SWEENEY and Australian Securities and Investments Commission

[2017] AATA 2182

SWEENEY and Australian Securities and Investments Commission [2017] AATA 2182 (8 November 2017)

Division:TAXATION & COMMERCIAL DIVISION

File Number(s):      2015/3753

Re:John SWEENEY

APPLICANT

AndAustralian Securities and Investments Commission

RESPONDENT

Decision

Tribunal:Mr P W Taylor SC, Senior Member

Date:8 November 2017

Place:Sydney

ASIC’s decision of 29 June 2015 is affirmed

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

Mr P W Taylor SC, Senior Member

Catchwords

CORPORATIONS – ASIC – banning order – conduct as a director – irregularities in financial reporting and disclosures – residential property development – misleading or deceptive conduct – failure to comply with benchmarks 5 and 7 in Regulatory Guide 69 – number and value of loans in arrears – valuation basis of development and construction loans – applicant aware of deficiencies and non-disclosures in documents – auditors’ reports not relevant to objective materiality of loan and applicant’s knowledge and understanding of that materiality – no breach of Corporations Act s 728 – applicant knowingly involved in contraventions of Corporations Act s 1041H – applicant not involved in contraventions relating to policy and disclosure compliance – discretion to exercise banning power – applicant’s personal circumstances – decision under review affirmed

Legislation

Corporations Act 2001 ss 79, 206F, 283BF, 283HB, 728, 760A, 766A, 766C, 911A, 920A, 920B, 1041H

Cases

ASIC v PFS Business Development Group Pty Ltd (2006) 57 ACSR 553

Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592
Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304
Demagogue Pty Limited v Ramensky (1992) 39 FCR 31
Gore v ASIC [2017] FCAFC 13
MGICA (1992) Ltd v Kenny & Good Pty Ltd 140 ALR 313
O’Sullivan v ASIC [2017] AATA 644
Roumanus v Orchard Holdings (NSW) Pty Ltd [2012] FCA 775; (2012) 90 ACSR 677
Seagrim v ASIC [2012] AATA 583
Sutton v AJ Thompson Pty Ltd (in liq) (1987) 73 ALR 233
Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177
Tweed v Australian Securities and Investments Commission [2008] AATA 5

Yorke v Lucas (1985) 158 CLR 661

Secondary Materials

ASIC Regulatory Guide 69 - Debentures and notes: improving disclosure for retail investors

REASONS FOR DECISION

Mr P W Taylor SC, Senior Member

8 November 2017

1. Mr Sweeney is a fellow of various Institutes of accounting, management and financial services.  Consistent with those qualifications, he has decades of experience, at senior management level, in the Australian financial services industry.  Material to the present proceedings, from mid 2007 until late 2012, he had the following sequence of non-executive roles with Provident Capital Limited (“PCL”):-

   (a)June 2007 to July 2008:- he had become a consultant to the PCL Board and was a regularly invited attendant at Board meetings from 27 June 2007 onwards

   (b)30 July 2008:- he became a non-executive director of PCL, and was one of PCL’s four directors

   (c)6, 27 August, 3 September, 13 November 2008:- he was an invited attendant at meetings of PCL’s Audit and Compliance Committee (“PCL_AudCC”)

   (d)19 November 2008:- he was formally appointed to, and with his fellow non-executive director (Mr Seymour) thereafter constituted, the PCL_AudCC.

2. On 29 June 2015 ASIC made an order, under the Corporations Act 2001 (“CorpAct”) ss 920A & 920B banning Mr Sweeney from providing financial services for a period of two years. Mr Sweeney challenged that order in the present proceedings.

   The basis of the banning order

3. PCL was, in essence, a first mortgage lender - of funds it raised from debentures and wholesale borrowings.  (The nature and amount of funding liabilities, the extent of its loan assets and its cash flow, in the financial years from 2007 to December 2011, are summarised in Schedules 1, 2 and 3 to these reasons.)

4. ASIC’s 29 June 2015 banning order was based on criticism of Mr Sweeney’s conduct as a PCL director, and related to irregularities in the company’s financial reporting and disclosures.  Those irregularities concerned PCL’s March 2000 $4m mortgage loan agreement for the purchase ($1m) and development ($3m) of a residential development property at Burleigh Heads.  The borrower - a project specific corporation named Burleigh Views Pty Ltd (“Burleigh Views”) - defaulted under the mortgage, never completed the development, and went into liquidation in August 2008.  Throughout the period of Mr Sweeney’s involvement with PCL the Burleigh Views loan was (and indeed had long been) PCL’s largest.  By the time of the August 2008 liquidation PCL had taken possession of the development and the outstanding loan balance had increased to about $13.81m.  When PCL itself went into liquidation (more than four years later - on 24 October 2012) no significant additional work had been carried out, completion of the development depended on the outcome of an unresolved development application, and the loan balance had increased (as a result of fees, expenses and capitalised interest) to about $22m.  (Material events detailing the history of the Burleigh Views loan are summarised in a later part of these reasons:- see paragraph 17 below.)

5. Between October 2008 and March 2012 PCL published various Quarterly Reports (see paragraph 88 below) and half yearly Benchmark Reports (see paragraph 96 below).  Mr Sweeney relevantly approved all of them - either formally at a PCL Board meeting, in a circular resolution, or in an email acknowledgment:- see Schedule 5 - PCL Quarterly & Benchmark Reports, Prospectus & Information Booklets;  Schedule 6 - PCL - Board Meetings, duration, minutes, and attendances. The Quarterly Reports were (typically) two page documents containing the compliance disclosures required by Corp Act s 283BF. The Benchmark Reports were seven or eight page documents that assessed PCL’s compliance with eight “benchmarks” in ASIC’s Regulatory Guide 69.

6. ASIC considered the Quarterly Reports were misleading or deceptive, because they did not disclose the following matters relating to the Burleigh Views loan:-

   (a)that it had been in default since at least August 2008

   (b)that, in about mid 2008, PCL had taken possession of the property as mortgagee, and that Burleigh Views was itself in liquidation

   (c)that all of PCL’s (post 2003) valuations of the Burleigh Views property addressed its value “as if” the development was complete, whereas the development:-

   (i)was incomplete, and

   (ii)had no current development approval for its completion

   (d)that the loan default had the capacity to prejudice the interests of PCL’s debenture holders.

7. ASIC considered the Benchmark Reports were misleading or deceptive, because they failed to comply with benchmark 5 (relating to disclosure of the number and value of loans in arrears) and benchmark 7 (relating to the valuation basis of development and construction loans) in Regulatory Guide 69.  (The required benchmark contents are summarised later in these reasons:- see paragraph 93 below.)

8. ASIC also found that even if the PCL directors had subjectively considered the Burleigh Views loan exposure was unlikely to result in any material prejudice (because (i) the outstanding loan debt adequately covered by the realisable value of the property, and (ii) that realisable value was supported by a valuation) they had still not made the disclosures that were objectively required in relation to the loan default.

