Raber and Australian Securities and Investments Commission
[2020] AATA 1851
•19 June 2020
Raber and Australian Securities and Investments Commission [2020] AATA 1851 (19 June 2020)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2019/6941
Re:Genna Raber
APPLICANT
AndAustralian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal:Deputy President Bernard J McCabe
Date:19 June 2020
Place:Sydney
The decision under s 206F of the Corporations Act 2001 to disqualify the applicant from being involved in the management of corporations for 2.5 years is affirmed. The decision under s 206GAB to refuse leave to manage a specific corporation despite a disqualification order is also affirmed.
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Deputy President Bernard J McCabe
CATCHWORDS
CORPORATIONS – banning order – applicant banned from managing companies for two and a half years – refusal of leave to manage a specific company notwithstanding the disqualification – applicant involved in setting up contract for company to undertake major construction project – decision affirmed
LEGISLATION
Corporations Act 2001 ss 206F, 206GAB, 533
CASES
Andrews and Australian Securities and Investments Commission [2006] AATA 25
Boyle and Australian Securities and Investments Commission [2009] AATA 122
Carey, in the matter of Carey [2011] FCA 235
REASONS FOR DECISION
Deputy President Bernard J McCabe
19 June 2020
A delegate of the Australian Securities and Investments Commission (ASIC) disqualified Mr Genna Raber from managing corporations for 2.5 years pursuant to s 206F of the Corporations Act 2001. The delegate also refused to give the applicant leave to manage a specific corporation notwithstanding the disqualification. The power to give leave is contained in s 206GAB. Mr Raber, the applicant, is no longer contesting the disqualification order in these proceedings, but he has asked the Tribunal to revisit the question of whether he should be given leave to manage a single corporation. That corporation is currently undertaking a lucrative building project in Canberra. The applicant says the valuable opportunity will be lost to the company if he is unable to be its director.
I am not satisfied it is appropriate to give the applicant permission to manage Myriad Developments Pty Ltd (Myriad), the corporation in question. I explain my reasons below.
The reviewable decision to disqualify the applicant under s 206F and the power in s 206GAB
The applicant, Mr Genna Raber, was a director of a number of companies. His involvement with three companies is of particular relevance for present purposes: RDA Group (Aust) Pty Ltd and Sijala Pty Ltd (both wound up on 2 April 2015) and Plasterboards and Render Pty Ltd (wound up on 3 March 2017). The liquidators of those companies provided reports to ASIC pursuant to s 533(1)(c) opining that the companies may be unable to pay unsecured creditors more than 50c in the dollar. Those reports raised the prospect of regulatory action under s 206F of the Corporations Act.
Section 206F empowers ASIC to disqualify directors who have a track record of being involved in the management of corporations that are wound up and found to be insolvent. As the Tribunal explained in 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.
After receiving the reports and giving the notices required under s 206F, ASIC’s delegate held a hearing. Following that hearing, on 19 August 2019, the delegate decided to disqualify Mr Raber from being involved in the management of corporations for 2.5 years. The delegate also refused to give Mr Raber permission to manage one or more of his remaining companies. Mr Raber has asked the Tribunal to review those decisions. After initially challenging the validity of the disqualification decision, Mr Raber confirmed at the hearing he was no longer contesting the decision under s 206F. He focused on the related decision under s 206GAB. ASIC agreed there is no issue over the Tribunal’s jurisdiction to review that decision in the course of these proceedings.
Section 206GAB provides:
ASIC power to grant leave
ASIC may give a person who it has disqualified from managing corporations under this Part written permission to manage a particular corporation or corporations. The permission may be expressed to be subject to conditions and exceptions determined by ASIC.
The discretion is apparently open-ended, but that does not mean the Tribunal is free to do as it pleases. The power to grant leave is necessarily read in light of the power to disqualify under s 206F. The objectives of the legislative scheme (and the purpose of s 206F in particular) will be relevant to the exercise of the discretion under s 206GAB because the power in s 206GAB effectively permits an exception to an order made under s 206F. At a minimum, the discretion in s 206GAB should not be exercised in a way that effectively undermines the operation of s 206F. That might conceivably occur if the discretion were exercised in a way that caused errant directors to assume they could easily circumvent the operation of s 206F through the simple expedient of making an application under s 206GAB.
