Richards and Australian Securities & Investments Commission

[2011] AATA 235

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2011] AATA 235

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2009/5038

GENERAL ADMINISTRATIVE DIVISION		)
Re		Mr Blake Geoffrey Allen Richards

Applicant

And Australian Securities &     Investments Commission

Respondent

DECISION

Tribunal M D Allen, Senior Member

Date              8 April 2011

PlaceSydney

Decision The decision under review is SET ASIDE and the Tribunal substitutes its decision, namely, the Applicant is disqualified from managing corporations for three years, as and from 15 September 2009.

................[sgd]......................

M D Allen, Senior Member  

CATCHWORDS

CORPORATIONS LAW:    Applicant disqualified from managing corporations for a period of four years.  Applicant was a director of two or more companies which were wound up and found to be unable to pay their debts.  Applicant found to have mismanaged the companies and breached his duties as a director.  Decision under review set aside and Tribunal substituted its decision that the Applicant be disqualified for a period of three years.

LEGISLATION

Corporations Act 2001, sections 50, 180, 181, 206F, 286, 588G.

CASES

Murdaca v Australian Securities & Investments Commission (2009) 178 FCR 119

Re Guss v Australian Securities & Investments Commission (2006) 90 ALD 349

Rich v Australian Securities & Investments Commission (2004) 220 CLR 129

Healy v Australian Securities & Investments Commission [2000] AATA 9

Australian Securities & Investments Commission v Starnex Securities Pty Ltd (2003) 133 FCR 238

Kamha v Australian Prudential Regulation Authority [2005] FCAFC 248

REASONS FOR DECISION

8 April 2011 M D Allen, Senior Member

1.By application made 19 October 2009 the Applicant sought review of a decision of a delegate of the Respondent made 15 September 2009 pursuant to section 206F Corporations Act 2001 (”CA”) that he be disqualified from managing corporations for a period of four years.

2.The grounds for disqualification were:

i.The Applicant failed to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if they were a director of each of the corporations in the corporation’s circumstances and occupied the office held by and had the same responsibilities within the corporation as the Applicant, in breach of s180 CA;

ii.The Applicant failed to exercise his powers and discharge his duties in good faith in the best interests of each of the corporations and for a proper purpose, in breach of s181 CA;

iii.The Applicant failed to ensure that each of Longbeach Estate Pty Ltd (“Longbeach Estate”) and Longbeach Lifestyle Pty Ltd (“Longbeach Lifestyle”) kept written financial records that correctly recorded and explained its transactions and financial position and performance and would enable a true and fair financial statement to be prepared and audited, in breach of s286 and s344 CA.

iv.The Applicant failed to prevent Longbeach Lifestyle from incurring debts at a time when the company was insolvent and the Applicant was aware, or ought to have been aware, that there were reasonable grounds for suspecting that the company was insolvent, in breach of Ss588G(2) CA; and

v.The Applicant conducted himself with a lack of commercial morality in relation to his management of Longbeach Estate and Longbeach Lifestyle and Richards Corporate Consulting Pty Ltd (“Richards Corporate Consulting”).

3.Section 206F CA reads:

“Power to disqualify

(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) (including that subsection as applied by section 526‑35 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 ) 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.

(1A)  To avoid doubt, the references in paragraph (1)(a) to corporations include references to Aboriginal and Torres Strait Islander corporations.

Grounds for disqualification

(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.

(2A)  To avoid doubt, the references in subsection (2) to a corporation includes a reference to an Aboriginal and Torres Strait Islander corporation.

Notice of disqualification

(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.

Start of disqualification

(4)  The disqualification takes effect from the time when a notice referred to in subsection (3) is served on the person.

ASIC power to grant leave

(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.”

Whereas S50 CA states:

“Related bodies corporate

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.”

4.In Murdaca v Australian Securities and Investments Commission (2009) 178 FCR 119, the Full Court of the Federal Court said at paragraph 101:

“ASIC’s power to disqualify a person from the management of corporations must be exercised for the purposes for which it was granted.  Those purposes are the protection of all those persons who deal with corporations from the consequences of the actions of those corporate office holders who, either through incompetence or dishonesty or a combination of the two, bring about the failure of corporations and thus cause loss to others and the maintenance of professional management standards in the public interest.” (Authorities omitted.)

