Pino Fiorentino and Members of the Companies Auditors and Liquidators Disciplinary Board Australian Securities & Investments Commission OTHER PARTY
[2014] AATA 458
•3 July 2014
[2014] AATA 458
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2014/3231
Re
Pino Fiorentino
APPLICANT
And
Members of the Companies Auditors and Liquidators Disciplinary Board
RESPONDENT
And
Australian Securities & Investments Commission
OTHER PARTY
DECISION
Tribunal Senior Member A K Britton
Date 3 July 2014 Date of written reasons 8 July 2014 Place Sydney Pursuant to section 41(2) of the Administrative Appeals Tribunal Act 1975 (Cth), the Tribunal orders that:
1.the application made by the Applicant for an order staying the operation of the First Respondent’s decision made on 24 June 2014, to cancel the Applicant’s registration as a liquidator, is refused.
2.the application made by the Applicant for an order staying the operation of the First Respondent’s decision made on 24 June 2014 to:
(i)cause to be published on its website a copy of the cancellation decision and the reasons given for that decision
(ii)to disseminate to appropriate media operations and professional bodies and to post on the Board’s website, a media release (a copy of which was provided to the applicant)
is refused.
........................................................................
Senior Member A K Britton
CATCHWORDS
PRACTICE AND PROCEDURE — Cancellation of registration of a liquidator under s 1292 of the Corporations Act — Decision to publish the cancellation decision — Power to stay or otherwise affect the operation or implementation of a decision under review — Whether stay necessary to secure effectiveness of hearing and determination of the application for review — Prospects of success of substantial application — Public interest — Stay refused
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth) – s 41(2)
Australian Securities and Investments Commission Act (2001) (Cth) – ss 216(9); 216(10)Corporations Act 2001 (Cth) - ss 1296(1B); 1317B, 1317C; 1292(2)(d)
CASES
Australian Securities and Investments Commission v Administrative Appeals Tribunal and Anor (2009) 181 FCR 130
Briginshaw v Briginshaw (1938) 60 CLR 336
Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577
Fiorentino v Companies Auditors and Liquidators Disciplinary Board [2014] FCA 641
In the matter of ERB International Pty Limited (deregistered) [2014] NSWSC 200
Re Levi and Companies Auditors and Liquidators Disciplinary Board and Australian Securities and Investments Commission (Joined Party) [2013] AATA 463
Re Scott and Australian Securities and Investments Commission [2009] AATA 798REASONS FOR DECISION
Senior Member A K Britton
8 July 2014
Mr Pino Fiorentino has been registered as a liquidator since 1994 and an “official liquidator” since 1997. On 24 June 2014, following an application by the Australian Securities and Investments Commission (ASIC) made 12 months earlier (the application), the Companies Auditors & Liquidators Disciplinary Board (the Board) decided to cancel Mr Fiorentino’s registration as a registered liquidator and official liquidator (the cancellation decision). That decision will come into effect on 7 July 2014.
As a consequence of the cancellation decision, ASIC is required to publish a notice of that decision in the Commonwealth Government Gazette (s 1292(1) of the Corporations Act 2001 (Cth) (the Corporations Act).
On the day the cancellation decision was made, the Board also decided (the publicity decision):
·to post on the Board’s website a copy of the cancellation decision and the reasons for that decision, and
·to disseminate to appropriate media operations and professional bodies, and to post on the Board’s website, a media release, a copy of which had been provided to Mr Fiorentino.
Mr Fiorentino has applied to the AAT for review, and stay of the operation of, the cancellation and publicity decisions. In addition he requests that the AAT order ASIC not to put a notice of the cancellation decision in the Gazette. For reasons I will explain, I have decided not to stay the cancellation or publicity decisions, or, to make the order sought in relation to the Gazette.
