning – misleading or deceptive conduct – disclosure requirements – prospectuses and reports – loan not identified as in arrears or default – material prejudice to debenture holders – failure to ensure information in reports accurate and complete – gained an advantage – release from guarantee – disqualification period appropriate – whether leave to manage certain companies – companies involving immediate family members – banning order – prohibited from providing financial services – failed to comply with financial services law – misleading or deceptive conduct – prospectuses and reports – period of ban appropriate – decision affirmed and decision set aside and decision made in substitution
PRACTICE AND PROCEDURE – application to re-open proceedings – application to summons production of Statements of Facts, Issues and Contentions in related proceedings – applications refused
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth) s 25
Australian Securities and Investments Commission Act 2001 (Cth) s 1(2)(b)
Competition and Consumer Act 2010 (Cth) Sch 2 s 18
Corporations Act 2001 (Cth) ss 9, 50, 180, 182, 191, 206F, 283BF, 283HB(1), 439C, 533, 705, 709, 728, 760A, 761A, 761C, 763A, 763B, 764A, 765A, 766A, 766C, 911A, 920A, 920B, 1041H, 1317B
Evidence Act 1995 (Cth) s 91
CASES
Australian Executor Trustees Ltd v Provident Capital Ltd [2012] FCA 728
AustralianSecurities and Investments Commission v ActiveSuper Pty Ltd (in liq) [2015] FCA 342
Australian Securities and Investments Commission v Adler [2002] NSWSC 483; (2002) 42 ACSR 80
Australian Securities and Investments Commission v Fortescue Metals Group Ltd [2011] FCAFC 19
Australian Securities and Investments Commission v Mariner Corporation Limited [2015] FCA 589
Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373
Australian Securities and Investments Commission v Narain [2008] FCAFC 120; (2008) 169 FCR 211
Australian Securities and Investments Commission v Vizard [2005] FCA 1037; (2005) 145 FCR 57
Australian Softwood Forests Pty Ltd v Attorney-General (NSW) (1981) 148 CLR 121
Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (2009) 180 FCR 11
Confidential and Commissioner of Taxation [2013] AATA 382
Feher v Australian Securities Commission [1997] AATA 507
Kowalski and Military Rehabilitation and Compensation Commission [2007] AATA 1988
Gillfillan v Australian Securities and Investments Commission [2012] NSWCA 370
Murdaca v Australian Securities and Investments Commission [2009] FCAFC 92
Quinlivan v Australian Securities and Investments Commission [2010] FCAFC 161
Roumanus v Orchard Holdings (NSW) Pty Ltd (in liq) [2012] FCA 775
Shi v Migration Agents Registration Authority [2008] HCA 31; (2008) 235 CLR 286
Tweed v Australian Securities and Investments Commission [2008] AATA 514
Vissenjoux and Australian Securities and Investments Commission [2015] AATA 98
Yao v Minister for Immigration and Border Protection [2014] FCAFC 17
SECONDARY MATERIALS
Regulatory Guide 69 – Improving disclosure for retail investors dated August 2008
Regulatory Guide 69B – Debentures and unsecured notes: Improving disclosure for retail investors
Regulatory Guide 98 – Licensing: Administrative action against financial services providers ASIC
REASONS FOR DECISION
Professor R Deutsch, Deputy President
2 May 2017
INDEX
Decision................................................................................................................................. 2
Catchwords…………………………………………………………………………………………2
Legislation.............................................................................................................................. 3
Cases..................................................................................................................................... 3
Secondary Materials.............................................................................................................. 4
REASONS FOR DECISION.................................................................................................. 5
INTRODUCTION.................................................................................................................. 12
FACTS................................................................................................................................. 14
A.    BACKGROUND FACTS PERTAINING TO PROVIDENT........................................ 14
(a)      Provident – Structure and Directors.................................................................. 14
(b)      Provident’s Activities.......................................................................................... 15
(c)      Mr O’Sullivan’s background and the financial benefit he gained from Provident............            18
(d)      Provident’s Receivership and Liquidation.......................................................... 18

B.    THE BURLEIGH VIEWS LOAN................................................................................ 20
(a)      Initial loan and variations up to 2003.................................................................. 20
(b)      2004 Deed of Variation...................................................................................... 23
(c)      The landslip........................................................................................................ 24
(d)      The 2007 Loan Variation and Colliers Valuation Report.................................... 24
(e)      Events in 2008 and early 2009 – including liquidation of Burleigh Views, Provident’s entry into possession and appointment of Mr O’Sullivan as controller............................................................ 27
(f)    The lapse of the DA............................................................................................... 32
(g)      The provision of the Robertson values and other events up to 2012................ 33
(h)      Provision made for the BVL in Provident Accounts........................................... 38
(i)    Mr O’Sullivan’s responsibility for, and knowledge of, the BVL.............................. 38

C.    REPORTS TO ASIC AND AETL.............................................................................. 39
D.    PROSPECTUSES AND INFORMATION BOOKLETS............................................ 42
E.    BOARD REPORTS.................................................................................................. 44
F.    CITY PACIFIC AND THE DRAWDOWN OF THE BVL............................................ 45
(a)      City Pacific background..................................................................................... 45
(b)      Drawdown of BVL to discharge City Pacific liability to Provident...................... 46

G.    CASHFLOW AND THE RELEASE OF MR O’SULLIVAN’S GUARANTEE.............. 47
(a)      Cashflow Background....................................................................................... 47
(b)      Cashflow debt and Novation of RASA............................................................... 48
(c)      BBSFF demand on Cashflow guarantee.......................................................... 49
(d)      Release of Cashflow Guarantee....................................................................... 51
(e)      Receivership and Liquidation of Cashflow........................................................ 52

THE HEARING AND THE EVIDENCE................................................................................. 53
ISSUES................................................................................................................................ 54
Re-opening/Summons Application.................................................................................. 54
273. Issue 1............................................................................................................... 55

The BV Loan Issues – Mr O’Sullivan’s behaviour in relation to the BV Loan................... 55
274.    Issue 2............................................................................................................... 55
275.    Issue 3:.............................................................................................................. 55
276.    Issue 4............................................................................................................... 55
277.    Issue 5............................................................................................................... 55

The Cashflow Guarantee Issue – Mr O’Sullivan’s behaviour in relation to the release of the Cashflow Guarantee.......................................................................................................................................... 55
278. Issue 6............................................................................................................... 55

The City Pacific Issue – Mr O’Sullivan’s behaviour in relation to the utilisation of the BV Loan to satisfy a liability of City Pacific to Provident................................................................................................... 56
279. Issue 7............................................................................................................... 56

The Appropriateness and Duration of the Disqualification and Banning Orders............. 56
280.    Issue 8............................................................................................................... 56
281.    Issue 9............................................................................................................... 56
282.    Issue 10............................................................................................................. 56

CONSIDERATION OF THE ISSUES.................................................................................. 57
The Re-opening/Summons Issue........................................................................................ 57
ISSUE 1: Should Mr O’Sullivan be allowed to:................................................................. 57
(a)      re-open these proceedings so as to allow the tender of decisions of ASIC delegates in relation to administrative proceedings against two other directors of Provident; and
(b)      summons production of Statements of Facts, Issues and Contentions in related Tribunal proceedings?
The BV Loan Issues – Mr O’Sullivan’s behaviour in relation to the BV Loan....................... 60
ISSUE 2: Did Mr O’Sullivan act at all relevant times with due care and diligence as a director of Provident (Provident) in his management of the BVL?.................................................................... 60
Valuations..................................................................................................................... 62
Failing to obtain timely Valuation................................................................................... 65
Excessive Reliance on the Colliers Valuation Report.................................................. 67
Relying on Colliers Valuation Report when it assumed no landslip............................. 68
Ignoring the effects of the Global Financial Crisis (GFC)............................................. 68
The 2007 Colliers Valuation Report used as the basis for information inputted to the Provident NTBS system...................................................................................................................................... 69
No review of the position regarding the valuation after the audit report of Walter Turnbull        70
Failure to commission valuations on a regular basis as was at times called for by the Regulatory Guide and especially after receiving notification of the lapsing of the DA...................................... 70
Undue reliance on the Robertson Valuations/Inappropriate Communications............ 71
Permitting higher LVRs and allowing the LVR’s to exceed 70%.................................. 79
Conclusions on Valuations........................................................................................... 80
Interest and Capitalisation............................................................................................ 81
Maturity Date changes.................................................................................................. 83
Lack of Provisioning...................................................................................................... 87

ISSUE 3: Did Mr O’Sullivan make, or was he involved in Provident making, misleading statements (or omissions) in Debenture Prospectus 13 or in the 2012 Information Booklets about the BVL in contravention of s 728 or 1041H of the Act?........................................................................................................................ 89
Relevant statutory provisions and Regulatory requirements....................................... 89
Disclosure Requirements under RG 69....................................................................... 93
The respects in which Prospectus No 13 and the Information Booklets were misleading       94
BV Loan not identified as in arrears or default.............................................................. 95
Failure to disclose Property Development involvement............................................... 97
1.     Prospectus No 13 – Statement 1.......................................................................... 97
2.     Prospectus No 13 – Statement 2.......................................................................... 97
3.     January 2012 Information Booklet – Statement 1................................................. 98
4.     January 2012 Information Booklet – Statement 2................................................. 98
Failure to identify accurate LVR.................................................................................... 98
Failure to state BV in liquidation etc.............................................................................. 99
Suggestion that BV Property was nearing completion................................................. 99
Failure to properly disclose valuation and its basis.................................................... 100
Failure to disclose real risk that mortgage security may be insufficient.................... 102
Effect of misleading disclosures in Prospectus and Information Booklets................ 102

