PQHL and Australian Securities and Investments Commission
[2015] AATA 1032
•19 November 2015
PQHL and Australian Securities and Investments Commission [2015] AATA 1032 (19 November 2015)
Division
GENERAL DIVISION
File Number
2015/5815
Re
PQHL
APPLICANT
And
Australian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal Deputy President JW Constance
Date 19 November 2015 Date of written reasons 19 January 2016 Place Sydney The stay orders sought by that Applicant pursuant to section 41(2) of the Administrative Appeals Tribunal Act 1975 (Cth) are granted. The operation and implementation of the decision under review is stayed and the Respondent’s obligation pursuant to section 1274AA of the Corporations Act 2001 is stayed
.................[SGD]...................................
JW Constance
Deputy PresidentCATCHWORDS
PRACTICE AND PROCEDURE – application for stay of decision – relevant considerations – prospects of success – public interest – stay granted
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth) ss 35, 41(1)–(2)
CASES
Australian Securities and Investments Commission v Administrative Appeals Tribunal and Another [2009] FCAFC 185
Scott v Australian Securities and Investments Commission [2009] AATA 798
XTWK v Australian Securities and Investments Commission [2007] AATA 1890Opus Capital Limited v Australian Securities and Investments Commission [2010) AATA 694
REASONS FOR DECISION
Deputy President JW Constance
19 January 2016
INTRODUCTION
On 6 November 2015 the Applicant applied to the Tribunal to review a decision of the Australian Securities and Investments Commission disqualifying him from managing corporations without the leave of the Commission. The disqualification commenced that day.
At the time he applied to the Tribunal for review of the decision, the Applicant also applied for an order staying the execution of the Commission’s decision until the finalisation of the proceedings before the Tribunal. He also applied for orders in accordance with section 35 of the Administrative Appeals Tribunal Act 1975 (Cth) that:
(i)the hearing of the review take place in private;
(ii)a pseudonym be used in place of his name during the review;
(iii)only the parties, their legal representatives and witnesses may be present during the hearing of the review; and
(iv)the evidence received by the Tribunal with respect to the review not be published,
until the review is complete and the Tribunal publishes its decision and reasons for decision.
I heard these interlocutory applications on 19 November 2015 and the following directions were made:
Upon the undertaking given by the Applicant to this Tribunal (set out below) and until further order, the Tribunal orders:
1pursuant to s 41(2) of the Administrative Appeals Tribunal Act 1975 (Cth):
a.the further operation and implementation of the decision under review is stayed; and
b.the Respondent’s obligation pursuant to s 1274AA of the Corporations Act 2001 is stayed;
2pursuant to s 35 of the Act:
a.the Applicant be described by a pseudonym for the purpose of the application;
b.publication of the name of the Applicant and or any material tending to identify him be restricted to the parties, their legal representatives, and the members and officers of the Tribunal in the course of their duties;
c.publication of the evidence given before the Tribunal and of matters contained in documents lodged with the Tribunal be restricted to the parties, their legal representatives, and the members and officers of the Tribunal in the course of their duties;
d.all hearings relevant to the application shall take place in private; and
e.to the extent necessary, the Respondent remove any reference to the decision under review from any of its publications, alerts and the Public Register.
IT IS NOTED that upon granting of a stay, the Applicant undertakes:
1to refrain from acting as a director of any corporate entity pending the resolution of these proceedings;
2to arrange for the appointment of an independent co-director (i.e a director who is not an immediate family member or related by marriage) in respect of the companies listed in Confidential Schedule 1, within 7 days of the making of these orders;
3to arrange for the filing of documents with the Respondent giving effect to paragraph 2 of this undertaking within 7 days of the making of these orders.
I now provide in writing my reasons for making the stay orders.
BACKGROUND
Unless stated otherwise, the following facts are based on the statement of the Applicant filed in the Tribunal on 9 November 2015. The Applicant was not available for cross examination at the time of the hearing. However, Counsel for the Commission agreed to my taking the statement into account without the Commission having had the opportunity to cross-examine the Applicant.
From May 2008 the Applicant was the director of Company A (in liquidation). On 9 April 2013 the company was wound up.
From August 2008 the Applicant was the director of Company B (in liquidation). On 24 November 2013 the company was deregistered by way of voluntary winding-up.
On 5 March 2015 the Applicant received a notice from the Commission giving him 14 days to provide reasons why he should not be disqualified from acting as a director of a company. Following this the Applicant made submissions to the Commission. On 29 October 2015 the Commission disqualified the Applicant from managing corporations without the leave of the Commission for a period of three years from the time of service of notice of the decision upon the Applicant.
