Re Watts

Case [2011] FCA 1185

FEDERAL COURT OF AUSTRALIA

Watts, in the matter of Watts [2011] FCA 1185

Citation: Watts, in the matter of Watts [2011] FCA 1185
Parties: GAMBHIR WATTS
File number(s): NSD 1162 of 2011
Judge: YATES J
Date of judgment: 21 October 2011
Catchwords: CORPORATIONS – leave to manage corporations generally – leave to manage specific classes of corporations – where no evidence of the business, activities or affairs of the corporations – where no evidence of plaintiff’s past or intended role in corporations
Legislation: Corporations Act 2001 (Cth) ss 201B(2), 204B(2), 206A(1), 206A(2), 206B(3), 206F(5), 206G
Cases cited: Adams v Australian Securities and Investments Commission (2003) 46 ACSR 68
Bendigo and Adelaide Bank Limited v Watts [2010] FMCA 623
BMG Poseidon Corp Pty Ltd v Adelaide Bank Limited; In the matter of BMG Poseidon Corp Pty Ltd (No 2) [2009] FCA 404
Carey, in the matter of Carey [2011] FCA 235
Chew v National Companies and Securities Commission (No 2) [1985] WAR 337
Duffy; Re Westgate Ports Pty Ltd (2010) 79 ACSR 267
Jansen v Australian Securities and Investments Commission [2003] FCA 1564
Murray v Australian Securities Commission (1993) 12 ACLC 11
Pace v Australian Securities and Investments Commission 17 ACLC 1674
Re Altim Pty Ltd (1968) 2 NSWR 762
Re Ansett (1990) 3 ACSR 357
Re Australian Limousin Breeders Society Ltd (1989) 7 ACLC 426
Re Maelor Jones Pty Ltd (1975) 1 ACLR 4
Re Shneider (1996) 71 FCR 69
Watts v Bendigo and Adelaide Bank Limited [2010] FCA 1013
Watts v Bendigo and Adelaide Bank Limited [2011] HCASL 90
Watts v Bendigo and Adelaide Bank Limited (No 3) [2011] FCA 186
Watts v Bendigo and Adelaide Bank Limited (No 4) [2011] FCA 310
Date of hearing: 14 October 2011
Place: Sydney
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 67
Counsel for the Plaintiff: The Plaintiff appeared in person

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 1162 of 2011

IN THE MATTER OF GAMBHIR WATTS
GAMBHIR WATTS
Plaintiff

JUDGE:

YATES J

DATE OF ORDER:

21 OCTOBER 2011

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The originating process be dismissed.

2.A copy of these reasons be forwarded by a Deputy District Registrar to the Australian Securities and Investments Commission.

Note:Settlement and entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 1162 of 2011

IN THE MATTER OF GAMBHIR WATTS
GAMBHIR WATTS
Plaintiff

JUDGE:

YATES J

DATE:

21 OCTOBER 2011

PLACE:

SYDNEY

REASONS FOR JUDGMENT

  1. The plaintiff, Gambhir Watts, who is a person disqualified from managing corporations, applies to the Court for leave under s 206G(1) of the Corporations Act 2001 (Cth) (the Act) “to act as a director of corporations or companies” or, in the alternative, “to act as a director of proprietary limited and not for profit corporation[s] or companies limited by guarantee”.

    Background

  2. On 11 August 2010 a sequestration order was…

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Details
AGLC
Re Watts [2011] FCA 1185
Case
[2011] FCA 1185
Decision Date

CaseChat Overview and Summary

Gambhir Watts, a disqualified person under the Corporations Act 2001 (Cth), applied to the Court for leave to manage corporations or specific classes of corporations. Watts' disqualification arose from a sequestration order made against him and his wife in 2010, which disqualified him from managing corporations due to his status as an undischarged bankrupt. The court was tasked with determining whether Watts should be granted leave under section 206G(1) of the Act to act as a director of corporations or specific classes of corporations.

The legal issues before the court were whether Watts should be granted leave to manage corporations in light of his disqualification and whether the evidence provided was sufficient to support his application. The court considered whether Watts' past conduct, the lack of evidence regarding the companies he sought to manage, and his apparent disregard for the statutory prohibitions against his managing corporations, provided a sufficient basis to grant the requested leave.

The court found that while Watts was entitled to apply for leave under section 206G(1) of the Act, the evidence provided was inadequate to support the granting of leave. There was no evidence detailing the business, activities, or affairs of the companies Watts sought to manage, nor was there any evidence of Watts' past or intended role in these companies. Additionally, the court noted concerns about some of these companies operating with fewer than the required number of directors and Watts' apparent acceptance of office in one company despite his disqualification. The court concluded that granting leave under these circumstances would be inappropriate, as it would stretch the provisions of the Act.

