Quinlivan v Australian Securities and Investments Commission

[2010] AATA 113

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 113

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2008/5609

GENERAL ADMINISTRATIVE DIVISION		)
Re		DUDLEY QUINLIVAN

Applicant

And AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Respondent

DECISION

Tribunal The Hon Dr B H McPherson CBE, Deputy President, and
Senior Member Bernard J McCabe

Date15 February 2010

PlaceBrisbane

Decision The Tribunal varies the decision under review. Mr Quinlivan should be disqualified from managing a corporation for a period of five years.

......................[Sgd]........................

Deputy President

CATCHWORDS

CORPORATIONS – Officers and employees – disqualification order from managing corporation – whether applicant should be disqualified – applicant should be disqualified – period of disqualification – disqualified for five years – decision varied

Bankruptcy Act 1966 (Cth) Pt X

Corporations Act 2001 (Cth) ss 180, 181, 182, 183, 184, 206F, 286, 533, 588G

Trade Practices Act 1974 (Cth) Pt V

Cullen v Corporate Affairs Commission (NSW) (1988) 14 ACLR 789

Kardas v Australian Securities Commission [1998] FCA 1381; (1998) 53 ALD 303

Nicholas v Corporate Affairs Commission (Vic) [1988] VR 289

Re Andrews and Australian Securities and Investments Commission [2006] AATA 25

Re Guss and Australian Securities and Investments Commission [2006] AATA 401; (2006) 90 ALD 349

Re HIH Insurance Ltd (in prov liq); Australian Securities and Investments Commission

v Adler [2002] NSWSC 483; (2002) 42 ACSR 80

Rich v Australian Securities and Investments Commission [2004] HCA 42; (2004) 220 CLR 129

REASONS FOR DECISION

15 February 2010 The Hon Dr B H McPherson CBE, Deputy President, and Senior Member Bernard J McCabe         

1. Dudley Quinlivan has been the director of many, many companies. A number of those companies have met an unfortunate end. Five of them were wound up in insolvency in the 1990s, and 14 of them were wound up in insolvency between 2002 and 2007. Another three companies have been placed in external administration since the commencement of these proceedings. The Commissioner of Taxation was the principal external creditor in most of those cases. The Commissioner did not receive a dividend following the liquidations, and the liquidators in each case filed reports recording the shortfall pursuant to s 533 of the Corporations Act 2001 (“the Act”). The reports also referred to breaches of the law in each case.

2.        Mr Quinlivan has also experienced difficulties with his personal finances. His assets were sequestrated by a court order in 1981, he entered into an arrangement under Part X of the Bankruptcy Act 1966 in 1992 and a further sequestration order was made in 1994.

3. The Australian Securities and Investments Commission (“ASIC”) decided in 2008 that it was time to do something about all of this. ASIC notified Mr Quinlivan of its concerns and held a hearing. After reviewing the evidence and submissions, ASIC’s delegate informed Mr Quinlivan by letter dated 21 November 2008 that Mr Quinlivan was to be disqualified from managing a corporation pursuant to s 206F of the Act.

4.        Mr Quinlivan has asked the Tribunal to reconsider ASIC’s decision. He has sought to explain what occurred in a way that suggests regulatory action should not be taken against him. He adds that disqualification is not the appropriate response if regulatory action is found to be justified. 

5.        We have decided the decision under review should be varied. We are satisfied Mr Quinlivan should be disqualified from involvement in the management of companies for a period of five years. We explain our reasons below.

Mr Quinlivan’s business history

6.        Mr Quinlivan became a plumbing contractor on the Gold Coast in 1974. He said he was, at one time, the biggest plumbing contractor in Queensland. He entered into the hospitality and property development businesses in 1988 when companies he controlled acquired interests in:

·hotels in Tasmania and Maryborough;

·a caravan park in Alice Springs;

·a resort in Cairns; and

·a property in Castlereagh St in Sydney that was to be re-developed.

7.        The companies borrowed money from OST/IOOF, a financier, to fund the development of the property in Sydney. There were plans to place all of the assets in a company that would be floated on the share market in due course. But the plans came to nothing when the various ventures ran into financial trouble.

8.        The companies became insolvent. Liquidators were appointed to Statice Pty Ltd, Taupo Pty Ltd, Silver Siren Pty Ltd and Randall Pacific Pty Ltd in 1992. A liquidator was appointed to Silverbay Pty Ltd in 1993. The unsecured creditors of those companies did not receive a dividend in the winding-up proceedings. The Commissioner of Taxation was an unsecured creditor of all but one of the companies. The liquidators’ reports showed the following amounts were owed to the Commissioner:

·$175,438 by Statice Pty Ltd in respect of unremitted group tax (with $1,103,444 owed to unsecured creditors) (Exhibit 12);

·$110,000 by Taupo Pty Ltd (with $543,215.18 owed to unsecured creditors) (Exhibit 12);

·$1,458,002.82 by Randall Pacific Pty Ltd (with $367,900.16 owed to unsecured creditors) (Exhibit 12);

·$185,000 by Silverbay Pty Ltd in respect of unremitted group tax (with $119,858.11 owed to unsecured creditors) (Exhibit 12).

9.        There was some confusion about the debts of Silver Siren Pty Ltd. The respondent suggested the company was also indebted to the Commissioner of Taxation. The evidence on this point is unclear. We note that the report as to affairs in exhibit 12 refers to a debt owed in respect of land tax in the amount of $155,381.73 with $379,982.33 owed to unsecured creditors.

10.      Mr Quinlivan offered a number of explanations for what occurred. In his evidence, he noted:

·interest rates rose dramatically, which forced up the cost of the companies’ borrowings to unsustainable levels (although the evidence of Mr Stephen Quinlivan, the applicant’s son, suggested a number of the properties were acquired using borrowed funds when interest rates had already risen – which suggests Mr Quinlivan was less of a victim of high interest rates than Mr Quinlivan would have the Tribunal believe);

·the pilots’ strike impacted on tourism in Cairns and Alice Springs in particular, which hurt cash flow. The impact of the pilots’ strike was compounded by the failure of Compass Airlines, a fledgling airline which had a relationship with Statice Pty Ltd, the company which owned the property in Cairns;

·the gulf war occurred (Mr Quinlivan did not clearly explain how that event was relevant, but we assume he meant the conflict exacerbated the downturn in tourism);

·OST/IOOF ran into difficulties which prevented it from continuing to fund the Sydney development. Mr Quinlivan also mentioned problems arising out the collapse of the Pyramid Building Society and the Farrow group of companies that led to a run on building societies and a tightening of the credit market.

11. Mr Derrington SC, for ASIC, suggested in cross-examination that other factors were at work in the failure of the companies in 1991-1992. He noted that reports filed by the liquidators of Taupo Pty Ltd and Silver Siren Pty Ltd pursuant to s 533 of the Act said there had been a failure to keep adequate records. The report in relation to Statice Pty Ltd (Exhibit 12) was particularly troubling. It noted:

Amounts were loaned to other companies within the Group. It would appear that Directors enjoyed a lifestyle and withdrew funds relating to personal expenditure but accounted for as intercompany loans. As a consequence the company was unable to pay its own trading debts as they fell due.

12.      Mr Quinlivan denied there was anything wrong with the way in which he had managed those companies. The thrust of his evidence was that the companies were the victims of external forces that claimed many hitherto successful businesses in Queensland during the same period.

13.      The passage of time makes it difficult for us to reconstruct and analyse what happened to Mr Quinlivan’s companies during this period. We accept Mr Quinlivan and his companies experienced external shocks, most obviously as a result of the pilots’ strike and conditions in the credit markets. Many soundly managed businesses struggled during this period for the same reasons. But we think there is enough evidence to conclude that poor management was also a factor in the failure of the companies. The liquidators’ reports referred to poor-record keeping and inappropriate use of funds, and there is evidence to suggest the companies unwisely incurred debt during periods of high interest rates when a more conservative approach might be warranted. Given Mr Quinlivan played a central role in those companies, he must bear at least some responsibility for what happened.

14.      The collapse of his companies impacted on Mr Quinlivan’s personal finances. He negotiated an arrangement under Part X of the Bankruptcy Act 1966 in 1992. He was ultimately bankrupted on 5 August 1994.