9. ASIC found that Mr Sweeney had become aware of the Burleigh Views loan default and liquidation by about July 2010. On that basis (and having regard to the view expressed in paragraph 8) ASIC found that that Mr Sweeney had engaged in misleading and deceptive conduct (within the scope of Corp Act s 1041H) in relation to his approval of:-

   (a)seven Quarterly Reports (for September and December 2010, March, June, September and December 2011, and March 2012), and

   (b)four Benchmark Reports (for September 2010, March and September 2011, and March 2012).

   PCL - business and board

10. Provident Asset Management Pty Ltd, the trustee of the O’Sullivan Trust and the Provident Trust, held all of PCL’s 100,000 fully paid $1 issued shares.  Mr Michael O’Sullivan was the PCL chairman.[1]  He and Mr Trevor Seymour had been appointed as directors very shortly after PCL’s 25 May 1998 incorporation.  In July 2000 they were joined on the Board by Mr Bersten.  He was a solicitor whose firm was a legal adviser to PCL.  Until 1 July 2007, Mr O’Sullivan was PCL’s only executive director.  At that time Mr Bersten became a full time legal adviser to PCL and changed his status to that of an executive director.

    [1]On 16 February 2015, ASIC made two orders against Mr O’Sullivan:- (i) an order, under CorpAct s 920A, banning Mr O’Sullivan from providing financial services for a period of seven years, and (ii) an order, under CorpAct s 206F, disqualifying Mr O’Sullivan (subject to some conditional exceptions) from managing corporations, for a period of five years. In O’Sullivan v ASIC [2017] AATA 644 the Tribunal substantially affirmed ASIC’s decisions.

11. Until about July 2007, PCL’s funding came exclusively from the issue of public debentures - under an 11 December 1998 Trust Deed.  (After about November 2004, Australian Executor Trustees Limited (“AETL”) was the trustee for the debenture holders.)  The trust deed granted the trustee a first ranking floating charge over PCL’s assets.  The charge crystallised in the event of any of eight specific contingencies.  One of them was PCL’s unremedied failure to comply with its deed obligations.  Relevant to the present matter, those obligations included:-

    (a)clauses 2.3 & 2.17:- timely payment of interest to debenture holders

    (b)clauses 5.1 & 5.2:- using the debenture funds principally for the purpose of providing finance facilities secured by registered first mortgage, on terms that otherwise complied with the deed

    (c)clause 5.2.1:- limiting the loan amounts to specific proportions of the value of the mortgaged property (in the case of loans for construction or development purposes the maximum loan to value ratio (“LVR”) was 70% of the, appropriately certified, projected end value of the development

    (d)clauses 6.0.3 to 6.0.9:- keeping proper accounts, and providing the trustee with both monthly reports (in a prescribed form) and also copies of any accounts and reports PCL lodged with ASIC

    (e)clause 6.0.12:- giving the trustee prompt notice of (i) any default, or potential default, under the trust deed and (ii) any material adverse change in PCL’s financial circumstances, including its ability to comply with the trust deed obligations.

12. From early August 2007 PCL also had a $100m wholesale funding facility with Bendigo and Adelaide Bank.  Thereafter PCL’s debenture funding declined from the June 2007 total (of about $208M) to $125m in June 2011, but its overall funding liabilities remained relatively stable (in the order of $210m).  Debenture funding typically provided about 60% to 70% of PCL’s total funding.  About 40% of that debenture funding was repayable within 12 months and was recognised as a current liability in PCL’s financial statements.  By the end of the 2011 financial year PCL’s wholesale funding liabilities approximated $90m, and it had about 3,000 debenture holders:- see Schedule 2.

    PCL - credit and procedure policies

13. By at least early 2007 PCL had various policy and procedure documents (“CPP manuals”) that governed its lending practices and loan management.  Departure from the CPP manuals required Board approval and written advice from PCL’s managing director (Mr O’Sullivan).  The relevant CPP manuals, and the period to which each applied, were as follows:-

    (a)February 2007 to 13 August 2007:- Credit Policy and Procedure Manual Credit and Lending Department.

    (b)14 August 2007 to 30 March 2008:- Credit Policy and Procedure Manual Credit and Lending Department.

    (c)31 March 2008 to 8 September 2009:- Credit Policy and Procedure Manual Credit and Lending Department.  This 65 page manual had 15 sections and 8 Appendices.

    (d)9 September 2009 to 29 November 2009:- The Credit Policy Manual Credit and Lending Department version of the manual was somewhat shorter, and less detailed, than its predecessors.  This was partly because some provisions, and specifically those dealing with loan arrears and their reporting, were moved to an associated document that set out PCL’s “asset management policy” for non-performing loans.  The manual’s 43 pages comprised three main sections and six Appendices.  Appendix 2 set out the relevant LVR and loan limits for various categories of loan.  The Appendix did not specifically address construction and development purpose loans, but clause 3.27 of the manual itself indicated the fact of relevant loan limits and LVR requirements for such loans.  Consequently, the absence of specific details in the Appendix may have been an oversight.  Later versions of the manual suggest that the loan limits were in fact included in a construction and development “product guide”.  Such a document was referred to in the manual Appendices, and appears to have been introduced some years earlier.

    (e)30 November 2009 to July 2010:- This Credit Policy Manual Credit and Lending Department had 51 pages, again with three main sections, and seven Appendices.  Appendix 2 again set out LVR requirements and loan limits but, like the previous CPP version, did not specifically address construction and development loans.

    (f)August 2010 to 31 January 2011:- The August 2010 manual had 43 pages, three main sections and five Appendices.  The manual amended Appendix 2 to include specific reference to construction and development loans.  It provided for a 65% limit under PCL’s credit policy, despite the 70% LVR limit under the debenture trust deed.  The manual still did not contain any specific loan amount limit, for construction and development loans, but there were general limits of $1.5m per loan and $3m per borrower.  Rather curiously, those limits are less than the $2.5m and $4m limits stated in the 22 December 2010 Prospectus for 2011:- see paragraph 47 below.

    (g)1 February 2011 to January 2012:- The 36 page February 2011 manual was substantially similar to the August 2010 version.  It had three main sections and six Appendices.

14. The more important aspects of the CPP manual requirements are summarised (very broadly, and without specific regard to the precise periods of the currency of each requirement) in the following subparagraphs.  In that summary I have assumed, despite wording and format differences in the manual versions after September 2009, that the general nature of the requirements remained substantially the same.  (Reflecting that assumption the clause references I have included mainly relate to the 2007 and 2008 CPP manual versions.)

    (a)Extensions (cl 3.18 / cl 3.19 & cl 6):- Extensions after a loan’s initial term were treated as the making of a new advance.  As such they were generally, but not inflexibly, subject to the current loan policy requirements - including current valuation.  For example, cl 3.23 of the 2010 manual conditionally permitted extension if a valuation was less than two years old and the loan had been conducted satisfactorily.