ISSUE 4: Did Mr O’Sullivan:........................................................................................... 103
(a) cause Provident to breach s 283BF of the Act (and the Debenture Trust Deed) in failing to disclose a number of matters which may have materially prejudiced the interests of the debenture holders; and
(b) make or cause to be made misleading statements (or omissions) to ASIC and AETL about the BVL in contravention of s 1041H of the Act, in the Benchmark Reports, Quarterly Reports and Trustee Arrears Reports?
Relevant Legislation.................................................................................................... 103
Respects in which disclosures to AETL and ASIC involved contraventions of the Act 106
Failure to disclose that the BVL and Interest thereon were not repaid....................... 107
Failure to disclose an accurate LVR and the Basis of its Calculation....................... 109
Failure to disclose LVR exceeded 70%...................................................................... 110
Failure to disclose BV in Liquidation etc..................................................................... 112
Failure to disclose DA had lapsed and its consequences......................................... 114
Failure to disclose shortfall possibility........................................................................ 115
Failure to disclose effective maturity date.................................................................. 115
Effect of misleading conduct...................................................................................... 116

ISSUE 5: Did Mr O’Sullivan fail, in contravention of his duties under s 180 of the Act, to ensure that the information disclosed to the Board about the BV Loan, including the loan arrears reports in the Board Reports, was accurate and complete?................................................................................................................ 117
The Cashflow Guarantee Issue – Mr O’Sullivan’s behaviour in relation to the release of the Cashflow Guarantee 119
ISSUE 6: In relation to Mr O’Sullivan’s release from the Cashflow guarantee did he:... 119
(a) act in a manner which was in contravention of his duties of care and diligence under s 180 of the Act; and
(b) improperly use his position as director of Provident to secure an advantage for himself, in the form of a release from the joint and several guarantee that he, Provident and Mr Nolan had provided to BBSFF Securitisation Pty Ltd (BBSFF) in respect of the obligations of Cashflow Finance Solutions Pty Ltd (Cashflow) to BBSFF (Cashflow guarantee);
(c) engage in conduct that was misleading or deceptive or likely to mislead or deceive ASIC, AETL and the public in breach of s 1041H of the Act by failing to disclose in the Quarterly Reports, the Benchmark Reports or otherwise that his liability, if any, under the Cashflow guarantee had been released?

Background................................................................................................................. 119
Did the guarantee have value and does that matter?................................................. 120
Did the failure to disclose the release of the Cashflow Guarantee amount to a contravention of s 1041H? 122
Did the non-disclosure of the Conflict breach Provident’s Conflict Policy?............... 124
Was there a clear and tangible benefit to Provident arising from the Release and does it matter? 126
Would a relevant party have acted differently if disclosure had been made and does it matter? 127
Tribunal’s Conclusion on the Cashflow Issues.......................................................... 127

The City Pacific Issue – Mr O’Sullivan’s behaviour in relation to the utilisation of the BV Loan to satisfy a liability of City Pacific to Provident..................................................................................................... 128
ISSUE 7: By authorising a drawdown of $900,000 from the BV Loan to satisfy a liability of City Pacific to Provident:........................................................................................................................................ 128
(a)      did Mr O’Sullivan improperly used his position as a director of Provident to secure an advantage for City Pacific; and
(b)      did Mr O’Sullivan act with due care and diligence as a director of Provident Capital Limited (Provident) in his management of the BVL?
The Appropriateness and Duration of the Disqualification and Banning Orders............... 131
ISSUE 8: Is the disqualification of Mr O’Sullivan from managing corporations under s 206F for a period of five years justified having regard to all the relevant considerations?................................... 131
Do the nature and extent of the contraventions support a seven year disqualification? 132
Does the fact that the auditors did not raise any objections to the treatment of the Burleigh Views Loan affect the outcome?.............................................................................................................. 133
Is the making of the seven year disqualification order necessary in the interests of the public generally?       135
Has Mr O’Sullivan demonstrated genuine contrition for his conduct and now understand his role and responsibility as a director?........................................................................................ 136
Does the connection between Provident and Cashflow warrant any reduction in the length of the disqualification?.......................................................................................................... 140
Was the Cashflow Liquidator Report correct and does it matter?............................. 142
Summary on Disqualification...................................................................................... 143

ISSUE 9: If a disqualification order is made under s 206F, should Mr O’Sullivan be granted leave under s 206F(5) to manage Portcullis Capital Pty Ltd, PCL Holdings Pty Limited, Bernard Sean Holdings Pty Limited, Provident Asset Management Pty Limited and/or Amira Holdings Pty Limited?............................ 143
Portcullis Capital Pty Ltd............................................................................................. 144
PCL Holdings Pty Ltd.................................................................................................. 144
Bernard Shaw Holdings Pty Ltd; Provident Asset Management Pty Ltd; Amira Holdings Pty Ltd 145

ISSUE 10: Should:.......................................................................................................... 145
(a) a banning order can be made at all; and
(b) if so, is the ban of Mr O’Sullivan from providing financial services under ss 920A and 920B for seven years justified having regard to all the relevant considerations?
Can a banning order be made?.................................................................................. 147
Is banning Mr O’Sullivan from providing financial services for a period of seven years justified? 149

CONCLUSION................................................................................................................... 149
DECISION.......................................................................................................................... 151
INTRODUCTION

In this application, the Applicant, Mr O’Sullivan seeks a review of two decisions made by a delegate of the Respondent, Australian Securities and Investments Commission (ASIC), both of which are dated 16 February 2015 (the Decisions).
The first decision was made under s 206F of the Corporations Act 2001 (Cth) (the Act) and was to disqualify Mr O’Sullivan from managing a corporation for a period of five years (the Disqualification Decision).
In so deciding, the ASIC delegate found that:
(a)pursuant to s 206F(1)(a), Mr O’Sullivan was an officer of two or more failed corporations, namely, Provident Capital Limited (Provident) which was wound up on 24 October 2012 and Cashflow Finance Solutions Pty Ltd (Cashflow) which was wound up on 28 May 2013;
(b)pursuant to s 206F(1)(b), Mr O’Sullivan had been given the requisite notice setting out ASIC’s concerns and an opportunity to be heard on the question of his disqualification;
(c)pursuant to s 206F(1)(c) the disqualification was justified. In doing so, the delegate relied, inter alia, on findings that Mr O’Sullivan had breached:
(i)s 180(1) of the Act (requiring a director to exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise);
(ii)s 182 (requiring a director not to improperly use their position to gain an advantage for themselves or someone else); and
(iii)s 1041H of the Act (requiring a person not to engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive).
The second decision, made under ss 920A and 920B of the Act, was to prohibit Mr O’Sullivan from providing financial services for a period of seven years (the Banning Decision).
In so deciding, the delegate found that:
(a)for the purposes of s 920A(1)(e) of the Act, Mr O’Sullivan had not complied with a financial services law, namely, s 1041H of the Act, in that Mr O’Sullivan had engaged in conduct regarding a financial product (being debentures issued by Provident) which was misleading or deceptive or likely to mislead or deceive in contravention of that provision;
(b)for the purposes of s 920A(1)(g) of the Act, Mr O’Sullivan had been involved in the contravention by Provident of a financial services law, being s 728 of the Act, in connection with the publication by Provident of a prospectus.
This is a review of each of those two decisions of the ASIC delegate under s 1317B of the Act. The Tribunal has the power to review the Decisions under s 25 of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act).
The object of review of a decision by the Tribunal is to determine what is the correct or preferable decision: Shi v Migration Agents Registration Authority [2008] HCA 31; (2008) 235 CLR 286.
The Tribunal’s task is not to review the delegate’s decision for error but rather reach a separate decision based on the facts as presented. In other words, the Tribunal must reach its own conclusions by conducting its own, independent assessment and determination of the matters necessary to be addressed. The Tribunal will address the same question as was required to be addressed by the original decision-maker but do it afresh: Shi at [140]-[142] per Kiefel J; see also Yao v Minister for Immigration and Border Protection [2014] FCAFC 17 at [41] per Perry J (White and Wigney JJ agreeing).
Accordingly, the question for this Tribunal is whether or not the disqualification order and banning order made by the delegate were the proper orders in all of the circumstances, having regard to a number of matters including most particularly:
(a)the protection of the public;
(b)specific and general deterrence and punishment; and
(c)maintaining professional standards.
These matters are relevant and important as is evident from the decisions in Australian Securities and Investments Commission v Adler [2002] NSWSC 483; (2002) 42 ACSR 80 at [55]-[56] and Australian Securities and Investments Commission v Vizard [2005] FCA 1037; (2005) 145 FCR 57 at [35] and from the Regulatory Guide 98 (RG 98) published by ASIC which was updated in July 2013.
FACTS
There was considerable disagreement about the facts in this case. The facts as found by the Tribunal are set out below. Relevant areas of contention regarding the facts as between the parties are highlighted in bold and where possible considered and resolved as they arise.
A. BACKGROUND FACTS PERTAINING TO PROVIDENT
(a) Provident – Structure and Directors
Provident Capital Limited (Provident) was incorporated on 25 May 1998.
Provident is a wholly owned subsidiary of Provident Asset Management Pty Ltd (Provident Asset Management), of which Mr O’Sullivan is the sole shareholder. Provident Asset Management holds the shares in Provident on trust for the O’Sullivan Trust and the Provident Trust. Mr O’Sullivan and members of his family are beneficiaries of those trusts.
Since July 2000, the directors of Provident and their relevant dates of service were as follows:

Director Role Dates

Michael O’Sullivan Managing Director 25/05/1998 – 28/01/2014

Malcolm Bersten Director (Provident’s legal counsel) 01/07/2000 – 28/01/2014

Trevor Seymour Director (non-executive) 25/05/1998 – 17/12/2013

John Sweeney Director (non-executive) 20/07/2008 – 07/03/2014

Mr Slobodan (Robert) Sukic was a director of Provident from 27 November 1998 to 30 June 2000.
At all relevant times, John Fulker was Provident's chief operating officer, and Derek "Butch" Hornby was Provident's chief financial officer.
(b) Provident’s Activities
ASIC characterised Provident's main business as the issuing of debentures and investment of funds by way of asset lending, primarily in first mortgage loans. Provident’s lending covered residential, commercial, industrial and rural property.
Mr O’Sullivan characterised Provident’s main business as the making of loans to borrowers, primarily for the purpose of financing property acquisitions or property developments.
The Tribunal accepts as a fact that the business conducted by Provident went beyond that of making loans to borrowers as contended by Mr O’Sullivan. Its operations were more sophisticated and extended to a relatively complex process involving the issue of debentures to raise funds more broadly from the public at large.
Provident made loans to borrowers and raised funds for that purpose from:
(a)the proceeds of debentures issued by Provident to members of the public from time to time between 1998 and 2012 pursuant to a debenture trust deed dated 11 December 1998; and
(b)borrowings from Bendigo and Adelaide Bank (ABL) under a wholesale lending facility with Provident, entered into in or about August 2007 (ABB Facility).
The ABB facility initially expired on 17 August 2011, but was extended to 31 March 2012 whilst the terms of an extension or replacement facility were considered. The facility was not extended beyond 31 March 2012.
As regards loans made or refinanced by Provident and funded by the ABB facility (the ABB Portfolio), the loans and related mortgages were transferred in equity to ABL, which had an equitable interest over those loans.
ASIC asserts that the interest paid on loans in the ABB Portfolio was swept straight to ABL’s nominee.
Mr O’Sullivan asserts that this is inaccurate. According to Mr O’Sullivan, for the first four and a half years of the ABB Facility, Provident’s customers made their payments to Provident and Provident then paid ABL, at the end of the month, the interest owed under the ABB facility.
From late 2011 to early 2012, the process changed and Provident’s borrowers made their payments straight into a Provident account with ABL. ABL then swept up its interest entitlement and then paid Provident’s entitlement to it under the Facility; Transcript Day 1, p 74, lines 30-45 to p 75, lines 1-26.
The Tribunal accepts that the position as put by Mr O’Sullivan is technically the correct version of how the monies were treated by the parties but exactly how or why this was material and relevant is not entirely clear.
The trustee under the Debenture Trust Deed was initially I.O.O.F Australia Trustees (NSW) Ltd (IOOF). On 19 November 2004 IOOF retired and Australian Executors Trustees Limited (AETL) was appointed trustee.
IOOF held, and from 19 November 2004 until 15 August 2007, AETL held, a first ranking charge over the assets of Provident.
According to ASIC, on 15 August 2007 AETL released certain property from the charge, namely Provident’s right, title and interest in and to the property identified in clause 3.4 of a Sale Deed dated 15 August 2007 between Provident and ABL Nominees Pty Limited as trustee of the Provident Warehouse Trust. This property consisted of loans by Provident to third parties which were funded by the ABB Facility. The effect of this was that from 15 August 2007, loans to third parties funded by the ABB facility, which were beneficially owned by ABL, were not secured by the charge in favour of AETL.
Mr O’Sullivan asserts that that characterisation of what happened is inaccurate.
Provident issued debentures to retail investors through its “Fixed Term Investment Portfolio” (FTI Portfolio).
Provident held an Australian Financial Services Licence (AFSL). Mr O’Sullivan was a key person named in the AFSL.
Mr O’Sullivan was together with Clive Guthrie, the Responsible Manager for the AFSL from around 2002 when the AFSL was first granted up to the appointment of the receivers.
From 2009 onwards, Provident managed and acted as Responsible Entity for two managed investment schemes known as the Provident Capital Monthly Income Fund (MIF) and the Provident Capital High Yield Fund (HYF), funded by funds invested by individual unit holders. Mr O’Sullivan was also the portfolio manager for the MIF and the HYF.
ASIC asserts that there were restrictions on Provident’s funding of loans imposed by the terms applicable to the different funding sources available, although that was not so much a restriction on loans funded by the issuing of debentures as it was on loans funded through the ABB Facility or the MIF.
Mr O’Sullivan asserts that the evidence referred to by the Respondent does not support that allegation and that it is not clear what ASIC refers to as restrictions.
Cashflow and Provident were related companies for the purposes of s 50 of the Act. Cashflow’s business was to provide short term inventory financing loans to small and medium size enterprises.
(c) Mr O’Sullivan’s background and the financial benefit he gained from Provident
Mr O’Sullivan asserts that prior to the establishment of Provident he had extensive business experience in lending, acting as an intermediary between lenders and borrowers and property development: Exhibit A1 paras 7-9.
While not contradicting this assertion the Respondent does not explicitly agree.
The Tribunal accepts that Mr O’Sullivan has the requisite experience.
During the financial years 2008 to 2011, Mr O’Sullivan received the following salary payments from Provident (not including superannuation):

Financial Year Salary ($)

FY2008 180,000

FY2009 300,000

FY2010 300,000

FY2011 300,000

Between 1 July 2006 and 30 June 2010, ASIC asserts that Provident paid in the order of $10 million in dividends to Provident Asset Management, which was wholly owned by Mr O’Sullivan and that those payments benefitted Mr O’Sullivan and his family.
Mr O’Sullivan asserts that this is not accurate. In particular he asserts that the shares in question were more accurately held on trust for him and his family and not by him personally.
No disagreement was voiced as to the size of the dividend but the relevance of the size of the dividend was questioned by Mr O’Sullivan.
The Tribunal accepts Mr O’Sullivan’s factual assertion that the shares in question were held on trust for Mr O’Sullivan and his family.
(d) Provident’s Receivership and Liquidation
On 3 July 2012, Anthony Sims, Philip Carter and Marcus Ayres of PPB Advisory were appointed by the Federal Court as joint and several receivers of Provident (Provident Receivers) upon application by AETL for an order pursuant to s 283HB(1) of the Act.
As at this date, Provident’s total loans under management were approximately:
(a)$150 million in the FTI Portfolio;
(b)$74 million in the ABB Portfolio;
(c)$712,000 in the HYF; and
(d)$31.4 million in the Monthly Income Fund.
On 24 October 2012, Provident was wound up as a result of a resolution of creditors pursuant to s 439C of the Act. The liquidators of Provident are Anthony McGrath and Joseph Hayes of McGrath Nicol (Provident Liquidators).
In their report to ASIC dated 18 December 2012 the Provident Liquidators estimated that the return to unsecured creditors may be 0 cents in the dollar. Provident was wound up with an estimated deficiency of $77,746,869. Liabilities included $201,634,546 owing to debenture holders.
The Provident Liquidators stated in their report of 30 October 2013 prepared pursuant to s 533 of the Act that in their opinion:
The key reasons for failure of the company include:
·significant level of defaulting borrowers by loan value (greater than 90% of the fixed term investment portfolio);
·poor level of enforcement action against defaulting borrowers;
·inadequate provisioning and impairment of defaulting loans;
·failure to obtain current valuations for property securities; and
·misconduct by [Provident] directors … and generally poor management.
Mr O’Sullivan accepts that this was the Report of the liquidators but points out quite rightly that this is only evidence of the fact that that is what the liquidators reported and not evidence as to the truth or accuracy of those statements. Mr O’Sullivan points out that these key reasons were put to him and he expressly denied each one except perhaps for the last one.
The Provident Receivers commenced public examinations of the directors of Provident, including Mr O’Sullivan, in the Federal Court in April 2013.
The Provident Receivers’ update to debenture holders dated 16 April 2015, reporting on the position as at 31 December 2014, stated that the estimated return to FTI debenture holders was 16 cents in the $.
B. THE BURLEIGH VIEWS LOAN
(a) Initial loan and variations up to 2003
On 11 March 1998, Burleigh Views Pty Limited (then known as Construction Management Consultants Pty Limited) (Burleigh Views) received development approval (DA) from the Gold Coast City Council in respect of a 36 villa development at Fleay Court, Burleigh Heads, Queensland (Burleigh Views Property). The construction of the first 18 villas was referred to as Stage 1 of the development, and the construction of the remaining 18 villas was referred to as Stage 2.
The DA was expressed to lapse where, relevantly:
the use of land or the use or erection of a building or other structure on land, the subject of approval in respect of which the permit was issued, has not been commenced within 4 years of the date of issue of the permit…
or
a use of any premises established pursuant to the permit has ceased for a period of at least 12 months.
On 21 March 2000, Provident entered into a loan agreement with Burleigh Views (2000 Loan Agreement) under which Provident agreed to advance $4,000,000 to Burleigh Views for a period of one year (Burleigh Views Loan or BVL).