15.      The sequestration order in 1994 was not Mr Quinlivan’s first encounter with bankruptcy. His estate had been subject to a sequestration order on 16 September 1981. The order was made after he had failed to pay a debt of around $6,000. He said he overlooked the obligation by accident because he had recently separated from his wife and was distracted by the task of raising his children. The creditor’s petition had been left on the refrigerator by one of the children, he explained, and it escaped his notice. Mr Derrington pointed out in cross-examination that the records of the Insolvency Trustee Service Australia (“ITSA”) showed Mr Quinlivan was bankrupted on the strength of a debtor’s petition: Exhibit 12 at 545. Mr Quinlivan disagreed and insisted in any event that the bankruptcy was annulled in short order after all of his creditors were paid in full. The ITSA records show the bankruptcy ended on 17 June 1982.

16.      Mr Quinlivan resumed his business career in 1998 after he was released from bankruptcy. He loaned $400,000 to a property marketing company he established called National Consolidated Investments Pty Ltd. That company entered into arrangements with property developers to market their properties for a fee. That business was profitable. It grew quickly. New companies were established to operate call centres and provide other services to members of the growing group. Each of these companies would charge for the services it provided to the group. Additional companies were established to market particular opportunities, or to deal in particular areas or focus on particular markets.

17.      Over time, a vertically integrated business emerged involving a range of companies in the group. Mr Quinlivan described the group’s operation in the course of his oral evidence. He said one of several marketing companies might arrange a seminar promoting an investment opportunity. It would pay one of the other group companies that conducted a call centre to promote the seminar. If potential investors were to inspect the investment property in question, their travel would be arranged by another group member that dealt with travel arrangements. The potential investors would stay in accommodation provided by yet another group member. A real estate agent from still another group member would meet the investors to show them the properties; if an investor decided to proceed with the sale, he or she was introduced to a finance company that was also a part of the group. All of the companies charged each other for the services they provided. Most of them dealt exclusively with other group members. As a result, each company ran up large debts owed to other companies in the group. Many of them had no other clients or debts, apart from those owed to the Commissioner of Taxation.

18.      

The business conducted by the various companies grew quickly. They employed around 600 people in 2000-2001. Mr Quinlivan said in his evidence that the companies hosted up to 60 seminars for investors around Australia each week during this period. They sold around 250 properties a week, and sales were growing at around 10% per month. Between them, the companies were turning over

$6 million per month at their peak.

19.      As the business grew, so did the number of companies involved. Mr Quinlivan was a director – usually the sole director – of all of them. We note he agreed in his evidence that he was involved in the management of around 70 companies at the time these proceedings were commenced.

20.      Mr Quinlivan said the group’s problems began when The Courier-Mail newspaper took an interest in the business in August 2001. It began to publish reports that were critical of a company that was run by Mr Quinlivan’s son, Stephen. That company acquired homes and refurbished them for sale. The refurbished properties were marketed by the group companies alongside the new properties supplied by developers. The sale of refurbished homes formed a small part of the group’s total sales, but the bad press soon spread to other companies in the group. Mr Quinlivan said The Courier-Mail published around 180 reports that mentioned group companies and their business during this period. Copies of various articles and reports were included in Mr Quinlivan’s affidavit of 6 November 2008.

21.      Mr Quinlivan says the bad press was a disaster for the group’s business. At the height of what he described as a press campaign, up to 70% of the sales failed to proceed. That evidence was confirmed by Mr Andrew Tamandl. In his evidence, Mr Tamandl said “It was like hitting quicksand”. As the number of new contracts fell and existing contracts were rescinded, the cash flow of the various companies was affected. They began to experience difficulties in paying their debts as and when they fell due. One of the biggest creditors was the Commissioner of Taxation. But given the level of intercompany charges, group companies were also significant debtors. Some of the sales consultants who were retained by the marketing companies were also creditors, although Mr Quinlivan explained they were usually looked after by other companies in the group which either settled the debts or gave the consultants fresh work.

22.      The bad publicity was compounded when the Australian Competition and Consumer Commission (“the ACCC”) alleged the marketing practices of companies in the group contravened the provisions of Part V of the Trade Practices Act 1974. We were told the ACCC was successful in its action before a single judge but the decision was overturned on appeal. That victory came too late, Mr Quinlivan said: the damage to his reputation and that of his business was already done.

23.      Companies within the group began to fail in 2002. The list of failures included:

·National Consolidated Investments Pty Ltd went into liquidation pursuant to a creditor’s voluntary winding-up on 3 July 2002. The company owed $626,551.61 to the Commissioner of Taxation. The liquidator’s s 533 report identified a failure to keep financial records in contravention of s 286 of the Act. Mr Quinlivan was the sole director;

·Coastal Administration Services Pty Ltd went into liquidation pursuant to a creditor’s voluntary winding-up on 20 August 2002. The company owed $186,426.44 in unremitted group tax, $36,916 in FBT and $206,403.06 in GST. The liquidator’s s 533 report identified a failure to keep financial records in contravention of s 286 of the Act. Mr Quinlivan was the sole director;

·Remi Morgan Burns Pty Ltd went into liquidation pursuant to a creditor’s voluntary winding-up on 28 August 2002. The company owed $608,527.48 in unremitted group tax, $22,793 in FBT and $111,250.91 in GST. The liquidator’s s 533 report identified a failure to keep financial records in contravention of s 286 of the Act. Mr Quinlivan was the sole director;

·Australian Financial Management Corporation Pty Ltd went into liquidation pursuant to a creditor’s voluntary winding-up on 5 September 2002. The company owed $196,763.72 in GST. The liquidator’s s 533 report identified a failure to keep financial records in contravention of s 286 of the Act. Mr Quinlivan was the sole director;

·Consolidated Property Investments Pty Ltd went into liquidation pursuant to a creditor’s voluntary winding-up on 17 September 2002. The company owed $31,568.05 in unremitted group tax, $3,495 in FBT and $72,772.74 in GST. The liquidator’s s 533 report identified a failure to keep financial records in contravention of s 286 of the Act. Mr Quinlivan was the sole director;

·Manorbase Pty Ltd went into liquidation pursuant to a creditor’s voluntary winding-up on 1 October 2002. The company owed the Commissioner $28,277.18. The liquidator’s s 533 report identified a failure to keep financial records in contravention of s 286 of the Act. Mr Quinlivan was the sole director;

·First Home Buyer (Aust) Pty Ltd went into liquidation pursuant to a creditor’s voluntary winding-up on 16 October 2002. The liquidator’s s 533 report identified a failure to keep financial records in contravention of s 286 of the Act. Mr Quinlivan was the sole director;

·Ausblue Pty Ltd went into liquidation pursuant to a creditor’s voluntary winding-up on 29 October 2002. The company owed the Commissioner $13,712.11. The liquidator’s s 533 report identified a failure to keep financial records in contravention of s 286 of the Act. Mr Quinlivan was the sole director;

·Shellston Pty Ltd went into liquidation pursuant to a creditor’s voluntary winding-up on 6 November 2002. The company owed the Commissioner $18,480.06, including an amount of $1400 in respect of GST. The liquidator’s s 533 report identified a failure to keep financial records in contravention of s 286 of the Act. Mr Quinlivan was the sole director;

·Coventry Finance Pty Ltd went into liquidation pursuant to a creditor’s voluntary winding-up on 4 March 2003. The company owed $700,000 in respect of unremitted group tax. The liquidator’s s 533 report identified a failure to keep financial records in contravention of s 286 of the Act. Mr Quinlivan was the sole director;

·Rental Options Pty Ltd went into liquidation pursuant to a creditor’s voluntary winding-up on 11 August 2004. The company owed $4444 to the Commissioner in respect of unpaid GST. The liquidator’s s 533 report identified a failure to keep financial records in contravention of s 286 of the Act. Mr Quinlivan was the sole director;

·Statefort Pty Ltd went into liquidation pursuant to a creditor’s voluntary winding-up on 11 August 2004. The liquidator’s s 533 report identified a failure to keep financial records in contravention of s 286 of the Act. Mr Quinlivan was the sole director;

·Freedom Mortgages Pty Ltd went into liquidation pursuant to a creditor’s voluntary winding-up on 3 March 2005. The company owed $474,821 to the Commissioner. The liquidator’s s 533 report identified a failure to keep financial records in contravention of s 286 of the Act. Mr Quinlivan was the sole director; and

·Scottsdale Homes No 10 Pty Ltd went into liquidation pursuant to a creditor’s voluntary winding-up on 22 February 2007. The liquidator’s s 533 report identified a failure to keep financial records in contravention of s 286 of the Act. The liquidator also found the company had traded whilst insolvent in contravention of s 588G. Mr Quinlivan was the sole director.