    (b)Default (cl 10.6 / 16.3 / 15.2):- At least up until the change in the manual format in 2009, loan default was defined to include (amongst other things) circumstances where (i) the borrower failed to make any required payment by its due date, (ii) the borrower failed to comply with any other loan term obligation, (iii) the borrower became subject to external administration, or (iv) PCL determined there was likely to be a material adverse effect on the value of any security it held.  The absence of a specific default definition in the CPP manual after September 2009, did not involve any substantive policy change.  The substance of the definition was expressed in the Prospectus, and Information Booklet, documents PCL issued:-see paragraphs 112, 16(d) and 125 below.

    (c)Interest capitalisation (cl 10.16 / cl 16.16):- From 22 February 2007 to 8 September 2009 (and subject to the managing director’s discretion), the CPP manual directed that calculation and charging of interest was to cease on loan accounts if a loan had been placed into a non-accrual status, no payment had been received in four months, or recovery of interest was either unlikely or reasonably unlikely.  After September 2009, PCL’s approach in relation to defaulting loans was contained in an asset management process document separate from the CPP manual.  The stated aim of that process was to minimise the risk of loss to PCL.  The Prospectus and Benchmark Report documents, in addressing loan arrears, appear to have included capitalised interest, where PCL considered that its recovery was “reasonably certain”:- see paragraph 101 below.

    (d)Loan to value ratios (cl 3.5 & 4.6):- Loans were subject to specific “LVR” restrictions, which varied according to the asset class and location.  Loans made for construction and development purposes were subject to a 70% LVR, relating to the projected end value of the development.  That LVR was required to take into account any interest to be capitalised during the loan term.  During the period from September 2009 to August 2010, the LVR for construction and development loans appears not to have been specified in the CPP manual itself:- see paragraph 13(d) above.  But the various Benchmark Reports and Prospectus documents indicate that it continued to apply - subject to a reduction to 65% in the period covered by the 2009 Prospectus:- see paragraph 117 below.

    (e)Loan limits (cl 4.2, 4.3, 4.6):- As at February 2007 individual loan limits varied from $5m to $15m depending on the type of loan.  Loans for development and construction purposes were limited to a maximum $15m and two year term.  From about September 2009 the CPP manual Appendices set out limits for various loan categories.  The limits originally ranged between $3m and $10m, but after August 2010 there was a $3m loan exposure limit for any borrower.  (In December 2010 those limits may have been further reduced - having regard to the contents of the 2011 Prospectus:- see paragraph 47 below.)  The loan limits after September 2009 did not appear to address construction and development loans specifically, but PCL’s Benchmark Reports from October 2009 onwards indicated that it had only one such loan (obviously the Burleigh Views loan).

    (f)Loan arrears reporting (cl 10.5 to 10.8 / cl 16 4 to 16.8 / cl 15.3 to 15.7):- Each default loan was to be included in weekly and monthly management arrears reports.  Where the loan default was more than 90 days, the loan was to be included in a monthly “Past Due” report, and included in the Board papers.  (After September 2009 the loan arrears category appears to have been extended to include loans that were less than 90 days in arrears.)  Where loan interest was more than four months in arrears, or the recovery of interest was “unlikely or reasonably unlikely”, interest was not to be accrued, unless the managing director considered doing so was appropriate.  The Board papers were required to include a specific report on default loans that had been placed on a “non-accrual” basis.  (These various requirements were explicit in the CPP manuals prior to September 2009.  The Board reports (as summarised in paragraphs 62 to 76 below) indicate that the requirements continued to operate, despite changes in the content of the CPP manuals.)  The actual content of the default loan reports to the Board, from 2007 to 2012, are summarised in Schedules 4.1 to 4.5.

    (g)Loan recovery (cl 10.10, 10.12 / cl 16.10, 16.12 / cl 15.8, 15.9):- Until the September 2009 CPP manual there were detailed provisions about the recovery process for loans in default.  Required recovery action was to begin (in the absence of compelling reasons to the contrary) within a month of the borrower’s default.  A time line guide indicated that security properties were to be realised within six months of default.  The loan recovery process was to be finalised within five weeks after the sale of the security property.  After September 2009 the (presumably similar) asset recovery process was detailed in PCL’s asset management document.

    (h)Valuations (cl 3.14 / cl 3.15 / cl 3.18, cl 4.6) / cl 3.27:- Any new loan was subject to prior current independent valuation by an approved valuer.  As at February 2007 any loan for development or construction purposes was required to have both “as is” and “on completion” values.  PCL’s relevant lending manager (or Mr O’Sullivan) was required to review any valuation and certify its compliance with a “checklist” of requirements - including the LVR and other aspects of the property details.  The requirement for both “as is” and “on completion” valuations for construction or development loans was evident in the valuation “checklists” and was carried through to the August 2010 CPP manual.  Each of the PCL prospectus from February 2008 to December 2010, and the 2012 Information Booklets, in their comments on Benchmark 7 indicated that PCL required both “as is” and “as if complete” valuations for construction or development loans.

1. The title and contents of the various CPP manuals indicate that they were primarily addressed to PCL’s management personnel.  But Mr Sweeney acknowledged that he had received a copy of the manual, including (at least some of) its periodic revisions, had read the manual “in a cursory way”, and was aware of the valuation and LVR requirements it contained.  The precise extent of Mr Sweeney’s familiarity with the details of the various CPP manuals is not necessary to consider in any detail.  The more important policy requirements related to loan valuations, the relevant LVR requirements, arrears reporting and loan recovery.  Mr Sweeney’s knowledge of the substance of PCL’s obligations and practices in relation to those matters, is sufficiently evidenced by his participation in the approval of the contents of the various Benchmark Reports, and PCL Prospectus:- see Schedule 5 - Reports and Prospectus documents and paragraph 60 below.

   PCL - overview of material events

2. Apart from the events directly concerned with the Burleigh Views loan, the material dates and events in PCL’s corporate history are briefly summarised in the following subparagraphs:-

   (a)December 2007, 2008, 2009 & 2010:- PCL issued further prospectus:- see paragraph 112 below.

   (b)22 December 2011:- ASIC wrote to PCL raising concerns about the adequacy of its financial disclosures, particularly in the light of the draft prospectus PCL had submitted to ASIC earlier that month.  ASIC requested PCL to (i) undertake not to issue (or roll over) any further securities, and (ii) engage an independent expert to report on the company’s solvency.  The particular matters ASIC cited as the reasons for its concern included (i) PCL’s uncertain prospects of recovering the Burleigh Views loan, having regard to projected development costs of $4m, and the apparent absence of required valuations, (ii) the level of loan arrears and the adequacy of PCL’s provisioning, and (iii) the absence of current “as is” valuations for “distressed properties”.

   (c)23 December 2011:- PCL responded to ASIC and indicated that it (i) had ceased accepting investments from new investors, (ii) had withdrawn its current prospectus, and (iii) would prepare, and consult with ASIC about, an information booklet to be issued to existing investors.