The BVL was a construction loan. The purpose of the BVL was to fund construction of the 36 townhouses the subject of the DA. Within Provident, there was general agreement that Mr O’Sullivan had the primary carriage of issues arising in relation to the BVL.
Pursuant to clause 3(d) of the 2000 Loan Agreement, the advance was to comprise a sum of $1,086,648.60 on settlement of the purchase of the Burleigh Views Property and progress payments to assist in the carrying out of certain work on the property as approved by Provident.
Clause 3(e) of the 2000 Loan Agreement included the following:
The Lender will make monthly progress payments to the Borrower on request by the Borrower PROVIDING HOWEVER, that the Lender receives the following:
(i) A certificate provided by a quantity surveyor as approved by the Lender. Such certificate to include the following information:
(a) Confirmation that the work has been carried out as claimed by the Borrower;
(b) Cost of the work completed including a breakdown of percentage of each work contract;
(c) The estimated cost to complete the work as at the date of the certificate;
(d) Confirmation that the work completed conforms to any plans and approvals by any authority;
(e) Details of any projected development cost variables and consequent budget increases or decreases;
(f) Progress of the work compared to any initial approved work timetables…
Clause 3(f)(i) provided that the Lender was not obliged to make a progress payment if the estimated cost of completing the work exceeded the undrawn balance of the loan.
Pursuant to clause 4(a), interest was payable calendar monthly in arrears.
An “event of default” was defined in clause 1(d) of the 2000 Loan Agreement to mean “any of the events described in this Agreement”. Clause 6 of the 2000 Loan Agreement stated, in this respect:
6. Events of Default
The Borrower shall at the option of the Lender be immediately in default upon the occurrence of any of the following events of default:-
(a)If there is default (other than by the Lender) in the performance of any term agreement or condition contained in or implied by this Agreement, any security or any other collateral document or securities;
(b)If any indebtedness of the Borrower to any person is not paid when due or becomes due and payable prior to its specified maturity or any creditor of the Borrower becomes entitled to declare the indebtedness of the Borrower due or the Borrower makes default under any charge or security in favour of any person;
(c)If a Receiver or official manager or analogous person of the Borrower’s undertaking or part thereof is appointed;
…
(g)If any application for winding up or analogous process of the Borrower is presented or any order is made or any effective resolution is passed for the winding up of the Borrower;
…
AND a determination by the Lender that any of these events has occurred shall be final and binding on the Borrower and any guarantor.
Clause 7 of the 2000 Loan Agreement provided for the rights of the Lender upon default by the Borrower.
The Burleigh Views Loan together with “further advances, interest and costs due and owing” was secured by a first registered mortgage in favour of Provident over the Burleigh Views Property (Burleigh Views Mortgage) as well as a fixed and floating charge (Burleigh Views Charge).
The directors of Burleigh Views, Anthony and Pasqual Zarro, also granted Provident a guarantee and indemnity in respect of all liabilities arising under the BVL.
On 2 March 2001, Gradmont Pty Ltd (on the instructions of Mr Farquar, Construction Finance Manager at Provident) valued stage 1 of the Burleigh Views Property at $5,620,000 upon completion of the townhouses for that stage. The land for stage 2 was valued as an approved site at $1,150,000.
On 20 March 2001, the initial term of the BVL expired. In the period between 20 March 2001 and December 2001 (and at any time thereafter), no repayment of interest or principal was made to Provident by or on behalf of Burleigh Views. Until a variation to the BVL was agreed, it was in default. During this period, interest continued to accrue on the BVL and was capitalised and added to the principal outstanding.
On 23 July 2001, Provident served Burleigh Views with a Notice of Exercise of Power of Sale, which stated that there was a default under the Burleigh Views Mortgage and that if certain payments were not made Provident may proceed to sell the Burleigh Views Property. Provident did not proceed to sell the Burleigh Views Property as mortgagee pursuant to this notice.
By a Deed of Variation dated 17 January 2002, Provident agreed to advance the sum of $4.942 million to Burleigh Views (drawn down on 20 December 2001) with a due date of 20 December 2002.
By a second Deed of Variation dated 20 June 2002, Provident agreed to advance the sum of $5.165 million to Burleigh Views with a due date of 20 March 2003. Of the sum advanced, $2,149,675 was to repay the existing loan.
On 20 March 2003, the then current term of the BVL expired and the loan was then in default. In the period between 20 March 2003 and 24 April 2004, no repayment of interest or principal was made to Provident by or on behalf of Burleigh Views. During this period, interest continued to accrue on the BVL and was capitalised and added to the principal outstanding.
There were, thus, three separate periods when the BVL was in default in the period between 2000 and April 2004.
On 31 July and 3 September 2003 Provident served Burleigh Views with further Notices of Exercise of Power of Sale, but did not proceed to sell the Burleigh Views Property as mortgagee.
On 23 December 2003, the Burleigh Views Property was valued by PRP Valuers at $5.9 million for “Market Value of land ‘As Is' with Development Approval in place” (exclusive of GST) and $17.222 million for “Gross Realisation of project ‘On Completion’” (inclusive of GST) (the 2003 PRP Valuation Report).
(b) 2004 Deed of Variation
By a third Deed of Variation dated 24 April 2004, Provident agreed to advance the sum of $8.89 million to Burleigh Views with a due date of 30 November 2004, with $4.05 million of the sum advanced to be used to repay the existing amount owing under the BVL (2004 Deed of Variation).
At this time, Mr O’Sullivan did not get any legal advice as regards whether or not the DA remained enforceable. Mr O’Sullivan argues that there was no reason for him to seek advice regarding the continued operation of the DA at this time.
The 2004 Deed of Variation provided for the balance of money to be used, inter alia, to pay for civil works, construction costs, marketing costs and interest costs. Clause 6 provided for partial repayments to be applied firstly, in discharge of the BVL, and secondly, in discharge of “the facility to City Pacific Developments Pty Ltd secured by Second Mortgage over security property situated at 124-128 Bundall Road Bundall”.
In or about August 2004 construction of the Stage 1 villas commenced at the Burleigh Views Property. By the start of August 2004, i.e. before construction of Stage 1 had commenced, the loan principal on the Burleigh Views Loan was in the sum of $6,375,000. Earthworks for Stage 1 had commenced earlier than August 2004 according to Mr O’Sullivan.
On 30 November 2004, the then current term of the BVL expired and the loan again was in default. In the period between 30 November 2004 and 2 May 2007, no repayment of interest or principal was made to Provident by or on behalf of Burleigh Views. During this period, interest continued to accrue on the BVL and was capitalised and added to the principal outstanding.
In or about late 2005, Burleigh Views was in dispute with the builder it had contracted to construct the villas at the Burleigh Views Property. On 22 November 2005 Provident, pursuant to the Burleigh Views Mortgage, served upon Burleigh Views a Notice of Exercise of Power of Sale of the Burleigh Views Property.
(c) The landslip
In early 2006, it seems that there was a landslip on Council-owned land adjacent to the Burleigh Views Property. Mr O’Sullivan has suggested that this was more about a broken water pipe (Transcript Day 2, p 175, lines 1-8) but there seems to be agreement between the parties that a landslip, whatever the cause, had occurred on the adjacent Council-owned land.
In any event, the Council sought to rectify the issue by building a retaining wall on its land. While it built the retaining wall, the Council occupied part of the Burleigh Views Property so development work in that area had to stop. The retaining wall was completed in about December 2007.
(d) The 2007 Loan Variation and Colliers Valuation Report
On or about 3 May 2007, Provident wrote to Burleigh Views offering to advance further funds (the May 2007 Letter of Offer). Clause 4 of the May 2007 Letter of Offer provided as follows:
The maximum amount to be lent under this facility will be the lesser of:
· $13,500,000.00; or
· 70% of the “on-completion” valuation of the development property excluding GST.
The letter stated that this advance would include (inter alia, and subject to any adjustment to reflect the maximum amount available under the above paragraph), the sum of $750,000 by way of Stage 1 construction costs, $45,000 by way of Stage 1 contingency, $3,800,000 by way of Stage 2 construction costs and $100,000 by way of Stage 2 Contingency other. The “Stage 1 peak debt” was identified as $13,150,000. The May 2007 Letter of Offer contemplated that this amount would be repaid, in part, by the proceeds of Stage 1 sales, leading to a “Stage 2 peak debt” of $7,225,500.
Clause 6 of the May 2007 Letter of Offer provided:
Interest will be calculated at 16.50% per annum reducing to 10.50% per annum (the discount rate) for each interest payment received by the due date where there is no other default. Interest will be calculated on the highest amount outstanding during an interest period. Interest is payable monthly in arrears by the same day in each month as the day on which this facility is settled.