Statutory framework
By s 1292(2)(d) of the Corporations Act the Board may on an application by ASIC cancel, or suspend for a specified period, the registration of the person as a liquidator, where the person has failed to carry out or perform adequately and properly:
(i) the duties of a liquidator; or
(ii) any duties or functions required by an Australian law to be carried out or performed by a registered liquidator;
or is otherwise not a fit and proper person to remain registered as a liquidator;
…
Background to cancellation decision
The following summary is taken largely from the decision of the Federal Court in Fiorentino v Companies Auditors and Liquidators Disciplinary Board [2014] FCA 641.
In April 2008, Mr Fiorentino and Mr William James Hamilton, partners in the insolvency firm, Hamiltons Chartered Accountants, were appointed joint liquidators of the company, ERB International Pty Ltd (ERB), after the company had been placed into liquidation. In early 2008, the directors of ERB transferred the business of that company to a new company, BWI, for no consideration. A debt owed by ERB of just under $0.5M to the NSW Office of State Revenue (OSR) was not included in that transfer. ERB went into liquidation in April 2008. At the request of the liquidators, the company was deregistered on 24 January 2010. In September 2011, ASIC commenced investigating the liquidators' administration of ERB, and on 12 June 2013 filed applications against each liquidator in the Board, alleging, among other things, that they were not fit and proper persons to remain registered as liquidators.
In a statement of facts and contentions (SOFAC) filed with the Board, ASIC set out its case that Mr Fiorentino’s registration should be cancelled by the Board. The SOFAC sets out 26 separate contentions concerning alleged breaches of various statutory and other duties and responsibilities that Mr Fiorentino had as a registered liquidator. The contentions relate primarily to Mr Fiorentino’s conduct as a liquidator of ERB from the time of his appointment in April 2008 until ERB was deregistered on 24 January 2010.
The SOFAC identified three main issues:
The Proxy issue: Mr Fiorentino’s alleged conduct in failing to give to a creditor notices and reports relating to meetings of creditors, as well as his conduct relating to certain proxies relied on at those meetings.
The transfer of assets issue: Mr Fiorentino’s alleged failure to properly investigate and inform creditors about particular transactions engaged in by ERB, as well as his failure to seek legal advice and failure to approach the court in respect of related settlements with certain creditors.
The general conduct issue: Alleged failures on the part of Mr Fiorentino to properly or adequately discharge specific duties or obligations as a liquidator of ERB, or matters that otherwise allegedly demonstrate that he is not a “fit and proper person”.
A Panel of the Board found many of ASIC’s contentions proven to the Briginshaw standard (Briginshaw v Briginshaw (1938) 60 CLR 336 at 361–362). Among other things the Panel found that Mr Fiorentino had:
(a)failed to properly investigate the affairs of ERB including the sale of its assets to BWI;
(b)entered into a Deed of Settlement and Release with BWI and the directors, giving up claims against them, without properly assessing the relevant issues and without obtaining legal advice;
(c)failed to provide notice of creditors’ meeting to persons who were, or appeared to be, creditors of ERB;
(d)accepted invalid proxies to vote at a creditors meeting and, in doing so, used his position dishonestly with the intention of directly gaining an advantage for himself, namely approval of his remuneration without the need to go to court;
(e)failed to act in good faith in the best interests of ERB when, as liquidator of ERB, he actively sought to undermine a claim by the OSR to recover its debt from BWI;
(f)failed to provide adequate reports to creditors.
The Board decided that the appropriate sanction was to cancel Mr Fiorentino’s registration as a liquidator, reasoning (at [1013]):
Our findings in respect of all Contentions show that Mr Fiorentino’s failures were both serious and extensive. They involved a number of different aspects of the liquidation of ERB and involved dishonesty, lack of good faith, lack of competence and failure to comply with statutory provisions. We do not consider that Mr Fiorentino should retain his registration in light of these findings. The serious and extensive nature of Mr Fiorentino’s failings make suspension appropriate. Moreover, there is no reason to think that Mr Fiorentino would be fit to resume practice after any particular period of suspension.