The court dismissed Watts' application and ordered that a copy of the reasons for the decision be forwarded to the Australian Securities and Investments Commission.

Orders

Orders of the court

1. The originating process be dismissed.

2. A copy of these reasons be forwarded by a Deputy District Registrar to the Australian Securities and Investments Commission.

Note:

Background

Background to the litigation

The plaintiff, Gambhir Watts, who is a person disqualified from managing corporations, applies to the Court for leave under s 206G(1) of the Corporations Act 2001 (Cth) (the Act) “to act as a director of corporations or companies” or, in the alternative, “to act as a director of proprietary limited and not for profit corporation[s] or companies limited by guarantee”. Background On 11 August 2010 a sequestration order was made against Mr Watts’ and his wife’s estates: see Bendigo and Adelaide Bank Limited v Watts [2010] FMCA 623. One consequence of the making of this order was that Mr Watts, as an undischarged bankrupt, was disqualified from managing corporations: s 206B(3) of the Act. At the time of making the sequestration order, the Federal Magistrates Court of Australia also granted a conditional stay of all proceedings under the order for a period of 21 days: s 52(3) of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act). On 14 September 2010, a further stay of proceedings under the sequestration order was granted pending an appeal to this Court: see Watts v Bendigo and Adelaide Bank Limited [2010] FCA 1013. The appeal was dismissed on 9 March 2011: see Watts v Bendigo and Adelaide Bank Limited (No 3) [2011] FCA 186. Following the unsuccessful appeal, Mr and Mrs Watts sought an extension of the stay granted on 14 September 2010, pending the determination of their application for special leave to appeal to the High Court of Australia. The application for a stay was refused on 31 March 2011: see Watts v Bendigo and Adelaide Bank Limited (No 4) [2011] FCA 310. Special leave to appeal to the High Court was refused on 7 June 2011: see Watts v Bendigo and Adelaide Bank Limited [2011] HCASL 90. The present application was filed on 14 July 2011. Mr Watts has been disqualified from managing corporations since the making of the sequestration order against his estate on 11 August 2010, a period well in excess of one year. The limited stays granted on 11 August 2010 and on 14 September 2010, respectively, did not alter his status in that regard. Mr Watts appeared on the hearing of his application, unrepresented. There was no other appearance. Relevant provisions Section 206B(3) of the Act provides that:A person is disqualified from managing corporations if the person is an undischarged bankrupt under the law of Australia, its external territories or another country. Section 206A(2) of the Act provides that:A person ceases to be a director, alternate director or a secretary of a company if:(a)the person becomes disqualified from managing corporations under this Part; and(b)they are not given permission to manage the corporation under section 206F or 206G. Section 206G of the Act provides that: (1)A person who is disqualified from managing corporation may apply to the Court for leave to manage:(a)corporations; or(b)a particular class of corporations; or(c)a particular corporation;if the person was not disqualified by ASIC.(2)The person must lodge a notice with ASIC at least 21 days before commencing the proceedings. The notice must be in the prescribed form.(3)The order granting leave may be expressed to be subject to exceptions and conditions determined by the Court.Note: If the Court grants the person leave to manage the corporation, the person may be appointed as a director (see section 201B) or secretary (see section 204B) of a company. (4)The person must lodge with ASIC a copy of any order granting leave within 14 days after the order is made.(5) On application by ASIC, the Court may revoke the leave. The order revoking leave does not take effect until it is served on the person.

