Re Guss and Australian Securities and Investments Commission
[2006] AATA 401
•9 May 2006
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2006] AATA 401
ADMINISTRATIVE APPEALS TRIBUNAL № V2005/868
GENERAL ADMINISTRATIVE DIVISION
Re: ANTONY DAVID GUSS
Applicant
And: AUSTRALIAN SECURITIES AND
INVESTMENTS COMMISSION
Respondent
DECISION
Tribunal: The Hon Howard Olney AM QC, Deputy President
Date:9 May 2006
Place:Melbourne
Decision:The decision of the Tribunal is that the decision under review is affirmed.
(sgd) Howard Olney
Deputy President
CORPORATIONS – Corporations Act 2001 s 206F – officer of two or more corporations wound‑up within preceding seven years – disqualification from managing corporations – grounds for disqualification – whether disqualification is justified – whether corporations are related – period of disqualification
Corporations Act 2001
Deputy Commissioner of Taxation v Casualife Furniture International Pty Ltd and Kencord
Manufacturing Pty Ltd (2004) VR 549
REASONS FOR DECISION
9 May 2006 The Hon Howard Olney AM QC, Deputy President
1. The applicant seeks review of a decision of a delegate of the respondent (ASIC) disqualifying him from managing corporations for a period of five years.
2. The decision under review was made pursuant to s 206F of the Corporations Act 2001 (the Act), which provides:
206F(1)ASIC may disqualify a person from managing corporations for up to 5 years if:
(a)within 7 years immediately before ASIC gives a notice under paragraph (b)(i):
(i)the person has been an officer of 2 or more corporations; and
(ii)while the person was an officer, or within 12 months after the person ceased to be an officer of those corporations, each of the corporations was wound up and a liquidator lodged a report under subsection 533(1) about the corporation’s inability to pay its debts; and
(b)ASIC has given the person:
(i)a notice in the prescribed form requiring them to demonstrate why they should not be disqualified; and
(ii)an opportunity to be heard on the question; and
(c)ASIC is satisfied that the disqualification is justified.
(2) In determining whether disqualification is justified, ASIC:
(a)must have regard to whether any of the corporations mentioned in subsection (1) were related to one another; and
(b)may have regard to:
(i) the person’s conduct in relation to the management, business or property of any corporation; and
(ii) whether the disqualification would be in the public interest; and
(iii) any other matters that ASIC considers appropriate.
(3) If ASIC disqualifies a person from managing corporations under this section, ASIC must serve a notice on the person advising them of the disqualification. The notice must be in the prescribed form.
(4) The disqualification takes effect from the time when a notice referred to in subsection (3) is served on the person.
(5) ASIC may give a person who it has disqualified from managing corporations under this Part written permission to manage a particular corporation or corporations. The permission may be expressed to be subject to conditions and exceptions determined by ASIC.
3. Subsection 533(1) of the Act (which is referred to in s 206F(1)(a)(ii)) provides that if, in the course of the winding‑up of a company it appears to the liquidator that the company may be unable to pay its unsecured creditors more than 50 cents in the dollar, the liquidator must as soon as practicable lodge a report with respect to the matter.
THE PRIMARY FACTS
4. The matters in issue relate to 6 companies namely:
· Buckland Products Pty Ltd (Buckland Products);
· Scandi (Qld) Pty Ltd (Scandi (Qld));
· Burwood Retail Pty Ltd (Burwood Retail);
· Kencord Manufacturing Pty Ltd (Kencord Manufacturing);
· Moolach Pty Ltd (Moolach); and
· Bongania Pty Ltd (Bongania).
Each of these companies (hereinafter collectively referred to as the 6 companies) has been wound‑up and in each case the applicant was a director (and in some cases the secretary) of the company at the date of winding‑up. Further, in each case the liquidator has lodged a report under s 533(1) about the company's inability to pay its debts. There is no dispute as to any of the foregoing facts.
5. By letter dated 30 May 2005, ASIC forwarded to the applicant a notice (also dated 30 May 2005), which stated:
The records of the Australian Securities and Investments Commission ("ASIC") show that you are or were an officer of six (6) corporations that have been wound up, being:
1.Buckland Products Pty Ltd (Receiver and Manager Appointed) (In Liquidation) ACN 006 858 715;
2.Scandi (Qld) Pty Ltd (In Liquidation) (De‑registered) ACN 006 738 021;
3.Burwood Retail Pty Ltd (In Liquidation) (De‑registered) ACN 078 381 076;
4.Kencord Manufacturing Pty Ltd (In Liquidation) ACN 096 218 530;
5.Moolach Pty Ltd (In Liquidation) ACN 097 341 190
6.Bongania Pty Ltd (In Liquidation) ACN 097 107 401
where a liquidator has reported under subsection 533(1) of the Corporations Act 2001 ("the Act") that each of the corporations may be unable to pay its unsecured creditors more than 50 cents in the dollar.
In these circumstances you are required to demonstrate, in accordance with subparagraph 206F(1)(b)(i) of the Act, why you should not be disqualified from managing corporations.
(There is no direct evidence as to when the notice was received by the applicant but as the first of the 6 companies to be wound‑up was wound‑up on 25 October 2001, the exact date of service of the notice is not presently relevant.)
6. An attachment to the notice headed Areas of Concern sets out an itemised list of eight areas of concern to ASIC as well as details of the documents on which the concerns were based. The following is a summary of the areas of concern:
Concern 1
You may have failed to understand and/or adequately perform your role and duties as a director in the … 6 companies … that have been wound‑up.