24.      ASIC pointed out in its submissions that none of these companies had any assets. Even the telemarketing companies like Remi Morgan Burns Pty Ltd did not own the furniture, telephones or computers used by staff in the conduct of the telemarketing business. All of those things – together with the company’s office accommodation – were provided by other companies in the group, or by other interests associated with Mr Quinlivan. The business of the group was extensively compartmentalised.

25.      Mr Quinlivan said Scottsdale Homes No 10 Pty Ltd was in a special position. The company was involved in a commercial dispute with an Indian telemarketing company that had been engaged to provide leads for other companies in the wider Quinlivan group. Scottsdale Homes No 10 Pty Ltd had no other assets or, we understand, any other business – which raises the question of why it was being used to contract with an overseas telemarketing company when the business leads that were being generated would be picked up by other companies in the group. Mr Quinlivan said he regretted the decision not to contest the winding-up proceedings more vigorously. He explained the circumstances in which the decision was taken not to resist the winding-up in his affidavit of 17 February 2009. He said the debt was not a genuine one. He also denied the company was insolvent, although it seems he did not appreciate that fact at the time. We note Mr Mark McIvor, the chief executive of the financier Equititrust, agreed in his evidence that his firm would have loaned Mr Quinlivan the money to cover the amount of the debt if he had been asked to do so. Mr Quinlivan added that other companies in the group might have met the obligation if he had understood that would have amounted to evidence of solvency. Mr Quinlivan also reported confusion in his dealings with solicitors who were dealing with the winding-up application.

26.      Mr Quinlivan has changed the focus of his business activities in recent years. He is now squarely in the business of property development. The various developments are being carried on by nine companies that form the core of the Quinlivan development group. The largest of these, Corymbia Corporation Pty Ltd, is developing a large housing estate. We were told all of the companies have assets, unlike the companies that were wound up between 2002 and 2007. A number of them also have substantial debts owing to secured and unsecured creditors, including the Commissioner of Taxation.

27.      The viability of the various developments appears to depend on Mr Quinlivan organising a new funding facility that will enable Corymbia Corporation to develop its property and generate cash flow. Mr Quinlivan explained at the hearing that he wanted to replace the existing facility provided by Equititrust. Mr McIvor, from Equititrust, said his company was not refusing to deal with Mr Quinlivan; he said he was conscious Mr Quinlivan could probably obtain finance elsewhere at lower cost.  As counsel for Mr Quinlivan pointed out in his further written submissions, Equititrust is exposed to Mr Quinlivan. It may be in Equititrust’s interests to extract itself from this situation.

28.      

Mr Quinlivan indicated at the hearing that he anticipated being able to organise fresh finance in short order. He was asked about the progress of those negotiations at the resumed hearing. He gave evidence of discussions with a financier called Triumph Management Ltd. Mr Derrington questioned whether those discussions were genuine or as far advanced as Mr Quinlivan suggested. In any event, by the time the evidence closed and submissions were received, the facility had not been arranged and no additional funds had been made available.

Mr Quinlivan explained that fresh arrangements had been made with Equititrust to fund the developments in the meantime, but noted that the group’s debt to Equititrust had ballooned to $63 million.

29.      

In the meantime, individual companies associated with Mr Quinlivan continue to flounder. Scottsdale Homes No 3 Pty Ltd was placed in administration on

12 November 2008. The company had a tax debt in the amount of $660,177.88.

Mr Quinlivan arranged for Corymbia Corporation Pty Ltd to secure an advance from Equititrust to pay down the debt of Scottsdale Homes No 3 on 11 March 2009. The advance from Equititrust and the payment of another amount held by the administrator was enough to avoid the appointment of a liquidator.

30.      There was a good deal of evidence at the hearing and the resumed hearing in relation to the affairs of Remi Lane Marine Charters Pty Ltd. That company possesses a yacht that was moored outside Mr Quinlivan’s home. Mr Quinlivan said the vessel was available for charter, but it had only been chartered on one occasion. It is not clear what the company does at present, although it has managed to accrue a tax debt (including penalties) in the amount of $1,499,603. Its obligation to pay $23,000 each month to the financier of the boat is currently being met by someone else – perhaps by Mr Quinlivan himself, or by other companies in the wider Quinlivan group. At the hearing in March, Mr Quinlivan claimed he was in the process of making arrangements to pay the tax debt. Within a matter of days of making that claim, the company was placed in voluntary administration. The administrators were appointed on 26 March 2009 shortly after the Commissioner of Taxation served the company with a winding-up application. The Administrator’s Report as to Affairs observed:

·

the company is owed $2,384,458 by other companies controlled by

Mr Quinlivan – but added it was unclear whether those amounts were recoverable;

·the company owes other companies in the wider group $2,541,374 in respect of intercompany loans; and

·the company appears to have been insolvent since at least November 2008.

31.      The creditors (including the group companies) approved a deed of company arrangement that delayed payment of the tax debt for a period of 12 months. The Commissioner voted against the deed, but he was outvoted by the group companies. The 12 month period of grace is intended to allow for an advance to be obtained from Corymbia Corporation Pty Ltd once that company has the long-promised loan facility in place.

32.      Corymbia Corporation Pty Ltd has its own problems. An external administrator was appointed to the company on 26 June 2009 at about the time the Commissioner filed a winding-up application in the Federal Court. The report to creditors dated 23 July 2009 says the company owes the Commissioner of Taxation a total of $2,951,513, although it seems the Commissioner has so far only taken action in respect of $1,194,088.35 of that amount. The report confirmed the company had assets (principally land) worth over $63 million but noted debts totalling over $70 million.  The company entered into a deed of company arrangement with its creditors on 10 August 2009. The deed provided for Croftworth Urban Communities Pty Ltd, another group company, to loan $1.2 million to Corymbia Corporation. A further $359,000 was to be advanced by Scottsdale Land No 2 Pty Ltd, yet another group company. Corymbia Corporation’s debts to other group companies were to be forgiven. The success or failure of the deed from the creditors’ point of view will ultimately depend on whether Corymbia Corporation can refinance its debt.

33.      The Commissioner of Taxation obtained a judgment against another group company, Remi Lane Investments Pty Ltd, in the amount of $4,241,536.12 on 4 June 2009. The recovery proceedings were commenced after the company failed to comply with earlier arrangements allowing it time to meet its obligations to the Commissioner. The company was placed in administration on 2 July 2009. The first meeting of creditors was told the company had debts of $17,889,610, of which around $4.7 million was owed to the Commissioner. Most of the balance of the debt was owed to other group companies. The company’s only assets are debts owed by other group companies. Interestingly, we were told real estate assets worth in the order of $25 million were transferred from the entity shortly after the Commissioner obtained his judgment. The company entered into a deed of company arrangement on 20 August 2009. The deed postponed payment of the first half of the company’s debts for 12 months with the balance due in18 months.

34.      

Mention should also be made of the position of Corymbia Estates Pty Ltd. That company owes $90,961.11 to the Commissioner. That amount is comprised of unpaid GST and a sum for the superannuation guarantee charge. The Commissioner brought a winding-up application on 20 July 2009. The company entered into a repayment arrangement. It is having trouble meeting its commitments. It has been unable to pay $789,245 to Remi Lane Marine Charters Pty Ltd which it agreed to pay under that company’s deed of company arrangement.

Mr Quinlivan expressed his confidence at the hearing that the company would be able to meet its obligations but it is unclear whether his confidence is justified.

