Re Gould and Companies Auditors and Liquidators Disciplinary Board
[2008] AATA 814
•12 September 2008
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2008] AATA 814
ADMINISTRATIVE APPEALS TRIBUNAL )
) No: N2004/1675
GENERAL ADMINISTRATIVE DIVISION )
ReVanda Russell GOULD
Applicant
AndCompanies Auditors and Liquidators Disciplinary Board
First Respondent
Australian Securities and Investments Commission
Second Respondent
DECISION
TribunalProfessor GD Walker, Deputy President and Mr TC Jenkins, Member
Date12 September 2008
PlaceSydney
DecisionThe decision under review is affirmed. The question of the appropriate orders to be made is adjourned to a hearing date to be fixed.
....................[sgd]........................
Professor GD Walker
Deputy President
CATCHWORDS – Corporations Law – duties and functions of an administrator and liquidator – whether the applicant – whether applicant failed to carry out or perform adequately and properly the duties of a liquidator – whether applicant failed to carry out or perform adequately and properly the duties and functions required by an Australian law to be carried out by a registered liquidator – applicant found to have failed in some respects – decision under review is affirmed.
…
RELEVANT ACTS
Corporations Act 2001 (Cth) (the Act): ss 435C, 436E,445, 448A, 449, 508, 539, 545, 1292.
Evidence Act 1995 (Cth): s 48
Trade Practices Act 1974: s 52
…
CITATIONS
Briginshaw v Briginshaw (1938) 60 CLR 336
Re McGrath and Liquor Licensing Board (1996) 43 ALD 787
R v Jobson [1989] 2 QdR 464
Pedler v Richardson (1997) NSWSC BC 9705263
Jones v Dunkel (1959) 101 CLR 298
Green v Minister for immigration and Citizenship [2008] FCA 125
Apollo Shower Screens Pty Ltd v Building and Construction Industry Long Service Payments Corporation (1985) 1 NSWLR 561
Re Gooley and Companies Auditors and Liquidators Disciplinary Board and Australian Securities and Investments Commission [2000] AATA 1144, 36 ACSR 419
Banque Commerciale SA EN Liquidation v Akhil Holdings Limited (1990) 169 CLR 279
Rodriguez v Telstra Corporation Ltd (2002) 66 ALD 579
Pearce v The Queen (1998) 194 CLR 610
Director-General, Department of Land and Water Conservation v Greentree [2003] NSWCCA 31 BC 200300499
Greek Herald Pty Limited v Nikolopoulos (2002) 54 NSWLR 165
Rogers v Whitaker (1992) 175 CLR 479
Florida Hotels Pty Limited v Mayo (1965) 113 CLR 588
Laurence v Western Australia [2005] WASCA 14
Ascot Investment and Management v Livestock Genetics (1999) 205 LSJS 247
Re Anderson and Companies, Auditors and Liquidators Disciplinary Board and Australian Securities and Investments Commission (Joined Party) [2007] AATA 1540
Burnside v Mulgrew; re Estate of Grabrovaz [2007] NSWSC 550, BC 200705870
Harris v Knight (1890) 15 PD 170
Dean-Willcocks v Companies Auditors & Liquidators Disciplinary Board [2006] FCA 1438
National Education Advancement Programs (NEAP) Pty Limited v Ashton (1995) 33 IPR 281
Angus Fire Armour Australia Pty Limited v Collector of Customs (NSW) (1988) 19 FCR 477
Bayeh v Deputy Commissioner of Taxation (1999) 100 FCR 138
Ah Toy v Registrar of Companies (1986) 10 FCR 356
Adsett v Berlouis & Others (1992) 37 FCR 201
Cresvale Far East Ltd (in liq) v Cresvale Securities Ltd (No 2) (2001) 39 ACSR 622
Re Central Commodities Services Pty Limited and Others [1984] 1 NSWLR 25
Parkdale Custom Built Furniture Pty Limited v Puxu Pty Limited (1982) 149 CLR 191
Tobacco Institute of Australia Limited v Australian Federation of Consumer Organisations Inc (1992) 111 ALR 61
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AUTHORITIES
Companies (NSW) Code (the Code): ss 20
Corporations Law (the Law): Part 5.3A, 445, 450, 508, 531, 539, 545, 556, 1274, 1278, 1308.
…
REASONS FOR DECISION
12 September 2008
Professor GD Walker, Deputy President and Mr TC Jenkins, Member
Basic facts
1. The applicant Mr Vanda Russell Gould was registered as a liquidator on 7 January 1983 pursuant to s 20(6) of the Companies (NSW) Code (the Code). He was registered as a liquidator on 1 January 1991 by the then Australian Securities Commission pursuant to the provisions of s 1278 of the Corporations Law (the Law), the predecessor to the Corporations Act 2001 (Cth) (the Act), his registration number being 4653.
2. On 26 August 2004, on an application by the second respondent, the first respondent, the Companies Auditors and Liquidators Disciplinary Board (CALDB or the board) determined that the applicant had failed within the meaning of s 1292(2)(d) of the Act to carry out or perform adequately and properly the duties of a liquidator and the duties or functions required by Australian law to be carried out or performed by a registered liquidator.
3. After hearing submissions on 26 November 2004 concerning the appropriate orders to be made in light of the determination, CALDB on 21 December 2004 ordered that:
(a)the registration of Mr Gould as a liquidator be suspended for a period of three months from the date which is 30 days after this order takes effect; and
(b)Mr Gould is required to give an undertaking that before accepting any appointment after the period of three months’ suspension, he will provide to ASIC a certificate by a registered liquidator (approved in advance by ASIC for this purpose) that his internal systems and procedures for conducting insolvency administrations are of an acceptable standard; and
(c)Mr Gould pay one half of ASIC’s costs in relation to the hearing on a party and party basis (including one quarter of the costs of its expert’s report) such costs to be as agreed between the parties or, failing agreement within 60 days after this order takes effect, such costs to be determined in accordance with the Board’s Practice Note on costs.
4. The CALDB determination related to the applicant’s conduct as administrator of Trinbay Pty Limited (Trinbay), of Sisterella Pty Limited (Sisterella), as liquidator of Popwing Pty Limited (Popwing) and as liquidator of Marble Engineering Products Pty Limited (Marble). Trinbay and Sisterella were each the subject of a deed of company arrangement (DCA), while Popwing and Marble were both in liquidation.
5. The Act commenced on 15 July 2001. All events and breaches of duty alleged by ASIC occurred before the Act’s commencement and relate to provisions of the Law.
6. At the hearing, the applicant was represented by Mr Robert Dubler SC of counsel, instructed by Mr Eric Herman of Henry Davis York Lawyers while Mr Greg McNally SC of counsel, instructed by Mr George Boland of ASIC, appeared on behalf of the second respondent. There was no appearance on behalf of the first respondent. The documents before the tribunal comprised the documents produced pursuant to s 37 of the Administrative Appeals Tribunal Act1975 (the T documents), taken into evidence as Exhibit R1, together with the other documents tendered by the parties at the hearing. The applicant gave oral evidence in person.
Issues
7. The issues are as follows:
(i)Whether the applicant failed:
(a)within the meaning of s 1292(2)(d)(i) of the Act, to carry out or perform adequately and properly the duties of a liquidator; and/or
(b)within the meaning of s 1292(2)(d)(ii) of the Act, to carry out or perform adequately and properly the duties or functions required by an Australian law to be carried out or performed by a registered liquidator;
in such a manner as would warrant the tribunal considering making an order under the Act in relation to each of the contentions set out in the statement of facts and contentions (SoFaC) filed on 15 March 2005 by the second respondent in these proceedings.
(ii)If so, was such conduct a failure of the applicant to carry out or perform adequately and properly the duties of a liquidator or the duties or functions required by an Australian law to be carried out or performed by a registered liquidator?
(iii)If yes to paragraph 7(ii) above, what order or orders, if any, should be made?
ASIC’s contentions
8. In its statement of facts and contentions, ASIC set out its contentions in relation to the applicant’s conduct as administrator or liquidator of the four companies. We reproduce them below, omitting those on which ASIC no longer relies. The contention numbers continue the numbers used in CALDB determination of 26 August 2004 (Bd. Det). The annexures referred to are located under tab T5 of the T documents. Consequently, for example, annexure 47 refers to T5.47.
…
TRINBAY
1.1 Company Background
Trinbay was incorporated on 23 May 1996 (Annexure 47) and operated from Level 5, 16 - 20 Barrack Street SYDNEY NSW 2000.
The Company's directors were: (Annexure 47)
Appointed
Klaus Reinhardt 13/01/2000
Carmela Reinhardt 06/04/2000
Ronald Davies 06/04/2000
Mr Gould was appointed as Administrator of Trinbay on 3 October 2000 (Annexure 47).
At a meeting of the Trinbay's creditors held on 31 October 2000 it was resolved that the Company should execute a DCA (Annexure 48).
Pursuant to s444(2) of the Law (Annexure 12), Mr Gould automatically became the administrator of the DCA when it was executed on 20 November 2000 (Annexure 49).
1.1.6By Notice dated 10 April 2003 issued under section 30 of the ASIC Act to Mr Gould, ASIC sought all the files in relation to his administration of Trinbay (Annexure 47A). Mr Gould responded by delivering the files to ASIC.
2. CONTENTIONS – Trinbay
Preliminary
In relation to administrations conducted after the commencement of the Corporate Law Economic Reform Program Act 1999 (C'wlth) Sch 1 Item 1 on 13 March 2000, a receiver and manager, an administrator of a corporation, an administrator of a deed of company arrangement executed by a corporation and a liquidator of a corporation are all subject to the duties set out in section 180 of the Law (Annexure 118) as they are included in the definition of "officer": see section 179 and section 9 definition of "officer". Trinbay Pty Ltd falls into this category.
Contentions relating to the period when Mr Gould acted as administrator of Trinbay.
ASIC contends that the Administrator failed within the meaning of paragraph 1292(2)(d) (ii) of the Act, to carry out or perform adequately and properly the duties or functions required by an Australian law to be carried out or performed by a registered liquidator in relation to the Part 5.3A administration of Trinbay in that he:
1.failed to confirm prior to accepting an appointment as administrator and/or acting as administrator of Trinbay that a resolution appointing him as administrator was made after he had consented in writing to the appointment;
2.…
(ii) Failed to adequately and properly reflect in the minutes of the first meeting of creditors held on 10 October 2000 details of voting at such meeting;
…
3.…
4.…
5.…
(ii) failed to adequately and properly reflect in the minutes of the second meeting of creditors held on 31 October 2000 details of voting at such meeting;
…
6.failed to cap his remuneration as administrator in accordance with IPAA guidelines;
7.…
8.…
8A(i) failed to properly and adequately supervise members of his staff in the performance of tasks delegated to them;
…
Contentions relating to the period when Mr Gould acted as deed administrator of Trinbay.