The Federal Court has considered the matters which might be relevant to the exercise of a similar discretion found in s 206G. Those matters would ordinarily be relevant to the exercise of the discretion under s 206GAB: see Boyle and Australian Securities and Investments Commission [2009] AATA 122 at [33]ff per Deputy President Hack. As Barker J explained in Carey, in the matter of Carey [2011] FCA 235 at [31], at least six things should be kept in mind when considering the exercise of the discretion:
1The applicant bears the onus of establishing that the Court should make an exception to the legislative policy underlying the prohibition;
2That legislative policy is one of protecting the public, not one of punishing the offender;
3Another objective is to deter others from engaging in conduct of the particular kind in question;
4A further objective is the more general one of deterring others from abusing the corporate structure to the disadvantage of investors, shareholders and others dealing with a company;
5The prohibition itself contemplates that there will be hardship to the offender. Therefore hardship to the offender alone is not a persuasive ground for the granting of leave; and
6The Court will have regard to the nature of the offence of which an applicant has been convicted, where relevant, and the nature of his involvement, and the general character of the applicant, including in the intervening period since disqualification. Where the applicant seeks leave to become a director and to take part in the management of particular companies, the Court will consider the structure of those companies, the nature of their businesses and the interests of their shareholders, creditors and employees. The Court will assess any risks to those persons or to the public which may appear to be involved in the applicant’s assuming positions on the board or in management.
Mr Raber has given evidence about the contract Myriad negotiated with a foreign embassy to undertake construction work on buildings in the embassy compound. I was told the contract is a lucrative one. I was also told the opportunity to contract only came to Myriad because of the long-standing personal relationship between Mr Raber and embassy officials and others within that country’s expatriate community in Australia. At a stay hearing on 7 February 2020, Mr Raber argued he should be given a stay of the disqualification decision (and that news of the decision should not be published) out of fear the embassy might pull out of the agreement with Myriad if officials became aware he was no longer involved in the company. I declined to order the stay. Counsel for ASIC at the stay hearing pointed out there was no evidence of any adverse reaction from the embassy even though the disqualification decision had already come into effect. Mr Raber has since acknowledged he did not tell the embassy about ASIC’s decision or the fact he was no longer permitted to be involved in the management of the company. He is not aware whether the embassy officials know of the regulatory action. For now, he continues to deal with the embassy and contractors on the company’s behalf.
I will accept for the purposes of the argument that Mr Raber’s disqualification may be greeted with dismay by the embassy officials. I will assume the embassy expects Mr Raber to oversee the work because they have established a relationship with him, as opposed to the company. If the relationship between the company and the embassy were to sour because Mr Raber was not able to be involved in the management of Myriad, Myriad and its employees and contractors might experience loss and inconvenience. But a breakdown in that relationship is not inevitable. ASIC points out Mr Raber is not prevented from being employed by the company and can remain involved in the project (albeit that at some point his involvement in the project might become so great that he is, in truth, involved in the management of the company). It is also unclear whether the embassy would be entitled to terminate the contract in the circumstances. There may be a personal relationship between embassy officials and Mr Raber, but the contractual relationship is between the foreign state in question and the company.
It is therefore difficult to predict whether the embassy and the contractors and employees of Myriad would experience loss and disruption if the applicant were denied leave to be involved in the management of company. If the relationship did break down, it is likely Mr Raber would experience significant loss. He continues to have an economic interest in Myriad, and the embassy project appears to be Myriad’s principal business. The potential for loss and hardship to Mr Raber is relevant to my deliberations but it has less weight for reasons identified in Carey.
I will come to the implications for specific and general deterrence in due course. For now, I want to focus on the legislative objective of protection mentioned in Carey. Accepting that protection is an important objective, I should say something about Mr Raber’s shortcomings as a director that were relevant to the disqualification decision. His history will shed light on the scale of the risk to the public.
While Mr Raber does not contest the disqualification decision, he did not accept all the findings of fact the delegate made against him. Mr Raber was cross-examined in these proceedings about aspects of his conduct.
One of the delegate’s central findings was that Mr Raber lodged a form with ASIC containing a false statement about the date on which he retired as a director of Plaster and Render. The form was lodged two weeks before winding up proceedings were commenced against that company in 2017. The form was backdated in an apparent attempt to prevent Mr Raber being held responsible as a director of the company once external administrators were appointed. Mr Raber accepts the form was false and that he lodged it (or knew that it was being lodged) but insists he was acting on the advice of his accountant.
The accountant was called to give evidence about the circumstances in which the form came to be signed and submitted. He told a different story. The accountant agreed he had regular discussions with Mr Raber during the relevant period but he did not take notes of those discussions. I was given the impression that the accountant was not across the detail of the business. The accountant said he would gather in the work and manage the relationship but the work was discharged by his staff. He said he would not have told Mr Raber to sign the document, and – given the level of generality at which the accountant engaged with Mr Raber – he was unlikely to descend to the detail of ASIC forms. Having said that, there is no doubt staff within the firm were involved in the lodgement of the form. Mr Allen, who appeared for Mr Raber, said I should prefer the evidence of Mr Raber’s account of his interaction with the principal of the firm who appeared at the hearing given (a) Mr Raber had a specific recollection of discussing the issue with him, and (b) the documents in question appeared to be handled by the accountant’s firm.