   (d)January, March and April 2012:- PCL published three “Information Booklets” providing additional disclosure about its lending performance and financial circumstances:- see paragraphs 125 to 133 below.  The third of these booklets, appears to have been prompted by AETL’s concerns about PCL’s (i) apparently longstanding failure to include the Burleigh Views loan balance in its loan arrears reports, and (ii) inadequate response to AETL’s request for an explanation:- see paragraph 54 below.

   (e)8 June 2012:- AETL commenced proceedings in the Federal Court of Australia to enforce the debenture holders’ securities. (AETL acted in reliance on Corp Act s 283HB(1), and contended that 90% of PCL’s loans were non-performing.)

   (f)3 July 2012:- Following the 29 June 2012 publication of its reasons for judgment, the Federal Court appointed receivers to PCL.  (In those reasons Rares J found that PCL (i) was likely to have a net asset deficiency, including losses on the Burleigh Views loan and two other properties, and (ii) had no realistic prospect of raising funds to finance any asset shortfall.  Rares J also found that the loan arrears disclosure in the 2012 Information Booklets had been confusing and incomplete:- Australian Executor Trustees Ltd v Provident Capital Ltd [2012] FCA 728 at [45]-[[57], [58], [62]-[64].)

   (g)18 September 2012:- an administrator was appointed to PCL.

   (h)24 October 2012:- PCL was put into liquidation.  Its estimated deficiency was $77.746m.

   Burleigh Views loan history

3. The Burleigh Views development was the subject of an 11 March 1998 “Town Planning Consent Permit” for the two stage construction of 36 townhouses.  Under the terms of the relevant Queensland legislation the planning permit would automatically lapse within four years (ie., by March 2002) unless either the dwellings had begun to be used, or the permit period had been extended.

4. By the latter part of 2003 Burleigh Views had made little progress with the development and the loan principal had increased to about $3m.  In December 2003, after having served formal default notices with a view to exercising its mortgagee power of sale, PCL had obtained a further valuation of the property.  That valuation, which wrongly assumed the continued existence of a valid planning permit, was $5.9m “as is”, and a gross $17.2m “on completion” of the proposed development.  Relying on that valuation, in April 2004 PCL entered into a deed of variation with Burleigh Views.  The deed contemplated further advances of $4.8m (resulting in a loan principal of about $8.89m) and repayment by 30 November 2004.

5. August 2004 to April 2007:- Construction work started on the first of the townhouses in August 2004.  The 30 November 2004 date passed without repayment, and the loan balance increased as a result of the capitalisation of accrued interest.  In November 2005 PCL demanded repayment of (what had become) the outstanding $9.6m loan principal, and served formal notice of its intention to exercise its mortgagee’s power of sale.  In August 2006, after a period of disruption of the construction work by landslip remediation work undertaken by the local Council, PCL (apparently temporarily) entered into mortgagee possession of the Burleigh Views property.

6. 4 May 2007:- PCL’s April 2007 management accounts treated the then outstanding $9.7m loan principal as a loan in arrears - but with a projected completion valuation of $17.2m and an “LVR” of 57%.  On 4 May 2007 PCL agreed to refinance the loan for an additional 12 month term.  Significant aspects of the agreement were:- (i) additional Stage 1 construction costs of $0.75m, (ii) a peak Stage 1 debt, and overall loan limit, of $13.1m, (iii) Stage 1 sales of $10.8m during the Stage 2 construction, (iv) Stage 2 construction costs (including contingencies) of $4m, and (v) a peak Stage 2 debt of $7.2m.  The agreed interest rate was 16.5%, reduced to 10.5% for prompt payment, and able to be capitalised at that rate if the loan was not in default.  The refinancing agreement was subject to valuation (on both an “as is” and “on completion” basis) for the second stage of the development and compliance with a 70% LVR on the completion value.  The refinancing appears not to have been more formally documented, and the borrower did not provide the contemplated valuation until around September 2007.  Nevertheless, PCL’s May 2007 management accounts recorded the Burleigh Views loan as a “new loan”, with an outstanding principal of $11.7m, and a limit of $13.5m.

7. February to May 2008:- On 29 February 2008 PCL issued a supplementary prospectus in response to ASIC’s issue of Regulatory Guide 69.  In the section of the prospectus dealing with Benchmark 7, PCL addressed the Burleigh Views loan (although without referring to it by name).  The prospectus statement indicated that (despite the terms of the May 2007 refinancing and its own credit policies) PCL had agreed to the “new loan” months before obtaining any updated valuation, and had not obtained its own recent valuation.  The statement was in the following terms:-

   The Company has made only one loan where the loan accounts for more than 5% of the total value of the Company’s loan portfolio. The loan amount is $12,026,966 based on an initial valuation made as at 23 December 2003 for construction funding purposes and which assessed the “as if complete” value at $17,222,000; the work is nearing completion, and the borrower has supplied a valuation report dated September 2007 assessing the “as if complete” value at $26,000,000 (exclusive of GST). The security property is located on the Gold Coast in Queensland.

8. Shortly before lodging the supplementary prospectus PCL had received a conditional $13.2m offer to purchase the development, and must have been aware of Burleigh Views’ likely inability to meet the May 2008 repayment obligation.  That probability would only have been confirmed when, on 17 April 2008, PCL received from Burleigh Views a tentative suggestion that it had found a buyer prepared to pay $12m for the property.  No doubt influenced by those indications, PCL began investigating the sale of the property and obtained an April 2008 marketing submission from Ray White Marketing.  That submission stated it was a preliminary opinion and assumed the currency of development approval.  It also (i) stated that it could not be relied on as a formal valuation, and (ii) strongly recommended that PCL obtain a formal valuation.  Against the background of those statements, the submission provided an estimated gross realisation of $9.9m to $11.7m for the substantially complete 18 dwelling Stage 1, and $1.9m to $2.25m for the Stage 2 development site, on the assumption that it had a valid development consent:- see Schedule 7 Burleigh Views property valuations / estimates / feasibilities.  The lower end of this appraisal range would have served to confirm the reasonableness of the $12m proposal from Burleigh Views.

9. May to September 2008:- After Burleigh Views failed to make the May 2008 repayment PCL continued to capitalise interest (although only at the lower 10.5% rate).  In June 2008, PCL took control of the property, as mortgagee in possession.  On 18 August 2008, Mr O’Sullivan exchanged emails with Mr Fulker (PCL’s chief operating officer), acknowledging that the loan had reached the $13.5m principal limit, the loan arrears report table was to be updated by including capitalised interest for July 2008, and that a decision would have to be made about any future interest capitalisation.

10. Three days after that email exchange, Burleigh Views went into liquidation, and the loan balance had accumulated to $13.8m.  On 28 August 2008 Mr O’Sullivan spoke to the liquidator.  He reported that PCL had been in control of the property since about mid June 2008.  At the end of August 2008, and despite the recent email communications suggesting it had been treated as in default during May, June and July 2008 (see paragraph 23 above), the Burleigh Views loan was certainly not included in, and had been deliberately removed from, PCL’s loan arrears report.  On 5 September 2008, Mr O’Sullivan gave instructions to give ASIC formal notice that PCL had gone into possession of the property.  (That notice was lodged with ASIC on 9 September 2008.)  Late in the afternoon of 16 September 2008 Mr O’Sullivan received a $9.717m offer to purchase the 18 townhouses in the first stage of the Burleigh Views development.