Evidence

Evidence Before The Court

Mr Watts has also placed reliance on the summary of the general principles in Duffy; Re Westgate Ports Pty Ltd (2010) 79 ACSR 267 at [19]. This case, however, concerned disqualification by reason of conviction of an indictable offence. Once again, the facts of the case, and the particular grant of leave that was sought, are removed from the present case.The evidence The evidence in support of the plaintiff comprises two affidavits affirmed by Mr Watts on 14 July 2011 and 9 August 2011, respectively. A substantial part of Mr Watts’ first affidavit is devoted to dealing with the background to the making of the sequestration order against his and his wife’s estates and the subsequent proceedings to which I have referred, culminating in the refusal of his application for special leave to appeal to the High Court. The sequestration order was made on the petition of Adelaide & Bendigo Bank Limited (the Bank). That petition was based on a debt arising from guarantees given by Mr and Mrs Watts in respect of the indebtedness of BMG Poseidon Corp Pty Ltd to the Bank under two loan agreements entered into in 2004. It appears that the Bank served a number of bankruptcy notices on Mr and Mrs Watts. This led them to commence a number of proceedings seeking to set aside the notices. They were unsuccessful in setting aside the third, and last, of the notices. Their failure to comply with that notice provided the respective acts of bankruptcy on which the Bank ultimately relied in filing its creditor’s petition against them. Mr Watts says that he refused to pay his debt to the Bank because he “strongly believed that the Bank was extremely harsh and unfair in its dealings with me and my wife”. He also expresses the belief that he “could have won over the Bank had I hired a competent lawyer”. In his first affidavit Mr Watts deposes to his compliance with s 206G(2) of the Act, requiring him to lodge a notice with ASIC in the prescribed form of his intention to commence proceedings for leave. The notice that was lodged contained an annexure identifying 13 companies which, in this proceeding, Mr Watts says are “supportive” of his application. These companies are identified in the annexure as either public companies limited by guarantee or proprietary companies limited by shares. Extracts from searches of ASIC’s publicly-available database in respect of all but one of these companies have been annexed to Mr Watt’s affidavit. One could be forgiven for thinking that, by identifying these companies in the notice lodged with ASIC, Mr Watts was seeking leave to manage these particular corporations: see s 206G(1)(c) of the Act. It is plain, however, that Mr Watts’ application to this Court is not so limited. As I have noted, in filing his originating application for leave, Mr Watts specifically relies on ss 206G(1)(a) and (b) of the Act. Beyond some very limited corporate details to which I will refer below, the evidence does not reveal anything about the business, activities or affairs of these companies. There is no evidence about how or by whom they are managed or about the role that Mr Watts has played or intends to play in their management. There is, indeed, no evidence about why it is necessary for Mr Watts to play any role in the management of these or any other companies.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Fifthly, Mr Watts submits that Bharatiya Vidya Bhavan Australia, of which he says he is the founding member and has been Chairman since 1 July 2003, has 13 directors and in excess of 50 members. He submits that “(t)hese directors have complete trust in me and my general character, professional conduct and skills”. There is no evidence of any of these matters, beyond Mr Watts’ self-serving assertion.Consideration Mr Watts is disqualified from managing corporations by operation of s 206B(3) of the Act, not by ASIC. He is entitled, therefore, to apply for leave to manage a corporation or corporations pursuant to s 206G(1) of the Act. In that connection he has satisfied the notice requirements imposed by s 206G(2) of the Act. However, the evidence before me provides an inadequate foundation for granting the leave that Mr Watts seeks. In this connection Mr Watts seeks leave, specifically, to act as a director of corporations generally or, alternatively, of particular classes of corporations. I am not satisfied that an exception of that kind should be made to the legislative policy underlying the prohibition in the Act. Even if I were to treat Mr Watts’ application as one limited to the particular companies he has identified in the notice lodged with ASIC, I would not be satisfied that leave should be granted to him to manage those particular companies, as a director or otherwise. In this connection I have referred to the deficiencies in the evidence concerning the business, activities and affairs of these companies and of Mr Watts’ past or intended role in them. In addition it is a matter of concern that, on the evidence before me, some of these companies appear to be operating with less than the required number of directors. It is also a matter of concern that, on the evidence before me, Mr Watts appears to have accepted, without permission or leave, the offices of director and secretary in one of these companies at a time when he was disqualified from managing corporations, contrary to ss 201B(2) and 204B(2) of the Act. At the very least this evidence shows a clear lack of understanding on his part of the requirements of the Act concerning the management and conduct of companies, and stands as a cogent reason why leave should not be granted, either specifically or generally. I should make clear that, even though the evidence shows that Mr Watts is recorded as a director and/or the secretary of a number of these companies after he ceased to hold office by operation of s 206A(2) of the Act, I have not assumed that he has engaged in activities that are contrary to s 206A(1) of the Act. Nevertheless, Mr Watts has not sought to explain the anomalous position that appears to exist with respect to office-holding in these apparently operating companies, which is revealed by the very evidence on which he relies to support his application. The position is somewhat different in respect of Australia India Foundation (where Mr Watts is recorded as being secretary and there are six directors) and Bharatiya Vidya Bhavan Australia (where Mr Watts is recorded as being one of 10 directors). However, in the absence, once again, of evidence about the activities of these companies and of the attitude of their directors and members to Mr Watts’ participation in their management, I am not persuaded that leave to manage in any capacity should be granted in relation to those particular companies. To do so, in the absence of proper evidence, would be (to adopt Brooking J’s expression in Re Ansett ) to “stretch a point”.Disposition