If the development proceeds to our satisfaction, and your loan is not in default, then we will capitalise interest (i.e. we will add the interest amount to the amount advanced) at the discount rate up to the amount specified in the funding table set out in paragraph 4 of this letter [this was $500,000]. Interest above this amount must be paid as set out in the preceding paragraph.
The May 2007 Letter of Offer stated, as regards default and loan extensions:
(a)in paragraph 5:
This facility is for the period of 12 months from the day the loan is settled. The loan and all other amounts payable must be repaid at the end of this period …
If you are unable to repay this loan from other sources, it will be necessary to sell the security property and use the proceeds of the sale to repay the loan.
(b)in paragraph 16(j):
At our discretion, we may extend the repayment date by the lesser of 1 year or the loan period, if between one and three months before the repayment date you ask us to extend your loan.
(c)in paragraph 16(k):
If you are unable to repay this facility on or before the due date, or no arrangements have been made before the due date to extend, vary or rollover the facility, then we may, at our discretion, rollover the loan for one or more further period[s] of 90 days 1, 2 or 3 months. During each of these periods, you must pay interest monthly in arrears as provided in clause 6 but with no discount in the rate for timely payment. In addition, we will charge you a rollover fee of $100,000 on the first day of each rollover period.
The May 2007 Letter of Offer was accepted and signed by the relevant parties.
ASIC asserts that in May 2007, the BVL was recorded in the Provident Monthly Management accounts as having been discharged on 15 May 2007, with a new loan being settled on the same date with a principal limit of $13,500,000.
ASIC says that the BVL was at this time extended to a limit of $13,500,000 without any further valuation being obtained, and at a time when $13,500,000 was in excess of 70% of the value of the Burleigh Views Property assessed on an as complete basis with the benefit of a DA according to the most recent valuation Provident had at that time. Thus, at the time of agreeing to extend the loan, the LVR was already in excess of 70%.
Whilst the May 2007 Letter of Offer identified a 12 month period for the loan, Mr O’Sullivan accepted in evidence that the chances of the loan being repaid in that timescale were slim.
Further, Mr O’Sullivan agreed that it was a significant concern for a lender lending for the purpose of a construction development that the Burleigh Views Loan had ballooned to $12.3 million by May 2007.
In his evidence Mr O’Sullivan accepts that the interest component had blown out but not the construction costs.
On 9 August 2007, Provident’s solicitors wrote to Burleigh Views’ solicitors setting out the terms upon which Provident was prepared to agree to a variation of the Burleigh Views loan. The letter was enclosed with various documents to be executed by Burleigh Views including a Deed of Variation of Loan Agreement.
On 25 August 2007, Burleigh Views’ solicitors wrote to Provident’s solicitors enclosing various documents including a marked up version of the Deed of Variation of Loan Agreement, executed by Burleigh Views. The letter stated, among other things, that “some minor changes to the deed of variation have been made by our client”. These changes were marked in handwriting.
On 20 September 2007, Provident’s solicitors emailed Burleigh Views’ solicitors regarding the terms and conditions upon which Provident was prepared to vary the Burleigh Views Loan. The email stated, among other things, that the:
Deed of Variation of Loan Agreement is enclosed for re-execution by your client in triplicate and return to our office by no later than Monday 24 September 2007. The amendments made to the agreement by your client are not acceptable. The variation date and advance date is to be 15 April 2007 and not 15 May 2007.
Attached to the email was an unsigned Deed of Variation of Loan Agreement.
This Deed provided, inter alia:
(a)in clause 2: that item 4 of the Burleigh Views Loan Agreement is amended so that the loan amount is to be “$13,500,000.00 or 70% of the on-completion valuation of the security property excluding GST”;
(b)in clause 5: that clause 16 of the Burleigh Views Loan be amended to provide that “[t]he terms and conditions of the Letters of Offer from the Lender to the Borrower dated 16 March 2000 and 3 May 2007 shall be incorporated as terms of this agreement wherein they have not been specifically referred to herein”;
(c)in clause 20: that the advance was to be paid pursuant to the funding table set out in that clause, which was the same as the funding table in the May 2007 Letter of Offer.
There is no evidence that a Deed of Variation of Loan Agreement was in fact entered into. Mr O’Sullivan had no recollection of executing such a document. In his affidavit of 27 April 2015 (Exhibit A1), Mr O’Sullivan stated at [106] that “[b]y an Letter of Loan Offer dated 3 May 2007, Provident agreed to advance the sum of $13.5 million with a term of 12 months to assist with the completion of Stage 1 and 2 works at the Burleigh Views Property”. In his affidavit dated 25 August 2015 (Exhibit A10), Mr O’Sullivan said at [7] that “I think that it is likely that a formal deed was executed in or about late September 2007 to reflect the refinancing agreement and that it was in the form of the Deed of Variation referred to at (d) above [ie enclosed with the letter from Reichman Lawyers dated 20 September 2007]”. He accepted that he did not recall executing that agreement, but thought having looked at the correspondence that it may have been executed.
The Tribunal accepts that;
(a)the May 2007 Letter of Offer effected a variation to the Burleigh Views Loan; and
(b)as a result of that Letter of Offer, $13.5 million was drawn down (2007 Loan Variation).
In any event, the draft Deed effectively incorporated all of the terms of the May 2007 Letter of Offer that are presently relevant, and Mr O’Sullivan accepted as much.
(e) Events in 2008 and early 2009 – including liquidation of Burleigh Views, Provident’s entry into possession and appointment of Mr O’Sullivan as controller
On or about 15 April 2008 the then current term of the Burleigh Views Loan expired.
According to ASIC, as at this time, the first 18 townhouses comprising Stage 1 of the project were nearing completion, but no substantive building works had begun on the remaining 18 townhouses being Stage 2 of the project.
Mr O’Sullivan disagrees in that Stage 1 had been constructed by an earlier date and Stage 2 had been commenced by November 2008.
The Tribunal accepts that Stage 1 was largely completed by May 2007 but the second point made by Mr O’Sullivan is not directly relevant to the fact as put by ASIC. ASIC asserts and it appears to be a fact that no substantive building works had begun for Stage 2 of the project as at 15 April 2008.
After 15 April 2008, no repayment of interest or principal was ever made to Provident by or on behalf of Burleigh Views. During this period, interest continued to accrue on the Burleigh Views Loan and was capitalised and added to the principal outstanding.
ASIC further asserts that no construction work has ever been done on Stage 2 of the project. Mr O’Sullivan asserts that this is not correct as ground works and civil works were completed on Stage 2.
The Tribunal accepts as a fact that certain Stage 2 works had been completed but these were minimal having regard to the totality of the work to be done on Stage 2.
The Burleigh Views loan was past its maturity date at all times from May 2008. Mr O’Sullivan’s evidence was that he did not recall any rollovers of the Burleigh Views Loan and if there were any it was maybe to extend maturity for three or six months only.
Mr O’Sullivan also agreed that at the end of 12 months after May 2007 there was an obligation to pay interest rather than capitalising it, and that the loan would have or should have gone on to the arrears report by September or at the latest October 2008.
In or about April 2008, Ray White prepared a marketing submission for the sale of the Burleigh Views Property, which estimated that, subject to some refurbishment work and dependent on the standard of finishes, the villas in Stage 1 of the development would be able to be sold for a total of about $9.9 million to $11.7 million, and the site on which Stage 2 was to be built would be able to be sold for about $1.98 million to $2.25 million.
On 29 May 2008, the Burleigh Views Loan was entered in Provident’s financial accounting software system, NTBS, as having been rolled over “[a]s per MOS advice to roll @LR no fee and adjust margin to nil. To roll 90 days as letter of offer only allows rolls of 90 days”.
On 13 August 2008, the maturity date of the Burleigh View loan was changed in NTBS to 11 November 2008.
By June 2008 the balance of the Provident loan was in excess of the $13,500,000 identified the 2007 Letter of Offer.
In around July 2008, or possibly a little before, Provident took possession of the Burleigh Views Property as mortgagee in possession. Provident had previously taken possession in around August 2006.
On 18 August 2008, Mr John Fulker, Provident’s Chief Operating Officer, emailed Mr O’Sullivan asking what to do about the Burleigh View Loan as “its (sic) now showing as more than 1 months in arrears”. Mr O’Sullivan advised Mr Fulker by email to accrue (interest) on the Burleigh Views Loan for that month and that Mr O’Sullivan would “make a decision next month as to whether we should put the loan on non-accrual”.
On 21 August 2008, Andrew Fielding of BDO Kendalls was appointed liquidator of Burleigh Views.
As at 21 August 2008, the outstanding balance on the Burleigh Views Loan was $13,810,621.10.