Conduct of proceedings before the Board
The hearing before the Board was held over seven days, of which four were devoted to consideration of adjournment applications made by Mr Fiorentino. The hearing was listed to commence in November 2013 but adjourned to February 2014 on Mr Fiorentino’s application. Mr Fiorentino told the Board that shortly before the hearing his professional indemnity insurer advised that it was prepared to indemnify him in respect of his legal costs but by the time he received that advice his Counsel was no longer available to represent him in the proceedings before the Board. Mr Fiorentino told the Board that shortly before receiving that advice from his insurer, he had decided to represent himself because of lack of funds.
In late January 2014, Mr Fiorentino made a further adjournment application advising the Board that his insurers had withdrawn their “conditional” grant of indemnity and that he intended to commence legal proceedings to compel the insurer to provide cover. The Board refused that application. Three days later when the matter came before the Board for hearing, Mr Fiorentino made a further adjournment application which was refused. Mr Fiorentino then advised the Board of his intention to withdraw from the hearing.
The Board proceeded to hear ASIC’s application in the absence of Mr Fiorentino. The Board decided to take into account the Response filed by Mr Fiorentino prior to the commencement of the hearing but not the “evidence” he had filed in accordance with pre-hearing directions. The Board reasoned (at [58] to [69]) to have regard to that material would offend the Australian Securities and Investments Commission Act (2001) (Cth), specifically ss 216(9) and (10):
(9)A person who is entitled to be given an opportunity to appear at a hearing and who does not wish to appear at the hearing may, before the day of the hearing, lodge with the Disciplinary Board in writing any submissions that he, she or it wishes the Panel to take into account in relation to the matter.
(10)The Panel must take into account:
a. a submission made to or evidence adduced before the Panel; and
b. a submission lodged with the Disciplinary Board in relation to the matter to which the hearing relates;
when making any decision on the matter to which the submission or evidence relates.
After being advised of the Board’s decision to refuse his application and to proceed to hear ASIC’s application in his absence, Mr Fiorentino applied to the Federal Court for various declarations, contending, among other things, that the Board’s decision to refuse his adjournment application constituted a denial of procedural fairness and was legally “unreasonable”. Wigney J dismissed that application with costs (Fiorentino v Companies Auditors and Liquidators Disciplinary Board [2014] FCA 641).
In May 2014 the Board provided Mr Fiorentino with a copy of its findings about ASIC’s contentions and invited him to adduce evidence and make submissions at a “sanctions hearing”. Mr Fiorentino made submissions at that hearing.
POWER TO GRANT A STAY
Section 41(2) of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act) provides:
The Tribunal may, ... if the Tribunal is of the opinion that it is desirable to do so after taking into account the interests of any persons who may be affected by the review, make such order or orders staying or otherwise affecting the operation or implementation of the decision to which the relevant proceeding relates or a part of that decision as the Tribunal considers appropriate for the purpose of securing the effectiveness of the hearing and determination of the application for review [emphasis added].
The power to grant a stay is conditioned on the Tribunal holding the requisite opinion after taking into account the interests of affected persons. The Tribunal must identify and consider the relevant interests: Australian Securities and Investments Commission v Administrative Appeals Tribunal and Anor (2009) 181 FCR 130 [at 142] (per Downes and Jagot JJ). This requires the resolution of potentially competing interests (Australian Securities and Investments Commission v Administrative Appeals Tribunal and Anor at [52]).
In Re Scott and Australian Securities and Investments Commission [2009] AATA 798, (2009) 51 AAR 114 at 115 [4], Downes J stated that in considering a stay application under s 41(2), it is appropriate to consider a range of matters including:
·The prospects of success of the substantive application
·The consequence for the applicant of the refusal of a stay
·The public interest
·The consequences for the respondent in carrying out its functions depending upon whether a stay is granted or not
·Whether the application for review would be rendered nugatory if a stay were not granted
·Other matters that are relevant ... includ[ing] the length of time that the [decision] has already been in place and when the the substantive application is likely to be heard.