ASIC contends that the Administrator failed within the meaning of paragraph 1292(2)(d) (ii) of the Act, to carry out or perform adequately and properly the duties or functions required by an Australian law to be carried out or performed by a registered liquidator in relation to the Part 5.3A administration of Trinbay in that he:
9.failed to comply with section 450E(2) of the Law;
10.(i) failed to maintain an appropriate cashbook including details of each receipt and payment with supporting documentation including authorisation and/or monthly bank reconciliation so as not to have a complete and correct record of his administration of the company's affairs;
…
11.failed to hold a meeting pursuant to section 445F(1)(a) of the Law to terminate the DCA; and
12.…
Set out below are the particulars relating to ASIC's contentions,
Contentions relating to the period when Mr Gould acted as administrator of Trinbay.
2.1Mr Gould had failed to confirm prior to accepting an appointment as administrator and/or acting as administrator of Trinbay that a resolution appointing him as administrator was made after he had consented in writing to the appointment.
Particulars
2.1.1 Mr Vanda Gould had been informed by way of: -
·Minutes of directors meeting held during August but undated and only signed by two of three directors dated 11 August 2000 that he was to be appointed Administrator (Annexure 50);
·The covering facsimile message from PricewaterhouseCoopers Legal that he had been/was to be appointed as Administrator of Trinbay (Annexure 50).
·Minutes signed by all three directors and dated 11 September 2000 that he had been appointed as Administrator (Annexure 51).
2.1.2 A copy of the Form 505 "Notification of Appointment as an External Administrator" could not be found among the files delivered by Mr Gould to ASIC.
2.1.3 The Form 505 lodged with ASIC was received on 4 October 2000 with an effective date of 3 October 2000 (Annexure 52).
2.1.4 Further review of the file revealed correspondence between Ms Christine Shean of Mr Vanda Gould's office and Mr Robert Kaufmann dated 12 September 2000 in which Ms Shean advises that "Vanda asked me to mention to you that the 7-day period to call a creditors' meeting does not start until he consents to act and he will not consent until he has seen the books, etc." (Annexure 53).
2.1.5 Having regard to the above it appears that Mr Gould's consent to act, if in fact signed, was only signed on 3 October 2000.
2.1.6 A copy of the consent was unable to be located in the file. However, based on the Form 505 lodged, the appointment took affect on 3 October 2000.
2.1.7 Section 448A of the Act states:(Annexure 54)
A person cannot be appointed as administrator of a company or of a deed of company arrangement unless:
(a)the person has consented in writing to the appointment; and
(b)as at the time of the appointment, the person has not withdrawn the consent.
Therefore pursuant to Section 448A(a) of the Act on the basis that Mr Gould had not given his consent to act on or before the date on which the directors resolved to appoint him as Administrator, Mr Gould was not validly appointed as Administrator and the administration was unable to proceed until the directors held a meeting subsequent to receiving the consent.
2.1.8 The resolution of the directors to appoint Mr Gould should not have been made until the consent was available. Mr Gould should have advised the directors of this prior to the resolution or alternatively advised them after receipt of the resolution, a further resolution appointing him to act as Administrator would need to be made after he consented in writing to the appointment.
2.2…
2.6Mr Gould failed to cap his remuneration as administrator in accordance with IPAA guidelines.
Particulars
2.6.1 The resolution by creditors for administrator's remuneration, as detailed in the minutes is set out below: (Annexure 48, page 10)
The resolution to approve that the remuneration of the Administrator be calculated at the Insolvency Practitioners Association of Australia rates was put to a vote.
The Chairman then stated that the majority in dollar value of creditors was in favour of this resolution and no creditors opposed the resolution.
2.6.2 The IPAA's guidelines published on 1 July 2000 relating to the Statement of Best Practice - Remuneration (Annexure 64, page 1, paragraph 1) indicates that as at 1 July 2000 the IPAA would cease production of the guide to hourly rates scale and practitioners should charge hourly rates in accordance with their own internal cost structures having regard to the complexity and demands of each appointment.
In addition it also re-emphasised the importance of "Capping" fees and in particular setting an upper limit as set out below: (Annexure 64, page 3, paragraph 3)
When remuneration is approved prospectively, an upper limit must be included in the resolution of Creditors or Committee of Inspection.
2.6.3 ASIC contends having regard to the resolution passed, Mr Gould has failed to follow the guidelines as set by the IPAA with respect to capping of fees and their approval.
2.7 …
2.8 …
2.9 Mr Gould failed to comply with section 450E(2) of the Law.
Particulars
2.9.1 A DCA was executed on 20 November 2000. (Annexure 49)
2.9.1(A) Section 450E(2) states: (Annexure 67)
Until a deed of company arrangement terminates, the company must set out, in every public document, and in every negotiable instrument, of the company, after the company's name where it first appears, the expression “(subject to deed of company arrangement)”
As detailed in clause 10 of the DCA (Annexure 49) the bank account of the DCA was styled "Trinbay Pty Limited (Administrator Appointed)".
Annexure 69 is a letter to Mr Nick Murray of Jigsaw Entertainment Pty Ltd from Mr Gould dated 19 February 2001 which shows:
Trinbay Pty Ltd (Administrator Appointed)
Annexure 68 is a letter to Australian Taxation Office (ATO) from Mr Gould dated 2 April 2003 which shows on two occasions:
Trinbay Pty Ltd (Administrator Appointed)
ASIC contends that pursuant to Section 450E(2) of the Corporations Law until a DCA terminates, the company must set out, in every public document as defined in section 88A of the Law (Annexure 137), and in every negotiable instrument, of the company, after the company's name where it first appears, the expression ("subject to deed of company arrangement").
Accordingly, Mr Gould has failed to comply with Section 450E(2) of the Law.
2.10(i) Mr Gould failed to maintain an appropriate cashbook including details of each receipt and payment with supporting documentation including authorisation and/or monthly bank reconciliation so as not to have a complete and correct record of his administration of the company's affairs;
(ii)…
Particulars
2.10.1The files produced by Mr Gould in compliance with the Section 30 Notice did not contain an appropriate cashbook including details of each receipt and payment with supporting documentation including authorisation and/or monthly bank reconciliations.
2.11Mr Gould failed to hold a meeting pursuant to section 445F(1)(a) of the Law to terminate the DCA.
Particulars
2.11.1Section 445F(1) of the Act states: (Annexure 75)
The administrator of a deed of company arrangement:
(a) may at any time convene a meeting of the company's creditors; and
2.11.2On 2 April 2003 Mr Gould wrote to the Australian Taxation Office (Annexure 68) and advised, "as no litigation funding could be achieved to litigate …the administration has now been concluded and it is likely that the company will be struck off".
2.11.3Having regard to the following: (i) terms of the DCA
Clause 5.2:
The Administrator shall in his absolute discretion determine whether the legal proceedings should be commenced and/or discontinued.
Clause 8.1:
This deed includes the Prescribed Provisions except for Prescribed Provisions 4, 8, 9, 10 and 11.
(Annexure 49)
Clause 3 of the Prescribed Provisions:
If the administrator or the committee of inspection (sic) determines that it is no longer practicable or desirable either to continue to carry on the business of the company or to implement this deed, the administrator:
(a) may cease to carry on the business …
(b) must summon a meeting of creditors for the purpose of passing a resolution under section 445C(b) of the Corporations Law; and
(c) must forward to each creditor not less than 14 days prior to the meeting an up-to-date report as to the position of the company accompanied by such financial statements as the administrator thinks fit, together with a statement that he or she does not think it practicable or desirable to carry on the business of the company or to continue this deed and that this deed will be terminated if the company's creditors resolve.
(Annexure 70)
(ii) he last charged for his services on 29 August 2002 (par. 2.12.3); and
(iii) based on Mr Gould's comments in the letter to the Australian Taxation Office (Annexure 68) then as litigation could not proceed and the DCA is unable to be completed.
ASIC considers that as of 2 April 2003, if not earlier, Mr Gould should have determined that it is no longer practicable to implement the DCA.
ASIC therefore contends that Mr Gould should have convened a meeting of creditors pursuant to section 445F of the Law for the purpose of passing a resolution under section 445C(b) of the Law to terminate the DCA.
2.11.4To date, from the documents lodged with ASIC, it does not appear that Mr Gould has held the meeting to terminate the DCA.
2.12 …
CONDUCT AS ADMINISTRATOR OF SISTERELLA
3.1 Company Background
3.1.1Sisterella was incorporated on 16 September 1997 (Annexure 99) and operated from Level 4, 10 Quay Street SYDNEY NSW 2000.
3.1.2The Company's directors were: (Annexure 99)
Appointed
Kevin George Jacobsen 22/09/1997
Klaus Heinrich Selinger 22/09/1997
3.1.3Mr Gould was appointed as Administrator of Sisterella on 11 August 1998 and as Administrator of the DCA on 25 September 1998 (Annexure 100).
3.1.4By Notice dated 10 April 2003 issued under section 30 of the ASIC Act to Mr Gould, ASIC sought all the files in relation to his administration of Sisterella (Annexure 114). Mr Gould responded by delivering the files to ASIC.
4.CONTENTIONS – Sisterella
Preliminary
In relation to administrations conducted prior to the commencement of the Corporate Law Economic Reform Program Act 1999 (C'wlth) Sch 1 Item 1 on 13 March 2000, a receiver and manager, an administrator of a corporation, an administrator of a deed of company arrangement executed by a corporation and a liquidator of a corporation are all subject to the duties set out in the then s.232 of the Law as they are included in the definition of "officer": see 232(1),(b),(c),(ca) and (d) of the Law (Annexure 122), as it then existed. Sisterella Pty Ltd falls into this Category.
Contentions relating to the period when Mr Gould acted as administrator of Sisterella.
ASIC contends that the Administrator failed within the meaning of paragraph 1292(2)(d) (ii) of the Act, to carry out or perform adequately and properly the duties or functions required by an Australian law to be carried out or performed by a registered liquidator in relation to the Part 5.3A administration of Sisterella in that he:
1 …
2 …
3 failed to lodge the minutes of the Committee of Creditors meeting with ASIC pursuant to Regulation 5.6.27(3);
4(i) failed to cap his remuneration as administrator in accordance with IPAA guidelines;
…
5…
5A(i) failed to properly and adequately supervise members of his staff in the performance of tasks delegated to them;
…
Contentions relating to the period when Mr Gould acted as deed administrator of Sisterella.
ASIC contends that the Administrator failed within the meaning of paragraph 1292(2)(d) (ii) of the Act, to carry out or perform adequately and properly the duties or functions required by an Australian law to be carried out or performed by a registered liquidator in relation to the Part 5.3A administration of Sisterella in that he:
6. failed to comply with section 450E(2) of the Law;
7.(i) failed to maintain an appropriate cashbook including details of each receipt and payment with supporting documentation including authorisation and/or monthly bank reconciliation so as not to have a complete and correct record of his administration of the company's affairs;
…
8. …
Set Out below are the particulars relating to ASIC's contentions.
4.1 …
4.2 …
4.3 Mr Gould failed to lodge the minutes of the Committee of Creditors meeting with ASIC pursuant to Regulation 5.6.27(3);
Particulars
4.3.1 Regulation 5.6.27(3) states: (Annexure 63)
The chairperson at a meeting (other than a meeting of holders of debentures) must lodge a copy of the minutes of the meeting certified by him or her to be a true copy within the period specified in subregulation (6).
