Satellite Accounting Pty Ltd and Tax Practitioners Board

[2020] AATA 1648

Satellite Accounting Pty Ltd and Tax Practitioners Board [2020] AATA 1648 (3 June 2020)

Division:Taxation and Commercial Division

File Number(s):      2020/2188

Re:Satellite Accounting Pty Ltd

APPLICANT

AndTax Practitioners Board

RESPONDENT

DECISION

Tribunal:Deputy President Bernard J McCabe

Date:3 June 2020

Place:Brisbane

The application for a stay order is refused.

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

Deputy President Bernard J McCabe

CATCHWORDS

PRACTICE AND PROCEDURE – STAY APPLICATION – decision to terminate the registration of the corporate applicant and its director as a tax agent – further application for a stay – whether a stay should be granted for the decision against the corporate applicant – alternative registered tax agent available to become a director – extent of terminated director’s control over the tax agent business of the corporate applicant – whether conditions can be ordered – stay refused

LEGISLATION

Administrative Appeals Tribunal Act 1975 s 41

Corporations Act 2001 ss 198A, 198E

Tax Agent Services Act 2010

CASES

Iseppi and Tax Practitioners Board [2020] AATA 1523

Rent to Own (Aust) Pty Ltd and Australian Securities and Investments Commission [2011] AATA 689

REASONS FOR DECISION

Deputy President Bernard J McCabe

3 June 2020

1. The Tax Practitioners Board decided to cancel the registration of Satellite Accounting Pty Ltd (Satellite) as a tax agent. The reviewable decision to that effect was communicated to Satellite on 16 March 2020. The Board made the decision after it concluded Satellite’s director, Mr Darryl Iseppi, was not a fit and proper person. Mr Iseppi’s registration as a tax agent was also cancelled on the same date. The Board decided Mr Iseppi should be prohibited from seeking re-registration for a period although it did not impose a similar restriction upon Satellite.

2. While both Mr Iseppi and Satellite were registered tax agents, Mr Iseppi provided his tax agent services through a business carried on by Satellite. Mr Iseppi was the supervising tax agent of that firm. 

3. Mr Iseppi and Satellite have commenced review proceedings in the Tribunal. They both asked for stay orders under s 41(2) of the Administrative Appeals Tribunal Act 1975 (the AAT Act) so they might remain in business as tax agents while the review proceeds. On 12 May 2020, I decided to refuse the stay applications: see Iseppi and Tax Practitioners Board [2020] AATA 1523. I mentioned in the stay application (at [32]) that Satellite was at liberty to approach the Tribunal to reagitate the question of a stay if its circumstances changed – most obviously by identifying an appropriate director and a supervising tax agent.

4. Satellite has since identified somebody who is prepared to accept appointment as a director. That individual is also a registered tax agent. He will presumably be able to supervise the tax agent’s practice. Satellite has asked me to reconsider the stay application in those circumstances. Before doing so, it asked the Board to consent to the stay. The Board declined to do so – not, as I understand it, because there is any concern over the competence or integrity of the individual who has agreed to accept the appointment. The point of departure was the Board’s insistence on certain conditions that were unacceptable to Satellite.

5. A stay hearing was listed on 1 June 2020 to discuss the renewed application. Both Satellite and the Board provided written submissions, and Satellite’s lawyer provided an affidavit annexing various documents. I agreed to provide a decision with brief written reasons after considering the matter overnight. These reasons should be read in conjunction with the reasons I gave in Iseppi and Tax Practitioners Board [2020] AATA 1523.

6. At the risk of repetition, s 41(2) of the AAT Act establishes a power to stay the operation or implementation of a reviewable decision while the Tribunal’s review is in progress. The discretion is not enlivened unless the applicant satisfies me it is to be exercised for the purpose of securing the effectiveness of the hearing and the review. If the requisite purpose is identified and the discretion is enlivened, I must then consider whether it is desirable to make the order having regard to the interests of the persons affected by the reviewable decision.

7. I elaborated on my approach to stay decisions in Iseppi. I also explored the evidence before me on that occasion – which was, apart from the recent development discussed here, the same. I adopt the reasons I gave rather than repeating the discussion here. I will focus in these reasons on the change in circumstances that Satellite has identified.

8. Satellite says the Tribunal should be satisfied the public interest (and the interests of clients in particular) will be protected if the individual in question is appointed to Satellite’s board of directors and assumes responsibility for supervising the tax practice. That would also mean the practice would continue without disruption for clients and employees. It may yet contain the loss to the applicants if they are successful at the final hearing.

9. The Board objects to the new director being added to the board of Satellite in circumstances where Mr Iseppi remains a director. It argues Mr Iseppi should step aside before the Tribunal agrees to stay. The Board points out it cancelled Satellite’s registration because Satellite had a person who is not a fit and proper person (ie Mr Iseppi) as a director. Nothing changes just because other directors are appointed who do meet the requisite standard.

10. There is also a concern about the extent to which clients of the practice must be informed about the action against the applicants if Mr Iseppi remains a director, or if he is merely joined on the board of directors and provides undertakings about his involvement in the tax agents’ practice.