A. THE CANCELLATION DECISION
The prospects of success of the substantive application
In his application for a stay of the registration decision filed with the AAT on 25 June 2014, in answer to the question “What are the reasons for the application?”, Mr Fiorentino wrote:
the decision is wrong, should not have been made, defies logic, sense and semblance of justice, and should be overturned and no publicity be effected in the interim
Mr Fiorentino expanded on these arguments at the stay hearing. He argued that the Board in making its decision:
·misunderstood the evidence and made findings contrary to the weight of evidence
·failed to appreciate the complexities of the factual matters before it
·prejudged ASIC’s application and was biased against him
·failed to have regard to many matters, including evidence he filed with the Board prior to the commencement of the hearing and the expert report prepared by Tony McGrath (the McGrath report).
Mr Fiorentino did not provide any evidence in support of these contentions. Nor did he explain the basis for his assertion that the Board had prejudged ASIC’s application. Nor did he provide the tribunal with a copy of the McGrath report.
The history to the proceedings before the Board summarised above, confirms as claimed by Mr Fiorentino that the Board did not have regard to the “evidence” filed on Mr Fiorentino’s behalf prior to the hearing. In these proceedings Mr Fiorentino was unable to describe with any specificity what was contained in that material, stating that it had been prepared by his lawyers. He thought it probably included the McGrath report.
Mr Fiorentino conceded in these proceedings that while the ERB liquidation was “not one of my best jobs”, he contends that given his long and unblemished career, the penalty imposed – the cancellation of his registration as a liquidator – was a disproportionate response to the alleged breaches. He asserts that he enjoys an excellent reputation within the community including among leading members of the judiciary.
He argues that he has been “crucified” on the basis of a single appointment and that responsibility for any shortcomings with the ERB liquidation is not solely attributable to him. He contends that he was “duped” by people involved in the BWI transaction and furthermore that his business partner failed to identify a number of problems for which he was responsible.
Consideration
A reading of the Board’s 207 page reasons for decision indicates that the Board made a balanced and fair assessment of the issues it was required to determine. The Reasons reveal that the Board did not, as I understand Mr Fiorentino to contend, uncritically accept all submissions made by ASIC, or fail to make an independent evaluation of the evidence. While as Mr Fiorentino points out the Board did not take into account the “evidence” filed on his behalf the Board had regard to his Response to ASIC’s SOFAC and the submissions he made at hearing about the appropriate penalty.
While on the available material there is no apparent error in either the manner the proceedings before the Board were conducted, or, the decision made by the Board, I cannot agree with ASIC’s submission that there is no evidence or rational argument to suggest that Mr Fiorentino has any prospects of success.
The assessment of the prospects of success of Mr Fiorentino must be made having regard to the role of the Tribunal on review. On review the Tribunal is not confined to correcting legal error. Rather its task is to review the merits of the decision and to make the "correct or preferable decision": Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577 at 591 per Bowen CJ and Deane J. In so doing the Tribunal is required to consider afresh the facts, including any that may not have been available to the original decision-maker, law and policy relevant to the decision under review and decide whether that decision should be affirmed, varied or set aside. It follows that prior to the determination of the substantive application, the possibility that a decision more favourable to Mr Fiorentino will be made, cannot be excluded. This is especially so because, it would be open to the Tribunal to have regard to fresh material including the material filed by Mr Fiorentino before the Board hearing.
However in assessing the prospects of success of the substantive application, the Tribunal must also have regard to the material available and any foreshadowed material, at the time the stay application is considered. While Mr Fiorentino asserts that the material he filed with the Board and the McGrath report will “prove ASIC wrong” he has not outlined the nature of that material or explained how it might lead the Tribunal to reach different findings of fact to those reached by the Board.
Given the nature of merits review it could not be said that Mr Fiorentino’s application has no prospects of success. However on the available material the prospects of a decision more favourable to Mr Fiorentino being made on review appear slim.
Relevant interests
(i) Mr Fiorentino
Mr Fiorentino told the Tribunal that he no longer employs any staff. He did not claim that he would suffer any financial prejudice if the stay were not granted.