4.3.2 The minutes of the meeting (Annexure 103) detail that it was resolved to appoint a Committee of Creditors to assist the administrator.
4.3.3 A letter from Mr Gould dated 20 August 1998 to Ms Helen Hatzis stated that a meeting of the Committee of Creditors was to be held on 26 August 1998 (Annexure 108).
4.3.4 A copy of the minutes of that meeting was found on file (Annexure 109). It appears from a review of the company extract and documents lodged with ASIC (Annexure 99) that such minutes were not lodged with ASIC.
4.4(i) Mr Gould failed to cap his remuneration as administrator in accordance with IPAA Guidelines;
(ii)…
Particulars
4.4.1 The IPAA Guidelines states: (Annexure 124)
Capping
The resolution for remuneration should include a specified amount and where remuneration is approved prospectively an upper limit must be included in the resolution of creditors or Committee of Inspection.
4.4.2 The second meeting of creditors was held on 4 September 1998 at the offices of Gould Ralph Services Pty Ltd. (Annexure 110)
4.4.3 The resolution by creditors for the administrator's remuneration, as detailed in the minutes, was fixed to IPAA rates but was not capped (Annexure 110, page 5) states:
IT WAS RESOLVED that the remuneration of the Administrator be on time basis as recommended by the Insolvency Practitioner Association of Australia
4.5 …
4.5A(i) Mr Gould failed to properly and adequately supervise members of his staff in the performance of tasks delegated to them;
(ii)…
Particulars
4.5A.1Contention 4.3 is repeated. ASIC relies on paragraphs 1.1, 1.2 and 4.3.1 of the Respondent's Response to the Addendum to the SOFAC (T6:Vol 3). However, the Check-list (Annexure 139) referred to in paragraph 1.2 of the Response does not include the lodgement of the minutes of the Committee of Inspection (sic) and some applicable sections were not completed. The Check-list appears to show the initials BC which are presumably those of Ms Brenda Cheng and other initials, which ASIC presumes to be those of Ms Winnie Tse.
4.5A.2ASIC contends that Mr Gould failed to properly and adequately supervise Ms Brenda Cheng and Ms Winnie Tse .
Contentions relating to the period when Mr Gould acted as deed administrator of Sisterella.
4.6 Mr Gould failed to comply with section 450E(2) of the Law. Particulars
4.6.1 Paragraph 2.9.1 is repeated.
4.6.2 As detailed in Clause 10 of the DCA (Annexure 111) the bank account of the deed was styled "Sisterella Pty Limited (Administrator Appointed)".
4.6.3 Various correspondence was found on file which detailed the company as "Sisterella Pty Limited (Administrator Appointed) (Annexure 112).
4.6.4 Pursuant to Section 450E(2) of the Law until a DCA terminates, the company must set out, in every public document as defined under section 88A of the Law (Annexure 137), and in every negotiable instrument, of the company, after the company's name where it first appears, the expression ("subject to deed of company arrangement").
4.7(i) Mr Gould failed to maintain an appropriate cashbook including details of each receipt and payment with supporting documentation including authorisation and/or monthly bank reconciliation so as not to have a complete and correct record of his administration of the company's affairs;
(ii)…
Particulars
4.7.1 …
4.7.2 Mr Gould's files did not contain an appropriate cashbook including details of each receipt and payment with supporting documentation including authorisation and/or monthly bank reconciliation.
4.8 …
CONDUCT AS LIQUIDATOR OF POPWING
5.1 Company Background
5.1.1Popwing was incorporated on 23 March 1988 (Annexure 76) and operated from Level 4, 10 Quay Street Haymarket NSW 2000.
5.1.2The Company's sole director was: (Annexure 76)
Appointed
Kevin George Jacobsen 18/04/1988
5.1.3Mr Gould was appointed as Liquidator of Popwing on 4 November 1998 (Annexure 76).
5.1.4By Notice dated 10 April 2003 issued under section 30 of the ASIC Act to Mr Gould, ASIC sought all the files in relation to the liquidation of Popwing (Annexure 77). Mr Gould responded by delivering the files to ASIC.
6. CONTENTIONS - Popwing
Contentions relating to the period when Mr Gould acted as liquidator of Popwing.
ASIC contends that Mr Gould failed within the meaning of paragraph 1292(2)(d) (i) of the Act, to carry out or perform adequately and properly the duties of a liquidator in relation to the liquidation of Popwing in that he:
1. (i) …
(ii) …
2 …
3.failed to cap his remuneration as liquidator in accordance with IPAA Guidelines;
ASIC contends that Mr Gould failed within the meaning of:
(i)paragraph 1292(2)(d)(i) of the Act to carry out or perform and properly the duties of a liquidator;
in that he:
4.failed to maintain an appropriate cashbook including details of each receipt and payment with supporting documentation including authorisation and/or monthly bank reconciliation in accordance with section 531 of the Law and Regulation 5.6.01;
5.paid ASIC's late lodgement fees from Popwing assets as a disbursement in the liquidation when it was not proper to treat such item as a disbursement;
contrary to section 1308(4) of the Law, lodged Form 524's which:
(i)contained information that was false or misleading in a material particular;
(ii)omitted matters or things which rendered the forms misleading in a material respect.
71failed to convene and hold a general meeting of the company and a meeting of creditors pursuant to section 508(1)(b) of the Law.
7A(i) failed to properly and adequately supervise members of his staff in the performance of tasks delegated to them;
(ii) …
Set out below are the particulars relating to ASIC's contentions.
6.1 (i) …
(ii) …
6.2 …
6.3Mr Gould failed to cap his remuneration as liquidator in accordance with IPAA Guidelines.
Particulars
6.3.1Paragraph 4.4.1 is repeated.
6.3.2The meetings of members and creditors were held on 4 November 1998 at the office of Gould Ralph & Company Level 40, Bridge Street at 9.30 am and 10.00 am respectively.
6.3.3The resolution by creditors for liquidator's remuneration was fixed to IPAA rates but was not capped (Annexure 84). The resolution by creditors for liquidator's remuneration was worded as follows, "... the remuneration of the liquidator is hereby fixed in respect of himself, his partners and employees at the hourly rate ...".
6.4Mr Gould failed to maintain an appropriate cashbook including details of each receipt and payment with supporting documentation including authorisation and/or monthly bank reconciliation in accordance with section 531 of the Law and Regulation 5.6.01.
Particulars
6.4.1 …;
6.4.2The files of Mr Gould did not contain an appropriate cashbook including details of each receipt and payment with supporting documentation including authorisation and/or monthly bank reconciliations but rather bank statements indiscriminately filed with all other documentation.
6.5Mr Gould paid ASIC's late lodgement fees from Popwing assets as a disbursement in the liquidation when it was not proper to treat such item as a disbursement.
Particulars
6.5.1 Section 556(1)(a) of the Law states: (Annexure 85)
Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims:
(a)first, expenses (except deferred expenses) properly incurred by a relevant authority in preserving, realising or getting in property of the company, or in carrying on the company's business;
6.5.2The file of Mr Gould revealed that he received two (2) invoices from ASIC on 26 November 1998 in relation to late lodgement fees for the Notification of Resolution Winding Up The Company (Form 205) and Report As To Affairs by Directors (Form 507) in the sums of $60 each. (Annexure 86)
6.5.3On 11 December 1998 Mr Gould wrote to ASIC requesting that the fines be waived (Annexure 87).
6.5.4On 5 January 1999 ASIC wrote to Mr Gould and advised that the fines would not be waived (Annexure 88).
6.5.5On 5 February 1999 the liquidator's bank statement details that cheque no. 200002 was presented in the sum of $120 (Annexure 89). There was no payment voucher kept on file which detailed what this payment related to, however in Mr Gould's Form 524 for the period 4 November 1998 to 4 May 1999 the payment of $120 was described as a payment to the "Australian Securities & Investments Commission" and its nature was "Lodgement Fees" (Annexure 90).
6.5.6ASIC contends that Mr Vanda Gould paid the late fees incurred from the Company's assets as a disbursement in the liquidation, which is considered inappropriate, as creditors should not bear the costs of a liquidator's inability to lodge statutory documentation in a timely manner.
6.5.7ASIC submits that pursuant to Section 556(1)(a) only expenses incurred by a relevant authority in preserving, realising, or getting in property of the company, or in carrying on the company's business should be treated as costs of liquidation. A late lodgement fee is not an "expense properly incurred" within the meaning of section 556(1)(a).
6.6Mr Gould contrary to section 1308(4) of the Law lodged Form 524s which:
(i)contained information that was false or misleading in a material particular;
(ii)omitted matters or things which rendered the forms misleading in a material respect.
Particulars
6.6.1Section 539(1) of the Law states: (Annexure 91)
A liquidator shall, within 1 month after the end of the period of 6 months from the date of his or her appointment and every subsequent period of 6 months during which he or she acts as liquidator and within 1 month after he or she ceases to act as liquidator, lodge:
(a)an account in the prescribed form and verified by a statement of writing …
(i) his receipts and payments …
(ii) in the case of the second
(b)in the case of a liquidator other than a provisional liquidator – a statement in the prescribed form relating to the position in the winding up, verified by a statement in writing.
Section 1308(4) of the Law states: (Annexure 117)
A person who, in a document required by or for the purposes of this Law or lodged:
(a)makes or authorises the making of a statement that is false or misleading in a material particular; or
(b)omits or authorises the omission of any matter or thing without which the document is misleading in a material respect;
without having taken reasonable steps to ensure that the statement was not false or misleading or to ensure that the statement did not omit any matter or thing without which the document would be misleading, as the case may be, is guilty of an offence.
Section 1308(5) of the Law states: (Annexure 117)
A person who makes or authorise the making of a statement without having taken reasonable steps to ensure that the information on which the statement was based:
(a)was not false or misleading.
(b) did not have omitted from it
shall, for the purposes of subsection (4), be deemed to have made or authorised the making of a statement without having taken reasonable steps to ensure that the statement was not false or misleading.
Section 1308(6) of the Law states: (Annexure 117)
For the purposes of subsections (2) and (4) where:
(a)at a meeting, a person votes in favour of a resolution approving, or otherwise approves, a document required by or for the purposes of this Law or required to be lodged; and
(b)the documents contains a statement that, to the person's knowledge is false or misleading
the person shall be deemed to have authorised the making of the statement or the omission of the matter or thing.
6.6.2A review of each Form 524 for the period of 4 November 1998 to date revealed as follows: -
(i)Form 524 - Period 4 November 1998 to 4 May 1999 (Annexure 90)
§No work papers in relation to the contents of the Form 524 were on file and there is no file copy of the signed form lodged with ASIC;
§Section 1 "Accounts of receipts and payments" did not correctly reflect the receipts and payments as per bank statements on file;
As indicated the receipts and payments in the Form 524 do not reflect the receipts and payments as per the bank statements. Rather than listing each individual transaction, as required by Section 539(1) of the Law, the receipts and payments have been grouped into categories and reflect only the total amount received and/or paid.