35.      ASIC has estimated the Commissioner is currently pursuing Remi Lane Marine Charters Pty Ltd, Remi Lane Investments Pty Ltd, Corymbia Corporation Pty Ltd and Corymbia Estates Pty Ltd for debts in the amount of $7,026,187.58. We were given no reason to dispute that figure. ASIC points out the Commissioner may yet take action in respect of additional debts. The debts to the Commissioner are just one component of the financial difficulties of these companies. Corymbia Corporation Pty Ltd in particular owes a significant amount of money to financiers, most obviously Equititrust. Those companies are having real difficulty in obtaining finance and meeting their obligations. The future of these companies and their developments – and perhaps of Equititrust as well – depends on obtaining fresh sources of finance.

The causes of the failures between 2002 and 2007

36.      We have already noted Mr Quinlivan attributes the collapse of his companies in 1992-1993 to a range of external factors, including the pilots’ strike and a credit crunch. We concluded Mr Quinlivan’s own misjudgements and the mismanagement identified by the liquidators also contributed to the corporate failures. But what of the companies that collapsed between 2002 and 2007?

37.      Mr Quinlivan blamed hostile reports in The Courier-Mail and a court action launched by the ACCC for the onset of the current difficulties that led to the collapse of the companies associated with his property marketing business between 2002 and 2007. He also made much of another extraordinary event that he claimed was beyond his control: a fraud perpetrated by his chief financial officer, Mr Paul Pavlovich.

38.      Mr Pavlovich was casually employed in the accounts department of one of the companies that serviced the rest of the group in around August 2001. (In his evidence, Mr Quinlivan said he was unsure which company employed Mr Pavlovich. He said it could have been either Coastal Administration Pty Ltd or Shellston Pty Ltd. Both companies provided administrative services to the other members of the group. When asked why the group needed two administration companies, Mr Quinlivan said he did not know. That sort of uncertainty over the details of the group’s internal operations was a recurring feature of Mr Quinlivan’s evidence.) Within six months, Mr Pavlovich was promoted to a full-time role as chief financial officer. In that role, he had access to the books and accounts of all of the companies that subsequently failed.  From that position he was able to embezzle a large amount of money.

39.      Mr Quinlivan gave evidence about the circumstances that led to the appointment of Mr Pavlovich to this important executive role. The group’s former financial controller had retired. Mr Quinlivan was casting around for a replacement. He did not retain a search company to assist him in locating a suitable officer. The external search was unsuccessful. Mr Quinlivan spoke with the existing accounting staff such as Mr Pavlovich. Mr Quinlivan decided Mr Pavlovich would be a suitable choice. They agreed on a modest salary of $46,000 plus a vehicle – an amount that was so low (it was substantially less than the previous financial controller was paid) that it should have raised questions as to Mr Pavlovich’s motivations and suitability for the job. The selection process appeared to be an informal one, although Mr Quinlivan said he did look at Mr Pavlovich’s curriculum vitae. Surprisingly, Mr Quinlivan did not undertake a rigorous check of the man’s background at the time. We accept Mr Quinlivan spoke with his then solicitor, Mr John Quinn, who gave Mr Pavlovich a good reference. We also accept Mr Quinlivan’s evidence that the resume did not mention a failed business venture and the fact that Mr Pavlovich had recently been bankrupted, although the bankruptcy in particular should have been uncovered in a proper search. Once the fraud was uncovered – once it was too late – Mr Quinlivan commissioned a private investigator to examine Mr Pavlovich’s past. Mr Quinlivan said there were other misrepresentations contained in the resume. The private investigator, Mr Michael Featherstone, agreed in his evidence that the resume included some false claims but pointed out a previous employer had provided a positive reference.

40.      The appointments process described by Mr Quinlivan in his evidence was altogether too casual in the circumstances. This was a senior position in a complex group of companies that turned over a large amount of money. Given the fiendishly complex intercompany accounting arrangements, it was clear the job required a person of considerable skill and integrity. Mr Quinlivan, the person who controlled the group, should have undertaken or commissioned a more rigorous investigation of Mr Pavlovich’s background. The task was all the more important given the surprisingly modest salary agreed with Mr Pavlovich and Mr Quinlivan’s relaxed management style. We will say more of that approach to management later.

41.      Once he was appointed, Mr Pavlovich set about changing the way in which the group’s bank accounts were managed. He established a system of tokens that controlled access to the group companies’ bank accounts. The token system was implemented on the advice of the group’s bank and Mr Featherstone, who had been retained to consult on corporate security matters. Mr Featherstone said he created a fraud control manual and provided training. He explained that no-one could access the accounts without access to more than one token, and there were only three tokens in existence. We were told Mr Quinlivan held one token, Mr Pavlovich held the second while the third was initially in the hands of another senior officer. It seems Mr Pavlovich, who had developed a gambling problem, obtained access to the other officer’s token when that officer’s employment was terminated. Mr Quinlivan said in his evidence that he did not know the other officer had been fired; he thought the man was just on long term leave. That access enabled Mr Pavlovich to divert money from company accounts. Mr Quinlivan gave evidence that he would write cheques – in favour of the Commissioner of Taxation, amongst others – that he would hand to Mr Pavlovich. It seems Mr Pavlovich would then leave the cheques in a drawer and divert the funds to his own account.

42.      Mr Pavlovich was not caught until 2004. We accept he embezzled significant funds from the company before he was caught and sent to prison. It is difficult to be sure how much he stole, but at his sentencing hearing in 2007 he admitted to stealing $10,000 in 2002, $22,886.06 in 2003 and $344,615 in 2004. Mr Quinlivan said Mr Pavlovich stole much more than that, but we were not provided with any evidence to justify that claim. We are satisfied the amount of money lost as a result of Mr Pavlovich’s activities was not so large as to explain the failure of the companies.

43.      

Mr Quinlivan argued Mr Pavlovich’s fraud had a number of other consequences. We were told Mr Pavlovich destroyed records of his misbehaviour before he was finally caught. That made it difficult to construct a true picture of the group companies’ financial position for some time afterwards. We also note

Mr Quinlivan’s evidence that Mr Pavlovich was motivated by a desire to cover his tracks when he advised Mr Quinlivan to acquiesce in the winding-up of the companies that were already beginning to fail. Mr Quinlivan suggested he relied on that advice and was misled. We were invited to infer that this was yet another example of Mr Quinlivan being victimised by circumstances beyond his control.

44.      We accept Mr Quinlivan and his companies were victims of Mr Pavlovich, but we do not think the fraud played a significant role in the demise of the group companies. To begin with, there is a timing issue. He was appointed as financial controller to the group companies in early-2002. Mr Derrington pointed out that Remi Morgan Burns Pty Ltd was already insolvent by the time Mr Pavlovich was appointed. The winding-up proceedings against the various group companies began shortly after he started work. A liquidator was appointed to National Consolidated Investments Pty Ltd in July of 2002; liquidators were appointed to some other group companies over the course of 2002. Their demise cannot be attributed to Mr Pavlovich given that he only managed to steal $10,000 in that period. Those companies were already in trouble, and group companies continued to fail after Mr Pavlovich was removed from his position.

45.      We are satisfied Mr Pavlovich’s fraud was facilitated and exacerbated by the way in which Mr Quinlivan ran his companies.

46.      Mr Featherstone agreed in his evidence that Mr Pavlovich’s fraud was not particularly sophisticated. Many of the cheques that he placed in a bottom drawer were found where they were left. Mr Featherstone said the existence of the token system was widely known within the company. It would have been obvious that financial transactions should not have been occurring at Mr Pavlovich’s direction in the absence of an additional token. It is also obvious the fraud was made easier by the sprawling web of companies and the complicated accounting arrangements between them. They provided cover for Mr Pavlovich’s fraudulent behaviour.

47.      We have already referred to Mr Quinlivan’s practice of establishing companies to undertake specific tasks for other companies in the group. Each company would charge the other companies for the services it provided. Given the narrowness of the tasks to be performed and the extent of the group’s enterprise, that practice inevitably resulted in the establishment of a very large number of small proprietary companies with significant debts owing to each other. All those intercompany charges had to be balanced. That was Mr Pavlovich’s job. Mr Quinlivan said he would often ask Mr Pavlovich about the affairs of a particular company and ask to see its books. He said Mr Pavlovich would duly produce a set of accounts for the company in question that balanced. But Mr Quinlivan did not routinely ask to see the intercompany balance (ie, whether the group’s accounts balanced). It seems Mr Quinlivan did not have a clear understanding of how the companies all fit together. That much was obvious during cross-examination when he was unable to offer detailed explanations of what the various companies did.

