Sgaravizzi and Australian Securities and Investments Commission

[2019] AATA 6890

Sgaravizzi and Australian Securities and Investments Commission [2019] AATA 6890 (16 December 2019)

Division:TAXATION AND COMMERCIAL DIVISION

File Number(s):      2019/7172

Re:Mark Anthony Sgaravizzi

APPLICANT

AndAustralian Securities and Investments Commission

RESPONDENT

DECISION

Tribunal:Deputy President Bernard J McCabe

Date:16 December 2019

Place:Sydney

1.Subject to (2) and (3), the Tribunal orders that the decision under review be stayed pursuant to s 41(2) of the Administrative Appeals Tribunal Act 1975.

2.The stay order referred to above does not come into effect until the applicant provides a report by the company’s accountant confirming:

a.the company is solvent; and

b.its taxation affairs are in order.

3.The applicant shall deliver to the respondent a report from the company’s accountant every sixty (60) days confirming:

a.the company is solvent; and

b.its taxation affairs are in order.

4.The application for confidentiality orders under s 35 of the Administrative Appeals Tribunal Act 1975 is refused.

5.The parties shall confer and file written submissions on or before Friday 20 December 2019 on whether the matter should be remitted to the respondent under s 42D of the Administrative Appeals Tribunal Act 1975 in light of the above orders, or propose timetabling directions to progress the matter before the Tribunal.

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

Deputy President Bernard J McCabe

CATCHWORDS

PRACTICE AND PROCEDURE – STAY APPLICATION – application for a stay of a decision to ban the applicant – prospects of success – consequences of no stay – whether the review would be nugatory without a stay – addressing the public interest with conditions – stay granted – CONFIDENTIALITY APPLICATION – application for a confidentiality order under section 35 – hearings to be conducted in public – suppression of information relating to a regulatory regime – public disclosure – weight of consumer protection – confidentiality order refused – SECTION 42D REMITTAL – whether matter should be remitted to the respondent for reconsideration – participation of the applicant

LEGISLATION

Administrative Appeals Tribunal Act 1975 sections 35, 37, 41 and 42D

Corporations Act 2001 section 206F

CASES

Scott and Australian Securities and Investment Commission [2009] AATA 798

REASONS FOR DECISION

Deputy President Bernard J McCabe

16 December 2019

1. The applicant in these proceedings was disqualified from managing corporations pursuant to s 206F of the Corporations Act 2001. The reviewable decision to that effect was made by ASIC’s delegate on 28 August 2019. The applicant is seeking review of the substantive decision in the Tribunal. In the interim, while the review proceeds, the applicant has asked the Tribunal for:

   ·An order under s 41(2) of the Administrative Appeals Tribunal Act 1975 (the AAT Act) staying the operation and implementation of the disqualification order, so that the applicant will be able to remain a company director pending the outcome of the review; and

   ·Confidentiality orders under ss 35(2), (3) and (4) of the AAT Act.

2. The parties were given an opportunity to prepare written submissions and provide other material in advance of a stay hearing. That hearing was held on 11 December 2019. I told the parties I would provide them with my decision including written reasons after I concluded my deliberations following that hearing.

   BACKGROUND

3. The applicant was a director of six companies in a corporate group at the time those companies were placed in receivership and then wound up in September 2012. He was subsequently bankrupted in 2014 after the financier of the group companies which failed in 2012 enforced personal guarantees. Another company failed shortly after the applicant ceased being a director in 2014 following his bankruptcy. When the applicant returned to commercial life following his discharge from bankruptcy, he became a director of yet another company that failed in 2017.

4. Liquidators of the various companies provided adverse reports concerning the applicant’s stewardship of the failed companies’ affairs. The reports in relation to the 2012 collapse are sparse, but the reports collectively raise questions about insolvent trading and a want of diligence on the applicant’s part.

5. ASIC considered whether the applicant should be disqualified from managing corporations under s 206F. That provision is addressed to directors who are involved in a pattern of corporate failures where the companies were wound up and there was a report from the liquidator about the companies’ inability to pay their debts. An ASIC delegate signed a ‘show cause’ notice dated 8 May 2019 in which the applicant was asked to explain why regulatory action should not be taken against him under s 206F. A copy of the notice was included in the documents lodged under s 37 of the AAT Act at p 37ff. The notice warned ASIC was considering a disqualification order and provided an outline of matters of concern. The notice also included the following advice:

   You have the right to appear at a hearing and/or make written submissions about whether you should be disqualified from managing corporations. If you would like to do this, you must contact me within 14 days from the date you receive this letter. [Emphasis added].

6. ASIC used an address for the applicant that was recorded in ASIC’s files. The applicant did not receive the letter and notice until 17 July 2019, he says. Apparently ASIC had attempted to effect personal service and did not deliver the letter through the post or leave it in the applicant’s mail box until it had made a number of efforts to locate him for personal service.