Mr Fiorentino confirmed in these proceedings that he is no longer interested in acting as a liquidator and the primary reason he had applied for review of the cancellation decision was to “clear his name”. He said the finding made by the Board that he had acted dishonestly was unfounded and would destroy his reputation. He explained that this would impact adversely on his future plans which included writing a book about his life and pursuing new business interests.
ASIC contends that any reputational damage Mr Fiorentino might suffer would be minimal given the significant amount of information already in the public domain about Mr Fiorentino’s involvement in the ERB liquidation, which includes:
·the decisions of the Supreme Court and the Federal Court: In the matter of ERB International Pty Limited (deregistered) [2014] NSWSC 200 Fiorentino v Companies Auditors and Liquidators Disciplinary Board [2014] FCA 641
·a number of articles that appeared in Sydney Insolvency News relating to the proceedings before the Board and the Federal Court
·a notice posted in May 2014 on the website of the Australian Restructuring Insolvency and Turnaround Association advising that Mr Fiorentino’s membership of that Association had been suspended “pending the receipt of an adequate response”‘ to its “reasonable inquiries”
·the decision made by the Board in relation to Mr Hamilton made on 3 April 2004, which contained numerous references to Mr Fiorentino’s involvement in the ERB liquidation. That decision has been published in the Gazette and the Board’s website. In addition a media release about the decision has been issued.
(ii) The Australian public
ASIC identifies the public at large and those operating in the market as having a relevant interest in the cancellation decision.
(iii) Persons associated with Mr Fiorentino’s current appointments as liquidator
Mr Fiorentino is recorded as holding appointments as the liquidator of 19 current external administrations. He told the Tribunal that in all but a couple of those appointments, the only task that remains outstanding, is the provision of the necessary reports to ASIC. It was not entirely clear from Mr Fiorentino’s submissions the status of those appointments, where on his account further work needs to be undertaken.
Conclusion
The issue I must decide is whether, having regard to the interests of any persons who may be affected by the review, it is desirable to make a stay order for the purpose of balancing competing interests while securing the effectiveness of the hearing and determination of Mr Fiorentino’s application for review.
The only persons who might be affected by the review of the cancellation decision appear to be Mr Fiorentino, the public at large and, possibly, creditors and others with an interest in the 19 companies, in relation to which Mr Fiorentino holds current appointments as liquidator.
Mr Fiorentino’s primary concern is the adverse publicity he fears will be generated by the cancellation decision. He is especially concerned about the findings made by the Board that he acted dishonestly (see for example, at [988]). While, as ASIC points out, there is currently some information adverse to Mr Fiorentino in the public domain, if the cancellation decision comes into effect and, as required by the Corporations Act, it is published in the Gazette, there is a risk that in the intervening period before the Tribunal makes its decision on review, Mr Fiorentino will suffer further reputational damage. That he will not suffer any direct financial loss, no longer intends to work as a liquidator, and plans to spend significant periods overseas, while relevant, does not mean that he will not be adversely affected if the stay application is refused.
Taken together with the possibility that on review the Tribunal might not uphold the decision made by the Board, in my opinion, Mr Fiorentino’s interests weigh in favour of granting a stay.
Weighing against that consideration is the public interest and the interests of any creditors and other persons with an interest in the companies in respect of which Mr Fiorentino holds current appointments as a liquidator. The only information before me regarding the latter group is Mr Fiorentino’s unsupported claim that, save for the filing of reports with ASIC, he has fulfilled all duties and obligations of his role as liquidator in all but a couple of those appointments. On the available evidence, I could not be confident whether as Mr Fiorentino claims, the cancellation decision will have no impact on this class of persons. Counsel for ASIC, Mr Russell, advises that the Corporations Act requires that when the cancellation decision comes into effect, new liquidators be appointed to replace Mr Fiorentino. In my opinion members of this group are entitled to be informed of the cancellation decision, so they can assess for themselves whether their interests are affected and, if so, take any necessary action. Further caution demands that new liquidators be appointed to enable an independent assessment to be made of Mr Fiorentino’s claim that no further work needs to be undertaken to protect the interests of the members of this group.