5.Subsection 180(1) CA provides in relation to the statutory duty of care and diligence of company directors as follows:

“(1)  A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:

(a)  were a director or officer of a corporation in the corporation's circumstances; and

(b)  occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.”

Whereas s181 CA refers to the duty of directors to act in good faith, namely:

“(1)  A director or other officer of a corporation must exercise their powers and discharge their duties:

(a)  in good faith in the best interests of the corporation; and

(b)  for a proper purpose.”

6.Section 286 CA states:

“Obligation to keep financial records

(1)  A company, registered scheme or disclosing entity must keep written financial records that:

(a)  correctly record and explain its transactions and financial position and performance; and

(b)  would enable true and fair financial statements to be prepared and audited.

The obligation to keep financial records of transactions extends to transactions undertaken as trustee.

Note:          Section 9 defines financial records .

Period for which records must be retained

(2)  The financial records must be retained for 7 years after the transactions covered by the records are completed.

Strict liability offences

(3)  An offence based on subsection (1) or (2) is an offence of strict liability.”

7.Insolvent trading by a company and a director’s duty to prevent it is dealt with in s588G CA, namely:

“Director's duty to prevent insolvent trading by company

(1)  This section applies if:

(a)  a person is a director of a company at the time when the company incurs a debt; and
(b)  the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and
(c)  at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and
(d)  that time is at or after the commencement of this Act.

(1A)  For the purposes of this section, if a company takes action set out in column 2 of the following table, it incurs a debt at the time set out in column 3.

When debts are incurred			[operative table]
Action of company	When debt is incurred
1	paying a dividend	when the dividend is paid or, if the company has a constitution that provides for the declaration of dividends, when the dividend is declared
2	making a reduction of share capital to which Division 1 of Part 2J.1 applies (other than a reduction that consists only of the cancellation of a share or shares for no consideration)	when the reduction takes effect
3	buying back shares (even if the consideration is not a sum certain in money)	when the buy‑back agreement is entered into
4	redeeming redeemable preference shares that are redeemable at its option	when the company exercises the option
5	issuing redeemable preference shares that are redeemable otherwise than at its option	when the shares are issued
6	financially assisting a person to acquire shares (or units of shares) in itself or a holding company	when the agreement to provide the assistance is entered into or, if there is no agreement, when the assistance is provided
7	entering into an uncommercial transaction (within the meaning of section 588FB) other than one that a court orders, or a prescribed agency directs, the company to enter into	when the transaction is entered into

(2)  By failing to prevent the company from incurring the debt, the person contravenes this section if:

(a)  the person is aware at that time that there are such grounds for so suspecting; or
(b)  a reasonable person in a like position in a company in the company's circumstances would be so aware.

Note: This subsection is a civil penalty provision (see subsection 1317E(1)).
(3)  A person commits an offence if:

(a)  a company incurs a debt at a particular time; and
(aa)  at that time, a person is a director of the company; and
(b)  the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and
(c)  the person suspected at the time when the company incurred the debt that the company was insolvent or would become insolvent as a result of incurring that debt or other debts (as in paragraph (1)(b)); and
(d)  the person's failure to prevent the company incurring the debt was dishonest.

(3A)  For the purposes of an offence based on subsection (3), absolute liability applies to paragraph (3)(a).
Note: For absolute liability , see section 6.2 of the Criminal Code .
(3B)  For the purposes of an offence based on subsection (3), strict liability applies to paragraphs (3)(aa) and (b).
Note: For strict liability , see section 6.1 of the Criminal Code .

(4)  The provisions of Division 4 of this Part are additional to, and do not derogate from, Part 9.4B as it applies in relation to a contravention of this section.”

8.The disqualification arose out of the liquidation of four companies of which the Applicant was a director, namely:  Longbeach Lifestyle, Longbeach Estate, Lisa Richards Pty Ltd (“Lisa Richards”) and Richards Corporate Consulting.