11. It appears Mr Iseppi and Satellite believe Mr Iseppi should not be forced to retire as a director in the short term because Satellite conducts a number of businesses. Mr Iseppi wishes to remain involved in the management of those affairs. I was also provided with an affidavit from Satellite’s legal representative, Ms Corpe, who said Satellite might experience difficulties with its creditors if Mr Iseppi were to cease acting as a director. Ms Corpe also referred to licensing and insurance issues in the short term if a new director were to replace him.

12. Ms Corpe also argued the Board’s position would effectively force Mr Iseppi to hand control of the company to a third party, which would amount to a gift of a valuable business (indeed, a range of businesses) that he built up over a long period. That does not follow. Mr Iseppi remains a shareholder in the company. If he stepped down as a director, he should be able to reassert control at any point by casting a vote to that effect in the general meeting.

13. I asked the parties whether Satellite had a constitution that defined the role of directors in unconventional terms, or whether Satellite adopted the replaceable rules in the Corporations Act 2001. Ms Corpe, who represented Satellite, did not have instructions on that point. I will assume in the absence of advice to the contrary that the business of the company is managed by or under the direction of the directors, and that they undertake that responsibility collectively: s 198A, Corporations Act. If Mr Iseppi is the only director at present, he presumably exercises all of the powers of the company apart from those reserved to the general meeting. He is, in a practical sense, entirely responsible for directing or managing the business of the company: s 198E. As a director, Mr Iseppi (and anyone who joins him on the board) will have powers over every aspect of the business. It is possible that changes to the governance arrangements might be contemplated, like the appointment of a managing director with the power to manage, as distinct from the power to direct: s 198C. I do not understand that to have occurred or be in contemplation. The directors will also be subject to duties, including a duty to inform themselves about the company’s operations.

14. The current proceedings do not of themselves suggest Mr Iseppi should be denied information about the operation of the tax agent’s practice. He would continue to be informed about its affairs consistent with his duties as a director. But his mere presence on the board invests him with power over the business. Does his presence create an unacceptable risk that is relevant for the purposes of the stay power? If there is a risk, can it be managed through the imposition of a condition?

15. The Tribunal will frequently explore the possibility of conditions incorporating safeguards before it will agree to a stay. The precise content of the safeguards will depend, in part, on what is alleged against the applicant. That is not a pre-judgement of the applicant’s case, but rather a reflection of the role of the Tribunal which must consider the interests of those affected by the reviewable decision. That consideration occurs against the backdrop of the regulatory regime in question. In this case, the regulatory regime set out in the Tax Agent Services Act 2010 places a premium on protecting the interests of clients and those who deal with tax agents (including the Commissioner) against behaviour that suggests a want of integrity or competence. While the interests of the licensee are relevant when looking to safeguards, they may not have great weight in the final analysis. The Tribunal will also hesitate before agreeing to elaborate conditions that are difficult to monitor and enforce, and which demonstrate “an overanxious desire to permit regulated activity wherever possible”: Rent to Own (Aust) Pty Ltd and Australian Securities and Investments Commission [2011] AATA 689 per Downes J and Deputy President Hack at [47].

16. The Board’s allegations against Mr Iseppi are worrying. They suggest serious and widespread incompetence on his part. But there are also allegations that he failed to observe ethical standards expected of him. Any allegation of ethical shortcomings must prompt questions about whether Mr Iseppi should be permitted to remain involved in the management of the company while the truth of those allegations is put to the test.

17. There is no reason why Satellite – a company that Mr Iseppi presumably controls through his direct or indirect shareholding – cannot employ Mr Iseppi as a manager with responsibility for its other businesses. The Board’s decision does not have the effect of banishing Mr Iseppi from the company. The regulatory action being carried on by the Board and the Tribunal is directed towards preventing him from conducting the tax agent’s practice in the short term, something which would be hard to accomplish for sure while he remained a director. I accept there may be some issues with financiers and other if he is effectively forced to retire as a director as a condition of the stay. But that may yet be a necessary of regrettable incident of the regulatory action.

18. If Mr Iseppi is not a director of the company and is not involved in any way with the conduct of the tax agent’s practice, there is no need to restrict the firm from seeking additional clients. It may still be necessary to require the firm to inform existing clients that are active and prospective clients that regulatory action has been taken against Mr Iseppi but confirming that Satellite is operating under new management – however that is a question I need not answer in the circumstances.

19. For reasons I explained in my earlier reasons for decision, I do not think it is desirable to make a stay order under s 41(2) in relation to Satellite given the absence of agreement with respect to appropriate conditions. I have not changed my mind about that just because a new director is being appointed in circumstances where Mr Iseppi remains a director.

I certify that the preceding 19 (nineteen) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe

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Associate

Dated: 3 June 2020

Date(s) of hearing:	1 June 2020
Date final submissions received:	1 June 2020
Solicitors for the Applicant:	Cornwalls
Counsel for the Respondent:	Mr B McGlade
Solicitors for the Respondent:	Tax Practitioners Board