7. I should say at once there was no suggestion the applicant was evading service, and I have no reason to doubt he did not receive the letter until 17 July 2019. In making that observation, I am not criticising ASIC for the way in which it attempted to serve the documents on the applicant.

8. What happened next is more problematic. The applicant explained in his affidavit that he (mis)read the notice when he finally received it. He says he assumed the 14 day period he was given to contact ASIC and make submissions or participate in a hearing had long since elapsed. That is a misunderstanding of the plain words of the letter, which suggested the 14 day period would commence after the date on which the notice was received. In any event, the applicant said he thought it was all too late and he assumed a decision had already been made. Curiously, he refrained from contacting ASIC to confirm if that was the case. I have no reason on the material before me to doubt the applicant was genuinely confused as to his position, but his passivity in the face of that assumed reality is surprising.

9. Surprising, and, it turns out, deeply unfortunate. ASIC had not actually made a decision at that point. Its delegate subsequently reviewed the material before it – which included the liquidators’ reports, some of which were very brief - without the benefit of the applicant’s assistance. A disqualification decision was not made until 28 August 2019. The applicant did not receive notice of the decision until 29 October 2019. He said he immediately engaged solicitors and promptly applied to the Tribunal.

10. When ASIC is considering taking regulatory action under s 206F(1) of the Corporations Act, it is required to (i) give the applicant a notice requiring the applicant to demonstrate why he or she should not be disqualified and (ii) afford the individual an opportunity to be heard on the question: s 206F(1)(b). The applicant stops short of asserting he was not given a formal opportunity to be heard. That submission would be difficult to sustain in circumstances where he failed to carefully read the letter dated 8 May 2019, and failed to make reasonable enquiries as to his position. But the fact is he did not participate in the primary decision-making process which proceeded in his absence. There is no suggestion on the material before me that the applicant’s absence from the process was the product of the applicant playing games or seeking some sort of strategic advantage.

11. Mr Livingston, counsel for the applicant, drew my attention to a number of passages in the reasons for decision of the delegate where the delegate explicitly acknowledged she had reached a conclusion in the absence of evidence to the contrary from the applicant. Ms Avery-Williams, counsel for ASIC, noted there is no suggestion the delegate drew any adverse inferences from the applicant’s failure to provide evidence or submissions, but the point remains the delegate proceeded without the benefit of the applicant’s submissions and explicitly acknowledged throughout the decision that she would have considered information or submissions provided by the applicant had they been made available.

12. I am not suggesting ASIC behaved unreasonably in proceeding to make a decision in the applicant’s absence. ASIC has a job to do. It gave the applicant an opportunity to participate in the process, and – as far as it was concerned – the applicant forfeited the right to participate through inaction. I am not satisfied on the evidence I have seen so far that the applicant was dealt with in a way that was procedurally unfair, or which calls into question whether ASIC complied with its obligation to give the applicant an opportunity to be heard. But the rules of procedural fairness - and specific provisions like s 206F(1)(b)(i) and (ii) which give the applicant a right to participate and be heard - are not there just to ensure the applicant is treated fairly. The rules are also designed to assist decision-makers to make better quality decisions. In a case like this, the applicant is likely to have access to relevant information that might not be known or understood by the primary decision-maker if left to its own devices. The applicant also has an incentive to press the decision-maker to hone and justify its decision through a more considered decision-making process. That is a good thing.

13. The applicant’s participation in the primary decision-making process should never be regarded as an impost that is tolerated in the interests of fairness. The applicant’s engagement in the process makes the process and its outcome more credible, more precise and ultimately more efficient.

14. Without being critical of ASIC, I would nonetheless say it is regrettable when a decision about somebody’s future is made in their absence, especially where that default appeared to be the product of misunderstanding. Decisions will almost always be better, and better received, when the applicant has had his say – even if he needs to be prodded to do so.

15. With that observation in mind, I raised with the parties the possibility of making orders remitting the decision to the decision-maker under s 42D of the AAT Act so the delegate could take submissions from the applicant and resume her deliberations. That could be done in relatively short compass: perhaps by February. If the applicant remained dissatisfied with the outcome of that process, he could return to the Tribunal and press on with his application for review. The applicant embraced the suggestion and agreed the effort involved in assembling a case for the delegate would not be wasted if the matter was returned to the Tribunal because much of the evidence and submissions could be repurposed for the Tribunal review – a review that could then be expedited.

16. It is often said that the Tribunal’s review is conducted as part of a continuum of decision-making that occurs within the executive branch of government. If mistakes are made during the primary decision-making process, the defects can usually be cured in the course of the Tribunal’s de novo review. But the power in s 42D exists because sometimes it is more efficient for the matter to be remitted to the primary decision-maker to reconsider the decision – or some aspect of it – rather than dealing with the issue in the course of a Tribunal review process that is relatively formal (although still informal when compared to the courts), more structured and more expensive.