Concern 2
You may have failed to act with care and diligence by failing to remit obligations to the ATO being a total amount of $276,172.68 and by entering into transactions to avoid employee entitlements in a total amount of $158,146.38 for the … 6 companies.
Concern 3
You may have used your position as a director to the prejudice of others by providing preferential treatment to related companies/parties and family members.
Concern 4
You may have been a sham director of Casualife Furniture International Pty Ltd ACN 095 402 743 which has also gone into liquidation.
Concern 5
You may have been a director of companies that transferred their assets to new entities to avoid their creditors.
Concern 6
You have been a director of other companies that have been wound‑up outside the last seven years.
Concern 7
You have numerous continuing directorships and businesses that may be an ongoing risk to the community.
Concern 8
You appear to lack commercial morality in connection with the management of corporations and the conduct of their businesses.
7. The applicant exercised his right to be heard in response to the notice at a hearing before a delegate of ASIC, held on 27 July 2005, at which the applicant gave evidence and was represented by counsel.
8. Having regard to the foregoing matters which are not disputed, the Tribunal is satisfied that each of the elements of paragraphs (a) and (b) of s 206F(1) has been established.
9. In a written Statement of Facts, Findings and Reasons for Decision dated 23 September 2005 ASIC's delegate addressed each of the eight areas of concern set out in the attachment to the notice given pursuant to s 206F(1)(b)(i). At paragraph 197 of the statement the delegate said:
I am satisfied on the material before me and my findings above that it is in the public interest, in protecting against present and future misuse of the corporate structure, that Mr Guss be disqualified from managing corporations.
and at paragraph 199, the delegate stated:
Having regard to all the matters before me I consider that Mr Guss should be prohibited from managing a corporation for a period of five years.
Notice of the disqualification was served on the applicant in accordance with s 206F(3) on 27 September 2005.
THE ISSUES
10. The applicant's statement of facts and contentions lodged in support of the application identifies a number of issues in respect of which it is said the decision‑maker erred. These issues can be conveniently summarised as follows:
(a)the decision‑maker failed to accept that the 6 companies were related to one another;
(b)the decision‑maker wrongly took into account allegations and other matters raised in the liquidator's reports and relied upon findings in the judgment of Justice Hansen in the Supreme Court of Victoria: Deputy Commissioner of Taxation v Casualife Furniture International Pty Ltd and Kencord Manufacturing Pty Ltd (2004) VR 549 (the Supreme Court proceedings) to which he was not a party;
(c)if disqualification was justified (which is expressly denied by the applicant) disqualification for a period of five years was excessive.
11. It is ASIC's contention that the 6 companies were not related to one another but even if the contrary were to be so, it is said that this is only one factor to which regard must be had in determining whether disqualification is justified. Accordingly, ASIC contends that disqualification is appropriate irrespective of any finding as to whether any of the corporations were related to one another. ASIC also contends that the applicant carries both the legal and evidentiary burden as to establishing that the 6 companies were related for the purpose of s 206F(2)(a) of the Act.
RELATED CORPORATIONS
12. Section 50 of the Act identifies the circumstances in which corporations are to be regarded as being related to one another. The section provides:
50 Where a body corporate is:
(a)a holding company of another body corporate; or
(b)a subsidiary of another body corporate; or
(c)a subsidiary of a holding company of another body corporate;
the first-mentioned body and the other body are related to each other.
Section 46 describes the team subsidiary as follows:
46A body corporate (in this section called the first body) is a subsidiary of another body corporate if, and only if:
(a)the other body:
(i)controls the composition of the first body’s board; or
(ii)is in a position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the first body; or
(iii)holds more than one-half of the issued share capital of the first body (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital); or
(b)the first body is a subsidiary of a subsidiary of the other body.
13. In determining whether disqualification is justified the decision‑maker must have regard to whether any of the corporations were related to one another (s 206F(2)(a)). Although the statute does not expressly provide any guidance as to the consequences that may flow from a conclusion that the relevant corporations were related to one another, it is clear that a finding of such a relationship does not deprive the decision‑maker of the authority to be satisfied that disqualification is justified. Rather, the provision in question merely requires that the decision‑maker must have regard to the relationship between the corporations if indeed one exists. The corresponding (although not identical) provision in the former Corporations Law was s 600(4) which the Explanatory Memorandum to that Law states will be relevant in the case of a failure of a group of companies which is in substance a single entity (para 1885).
14. As a matter of statutory construction, the Tribunal is of the opinion that a finding that the relevant corporations were related to one another would not deprive it of the ability to be satisfied that disqualification is justified if in the circumstances of the case other relevant matters support such a conclusion.
THE HEARING
15. The Tribunal heard the application on 20 February 2006 and 28 March 2006. Each party was represented by counsel. In addition to the documents filed for the purposes of s 37 of the Administrative Appeals Tribunal Act 1975 (the T‑documents), the Tribunal had before it detailed statements of facts, issues and contentions filed by the parties as well as the oral testimony of two witnesses called by the applicant and one witness called by ASIC. The applicant's witnesses were Henry Alexander Gilbert, a chartered accountant, and Joseph Guss, a former solicitor and father of the applicant. The respondent's witness was Gregory Chi Fung Fok, an investigator employed by ASIC. A number of other documents were tendered in the course of the hearing including extracts from the transcript of the evidence of the applicant and two other witnesses in the Supreme Court proceedings. The applicant was present during the hearing but did not give evidence.