The "Verification of liquidator's account and statement" contained in the Form 524, which is required to be signed by the liquidator, states that the account of receipts and payments contained in the Form 524 are "a full and true account of my receipts and payments in the period of winding up". The Form 524 detailed the following receipts: -
$
5/11/98 Westpac
Balance of fund before Liquidation
7,958.98
30/04/99 Westpac
Interest
53.95
9/02/99 Sisterella
Dividend distribution
7,109.50
$15,122.4
The banks statements on file (Annexure 126) detailed that the following funds were in fact received:‑
5/11/98 $7,500.00 Realisation of Cash at Bank
pre-appointment
6/11/98 $ 458.98 Realisation of Cash at Bank
pre-appointment
3/02/99 $ 614.94 Dividend received
9/02/99 $6,494.56 Dividend received
In addition to the above, numerous amounts of interest were received during the six-month period totalling $53.95.
The Form 524 detailed the following payments: -
$
4/05/99
Westpac
Bank Charges
122.77
17/12/98
Mirror
Advertising
615.20
5/02/99
ASIC
Lodgement Fees
120.00
$857.97
The banks statements on file (Annexure 126) detailed the following payments were in fact made:-
17/12/98
$615.20
Advertising
5/02/99
$120.00
Cheque 200002
9/02/99
$ 60.00
Document Registration
In addition to the above, a number of amounts relating to bank charges were incurred during the six-month period totalling $62.77. It appears that the document registration fee in the sum of $60 has been included as a bank charge. No documentation was found on file that detailed the basis of this payment.
§Section 2 "Summary of receipts and payments" contained inaccurate information:
the payments made during the period totalling $857.97 have not been correctly identified as "other payments" in the "payments" section;
the "balance held" section does not reconcile with the "receipts" and "payments" section, that is, Cash at Bank should be equal to total receipts ($15,122.43) less total payments ($857.97) being $14,264.46. This amount should then be reflected in the "amount available but not distributed" section, however the Form 524 details $0.00, which is incorrect.
§Section 6a: Statement of position in winding up
None of the information in this section has been provided, that is, all the details have been left blank. At least there must be an amount for the remuneration owing to liquidator as Mr Gould had outstanding fees of $8,129.57 on 10 May 1999 shown in paragraph 6.2.3.
§Section 6b: Statement of position in winding up
The summary of "actual amounts realised to date of account" has been incorrectly completed.
The Form 524 details "cash at bank" realised to date as $7,500 however this amount should be equal to that as detailed in "Section 1: Account of receipts and payments" in the sum of $7,958.98.
In addition the amount received in respect to Interest as detailed in "Section 1: Account of receipts and payments" in the sum of $53.95 has not been reflected in the summary of "actual amounts realised to date of account".
Accordingly, the total assets as detailed in the summary of "actual amounts realised to date of account" in the sum of $14,609 is incorrect. This amount should reconcile with the total receipts as detailed in "Section 2: Summary of receipts and payments" in the sum of $15,122.43.
The "estimated amount available for unsecured creditors" section has been incorrectly completed as $1,246,306. Further review of the Form 524 detailed that this amount is the total amount owed to unsecured creditors as per the statement of affairs.
(ii)Form 524 - Period 5 May 1999 to 4 November 1999 (Annexure 83);
§No work papers in relation to the contents of the Form 524 were on file and there is no file copy of the signed form lodged with ASIC;
§In the Details of the accounts section, the date to which the accounts and statement are made up incorrectly stated 10 November 1999 instead of 4 November 1999;
§Section 2 "Summary of receipts and payments" contained inaccurate information;
The "amount available but not distributed" section should be equal to total receipts ($15,167.39) less total payments ($6,552.35) being $8,615.04, however the Form 524 details $0.00, which is incorrect.
§Section 6a: Statement of position in winding up
With the exception of the "remuneration paid to liquidator" in the sum of $5,629.57 none of the information in this section has been provided, that is, all other details have been left blank.
§Section 6b: Statement of position in winding up
The summary of "actual amounts realised to date of account" has been incorrectly completed.
The Form 524 details "cash at bank" realised to date as $7,500 however this amount should be equal to that in the previous Form 524 for the period 4 November 1998 to 4 May 1999 in the sum of $7,958.98.
In addition, the amount received in respect to Interest as detailed in "Section 1: Account of receipts and payments" in the sum of $44.96 has not been reflected in the summary of "actual amounts realised to date of account".
Accordingly, the total assets as detailed in the summary of "actual amounts realised to date of account" in the sum of $14,609 is incorrect. This amount should reconcile with the total receipts as detailed in "Section 2: Summary of receipts and payments" in the sum of $15,167.39.
The "estimated amount available for unsecured creditors" section has been incorrectly completed as $1,246,306. Further review of the Form 524 detailed that this amount is the total amount owed to unsecured creditors as per the statement of affairs.
(iii)Form 524 - Period 5 November 1999 to 4 May 2000 (Annexure 92);
§No work papers in relation to the contents of the Form 524 were on file and there is no file of the signed form lodged with ASIC;
§Section 2 "Summary of receipts and payments" contained inaccurate information;
The "balance held" section and in particular the "amount available but not distributed" is not complete.
The "amount available but not distributed" section should be equal to total receipts ($15,208.33) less total payments ($6,603.89) being $8,604.44, however the Form 524 details $0.00, which is incorrect.
§Sections 6a and 6b "Statement of position in winding up" was not complete.
Section 6a: Statement of position in winding up
With the exception of the "remuneration paid to liquidator" in the sum of $5,629.57 none of the information in this section has been provided, that is, all other details have been left blank.
Section 6b: Statement of position in winding up
The summary of "actual amounts realised to date of account" has been incorrectly completed.
The Form 524 details "cash at bank" realised to date as $7,500 however this amount should be equal to that in the previous Form 524 for the period 4 May 1999 to 4 November 1999 in the sum of $7,958.98.
The amount received in respect to Interest as detailed in "Section 1: Account of receipts and payments" in the sum of $40.94 has not been reflected in the summary of "actual amounts realised to date of account".
Accordingly, the total assets as detailed in the summary of "actual amounts realised to date of account" in the sum of $14,609 is incorrect. This amount should reconcile with the total receipts as detailed in "Section 2: Summary of receipts and payments" in thesum of $15,208.33
Section 6b: Statement of position in winding up (continued)
The "estimated amount available for unsecured creditors" section has been incorrectly completed as $1,246,306. Further review of the Form 524 detailed that this amount is the total amount owed to unsecured creditors as per the statement of affairs.
(iv)Form 524 - Period 5 May 2000 to 4 November 2000 (Annexure 93)
§No work papers in relation to the contents of the Form 524 were on file;
§Section 1 detailed a payment to Gould Ralph Services Pty Ltd in the sum of $1,363.70 and described as a "fee". We note that it is detailed in Section 2 as "other payments".
No supporting documentation was on file to explain the basis of payment, however it would appear from subsequent Form 524's that this payment relates to professional services provided by Gould Ralph Services Pty Ltd in assisting in the liquidation.
As such this payment should have been correctly reflected as liquidator's fees and detailed as liquidator's remuneration in Section 2 and Section 6a;
§Section 2 "Summary of receipts and payments" contained inaccurate information;
The payment made to Gould Ralph Services Pty Limited in the sum of $1,363.70 and described as fee has been incorrectly recorded as an "other payment" in the "payments" section instead of "liquidator's remuneration".
The "amount available but not distributed" section should be equal to total receipts ($15,263.36) less total payments ($8,033.95) being $7,229.41, however the Form 524 details $0.00, which is incorrect.
§Sections 6a and 6b "Statement of position in winding up" was not complete.
Section 6a: Statement of position in winding up
None of the information in this section has been provided, that is, all the details have been left blank.
None of the information in the summary of "actual amounts realised to date of account" section has been provided, that is, all the details have been left blank.
This section should provide the details of the estimated realisable values of the assets listed in the report as to affairs together with the actual amounts realised to the date of the account, which should reconcile with the total receipts as detailed in "Section 2: Summary of receipts and payments" in the sum of $15,263.36.
Section 6b: Statement of position in winding up (continued)
None of the information in this section has been provided, that is. all the details have been left blank. As the previous forms had information in this section it is expected that this must not be blank.
(v)Form 524 - Period 5 November 2000 to 4 May 2001 (Annexure 94)
§Section 1 detailed a payment to Gould Ralph Pty Ltd in the sum of $3,997.64 and described as "fee". It is detailed in Section 2 as "other payments".
A review of the file revealed a fee from Gould Ralph Services Pty Ltd to Popwing Pty Ltd (in liquidation) dated 22/01/01 in the sum of $3,997.64 for professional services in assisting Mr Gould in the liquidation for the period 1 April 2000 to 3 December 2000, which included Mr Gould's time charged.
As such this payment should have been correctly reflected as liquidator's fees and detailed as liquidator's remuneration in Section 2 and Section 6a;
§Section 2 "Summary of receipts and payments" contained inaccurate information;
The "amount available but not distributed" section should be equal to total receipts ($15,297.65) less total payments ($12,100.93) being $3,196.72, however the Form 524 details $0.00, which is incorrect.
§Sections 6a and 6b "Statement of position in winding up" was not complete.
Section 6a: Statement of position in winding up
None of the information in this section has been provided, that is. all the details have been left blank.
None of the information in the summary of "actual amounts realised to date of account" section has been provided, that is, all the details have been left blank.
This section should provide the details of the estimated realisable values of the assets listed in the report as to affairs together with the actual amounts realised to the date of the account, which should reconcile with the total receipts as detailed in "Section 2: Summary of receipts and payments" in the sum of $15,297.65.
Section 6b: Statement of position in winding up (continued)
None of the information in this section has been provided, that is, all the details have been left blank.
(vi) Form 524 - Period 5 May 2001 to 4 November 2001 (Annexure 95)
§No work papers in relation to the contents of the Form 524 were on file;
§Section 2 "Summary of receipts and payments" contained inaccurate information;
The "amount available but not distributed" section should be equal to total receipts ($15,297.65) less total payments ($12,180.03) being $3,117.62, however the Form 524 details $0.00, which is incorrect.
§Sections 6a and 6b "Statement of position in winding up" was not complete.
Section 6a: Statement of position in winding up
None of the information in this section has been provided, that is. all the details have been left blank.
Section 6b: Statement of position in winding up
None of the information in the summary of "actual amounts realised to date of account" section has been provided, that is, all the details have been left blank.
This section should provide the details of the estimated realisable values of the assets listed in the report as to affairs together with the actual amounts realised to the date of the account, which should reconcile with the total receipts as detailed in "Section 2: Summary of receipts and payments" in the sum of $15,297.65.
Section 6b: Statement of position in winding up (continued)
None of the information in this section has been provided, that is, all the details have been left blank.
(vii) Form 524 - Period 5 November 2001 to 4 May 2002 (Annexure 96)
§No work papers in relation to the contents of the Form 524 were on file;
§Section 2 "Summary of receipts and payments" contained inaccurate information;
The "amount available but not distributed" section should be equal to total receipts ($15,297.65) less total payments ($12,246.63) being $3,051.02, however the Form 524 details $0.00, which is incorrect.