9.So far as these companies are concerned, the following facts cannot be disputed:

i.While the Applicant was an officer, or within 12 months of ceasing to be an officer of each of the said corporation, the corporation was wound up;

ii.The liquidator lodged a report about each corporations inability to pay its debts;

iii.The Respondent gave the Applicant a notice in the prescribed form requiring him to demonstrate why he should not be disqualified; and

iv.An opportunity was given for the Applicant to be heard.

10.Specific facts in relation to each of the particular company are as follows:

Longbeach Lifestyle Pty Ltd

i.Longbeach Lifestyle operated a business of property development during the period March 2003 to July 2005.

ii.The Applicant was responsible for the day to day management for liaisons with, and introductions of, current and new lenders and for decision making on behalf of Longbeach Lifestyle.

iii.A fixed and floating charge was registered in favour of Shakespeare and Haney Securities Limited on 26 May 2004.

iv.Messrs Albarran, McDonald and Elliot were appointed administrators of Longbeach Lifestyle on 8 July 2005.  The company was under administration from that date until 29 September 2005.

v.The Deed of Company Arrangement (“DOCA”) was executed on 20 October 2005 and subsequently varied, however, on 1 July 2008 after the Applicant failed to make contributions to the Deed fund in accordance with the DOCA as varied, the said Deed was terminated and Messrs McDonald and Elliot were appointed as liquidators of Longbeach Lifestyle.

vi.In a supplementary s439A Report to Creditors the administrators of Longbeach Lifestyle reported to creditors that in the 12 months to 30 June 2005 Longbeach Lifestyle recorded a loss of $261,362.00 and had a deficiency of assets over liabilities of $375,537.00.  The company’s total current assets were $2,053,720.00 including the following receivables: a loan to the Applicant of $32,521.00 and a beneficiary loan to the Applicant of $1,817,031.00.

vii.In a supplementary s533(2) Report the Liquidator advised that claims by mortgagees who entered into possession of properties owned by Longbeach Lifestyle were anticipated to have unsecured claims in excess of $1,000,000.00; that the Australian Taxation Office (“ATO”) had lodged a claim in the amount of $710,544.90; and that unsecured creditors totalled $92,332.70.

Longbeach Estate Pty Ltd

i.Longbeach Estate was incorporated on 31 January 2002 and the Applicant appointed as director on 31 January 2002.

ii.A fixed and floating charge was registered in favour of LKM Capital Limited on 12 July 2004.

iii.On 8 July 2005 Messrs Albarran, McDonald and Elliot were appointed administrators of Longbeach Estate.

iv.In a supplementary s439A Report to Creditors, the Administrators reported that in the twelve months to 30 June 2005 Longbeach Estate recorded a loss of $9,175.00 and had a deficiency of assets over liabilities of $9,174.00.  The company’s total current assets $728,558.00 including a receivable in the form of a beneficial loan to the Applicant of $727,391.00.

v.On 1 July 2008 a DOCA was terminated and Messrs McDonald and Elliot were appointed liquidators of Longbeach Estate.

vi.In a supplementary s533(2) report the liquidator advised that claims by mortgagees who entered into possession of the properties owned by Longbeach Estate were anticipated to have unsecured loans in excess of $1,000,000.00; that the ATO had lodged a claim in the amount of $318,484.80 and that unsecured creditors totalled $78,304.16.

Lisa Richards Pty Ltd

i.Lisa Richards was incorporated on 12 August 1996.  The Applicant was a director of Lisa Richards between 12 August 1996 and 2 August 2006.

ii.On 8 July 2005 Messrs Albarran, McDonald and Elliot were appointed administrators of Lisa Richards.

iii.On 4 August 2005 Messrs McDonald and Elliot were appointed liquidators of Lisa Richards.

iv.As at March 2006 the liquidators estimated secured creditors comprised $415,400.00 and unsecured creditors to comprise $874,000.00.