ASIC contends, and I agree, the public interest demands that the cancellation decision stand at least until the review conducted by the Tribunal is completed. ASIC’s investigation into Mr Fiorentino’s role in the ERB liquidation commenced in September 2011. ASIC’s application was before the Board for over 12 months. In these circumstances a delay in the implementation of the cancellation decision would not, in my opinion, be in the public interest. The timely determination of allegations raised by ASIC about liquidators is plainly in the public interest. Notwithstanding Mr Fiorentino’s claim that he no longer intends to operate as a liquidator, given the seriousness of the matters found proven by the Board, consumers of services provided by liquidators and others operating in the market, have a right to expect that appropriate safeguards will be in place to ensure that Mr Fiorentino does not practice as a liquidator, until such time as the review by the Tribunal is complete. As DP Handley commented in Re Levi and Companies Auditors and Liquidators Disciplinary Board and Australian Securities and Investments Commission (Joined Party) [2013] AATA 463, the scheme established under the Corporations Act was designed to protect the public interest, specifically to maintain the integrity of, and public confidence in, the profession of liquidators.
This is not a case where the refusal of a stay application will result in an applicant liquidator being forced to stop operating their business while awaiting the decision on review. As a consequence it could not reasonably be argued that the stay is necessary to secure the effectiveness of the hearing and the application for review.
In my opinion those factors that favour the granting of the stay are outweighed by, among other things, the public interest. I am of the opinion that it would not be desirable to make an order under s 41(2) of the AAT Act and therefore have decided to refuse the application for a stay.
B. THE PUBLICITY DECISION
For the reasons given orally at the hearing, I have taken Mr Fiorentino’s application lodged with the Tribunal on 25 June 2014 to be an application for a stay of both the cancellation and the publicity decision. The latter is reviewable by the Tribunal (ss 1317B, 1317C of the Corporations Act).
The publicity decision was made under s 1296(1B) of the Corporations Act, which provides that if the Board decides to cancel a person’s registration as a liquidator, then in addition to causing to be published in the Gazette a notice in writing setting out that decision, the Board may take such steps as it considers reasonable and appropriate to publicise the decision and the reasons for the decision.
As noted the publicity decision requires the decision to be posted on the Board’s website and a media release to be sent to appropriate media operations and professional bodies. Those steps in my opinion are more likely to generate media and community interest than the publication of the decision in the Gazette. It is also more likely to lead to the type of reputational damage Mr Fiorentino fears.
The factors to be taken into account in forming an opinion as to whether it is desirable to stay the operation of the publicity decision, are similar, but not identical to, those involved in the cancellation decision. Significantly, the application for review of the publicity decision will be rendered nugatory if the stay application is not granted. The decision requires the Board to post the decision on its website and issue the media release within the next few days. The Tribunal is unable to determine the substantive application within that period.
This, together with Mr Fiorentino’s interests, which include minimising further reputational damage, is a powerful argument favouring the granting of the stay application.
Against this is the public interest in consumers of services provided by liquidators and others operating in the market, being fully informed about a decision to cancel the registration of a liquidator. In my opinion, in the circumstances of this matter, those interests trump those of Mr Fiorentino.
It is also relevant in my opinion that the action required to be taken as a consequence of that decision, appears to be reasonable and appropriate. The media release composed by the Board provides a balanced account of the cancellation decision and Mr Fiorentino has not otherwise suggested.
I am of the opinion that it would not be desirable to make an order under s 41(2) of the AAT Act and therefore have decided to refuse the application for a stay.
I certify that the preceding 52 (fifty -two) paragraphs are a true copy of the reasons for the decision herein of Senior Member A K Britton ........................................................................
Associate
Dated 8 July 2014
Date(s) of hearing 3 July 2014 Applicant In person Solicitors for the Respondent Australian Government Solicitor Counsel for the Other Party P T Russell
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