48.      We have concerns in any event over Mr Quinlivan’s financial literacy. During cross-examination, Mr Quinlivan was shown a balance sheet for National Consolidated Investments Pty Ltd. When asked to comment on the document, he made an elementary error: he assumed one of the entries was positive when the fact it appeared in brackets indicated it was a negative.  

49.      The questions over Mr Quinlivan’s financial literacy are particularly worrying given he was the sole director and secretary of all or most of the companies in the group. He said in cross-examination that he was preoccupied with the marketing side of the business and had little time to involve himself in the minutiae of management and accounting. He explained with some irritation that he employed lawyers and accountants to keep on top of any issues that arose. He noted peevishly that his accountants had rendered huge bills each month, which he took to be evidence of diligent work. He said he had a practice of employing individuals that he assumed were competent and trustworthy. He left them to get on with their jobs. (It appears in at least one case that he gave a senior officer so much freedom that he was not aware the man’s employment had been terminated. We refer to the individual who held the third banking token that Mr Pavlovich acquired. Mr Quinlivan thought the man was on long term leave.) He said he met regularly with his managers and questioned them about the business, but the evidence before us in relation to Mr Pavlovich in particular suggested the questioning was neither extensive nor rigorous. This management strategy misfired spectacularly in Mr Pavlovich’s case: it appears he simply lied to any questions that were put to him, and Mr Quinlivan was none the wiser until long after the damage was done. We do not accept Mr Quinlivan was simply unlucky. We doubt his relaxed approach to management could ever succeed in a complex set of companies like this where so little systematic effort went into hiring appropriate staff in the first place. 

50.      

The shortcomings in the accounting system were unacceptable even in the absence of any fraud on Mr Pavlovich’s part. Mr Derrington asked Mr Quinlivan about the intercompany loans and charges in the course of cross-examination. We have already referred to the criticisms of the intercompany loans between Statice Pty Ltd and other companies that failed in 1992-1993. The s 533 reports in relation to the companies that failed between 2002 and 2007 show that documentation in relation to the loans and charges incurred by those companies is similarly deficient.

Mr Quinlivan agreed there were no written records of the agreements between the various companies that were wound up to charge each other for services. He produced a series of deeds of subordination during the course of his re-examination by Mr Bowden. Those deeds were executed during the course of 2006 and 2007 and related to the inter-company charges, but they did not explain in detail how the charges arose.

51.      Mr Quinlivan said the companies all operated at arms’ length and charged commercial rates for the services they billed to other group companies. When questioned about what he meant during cross-examination, Mr Quinlivan was vague about the details of this intercompany accounting. That is not surprising since we have already concluded he did not really understand the process. He was not able to identify what services each company provided or the rate at which those services were billed. Mr Jonathan Burgess, an auditor, agreed in cross-examination that the services were not billed at arms’ length. He also agreed it was unclear what basis was used to calculate the amount of the charges in each case.

52.      The evidence of Mr Burgess was instructive. He said the intercompany charges should all balance out against each other when the accounts were completed throughout the group. The arrangement also meant the whole group was vulnerable if even one of the companies in the chain were to fail. Mr Burgess agreed in cross-examination that the books were not of a reasonable standard, although he added they were not as bad as some he had encountered. We note Mr Stephan Horvat, who was not called to give evidence, suggested in a statement that he thought the accounts and record-keeping processes were satisfactory. We cannot reconcile that opinion with the evidence of Mr Burgess and Mr Quinlivan.

53. The failure to properly record the agreements upon which the intercompany charges were based was a serious shortcoming in the management of those affairs. But the accounting arrangements were unsatisfactory in any event. They were in such a state – because of Mr Pavlovich, but also because of the complexity and opacity of the interaction between the group members – that Mr Quinlivan was not in a position to know whether the companies were solvent at any given point in time. We accept the liquidator’s conclusion in the s 533 reports that the companies failed to keep proper books and records.

54.      No-one was able to satisfactorily explain the rationale for the corporate structure or the accounting arrangements. Mr Quinlivan said he was acting on professional advice, but it is difficult to see why a competent professional adviser would suggest this structure or these accounting arrangements. In particular:

·We were unable to discern a legitimate tax advantage if things were done this way. Indeed, Mr Burgess suggested the companies might have had higher tax bills than if proper group accounting principles or a different structure had been used.

·The proliferation of companies made limited sense as an asset protection strategy, although Mr Quinlivan insisted in his evidence that he had that end in mind. Most of the failed companies dealt exclusively with other group companies, which suggested that most of them (or the person that controlled them) were not facing significant risk.

55.      Mr Quinlivan suggested in his evidence that organising the group in this way helped him to manage the large number of sales staff that he retained to market properties. He spoke of a structure that was divided up along military lines with each company acting as a unit that housed a small group of sales people who often competed with each other. They had their own identity and behaved as a profit centre. Mr Robert Knight, an accountant retained by the Quinlivan group, agreed in his evidence that it made sense to undertake different developments in different companies to make it easier to account for each project. But that reasoning does not account for the fact that many of the companies did not undertake sales functions, and none of the companies wound up prior to 2007 was undertaking developments. Many of the companies provided administrative services of various kinds. We are not persuaded this was a genuine motivation behind the structure of the group.

56.      

ASIC invited us to infer that the convoluted corporate structure was devised to protect Mr Quinlivan from liability to the Commissioner of Taxation in particular. On this analysis, the intercompany charges ensured that each company had large “friendly” creditors that could vote at any creditors’ meeting which considered the appointment of an external administrator or a deed of company arrangement. The group structure was also said to permit Mr Quinlivan to decide whether to use the group’s resources to pay a company’s debt to the Commissioner. Alternatively, it was suggested, a company could be sacrificed and the debt would go unpaid.

Mr Derrington pointed out companies managed by Mr Quinlivan frequently failed to pay their tax in a timely way, or at all.

57.      ASIC is effectively asking us to find that Mr Quinlivan adopted the corporate structure and the ramshackle accounting arrangements to avoid paying tax. While we acknowledge there is evidence consistent with that proposition, we do not think the material before justifies us in going so far. But we are satisfied the evidence establishes Mr Quinlivan was an unsatisfactory director.

58.      Mr Quinlivan demonstrated his uncertain grasp of his role as a director in the course of cross-examination. Mr Derrington asked him to comment on a number of documents that bore his signature. Mr Quinlivan accepted he had not read the documents or understood their contents when he signed them. The documents in question were Questionnaires for Directors and Officers of Remi Morgan Burns Pty Ltd and Manorbase Pty Ltd. In both questionnaires, Mr Quinlivan was described as a “silent director” who was not involved in the day-to-day operations of the company. Mr Quinlivan said he did not complete or even read the document even though he certified his answers to the various questions were true. His indifference was on display again in relation to the affairs of Ausblue Pty Ltd. Mr Derrington pointed out in cross-examination that the Commissioner of Taxation was the only significant creditor. When asked to explain why steps were not taken to pay out the Commissioner and avoid winding-up, Mr Quinlivan limply replied that he did not know why. He added that he was not aware of the amount of the debt and seemed uncertain whether he had made a decision to do anything at all. While he claimed he took a more active interest in the affairs of the companies that were directly involved in marketing activities – his specialty – he did not otherwise resile from the description “silent director” in particular. We are satisfied he did not regard himself as having an active role in the management of the companies that subsequently failed. Those responsibilities were left almost entirely to subordinates like Mr Pavlovich, who were selected in a casual way and left effectively supervised.