§Sections 6a and 6b "Statement of position in winding up" was not complete.
Section 6a: Statement of position in winding up
None of the required information in this section has been provided, that is, all the details have been left blank.
Section 6b: Statement of position in winding up
None of the information in the summary of "actual amounts realised to date of account" section has been provided, that is, all the details have been left blank.
This section should provide the details of the estimated realisable values of the assets listed in the report as to affairs together with the actual amounts realised to the date of the account, which should reconcile with the total receipts as detailed in "Section 2: Summary of receipts and payments" in the sum of $15,297.65.
Section 6b: Statement of position in winding up (continued)
None of the required information in this section has been provided, that is, all the details have been left blank.
(viii) Form 524 - Period 5 May 2002 to 4 November 2002 (Annexure 97)
§No work papers in relation to the contents of the Form 524 were on file;
§Section 2 "Summary of receipts and payments" contained inaccurate information;
The "amount available but not distributed" section should be equal to total receipts ($15,297.65) less total payments ($12,312.42) being $2,985.23, however the Form 524 details $0.00, which is incorrect.
§Sections 6a and 6b "Statement of position in winding up" was not complete;
Section 6a: Statement of position in winding up
None of the information in this section has been provided, that is, all the details have been left blank.
Section 6b: Statement of position in winding up
None of the information in the summary of "actual amounts realised to date of account" section has been provided, that is, all the details have been left blank.
This section should provide the details of the estimated realisable values of the assets listed in the report as to affairs together with the actual amounts realised to the date of the account, which should reconcile with the total receipts as detailed in "Section 2: Summary of receipts and payments" in the sum of $15,297.65.
Section 6b: Statement of position in winding up (continued)
None of the information in this section has been provided, that is, all the details have been left blank.
§The accounts were dated and signed on 10 December 2002 and therefore pursuant to Section 539(1) of the Corporations Act were not lodged within 1 month of date to which the accounts are made up.
The accounts were incorrectly dated for the period 5 May 2002 to 4 December 2002 (should be 4 November 2002) and as such it appears that the effective date of lodgment recorded by ASIC records is 4 December 2002 (Annexure 76) and as such has not been identified as late.
6.6.3ASIC contends that pursuant to Section 539(1) of the Act a liquidator must, within 1 month after the end of the period of 6 months from the date of his or her appointment and every subsequent period of 6 months during which he or she acts as liquidator lodge an account in the prescribed form and verified by a statement of writing as being true to the best of the liquidator's knowledge and belief (ASIC Form 524). By lodging the Form 524's which contained false or misleading information in material particulars or omission of any matter or thing which rendered each document misleading in a material respect, Mr Gould acted contrary to section 1308(4) of the Law and acted in a manner where he failed to carry out and perform adequately and properly the duties of a liquidator.
6.7Mr Gould failed to convene and hold a general meeting of the company and a meeting of creditors pursuant to section 508(1)(b) of the Law.
Particulars
6.7.1Section 508(1)(b) of the Law states: (Annexure 98)
If the winding up continues for more than 1 year, the liquidator shall:
(a)in the case of a members' voluntary ...
(b)in the case of a creditors' voluntary winding up- convene a general meeting of the company and a meeting of the creditors;
within 3 months after the end of the first year from the commencement of the winding up and the end of each succeeding year, …
6.7.2Pursuant to Section 508(b) of the Law if the winding up continues for more than 1 year, the liquidator must convene a general meeting of the company and a meeting of the creditors within 3 months after the end of the first year from the commencement of the winding up and the end of each succeeding year, and must lay before the meeting or each meeting an account of his or her acts and dealings and of the conduct of the winding up during that first year or that succeeding year, as the case may be.
6.7.3Mr Gould' files revealed no documentation in relation to the convening and holding of any annual general meeting of the company and a meeting of the creditors.
6.7.4The Form 524's lodged by Mr Gould and in particular Section 6b "Statement of position in winding up" did not disclose the date of the last annual meeting of creditors.
6.7.5The company search (Annexure 76) and in particular the documents lodged did not detail any minutes of annual meetings of creditors held.
6.7.5ASIC contends that Mr Gould has failed to convene a general meeting of the company and a meeting of the creditors as required by Section 508 of the Corporations Act for the following years: -
§Year 1: - The period 4 November 1998 to 4 November 1999;
Year 2: - The period 5 November 1999 to 4 November 2000;
§Year 3: - The period 5 November 2000 to 4 November 2001; and
Year 4: - The period 5 November 2001 to 4 November 2002.
6.7.6On 18 February 2003 Barrett J issued his judgment in Re Love (as liquidator of ACN 077 368 257 Limited) 44 ACSR 367 (Annexure 115) and said at paragraph 13:
Unless and until other means are adopted by statute, those involved in the administration of companies must recognise and respect the need to afford to members or creditors (or both) the opportunity for informed consultation intended to be secured by provisions requiring that meetings be held and that particular documents be laid before those meetings. Such an opportunity is something to which all relevant members or creditors have a statutory right. The right exists in support of their common interest in responsible administration. And, where a particular officer or official is required to lay before the meeting an account of his or her administration, the meeting serves as a medium for communication both by and to the officer or official and a means by which accountability is enhanced.
6.7.7ASIC submits that the above judgment underlines the importance of the statutory rights of members and creditors in the context of section 508 meetings.
6.7A(i) Mr Gould failed to properly and adequately supervise members of his staff in the performance of tasks delegated to them;
(ii)…
Particulars
6.7A.1ASIC relies on paragraphs 1.1 and 1.2 of the Response (T6:Vol 3). 6.7A.2
6.7.!.2Contentions 6.4 and 6.6 are repeated.
6.7A.3The Check-list (Annexure 140) referred to in paragraph 1.2 to the Response shows some initials which ASIC presumes to be those of Ms Winnie Tse and those initials are repeated at page 7 in respect of Item 14 Liquidators Accounts of Receipts/Payments. The letter head of Prentice Parbery Barilla appears on the Check-list. The Check-list was supplied to ASIC by Mr Gould pursuant to the notice referred to in paragraph 3.1.4. Mr Gould used it as a precedent and this was confirmed by Mr Gould (see Annexure 141). Pages 5 and 6 of Annexure 134 show that Ms Winnie Tse had prepared the Form 524.
6.7A.4ASIC contends that Mr Gould failed to properly and adequately supervise Ms Winnie Tse.
CONDUCT AS LIQUIDATOR OF MARBLE
7.1 Company Background
7.1.1Marble was incorporated on 12 May 1992 (Annexure 120) and operated from Unit 2, 20 Clearview Place, CROMER HEIGHTS NSW 2099.
7.1.2The Company's sole director was: (Annexure 120)
Appointed
Diann Margaret Veitch 03/06/1992
7.1.3Mr Gould was appointed as Liquidator of Marble on 23 January 2002 (Annexure 120).
8. CONTENTIONS - Marble
Contention relating to the period when Mr Gould acted as liquidator of Marble.
ASIC contends that Mr Gould failed within the meaning of:
(i)paragraph 1292(2)(d)(i) of the Act to carry out or perform adequately and properly the duties of a liquidator; or
(ii)paragraph 1292(2)(d) (ii) of the Act to carry out or perform adequately and properly the duties or functions required by an Australian law to be carried out by a registered liquidator;
to convene and hold a general meeting of the company and a meeting of creditors pursuant to section 508(1)(b) of the Act.
Particulars
8.1.1Paragraphs 6.7.1 and 6.7.2 are repeated.
8.1.2The Form 524's lodged by Mr Gould and in particular Section 6b "Statement of position in winding up" did not disclose the date of the last annual meeting of creditors. (Annexure 121)
The company search (Annexure 120) and in particular the documents lodged did not detail any minutes of annual meetings of creditors held.
8.1.3ASIC contends that Mr Gould has failed to convene a general meeting of the company and a meeting of the creditors as required by Section 508 of the Act for the period 23 January 2002 to 23 January 2003.
8.1.4Paragraphs 6.7.6 and 6.7.7 are repeated.
…
Applicant’s evidence
9. The applicant adopted his written statements of 6 February 2008 and 6 March 2008. In them he said that he is a chartered accountant and CPA and holds the degrees of bachelor of commerce and master of commerce from the University of New South Wales. He also holds an Australian Financial Services License issued on 4 December 2003. Before that he held a full dealer’s license issued in 1994. Those were necessary for the funds management activities that he undertakes, usually in connection with the CVC Limited group. He became a registered trustee in bankruptcy in 1982 and a registered liquidator in 1983. His firm Gould Ralph & Co (Gould Ralph) provided taxation, audit and insolvency advisory services to manufacturing and service businesses.
10. He then outlined his background as an insolvency practitioner, which included dealing with some major and complex matters, including Cresvale Securities Limited (Cresvale), which led to the present proceedings. Following the Court of Appeal decision in that case, all but one of the allegations ASIC had brought against him in relation to the Cresvale liquidation were dismissed or withdrawn, but ASIC commenced an investigation of all his insolvency case files. In the circumstances he thought it inappropriate to accept any further insolvency appointments, and from 12 December 2002, he voluntarily undertook not to accept any. He has continued to observe that undertaking not to practice insolvency until he has been cleared of all charges. Consequently, he has forgone paid insolvency work since December 2002. Further, as a result of the CALDB finding, ASIC declined to issue a clearance to the authorities in Malaysia as to his fitness. That made it impossible for him to accept other commercial appointments, such as an appointment to the board of a Malaysian bank.
11. The applicant then turned to ASIC’s contentions.
12. Contention 2.1: As the events set out in the particulars occurred over seven years ago, he has no clear recollection of them. He is thus unable to say from his own independent recollection:
§Whether or not the directors held a further meeting appointing him as administrator on or before 3 October 2000;
§Whether or not the directors held a meeting after 3 October 2000 ratifying his appointment as administrator, and if so, when;
§Whether or not he received specific advice, including legal advice, that his appointment was valid; or
§Whether his file is complete, as often documents required for court proceedings are not returned.
13. If he had been aware of facts casting significant doubt on the validity of his appointment, it would have accorded with his practice to take steps to resolve that doubt. Mr Robert Kaufmann was a solicitor who provided legal advice to him as administrator. He expressly undertook to resolve the issue in the several conversations that the applicant had with him about the matter, but did not inform the applicant of any significant problem relating to the appointment.
14. Mr Kaufmann had undertaken to have a copy of the signed resolution appointing him as administrator of Trinbay sent to him for his files.
15. He relied on that undertaking, but when he spoke with Mr Kaufmann later about where the resolution was, Mr Kaufmann told him that he had been unable to obtain it because Mr and Mrs Reinhardt had returned to Germany. The applicant asked him again to obtain it as it was important and raised the matter with him again later.
