Raphael Gabay and Australian Securities and Investments Commission
[2013] AATA 956
[2013] AATA 956
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2013/6142
Re
Raphael Gabay
APPLICANT
And
Australian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal The Hon. B J M Tamberlin QC, Deputy President
Date 20 December 2013 Date of written reasons 25 February 2014 Place Sydney
The Tribunal dismisses the Applicant’s application under s 35(2) of the Administrative Appeals Tribunal Act 1975.
The Tribunal grants the Applicant’s request pursuant to s 41(2) of the Administrative Appeals Tribunal Act 1975 and stays the operation and implementation of the decision under review, until determination of these proceedings or further order, and subject to the condition that the Applicant is not to manage any other corporation other than Performa Software Pty Ltd (ACN 142 291 870) and Performa Solutions Pty Ltd (ACN 103 281 438).
The Tribunal orders that the hearing of this matter be expedited.
........................[sgd]..............................................
The Hon. B J M Tamberlin QC, Deputy President
CATCHWORDS
PRACTICE AND PROCEDURE – Application to stay decision of Australian Securities and Investment Commission – decision to disqualify Applicant from managing corporations for a period of one year - prospects of success, public interest, consequences for parties and consequences on application for review considered by Tribunal – stay application granted, subject to the condition that the Applicant is not to manage any other corporation
PRACTICE AND PROCEDURE – Application for confidentiality orders – Tribunal of opinion that norm of open justice should not be overturned – application for confidentiality orders dismissed
LEGISLATION
Administrative Appeals Tribunal Act 1975 ss 35, 41(2)
Corporations Act 2001 s 206F
CASES
Re Scott and ASIC [2009] AATA 789
Bundy v Australian Securities and Investments Commission [2013] AATA 59
Oaklands v Australian Securities and Investments Commission [2011] AATA 199
Re Commonwealth of Australia v Quirke (1986) 9 ALD 92
Re Zarfati v Australian Securities and Investments Commission (2008) 106 ALD 225Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185
REASONS FOR DECISION
The Hon. B J M Tamberlin QC, Deputy President
25 February 2014
On October 2013 a delegate of the Australian Securities and Investments Commission (ASIC) made a decision to disqualify Mr Gabay from managing corporations for a period of one year.
On 29 January 2014 Mr Gabay applied to this Tribunal for review of that decision. Pending disposal of the review proceedings or further order, Mr Gaby asks that pursuant to s 41(2) of the Administrative Appeals Tribunal Act 1975 (the AAT Act) the Tribunal stay the operation and implementation of the decision under review, including entry by ASIC of the decision in ASIC registers and publication by ASIC of the decision.
Mr Gabay also seeks an order under s 35 of the AAT Act for a pseudonym to be applied in place of his name in all Tribunal proceedings and an order that the substantive hearing should take place in private, with only the parties, their representatives, witnesses and Tribunal staff present.
He also seeks an ancillary order restricting publication or disclosure of evidence or the contentions of documents lodged or received in evidence by the Tribunal.
Mr Gabay was disqualified from managing corporations under s 206F of the Corporations Act 2001 (the Corporations Act).
Section 206F of the Corporations Act relevantly provides:
206F ASIC’s power of disqualification
Power to disqualify
(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.
(1A) To avoid doubt, the references in paragraph (1)(a) to corporations include references to Aboriginal and Torres Strait Islander corporations.
Grounds for disqualification
(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.
(2A) To avoid doubt, the references in subsection (2) to a corporation includes a reference to an Aboriginal and Torres Strait Islander corporation.
Notice of disqualification
(3) If ASIC disqualifies a person from managing corporations under this section, ASIC must serve a notice on the person advising them of the disqualification. The notice must be in the prescribed form.
Start of disqualification
(4) The disqualification takes effect from the time when a notice referred to in subsection (3) is served on the person.
ASIC power to grant leave
(5) 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.