59.      Mr Quinlivan did not respond to signals that all was not well with his companies. He noted in the course of his evidence that he was aware of director penalty notices issued by the Commissioner of Taxation. Those notices indicated various companies were in default of their obligations. They should have caused him to investigate whether the group’s financial controls and personnel were working as intended. He did not do any of that: he merely handed the notices to Mr Pavlovich for his attention. He had a similar response when he became aware that the liquidators of some of the companies were not being provided with the books and records they required to complete their investigations. He responded to the insistent correspondence by asking Mr Pavlovich to comply with the notices and provide the documents. Mr Quinlivan agreed in cross-examination that he did not follow up to ensure his instructions were obeyed or investigate how the problem arose.

Summary of our findings of what went wrong

60.      There were a number of factors contributing to the failure of the group companies between 2002 and 2007. Some of the factors were external, like hostile reporting in The Courier-Mail and legal action by the ACCC and others that impacted on the reputation of the property marketing business conducted by the various group companies. That bad publicity had a serious impact on cash flows. We do not make any comment about whether the bad publicity was merited. It is enough that we find it occurred and that it had an impact on the cash flows generated by the business.

61.      We accept cash flow difficulties were a significant factor in the slow motion collapse of the group companies. Once the money ran out, the companies quickly became unable to meet all of their obligations, including debts owed to the Commissioner of Taxation. The high levels of intercompany debt also meant that the failure of even one company in the group had implications for the others.

62.      

We accept the group companies were the victims of a fraud, but we are satisfied the direct losses from the fraud were not as extensive or significant as

Mr Quinlivan would have us believe. We acknowledge the companies had more difficulty (a) recovering from the fraud and (b) responding to the cash flow crisis because the officer who committed the fraud destroyed some records and gave bad advice on how to respond to the creditors’ demands in order, it seems, to avoid his misdeeds coming to light.

63.      The cash flow problems were compounded by internal problems that are directly attributable to Mr Quinlivan. The proliferation of companies and the internecine, poorly-documented relationships between them made the business difficult to administer and provided cover for fraud and other examples of mismanagement. The task was made still more complicated by Mr Quinlivan’s preference for appointing himself as the sole director and secretary of most of the companies. That would be less of an issue if he were actively involved in the management of the companies and took time to appoint and supervise competent employees. But he did not. Mr Quinlivan was interested in sales, it seems, and his involvement in the affairs of the companies did not appear to extend beyond their contribution to the marketing operations of the group. He did not keep himself properly informed of their affairs, he did not always read what he signed and he did not respond to information (eg, directors’ penalty notices from the Commissioner of Taxation or correspondence from the liquidators) which should have put him on notice of serious problems. At least some of the companies (eg, Scottsdale Homes No 10 Pty Ltd and Remi Morgan Burns Pty Ltd) had been trading while insolvent for some time before he appears to have noticed or responded.

64.      Mr Quinlivan has a poor track record in the management of companies. Many of them have failed in insolvency. The Commissioner of Taxation has consistently featured as one of the major creditors. A number of other companies under Mr Quinlivan’s control (eg, Scottsdale Homes No 3 Pty Ltd) have narrowly averted liquidation when the tax debts of those companies have been settled at the last moment. That pattern continues: a number of the companies in the Quinlivan development group owe significant amounts to the Commissioner. A,number of them are insolvent and may have been for some time. The pattern of indebtedness to the Commissioner in particular suggests to us that Mr Quinlivan does not take the obligation to pay tax as seriously as he must. The failure to remit group tax is particularly serious as those monies are like trust monies.

65.      Mr Quinlivan appears to have limited insight into the causes of his failures in business. We were not satisfied he understood the extent to which his own shortcomings as a director and manager contributed to what occurred. In his evidence, he cast himself as the victim of unanticipated external events and forces. But in each case we have found those factors were either exaggerated, or their impact was exacerbated by his own shortcomings and misjudgements.

The relevant legislation

66.      

The power to disqualify a person from managing a corporation is found in

s 206F of the Act. Section 206F(1) provides:

(1)  ASIC may disqualify a person from managing corporations for up to 5 years if:

(a)   within 7 years immediately before ASIC gives a notice under paragraph (b)(i):

(i)the person has been an officer of 2 or more corporations; and

(ii)while the person was an officer, or within 12 months after the person ceased to be an officer of those corporations, each of the corporations was wound up and a liquidator lodged a report under subsection 533(1) (including that subsection as applied by section 526‑35 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006) about the corporation's inability to pay its debts; and

(b)  ASIC has given the person:

(i)a notice in the prescribed form requiring them to demonstrate why they should not be disqualified; and

(ii)an opportunity to be heard on the question; and

(c)  ASIC is satisfied that the disqualification is justified.

67.      We are satisfied the relevant notice was given to Mr Quinlivan. We are also satisfied:

·he was an officer of two or more corporations that were wound up while or shortly after he was an officer; and

·s 533 reports have been lodged in relation to more than one company.

68. The grounds for exercising the power to cancel in s 206F(1) are set out in s 206F(2), which provides:

(2)  In determining whether disqualification is justified, ASIC:

(a)   must have regard to whether any of the corporations mentioned in subsection (1) were related to one another; and

(b)   may have regard to:

(i)the person's conduct in relation to the management, business or property of any corporation; and

(ii)whether the disqualification would be in the public interest; and

(iii)any other matters that ASIC considers appropriate.

69.      We have already discussed Mr Quinlivan’s conduct in relation to the management and business of the 14 corporations in question. We have also considered his conduct in relation to other companies, including the companies that failed in 1992-1993 and the more recent affairs of the trimmed down Quinlivan development group.

70. We are not obliged to identify specific breaches of duty or contraventions of the law in order to pass judgment on the adequacy of Mr Quinlivan’s performance for the purposes of s 206F: see Re Guss and Australian Securities and Investments Commission [2006] AATA 401; (2006) 90 ALD 349 at [48] per Deputy President Olney. While evidence of contraventions will obviously be relevant to a decision to disqualify, the section has a different focus. The operation of the section is triggered by evidence of a pattern of failure. As the Tribunal explained in Re Andrews and Australian Securities and Investments Commission [2006] AATA 25 at [23]:

The provision was apparently enacted on the assumption that involvement in one failure might simply be unfortunate, but involvement in two or more separate failures could suggest carelessness or other breach of duty.

71.      A pattern of failure ought to invite closer scrutiny in the public interest. As Kaye J explained in Nicholas v Corporate Affairs Commission (Vic) [1988] VR 289 at 299:

the object of the [equivalent] section is clearly to protect the public’s interest by preventing persons, who by past conduct are unfit, from directing promoting or managing the affairs of a corporation.

72.      We are satisfied there is ample evidence of Mr Quinlivan’s conduct that provides a basis for concluding he is not fit to be a director. We have identified a number of serious concerns, including: the failure to keep proper records of intercompany arrangements; the failure to keep proper accounts; a failure to select and supervise competent subordinates; a failure to remain familiar with the affairs – especially the financial affairs – of the various companies; failing to attend to taxation obligations; and permitting companies to trade while insolvent. The failure to keep proper accounts and attend to taxation obligations was a feature of Mr Quinlivan’s stewardship of the companies that failed in 1992-1993, and it appears that tax problems remain a problem in the companies forming part of the contemporary Quinlivan development group.

73.      The repeated failure to remit group tax is particularly worrying. Those monies are like trust monies in some respects, as Young J observed in Cullen v Corporate Affairs Commission (NSW) (1988) 14 ACLR 789 at 796; see also Re Andrews and Australian Securities and Investments Commission [2006] AATA 25 at [37]-[39]. Special care should be taken with respect to monies which have been compulsorily deducted from the wages of employees. Those amounts are not like ordinary debts. Mr Quinlivan has a track record of failing to attend to his duty in this regard. It reflects poorly on his fitness to be a director.

74. We are mindful of the requirement in s 206F(2)(a) that we must have regard to the question of whether the corporations in question are related to each other. That requirement is imposed to ensure that a director’s failures do not appear worse than they are just because the affairs of a single failed enterprise are carried on through several companies rather than one company. It is true that most of the companies in question here were carrying on tasks that were an integral part of the operations of the group’s marketing enterprise. It is no surprise that they might be affected when the business fortunes of the group changed. But the likelihood of failure of the individual companies was also increased by the intercompany debt arrangements. We also note that in at least one of the cases – that of Ausblue Pty Ltd – Mr Quinlivan was unable to explain why he decided to let the company fail rather than meet its taxation debt when he was able to do so.