It would be very surprising if an experienced accountant advised Mr Raber to submit a false document to ASIC. Having said that, I am not satisfied I got to the bottom of what passed between Mr Raber and his accountants at the time. It is difficult to do that now given the relationship between them appears to have broken down. For present purposes, none of that matters. Even if I accept the accountants were involved in the provision of a false declaration to ASIC, Mr Raber would be in trouble. He knew the declaration was false and he signed it. Every director knows one must not lie to the regulator in official forms. One cannot avoid responsibility for those lies by pointing to advice.
Evidence of a history of making false statements to the regulator is especially problematic in circumstances where the Tribunal is being asked to trust the applicant with the management of the affairs of Myriad.
Other aspects of Mr Raber’s evidence were troubling. ASIC contended the applicant orchestrated a scheme that used group companies and other entities to defeat creditors. To this end, he was pressed in cross-examination as to the relationship between his former companies that went into liquidation and another company called Oregano Lane Pty Ltd. His evidence about that relationship was vague. He said he had met the director of the company on a handful of occasions. He denied he exercised any control over the company or that he was involved in its direction or control. Yet company documents belonging to Oregano Lane featured Mr Raber’s business address, and there was evidence provided at the hearing that Oregano Lane paid expenses that were billed to Mr Raber’s companies.
I am not satisfied I got to the bottom of the relationship between Mr Raber and his companies on the one hand and Oregano Lane on the other. Mr Raber’s evidence raised more questions than it answered. While I am not in a position to make a finding about the nature and extent of that relationship, the lack of clarity on this issue gives me pause.
Mr Raber was cross-examined in some detail about the financial affairs of the various companies of which he was a director. ASIC says those companies failed to keep proper books and records while Mr Raber was a director. During cross-examination, Mr El Hage, who appeared for ASIC, drew Mr Raber’s attention to transactions in the records that were available. Mr Raber was unable to explain many of those transactions. He repeatedly said he did not know or did not remember in response to questions. He pointed to – and implicitly blamed – the former financial controller of the companies for any shortcomings. I note he did not call the financial controller to give evidence.
ASIC says it is clear the companies in question did not maintain financial records that correctly explained those companies’ transactions and their financial position and performance. Mr Raber insisted he had discharged his responsibilities and sought to shift responsibility for any shortcomings in the book-keeping to the accountant or the financial controller. He also appeared to shift responsibility for any irregular transactions to the financial controller in particular.
I do not need to reach a concluded view about the extent to which there was a failure to comply with the obligation in s 286, or to identify precisely what happened with particular transactions. Mr Raber’s evidence demonstrated he was either:
·unfamiliar with the financial position and performance of his companies, which – at a minimum – does not inspire confidence in his capacity as a manager and director; or
·was all too aware of the financial position and performance of those companies and was given to dissembling and blame shifting.
Even taking the most benign view of Mr Raber’s past performance, it is difficult to be confident about his capacity as a manager. His shortcomings as a manager are of particular concern given the construction business is comparatively risky. A construction project like the one in question involves the interaction of a great many entities, including sub-contractors and other trade suppliers. Those entities are exposed to real risk. I note Mr Raber said the project is already falling behind schedule.
The shortcomings in Mr Raber’s performance as a director to date weighs against allowing him to continue his involvement in the management of Myriad. I make that observation in light of the legislative objective of protecting creditors and other members of the public dealing with the company. The importance of that objective means Mr Raber is unlikely to enjoy the benefit of any doubts about his capacity and integrity – and the evidence before me certainly gives reasons for doubt. I should add I would be reticent even if Mr Raber were to give undertakings about his conduct or be joined on the board by another director who might share responsibilities for the management of the company. It is unclear how a company of that size could introduce arrangements that would leverage his skill as a builder while protecting against his shortcomings as a manager.
The need to maintain the deterrent effect of s 206F also counts against the exercise of the discretion in this case. Mr Raber did not demonstrate genuine insight during the course of the hearing, or otherwise. In particular, he sought to explain away or minimise his false statement to ASIC. That evidence continues to reflect poorly on his judgment. Mr Raber will not learn anything from the whole experience if he is permitted to avoid the practical effect of the disqualification. I am also satisfied others might draw the wrong lessons if Mr Raber were to be given leave to manage Myriad notwithstanding the issues raised about his performance. There is a risk that the deterrent force of s 206F would be undermined if other directors thought ASIC (or the Tribunal) would make an exception to a disqualification order in circumstances like these.
Conclusion
I am not satisfied the applicant should be given permission to manage Myriad or any other company while he is disqualified.
I certify that the preceding 26 (twenty -six) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe
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Associate
Dated: 19 June 2020
Date(s) of hearing: 20 and 21 May, 1 June 2020 Date final submissions received: 1 June 2020 Counsel for the Applicant: Mr D Allen Solicitors for the Applicant: Kekatos Lawyers Counsel for the Respondent: Mr H El-Hage Solicitors for the Respondent: Australian Securities and Investment Commission
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