For the purposes of the stay application Mr Gabay does not dispute the application of s 206F(1)(a) and (b) of the Corporations Act. He accepts that he was a director of three companies that failed and that reports were lodged with ASIC under s 533 of the Corporations Act, and notice was given to him to show cause as to why he should not be notified and that he was given an opportunity to be heard.
In the substantive review, the key issue is whether the adverse findings concerning him and his disqualification were justified in the circumstances.
STAY APPLICATION
Section 41(2) of the AAT act provides:
The Tribunal may, on request being made, as prescribed, by a party to a proceeding before the Tribunal (in this section referred to as the relevant proceeding), if the Tribunal is of the opinion that it is desirable to do so after taking into account the interests of any persons who may be affected by the review, make such order or orders staying or otherwise affecting the operation or implementation of the decision to which the relevant proceeding relates or a part of that decision as the Tribunal considers appropriate for the purpose of securing the effectiveness of the hearing and determination of the application for review.
In Re Scott and ASIC [2009] AATA 789 at [4] Downes J identified that the following relevant factors should be taken into account for the purposes of a decision under s 41:
(a)The prospects of success of the application;
(b)The consequences for the Applicant of the refusal of the stay;
(c)The public interest;
(d)The consequences for the Respondent in carrying out its functions depending on whether a stay is granted or not;
(e)Whether the application for review would be rendered nugatory if a stay were not granted ;
(f)Other matters relevant such as the length of the time the ban has already been in place and the time between the application and the hearing of the application.
As I noted in Bundy v Australian Securities and Investments Commission [2013] AATA 59, the need to protect consumers and customers is a matter of particular importance when assessing public interest impacts.
Prospects of Success
As Senior Member Redfern noted in Oaklands v Australian Securities and Investments Commission [2011] AATA 199 it is not the role of this Tribunal to conduct a preliminary hearing of the issues to be raised at the substantive hearing of the application when making an assessment of its prospects of success. The task of the Tribunal is to consider whether there exists facts and circumstances which would provide some basis for success: see Re Commonwealth of Australia v Quirke (1986) 9 ALD 92 at [95].
Before granting a stay, the Tribunal must be satisfied that the considerations for the granting of a stay have been established: see Re Zarfati v Australian Securities and Investments Commission (2008) 106 ALD 225.
Counsel for Mr Gabay points out that not all areas of concern raised by ASIC had been made out, and that in several significant instances the delegate had preferred the evidence of Mr Gabay over that of the liquidator. Mr Gabay submits that the absence of sufficient records of the conclusion of ASIC about some matters of concern raised by it was misdirected. As an example he says that the delegate had erroneously classified convertible notes as debt rather than equity when assessing the financial position of the group. He contends that the delegate also failed to give weight to the submission that the unexpected withdrawal of support by convertible note holders was a major part in the failure of the company.
In the Reasons for Decision under Review, as noted earlier, the ASIC delegate was not satisfied that a number of the concerns had been made out in regard to the required standard. However the delegate did conclude that Mr Gabay’s management of the affairs of the failed company group fell short of the standards that were required for someone in his position, and that his conduct in relation to the management of those companies supported a conclusion that his disqualification for managing corporations was justified. The delegate noted that the companies in the group were wound up collectively owing creditors more than $8.8 million. This amount is disputed by Mr Gabay as being excessive and he suggests although the amount owing is still large, that it was substantially less than the figure put forward by the delegate. The delegate noted that unsecured creditors have not received any repayment of their debts and he concluded that this was a matter of significant concern. In addition, he noted that $319,072 was owed to employees by one member of the group, that another member of the group owed $262,036, and that there are substantial monies owing in respect of payroll tax. The delegate observed that failure to pay taxation obligations was a serious matter, having regard to the important public interest implications in the effective administration of tax laws. He concluded that as a company director in the management of the Beacon group of companies, the conduct of Mr Gabay fell short of the required standards.
