Re Seymour
[2002] TASSC 85
•17 October 2002
[2002] TASSC 85
CITATION: In re Seymour [2002] TASSC 85
PARTIES: SEYMOUR, Anthony Wayne, In re
TITLE OF COURT: SUPREME COURT OF TASMANIA
JURISDICTION: ORIGINAL
FILE NO/S: M23/2002
DELIVERED ON: 17 October 2002
DELIVERED AT: Hobart
HEARING DATE: 11 September, 2 October 2002
JUDGMENT OF: Cox CJ
CATCHWORDS:
Corporations - Management and administration - Disqualification - Convicted persons - Leave to manage - Principles applicable - Offence against Corporations Law.
Magna Alloys & Research Pty Ltd (1975) 1 ACLR 203 , followed.
Zim Metal Products Pty Ltd (1977) 2 ACLR 553, referred to.
Corporations Act 2001 (Cth), s206G.
Aust Dig Corporations [93]
REPRESENTATION:
Counsel:
Applicant: W Griffiths
Respondent Companies: M Daly
Intervenor ASIC: A Abbott
Solicitors:
Applicant: Bishops
Respondent Companies: Murray & Associates
Intervenor ASIC: Australian Securities & Investment Commission
Judgment Number: [2002] TASSC 85
Number of paragraphs: 16
Serial No 85/2002
File No M23/2002
IN THE MATTER OF ANTHONY WAYNE SEYMOUR
REASONS FOR JUDGMENT COX CJ
17 October 2002
This is an application by a person who, in consequence of his conviction on 16 January 2002 for offences against the Corporations Law, was automatically disqualified from managing corporations for a period of five years therefrom, for an order pursuant to the Corporations Act 2001, s206G, that he have leave to manage each of 28 companies.
The applicant pleaded guilty to two charges, namely one count of knowingly being concerned in a company that was operating an unregistered management investment scheme, contrary to the Crimes Act 1914 (Cth), s5, and the Corporations Law, s601ED, and one count of knowingly being concerned in a company that offered for subscription securities without a registered prospectus, contrary to the Crimes Act, s5, and the Corporations Law, s1018(1). Section 601ED, at the relevant time, required that a managed investment scheme be registered under s601EB if it had more than 20 members. Section 1018(1) prohibited the offer for subscription or the issue of invitations to subscribe for securities of a corporation unless (inter alia) the prospectus, if registrable, had been registered under s1020A. A prospectus was not registrable, however, if the offer of securities for subscription was an excluded offer of securities for subscription (s1017(b)). Section 66(3)(d)(ii) provided that an offer or invitation in relation to securities was an excluded offer or an excluded invitation if it were made to persons not exceeding 20 in number.
The offences occurred approximately three years ago and according to the applicant's affidavit upon which he was not cross-examined by counsel for the companies which he seeks leave to manage (and which support his application), or by counsel for Australian Securities and Investments Commission ("ASIC") which intervened in the proceedings, the offence of knowingly being concerned in a company that was operating an unregistered managed investment scheme came about because, although the applicant intended to confine the number of members of the scheme to 20 or less, a large number of applications, accompanied by cheques, for the amount invested came in suddenly at the same time as "a flood of prospectus applications" and the administrative resources of the company in question of which he was a director were unexpectedly overburdened. This, he claimed, led to an unintended breach occurring, for he thought, so he put to the learned magistrate in mitigation, that the company had no option but to accept all applications and funds received and could not reject the excess applications.
The learned magistrate took the view that the applicant was aware of the overrun and that he ought, in the circumstances, to have alerted ASIC to the problem he had encountered and sought guidance as to how a breach of the Corporations Law could be avoided. He concluded that the applicant was reluctant to countenance seriously the rejection of applications, "and thereby cause dissatisfaction to [those who had applied to join the scheme] and, perhaps, more importantly, to the investment advisers who were positioned to channel applications to [the applicant's] company rather than to one of its competitors."
Although the exemption from the requirement to register a prospectus appears to have applied only where the offer was made to no more than 20 persons, it seems to be common ground that had the number of applications accepted not exceeded 20, neither offence would have been committed.
The principles governing this type of application were enunciated by Bowen CJ in Eq in Re Magna Alloys & Research Pty Ltd (1975) 1 ACLR 203 at 205 where his Honour said:
"The policy to which s122 gives effect is that a person convicted of an offence of any of the types specified in that section is not to be permitted to act as a director or to take part in the management of a company. The section is not punitive. It is designed to protect the public and to prevent the corporate structure from being used to the financial detriment of investors, shareholders, creditors and persons dealing with the company. In its operation it is calculated to act as a safeguard against the corporate structure being used by individuals in a manner which is contrary to proper commercial standards.