75.      We do not think the fact that any or even all of the companies were related causes us to form a different view of his conduct as a director. In reaching that conclusion, we note Mr Quinlivan has managed to make many of the same mistakes (eg, failing to meet taxation obligations and keep proper records) at other points in his business career in relation to companies that have nothing in common with each other apart from the fact of his stewardship.

76. We turn next to the question of public interest. We acknowledge the public has an interest in ensuring that the managers of corporations conduct the corporation’s affairs with basic levels of honesty, diligence and skill. That expectation manifests itself most obviously in the statutory duties in ss 180-184 of the Act. The public has an interest in ensuring that corporations are managed in compliance with the laws of the land, including the taxation laws. If a company’s manager persistently demonstrates an inability or unwillingness to comply with those laws, disqualification may be in the public’s interests.

77.      Mr Quinlivan said he is endeavouring to comply with the tax laws. We are sceptical given the size of those debts (the respondent estimates the various companies owe in excess of $7 million) and the track record of failing to comply with arrangements. We note the Commissioner commenced winding-up proceedings against Corymbia Corporation Pty Ltd and is threatening enforcement action against several of the companies in the development group even as these proceedings continued.

78.      Mr Quinlivan also said he has made significant changes to the way in which he runs his various businesses. The group is smaller, for a start. He said he has better accounting and management systems in place. He has new personnel. He demands regular meetings with his managers and requires more information. That is all encouraging in that it suggests the public is in less danger from mismanagement than it was if the earlier arrangements and management practices persisted. We heard from Mr Peter Green, an accountant who was appointed to supervise the affairs of the companies while these proceedings continued. He said Mr Quinlivan is cooperative and attentive to his duties. We also heard from Mr Knight, a specialist accountant appointed to examine the affairs of the group. He said the accounts of the groups are now in good order. 

79.      

The public has other interests which must also be considered. It has an interest in encouraging enterprise and risk-taking, for example. The public interest will not be served if directors become too risk averse out of fear that they will be subject to heavy-handed intervention if things go wrong. The public also has an interest in the taxation revenues which have not been forthcoming from

Mr Quinlivan’s businesses.

80.      It is also appropriate to consider some interests particular to sections of the public. Mr Quinlivan himself is a member of the public, and his interests will almost certainly be hurt if he is disqualified: according to his evidence, a disqualification decision will end his business career and cause him serious financial problems. We will have more to say about that in due course.

81.      

We were told the public had an interest in seeing the completion of

Mr Quinlivan’s current property developments. His developments will add to the supply of new land and homes. That supply interacts with demand to affect housing affordability in the wider community. But the argument depends on the assumption that the developments cannot proceed in the absence of Mr Quinlivan. We do not accept that is so. The developments which are already under way can be completed by Mr Quinlivan’s companies without him, or by other developers. He is not indispensable to the property development business in Queensland. We also note the evidence suggests Mr Quinlivan’s finances are in such a precarious state that there is a serious question about his capacity to complete the developments even if he were to be permitted to remain a director.

82.      Employees and contactors would be affected if Mr Quinlivan were disqualified and his companies collapsed as a result. That would be regrettable, but there is always the potential for them to mitigate their loss by dealing with whoever takes over the developments. Moreover, the state of the Quinlivan group is such that employees and contractors may yet be disrupted regardless of what we decide.

83.      The interests of the financiers of the Quinlivan group raise more difficult questions. Mr John Haney said that he had done business with Mr Quinlivan’s companies since the 1990s, although he agreed he was not aware Mr Quinlivan had been bankrupted in 1994. Mr Haney’s own business was not currently lending money to Mr Quinlivan, but he said he would be happy to do so if circumstances permitted in the future because he held Mr Quinlivan in high regard as a property developer. He said Mr Quinlivan had the skills required to see a development through to a successful outcome. Mr Haney said it was important to a financier that Mr Quinlivan retains a role in the Quinlivan group because of his skills, experience and expertise in property development. He suggested the group would be less attractive to potential financiers without Mr Quinlivan.

84.      Mr Haney’s evidence was effectively a character reference for Mr Quinlivan. The evidence of Mr McIvor, the chief executive officer of Equititrust, was more useful on the question of public interest. Equititrust was Mr Quinlivan’s principal financier. At the time of the hearing, the group companies owed around $63 million to Equititrust. We were told determined but so far unsuccessful efforts had been made to obtain alternative sources of finance at lower interest than that offered by Equititrust. If that refinancing does not occur in a timely way and the Quinlivan group subsequently collapses, Equititrust would be exposed to potentially significant losses. Mr McIvor agreed with Mr Haney’s view that Mr Quinlivan’s role in the group was an important ingredient in any success it has had or will enjoy. Mr McIvor said that Mr Quinlivan’s disqualification would make the group less attractive as a financing proposition. It would also constitute an event of default although there is no guarantee that the financiers would act against the group in those circumstances.

85.      Mr McIvor agreed the success of the current development projects was very important to Equititrust. He said that success would be much harder to achieve in the absence of Mr Quinlivan’s special skills in property development. He said the evidence he had heard about Mr Quinlivan’s chequered business history did not change his mind about the desirability of retaining Mr Quinlivan in a management role at the Quinlivan group.

86.      

We accept the evidence of Mr McIvor that the failure of companies in the Quinlivan group would have very serious ramifications for the group’s financiers. That might in turn have serious implications for those who deposited funds with the financiers. We note a number of the group companies have already been placed in external administration and continue to experience financial problems that may yet cause the group to fail regardless of any decision we make. We accept

Messrs Haney and McIvor believe Mr Quinlivan’s continued involvement in the group would assist the successful completion of the developments. While we have expressed our concerns about his management skills, it appears his skills in the development and marketing of property are highly regarded. We accept it would be difficult to replace him in a timely way.

87.      We have been mindful of the interests of the financiers while we have conducted these proceedings. Mr Quinlivan has remained involved in the management of the group companies (albeit under the careful watch of an accountant familiar with the group’s operations) throughout the hearing process and during the period in which we have deliberated. Mr Quinlivan and his financiers have had ample time to find fresh sources of funding or to make other arrangements to deal with the possibility of an adverse outcome. They could have found new management personnel or liquidated assets or obtained further security. While we must have regard to their interests, it is also incumbent upon the financiers to look out for themselves and their depositors.

88. Section 206F(2)(b)(iii) of the Act says we are entitled to have regard to any other matters that we think might be relevant. The hardship that Mr Quinlivan and his family would experience if he were disqualified is one such matter. We have no reason to doubt Mr Quinlivan’s business career will effectively be over if he is disqualified for more than a token period given his age and the impact on his reputation. That will have serious implications for his personal wealth. If he cannot complete the developments he commenced, he may forego significant profits; if the development companies fail, he may lose even more.

89.      

Mr Quinlivan argued we should also have regard to the delay between the delivery of the s 533 reports and the decision to disqualify him. Thirteen of the s 533 reports were lodged on 18 September 2005, although the report in relation to Scottsdale Homes No 10 Pty Ltd was lodged on 10 May 2007. ASIC did not issue a notice in the prescribed form setting out its concerns until 11 August 2008 – a delay of around 15 months. We acknowledge ASIC must act within a reasonable time if it wishes to exercise the power to disqualify under s 206F: see Kardas v Australian Securities Commission [1998] FCA 1381; (1998) 53 ALD 303 at 313-314 per

Heerey J. That makes sense: if the regulator forms the view that someone is not up to the task of being a director, the regulator should act on that belief promptly before the director becomes involved in fresh ventures. Unreasonable delay might preclude the exercise of the power. What is unreasonable is a matter to be determined in the circumstances of each case.

90. Mr McIvor said in his evidence that the proceedings took him by surprise. Evidence to that effect is a serious concern because it points to the danger that events may have overtaken ASIC’s regulatory action. But we are satisfied there are reasonable explanations for the delay which has occurred. ASIC pointed out it in its submissions that one of the consequences of Mr Quinlivan’s failure to keep proper books and records was that it made it more difficult for ASIC to discern what had gone wrong. The s 533 reports themselves were not extensive because the liquidators did not have enough funds to conduct proper investigations. The reports were therefore of limited assistance to ASIC. It did not have a clear basis for deciding what, if anything, should be done.

