Re Shneider

[1996] FCA 1064

CATCHWORDS

CORPORATIONS LAW - application for leave to act as a director and to manage corporations under s 229(3) the Corporations Law - whether s 229 confers a general power of relaxation to permit an applicant to act as a director of or manage corporations not specifically identified.

Corporations Law - s 229

Cases Considered

Re Ansett (1990) 3 ACSR 357
WCCM Janus v Australian Securities Commission (Drummond J, unreported, 17 November 1992)
Re Magna Alloys & Research Pty Ltd [1975] 1 ACLR 203
In the matter of Roman Roitman; Koli International Pty Ltd; Koli Pty Ltd (Hayne J, Supreme Court of Victoria, unreported, 8 October 1993)
Re Zim Metal Products Pty Ltd (1977) 2 ACLR 553

IN THE MATTER OF THE CORPORATIONS LAW AND IN THE MATTER OF STANLEY SHNEIDER
QG 3020 OF 1996

DRUMMOND J
BRISBANE
28 NOVEMBER 1996

IN THE FEDERAL COURT OF AUSTRALIA                 No QG 3020 of 1996
QUEENSLAND DISTRICT REGISTRY  
GENERAL DIVISION  

IN THE MATTER OF THE CORPORATIONS LAW

AND

IN THE MATTER OF STANLEY SHNEIDER

MINUTES OF ORDERS

JUDGE MAKING ORDER:  Drummond J
DATE OF ORDER:  28 November 1996
WHERE MADE:  Brisbane

THE COURT ORDERS THAT:

1.  The applicant has leave to take part in the management of Tour Queensland Pty Ltd in any capacity other than that of a director.

NOTE:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA                 No QG 3020 of 1996
QUEENSLAND DISTRICT REGISTRY  
GENERAL DIVISION  

IN THE MATTER OF THE CORPORATIONS LAW

AND

IN THE MATTER OF STANLEY SHNEIDER

CORAM:Drummond J

DATE:28 November 1996

PLACE:Brisbane

REASONS FOR JUDGMENT

This is an application by Mr Shneider for leave under s 229(3) the Corporations Law to act as a director and to manage corporations. The application is for a general relaxation of the ban imposed on him by s 229(3), although Mr Shneider, in the face of some comments I made, did not press that claim but limited it to a claim for relaxation to participate as a director in the management of one particular company, Tour Queensland Pty Ltd, and for a relaxation to participate in the management of private companies generally.

Mr Shneider pleaded guilty in May last, after protracted litigation in the criminal courts in Victoria, to two charges under s 129(5) the Companies (Victoria) Code and one charge under s 564(1) of the Code.  The convictions arose in connection with a transaction in which Interwest Limited provided finance, contrary to
the relevant companies legislation then in force and, indeed, still in force, to assist in the purchase of its own shares.  That was done in the context of Interwest facing very great financial pressure from external financiers and in an attempt to support the company's survival for a time.  Mr Shneider did not gain any pecuniary advantage himself from his involvement in those offences.  The principal of Interwest, Mr Avram, was sentenced to a term of imprisonment and Mr Shneider, who was associated with Mr Avram in that activity, was convicted on his pleas of guilty, as I have already mentioned.  Mr Shneider was Chairman of Directors of the public company from January 1985 and then Executive Chairman of Directors from October 1987 through to the ultimate collapse of the Interwest group.  He received what I regard as a lenient sentence, in so far as he was convicted and placed on a two year bond in relation to the two charges under s 129(5) and was convicted and fined $1,000 and given six months to pay in respect of the charge under s 564.

I have been assisted by the comments of his Honour Judge Strong who, in detailed reasons, traced the background of the offences of which Mr Shneider was convicted and explained carefully the circumstances that led him to impose the sentence I have mentioned.  It is apparent from those reasons, and this is reinforced by the material put before me, that Mr Shneider, who is now in his mid 50s, is a person who enjoyed a very good reputation until his involvement in these offences.  It is not a case of a person against whom nothing unfavourable is known.  It is a case of a man who was able to satisfy the County Court judge and myself that he is a person in respect of whom there are positive reasons for accepting that, apart from his involvement in these offences, he has been a person of unblemished character.