The court is given jurisdiction to grant leave to a person, notwithstanding the prohibition, to act as a director or to take part in the management of a company, but an applicant who comes seeking leave bears the onus of establishing that the general policy of the legislature laid down in the section ought to be made the subject of an exception in his case (Re Ferrari Furniture Co Pty Ltd, [1972] 2 NSWLR 790; Re Magna Alloys & Research Pty Ltd, 18 October 1973, Street CJ, in Eq; Re Macquarie Investments Pty Ltd (1975), 1 ACLR 40; Re Maelor Jones Pty Ltd (1975), 1 ACLR 4).
The court in exercising its discretion will have regard to the nature of the offence of which the applicant has been convicted, the nature of his involvement, and the general character of the applicant, including his conduct in the intervening period since he was removed from the board and from management. Where, as here, the applicant seeks leave to become a director and to take part in the management of particular companies the court will consider the structure of those companies, the nature of their businesses and the interests of their shareholders, creditors and employees. One matter to be considered will be the assessment of any risks to those persons or to the public which may appear to be involved in the applicant's assuming positions on the board or in management."
This statement has been adopted many times since by Australian courts (Re Zim Metal Products Pty Ltd (1977) 2 ACLR 553; Zucker v Commissioner for Corporate Affairs [1981] VR 72; Re Hamilton-Irvine (1990) 2 ACSR 616; Re C & J Hazell Holdings Pty Ltd (1991) 9 ACLC 802; Re Shneider (1966) 142 ALR 129).
In dealing with the nature of the offences and the applicant's antecedents for the purpose of sentencing, the learned magistrate noted the following matters:
·There was no suggestion that fraud or dishonesty was involved.
·No loss had been sustained by the unlawful conduct and on the facts before him it appeared that the risk of any such loss was no greater than if there had been compliance with the statutory provisions. Once the situation became clear to ASIC, action was taken to regularise what had taken place by authorising the issue of a supplementary prospectus.
·There was no intention that the scheme should not be confined to 20 persons.
·The applicant had sought to become aware of and to comply with the relevant law.
·The applicant pleaded guilty and had co-operated with the authorities in their investigation of the offences.
·The applicant was then aged 49 years and his professional life had been spent as a chartered accountant and businessman. He was a man of good character with no prior convictions. "The bundle of testimonials handed up speak in the highest terms to that character and, further, the referees are persons in whose judgment the court could and does have confidence".
In his unchallenged affidavit read in these proceedings, the applicant stated that ASIC had required that each investor in the unregistered managed investment scheme be offered a refund of his or her money and that the investment of those who did not want a refund be transferred to an existing managed investment scheme. He also stated that none of the investors had sought such a refund.
The applicant is a significant shareholder in each of the 28 companies of which he seeks to be permitted to again become a director. He and his wife together own all of the shares in 10 of those companies and the majority of the shares in a further six of those companies. None of them has to his knowledge ever been engaged in providing investment management schemes nor been required to issue prospectuses. He deposed to the following matters relevant to his relationship with and value to the companies:
"(i)I was until my disqualification an active director and in most cases acted as chairman at meetings of directors;
(ii)I provided advice critical to the direction of the company;
(iii)The success of the company and the maintenance of the value of its shares was attributable largely if not entirely to the fact that I was an active director of the company.
(iv)In the course of my directorship I have accumulated detailed knowledge of the operations of the company, of its objects, its methods of operation and its visions for future trading and stability.
(v)The competitiveness of the company and its ability to maintain profitable operations require my attendance at meetings of directors and in most cases my chairmanship of meetings of directors.
(vi)Each company gained an advantage from my involvement with it in that I have found myself as a result of hard work and application on my part to be well regarded in business circles in Tasmania with a reputation amongst my peers for integrity, competence and reliability. I have found that companies of which I am a director are well regarded as a result and that their commercial dealings are facilitated by my directorship of them.
(vii)Other shareholders and directors of each of the companies rely heavily upon my knowledge and expertise acquired over the years of my involvement both in the individual companies and also in the administration and accounting in relation to businesses of the individually specialised types in which the various companies are engaged.
(viii)Before my disqualification I supervised and was responsible for the overall operation of each of the companies the subject of this application.
(ix)I have a proven ability and capacity to manage these companies both efficiently and profitably and I have acquired considerable experience in relation to the management of the assets of each of the companies.
(x)Each of the companies is in a buoyant financial position and creditors would not be jeopardised in any way by my becoming again a director."
Full disclosure of the financial status of each company was made and counsel for ASIC stated from the bar table that his client "was not troubled by the accounts".