17. There is a further consideration. Section 35(5) of the AAT Act emphasises the importance of Tribunal proceedings being conducted in public. While there are circumstances where the review process, or part of it, will be conducted in private, the preference is for open justice at the review stage, at least in the General and Other Divisions of the Tribunal. That is one important difference between the review and the primary decision-making process. The process before the primary decision-maker is typically conducted in private and involves less formality. Where an applicant does not engage properly with the primary decision-maker, all the evidence and the submissions will have to be rehearsed in the more open Tribunal review, subject to the more formal (and more expensive) procedures. That may not be the most efficient and desirable way to proceed.

18. The Tribunal needs to be careful about those applicants who might be tempted to game the review process. Experience tells us some applicants are more interested in delaying the awful day of reckoning than they are in finalising the review. It would be a concern if those individuals failed to engage effectively with a primary decision-maker in the expectation the Tribunal would readily remit the matter under s 42D and thereby frustrate the implementation of the decision under review. I am satisfied there is nothing in the applicant’s conduct in this case that suggests strategic behaviour of this kind.

19. The precise implications of a remittal would need to be teased out, of course. While s 42D provides for the decision to be remitted so the respondent can revisit the substance (or some aspect of the substance) of what was decided – something the respondent is ordinarily prevented from doing once the review process has commenced – the decision is not set aside by virtue of the remittal. Section 42D is different to the power under s 43(1)(c) which permits the Tribunal to set aside and remit for reconsideration. Section 42D contemplates the original decision-maker reconsidering the decision and then deciding whether to (a) affirm, (b) vary the existing decision or (c) set that decision aside and make a new decision. It follows that, unless and until the primary decision-maker concluded it was appropriate to set aside the decision after remittal under s 42D, the decision remains in effect in the absence of a stay order or an undertaking not to enforce the remitted decision.

20. It follows stay orders may still be required, even if the matter is remitted under s 42D. I will return to the question of a s 42D remittal below after addressing the applications for a stay order and confidentiality orders.

    THE APPLICATION FOR CONFIDENTIALITY ORDERS UNDER S 35

21. The applicant has asked for orders that would close the hearing and suppress the applicant’s identity and the name of his company. He also wants his name redacted from the register recording his disqualification while the hearing proceeds. As I will shortly explain, the applicant is concerned that news of the regulatory action would cause him to lose business because his clients are sensitive to bad publicity. Mr Livingston conceded the applicant’s name has been on the register for some time without adverse consequences, but he expects his clients would find out – especially if ASIC were to issue a press release about the reviewable decision.

22. Section 35(1) says Tribunal hearings are ordinarily conducted in public in the absence of a confidentiality order. Where a party applies for orders, s 35(5) says the Tribunal must start from the proposition it is desirable that (a) hearings be held in public; (b) evidence given before the Tribunal be made available to all and (c) the parties should have access to any documents lodged with the Tribunal. That sub-section underlines the importance of transparent decision-making. Transparent decision-making in the Tribunal helps to promote public confidence in our processes. It also facilitates the Tribunal’s normative function of modelling good decision-making behaviour.

23. While it starts from the proposition in s 35(5), the Tribunal retains the power to make confidentiality orders where there is good reason to do so – most obviously, because of the confidential nature of the information in question. As it happens, the information in question in this case is not inherently confidential. It is simply commercially embarrassing.

24. There is ample authority for the proposition that the Tribunal should be careful about making confidentiality orders that would have the effect of suppressing information suggesting an applicant has fallen foul of a regulatory regime that was established for the benefit of the public. Clients of that firm would probably be surprised if they learned after the final hearing that they had not been told the applicant with whom they dealt was under a cloud.

25. The applicant says this case is different because the regulator’s decision was made without the benefit of his input. For reasons I have already explained, the applicant effectively skipped the primary decision-making stage. He said that decision casts less of a shadow over his conduct in those circumstances. He also argues that the nature of the company’s client base is such that even the suggestion of impropriety is likely to have an outsize impact.

26. The fact the applicant says the company’s clients are particularly sensitive to any suggestion of impropriety underlines for me the importance of transparency in a situation like this. I acknowledge there is a risk of adverse reaction, but that is one of the consequences of a regulatory regime that is skewed in favour of consumer protection. The fact the applicant failed to participate in the review process at a stage where it was still conducted in private may well compound the damage, but that does not change my analysis. I am not inclined to make the confidentiality orders sought.

    THE APPLICATION FOR A STAY

27. The power in s 41(2) of the AAT Act is available “for the purpose of securing the effectiveness of the hearing and determination of the application for review”. Orders under s 41(2) can only be made if the Tribunal is satisfied “it is desirable to do so after taking into account the interests of any persons who may be affected by the review…”.