The delegate took into account that Mr Gabay is currently a director of Performa Pty Ltd, a company which acquired some of the Beacon groups’ software and IT assets. Mr Gabay says that his role as director in that company is paramount in establishing and maintaining the company’s credit and reputation in the market. He contends that this company is sound financially and is properly managed as a leader in its field. He himself has invested $500,000 in this business and wishes to act as a director of the business. This company is operating successfully in Australia and overseas. He says the consequence of a disqualification order is that he will be prevented from being involved in the management of Performa. He also states that he is a director of several other companies. The delegate concluded that Mr Gabay’s current directorships were not a reason to refuse to disqualify him, and that the public protection considerations outweighed the consequences of a disqualification order on Mr Gabay. Mr Gabay also points to his charitable activities and his previous untarnished record, and also the fact that he had personally suffered financially as a result of the failure of the Beacon group.
At this stage of the review proceedings, it is not possible to make any precise assessment as to the prospects of success but, having regard to the complexity of the matter and the apparent lack of documentation, as well as the submissions made on behalf of Mr Gabay, I am not persuaded that there are no prospects of success in his review application.
Consequences for Applicant of refusal of stay
In regards to the stay application Mr Gabay emphasises the consequences for him and the Performa group of companies if he is disqualified. He accepts that there is a strong need to protect consumers and customers, but says that these factors are outweighed by the fact that the findings of the delegate are under review and that the Performa companies cannot effectively operate without Mr Gabay holding an active position as director and manager. He says that on the determination of the delegate he has resigned as a director of Performa companies, and all directorship responsibilities have fallen to his spouse, Mrs Gabay. Mr Gabay referred to the very considerable experience of Mrs Gabay in commercial enterprise at a high level. It appears that she is a person of considerable commercial acumen. However, he submits that it is unlikely that anyone who is available to be appointed as director could successfully market software solutions to government agencies, domestically and internationally, because this calls for prudent negotiating skills, which Mr Gabay claims cannot be exercised by any other person having regard to his technical expertise about product trends and the complex software products. Mr Gabay says disqualification from acting as a director of the Performa companies arising from the delegate’s determination in relation to the Beacon group has in fact hindered the pursuit of current sales opportunities.
Evidence was adduced from the chief financial officer for Performa, Mr Ponych, and the chief technical officer for Performa, Mr Rogers, supports this conclusion. In addition, Mr Rogers gave evidence that, at present, there are sales opportunities which could be lost as a consequence of the long sales cycles between acquisition of a software product to its eventual replacement and that the inability of Mr Gabay to participate fully would lead to a loss of current sales opportunities which could not be redressed. A major concern is that it is not possible for anyone else to effectively make important urgent decisions in meetings with clients, in sales discussions and in face to face contract and price negotiations.
From the present state of the evidence there appears to be some substance in this submission as to possible harms to the Performa business.
Public Interest
In relation to the public interest, Mr Gabay gave evidence of his good character and his experience of more than 20 years. He noted the position of the Performa companies could be contrasted with the Beacon companies.
On the other hand, ASIC points to the substantial loss suffered by creditors as a result of the failure of the Beacon group and to the lack of records and the failures in relation to taxation payments. In ASIC’s view there is a very strong need for protection of the public in this case which diminishes the force of the considerations advanced by Mr Gabay. I accept that there is some force in this submission but I consider the need will be substantially diminished if there is an early hearing.
Other considerations
It is not asserted by Mr Gabay that the application for review would be rendered nugatory if a stay was not granted, but he says that there would be irreparable damage to the Performa group, particularly in relation to a loss of substantial contracts, if the delegate’s decision were to be reversed.
In relation to the final matter mentioned by Downes J in Re Scott, namely the period of the ban, it has already been in place since October 2013 and the matter should be given an expedited hearing.