16. The T‑documents include copies of the reports made by the respective liquidators of the 6 companies pursuant to s 533(1) of the Act. No evidence was tendered to the Tribunal challenging any of the findings and conclusions contained in the liquidators' reports. In the absence of any evidence from the applicant in this proceeding it is open to the Tribunal to draw the inference that he does not contradict any of the liquidators' findings and conclusions and accordingly it is open to the Tribunal to rely upon those reports for the purposes of the present application.
THE ORAL EVIDENCE
17. Henry Alexander Gilbert (Mr Gilbert) was called as a witness by the applicant. Initially he tendered a written witness statement dated 13 January 2006 and gave further brief evidence‑in‑chief before being cross‑examined by counsel appearing for ASIC. In the witness statement Mr Gilbert says he is a chartered accountant, being a member of the firm of Rundles. He says that SMET Nominees Pty Ltd (SMET) and NMGP Nominees Pty Ltd (NMGP) are companies associated with his firm and provide nominee services to the firm's clients. Attached to the witness statement is a copy of a letter dated 26 July 2005 from Rundles addressed to Claremont Kencord Australia Pty Ltd (Claremont Kencord) the text of which is as follows:
Re: SMET Nominees Pty Ltd (SMET) and NMGP Nominees Pty Ltd (NMGP) – Nominee Shareholdings
We confirm on behalf of SMET and NMGP that the following shares in the undermentioned companies are held on trust for you.
Company SMET NMGP
Gusto Corp Pty Ltd 6 ord. Shares 6 ord. Shares
Buckland Products Pty Ltd 99 ord. Shares 1 ord. share
(in Liqu.)(Rcr. & Mgr. Apptd.)
Scandi (Qld) Pty Ltd 1 ord. Share 1 ord. Share
(in Liqu.)
As no declarations of trust in respect thereto have been prepared we are arranging for same to be effected by SMET and NMGP and will forward same to you in due course.
We will also arrange for share transfers to you from SMET and NMGP to be completed by them in respect thereto and forwarded to you at the same time.
…
The letter was not signed by Mr Gilbert but by Mr Peter Davison, another member of Rundles. In response to questions from the applicant's counsel and the Tribunal, Mr Gilbert explained that SMET is a company with which he personally is involved whereas NMGP was formerly involved with a former, now deceased, partner of Rundles the late Noel Rundle. He confirmed that none of the shares held by the nominee companies in Gusto Corporation Pty Ltd (Gusto Corporation) Buckland Products and Scandi (Qld) were held beneficially and that any indication to the contrary in returns lodged with ASIC would be erroneous. In respect of the final two paragraphs of the letter of 26 July 2005 he said that no declarations of trust had been prepared but SMET had executed undated transfers which have never been registered. No transfers have been executed by NMGP due to Mr Rundle's death although they had been sent to his beneficiaries for execution.
18. Under cross‑examination, Mr Gilbert said that he was unable to recall the circumstances in which SMET became a shareholder in Buckland Products. He said: We were just holding the shares in trust for the Guss family, basically; and he agreed with counsel that the practice in relation to the Guss family interests was that Mr Joseph Guss would ask SMET through him to hold shares in companies until further instructions were received from him (Mr J. Guss). He also agreed that when he gave evidence in the Supreme Court proceedings in December 2002, he did not know on whose behalf SMET held the shares in Buckland Products. At page 17 of the transcript in this proceeding the following exchanges between counsel and the witness are recorded:
All right. Now, prior to 26 July 2005 - I withdraw that. Between December 2002 and 26 July 2005 did you receive any instructions to SMET to hold the shares on behalf of another entity? --- No.
Has SMET ever received instructions to hold the shares in Buckland Products on behalf of another entity? --- No.
Then when you told his Honour that SMET holds the - its shareholding in Buckland Products on behalf of Claremont Kencord, on what do you base that evidence? --- Advice from Joe Guss.
And where (sic) did he give you that advice? --- Presumably a bit before 26 July 2005.
And when you say a bit before can you be a bit more precise than that? --- Not really, but I imagine about that time.
Yes, and what did Mr Joseph Guss tell you? --- Well, he - the basis of those … shareholdings and those - that the Claremont Kencord was the beneficial owner.
So he told you that Claremont Kencord was the beneficial owner of the shares held by SMET in Buckland Products? --- Correct.
And that was the first time that SMET had ever been told on whose behalf it was holding the shares in Buckland Products? --- Correct.
And apart from that conversation with Mr Joseph Guss, did you ever have any other discussions with Mr Joseph Guss about SMETs holding in Buckland Products? --- No, not to my knowledge.
And in relation to Buckland Products Pty Ltd are there any - is there any documents recording Claremont Kencord's interest in the shareholding of SMET in Buckland Products? --- I am not quite - can you ay (sic) - ask that question again?
Yes. I didn't ask it very well. Are there any documents which record Claremont Kencord's interest in the shareholding held by SMET in Buckland Products Pty Ltd? --- No, only as - basically this letter, I would say.
In further responses to counsel Mr Gilbert agreed that the same position applied in relation to Scandi (Qld) and Gusto Corporation.