16. At no time did Mr Kaufmann suggest to him that there was any doubt about the validity of his appointment.
17. In his statement of 6 March 2008, Mr Gould recalled in or about August 2003, he was approached by Ms Slater of PricewaterhouseCoopers (PwC) Legal to act as administrator of Trinbay. He told her at the time that he would not be able formally to consent until he had possession of all the books, records and an accurate list of creditors, and no appointment could commence until that was done. He asked Ms Slater to provide those records.
18. He had previously had dealings with Mr Kaufmann about this matter and had always found him to be a very reliable lawyer. He had no reason to doubt that he would do what he had undertaken to do.
19. In cross-examination, Mr Gould disagreed that the consent had to precede the appointment, saying that it needed to be dated from the date of consent. Before the CALDB, he had said that he needed to consent before the company executed a resolution appointment (18 May 2004 Exhibit R1,T27.2 p1922), but that was because the law was ambiguous in relation to the order to be followed. In practice the two steps were taken simultaneously.
20. Later he had said, “I knew the Act was specific in terms that the resolution should be dated after my appointment” (Exhibit R1, T27.2 p1927), but his present position was not taken in order to help his case but because he had misunderstood the inferences that would be drawn from his answers. He was simply expanding on his understanding in light of the position as he understood it to be. He might not have been asked before the CALDB whether the consent should bear the same date as the resolution.
21. It was not correct to say that he had known after 3 October that the resolution he had asked for could not be obtained because he had asked Mr Kaufmann to obtain it for his files, and had pressed him to make sure that he got it. He had thought that even if the directors had returned to Germany, it would be a simple matter to obtain a resolution by fax. He could not recall whether he had checked, as at the time of the 10 October creditor’s meeting whether the resolution had been obtained. In hindsight, however, he could have pursued Mr Kaufmann with more persistence.
22. He did not think it was essential to have a further resolution dated after 3 October, but wanted it because it was not clear what the law required. The fact that he could not find such a document in his file did not mean that it never came. He remained of the view, however, that he was validly appointed because there were two resolutions on file and he believed that Mr Kaufmann had obtained a third one. He did not accept that the earlier resolutions were ineffective.
23. Contention 2.6: At the time it was widely accepted that the IPAA guidelines were no more than guidelines. His approach had been to follow them when he thought it was reasonably practicable.
24. The guidelines define capping as “a broad estimate for each phase of work the creditors may rely on”, but it was not reasonably practicable or even possible at the time of the resolution in question to provide an estimate creditors could rely on.
25. He had taken the view that creditors would be better served if they were told that an estimate or cap could not be provided rather than be given an unreliable estimate. He believed that Professional Standard F6, clause 5, prevented such an estimate from being given if he believed it would be likely to be substantially increased, unless that qualification were made. Merely providing a guess on which creditors could not rely would be inconsistent with the spirit and intent of the guidelines.
26. In the early stages of an administration or liquidation, it is often extremely difficult to estimate fees because there will often be problems concerning potential litigation that are not fully known. The capping guidelines acknowledge that problem by suggesting that approval of fees be deferred until a meeting of the committee of creditors, which usually occurs after the second creditors’ meeting in the case of administrations. Consequently, he acted on the assumption that it was acceptable to obtain creditors consent merely to the basis of the remuneration, such as hourly rates, at an early stage without estimating future fees if it was not reasonably practicable to do so. The guidelines mention no mandatory requirement that a document or resolution setting out the basis of fees must also include a cap or estimate of future fees. That was a practice widely accepted among competent fellow professionals at that time.
27. The resolution in question was taken early in the life of the administration, on 31 October 2000. At that time litigation was on foot by Kerry and Elyse Jewel against Trinbay as a result of their dismissal as co-producers of the “Pan” theatrical production and also for alleged copyright infringement. It was impossible to predict whether the litigation would take a month or six years. There was also a cross-claim by Trinbay against the Jewels in relation to a cost overrun. There were also allegations of malfeasance on the part of another party in relation to Trinbay and it was impossible to predict at the time whether such litigation would ever be pursued or how long it would take. Other complex issues surrounded the use of special puppets known as “animated creatures” for use in the Pan production, the props and stage set and the possibility of staging an alternative production.
28. In cross-examination Mr Gould acknowledged that the 2007 IPAA Code of Professional Practice for Insolvency Professionals, para 1.3, stated that use of the word “must” meant a mandatory requirement, but disagreed that the IPAA 1997 Guide to the Hourly Rates, which stated that where remuneration is approved prospectively, an upper limit “must” be included in the resolution, meant that it was mandatory. If one read the entire document and the explanatory memorandum, the words did not “carry that spin”. He had advanced a reasonable argument to that effect in his evidence before the CALDB. He had done nothing wrong as no cap that creditors could rely on was possible in relation to Trinbay. It would have been misleading to cap his fees. He had acted within the spirit of the insolvency guidelines in relation to Trinbay, Sisterella and Popwing.
29. Contention 2.8A: As regards contention 2.8A.6, he had no recollection of the reconciliation in question. His practice was to have Ms Tse (or Ms Cheng) present to him the form 508 or 524 along with their workings and other papers, for review. If nothing arose from that review he would sign the form. In his experience it was standard industry practice for administrators or liquidators to delegate the task of completing forms 508 or 524, maintaining cashbooks and performing bank reconciliations to staff, and only to review their work. Ms Tse and Ms Cheng were university commerce graduates and members of the Institute of Chartered Accountants. He was familiar with their work by that stage and considered them well capable of properly completing administrative and bookkeeping procedures.
30. Contention 2.9: At the hearing Mr Gould denied that he had failed to comply with s 450E(2) of the Law, as the provisions relate to letterheads and dealing with the public. In this case the account carried the words “administrator appointed”.
31. Contentions 2.10, 4.7, 6.4, 6.7, 6.4A and 8: The applicant stated that it was his standard office practice in relation to companies for which he was appointed to keep cashbooks recording each receipt and payment, with supporting documents including monthly bank reconciliations. At the times in question, the procedure was to keep cashbooks and monthly reconciliations electronically by way of a Solution 6 software package, which was widely used in the industry at the time. In small matters staff might also keep a cashbook in hardcopy form.
32. He could not recall ever instructing his staff not to keep a cashbook. A possible exception would be where there was insufficient property available in the company to permit the approved fees or disbursements of the liquidator to be paid. In the case of such unfunded liquidations he took the view that it was not a requirement to incur an expense in relation to the winding up of a company other than to the extent necessary to comply with an expressed statutory obligation to lodge a document. In the case of unfunded liquidations, he expected his staff to perform at least six-monthly bank reconciliations provided that the only transactions were merely bank charges and perhaps a few payments. Otherwise the more usual practice was to keep the detailed cashbook and perform monthly reconciliations.
33. The applicant suggested that it might be that the cashbooks were kept but that the records are no longer available. It is possible that the hard copy has been misplaced, wrongly filed or lost by any number of persons who have had custody of all the records, including ASIC and investigators and the courts over a number of years.
34. In cross-examination the applicant said that he had checked his records, including electronic records but that some were no longer available. He was not sure whether cashbooks had been found but agreed that he should have checked at the time.
35. In the case of an unfunded liquidation, the applicant also took the view that there was no obligation on a liquidator to incur the expense of holding creditor’s meetings. The Popwing and Marble liquidations were unfunded. Neither company had enough property to meet the expense of holding creditor’s meetings, and that is why none were held. Any funds in Popwing’s account were payable to him for outstanding fees and disbursements, so there were no funds in the liquidation at all.
36. In the case of Popwing the creditors apparently had no desire for such meetings to be held and in the case of Marble there were no funds. Any funds in Marble’s account at the time were payable to him for outstanding fees and disbursements.
37. Contention 2.11: Following advice from senior counsel, he had asked Mr Kaufmann to endeavour to locate potential litigation funders in relation to claims that MEAG, the principal creditor of Trinbay, had against Kerry and Elyse Jewel as well as against the producers’ accountants.
38. He had not determined, as alleged, that it was no longer practicable to implement the DCA because he was not in fact of that view for several reasons. If the company had been terminated at that stage, prospective assets could have been lost. Accordingly, he exercised his discretion under the deed differently from his initial thoughts expressed in his letter of 2 April 2003, which he had then thought was a premature view, to conclude that the interests of the creditors would be better served by keeping the deed on foot. He believed that the actions he took were in the best interests of creditors and consistent with the terms of the deed.
39. The applicant adhered to that view in cross-examination. When he had looked at the files he had observed that only $3,000 remained, all of which was owed to him, but litigation funding might still be available. He therefore allowed the matter to continue because no-one would be prejudiced. In hindsight, however, his assessment was inaccurate, although it was accurate at the time. He had made an error and should have reflected on the matter longer. The views expressed in the Watson report, however, were inept and ludicrous.
40. Contentions 4.3 and 4.5A: The applicant said he had no specific recollection of the matter but the usual practice was for Ms Cheng to prepare the minutes in draft and present them to him for correction. After correcting them he would return them to Ms Cheng and instruct her to lodge them with ASIC. He knew of no reason why she would not have lodged them. She had dated the relevant checklist and she had been aware of the obligation to lodge minutes of committee of creditors meetings.
41. In cross-examination the applicant acknowledged that he might at some stage have said that the minutes were not lodged because of an administrative oversight, but that was because he could not prove that they were lodged, and if they had not been lodged it could only be because of an oversight.
42. Contention 4.4(i): As he had said earlier, he had not included a cap because as at 4 September 1998, some three weeks after his appointment, it was not reasonably practicable to provide one. There were potential claims against RG Capital Theatrical Production Pty Limited, Mr Larry Hart, the former theatrical director, other directors and against Sisterella’s holding company. There was also the possibility of resurrecting or selling the show or the production assets.
43. Contention 6.3: In the case of Popwing there was in substance both a capped estimate of fees and an overall cap on his fees, consistently with the guidelines. The issue of having to provide a capped estimate in a resolution did not arise because the parties present at the creditors’ meeting knew there was in substance a total cap on his fee, represented by the totality of the property that would ever come to the liquidator, along with the small contribution by a third party. The intent of the guidelines was thus fully followed.
44. As his total rendered fees and expenses in the litigation were $21,152.47 to August 2002, after significant write-offs, so that after net additional disbursements, the result was that he lost over $7,330 in the unfunded litigation up to 2002. In fact he did not deduct all his fees from the company’s account at the time. He left funds in the account, although they were owing to him for his outstanding fees.
45. Contention 6.5: The late fee arose because, according to ASIC, there was an unusual and exceptional delay in the posting by Australia Post. The applicant stated that in his experience, that is a most unusual occurrence and he believes it remains possible that ASIC failed to log the actual date of delivery correctly. Even if it was the fault of the mail and not that of ASIC, it was not the fault of his staff that the delay occurred.
46. He acted on the view at the time that it was better to regard the rare event of mail going astray as a proper disbursement in the litigation. The issue would not have arisen if ASIC had waived the late fee in the case of mail misdirection.
47. In any event he had paid the fee himself from what was owed to him for his remuneration, and the company still owes him that amount.
48. Contention 6.6: The applicant stated that as he had pointed out earlier, it was his staff, not he, who had performed the actual filling out of the forms. He had not personally failed to take reasonable steps that were available to him to ensure that the forms were not false.