11. October 2008 to June 2009:- In early October 2008, shortly after the 30 September 2008 approval of the June 2008 financial statements, PCL’s auditors provided an audit management report:- see paragraph 65 below.  That report, which was addressed to Mr Fulker, expressed concern about the absence of adequate information for balance date impairment assessment of default loans.  It identified, as an important issue, the absence of current “as is” valuations for PCL’s arrears loans.  On 14 October 2008 Mr Fulker, no doubt following up on the August 2008 email exchange with Mr O’Sullivan, gave an email instruction (with a copy to Mr O’Sullivan) that interest on the Burleigh Views loan was to continue to be capitalised, and the loan was to be removed from the September 2008 arrears report.  His explanation for this instruction was that “we are working on this loan file to continue the facility into the next phase”.  On the following day, Mr Fulker attended the PCL Board meeting, and circulated the October 2008 audit management report to the directors.

12. PCL’s process of responding to the October 2008 audit management report included the investigation of valuations for the loans in arrears.  On 4 November 2008 Mr O’Sullivan rejected an enquiry about selling Stage 2 (for $2.6m) - because (i) the two development stages were still on the same title, and (ii) he considered that completing the development gave PCL the best chance of recovering its loan.  On 6 November 2008 Mr O’Sullivan contacted the valuers who had provided the September 2007 Burleigh Views valuation (referred to in paragraph 21 above).  He was told they regarded the valuation as no longer current and that it could not be merely endorsed in favour of PCL.

13. Another of the steps PCL took in response to the October 2008 audit management report was the preparation of a schedule of its largest default loans.  The first version of that schedule - the “Top 5 Loans” as at 31 October 2008 - was tabled at the 13 November 2008 PCL Audit Committee meeting, which Mr Fulker attended.  The $14.064m Burleigh Views loan was the last, but by far the largest, of the listed arrears loans.  Mr Sweeney made various marks and annotations on a copy of the table.  They included “circling” the stated “maturity date” (11 November 2008) and the “current LVR” (72.9%) of the Burleigh Views loan.  The meeting minutes expressly recognised the loan as being in default, despite the fact that, like three of the other listed loans, its stated “maturity date” was after 31 October 2008.  (That inconsistency suggests PCL’s practices did not regard the “maturity date” as the determinative consideration in identifying the arrears status of a particular loan.)  The minutes of the meeting record that Mr Seymour, the audit committee chairman, was to communicate with Mr O’Sullivan, and ask him to provide an update on the status of the five default loans at the 19 November 2009 Board meeting.

14. The day after his attendance at the 13 November 2008 PCL_AudCC Mr Hornby (PCL’s chief financial officer) circulated the papers for the 19 November 2008 Board meeting, and drew attention to the arrears loan spreadsheet they contained.  Consistent with Mr Fulker’s 14 October 2008 email, but rather surprisingly, in view of the discussion at the PCL_AudCC meeting, the loan arrears spreadsheet did not include the Burleigh Views loan.  (Neither did it include three of the other largest arrears loans).  But the contents of the 13 November 2008 meeting minutes compel the conclusion that Messrs Bersten, Sweeney and Seymour were at that time well aware of both the substantial loan balance and the default status of the loan.  In addition, the Board minutes of the 19 November 2008 meeting record the fact of Mr Bersten and Mr Seymour’s briefing to the Board meeting about “the matters discussed at” the 13 November 2008 audit committee meeting.  (The fact of a lengthy and detailed discussion having in fact occurred at the meeting is suggested by both that aspect of the minutes and the almost four hour duration of the meeting:- see Schedule 6.1.)

15. There was a one and three quarter hour PCL_AudCC meeting on 17 December 2008.  Prior to the meeting Mr Fulker had responded to the auditors about the October audit management letter, and advised them that PCL was in the process of preparing a list of arrears loans and valuation dates, for Board review.  It was also reviewing the process for preparation of impairment statements (including valuation reports).  The PCL_AudCC meeting minutes record that Mr Fulker reported that communication to Mr Seymour and Mr Sweeney.  They also record the tabling of the latest loan arrears report, discussion of the report, and Mr Sweeney’s recommendation that it be amended to include some additional information about the particular loans.

16. The 17 December 2008 PCL Board meeting began about 15 minutes after the end of the PCL_AudCC meeting.  Messrs O’Sullivan and Bersten joined Mr Seymour and Mr Sweeney, for the Board meeting.  The Board minutes record that Mr Seymour reported on the matters discussed during the audit committee meeting.  After his report, Mr Bersten tabled a draft of PCL’s Prospectus 11 and requested the other directors’ comments within the next two days.

17. The papers circulated for the 17 December 2008 Board meeting did not include the Burleigh Views loan as being in arrears.  However they did include, perhaps for the first time, a schedule of “Top 10 Loans”.  That Schedule listed the Burleigh Views loan and recorded (i) a loan balance of $14.192m, (ii) an 11 November 2008 “maturity date” (patently indicating that the loan was in fact in arrears), (iii) a total security value of $19,285,714.29 and a total loan to valuation ratio (“TLVR”) of 70%.  There were a number of difficulties with this report.  First of all the loan was not listed as having any “arrear days” - despite the expired maturity date.  Second, the recorded maturity date of 11 November 2008 conflicted with the twin realities of (i) May 2008 being the last contractually agreed repayment date, and (ii) PCL’s post September 2008 formal control of the property as mortgagee in possession.  Third, the two decimal place precision of the stated security value was patently artificial.  It bore no relationship to any actual valuation.  It was, in fact, simply a “backward calculation” based on the May 2007 loan principal of $13.5m.  Fourth, even disregarding the artificial precision of the security value, the stated 70% TLVR was in fact arithmetically wrong, and understated.

18. The use of the arithmetically derived $19.2m valuation figure in the Top 5 and Top 10 Loans schedules discussed at the 19 November and 17 December 2008 meetings was particularly anomalous in the light of the remarks about the Burleigh Views loan in both the February 2008 supplementary prospectus (see paragraph 21 above) and in the Benchmark Report for the 30 June 2008 half year:- see paragraph 103(a) below.  Mr Bersten had circulated the Benchmark Report, with its specific statement about the September 2007 valuation of $26m, to Messrs Seymour and Sweeney on 28 October 2008.  Each of them had approved its contents.  Three days later, Mr Sweeney expressed his concern, in the context of the audit management report criticisms, about out of date valuations for properties where the loans were in arrears.  The Prospectus 11 draft circulated at the 17 December 2008 meeting noted the post June 2008 economic downturn, the related potential increase in credit risk, changed property values and PCL’s decision not to provide any new construction loans:- see paragraph 114 below.  All of these considerations (specifically including the contents of the discussion at the 13 November 2008 PCL_AudCC meeting) point towards the probability that at the end of 2008, all of the directors were well aware of the default status of the Burleigh Views loan, the uncertainty surrounding the property’s current valuation, and the uncertain prospect of its satisfactory realisation.