Richards Corporate Consulting Pty Ltd

i.Richards Corporate Consulting was the vehicle with which the Applicant operated his accounting practice at Ulladulla, NSW.  The issued share capital of Richards Corporate Consulting comprised of 106,985 ordinary shares of which 106,985 where held by the Applicant.

ii.At a meeting of creditors held on 30 July 2007 a DOCA was varied to provide for the sale of Richards Corporate Consulting at a price of $410,000.00 to be paid to the Deed Administrators by 14 September 2007.  This did not occur and on 16 November 2007 Messrs Albarran and Elliot were appointed controllers of Richards Corporate Consulting and entered into possession of the accounting practice on 19 November 2007.

iii.The accounting practice was trading at a loss and on 4 December 2007 the controllers ceased trading the business.

iv.On 8 February 2008 Richards Corporate Consulting was placed into liquidation.  A proof of debt was submitted by the ATO to the liquidator in an amount of $157,521.86.

11.In evidence and submissions, which I found to be convoluted and disjointed, the Applicant sought to maintain that his disqualification was not warranted.

12.I do not regard it as being necessary to deal with all of the Applicant’s submissions as the facts set out above are sufficient to invoke the power of the Respondent to disqualify the Applicant as an officer of the company.  The only real question being for how long the disqualification should operate.  As was pointed out in Guss v Australian Securities and Investments Commission (2006) 90 ALD 340 at 365:

“…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 have been engaged in unlawful or fraudulent conduct.  Rather, s206F is aimed at the person who is a persistent failure, for whatever reason.”

13.At the outset the Applicant’s contention that the companies were related is misconceived. None of the companies were a holding company of, or a subsidiary of, or a subsidiary of a holding company of, another of the corporations, and hence not related within the meaning of s50 CA. Indeed, under cross examination the following passages occur:

“Question: Are you familiar with the definition of related corporations in s50 CA Mr Richards?

Answer:  Not specifically.”

Counsel then took the Applicant to s50 CA and asked specific questions of him regarding the two Longbeach companies, Lisa Richards and Richards Corporate Consulting, ending up with the following:

Question: So you would accept therefore that they are not related companies within the meaning of the Corporations Act?

Answer:  Yes I would.”

14.The Applicant contended that the debts to the ATO were not legitimate and further, that the liquidator of the companies had been negligent in not pursuing an objection to these assessments.

15.S14ZZM of the Taxation Administration Act 1953 (“TA Act”) provides that the fact a review is pending in relation to a taxation decision does not in the meantime interfere with, or affect, an assessment decision and any tax may be recovered as if no review were pending.

16.The administrator of Longbeach Lifestyle and Longbeach Estate permitted the Applicant to lodge objections against assessments for GST by the Commissioner of Taxation (“the Commissioner”).  Those objections had not been determined by the time the companies were placed into liquidation and the liquidator declined to pursue the objections further as no distribution to creditors would be made following liquidation.  There was therefore, no prospective gain for other creditors of the companies if the Commissioner ceased to be a creditor.

17.The fact remains however, that at all relevant times, pursuant to 14ZZM TA the Commissioner was a creditor and thus entitled to submit proof of debts and to vote at creditors meetings. 

18.From the time the Applicant lodged objections regarding the assessed amounts until the companies were placed in liquidation a period of some 13 months elapsed.  That no objection decision was made by the Commission in that period is, as I see it, due to the Applicant failing to press the matter with the Commissioner.

19.In this regard, I note that the Applicant gave contradictory evidence regarding the willingness of the ATO to deal with him.  On the material before me it is clear that at all times until liquidation of the companies the ATO was open to dealing with the Applicant.

20.At the time the ATO issued assessments against the two companies the tax was due and payable and the companies did not have the funds to pay the assessments or indeed even 50 per cent.  Consequently they were unable to pay their debts as they fell due.  When cross examined by the delegate of the Respondent the Applicant conceded this fact.

21.The Applicant also accused the firm of accountants, whose members acted as administrators of the companies, of making false and misleading statements and draining funds from the companies to the detriment of creditors.  I do not propose to deal with this submission by the Applicant in any great detail, suffice it to say that the fees charged by the firm of accountants seem in all respects quite proper for the work undertaken and were approved by the creditors.  I commented during the course of addresses and reiterate, in retrospect the steps taken by the Applicant to make arrangements with his creditors while the companies were under administration amounted to unrealistic steps and that liquidation of the companies given their financial position was simply inevitable.   I would however agree with the Applicant that the decision to cease the accounting practice was wrong and must have invariably affected the purchase price as it would have led to the destruction of any goodwill in the practice.