On or about 28 August 2008, Mr O’Sullivan was advised by email that Burleigh Views was in liquidation.
On 5 September 2008, Provident appointed Mr O'Sullivan as controller of Burleigh Views under s 427 of the Act on behalf of Provident as mortgagee of the Burleigh Views Property.
On 14 October 2008, John Fulker sent an email to Carl Kennedy and Sivani Srirengan, copied to Mr O’Sullivan, which requested for interest to continue to be capitalised on the Burleigh Views Loan and for the loan to be removed from the arrears report for September.
Mr O’Sullivan suggests that this is a selective description of the contents of the relevant email and that Mr Fulker also instructed Mr Kennedy to “make a note as to why so we have an audit trail for the adjustment”.
Mr O’Sullivan’s evidence was that it was his decision that interest on the Burleigh Views Loan should be recorded as being capitalised. Mr O’Sullivan also accepted that the only real difference that his decision to capitalise interest made was that the Burleigh Views Loan would not appear on any interest arrears report. Mr O’Sullivan accepted that at the time when he made the decision to capitalise interest he was aware that the consequence of that decision was that the Burleigh Views Loan would not appear on the interest arrears reports even though he was aware that interest had never been paid on the loan.
On 5 November 2008 Provident were provided with a copy of a valuation report prepared on 4 September 2007 by Colliers International in respect of the Burleigh Views Property for DKR Developments Pty Ltd (2007 Colliers Valuation Report), a copy of which was subsequently provided to Provident on or about 5 November 2008.
The 2007 Colliers Valuation Report valued the Burleigh Views Property at $26.09 million exclusive of GST on “‘As If Complete’ Gross Realisation” basis, and $13.5 million exclusive of GST on an “‘As Is’ Market Value”.
Both these valuation figures were calculated on the assumption that there was a valid DA for the proposed development.
The 2007 Colliers Valuation Report stated:
At date of valuation Stage 1 of the development which comprises eighteen (18) townhouses was near completion with Stage 2 comprising a further eighteen (18) townhouses … yet to commence construction.
We have contacted Council to confirm the validity of the Approvals although we advise that we are not town planning experts and accordingly we would recommend that advice be sought in relation to this matter from a properly qualified professional.
There were a number of critical aspects to the report as follows:
(a)First, it was provided on the assumption that the subject property was not affected by landslip;
(b)Secondly, it assumed the existence of a valid DA for the proposed development;
(c)Thirdly, it included a market commentary, which indicated that at the time of the valuation the Australian economy was accelerating with Australia recording its highest annual rate of economic growth in three years;
(d)Fourthly, it identified that the healthy economy was a factor which should together with other factors result in sustained demand in the townhouse market into the foreseeable future;
(e)Fifthly, it was prepared prior to the economic slowdown described in Provident’s Debenture Prospectus 11 in December 2008 as having affected the general economy since June 2008. That Prospectus also indicated that the result of the slowdown was that there was:
(i)An increased risk of loan default;
(ii)A change to property values generally; and
(iii)A reduction in the availability of credit generally;
(f)Sixthly, the report expressly stated that it:
has been prepared for first mortgage security purposes and should not be relied upon for any other purpose or by any person other than DKR Developments Pty Ltd and An Intending Mortgagee subject to the Readdressing of this Report.
[Colliers] accepts no responsibility for any statements in this report other than for the stated purpose.
On 6 November 2008 Mr O’Sullivan requested that Colliers be instructed to prepare an updated report addressed to Provident. Mr O’Sullivan was advised that the author of the report said that the valuation was “out of date” and that Colliers were unable to re-address it on an updated basis without inspecting the site.
On 23 December 2008 Mr O’Sullivan sent an email to John Robertson (valuer), stating “as discussed it is our intention to commence the stage 2 works on this project. Can you call me regarding an updated report”. The email attached a copy of the 2007 Colliers Valuation Report.
Notwithstanding this email sent in late 2008, ASIC asserts that no valuation report was received from Mr Robertson until January 2012.
Mr O’Sullivan asserts that it is inaccurate to say that no valuation report was received from Mr Robertson until January 2012. Mr Robertson provided valuation reports of the BV Property in December 2009, September 2010 and August 2011.
On 16 February 2009, Sivani Srirengan (Provident, Assistant Accountant) emailed Mr Fulker to ask whether interest should continue to be capitalised on the Burleigh Views Loan and noting that “the principal limit on this loan was $13.5m. Now this loan has an outstanding balance of $14.45m”. Mr Fulker forwarded this query to Mr O’Sullivan. Mr O’Sullivan instructed Mr Fulker that there should be no change to the process of capitalising interest.
On 15 July 2009, the maturity date of the Burleigh Views Loan in NTBS was changed to 30 June 2010 on the instruction of Mr O’Sullivan. The comment accompanying this change was “as per MOS email dated 15/07/09 in public folders”.
On 12 August 2009 the maturity date of the Burleigh Views Loan in NTBS was again changed to 31 December 2010, with the accompanying comment reading “as per email from Butch Hornby dated 12/08/09 in public folders”.
(f) The lapse of the DA
On 13 August 2009, the Gold Coast City Council wrote a letter to Provident stating that the DA had lapsed and that any further development of the Burleigh Views Property could not occur under that permit.
On 28 September 2009, the Gold Coast City Council sent a further letter to Provident stating that the DA had lapsed.
On 30 October 2009, Provident received an email from Mr Jake Storey of Storey and Castle Planning stating, inter alia, that:
(a)it appeared to Mr Storey that the Council was incorrect in determining the DA to have lapsed;
(b)in his view, the approval had commenced, was deemed a continuing approval and had not otherwise lapsed; and
(c)he recommended that Provident obtain legal advice which could be relied upon in a response to Council.
On 10 December 2009, Storey and Castle Planning obtained legal advice from IPA Law expressing a preliminary view that it was likely that the DA had lapsed: Exhibit A1.
(g) The provision of the Robertson values and other events up to 2012
On 15 December 2009, John Robertson emailed Provident stating that the total value of the Burleigh Views Property on an “as if complete” basis was $26,680,000 (inclusive of GST).
The value was set out in a single page in spreadsheet form and was expressed to be made on a gross realisation basis.
On 1 April 2010, Minter Ellison sent a letter of advice to Provident advising that the DA had lapsed and recommending that Provident lodge a fresh application for a Development Permit for Material Change of Use for the 36 villas. Minter Ellison advised that the new application would need to show that there were sufficient grounds to justify approval despite the conflict between the application and the planning scheme, and that sufficient grounds may include the fact that:
(a)18 villas had already been lawfully constructed pursuant to the DA; and
(b)all 36 villas would have been completed but for the Council's request to stop work pending resolution of a geotechnical slip.
After receiving the advice from Minter Ellison, Mr O'Sullivan instructed Storey and Castle Planning to commence work on an application to the Gold Coast City Council for a new development permit.
On 20 April 2010, Butch Hornby emailed Mr O’Sullivan advising, inter alia, that the following adjustment needed to be made to the March Board pack: “Burleigh Views Maturity date should read 31/12/2010”. The maturity date in the April 2010 Board Pack as presented to the Board was 31/12/10. This had changed from 11/11/08 in the March Board Pack.
On 31 May 2010, Mr O’Sullivan signed a fee proposal from Mark Cavanagh of Storey and Castle Consulting, by which Provident accepted the terms and conditions of the fee proposal for the purposes of the Material Change of Use application to Council. This fee proposal stated that a fresh application to the Council would require an architect, a landscape architect, a surveyor, a geotechnical consultant and a hydraulic consultant, would involve the payment of fees to Storey and Castle (not including consultants’ costs) of approximately $15,000 and a council application fee of approximately $17,000, and that Council was currently taking approximately 20 weeks to assess development applications of this nature.
On 19 August 2010, Arkitektika, an architecture firm, wrote to Storey and Castle Planning in relation to achieving a new DA for the Burleigh Views Property. The architects advised of their understanding that it was the client’s interest to “firstly pursue retaining the original development form, demonstrating suitable visual amenity to Council” and that alternatively, “a reduced density will be examined, with greater separation between buildings and increased landscaping”. Mr O’Sullivan agreed in evidence that one option that was being considered, if the original configuration could not be approved was a reduced density involving, he thought, two less townhouses.
On 21 September 2010, John Robertson wrote to Provident and advised that the assessed value of the Burleigh Views Property on an “as if complete” basis was $23,080,000 (inclusive of GST). The value was again set out in a single page in spreadsheet form and was expressed to be made on a gross realisation basis. Later that day, having received a telephone call in the meantime from Mr O’Sullivan, John Robertson wrote to Provident and advised that the assessed value of the Burleigh Views Property on an “as if complete” basis was $26,680,000 (inclusive of GST). This advice again consisted of a one page gross realisation basis spreadsheet.
Mr O’Sullivan points out that he has explained the circumstances in which Mr Robertson’s valuation was amended that day and rejects any inference or suggestion that he put pressure on Mr Robertson in any way to change his valuation: Exhibit A1.
On 15 December 2010, Mr Cavanagh of Storey and Castle Planning advised Mr O’Sullivan by email that there had been a pre-lodgment meeting with Council. Mr Cavanagh advised, inter alia, that Council wanted them to address numerous conflicts with the Planning Scheme, that a major outstanding issue was that the site was within an Environmental Corridor and that “as expected” Council raised the requirement that a geotechnical analysis of the site would have to be undertaken “particularly given the landslip of the Burleigh Ridge to the top of the site”.
Mr O’Sullivan asserts that the version of the email given by the Respondent is selective and fails to properly reflect the fact that overall the feedback from Council was positive but raised some specific targeted issues.
On 27 May 2011, Mr O’Sullivan wrote to the Gold Coast City Council to advise that Provident was mortgagee in possession of the property and consented to the making of a development application by Burleigh Views.
On 18 July 2011, Provident received a letter from the Gold Coast City Council seeking further information to properly assess the application.
On 26 July 2011, Provident received a letter from Mr Cavanagh of Storey and Castle Planning outlining their suggested responses to the Council’s requests.
In August 2011, Provident’s auditors, HLB Mann Judd, requested an update on the Burleigh Views valuation as at 30 June 2011, and requested further information as to the percentage complete and the expected date of completion for the Development.
On 29 August 2011 an interested debenture investor contacted Provident to enquire, in relation to Provident’s 2011 prospectus for the FTI Portfolio “how is Provident able to pay out dividends to its investors at a higher rate than the interest income it is receiving?”, and also queried the “loan that is valued at $17,518,058, which significantly exceeds both the $2.5 million/loan limit and the $4 million/borrower limit”.
The response provided was that “the largest loan of $17,518,058 is a construction facility made originally in 2004. Also please refer to p 10 point 6 regarding the latest valuation as at September 2010”.
Mr O’Sullivan points out that the response to the debenture holder was much more detailed and that the Respondent has selectively quoted from it.
The Tribunal accepts the point made by the Applicant but exactly what that establishes about the assertion made by the Respondent is unclear.
On 30 August 2011, Mr Robertson wrote to Provident and stated that the assessed value of the Burleigh Views Property was $26,680,000 inclusive of GST on an “as if complete” basis. The document again consisted of a one page gross realisation basis spreadsheet.
In November 2011 HLB Mann Judd requested information from Provident in relation to the Schedule of planned works for the Burleigh Views property for the 2011 year, and Mr Hornby’s interpretation was that they were seeking “a bit of comfort that there is a planned schedule of works – not sure what you have in this space”.
By email of 22 November 2011 Mr Hornby informed Mr O’Sullivan that HLB Mann Judd wanted a high level feasibility analysis of the Burleigh Views loan on carrying value to date plus additional costs plus interest versus net proceeds.
Mr O’Sullivan has indicated that HLB Mann Judd had full knowledge of the way in which the company was treating the BV Loan.
On or about 2 January 2012, Mr Robertson provided Provident a valuation report in which he assessed the “as if complete” value of the Burleigh Views Property at $26,680,000 (inclusive of GST) on the assumption “that approval for the 36 townhouses has been issued by council.” The report stated, inter alia, that the initial approvals had lapsed and that the townhouses that had been constructed but not fully completed and did not receive a final certificate of classification, and that a new development application was lodged in mid-2011 which had not yet been approved with Council waiting on further information from the owner. The report was also provided on the assumption that there were no significant geological conditions that would adversely affect the value or marketability of the property.
On 20 February 2012, Mr Merkur of Herriotz International provided, as requested, an assumption of costs for 18 units at the Burleigh Views Property in the sum of $4,250,000 plus GST. The letter stated “Please note this is not a quote…”
On 22 March 2012, the architects engaged by Provident sent Mr O’Sullivan a letter detailing three budget estimates from three builders in relation to the construction of the new dwellings but not covering the works associated with completion and finishing of the existing residences. The budget estimates were in sums of $4,770,000 plus GST, $5,185,000 plus GST and $7,250,000 plus GST. The letter also enclosed a list of professional fees in the sum of $131,130 plus GST to further the development from DA to a realised product.
Further, on 22 March 2012, AETL wrote to Provident, referring to the solvency review that had been commissioned by AETL, and requested that Provident confirm a number of matters, including that Provident provide AETL with a full list of loans in arrears and that Provident advise which loans were not previously being reported to the trustee in arrears.
On 23 March 2012 AETL again wrote to Provident requesting, inter alia, that Provident “immediately correct past disclosures regarding levels of arrears by way of further continuous disclosure notice (noting that, for example, the Burleigh Views arrears have apparently not been included in prior arrears reports) and provide a detailed written explanation of the reasons for this oversight”.
Mr O’Sullivan notes in this context that the solvency review commissioned by AETL stated that in PBB’s opinion:
(a)Provident was solvent from a cash flow perspective and was expected to remain so until 31 December 2012;
(b)Provident had sufficient resources to pay its debts as and when they fell due ; and
(c)Provident’s cash balance as at 31 December 2012 was expected to remain positive in all but a worst case scenario.
On 8 May 2012, Savills prepared a valuation report for Provident and AETL (2012 Savills Valuation Report) which valued the Burleigh Views Property:
(a)at $16,200,000 on the basis of gross realisation “‘As If Completed As At Today’ of the Individual lots subject to and conditional upon issue of unencumbered individual freehold title tor Stages 1 & 2”; and
(b)at $14,290,000 on the basis of gross realisation “‘As if Completed as at Today’ with ‘guesstimated’ impacts of stigma (Stage 1 only), perceived landslip risks (both Stage 1 and Stage 2) and perceived/actual risks relating to reported past use for quarrying (both Stage 1 and Stage 2)”.
Both figures were inclusive of GST. The 2012 Savills Valuation Report also provided values on an “as is” basis. The corresponding as is figures (inclusive of GST) were $4.45 million and $3.85 million.
On 20 June 2012, Mr Robertson sent a letter to Mr O'Sullivan stating that the current value of the Burleigh Views Property had likely decreased in the range 3-5% since January 2012.
As at the commencement of these proceedings, no development permit has been granted for the Burleigh Views Property. That still appears to be the case.
On 16 April 2015 the Provident Receivers reported that “Due to the topography of the development site, the local council and Provident have obtained independent geotechnical expert reports to attempt to resolve the local council’s concerns with the site”.
They further reported that that there had been an appeal lodged with the Land and Environment Court, that there had been a mediation, and that there was ongoing meetings between geotechnical consultants to seek to resolve council’s concerns.
(h) Provision made for the BVL in Provident Accounts
In March 2012, a provision of $2 million against the Burleigh Views Loan was made in Provident’s accounts as at 31 December 2011. This was the first provision against the Burleigh Views Loan that was made in Provident’s accounts.
(i) Mr O’Sullivan’s responsibility for, and knowledge of, the BVL
At all relevant times Mr O’Sullivan was responsible for the management of the Burleigh Views Loan.
Mr O’Sullivan was the person at Provident who principally dealt with applications to refinance the BVL and he agreed to each of the extensions of the BVL, by way of variation and increase in the loan amount. This included both formal extensions covered by executed deeds of variation or a letter of offer and informal extensions of the loan which were observable by the continued increase in the total loan balance. Further, the majority of payments recorded against the Burleigh Views Loan were approved by Mr O’Sullivan.
From 2003 until the appointment of the Receivers in 2012, Mr O’Sullivan attended the Burleigh Views Property and met with persons in relation to the works on the site. He was aware, from time to time, of what the valuations of the Burleigh Views Property were, whether they were inclusive or exclusive of GST, and accordingly, had a broad awareness of the LVR of the Burleigh Views Loan.
To the best of Mr O’Sullivan’s knowledge, interest was never paid on the Burleigh Views Loan.