19. That probability is enhanced by regard to Mr O’Sullivan’s recollection about his approach to the Burleigh Views loan after PCL went into possession.  In his April 2015 affidavit, and in evidence in his own Tribunal proceedings, Mr O’Sullivan asserted that after PCL went into possession as mortgagee, and certainly by December 2008, he had come to, and thereafter consistently maintained, and discussed with the other Board members, a recovery strategy that involved completion of the second stage of the Burleigh Views development before attempting to sell any of the residential units.  The reasons for this view included (i) avoiding the risk of “Stage 1” buyers being discouraged by ongoing construction on “Stage 2”, and (ii) avoiding the risk of being required to provide a significant discount for any “one line” sale of the entire development in its “as is” incomplete state.

20. At the February 2009 PCL Board meeting, as part of Mr O’Sullivan’s report, there was specific discussion of PCL’s loan arrears and provisioning.  Later, at the June 2009 meeting, the Board noted that PCL had made a formal response to the auditors about the audit management report.

1. July 2009:- PCL’s internal accounting records attribute to Mr O’Sullivan an instruction to extend the Burleigh Views loan to 30 June 2010.  This instruction (together with later similar instructions) likely accounts for the fact that the Burleigh Views loan was typically not included in the loan arrears reports provided to the directors for the monthly Board meetings.  Nevertheless, until May 2010, the Top 10 Loans reports that were included in the Board papers consistently recorded 11 November 2008 as the loan maturity date - and thus patently indicated that the loan was in fact in arrears.

2. August & September 2009:- In August and September 2009 PCL received letters from the Gold Coast City Council advising that the 1998 planning permit for the Burleigh Views property had lapsed in 2002 - because the development had not been completed and used by that date.  The Council informed PCL that (i) no further development of the site could occur under the 1998 permit, (ii) a new Gold Coast planning scheme had come into effect in 2003, and (iii) any new planning permit application would be subject to assessment under the 2003 planning scheme.  Mr O’Sullivan said (in his April 2015 affidavit) that after this he discussed the approval lapse with the other directors.

3. December 2009:- On the same day that Mr Bersten sent his memo about the form of the loan arrears report (see paragraph 75 below) PCL received a letter from its planning consultants suggesting that PCL obtain legal advice about the validity of the Burleigh Views planning permit.  In a further email to Mr O’Sullivan on 10 December 2009 the consultants reported the substance of that advice - that the Council was likely correct in contending the 1998 planning permit had lapsed.  The consultants added their own views that the Council was (i) unlikely to refuse a further permit for the 18 townhouses that had already been substantially constructed, (ii) likely to make any such approval conditional on an open space restriction that would effectively preclude further residential development of the site, and (iii) unlikely to approve the construction of the additional 18 townhouses contemplated by the 1998 development proposal and planning permit.

4. On 23 December 2009 PCL lodged its debenture prospectus 12.  It included a new statement about the valuation of the Burleigh Views property.  It said that the latest valuation of the property had been undertaken in December 2009 and had assessed the “as if complete” value at $26.8m, exclusive of GST:- see paragraph 117 below.  This statement was an inaccurate interpretation of an exchange of emails on 15 December 2009 between Mr O’Sullivan and the valuer who had carried out the December 2003 valuation.  In that exchange the valuer, alluding to a “final report” that appears never to have been provided, set out a “gross realisation” spreadsheet.  The spreadsheet gave a total value of $26.68m (inclusive of GST).  That total value reflected assessments of $12.27m for the first 18 townhouses, and $14.31m for the additional 18 townhouses contemplated for the completed Stage 2.

5. April 2010:- On 1 April 2010 PCL received formal legal advice confirming that the development permit for the Burleigh Views Property had indeed lapsed - for the reasons previously claimed by the Gold Coast Council.  Later in April Mr Hornby circulated the Board papers.  He told the directors that the loan arrears report (in the form previously requested by the directors - see paragraph 75 below) was now being automatically generated by the accounting system.  He also drew attention to the Top 10 Loans schedule, and informed the directors, without explanation, that the Burleigh Views loan maturity date should read 31 December 2010 (instead of the printed date of 11 November 2008).  On 21 April 2010 the Board approved the Benchmark Report for the half year ended 31 December 2009.  That report adopted the $26.68m value, and described it (incorrectly) as exclusive of GST:- see paragraph 103(b) below.

6. August and September 2010:- On 11 August 2010 Mr Hornby sent an email to Mr O’Sullivan informing him about a planning meeting with PCL’s auditors in relation to loan impairment and provisioning.  He advised Mr O’Sullivan that the auditors had selected the Burleigh Views loan file for examination, and suggested that it would save a lot of time if they were provided with an overall summary of the loan.

7. The auditors provided their report on 14 September 2010.  It did not express any criticism of PCL’s accounting treatment of the Burleigh Views loan, but it did report that one of the outstanding matters was the absence of valuations for the Burleigh Views property, and for another property.  This report was considered at the 15 September 2010 PCL_AudCC meeting.  The people present were Messrs Seymour, Sweeney and Bersten, three representatives from PCL’s auditors, Messrs Hornby and Fulker, and PCL’s finance manager, Mr Kennedy.  According to the meeting minutes, there was detailed discussion of various matters, specifically including loan arrears reporting and the Burleigh Views loan.  The likely content of that discussion is informed by Mr Sweeney’s evidence that it was in about September 2010 that (to the best of his recollection) he first became aware the Burleigh Views development consent had lapsed (at least in relation to Stage 2).  Mr Sweeney put that discovery in the context of what he called “intense discussions” and pressure the directors were exerting on management to “address problematical accounts” and explore options “to quit Burleigh Views”.

8. After the 15 September 2010 PCL_AudCC meeting Mr O’Sullivan obtained an “update” of the Burleigh Views valuation:- see Schedule 7.  That update involved another exchange of emails, in which the valuer, after alluding to an “almost complete” (but never produced) valuation report, provided another spreadsheet, which ascribed a total value of $23.08m to the development.  Several hours later the valuer provided a further spreadsheet.  This version reverted (without explanation) to the $26.68m total in the December 2009 spreadsheet:- see paragraph 38 above.