19. Mr Joseph Guss was also called on behalf of the applicant. He formerly practiced as a solicitor but is now described as a consultant. In a written witness statement dated 17 January 2006 Mr Guss says that he was formerly the solicitor for Claremont Kencord and Burwood Retail and that on instructions from Claremont Kencord he had instructed Colin Graeme Williams (Williams) formerly the proprietor of Searchwise, a company incorporator, to incorporate Burwood Retail, then known as Outdoor Megastore Holdings Pty Ltd (OMH). He said that Williams duly incorporated OMH with himself as sole shareholder which he was to transfer to Claremont Kencord subsequently and that Williams signed share transfers in blank and gave them to the witness for completion by Claremont Kencord and processing by OMH. Attached to the witness statement is a letter dated 26 July 2005 written by the witness addressed to Claremont Kencord, the text of which is as follows:
Re: Burwood Retail Pty Ltd (In Liqu.) (Burwood)
It seems that I have not previously forwarded to you the share transfers in regard to the whole of the issued capital of the Burwood, held by Colin Graeme Williams on your behalf, and given to me by him.
Please find same enclosed (namely two transfers of 6 ordinary shares each, totalling 12 ordinary shares) for completion by you as transferee.
You will note that as they were signed by Mr. Williams several years ago that they describe the name of Burwood as Outdoor Megastore Holdings Pty Ltd, which was the original name of the company.
As Burwood is in liquidation, it may not be possible to now effect registration of the enclosed transfers, but if not you should nevertheless complete and retain them as evidence of ownership of the subject shares.
Copies of the share transfers were also tendered.
20. Under cross‑examination, Mr Guss was questioned as to his recollection of when he raised with Mr Gilbert the question of the shares held by SMET and NMGP in Buckland Products being held on behalf of Claremont Kencord. The witness agreed that at about the time SMET and NMGP became the shareholders he told Mr Gilbert to hold them and to await his (the witness's) instructions as to what to do with them. However, he did not agree that it was not until around July 2005 that he instructed Mr Gilbert that SMET and NMGP were holding the shares on behalf of Claremont Kencord. He said:
I think I probably told him sometime earlier because I remember discussing declarations of trust with him some years ago. ( trans p28)
and when it was put to him that Mr Gilbert had given evidence that the first instructions he received as to on whose behalf the shares were held was in or around July 2005, the witness responded:
I think that probably is incorrect. I recall discussing with him some years ago and at various times over the years declarations - that he should complete declarations of trust. (trans p28)
The same issue was raised later in the cross‑examination (at transcript pages 31‑32) where the following exchanges are recorded:
Mr Guss, I suggest that what happened in relation to Burwood Retail was exactly the same as what happened in relation to Gusto Corp Pty Ltd, Buckland Products Pty Ltd and Scandi Queensland Pty Ltd, namely, that you arranged for it to be incorporated, that you required the shareholder to hold the shares subject to your instruction and then you later gave instruction at a time that suited you; do you agree with that? --- No, I don't agree with that insofar - because the circumstances were different. Insofar as Burwood Retail was concerned I actually got the share transfers from Mr Williams. In the case of the other companies I did not get the share transfers from Mr Gilbert.
But in relation to Burwood Retail the name of the transferee was not entered into the - on the share transfer, was it? --- No, it is not common to do so when companies are incorporated on behalf of somebody. My experience over many years is that the incorporator merely gives the instructor the share transfers in blank and that is the end of their involvement and it is the instructor that attends to it after that.
In relation to Scandi, Queensland, Buckland Products and Gusto, if I can turn to that, Mr Guss? --- Yes.
The position was that Mr Gilbert has said that you spoke to him in about July 2005, to direct him as to who he was to hold the shareholdings in those companies on whose behalf? --- No, I don't think that is correct. I certainly spoke to him in July 2005.
And at that time - about these companies? --- Yes.
And for the purpose of telling him on whose behalf the shareholding SMET would be? --- No, my belief is that I told him at various times in earlier years, but I certainly was - spoke to him in July 2005. And I think he had also spoken to the legal representatives of Mr Guss. I think there were several discussions around about that time.
21. To the extent that there is a conflict between the evidence of the applicant's two witnesses as to when Mr Gilbert was first advised that shares held by SMET and NMGP were held on behalf of Claremont Kencord, the Tribunal prefers and accepts the evidence of Mr Gilbert. Despite Mr Guss's assertion on several occasions that he had discussed declarations of trust with Mr Gilbert some years ago at no stage did he suggest that the declarations of trust be made in favour of any particular beneficiary and certainly it appears that Claremont Kencord was not mentioned in this context. Similarly, in relation to the shares held in Mr William's name in the company ultimately known as Burwood Retail, the first and only indication that those shares are held on behalf of Claremont Kencord is Mr Guss's letter to that company dated 26 July 2005.
22. Mr Gregory Chi Fung Fok was the only witness called on behalf of ASIC. He testified as to his qualifications in accountancy and as to his employment as an investigator by ASIC since 1991. The witness identified, and swore to the accuracy of, a statement made by him dated 29 April 2005 (which was part of the T‑documents) and a further statement dated 21 November 2005, both of which were tendered in evidence. The thrust of the 21 November 2005 statement relates to investigations made by Mr Fok subsequent to the ASIC delegate's decision to disqualify the applicant. Those investigations have revealed that ASIC does not hold any records or documentation to support the proposition that SMET and NMGP held shares in Gusto Corporation, Buckland Products and Scandi (Qld) on trust for Claremont Kencord. In the case of Scandi (Qld) the liquidator was unable to say whether SMET and NMGP held shares in trust for Claremont Kencord as he had not received the company secretariat file and in the case of Buckland Products the liquidator was unable to respond as the books and records of the company were in archive. As Gusto Corporation is still trading no further inquiries were made. The witness was also asked to investigate whether ASIC had any information or documentation to support the proposition that Colin Graeme Williams holds the whole of the issued capital of Burwood Retail on behalf of Claremont Kencord. A search of the records of ASIC revealed no information to support the proposition and inquiries of the liquidator of Burwood Retail revealed that as the company secretariat file had not been received, he was unable to make any response.