Having regard to all the foregoing considerations, and to the submissions by Counsel, I consider that circumstances are sufficient to warrant a short stay, but only on the basis that the hearing is expedited and finally determined as quickly as possible. On the basis of an early hearing I am satisfied the danger to the public from the participation of Mr Gabay in the Performa companies does not pose a significant risk at this point to creditors, particularly having regard to the long history of good character of Mr Gabay.
SECTION 35 APPLICATION
Mr Gabay also seeks orders under s 35 of the AAT Act that there be a prohibition on the publication of the names and addresses of witnesses appearing before the Tribunal, and directions prohibiting or restricting the publication of evidence given before the Tribunal and matters contained in documents lodged with the Tribunal and received in evidence by the Tribunal.
Mr Gabay says that prohibition or restriction orders should be made in order to protect commercial operations of the Performa group in obtaining and carrying out contracts. He says that competition in the international software market in which Performa is engaged is intense and involves large overseas software houses such as Oracle. He points to the importance of having a good corporate relationship and reputation as necessary to foster long-term relationships with government agencies. He says there are only a small number of sales opportunities available each year and the long cycle between new software acquisitions means that the consequences of losing a current sale will endure for a substantial period into the future. The concern of Mr Gabay is that any information or publicity about his disqualification might be used by Performa competitors to lessen the reputation of the group in order to dissuade customers and potential customers from giving favourable consideration to engaging Performa and will damage its pursuit of sales opportunities.
The relevant considerations in relation to the making of an order under s 35(2) were discussed by Downes J who gave the main judgement in the Full Federal Court decision in Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185 at [72] – [82]. His Honour noted that s 35(1) of the AAT Act establishes a norm in relation to publication which is that the proceedings before the AAT shall be in public. He emphasises the desirability of hearings being held in public and notes that this Tribunal is required to form a state of satisfaction which recognises the existence of the norm under values it is intended to protect.
The primary value for protection is public confidence and transparency in administrative action. As Brandeis J of the United States Supreme Court once observed in relation to the scrutiny of corporate conduct that:
“Sunlight is said to be the best disinfectant …”
In substance, the position for which Mr Gabay contends is that the norm of publication should be displaced in this case because it might, and probably would in his estimation, be used by competitors to criticise his reputation in order to lessen his prospects of success in obtaining contracts.
There is no evidence that any such misrepresentation is likely to happen. Moreover, if such a tactic were adopted its effect could be diminished or rebutted by making the full facts available, namely: that the decision of the delegate in a large number of instances was favourable to Mr Gabay and that this decision is presently under review with this Tribunal as an expedited matter. The contentions of Performa and Mr Gabay in support of the application for review might also be made public to rebut any adverse inference and this could be done on the company’s web page or by other publicity. In these circumstances, and having regard to the great weight which must be given to the norm of open and transparent justice, I am not persuaded that any order should be made under s 35 of the AAT Act in this instance.
CONCLUSION
For the above reasons I consider this is an appropriate case in which to grant a short stay until further order, on the basis that the matter is expedited and given the earliest possible hearing. Accordingly the Applicant’s application under s 41(2) of the AAT Act is granted, subject to the condition that the Applicant is not to manage any other corporation other than Performa Software Pty Ltd (ACN 142 291 870) and Performa Solutions Pty Ltd (ACN 103 281 438) and the requirement for an expedited hearing.
I am not satisfied that any order should be made under s 35(2) of the AAT Act in this matter and I dismiss the Applicant’s application under this provision.
I certify that the preceding 33 (thirty -three) paragraphs are a true copy of the reasons for the decision herein of The Hon. Brian Tamberlin, QC, Deputy President .........................[SGD]...............................................
Associate
Dated 25 February 2014
Date of hearing
20 December 2013
Counsel for the Applicant
Mr R Bellamy
Solicitors for the Applicant
Church & Grace Solicitors
Counsel for the Respondent
Ms M Avenell
Solicitors for the Respondent
In house
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