9. 14 October 2010:- In early October 2010 Mr Seymour visited the Burleigh Views property.  He reported to the Board at the 14 October 2010 meeting.  The meeting minutes record, although with unfortunately brief ambiguity, that he noted the progress of the works and the position of the project.  Mr Sweeney said, in his oral evidence, that the directors had been canvassing the idea of selling the, substantially completed, Stage 1, and Mr Seymour had gone to inspect the site to satisfy himself, and ultimately the Board, that the status of the development corresponded with the information Mr O’Sullivan had provided.  It is clear that, from at least this time onwards, all of the PCL directors understood that recovery of the Burleigh Views loan depended on the completion of “Stage 2” of the development.  That clarity emerges from (i) the then outstanding loan balance (approximating $18.2m:- see Schedule 4.3), (ii) Mr Sweeney’s evidence that PCL’s recovery strategy, of taking over the property, and completing the development, was “unique” in its application to the Burleigh Views property, and (iii) Mr Sweeney’s evidence that a failure to obtain a renewed development consent would have left PCL’s recovery strategy in tatters.

10. December 2010 to April 2011:- On 15 December 2010, after the PCL Board meeting that day, PCL’s planning consultants reported to Mr O’Sullivan on the outcome of their meeting with Council about obtaining the development approval necessary to complete the Burleigh Views development.  The consultants reported that whilst the Council was generally happy with the proposal to construct Stage 2 of the development, it was concerned about conflict with the new planning scheme.  In particular, a major issue was the location of the site within an environmental corridor, whose importance the Council regarded as having “vastly increased” since the 1998 approval.  Council had indicated they would require (i) a report from an environmental consultant, (ii) a geotechnical analysis of the site (having regard to past issues with landslip), and (iii) a bushfire hazard report.

11. About a fortnight after the March 2011 PCL Board meeting Mr O’Sullivan responded cryptically to an enquiry from the Burleigh Views liquidator about PCL’s progress in realising the property.  Mr O’Sullivan told the liquidator that the timeframe for disposing of the property was uncertain and depended on the completion of the Stage 2 works.  He also told the liquidator, against the reported current loan balance of $19.481m, that PCL did not expect the sale of the property would result in any surplus, after repayment of the loan.

12. May to August 2011:- On 27 May 2011, following on from the earlier meeting in December 2010, Mr O’Sullivan and Mr Bersten wrote to the Gold Coast City Council providing PCL’s formal consent to the lodgement of a new planning permit for the construction of the Stage 2 development of the Burleigh Views property.  In mid July 2011 the Council issued a lengthy letter raising 30 separate issues where PCL was required to provide additional information.  Amongst the matters the Council raised were concerns about slope instability, geotechnically certified buildings, pedestrian and vehicular access, visual amenity, and landscaping to meet ecological and fire hazard concerns.  Despite the length, and apparent complexity, of the matters the Council had raised, PCL’s planning consultant reported that the Council had not raised any general objection to the application.  However, it was not until 20 January 2012 that PCL responded to the Council’s information request:- see paragraph 53 below.

13. On 27 August 2011 Mr O’Sullivan asked PCL’s valuer for a further update of the Burleigh Views property.  He told the valuer that the first 18 units in “Stage 1” were 95% complete, but that PCL considered it best to market the two stages in combination, once the “Stage 2” construction had been finalised.  In relation to that prospect he said that PCL was “simply” waiting on Council confirmation, and anticipated construction commencement around October / November 2011.  When the valuer had not responded promptly, Mr O’Sullivan said he would be happy to have a report similar to the September 2010 letter.  The following day, the valuer provided a further copy of that letter, but one with the date changed to 30 August 2011.

14. In the meantime, on 29 August 2011 a prospective investor, having read PCL’s 2011 Prospectus, sent an enquiry that specifically focussed on the disproportionate size of the Burleigh Views loan.  The question the investor raised, and the internal response it provoked within PCL was as follows:-

    (a)Investor email:-

    In your Prospectus 2011 pg.9 you mentioned that the maximum limits for each loan is $2.5 million, and the maximum limits for each borrower is $4million. However, in page 7, there are details of one loan that is valued at $17,518,058, which significantly exceeds both the $2.5 million/loan limit and the $4 million/borrower limit.  Is there any particular reason why the loan is concentrated in this one loan & borrower?

    (b)Hornby (PCL Chief Financial Officer) email to Bersten:-

    This is Burleigh Views - Malcolm I am sure you would be best able to eloquently summarise this one

    (c)Bersten email response to Hornby:-

    The maximum loan and borrower limits on page 9 are our current policy limits, as is noted in the same phrase.  The largest loan of $17,518,058 is a construction facility made originally in 2004.

    (d)PCL email response to investor:-

    Regarding question 2: The maximum loan and borrower limits on page 9 are our current policy limits, as is noted in the same phrase.

    The largest loan of $17,518,058 is a construction facility made originally in 2004. Also please refer to p10 point 6 regarding the latest valuation as at September 2010.

15. 26 September 2011:- Another investor made a specific enquiry about the Burleigh Views loan - in light of the disclosure contained in the April 2011 Benchmark Report (see paragraph 107 below), and the absence of the June 2011 report (it was not approved by the Board until October 2011:- see Schedule 5).  The communications relevant to this enquiry were as follows:-

    (a)Investor email:-

    I could not locate the ASIC RG 69 Disclosure Report for the quarter ended 30 June 2011 on your company's website and would appreciate you forwarding me a copy.

    Can you please also advise:

    - if the Wholesale Funding Facility was extended and if so when to; and

    - what is the current progress of the 1 property development loan currently being developed by Provident and its current valuation.

    (b)PCL’s “client services manager” officer’s email to Bersten:-

    I received this enquiry, are you able to assist with a response?

    (c)Bersten email response:-

    Until Mike returns, I would rather not attempt to describe where the project is up to. However, you could give the following response to the enquiry:

    The most recent valuation for the property being developed with the development loan was made in August 2011 and confirmed the “as if complete” valuation remains at $26,680,000.

    (d)PCL email response to investor:-

    Regarding the development loan, the most recent valuation for the property being developed with the development loan was made in August 2011 and confirmed the “as if complete” and the valuation remains at $26,680,000.

16. October 2011 to May 2012:- From mid October to early December 2011 PCL officers began feasibility assessments for the proposed completion, and sale, of the Burleigh Views development.  These assessments involved various assumptions about (i) the net GST liability that would apply to the realisation of the completed development, (ii) the anticipated construction costs ($3m), and (iii) the timing of the sales of completed townhouses.  The last of these assessments (in December 2011) anticipated that the completed development would result in a small surplus (of about $121,000) after repaying the projected loan balance:- see Schedule 7.

17. In January 2012 PCL received an updated valuation report.  This referred to inspections in July and October 2011 - perhaps indicating that it had been commissioned before Mr O’Sullivan’s 27 August 2011 email, and long delayed.  The report noted that PCL’s mid-2011 application for a new planning permit was still pending, and that the Council was waiting for PCL’s response to its request for further information to be submitted.  On the assumption that the required planning permit would be obtained, the 2 January 2012 valuation adhered to the previous $26.68m (GST inclusive) assessment of the gross realisable sale proceeds.  This valuation did not take into account construction timing and costs.  Consequently it provided no basis for any greater net result than what had been projected in the feasibility assessments.