49. Contention 6.7: He had not convened the meetings because he relied on s 545 of the Law, and the Act, to relieve him of the obligation under s 508(1)(b).
50. In his oral evidence the applicant said that convening the meetings would have expended funds, on advertising especially, which the company did not have and the creditors would not have benefited. There were funds in the account, but his fees would have exhausted them. He kept those funds there in case of future legal expenses. While they could have been used for advertising, it would not have been useful to do so.
51. Late in the proceedings the applicant was cross-examined about Exhibit R2, his letter of 20 September 2002 (transcript pp220-223). He said it referred to an early understanding that Mr Jacobsen would ensure that his costs were paid if he undertook the Popwing liquidation. He said that was the only indemnity he received in Popwing, but when pressed said he had forgotten that Mr Kaufmann had also agreed to ensure he would be paid. He could not at first recall any payment by a third party into the company’s account for that purpose, but then conceded that he had said the contrary in his statement in these proceedings.
52. Contention 8: Here again, he had not convened any meetings because he relied on s 545 of the Law.
53. While there were funds in the account, he admitted in reply to a question from Mr McNally, his own costs exceeded that amount. His conduct had accorded with professional practice. Although he had admitted a transgression before the CALDB, that was because if he could not prove that the minutes had been lodged, he had to accept responsibility. He had never accepted responsibility without reservations. He still thought the CALDB had drawn on the wrong facts when it had reached its conclusions.
197. Section 445C of the Law states that:
…
A deed of company arrangement terminates when:
(a)the Court makes under section 445D an order terminating the deed; or
(b)the company's creditors pass a resolution terminating the deed at a meeting that was convened under section 445F by a notice setting out the proposed resolution; or
(c)if the deed specifies circumstances in which it is to terminate--those circumstances exist; or
(d)the administrator of the deed executes a notice of termination of the deed in accordance with section 445FA;
whichever happens first.
…
198. The tribunal sees no need to make any finding on the credibility of the applicant’s evidence as to the exercise of his discretion under s 445F of the Law. Rather, the tribunal looks to s 445C(c) of the Law and accepts the applicant’s argument that, under the terms of the DCA, in the event that the administrator decides to abandon all legal proceedings, the deed terminates 30 days after the final distribution without the requirement for a meeting of creditors. Consequently, the applicant was under no legal obligation to summon a meeting.
199. We therefore find that Contention 2.11 has not been established.
Contentions 4.3 (Sisterella) and 4.5A (Sisterella)
200. Both parties agree that the minutes of the committee meeting of creditors held on 26 August 1998 were required to be lodged. The respondent claims that it appears from ASIC’s records that this did not happen. The respondent puts that down to a failure by the applicant adequately to supervise his staff, and in particular that the checklist he had put in place for his staff did not contain any category that related to meetings of creditors’ committees, and that it is therefore most likely that the minutes were not lodged.
201. The applicant points out that in her evidence Ms Cheng said that she understood the requirement, that it was her invariable practice to have the minutes signed in plenty of time to lodge them and then to lodge them by post, and that she has no reason to doubt that this happened.
202. The applicant also points out that ASIC has made the following admission for the purpose of the proceedings: “ASIC is prepared to admit that in 1998, on occasions, lodged documents sometimes did not appear on the relevant ASIC database and in the relevant database extract”.
203. The tribunal is not convinced that the minutes were not posted to ASIC by Ms Cheng. Ms Cheng was aware of the requirement, despite the fact that the checklist does not cover the subject of meetings of creditors’ committees. Moreover, at the relevant time ASIC’s records had a degree of unreliability, the extent of which was not identified by the respondent.
204. For those reasons, and having regard to the disciplinary nature of the present proceedings, we do not think that the linked contentions 4.3 and 4.5A have been established.
Contention 6.5
205. Section 556(1)(a) of the Law states:
…
Priority payments
(1)Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims:
(a)first, expenses (except deferred expenses) properly incurred by a relevant authority in preserving, realising or getting in property of the company, or in carrying on the company's business;
…
206. The applicant received two invoices from ASIC on 26 November 1998 for late lodgement fees for the notification of a resolution winding up a company and a report as to affairs by directors, for a total amount of $120 (Exhibit A3, Tab 6.5, A86).
207. The applicant did not dispute that it was his responsibility to lodge the forms on time, nor did he claim that the creditors had done anything to cause the forms to be lodged late (ts p139).
208. On 11 December 1998 the applicant wrote to ASIC requesting that the fines be waived (Exhibit A3, tab 6.5, A87), and on 5 January 1999 ASIC replied by letter stating that the fines would not be waived (Exhibit A3, tab 6.5, A88). Mr Steinkellner of the fee waiver team explained that ASIC took the view that documents are not lodged until received by ASIC and accepted for lodgement. That position was based on s 1274(8) of the Law and the decision of the Full Court of the Federal Court in Angus Fire Armour Australia Pty Limited v Collector of Customs (NSW) (1988) 19 FCR 477.
209. The liquidator’s bank statement details for that month show that a cheque for $120 was presented, and the applicant’s form 524 for the relevant period describes the payment to ASIC as “Lodgement fees” (Exhibit A3, tab 6.5, A90). The applicant admitted that he paid those late fees from the funds of the company in liquidation (ts p135).
210. ASIC contends that it was inappropriate for the applicant to pay the late fees from the company’s assets as a disbursement in the liquidation because creditors should not bear the costs of a liquidator’s inability or failure to lodge statutory documents on time.
211. The respondent also pointed out that in his statement tendered to the board he had said, at paragraph 90 (Exhibit R1, Tab 7, p871):
… and admit that lodgement occurred with ASIC one day late on 12 November 1998 instead of by 11 November 1998 …
212. Further, in his testimony before the board he admitted that he should have paid the late fee himself rather than taking it from funds that were at that stage available to creditors (ts p138).
213. Before the tribunal, the applicant claimed that the forms were lodged on time and that there should be no late fee and said he had “no knowledge” of ever having admitted that they were lodged one day late (ts p136). When his attention was drawn to the admission in his board statement, he accepted that he had made that admission but said that it was like a taxation issue where the onus of proof was on him and that if he could not prove that he lodged the documents on time, he had to accept ASIC’s assertion. “To that extent, I admit it” (ts p137). He had admitted late lodgement only because at that stage he believed he had some form of onus of proof and was unable to disprove ASIC’s assertion.
214. His admission was not, however, expressed or qualified in that way and squarely accepts a proposition of fact. The applicant's attempt to explain away that admission is one of a number of implausible attempts at ex post facto rationalising his earlier inconsistent evidence.
215. The applicant’s first argument against this contention, therefore, was that there was no proof that the documents had in fact been lodged late. The invoices and Mr Steinkellner’s letter were hearsay and would be inadmissible as business records in a court. Unless the contrary is proved, a properly posted document is presumed to be received by the addressee when it would have been delivered in the ordinary course of post. As the applicant had mailed the forms on 9 November 1998, it could be presumed that they would have been received on 10 November and thus before the due date of 11 November. There was no evidence that the forms were delivered on a different day. ASIC could have called, but chose not to, direct evidence in the form of its log of receipt of documents or the documents themselves with the date stamp. The applicant also tendered a recent photograph of a notice on an Australia Post mailbox stating that the scheduled delivery for letters posted before 6:00 pm within the local metropolitan area was by the next business day (Exhibit A9).
216. The applicant also relied on Bayeh v Deputy Commissioner of Taxation (1999) 100 FCR 138 in which Beaumont J had said, “in the absence of any evidence to the contrary, I would be prepared to infer that a letter sent from the city of Parramatta to the central business district of Sydney by post would, in the ordinary course, arrive in Sydney at its destination in no more than two days” (at p142).
217. But here there is “evidence to the contrary”, in the form of the invoices and the Steinkellner letter. If this tribunal were bound by the laws of evidence, which it is not, they would be admissible as business records under s 48(4) of the Evidence Act 1995 (Cth). They are contemporaneous documents of probative value. The documents in question were lodged a decade ago and it would be unreasonable to expect the respondent to adduce direct evidence, such as its document receipt log or the documents themselves. In the normal course of commercial and government business today, such original documents might well have been archived long ago and might be difficult, if not impossible, to retrieve.
218. The applicant also submitted that the payment from the company’s funds was a proper expense within the meaning of s 556(1)(a) of the Law, relying on Ah Toy v Registrar of Companies (1986) 10 FCR 356 at 381. In that case, he said, the Full Court of the Federal Court had overturned findings of misconduct where there was no evidence as to whether “The fault may have lain with the appellant, or with Price Waterhouse but the delay in lodgment equally may have been caused by circumstances outside the control of the liquidator and his agents” (at p381).
219. Significantly, however, the court immediately went on to explain that “A finding of fraud, especially against a professional person in relation to his or her professional activities, should only be made upon the basis of clear evidence and after the person concerned has had the opportunity to deal with the matter. Neither of these requirements was satisfied in the present case” (ibid).
220. Their Honours were plainly referring to the trial judge’s finding that by charging the company’s estate with a total of $127 for late filing fees was “most reprehensible” and “a fraud on the creditors small but important, as indicating serious impropriety” (at p380). It was the finding of fraud that the court set aside, not the finding that the late fee should not have been charged to the estate as such. That would depend on whose fault it was that the documents were lodged late. In this case it can only have been the applicant’s. Documents are lodged when they are physically accepted by an officer of ASIC, not when they are posted but undelivered (Angus Fire Armour at p489).
221. If the applicant chose to rely on delivery by the postal service, he had to accept the risk of incurring a late filing fee or else allow a margin of a couple of days to guard against the risk of late delivery. The applicant claimed that he had never known the mail to be late, a somewhat surprising assertion. The risk of mail delays is generally believed to have been one of the main reasons for the growth of document exchange services and the courier industry. The applicant said it is common, and widely regarded as competent practice, to mail forms to ASIC. It is extraordinary for that to fail and he has not known of a prior occasion where the mail has “failed”. To require a different mode of delivery in all cases would increase the cost for creditors for no real benefit in nearly all cases.
222. It is not a question, however, of requiring a different mode of delivery, but simply of ensuring a sufficient margin of time between posting and the due date to allow for any risk of mail delays. That would conform with the liquidator’s “duty to perform the work with reasonable care and skill and in an efficient and economical way” (Adsett v Berlouis & Others (1992) 37 FCR 201, 212).
223. The late lodgement was thus the fault of the applicant or his staff. The fault was not in our view a serious one, but the gravamen of Contention 6.5 is not late posting but the charging of the late fee to the company’s assets and therefore to its creditors.
224. The applicant then submitted that the respondent’s argument was unfair when reference was made to his right to a lien. The liquidation could not pay all of his expenses and the company still owed him many thousands of dollars in fees. The entire fund at the time was due to him. The $120 was effectively paid by the applicant personally because he was within his rights at that time to transfer the entire fund to himself for existing work performed. That he chose to withdraw $120 of the funds and pay ASIC rather than himself could not be the subject of criticism by ASIC.