The Full Federal Court in Murdaca v Australian Securities and Investments Commission [2009] FCAFC 92 made it clear that while s 206F makes the lodgment of more than one s 533 report in relation to a director a “jurisdictional gateway” for the exercise of the discretion to disqualify, the section “does not give reports prepared by liquidators pursuant to s 533 of the Act any particular status or weight”.
Thus, regardless of the correctness of the substance of such reports, once such reports are received ASIC is “authorised and empowered to make a decision on the merits as to whether disqualification is justified”.
Indeed, the ASIC delegate does not appear to have placed any significant weight on this matter in weighing the various discretionary considerations.
Summary on Disqualification
In summary, the Disqualification Decision is upheld in full having regard to the factors identified by Santow J in Australian Securities and Investments Commission v Adler [2002] NSWSC 483; (2002) 42 ACSR 80 at [55]-[56] and Murdaca v Australian Securities and Investments Commission [2009] FCAFC 92at [101](b).
ISSUE 9: If a disqualification order is made under s 206F, should Mr O’Sullivan be granted leave under s 206F(5) to manage Portcullis Capital Pty Ltd, PCL Holdings Pty Limited, Bernard Sean Holdings Pty Limited, Provident Asset Management Pty Limited and/or Amira Holdings Pty Limited?
Mr O’Sullivan has sought leave to manage particular companies even if a disqualification order is otherwise made.
ASIC contends that such leave should not be granted.
The ASIC Delegate, in his reasons for the Disqualification Order stated that he would be prepared to give Mr O’Sullivan permission to manage any company with the following (or very similar features):
(a)Mr O’Sullivan is the only member;
(b)Mr O’Sullivan is the only beneficiary of any trust for which the company is the trustee;
(c)Mr O’Sullivan is the only director;
(d)The company is involved only in activities that are unlikely to result in significant creditors, for instance, acting as a trustee of a superannuation fund; and
(e)The Company only has liabilities to persons other than Mr O’Sullivan of a nominal amount.
This reasoning reflects a legitimate concern on the part of the ASIC delegate that Mr O’Sullivan should not be given leave to manage corporations the activities of which have the capacity to bear on stakeholders other than Mr O’Sullivan himself, and/or which cannot be managed by other persons. ASIC submits that the Tribunal should adopt a similar position.
Mr O’Sullivan’s contentions, as set out in his affidavit sworn on 3 March 2015 (Exhibit A3), as to why leave should be granted allowing him to remain director of two of the five companies in question, are not compelling. The reasons are elaborated below.
Portcullis Capital Pty Ltd
Mr O’Sullivan seeks leave to remain a director of Portcullis Capital Pty Ltd (Portcullis). Mr O’Sullivan states that Portcullis’ main business can be summarised as finance broking for business clients and that the company acts as an intermediary between bank and non-bank lenders and business borrowers. Mr O’Sullivan contends that there are a number of contractors and consultants who rely on Portcullis for a significant portion of their incomes and that, if he is unable to continue as director of Portcullis, those contractors will lose that source of income. Mr O’Sullivan has not, however, provided:
(a)any particulars of that claim;
(b)any evidence from such contractors and consultants as are said to rely on Portcullis; or
(c)any explanation as to why a different director could not be appointed to Portcullis.
Moreover, and significantly, the activities of Portcullis described by Mr O’Sullivan reflect the likelihood that the activities of the company will significantly impact upon the financial and corporate governance affairs of its customers or clients. The services provided by Portcullis in providing assistance with the refinancing of mortgage loans bear relevant similarities to the activities in which Mr O’Sullivan was involved as regards Provident and Cashflow and in respect of which he should be found by the Tribunal to have breached obligations under the Act. Indeed, Mr O’Sullivan himself accepts that “the findings of fact in the [Disqualification] and Banning Order relate directly to Mr O’Sullivan’s competence in the areas” in which Portcullis is engaged, namely consulting services on matters such as property investment, corporate governance and funds management. There is no evidence that Portcullis is involved only in activities that are unlikely to result in significant creditors or that the company only has liabilities to persons other than Mr O’Sullivan of a nominal amount.
PCL Holdings Pty Ltd
Mr O’Sullivan seeks leave to remain a director of PCL Holdings Pty Ltd (PCL Holdings). Mr O’Sullivan states that PCL Holdings is a private family investment company the principal activity of which is the management of a portfolio of unregulated loans made primarily to other corporations. Mr O’Sullivan contends that if he is unable to direct the activities and business of PCL Holdings, it is likely to cause disruption to the management of the company’s affairs and assets. However, Mr O’Sullivan has not provided an explanation as to why another family member would be unable to replace him as director of PCL Holdings.
In addition, given that the activities that Mr O’Sullivan says he is involved in as manager of PCL Holdings, including liaising with borrowers and debtors of the company, are relevantly similar to the kinds of activities in respect of which findings of breach were made by the Delegate, it would be inappropriate, in the circumstances, for Mr O’Sullivan to be allowed to continue such activities.
Bernard Shaw Holdings Pty Ltd; Provident Asset Management Pty Ltd; Amira Holdings Pty Ltd
In relation to the three other companies namely Bernard Shaw Holdings Pty Ltd, Provident Asset Management Pty Ltd and Amira Holdings Pty Ltd, the Tribunal accepts that while there are other people who could manage those companies in Mr O’Sullivan’s absence there is no reason why Mr O’Sullivan should not be allowed to be a director of those three private companies on condition that the dealings of those three companies should not go beyond dealing with immediate members of Mr O’Sullivan’s family. These companies act as trustees for self-managed superannuation funds and family trusts in relation to Mr O’Sullivan’s family so this condition should be easy to comply with.
ISSUE 10: Should:
(a) a banning order can be made at all; and
(b) if so, is the ban of Mr O’Sullivan from providing financial services under ss 920A and 920B for seven years justified having regard to all the relevant considerations?
Section 920A of the Act provides as follows:
920A ASIC’s power to make a banning order
(1) ASIC may make a banning order against a person, by giving written notice to the person, if:
(a) ASIC suspends or cancels an Australian financial services licence held by the person; or
(b) the person has not complied with their obligations under section 912A; or
(ba) ASIC has reason to believe that the person is likely to contravene their obligations under section 912A; or
(bb) the person becomes an insolvent under administration; or
(c) the person is convicted of fraud; or
(d) ASIC has reason to believe that the person is not of good fame or character; or
(da) ASIC has reason to believe that the person is not adequately trained, or is not competent, to provide a financial service or financial services; or
(e) the person has not complied with a financial services law; or
(f) ASIC has reason to believe that the person is likely to contravene a financial services law; or
(g) the person has been involved in the contravention of a financial services law by another person; or
(h) ASIC has reason to believe that the person is likely to become involved in the contravention of a financial services law by another person.
(1A) In considering whether, at a particular time, there is reason to believe that a person is not of good fame or character, ASIC must (subject to Part VIIC of the Crimes Act 1914) have regard to:
(a) any conviction of the person, within 10 years before that time, for an offence that involves dishonesty and is punishable by imprisonment for at least 3 months; and
(b) whether the person has held an Australian financial services licence that was suspended or cancelled; and
(c) whether a banning order or disqualification order under Division 8 has previously been made against the person; and
(d) any other matter ASIC considers relevant.
Note: Part VIIC of the Crimes Act 1914 includes provisions that, in certain circumstances, relieve persons from the requirement to disclose spent convictions and require persons aware of such convictions to disregard them.
(1B) To avoid doubt, a person contravenes a financial services law if a person fails to comply with a duty imposed under that law, even if the provision imposing the duty is not an offence provision or a civil penalty provision.
(2) However, ASIC may only make a banning order against a person after giving the person an opportunity:
(a) to appear, or be represented, at a hearing before ASIC that takes place in private; and
(b) to make submissions to ASIC on the matter.
(3) Subsection (2) does not apply in so far as ASIC’s grounds for making the banning order are or include the following:
(a) that the suspension or cancellation of the relevant licence took place under section 915B;
(b) that the person has been convicted of serious fraud.
Section 920B of the Act provides as follows:
920B What is a banning order?
(1) A banning order is a written order that prohibits a person from providing any financial services or specified financial services in specified circumstances or capacities.
(2) The order may prohibit the person against whom it is made from providing a financial service:
(a) permanently; or
(b) for a specified period, unless ASIC has reason to believe that the person is not of good fame or character.
(3) A banning order may include a provision allowing the person against whom it was made, subject to any specified conditions:
(a) to do specified acts; or
(b) to do specified acts in specified circumstances;
that the order would otherwise prohibit them from doing.
Can a banning order be made?
Sections 920A and 920B of the Act are located within Chapter 7, relating to financial services and markets. Pursuant to s 760A, the main object of Chapter 7 of the Act is to promote:
(a)confident and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those products and services;
(b)fairness, honesty and professionalism by those who provide financial services;
(c)fair, orderly and transparent markets for financial products; and
(d)the reduction of systemic risk and the provision of fair and effective services by clearing and settlement facilities.
In circumstances where the aim of the legislation is the protection of the investing public, the provisions of Chapter 7 should not be read down; compare Australian Softwood Forests Pty Ltd v Attorney-General (NSW) (1981) 148 CLR 121 at 129-30; Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (2009) 180 FCR 11.
Part 7.6 of the Act provides for the licensing of providers of financial services. Pursuant to s 911A of the Act, a person who carries on a “financial services business” in Australia, as specified in s 761C, must hold an Australian Financial Services Licence (AFSL) covering the provision of the financial services. Provident held an AFSL which was identified in the prospectuses pursuant to which it issued debentures.
Division 8 of Part 7.6 makes provision for the banning or disqualification of persons from providing financial services. Section 920B of the Act defines a “banning order” to mean a written order that prohibits a person from providing any financial services or specified financial services and provides that the order may operate permanently or, unless ASIC has reason to believe that the person is not of good fame or character, for a specified period.
Subsection 920A(1) confers the power to make a banning order.
For the purposes of s 920A(1)(e),(f),(g) and (h), a “financial services law” is defined in s 761A of the Act to include, relevantly, a provision in Chapter 7 or in Chapter 6D. Each of ss 1041H and 728 of the Act meets that definition.
In making the banning order, the ASIC delegate relied upon s 920A(1)(e) and s 920A(1)(g), the latter on the basis that Mr O’Sullivan had been involved in Provident’s contravention of s 728.
In Tweed v Australian Securities and Investments Commission [2008] AATA 514 (Tweed), the Tribunal said, in respect of whether s 920A(1)(e) of the Act is engaged (at [96]) (emphasis added):
…[S]ome thought must be given to the words “has not complied” when used in s 920A(1)(e). On their face, they appear absolute. If the person has not acted in accordance with the law – has not observed the law – that person has not complied with it. There appears to be no room for any consideration that, for example, the transgression is trivial or for allocation of fault. That is the appearance and I think that it is the proper interpretation. Section 920A(1)(e) is a gateway provision in that it, or one of the other gateway provisions in s 920A(1) must be established before ASIC may exercise its power. …. It is in the exercise of the discretion whether or not to impose a banning order that ASIC can pay regard to the particular circumstances in which the person has not complied with the law. Putting it another way, the mere fact of a person’s not complying with the law opens the gateway but ASIC may have regard to the particular circumstances of the person’s non-compliance in deciding whether or not to pass through the gateway.
In Tweed, the Tribunal also made clear that a person may breach a financial services law, enlivening the jurisdiction to make a banning order under s 920A(1)(e), regardless of whether the impugned conduct is subject to a requirement to hold an AFSL. The Tribunal said (emphasis added):
160. The power [in s 920A(1)] is given to ASIC to prevent persons from providing financial services or, at least, from providing those types of financial services that come within Division 4 of Part 7.1. It is a power that is not expressly directed to holders of an AFSL and I do not think that it should be read as limited to such persons. It is a power that exists in the context of Part 7.6, which provides for the licensing of providers of financial services, and in the broader context of the regulation of the provision of financial services under Chapter 7 of the CorporationsAct.
…
163 When a person is not the holder of an AFSL, there are statutory obligations that they must meet. They do not precisely match those of a financial services licensee for they are not, for example, required to meet those in s 912A. For all that, ASIC’s power to make a banning order under s 920A remains a relevant power for it is not limited to those who are financial services licensees. That is so even though some of the gateway provisions may only operate in relation to financial services licensees…
As a result, the Tribunal may exercise its discretion to make a banning order regardless of whether it finds that the allegations in the s 920A notice were ones relating to conduct for which an AFSL is required: cf Applicant’s Statement of Facts, Issues and Contentions at [70]-[77]. It would be contrary to the purpose of s 920A(1)(e), which operates both in relation to persons who hold, and persons who do not hold, an AFSL, if contraventions of a financial services law by a person in respect of activities outside the financial services licencing regime were regarded as immaterial to the exercise of the discretion in s 920A.
Is banning Mr O’Sullivan from providing financial services for a period of seven years justified?
This Tribunal has considered all the matters raised above and concludes that the banning of Mr O’Sullivan from providing financial services under ss 920A and 920B for seven years is justified and that the ASIC delegate’s banning order should be upheld.
The considerations that are relevant to the exercise of the discretion to make a banning order largely overlap with those addressed above in relation to the disqualification order.
Importantly, the Tribunal considers that continuous and serious non-compliance with financial services laws such as has occurred here, including misleading conduct in relation to a financial product under s 1041H, (whether in connection with the provision of financial services under an AFSL or not), would affect a person’s fitness or competence to provide such services and are directly relevant to the exercise of discretion under s 920A.
CONCLUSION
This is not a case of blatant dishonesty or fraud carried out with a deliberate intention to defraud members of the public.
Rather, this is a case in which the behaviour of Mr O’Sullivan has fallen below the standard that is expected and required of a public company director.
The behaviour in question amounted to more than just poor management, mere innocuous oversights, inadvertence or inferior business practices. It amounted to behaviour that involved either a subconscious or at times an attempt to camouflage or massage critical information and to even completely prevent that information from being disclosed on a timely basis to relevant parties both inside and outside the company or group of companies connected with Mr O’Sullivan.
As previously considered in this decision this included, but was not necessarily limited to, the non-disclosure on a timely basis to the appropriate person or persons of the fact that:
(a)The relevant DA had lapsed;
(b)The BVL was in arrears;
(c)Certain LVRs had exceeded certain thresholds;
(d)Interest on the BVL was being capitalised ;
(e)The maturity date on the BVL was being repeatedly extended;
(f)BV was in liquidation;
(g)Mr O’Sullivan had been appointed controller;
(h)Provident was at times acting as mortgagee in possession;
(i)Provident was at times directly involved in property development;
(j)Certain valuations were based on poor or inaccurate assumptions; and
(k)The Cashflow Guarantee was released.
Such deficient disclosure was designed to obfuscate the real position, possibly with the intent “to buy time” to give an opportunity to see some recovery in certain property prices before any steps would be taken by external parties to close down operations so as to limit any losses.
This behaviour clearly put at risk the funds of certain third party investors who were largely being kept in the dark about the precarious nature of the BVL and the BV development.
In examination and cross-examination Mr O’Sullivan repeatedly prefaced his remarks with the phrase “In my mind…...” and this, it seems, is a large part of the problem. Mr O’Sullivan has allowed his very subjective views and feelings about what he thought was or was not important to cloud his assessment of what, objectively speaking, he should as a company director have realised was important for Provident’s broad group of stakeholders.
The extent and nature of the non-disclosures in this case paint a very poor picture and indicate a very low level of corporate compliance.
Compounding the myriad non-disclosures mentioned are the additional matters regarding the general management by Mr O’Sullivan of the BVL, the Cashflow Guarantee and the drawdown of the BV Loan to satisfy a liability of City Pacific to Provident.
These matters together with other matters previously canvassed must inevitably lead to disqualification and banning orders.
DECISION