Immediately prior to the making of the disqualification order, the Applicant was the director, or director and secretary, of each of a group of seven companies. This group develops and manages property. At present the group is engaged in the development of approximately 440 residential units, 15 townhouses, 16 shops and 16 commercial offices. It is the expectation of the Applicant, based on pre-sales, that each unit and townhouse will sell for an average of $650,000. Two of the companies provide support services for the development business.
Immediately following receipt of the notice of disqualification the Applicant resigned all positions he held in the companies and his wife was appointed in his place.
The Applicant says that if he is unable to participate in the management of the companies their business will be affected as follows:
(a)I will not be able to provide in-depth instructions, assistance, , guidance and support to any of the new directors in order to continue the Companies’ operation and project developments. For example, I will be prevented from providing any information regarding the builders and subcontractors used, the reasons for using those contractors and recommendations about who to continue with;
(b)I will be prevented from communicating and completing negotiations with the subcontractors, whom I have built a relationship of trust and confidence, about whole or part of the business of the Company; and
(c)I will be prevented from communicating with the financiers to complete negotiations about the companies and providing instructions to the Companies’ lawyers.[1]
[1] Statement filed 9 November 2015 para. 20.
The Applicant also stated that his disqualification from managing corporations will cause significant prejudice in obtaining finance facilities for the companies, which are essential to the funding of the property development projects.
Two of the companies involved in one of the development projects do not have finance in place to pay for the building of the project. The Applicant says that a verbal agreement exists between the builder and himself that the builder will continue to construct the project without demanding payment provided finance is obtained within a reasonable time. The Applicant is concerned that if he is unable to continue to influence the project and the operation of the companies, the builder will not continue with construction and the development companies may collapse. The director of the building company has said to the Applicant on several occasions words to the effect “I am providing this concession because I trust that you will be able to obtain the finance and complete the project”.[2]
[2] Statement filed 9 November 2015 para. 27.
At the time of the making of his statement the Applicant was negotiating with several lenders to obtain finance. At the time, the Applicant was the only person who had sufficient knowledge of the project to negotiate and explain the project and its feasibility to potential lenders. In the experience of the Applicant, it is unlikely that a financier will lend money on a project that does not have a management team with experience in development.
In November 2015 approximately 55 people were working on the projects on any one day. If the projects collapsed, those working on site would be out of work and companies employing them may face a significant wait for money owing to them.
Many of the units in the development have been sold off the plan; these units are valued at approximately $50 million. Deposits have been paid on these contracts.
The Applicant stated that “it is likely that any collapse of the companies will cause undue delay, financial loss and detriment to the purchasers, including the real possibility that the project will not complete on time with the associated risk of the sunset date not being met.”[3]
[3] Statement filed 9 November 2015 para. 35.
LEGISLATION
Subsection 41(2) of the Administrative Appeals Tribunal Act 1975 (Cth) provides:
(2)The Tribunal may, on request being made by a party to a proceeding before the Tribunal (in this section referred to as the relevant proceeding), 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.
CONSIDERATION
The prima facie position is that the making of an application to the Tribunal does not affect the operation of the decision under review – subsection 41(1) of the Act.
In Australian Securities and Investments Commission v Administrative Appeals Tribunal and Another,[4] the Full Court of the Federal Court considered the powers given to this Tribunal by subsection 41(2). The Full Court said, in part:
50The power in s 41(2) of the AAT Act is to make an order staying or otherwise affecting the operation or implementation of a decision under review. The power is conditional on the making of a request and the holding of an opinion by the AAT. The required opinion is that it is desirable to make the order. The AAT may only form this opinion after taking into account "the interests of any persons who may be affected by the review"…
51The nature of the decision under review will affect the identification of the "interests of any persons who may be affected by the review" …
53… For the AAT to form an opinion under s 41(2) of the AAT Act (that it would be desirable and in the "interests of any persons who may be affected by the review" to make an order staying or otherwise affecting the operation or implementation of ASIC’s decision) these elements of the statutory regime, and the balance between the competing interests that they represent, must be treated as a fundamental element in the weighing of the competing considerations…
[4] [2009] FCAFC 185.
The Commission’s argument
I accept the proposition put by the Commission that, in deciding an application under subsection 41(2), it is appropriate for the Tribunal to have regard to the following issues:
(a)the applicant’s prospects of success on the review application;
(b)the consequences for the applicant if a stay is refused;
(c)the public interest;
(d)the consequences for ASIC in carrying out its functions depending on whether a stay is granted or not;
(e)whether the application for review would be rendered nugatory if the stay were not granted;
(f)other matters, including the length of time that the ban has already been in place and the time until the review application is likely to be heard.[5]
[5] Respondent’s written submissions para.12, referring to Scott v Australian Securities and Investments Commission [2009] AATA 798 para.4; XTWK v Australian Securities and Investments Commission [2007] AATA 1890 para.14; Opus Capital Limited v Australian Securities and Investments Commission [2010) AATA 694 para.14.