23. Mr Fok was cross‑examined by the applicant's counsel but was not asked any questions concerning the matters referred to in his witness statement. Rather, a series of questions was put to him concerning the nature of the business of the companies managed by the applicant. It is clear that Mr Fok had no personal knowledge of the matters in question apart from what he had derived from various reports from liquidators and it is equally clear that what was put to him by counsel is not in dispute. The evidence as it emerged is as follows: the companies operated by the applicant were in the furniture business, specifically in respect of outdoor furniture. Manufacturing operations were carried on from a factory at Clayton (Victoria) and retail operations were conducted by some of the companies. For example Burwood Retail conducted a retail business in Burwood Road, Hawthorn selling outdoor furniture. Similarly Bongania carried on retailing of outdoor furniture from premises in Sydney and Scandi (Qld) did the same in Queensland as did Moolach. The witness agreed that in the Supreme Court proceedings Hansen J had described the various businesses as the outdoor furniture business and that the applicant had identified problems associated with downturns in the outdoor furniture business as one of the explanations given by the applicant to the liquidator as the reason for the failure of some of the companies.
THE SUPREME COURT PROCEEDINGS
24. One matter of serious contention between the parties is the extent, if any, to which the Tribunal should have regard to the findings expressed by Hansen J in his reasons for decision in the Supreme Court proceedings. In those proceedings the plaintiff had sought (successfully as it turned out) the winding‑up of the two defendant companies. In long (153 pages) and detailed reasons Hansen J made a number of findings adverse to the credibility of both the applicant and Joseph Guss, both of whom had given evidence; and further the Judge commented on what he considered to be the applicant's apparent lack of commercial morality in connection with the management of corporations and the conduct of their businesses.
25. On the basis that the applicant had not been a party to the Supreme Court proceedings, counsel for the applicant submitted that it would be improper for the Tribunal to take into account or be influenced by Hansen J's conclusions concerning the applicant's credibility or his fitness to manage a corporation. To some extent the submission was well made. The issue decided by the Court was whether or not it was appropriate that the two companies be wound‑up and clearly it is not open to the applicant in these proceedings to contradict the Court's decision on that issue. However, the findings of fact made by the Court in reaching its ultimate conclusion were based upon the Judge's assessment of the evidence that had been adduced at the trial. The issues in the present proceedings are not the same as those which fell for determination in the Supreme Court proceedings, and neither the parties nor the evidence are the same. In these circumstances the Tribunal prefers to reach its own conclusions based upon the evidence put before it. That evidence does of course include the extract of the applicant's evidence in the Supreme Court proceedings as well as the other extracts from the transcript tendered during the hearing. In the absence of any evidence from the applicant in this proceeding, it is open to the Tribunal to draw the inference that he does not contradict any of the evidence disclosed in those transcripts.
26. There is one other evidentiary issue that calls for comment. It is ASIC's contention that the applicant carries both the legal and evidentiary burden of establishing that the 6 companies were related for the purpose of s 206F(2)(a) of the Act. No doubt this view derives from the structure of s 206F which contemplates that the person to whom a notice under s 206F(1)(b) is given is called upon to show cause why [he] should not be disqualified. The implication is that failure to show cause will result in disqualification. The Tribunal as presently constituted does not accept this to be so. Indeed, it is quite clear that s 206F(1)(c) places on ASIC the obligation to be satisfied that disqualification is justified. It would be entirely inappropriate to introduce concepts applicable to adversary litigation into what is an administrative process. It is even more apparent when one has regard to the imperative nature of s 206F(2)(a) that it is the decision‑maker's obligation to determine whether relevant corporations are related to one another whether or not the person to whom the notice is given has exercised his option to be heard.
THE 6 COMPANIES
27. Each of the 6 companies was wound‑up within the period of seven years immediately before ASIC's s 206F(1)(b) notice was given to the applicant. The relevant dates in chronological order are:
Buckland Products 25 October 2001
Scandi (Qld) 30 September 2002
Burwood Retail 30 September 2002
Moolach 21 January 2004
Kencord Manufacturing 18 May 2004
Bongania 18 May 2004
In each case the applicant was a director of the company at the date of winding‑up and the registered office of the company was at 1‑3 Winterton Road, Clayton, Victoria.
28. Buckland Products was incorporated on 7 October 1987. Its original name was Corpivic (№ 122) Pty Ltd. The name was changed successively to Kencord Trading Pty Ltd (9 September 1988), Tropitone Furniture Co International Pty Ltd (19 September 1990), Casualife Furniture Pty Ltd (1 November 1996) and to Buckland Products (18 June 2001). The applicant was appointed as a director of the company on 8 October 1987. The company manufactured outdoor furniture for distribution to retail and commercial customers. On 6 September 2001 the Deputy Commissioner of Taxation applied to the Supreme Court of Victoria to have the company wound‑up. A winding‑up order was made on 25 October 2001 and Dennis Anthony Turner was appointed as liquidator. On 27 February 2003 Mr Turner provided a written report to ASIC pursuant to s 533(1) of the Act regarding the company's inability to pay its debts.