91.      

The absence of material also gave ASIC reason to question whether the 13 companies referred to in the reports lodged on 18 September 2005 were related.

Mr Quinlivan certainly put that view to the delegate at the hearing in 2008, and to the Tribunal in the original statement of facts and contentions. It was only once the report in relation to Scottsdale Homes No 10 Pty Ltd was delivered in 2007 that it was put beyond doubt that ASIC had a proper basis for taking action. But once it was put beyond doubt that it could act, ASIC still faced the challenge of inadequate information about what had gone wrong when investigating whether it should act. Given the complexity of the affairs of these companies, the difficulty of that task should not be underestimated.

92.      Once the decision to issue a show cause notice was issued, ASIC dealt with the matter relatively quickly. The review before the Tribunal proceeded more slowly. The parties skirmished extensively over the interim arrangements that were put in place permitting Mr Quinlivan to remain involved in the management of his companies in the short term. Shortly after the hearing was concluded in March 2009, ASIC became aware of additional information about Mr Quinlivan’s affairs that it properly brought to the attention of the Tribunal. It became necessary to resume the hearing so those matters could be put to Mr Quinlivan. Several adjournments were required in order to afford procedural fairness to the parties. We were told on a number of those occasions that Mr Quinlivan anticipated he would be able to secure a fresh source of finance in short order. If he had been successful in doing so, that might have had implications for our decision (at least insofar as it might have impacted on our assessment of the interests of the financiers).

Should mr quinlivan be disqualified in all the circumstances?

93.      After considering all of these matters, we are satisfied Mr Quinlivan should be disqualified from being involved in the management of companies. While we acknowledge:

·the companies forming part of the contemporary Quinlivan development group are likely to be more competently managed in light of recent changes to the personnel and systems used in those companies – which means the need to protect the public is less pressing;

·Mr Quinlivan’s interests will be substantially prejudiced by a lengthy period of disqualification; and

·the interests of the financiers in particular may be adversely affected if the companies subsequently fail as a result of Mr Quinlivan’s disqualification (although there is a real possibility the companies may fail in any event given their financial circumstances)

we are satisfied the evidence summarised in paragraph [72] and referred to elsewhere in these reasons warrants disqualification. But for how long?

94.      The delegate decided Mr Quinlivan should be disqualified for a period of three years. Since that time, as more evidence has come to light, ASIC has taken a more stringent view and now asks the Tribunal to disqualify Mr Quinlivan for a period of five years.

95.      ASIC says a longer period of disqualification is appropriate in order to protect the public. It says Mr Quinlivan is still involved in large scale commercial property developments that expose the public (including creditors such as the Commissioner of Taxation, contractors, investors and others) to the risks associated with his long-standing pattern of bad management and contempt for his obligations under the taxation laws. It says a longer period of disqualification would also have a deterrent effect: other directors would realise the importance of complying with their legal obligations and paying their taxes, especially group taxes. Mr Quinlivan might also draw lessons from a disqualification of that duration, although he suggested in evidence that his business career would effectively be ended if he were to be disqualified for a substantial period. ASIC says a longer disqualification would also have a punitive effect that is proportionate to the serious shortcomings that have been identified. We note it has now been accepted that banning orders (and, we infer, disqualification orders under s 206F) are at least partly punitive in character: see Rich v Australian Securities and Investments Commission [2004] HCA 42; (2004) 220 CLR 129 at 143-147 per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ.

96.      The written submissions on behalf of Mr Quinlivan point out there were no allegations of dishonesty made against him. That is true, although ASIC invited us to infer that Mr Quinlivan established and managed the Quinlivan group companies that failed between 2002 and 2007 with a view to avoiding taxation obligations. We concluded we were not satisfied the evidence justified us in going so far: with some hesitation, we accept the evidence establishes Mr Quinlivan’s motivations in establishing the group were muddled and his management practices were the product of a want of skill and diligence. Mr Quinlivan also insists significant and effective changes have been made to the management of the companies in the slimmed-down Quinlivan group such that there is no longer any need to be concerned about Mr Quinlivan’s participation in those companies. He has offered to provide written undertakings to secure the changes he has made. While those submissions and that offer were directed towards convincing us that the applicant should not be disqualified at all, we accept they may still be relevant for the purpose of considering the duration of disqualification.

97.      ASIC referred us to the decision of the Supreme Court of New South Wales in Re HIH Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler [2002] NSWSC 483; (2002) 42 ACSR 80. Santow J discussed (at [56]) the matters that might be taken into account when determining the duration of a disqualification order. That discussion has assisted us in reaching our view, although we are conscious that his Honour’s reasons were intended to be indicative rather than a fixed and comprehensive code.

98.      We are satisfied Mr Quinlivan should be disqualified from managing a corporation for a period of five years. In reaching that view, we note in particular:

·Mr Quinlivan did not act dishonestly or seek to enrich himself by improper means, but he did fail to ensure compliance with obligations under the taxation laws in particular over a long period of time which led to substantial losses to the Commissioner of Taxation;

·Mr Quinlivan has accepted new arrangements and personnel in the management of his remaining companies that limit the risk to the public. However, we note the shortcomings in Mr Quinlivan’s management style – in particular, the failure to keep proper records – persisted over a long period, and were identified as a factor in the collapse of companies conducting different businesses in two different periods – which suggests Mr Quinlivan did not learn from his experience following the failures in 1992-1993 and his subsequent bankruptcy;

·Mr Quinlivan was reluctant to accept responsibility for the failures, which suggests a lack of insight and contrition. In his evidence, he sought to explain away his unfortunate experiences with reference to external factors without having proper regard to his own shortcomings; and

·It was obvious from his appearance in the witness box that Mr Quinlivan is a powerful personality who exerts strong influence over his subordinates when he chooses to do so. That observation was confirmed by the evidence of Messrs Haney and McIvor, who both spoke of Mr Quinlivan’s personal qualities and experience and the pivotal role he plays in the company. In the past, Mr Quinlivan has chosen to focus on staff involved in the marketing side of his business while neglecting other managers. He would have us believe that he will now bring his skills to bear on the personnel that manage the obligations he has neglected in the past. Given the lack of contrition and the limited insight he demonstrated during the proceedings, we are not persuaded his conversion to the cause of good management is secure. That is a serious problem where he is such a dominating personality. In all the circumstances, we think there is a significant risk that he will fail to live up to the commitments he has belatedly offered to make. The public needs to be protected against that possibility.

Conclusion

99. The decision under review should be varied pursuant to s 43 of the Administrative Appeals Tribunal Act 1975 so that Mr Quinlivan is disqualified for a period of five years.

100.     

We considered whether it was appropriate to make an order pursuant to

s 206F(5) of the Act permitting Mr Quinlivan to continue to be involved in the management of a named corporation notwithstanding disqualification. There was some limited discussion of the possibility of an order under this provision in the course of submissions. We are not satisfied the decision is before us, as it was not considered by the delegate. But even if we did have jurisdiction to make an order, we would not be minded to do so. Allowing Mr Quinlivan to manage companies in the circumstances notwithstanding his disqualification would defeat the purpose of the disqualification. In particular, it would deprive the disqualification in this case of any punitive or deterrent effect, which would be inappropriate. Even if the orders were subject to stringent qualifications that limited his freedom of action, our observations about the force of Mr Quinlivan’s personality and his effect on subordinates in his environment suggest this is not an appropriate course.

I certify that the 100 preceding paragraphs are a true copy of the reasons for the decision herein of Hon Dr B H McPherson CBE, Deputy President, and Senior Member Bernard J McCabe.

Signed: ...............[Sgd]............................................................
  Associate

Dates of Hearing  16-18 and 25 March 2009;
  23 June 2009;
  25 August 2009
Date of Decision  15 February 2010
Counsel for the Applicant         Mr D Savage SC
  Mr L Bowden
Solicitor for the Applicant          QBM Lawyers
Counsel for the Respondent     Mr R Derrington SC
  Mr D Chesterman

Solicitor for the Respondent     Australian Securities and Investments Commission