28. In the course of its deliberations, the Tribunal will typically consider a range of matters like those referred to in Scott and the Australian Securities and Investments Commission [2009] AATA 798. While the considerations referred to in that case should not be regarded as a definitive list, they provide a useful starting point for my considerations.

29. The applicant said he had good prospects of success at the final hearing. Mr Livingston pointed out the reasons for decision provided by the delegate explicitly referred to the absence of evidence provided by the applicant. I have already explained why the applicant failed to participate in that process. Mr Livingston was confident the applicant could assist the process by providing relevant information. ASIC says it is all very well to assert that but there is nothing in the material provided to date in these proceedings which would give the Tribunal confidence that the applicant had relevant information to provide.

30. I am prepared to accept from the arguments made thus far that the applicant has an arguable case. If the applicant can make good on his assertion that additional relevant evidence will be forthcoming, he may well have good prospects of success. But I cannot go that far at this point. This is one of the difficulties we encounter when the applicant has not participated in the process to date.

31. The applicant said the consequences if he does not get a stay are very serious. He said the company which he runs is involved in the building industry where it deals with a small number of big companies. He mentioned the company is currently involved in a tender which, if successful, would generate millions of dollars in new business. He said the tender will almost certainly go to somebody else if news of the regulatory action were to become widely known. He said he would expect to lose his other major clients in that event because they were sensitive about the bad publicity. I have already dealt with that danger in the course of my discussion of the application for confidentiality orders. But the applicant says there is a further danger. He claimed the company depends on his leadership to survive. He said he is not aware of anybody who could step into his shoes if the disqualification took effect immediately. He added the company had a number of employees who would become unemployed. It also had contractors whose businesses would be disrupted.

1. I was not provided with direct evidence beyond the applicant’s assertions of the likely impact on his business. ASIC pointed out the applicant’s name was entered into the publicly available register after the decision was made but no adverse consequences have yet been seen.

2. While it is unclear how extensive the impact would be if the disqualification order were not stayed, I accept the applicant, and potentially his employees and contractors, might experience adverse impact and that the damage could be irrecoverable if the applicant’s predictions – which are not fanciful on their face – came to pass.

3. I do not think ASIC would be adversely impacted if a stay order were made. Ordering a stay of the decision is not a rebuke to the regulator. Its job – at least in a case like this – is not made more difficult. I do not think this consideration counts for a great deal.

4. The public interest is always an important consideration in a case like this. Indeed, it is often decisive. The regulatory regime is premised on the need to protect the public and preserve confidence in markets and the regulatory regime itself. I note there is no suggestion of imminent danger to the public if the applicant were to remain in business in the short term. Given a stay order could be supplemented by appropriate undertakings, I am reassured the public interest can be managed.

5. That leaves the question of whether the review would be rendered nugatory if the stay were not ordered. This consideration captures the jurisdictional question which must be answered before the discretion is enlivened. As it happens, I am satisfied the applicant has made tolerably clear there is a real possibility the company’s business might founder in the absence of a stay. That harm may irreparable if the applicant obtained a more favourable outcome at the hearing but – more than that – there might be little point proceeding to a hearing if the company’s business collapses. It would be unfortunate if that collapse were then to raise further questions about the applicant’s acumen as a director.

6. I am satisfied it is appropriate to make an order to secure the effectiveness of the hearing, and that, on balance, it is desirable to make that order. That order should be subject to undertakings from the applicant that the company will provide a report from its accountants confirming (a) the company’s solvency and (b) that the company’s taxation affairs are in order. That report should be provided to ASIC before the stay takes effect, and every two months thereafter.

   SHOULD THE MATTER BE REMITTED PURSUANT TO S 42D?

7. I have decided to invite the parties to make further submissions (by letter, on or before Friday 20 December 2019) on the utility of a s 42D remittal in light of my conclusions on the applications for the stay and confidentiality orders. It may be that the parties could agree on an approach that would permit the applicant to get its case into shape with a view to an early hearing before the ASIC delegate pursuant to s 42D. The delegate may be in a position to quickly determine if there was to be any variation, or if the decision should be set aside. The matter could quickly return to the Tribunal for a hearing thereafter if the applicant remained dissatisfied with the ASIC’s decision. Alternatively, the parties might prefer upon mature reflection to get on with the hearing process in the Tribunal – in which event they should propose timetabling directions by Friday 20 December 2019.

I certify that the preceding 38 (thirty -eight) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe

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

Associate

Dated: 16 December 2019

Date(s) of hearing:	11 December 2019
Date final submissions received:	4 December 2019
Counsel for the Applicant:	Mr L T Livingston
Solicitors for the Applicant:	O'Loughlin Westhoff
Counsel for the Respondent:	Ms A Avery-Williams