29. Scandi (Qld) was incorporated on 9 April 1987 under the name of J.B. Drake Pty Ltd. The name was changed to Scandi (Qld) Pty Ltd on 5 September 1994. The applicant was appointed sole director of the company on 13 September 1994. On 1 October 1994 Joseph Guss was appointed as a co‑director and held that position until 21 December 1998 after which the applicant continued as sole director. Between 29 May 1998 and 1 October 2001 the company was the registered proprietor of the business name Outdoor Megastore. A retail store was conducted under that name at 1‑3 Winterton Road, Clayton. On 30 September 2002 the Supreme Court of Victoria ordered that the company be wound‑up and appointed David Henry Scott to be the liquidator. On 5 October 2004 Mr Scott provided a written report to ASIC pursuant to s 533(1) of the Act and also a supplementary report on 3 December 2004 regarding the company's inability to pay its debts. The company was deregistered on 23 January 2005.
30. Burwood Retail was incorporated on 30 April 1997 under the name of Scandi (W.A.) Pty Ltd. The name was changed to Outdoor Megastore Holdings Pty Ltd on 14 October 1997 and to Burwood Retail on 2 November 2001. The applicant was appointed as sole director of the company on 1 May 1998. The company ran the retail arm of the Guss family's furniture business. On 27 June 2002 application was made to the Supreme Court of Victoria to have the company wound‑up and a winding‑up order was made on 30 September 2002. Mr Scott was appointed as the liquidator. On 5 October 2004 Mr Scott provided a written report to ASIC pursuant to s 533(1) of the Act and also a supplementary report on 3 December 2004 regarding the company's inability to pay its debts. The company was deregistered on 23 January 2005.
31. Kencord Manufacturing was incorporated on 15 March 2001. Its business is said to have been to supply labour to Buckland Products. The applicant was appointed as sole director and secretary of the company on 15 March 2001. On 9 November 2001 the Deputy Commissioner of Taxation applied to the Supreme Court of Victoria to have the company wound‑up and a winding‑up order was made on 18 May 2004. Mr Scott was appointed as the liquidator. On 25 November 2004 Mr Scott provided a written report to ASIC pursuant to s 533(1) of the Act regarding the company's inability to pay its debts.
32. Moolach was incorporated on 29 June 2001. The applicant was appointed sole director and secretary of the company on 24 October 2002. The company's principal activity was outdoor furniture retailing. On 18 December 2003 an administrator was appointed and on 21 January 2004 the company's creditors resolved that it be wound‑up. Andrew Leonard Dunner was appointed as the liquidator. On 24 May 2004 Mr Dunner provided a written report to ASIC pursuant to s 533(1) of the Act and also a supplementary report on 4 June 2004 regarding the company's inability to pay its debts.
33. Bongania was incorporated on 12 June 2001. The applicant was appointed sole director and secretary of the company on 18 September 2001. The company operated primarily as an outdoor furniture retailer in Sydney. On 18 May 2004 the Supreme Court of Victoria ordered that the company be wound‑up and appointed Mr Turner to be the liquidator. On 22 March 2005 Mr Turner provided a written report to ASIC pursuant to s 533(1) of the Act regarding the company's inability to pay its debts.
THE RELATED COMPANIES ISSUE
34. The applicant asserts that the 6 companies are related to one another on the basis that each is a subsidiary of Claremont Kencord. Central to this assertion is the claim that shares held in Buckland Products, Scandi (Qld) and Gusto Corporation by SMET and NMGP were in fact held in trust for Claremont Kencord; and further, that the shares in the name of Colin Graeme Williams in Burwood Retail were also held in trust for the same company.
35. The only evidence to support the proposition that SMET and NMGP held shares on behalf of the Claremont Kencord is the letter written by Rundles on 26 July 2005 to the company to that effect. As indicated earlier in these reasons, the Tribunal does not accept that Joseph Guss had given any direction to Mr Gilbert relating to the beneficial interest in the shares until just prior to 26 July 2005. There is a strong suspicion, indeed, an almost compelling inference, that the letter of 26 July 2005 was written in an attempt to provide some assistance to the applicant at his examination that was to be held the following day. Be that as it may, the fact is that at the date that Scandi (Qld) and Buckland Products were ordered to be wound‑up, namely 30 September 2002 in the case of Scandi (Qld) and 25 October 2001 in the case of Buckland Products, there was no record or other evidence to justify the conclusion that those companies were subsidiaries of Claremont Kencord. It is not without significance that in evidence in the Supreme Court proceedings on 11 December 2002, when asked in relation to Gusto Corporation (one of the companies referred to in Rundles' letter of 26 July 2005) who are the beneficial owners of the shares of NMGP and SMET his response was I don't know. I am not aware (Supreme Court transcript p962) and when asked who held the shares beneficially in Buckland Products, he replied Unaware (Supreme Court transcript p964).
36. The only evidence to support the proposition that Burwood Retail was a subsidiary of Claremont Kencord is Joseph Guss's letter to that company, also dated 26 July 2005. The absence of any other record supporting the contents of Mr Guss's letter and the proximity of the applicant's examination by ASIC's delegate cast considerable doubt as to the veracity of what was then written, some 2 years and 10 months after the order for winding‑up Burwood Retail had been made.