The Tribunal affirms the decision of ASIC dated 16 February 2015 prohibiting Mr O’Sullivan from providing financial services for a period of seven years under s 920A(1)(e) of the Act.
The Tribunal sets aside the decision of ASIC dated 16 February 2015 made under s 206F of the Act and in substitution decides that under s 206F of the Act, Mr O’Sullivan is disqualified from managing a corporation for a period of five years with the qualification that Mr O’Sullivan is permitted to remain as a director of three private companies, namely, Bernard Shaw Holdings Pty Ltd, Provident Asset Management Pty Ltd and Amira Holdings Pty Ltd, provided that at no time are those companies involved in any activities which involve persons or entities that are not part of Mr O’Sullivan’s immediate family.

I certify that the preceding 748 (seven hundred and forty -eight) paragraphs are a true copy of the reasons for the decision herein of Professor R Deutsch, Deputy President

......................................[sgd]..................................
Associate
Dated: 2 May 2017

Date(s) of hearing: 14, 15 & 16 July 2015, 24 August 2015 and 17 November 2015

Counsel for the Applicant: I Jackman SC and S Mirzabegian

Solicitors for the Applicant: Gilbert + Tobin Lawyers

Counsel for the Respondent: K Stern SC and T Phillips

Solicitors for the Respondent: Australian Securities and Investments Commission

Director	Role	Dates
Michael O’Sullivan	Managing Director	25/05/1998 – 28/01/2014
Malcolm Bersten	Director (Provident’s legal counsel)	01/07/2000 – 28/01/2014
Trevor Seymour	Director (non-executive)	25/05/1998 – 17/12/2013
John Sweeney	Director (non-executive)	20/07/2008 – 07/03/2014

Financial Year	Salary ($)
FY2008	180,000
FY2009	300,000
FY2010	300,000
FY2011	300,000

Date(s) of hearing:	14, 15 & 16 July 2015, 24 August 2015 and 17 November 2015
Counsel for the Applicant:	I Jackman SC and S Mirzabegian
Solicitors for the Applicant:	Gilbert + Tobin Lawyers
Counsel for the Respondent:	K Stern SC and T Phillips
Solicitors for the Respondent:	Australian Securities and Investments Commission