The striking thing is the respect that he has earned from a number of people, aware both of the charges hanging over his head prior to their being resolved and aware also of his fate after those matters were determined in the Victorian Country Court.  He has been able to engender respect in a wide range of people who include not only his own new business associates, but also a large number of persons involved in Rotary on the Gold Coast.

I am helped by the submissions by the Australian Securities Commission.  It opposes any general relaxation of the prohibition contained in the section.  However, the ASC goes on and submits that, if the Court considers the circumstances appropriate, it does not oppose a limited relaxation to permit Mr Shneider to participate in the management of Tour Queensland Pty Ltd in anything other than the capacity of director.  Tour Queensland is a company for whom Mr Shneider now works.  He was involved in the establishment of its business of operating golf tours on the Gold Coast, in joint venture with Jetset Travel, and organising golfing events in conjunction with other golf tour operators on the Gold Coast.  The company also carries on business as a licensed travel agent.   The shareholding of the company is held by Mr Shneider, as to 40%, and by its two directors, one of whom holds 40% and the other of whom holds 20%.  One wishes to retire from his office as director, while still keeping his shareholding.  It is a company that can, however, operate with a single director.

There is some reason to think that the company's operations would be facilitated to a degree if Mr Shneider were to be free to act as a director rather than
only as a manager.  However, that is far from being a dominant consideration for the Court to take into account in view of the purpose of the provision.

I do not have any difficulty in concluding that there is no reasonable likelihood of Mr Shneider re-offending, given his previous unblemished record.  In coming to that view, I also take into account his involvement in business life in the period between commission of the offences over seven years ago and now.  I do not see that there is any risk of any harm to any relevant public interest if some relaxation of the ban is permitted.

There are aspects of the power contained in s 229(3) other than the protective element. Re Zim Metal Products Pty Ltd (1977) 2 ACLR 553 was a case in which two gentlemen of previously good character who were the directors of a small family company succumbed to the temptation to buy a couple of electrical appliances at a cheap price, the appliances being stolen. They were convicted of receiving stolen property and even though they were the controlling directors of the small family company for a number of years and had previous good characters, the course the Court took in that case was to refuse their application for leave to participate in the management of the company as directors but to grant leave to each of the applicants to take part in the management of the company in any capacity other than that of director. Their convictions were in respect of activities which were remote from anything to do with the management of the company, whereas Mr Shneider’s convictions were intimately connected with his role as one of the most senior managers of a large, public company. In the Zim case, McInerney J explained his
reasons for limiting the permission he granted to the two gentlemen there in question to participate in the management of the company only as managers but not as directors.  He said (at 558):

“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.”

I have already indicated that I do not consider there is any real need for Mr Shneider to be permitted to participate as a director in the business of Tour Queensland.  The considerations referred to in Zim and the recency of Mr Shneider’s convictions lead me to the conclusion that, so far as Tour Queensland is concerned, it is appropriate to permit Mr Shneider to take part in the management of that company, but not in the capacity of a director.

As to the wider relaxation he seeks, Mr Shneider points out that the costs of seeking a relaxation, on a case by case basis, are very substantial indeed for a person with his now limited financial means, and that considerable delay is likely to be involved in his being able to give the requisite notifications to the ASC and to get the matter before the court for determination.  The ASC opposes the extended
relaxation and refers me to a decision of Brooking J in Re Ansett (1990) 3 ACSR 357, and particularly at 359, where his Honour declined to follow an earlier decision of Chew v NCSC and said:

“The power to revoke a safeguard, but either an applicant makes out a case for the exercise of the discretion or he does not and if the court is not on the evidence persuaded that the discretion should be exercised in the applicant's favour so as to make an exception to the general rule it cannot stretch a point on the basis that a mistake can always be set right by a subsequent revocation ¼”

What his Honour was referring to there was the equivalent of ss 229(7) and 242(2) the Corporations Law, the latter of which requires a person who takes up office in a corporation to notify the ASC within one month, and the former of which empowers the ASC to apply to the court for the revocation of any leave from the ban imposed by the section that a person may have obtained.  I would not regard it, on the evidence before me, as a potential mistake of the kind referred to by Brooking J to grant Mr Shneider a more general leave to participate in the management of any private corporation in any capacity other than that of director.  If I had the power, the evidence before me would, I think, justify my going as far as that.