37. ASIC's records show that Claremont Kencord held 12 fully paid ordinary shares in Kencord Manufacturing. In the absence of any other information it may be that Kencord Manufacturing was properly to be regarded as a subsidiary of Claremont Kencord at the date of its winding‑up, 18 May 2004.
38. According to ASIC's records, Gusto Corporation beneficially held two fully paid shares in each of Moolach and Bongania at the date those companies went into liquidation (21 January 2004 and 18 May 2004 respectively). SMET and NMGP each hold an equal number of shares in Gusto Corporation and there is no basis upon which to conclude that SMET or NMGP hold any greater interest or control than the other. In the circumstances Gusto Corporation is not to be regarded as a subsidiary of either SMET or NMGP (s 46 and s 50AA of the Act) nor on the basis of conclusions expressed above is Gusto Corporation a subsidiary of Claremont Kencord.
39. Having regard to the foregoing conclusions, the Tribunal is not satisfied that for the purposes of s 206F(2)(a) any of the 6 companies were related to one another.
THE LIQUIDATORS' s 533 REPORTS
40. The liquidator of Buckland Products provided a written report pursuant to s 533(1) of the Act on 27 February 2003. In his report the liquidator deals in particular with the reasons for failure of the company, the failure to keep books and records and the matter of insolvent trading. Under the heading Breaches of Act; the liquidator states:
From my investigation into the company's affairs, it would appear that the officers of the company may be guilty of offences under the following sections:
Section 588G – Director's Duty to Prevent Insolvent Trading by the Company
I reiterate that the director may have failed to prevent the company from incurring debt at the time when the company was unable to pay its debts as and when they fell due.
Section 286 – Obligation to Keep Financial Records
The director has delivered the books and records of the company to me. I reiterate that the books and records were not maintained in accordance with Section 286 of the Act.
The report as to affairs (RATA) submitted to the liquidator by the present applicant (who was the sole director of the company) on 14 November 2001 disclosed the following assets and liabilities at the date of the liquidator's appointment.
Estimated Realisable
Assets Value ($)
Contingent assets 626,068
_______
Total Assets $616,068
_______
Less
Liabilities
Unsecured Creditors 234,405
Secured Creditor 507,673
Employee Entitlements 77,844
Contingent Liabilities 395,578
_______
Total Liabilities 1,215,500
_______
_______
Deficiency in Assets $599,432
_______
As to the payment of a dividend to the company's creditors, the liquidator's report states:
Given the extent of the debts, the company will be unable to pay unsecured creditors more than fifty (50) cents in the dollar. I expect that a dividend will not be paid to unsecured creditors in this administration.
41. Mr Scott was appointed liquidator of both Scandi (Qld) and Burwood Retail on 30 September 2002. On 5 October 2004 he submitted a preliminary report pursuant to s 533 of the Act in relation to Scandi (Qld) in which he estimated that the dividend to unsecured creditors to be 0–10c in the dollar. The T‑documents do not include a similar preliminary report for Burwood Retail although in a supplementary report submitted on 3 December 2004 in relation to both companies reference is made to a preliminary report lodged on 5 October 2004. In the supplementary report the liquidator makes frequent reference to the Supreme Court proceedings (which he refers to as the Casualife matter) which resulted in the winding‑up of both Casualife Furniture International Pty Ltd and Kencord Manufacturing of which Mr Scott was also appointed as liquidator. In his report he observes:
It is important to note that the application brought by the ATO in the Casualife Matter was for the winding up of Casualife and Kencord on Just and Equitable grounds. Therefore the ATO needed to establish a pattern of conduct and accordingly evidence regarding related parties, including Burwood and Scandi, was presented and discussed during the course of the application.
The companies effectively ran the retail arm of the Guss furniture business with outlets in Victoria, Queensland and New South Wales. These businesses were known as Outdoor Megastore and, as will be detailed below, it appears that the businesses of both Burwood and Scandi were transferred. I have not been provided with details of the transfers, although the circumstances surrounding same were discussed at length during the Casualife Matter.
The supplementary s 533 report relating to Scandi (Qld) and Burwood Retail discloses that at the date of liquidation neither company had any assets against which Scandi (Qld) had estimated liabilities of $224,452.95 (all owed to unsecured creditors) and Burwood Retail had liabilities estimated at $728,545 of which $598,545 was owed to unsecured creditors. At paragraph 11 of the report the liquidator said that it is unlikely that there will be a return to the creditors. Reference is made to what the liquidator considered to be a number of potential breaches of the Act, including failure to keep financial records (s 286) and failing to provide assistance to the liquidator and his staff during the administration (s 530A).
42. In his capacity as liquidator of Kencord Manufacturing Mr Scott submitted a report pursuant to s 533 of the Act on 25 November 2004. In the report the liquidator indicated that he considered that there had been a number of contraventions of the Act, namely:
s180‑183 Directors' and officers' duties
s286 Obligation to keep financial records
s530B Requirement to provide liquidator with company's bookss588G Insolvent trading
He estimated that the dividend to unsecured creditors to be 0‑10c in the dollar. The report does not contain any other meaningful information on which any finding as to the deficiency of assets against liabilities could be calculated.