225. Before the tribunal hearing, the applicant had not claimed that he was entitled to the funds by reason of his lien and his application to ASIC for a waiver of the fees strongly suggests that he believed, at least at that time, that he was personally liable for them.
226. We assume that the applicant was entitled to a lien for his fees and expenses: Cresvale Far East Ltd (in liq) v Cresvale Securities Ltd (No 2) (2001) 39 ACSR 622, 635; Re Central Commodities Services Pty Limited and Others [1984] 1 NSWLR 25. Liens, of course, are of many different kinds. The common law variety is founded on possession and confers a right to detain property until payment, whereas an equitable lien confers the right to a judicial sale. In either case it is a type of security. The applicant made no submissions about the incidents of his lien, nor did he claim that by using the company’s funds at that stage in the liquidation he was doing no more than exercising his rights under it. His submission seemed more directed at negating any possible inference of fraud or mala fides than in establishing that he had a legal right to pay the late fees out of creditors’ funds.
227. We do not think the facts warrant a finding of fraud, but in the absence of authority, we are unable to conclude that the applicant was justified in treating the expenditure as a reasonable expense of the liquidation or as otherwise proper. The reasoning in Ah Toy strongly suggests the opposite.
228. The discussion in Adsett does not disturb that conclusion. The critical question, according to the Full Court of the Federal Court in that case, was whether the expenditure was “reasonably, as well as honestly”, or “prudently and reasonably incurred in the discharge of the [liquidator’s] proper duties”. In that context, “properly” means conformably with the duty to perform the work with reasonable care and skill and in an efficient and economical way (at p212).
229. While the evidence does not warrant a finding of fraud, neither does it depict a genuine misapprehension and a sincere belief that the action was justified, as the applicant submitted. His endeavours to obtain waiver of the fees suggest that he knew that he was personally responsible for them. And describing the payment as “Lodgement fees” in the May 1999 form 524 was disingenuous at best. The applicant plainly knew he had something to hide and tried to hide it.
230. Contention 6.5 is thus established. His failure to perform his duty as a liquidator under s 556(1)(a) of the Law constituted a failure to carry out or perform adequately and properly duties described in s 1292(2)(d)(i).
Contention 6.6, 6.7A (Popwing)
231. This contention concerned statements or omissions in a number of form 524s signed and lodged by the applicant in connection with the Popwing liquidation from 4 November 1998 onwards.
232. Sections 539(1) and 1308(4) to (6) of the Law are reproduced above.
233. The respondent in its SoFaC particularised a substantial number of incorrect statements and omissions in the Popwing form 524s. The applicant, however, in his SoFaC took the position that he was unable to reply to the respondent's contentions as the particulars did not specify the “reasonable steps” to ensure that the forms contained no false or misleading information or any omissions that would make them misleading that the respondent said the applicant should have taken. At a late stage in the hearing, the respondent sought leave to amend its particulars in relation to this contention in order to remedy that lacuna. Leave was refused.
234. At the hearing the respondent in cross-examination put to the applicant the two most significant errors particularised, those contained in the Popwing form 524s dated 18 May 1999 and 11 May 2000 (Exhibit A3, Tab 6.3, A84 and Tab 6.6, A90). In each case, in section 6b of the form, the figure given for “estimated amount available for unsecured creditors” was $1,246,306. Further down in the same section, under “details of creditor’s claims”, the amount of $1,246,306 was again shown. That section suggested that creditors would receive 100 cents in the dollar, when in fact they would receive nothing, the respondent argued.
235. The applicant admitted that it was a mistake and in his statement said that it was standard industry practice for administrators to review the work of staff who completed form 524s (Exhibit A2, paras 78-79).
236. He conceded that one could read the defective statement as saying that there was an estimated amount available for unsecured creditors of approximately $1.2 million. He thought he would have checked the form but before the tribunal denied that he had failed to detect the error because he was not paying attention to the form. Before the board, however, he had concluded “Correct, I am at fault for not having picked that up” (ts p131).
237. He had relied on his staff, and was responsible for the fact that the forms had not been correctly completed:
…
It’s my fault, because I have been too heavy in terms of saying, “Listen I want you to do the absolute minimum to basically, you know, we need to comply, but do it in a most cost-effective way” (ts p131).
238. The applicant submitted that by the words “we need to comply”, he had made it clear that staff should be careful to avoid material errors or omissions, but that statement to staff can have done little to ensure that a high standard was maintained in the office.
239. He also submitted that as the $1.2 million figure appeared in both places, the error was obvious and no-one would have been misled to think that unsecured creditors would receive 100 cents in the dollar. While that would no doubt be true of the experienced reader, the risk that some creditors could have been misled remains. The evidence thus goes a long way towards establishing a breach of s 1308(4) of the Law.
240. The actual circumstances of the liquidation show the matter in a different perspective, however. It was not disputed that there were only five creditors in the Popwing liquidation, three of whom (a majority in number and in value) were controlled by Mr Kevin Jacobsen and the other two were related parties (Exhibit A2, para 158). At the time of the creditors meeting of 4 November 1998, the creditors, controlled by or associated with Mr Jacobsen, were informed and fully understood that no funds would come into the liquidation, with the exception of a possible distribution of $6,953, perhaps years later, if at all.
241. In view of the lack of funds, the applicant negotiated for Mr Jacobsen or his interests to pay $7,500 into the company’s account on 5 November 1998 to cover the initial costs of the liquidation (Exhibit A2, paras 160, 163). Mr Jacobsen and the five corporate-related creditors in total were well aware that there were no funds in the litigation and would not have been misled by the error in the form 524s.
242. There are no authorities on the interpretation of s 1308(4), but in other contexts it has been held that in considering whether a statement is misleading or deceptive a court will have regard to the actual persons to whom the representation is directed. Applying s 52 of the Trade Practices Act 1974 (Cth), Gibbs CJ said in Parkdale Custom Built Furniture Pty Limited v Puxu Pty Limited (1982) 149 CLR 191 at 199:
…
Section 52 does not expressly state what persons or class of persons should be considered as the possible victims for the purpose of deciding whether conduct is misleading or deceptive or likely to mislead or deceive. It seems clear enough that consideration must be given to the class of consumers likely to be affected by the conduct. Although it is true, as has often been said, that ordinarily a class of consumers may include the inexperienced as well as the experienced, and the gullible as well as the astute, the section must in my opinion by regarded as contemplating the effect of the conduct on reasonable members of the class. The heavy burdens which the section creates cannot have been intended to be imposed for the benefit of persons who fail to take reasonable care of their own interests. What is reasonable will of course depend on all the circumstances. …
243. Hill J expressed a similar view in his concurring reasons in Tobacco Institute of Australia Limited v Australian Federation of Consumer Organisations Inc (1992) 111 ALR 61 (at p108), which also dealt with s 52 of the Trade Practices Act:
… The statutory question [of whether the conduct is misleading or deceptive] is best tested in a case such as the present, by reference to the effect of the conduct upon the class of persons who are likely to read and consider the advertisement, that class having the qualities discussed by Franki J. The extremely stupid, and perhaps the gullible, may well be excluded from the class of persons who read such advertisements in newspapers. Some members of the class may, in reading the advertisement, be misled by a misconception of their own, howsoever arising. Those persons will not have been led into error by the representation made in the advertisement.
…
244. In the special circumstances of this case, in which effectively (as was conceded) only one person had an interest in the contents of the form, there was no possibility of that person being misled or deceived. He had in fact advanced $7,500 of his own money to enable the liquidation to begin, as the company had insufficient funds for that purpose. Having regard to the disciplinary nature of the present proceedings, Contentions 6.6 and 6.7A are not established and no contravention of s 1308(4) has been made out.
Contentions 6.7 (Popwing) and 8 (Marble)
245. The respondent notes that the applicant stated that he understood the requirement, but holding the meeting involved the expenditure of funds that he did not have and, secondly, the creditors themselves would not have attended. Under cross-examination the applicant’s position changed and he conceded that he did have funds that he could have used to pay for costs of advertising the meeting, but that he believed that so doing “would have no utility whatsoever”.
246. The respondent submits that there were sufficient funds to pay for this advertising and that it is not open to the applicant to decide that there is no utility in calling the meeting.
247. The applicant contends that he relied upon there being insufficient available property, and on the effect of s 545 of the Law, in not calling a meeting. While there was cash in the liquidator’s bank account at the time, that was exceeded by the applicant’s outstanding fees.
248. The applicant asserts that a liquidator has a lien over funds in a liquidation in respect of his fees (Cresvale at 635).
249. Late in the proceedings ASIC produced letters that it claimed indicated that the applicant had an indemnity in respect of his fees, in which case there would not be insufficient property.
250. After the applicant had been examined on the letters it was submitted on his behalf, relying on the timing of events, that any understanding on fees was formed when the applicant was asked to consent to the company going into administration with an administrator other than himself, at which time the applicant had made his consent conditional upon payment of his fees being paid in due course. That understanding had not happened during the liquidation itself. The respondent countered that this understanding or indemnity related to the earlier period, because the fees did.
251. We find that there was no fee indemnity in place at the time when the applicant decided not to call a general meeting of the company and a meeting of creditors.
252. As the cash available at the time was less than the applicant’s outstanding fees, and as we find that there was no fee indemnity in place, the applicant had, in effect, a lien over that cash. We therefore also find that there was insufficient available property in the liquidation.
253. Section 545(1) of the Law states that “… a liquidator is not liable to incur any expense in relation to the winding up of a company unless there is sufficient available property”. We therefore find that the applicant was not obliged to call the meeting, and that Contention 6.7 has not been established.
254. The facts of Contention 8 (Marble) are essentially the same, except that there is no suggestion of a fee indemnity being in place. We therefore find that Contention 8 also has not been established.
Findings summary
255. We therefore make the following findings in relation to the individual contentions:
2.1: dismissed;
2.6: established;
2.9: established;
2.10: dismissed;
2.11: dismissed;
4.3: dismissed;
4.4: established;
4.5A: dismissed;
4.6: established;
4.7: dismissed;
6.3: established;
6.4: dismissed;
6.5: established;
6.6: dismissed;
6.7: dismissed;
6.7A: dismissed; and
8: dismissed.
256. Issues (i) and (ii) are therefore answered in the affirmative. The decision under review is thus affirmed. It was agreed at the hearing that if our decision on those two issues required issue (iii) to be determined, a further hearing would be held to deal with the question of the appropriate orders.
I certify that the 256 preceding paragraphs are a true copy of the reasons for the decision herein of Professor GD Walker, Deputy President and Mr TC Jenkins, Member.
Signed: ...........................[sgd].................................................
Renee Wallace, AssociateDate/s of Hearing: 5, 6 and 7 March 2008, 12 June 2008
Date of Decision: 12 September 2008
Solicitor for the Applicant: Mr E Herman, Henry Davis York
Counsel for the Applicant: Mr R Dubler SC
Solicitor for the 1st Respondent: Unrepresented
Solicitor for the 2nd Respondent: Mr G Boland, ASIC
Counsel for the 2nd Respondent: Mr G McNally SC
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