I do not think the Court is empowered by s 229(3) to go beyond a relaxation of the ban in respect of a specific company and relax the ban to permit Mr Shneider to participate in the management of other private companies not yet identified, but which may in the future provide employment opportunities to him. The cases I have looked at are all ones in which application was made to take part in the management of specific companies. In WCCM Janus v Australian Securities
Commission (unreported, 17 November 1992), I said I was inclined to the view that the power to lift the ban conferred on the Court by s 229(3) did not permit of a general relaxation, although it was unnecessary to reach a conclusion on the point because I was not satisfied on the material that a general relaxation could be justified. In my opinion, the Court is empowered to relax the ban imposed by s 229(3) only on a case by case basis, to the intent that the Court will have a specific proposal before it by the applicant for the relaxation, which the Court can evaluate. Section 229(3) provides:

“A person who has ¼ been convicted:

[of certain specified offences]

shall not, within 5 years after conviction or, if the person was sentenced to imprisonment, after release from prison, without the leave of the Court, manage a corporation.”

A contravention of this provision is an offence:  s 1311(1)(a), for which the maximum penalty is 50 penalty units or imprisonment for one year or both:  s 1311(3)(a) and Schedule 3.

As well as constituting a ban on taking part in the management of any corporation, s 229(3) operates to make it an offence for a convicted person, without leave of the Court, to manage a corporation. Since criminal liability can only be attracted where a convicted person manages a particular corporation, the opportunity created by the section for preventing that criminal liability arising by obtaining the leave of the Court, must, I think, be limited to leave to manage a specific corporation. The one phrase in s 229(3) cannot be read as having two quite
different operations, one empowering the Court to grant a wide relaxation from the prohibition in the sub-section, read as a general ban on management of corporations, and also one empowering a narrow relaxation only when the criminal liability created by s 1311 by reference to the sub-section is under consideration.

In Re Magna Alloys & Research Pty Ltd [1975] 1 ACLR 203 at 205, Bowen CJ, in Eq, said, in a passage frequently cited, that the policy to which provisions such as s 229(3) give 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.”

Given that this is the legislative policy behind the section, it is difficult to see how the Court could properly grant a relaxation of the ban unless it knew something of what the convicted person proposed to do by way of becoming involved in corporate management, ie, unless the convicted person put before the Court a proposal for him to take part in the management of a specified corporation or corporations.

I am not therefore prepared to go beyond granting the limited relaxation in relation to Tour Queensland.

I should also say that if the Corporations Law had applied to the Rotary Club of Surfers Paradise West Inc, with which Mr Shneider is associated, I would have no hesitation in giving him the permission which he sought under the section to participate in any capacity, including that of director, in the affairs of that organisation, given the support he has from his fellow Rotarians and the non-trading nature of that corporation’s activities.

I have indicated my view as to it being appropriate to permit Mr Shneider to participate in non-directorial managerial positions, at least in private companies.  I would expect that if Mr Shneider makes application in the future for a further relaxation of the ban to so participate in the activities of a particular private company, the ASC will take my remarks into account in responding promptly, as I am sure it will, to any notice that Mr Shneider may give in the future seeking a further relaxation to participate in the activities of another company if that situation should arise.  In saying that, I do not, of course, suggest that the ASC is in any way bound by what I say, and if facts are known to it which it considers appropriate to draw to the attention of the court, and which might be thought to tell against the granting of any future application by Mr Shneider, I have no doubt that the ASC will, without hesitation, put those facts before the court. 

The ASC asks for costs.  My attention has been drawn to an unreported decision of Hayne J, In the matter of Roman Roitman; Koli International Pty Ltd; Koli Pty Ltd (Supreme Court of Victoria, 8 October 1993), in which a similar application to the present was brought before court.  There is reference there to the practice in
Victoria on this sort of application to be for the ASC in appropriate cases, to seek only a nominal order for costs as it does here, and that something of the order of $400 is the conventional figure.  Having regard to the fact that the nominal costs order referred to in Roitman was made in the context of the ASC being represented by what appears to be externally briefed counsel, I think, in the circumstances of this case, it is appropriate not to make any order for costs.

I certify that this and the preceding nine
pages are a true copy of the reasons
for judgment herein of the Honourable
Justice Drummond.

Associate:

Date:  28 November 1996

The applicant appeared in person.

Solicitor for the amicus curiae:                 Australian Securities Commission

Date of hearing:  28 November 1996