43. The liquidator of Moolach (Mr Dunner) submitted an initial s 533 report on 24 May 2004 and a supplementary report on 4 June 2004. In his initial report Mr Dunner indicated that he considered the causes of the company's failure to be under capitalisation, poor financial control including lack of records and poor strategic management of the business. He also indicated that he considered that the following contraventions of the Act had occurred:
s180‑183 Directors' and officers' duties
s286 Obligation to keep financial records
s530B Requirement to provide liquidator with company's bookss590 Offences by officers
The estimated dividend to unsecured creditors is stated to be 0‑10c in the dollar. The supplementary report states that the financial information disclosed in the company's management accounts provided to the liquidator's office showed there to be no assets as against total liabilities of $286,895. The report goes into some detail in explaining the basis of the liquidator's opinion concerning the alleged contraventions of the Act. In this regard the liquidator has relied to some extent on the findings of Hansen J in the Supreme Court proceedings.
44. On 22 March 2005 Mr Turner, in his capacity as liquidator of Bongania lodged a report pursuant to s 533 of the Act in which he indicated that he considered the reason for the company's failure was poor financial control, including the lack of records. In his opinion the following contraventions of the Act had occurred:
s286 Obligation to keep financial records
s588G Insolvent trading
The estimated dividend to unsecured creditors is shown as 0‑10c in the dollar. The total realisable assets are estimated to be less than $1 whilst the estimated total liabilities are shown as $250,001 – less than 1 million.
WHETHER DISQUALIFICATION IS JUSTIFIED
45. In determining whether disqualification is justified the decision‑maker (in this case the Tribunal) must first have regard to whether the corporations mentioned in the notice given pursuant to s 206F(1)(b) are related to one another (s 206F(2)(a)). In light of the conclusions expressed earlier in these reasons this requirement is not presently relevant and does not call for any further comment. The Act does however go on to indicate three matters (two specific and one general) that the decision‑‑maker may have regard to (s 206F(2)(b)). First, there is the person's (in the present context, the applicant's) conduct in relation to the management, business or property of any corporation; second, regard may be had to whether the disqualification would be in the public interest; and third, the decision‑maker may have regard to any other matters considered appropriate.
46. The liquidators' s 533(1) reports in relation to the 6 companies contain a recurring theme, namely that in each case the books of account, or such books as were made available to the liquidators, fell short of the requirements of the Act. The keeping of complete and accurate records of a company's affairs is a fundamental requirement to underpin sound management and in this regard the applicant's conduct in relation to multiple corporations over an extended period of time demonstrates either an inability, or an unwillingness, to comply with his obligations. It is all very well to claim, as the applicant did at the hearing before the ASIC delegate, that he had computer software problems, but if this is so, it does not explain why proper records in some other form were not kept. The applicant's persistent failure to comply with the statutory requirements in relation to maintaining books of account justifies the imposition of a period of disqualification from managing corporations.
47. The public has a very real interest in the competence and integrity of those who manage corporations. The limitation of liability that is accorded to business operators by virtue of the corporate structure is a feature which, whilst of considerable advantage to the business proprietor, is cold comfort to those who are unfortunate enough to be amongst unsecured creditors whose prospect of a dividend in the winding‑up of the company is in the bracket 0‑10c in the dollar as has occurred with each of the 6 companies under consideration. The applicant's past record in relation to his role as a director and (in some cases) secretary of the 6 companies indicates that the public interest will be served if the applicant is disqualified from managing corporations.
THE PERIOD OF DISQUALIFICATION
48. Section 206F contemplates that in appropriate cases a person may be disqualified from managing corporations for up to five years. Although the statute does not provide any guidance as to the exercise of the discretion conferred by the section there are a number of factors that warrant consideration. First, it should be noted that the section sets a very high standard in that the power to disqualify may be activated if the person concerned has been an officer in only two failed corporations within a seven year period. Second, the section does not require it to be established that there has been any breach of the law; it is not an alternative to the prosecution of a person who may have committed an offence against the Act or otherwise been engaged in unlawful or fraudulent conduct. Rather s 206F is aimed at the person who is a persistent failure, for whatever reason. In the present case the applicant has been shown to have been the sole person responsible for the affairs of 6 companies that have failed in a period of less than four years and he has offered the Tribunal no explanation as to why this has occurred.
49. Having regard to all of the circumstances, the Tribunal is of the opinion that the applicant's conduct of the business and affairs of the 6 companies falls far short of the standard of competency that the public is entitled to expect. This is not a case of a group of companies having been brought down by a single catastrophic event. This is a case in which a business has continued in operation despite successive failures of a series of companies operated by the same sole director. The Tribunal is of the opinion that there are no mitigating circumstances and that the seriousness of the applicant's conduct warrants the imposition of the maximum period of disqualification. This conclusion has been arrived at without regard to factors other than those discussed in these reasons. In particular the Tribunal has not been influenced by the opinion expressed by Hansen J in the Casualife case which, as has been pointed out, involved different issues and different evidence. Similarly, the Tribunal has not found it necessary to consider the applicant's involvement with companies other than the 6 companies identified in the s 206F notice. The applicant's manifest failure in relation to those companies is more than sufficient to warrant disqualification for five years.
THE TRIBUNAL'S DECISION
50. The decision of the Tribunal is that the decision under review be affirmed.
I certify that the fifty [50] preceding paragraphs are a true copy of the reasons for the decision herein of
The Hon Howard Olney AM QC, Deputy President
(sgd) Catherine Thomas
Clerk
Dates of Hearing: 20‑21 February 2006
28 March 2006
Date of Decision: 9 May 2006
Counsel for the applicant: Mr L. WattsSolicitor for the applicant: Poulton, Elliot & Carey
Counsel for the respondent: Mr R. Niall
Solicitor for respondent: Australian Securities & Investments Commission
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