22.The Applicant challenged the finding that he had failed to keep appropriate records and proper books of accounts for the companies.  Although the Applicant gave evidence that most of the accounts were kept pursuant to a computer program, the liquidator’s reports still revealed shortcomings. For example, in a liquidator’s report of 20 August 2010 the liquidator confirmed that the company accounts which were included in the Supplementary Report to Creditors of 21 September 2005 were not a true reflection of the company’s position.  The report provided a detailed forensic examination of the financial statements provided by the Applicant and identified numerous areas in which the statements provided by the Applicant were unreliable.

23.I concede that there may be arguments as to the valuation of properties held by the companies, however it is clear from the evidence that those mortgagees who entered into possession found that the value of their security did not match the sums advanced.  The Applicant himself stated that one of the reasons for the companies’ failures was the rapid decrease in value of land on the south coast of New South Wales at that time.

24.More to the point, liquidator’s reports state that numerous loans were recorded as secured when in fact no security was held, whereas numerous loans were recorded as unsecured when the relevant loan agreement provided that a security should have been held.  These are of course serious defaults in the books of a corporation.

25.

Following on from this is the situation of how the companies were geared. 

At page 71 of the transcript the following passage occurs:

“Question: I put it to you again the proposition that as a result of your management of the business, it was heavily mortgaged to the point that there was virtually no equity in the properties; do you accept that?

Answer:  No. I accept that there was little equity...”

26.A significant factor in the failure of the companies was the very large - up to 50 per cent – interest rate paid to persons lending money to the companies.  The Applicant conceded that he could have borrowed money from banking institutions at a much less rate of interest to obtain similar results.  He further conceded evidence that returns of up to 50 per cent could not be supported long term as a result of a down turn in the property market and that such returns placed huge strains on the companies’ cash flow.

27.The Applicant asserted that Lisa Richards never independently owed the sum of $1,289,000.00.  That debt, it was said, doubled up with debts of Longbeach which were settled from a sale of Longbeach properties and third party settlements.  Lisa Richards was only a guarantor.  The answer to this contention is, that even if the contention be correct, the debt would still be a contingent liability of Lisa Richards and it was the Applicant who placed Lisa Richards in external administration.

28.I consider that the contentions put forward by the Applicant have on the material before me not been made out.  He has attempted to exculpate himself from the failure of the companies but on the uncontested material it is clear that the companies were burdened with debt and had little equity in the properties own by them.  Further, the books of account kept by the Applicant were inadequate to reflect the true situation of the companies.

29.In assessing the Applicant’s culpability, I do take into account that his accountancy practice suffered as a result of defalcation by employees.  Apparently, employees of the company left taking with them files of clients and computer software and set up their own business as tax agents.  They also apparently billed clients for work that had been carried out by the practice of Richards Corporate Consulting.  Supreme Court action was taken by the Applicant against the former employees and although judgement was obtained, as I understand it, the Applicant was advised by his solicitor against taking further steps to execute the judgement as neither of the former employees had assets against which the judgement could be levied.  Indeed, one declared herself bankrupt during the course of the Supreme Court proceedings.  I appreciate that these matters would have occupied the Applicants mind and also resulted in a loss to the practice.

30.Subsection 206F(2) CA states:

“(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…”

31.Referring to the analogous section, namely S206E CA, McHugh J in Rich v Australian Securities and Investments Commission (2004) 220 CLR 129 at 152-154 adopted the 15 propositions formulated by Santow J of the NSW Supreme Court. Of those propositions the following are relevant here, namely:

“(1) Disqualification orders are designed to protect the public from the harmful use of the corporate structure of from use that is contrary to proper commercial standards;

(2) The banning order is designed to protect the public by seeking to safeguard the public interest in the transparency and accountability of companies and in the suitability of directors to hold office;

(3)  Protection of the public also envisages protection of individuals who deal with companies, including consumers, creditors, shareholders and investors;

(4)  The banning order is protective against present and future misuse of the corporate structure;

(5)  The order has a motive of personal deterrence though it is not punitive;

(6)  General deterrence is an object of the legislation;