Discussion
On the evidence available and without the Applicant being cross-examined I was unable to form a view as to his prospects of success. As the Commission acknowledged, it is not for the Tribunal to attempt to conduct a preliminary trial of the issues in a case such as this. It does not appear to be in dispute that both Company A and Company B failed, owing the Australian Taxation Office very significant sums for unpaid tax and, in one case, payments of Goods and Services Tax collected on behalf of the Commissioner of Taxation. However, there may be many other factors to be taken into account on the final hearing.
On the evidence available, it is likely that the Applicant’s business interests will be significantly adversely affected before the final hearing should the stay not be granted. However, in view of the publicity given to the Applicant’s business affairs and his own comments to the media, I do not take the possible effect on the Applicant’s reputation in this case.
In my view, the question of the public interest is a major consideration in this application. It may not always be of such importance in other matters involving different factual situations.
The Applicant has controlling interests in the group of companies to which I have referred, including the companies involved in major development projects. As was pointed out on behalf of the Commission, if the Applicant was to act in the way he is alleged to have acted in the past, it would have significant consequences for government revenue and thus the public interest. It was put that “the public is prima facie entitled to be protected against the misuse of the corporate structure by directors who fail to maintain proper standards of transparency and accountability, and fail to ensure compliance by companies with their obligations.[6]
[6] Respondent’s submissions para.29.
It was also put that there is a public interest in the Commission being able to discharge its statutory functions of maintaining proper standards in commercial and financial dealings. To prevent the Commission immediately publicising its decision in relation to the Applicant would risk creating the impression within the public at large that its decisions are merely provisional.
Notwithstanding these considerations, which are of considerable weight, in this case they are outweighed by the public interest in protecting the employment of those employees of the companies and contractors working on the developments and the contractual interests of those who have purchased properties off the plans.
In reaching this conclusion I have taken into account that, on the evidence available, negotiations for the financing of the projects appear to be at a critical stage. Public notification of the decision of the Commission pending the Tribunal’s review is likely to have serious consequences for the continuation of the projects, at least causing significant delays.
It is important that this matter can be heard by the Tribunal and a final decision made without delay. The decision under review was made on 29 October 2015. The Applicant applied for a review on 6 November 2015, immediately he was notified of the decision. The Tribunal was in a position to hear the substantive application for review from mid-January 2016 onwards. To suit the convenience of the parties the matter was set down for hearing on 8 and 9 February 2016.
I note from the Commission’s submissions that Company A was wound up on 22 February 2013 and that on 30 January 2014 the liquidator lodged with the Commission a report estimating that the dividend payable to unsecured creditors may be 20 to 50 cents in the dollar. Company B was wound up on 5 July 2013 and a report as to dividends likely to be paid (0 to 10 cents in the dollar) was received by the Commission on 3 September 2013. The first notice to the Applicant was given by the Commission on 5 March 2015 and he was notified of the decision to disqualify him on 6 November 2015.
In circumstances where the application for review was made promptly, the relatively short time which will elapse before hearing and final decision supports the making of the stay order. On the evidence before me in this application I cannot accept the argument of the Commission that it, or the public interest, will be adversely affected by a further lapse of three to four months in publicising its decision, should it be affirmed on review.
As to the Commission’s concern that decisions of its delegates may be seen as “merely provisional” [7], the fact is that the delegates’ decisions are subject to review just as the decisions of the Tribunal are subject to appeal. I do not accept that the delay will cause members of the public to consider the delegates’ decisions to be “provisional”. In my view it would be more damaging to the reputation of the Commission to have its decision publicised and then set aside, if that was the Tribunal’s decision.
[7] Submissions para.34.
CONCLUSION
The stay orders sought by the Applicant should be made.
I certify that the preceding 33 (thirty -three) paragraphs are a true copy of the reasons for the decision herein of
............... [SGD].....................................
Associate
Dated 19 January 2016
Date of hearing 19 November 2015 Date final submissions received 19 November 2015 Counsel for the Applicant V McWilliams Solicitors for the Applicant D Szekely; Clamenz Lawyers Counsel for the Respondent G Kennett SC Solicitors for the Respondent N Goodstone; Australian Securities and Investments Commission
2
2
0