Section 206G(1) provides that a person who is disqualified from managing corporations may apply to the Court for leave to manage:
(a) corporations; or
(b) a particular class of corporations; or
(c) a particular corporation
and subs(2) thereof enables the Court to grant leave subject to exceptions and conditions determined by it. Counsel for ASIC does not oppose the grant to the applicant of unconditional leave to manage 19 of the 28 corporations, the subject of his application, as they are investment companies, but counsel submits that in respect of the remaining nine companies which are trading companies, he should not be permitted to become a director of any of them.
Counsel for ASIC submitted that unlike many previous successful applicants, the reasons for whose automatic disqualification had been offences of a dishonest nature such as fraud upon the revenue (Re Hamilton-Irvine (supra)) or a scheme of deception whereby goods were procured by the use of a false name, a false address and valueless cheques (Re Minimix Industries Ltd (1982) 1 ACLC 511) the offences by the applicant were offences amounting to "serious lapses in corporate governance" involving breaches of a complex statutory scheme designed to protect the public, particularly those members of the public who are investors or potential investors. He submitted that public morality was an important issue and that if the application wholly succeeded the salutary effect of automatic disqualification would be lost and the principle that directors of companies should obey the law, particularly the Corporations Law and similar statutes, would be eroded.
I do not accept that breaches of the Corporations Law are necessarily more heinous in this context than offences of outright dishonesty not involving breaches of that law. Nor do I accept the proposition that notions of public morality demand the exclusion of offenders at least from the office of a director. The phrase "public morality" was used by McInerney J in Zim Metal Products Pty Ltd (supra) at 558 where he said:
"I have considered whether I should grant leave to the applicants to become directors. I have come to the conclusion I should not. The policy of the legislation is that, prima facie, the persons convicted, the applicants, should be excluded from being directors. The possible harm which might occur to the company and to the applicants if they are excluded from management is, in my view, much more real than any harm that may flow if they are not allowed to become directors. There is something to be said, I think, for the view that public morality is better vindicated if the applicants continue to be excluded from being directors. Creditors and persons dealing with the company who now know or may hereafter come to know of the convictions of the applicants, may take the view that the court views the convictions as matters of no concern, if the court allows an applicant to be reinstated as director in a case where, in my view, there is no real need for that appointment."
In that case the applicants had been convicted of receiving stolen property and the offences did not arise out of or relate to the management of the company. Leave was given to take part in the management of the company, but not as directors.
In Re Shneider (supra), the applicant had been convicted of charges relating to a corporation which was found to have provided financial assistance for the purchase of its own shares. Drummond J cited Zim Metal Products Pty Ltd (supra) and gave leave in similar terms. So, too, in Pace v ASIC, unreported [1999] WASC 151, Murray J gave restricted leave in a case where the offence was one of "blatant dishonesty over an extended period of time". The company employed some 60 persons in the business which had been built up by the applicant personally and which consisted of preparing and selling convenience foods to retailers. Murray J found the applicant's claims of indispensability as a director exaggerated and unconvincing.
The nine trading companies which are the subject of ASIC's submission, the nature of their business and the number of directors on the Board of each are as follows:
Company
Number of directors
B & K Supermarkets Pty Ltd
2
Capri Body Fashions Pty Ltd
2
Centrepoint Pty Ltd
10
Currie Investments Pty Ltd
2
Jomanatoza Pty Ltd
5
Lendco Pty Ltd and
Commercial Equity Group Pty Ltd
3
3
Sakran Pty Ltd
2
Semill Pty Ltd
3
The claims set out in par9 above concerning his value to these companies and the need for his presence on the Boards of Centrepoint Pty Ltd and Jomanatoza Pty Ltd lose some force, given the presence of several other directors. Nevertheless, it has not been disputed that he is a significant contributor to their well-being and indispensability is not an essential prerequisite to the grant of leave. I am satisfied on the evidence that all these companies have much to gain from his being permitted to act as one of their directors and would be the worse off if he were not.
Obviously each case has to be considered on its own merits. The offences are potentially serious for the prescribed maximum penalty for each is a fine of 200 penalty units or imprisonment for five years, or both; but in this case, their seriousness was at the lower end of the scale and the learned magistrate imposed a global penalty of a fine of $2,500 without imprisonment. Notwithstanding that they infringed the Corporations Law itself, they were not intrinsically of greater seriousness than other forms of disqualifying conduct such as deliberate fraud. No harm resulted to any investor and the applicant has to date suffered a disqualification of over nine months' duration, in addition to the fine and the humiliation resultant upon his conviction. In my opinion, the prerequisites to an order granting unrestricted leave have been established by the applicant. I cannot imagine that in the circumstances, any perception of public morality being jeopardised by permitting him to be a director of each of the companies, the subject of his application, would be such as to require disbarment from holding office as a director of a trading company. There is no suggestion of any danger to the public if the order sought is made. The application is granted.
97
2
1