(7)  In assessing the fitness of an individual to manage a company, it is necessary that the individual have an understanding of the proper role of the company director and the duty of due diligence that is owed to the company;

(8) Longer periods of disqualification are reserved for cases where contraventions have been of a serious nature such as those involving dishonesty;

(9)  In assessing an appropriate length of prohibition, consideration is given to the degree of seriousness of the contraventions, the propensity of the defendant to engage in similar conduct in the future, and the likely harm that may be caused to the public;

(10) It is necessary to balance the personal hardship to the defendant against the public interest and the need for protection of the public from any repeat of the defendant’s conduct;

(11) A mitigating factor in considering a period of disqualification is the likelihood of the defendant reforming;

(12) The eight criteria to govern the exercise the court’s powers of disqualification set out in Commissioner for Corporate Affairs (WA) v Ekamper (1987) 12 ACLR 519 have been influential.  It was held in making such an order is it necessary to assess:

(a) the character of the defendants;

(b) the nature of the breaches;

(c) the structure of the company or companies and the nature of its or their business;

(d) the interest of shareholders, creditors and employees;

(e) the risks to others from the continuation of the defendant as a director;

(f) the honesty and confidence of the defendant;

(g) hardship to the defendant and to his or her personal and commercial interests; and

(h) the defendant’s appreciation that future breaches could result in future proceedings.

(13) …

(14) …

(15) The factors leading to the shortest disqualifications (that is disqualifications for up to three years) were:

(a) Although the defendant had personally gained from the conduct, he or she had endeavoured to repay or partially repay the amounts misappropriated;

(b) the defendant had no immediate or discernible future intention to hold a position as manager of a company; and

(c) the defendant had expressed remorse and contrition, acted on advice of professionals and had not contested the proceedings against him or her.”

32.That general deterrence is a factor in disqualification from acting in an office was also acknowledged by the Full Court of the Federal Court, albeit in relation to the Insurance Act 1973, in Kamha v Australian Prudential Regulation Authority [2005] FCAFC 248.

33.I am not satisfied that the Applicant has fully accepted his role in the demise of the companies.  At the hearing of this matter I gained the distinct impression that he regarded the failure of the companies and losses incurred to be the fault of everybody but himself.

34.In Re Healey and Australian Securities and Investments Commission [2000] AATA 9 of eight matters alleged, six were found to be proven by the Tribunal. In agreeing that the maximum penalty of five years should only be reserved for the worst cases, Deputy President McMahon reduced the disqualification to two years finding that the failures on the part of the Applicant in that case amounted to a pattern of conduct.

35.Finklestein J in ASIC v Starnex Securities Pty Ltd (2003) 133 FCR 238 dealt with a director who had refused to cooperate with ASIC and whose companies had committed many offences. At paragraph 11 of his judgement, his Honour said of the director:

“Mr Camiolo failed to act responsibly as a director of the company. He appears to have little or no knowledge of how a company should be managed.  He certainly has little appreciation of the legal obligations imposed on a corporation in relation to its administration and record keeping”.

36.If, as Deputy President McMahon held, a disqualification of five years should be reserved for the worst case, and Finklestein J was content to impose a penalty of only two years in the circumstances of the Starnex Securities Pty Ltd supra, I find that a period of four years in the Applicant’s case is excessive.  At the same time, the Applicant’s case must serve as a salutary deterrent and I must have regard not only to the losses incurred but the mismanagement exhibited.

37.It can certainly be said that the Applicant’s conduct of the business and affairs of the company fell short of the standard of competency that the public is entitled to expect.

38.I find therefore that the disqualification period of three years is appropriate in this case.  The decision under review is SET ASIDE and the Tribunal substitutes its decision, namely, the Applicant is disqualified from managing corporations for three years, as and from 15 September 2009.

I certify that the 38 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member M D Allen.

Signed:         ...........[sgd].....................
  K. Lynch, Associate

Dates of Hearing        26 November 2010, 21 & 22 March 2011
Date of Decision        8 April 2011
Representative for the Applicant    Mr B Richards (self)
Counsel for the Respondent           Ms S Pritchard
Solicitor for the Respondent         Ms A Rees, ASIC