18. On 20 February 2012 Herriotz International provided Mr O’Sullivan with an ”approximate price” of $4.25m (plus GST) for the construction of the remaining units in Stage 2 of the Burleigh Views development.  Following that estimate PCL revised the earlier feasibilities to include those costs.  That revision, which assumed construction commencement in June 2012, reduced the previously estimated surplus to a $94,000 loss:- see Schedule 7.

19. On 6 March 2012 a loan arrears report Mr Fulker circulated to the directors recorded that on 20 January 2012 PCL had provided the Council with a response to the July 2011 additional information request.  It anticipated that Council would approve the application in late March or April 2012 and that construction of the remainder of the development would take six to eight months.  But in view of the delay the report stated that “as a contingency against future costs” a provision had been made against the loan.  That $2m provision was part of provisions totalling $11.8m that were included in the Top 10 Loans report in the papers for the PCL Board meeting on 15 March 2012.  (It was at that meeting that the PCL Board approved the publication of the Information Booklet referred to in paragraph 129 below.)

20. Shortly after the March 2012 Board meeting, the publication of the 16 March 2012 Information Booklet, and following an independent report on PCL’s solvency, AETL wrote to PCL requiring it to provide information about a range of matters.  These included (i) the progress of valuations for the Burleigh Views property (and two of the other Top 10 Loans), (ii) the actions PCL was taking to recapitalise its balance sheet following loan provisioning it had made in its December 2011 financial statement, (iii) immediate correction of the past non-disclosure of loan arrears, particularly relating to the Burleigh Views loan, and (iv) a detailed explanation of the reasons why that non-disclosure had occurred.  PCL’s immediate response, a bland assertion that it believed it had met all its disclosure obligations, did not satisfy AETL.  It wrote again on 27 March 2012, expressing its “deep concern” about the apparent non-disclosure, and effectively demanded an explanation.  This complaint from AETL appears to have prompted PCL to publish the third version of the Information Booklet - to which I refer in paragraph 131 below.

21. At about the same time, AETL required PCL to obtain an updated valuation.  PCL obtained that valuation in early May 2012.  It reported that the Council had still not decided the new planning application, and was waiting for further geotechnical and hydrological reports to be submitted by PCL.  The report gave a (GST inclusive) valuation range of $3.83m to $16.2m for the completed development (on the assumption that the required planning permit would be granted by the Council):- see Schedule 7.

22. June 2012:- In the course of the 29 June 2012 reasons for judgment (see paragraph 16(e) above) Rares J noted the differing views expressed in the January and May 2012 valuations.  Rares J opined that (i) the sensible practical course was for PCL to complete the development, and (ii) the realisable value of the completed development was somewhere within the $16.2m to $26.68m range, and likely at or below the middle of that range.

    Burleigh Views property valuations

23. The various relevant valuations, sales estimates and feasibilities for the Burleigh Views property are summarised in Schedule 7 - “Burleigh Views property valuations / estimates / feasibilities”.  The Schedule indicates the general nature of the valuation (column F), the author (column G), the valuation range (columns R & S), and the approval and completion assumptions on which it was based (columns T & U).  PCL did not obtain any “as is” valuation after September 2007.  However, the April 2008 marketing submission can be interpreted as providing an “as is” estimate.  In the absence of more specific information, I have used that estimate in the Schedule (see column R, rows 22 to 38).

24. The various estimates and valuations were commonly expressed as GST inclusive, and usually did not quantify the impact of any GST liability on the realisation of the completed development.  Neither did they articulate, except in the case of the feasibility assessments from late 2011, specific assumptions about the projected development timing and costs.  In the absence of specific information in the actual reports, I have adopted the $4m completion cost contemplated in the May 2007 re-financing agreement:- see paragraph 20 above.  I have also adjusted the reported valuation to a GST exclusive amount, and included that in the Schedule (column V).  I have also included, in the case of the feasibility assessments, the projected loan value at the completion of the development (column X, rows 32, 34, 35 & 38).  Finally, I have calculated a TLVR value, and included that in the Schedule (column Y).

25. The valuation information summarised in Schedule 7 needs to be understood against the background of various matters.  They include (i) the events of February to May 2008 (see paragraph 21 above), (ii) PCL’s assumption of control of the property in June 2008, (iii) the impact of the global financial crisis after June 2008 (see paragraph 113 below), (iv) the reasoning that influenced PCL to remove the Burleigh Views loan from the arrears list at the end of 2008, (v) Mr Sweeney’s evidence about the “intense discussions” in September 2010 (see paragraph 41 above), and (vi) Mr Seymour’s October 2010 inspection, and his apparent view that the Burleigh Views property was not readily saleable unless and until the second stage of the development had been completed:- see paragraph 43 above.  Against the background of those matters, the information in Schedule 7 (read with an understanding of the Board reports summarised in Schedules 4.1 to 4.3) justifies the following propositions:-

    (a)Despite the requirement in the May 2007 refinancing agreement (see paragraph 20 above) PCL did not obtain an “as is” valuation for the Burleigh Views property at any time after that date.

    (b)The only “as is” assessments PCL obtained after May 2007 were in the September 2007 Colliers valuation and the marketing submission in April 2008.

    (c)PCL had the September 2007 Colliers valuation by about February 2008, and subsequently included references to its “as complete” valuation in the Benchmark Reports through to October 2009.

    (d)The “as is” estimate in the April 2008 marketing submission suggested a real risk PCL would not recover the loan balance from an “as is” sale of the property:- see Schedule 7 row 20, columns R, S, U, X, Z & AA.

    (e)The risk of an increasing shortfall from an “as is” realisation of the property became ever more apparent as the loan default continued during 2008, including after Burleigh Views’ liquidation in September 2008.

    (f)In November 2008 Mr O’Sullivan had been told by Colliers that the valuation was out of date and that they refused to endorse it in favour of PCL:- see paragraph 26 above.  The $26m valuation never formed the basis of the LVR values included in the monthly PCL Board Reports.

    (g)Despite having assumed control of the property in about June 2008, until the feasibility assessments between October 2011 and February 2012, PCL seems not to have obtained any meaningful assessment of the costs likely to be involved in completion of the development:- see Schedule 7 column T.

    (h)After October 2010, and even without taking into account construction costs and timing, the information being reported to the directors indicated that the Burleigh Views TLVR (based on the “as complete” valuation amounts) well exceeded (i) the 65% ratio suggested in the August 2010 CPP Manual (see paragraph 13(f) above), and (ii) the 70% ratio contemplated in the 1998 Trust Deed:- see Schedule 4.3 and the December 2010 Board Report, and Schedules 4.4 & 4.5.

    Provident’s Board meetings

1. The PCL Board met regularly.  The date and duration of the formal Board meetings after February 2007 (where the meeting had been identified in the evidence) are summarised in Schedules 6.1 to 6.5.  The Schedules indicate the director attendees (and relevant invitees) and the length of the meeting minutes.  They provide a cryptic summary which indicates the regular presentation of a “Chairman’s report” (see paragraph 64 below) and notes other topics of apparent significance to the present proceedings, including the approval of Quarterly or Benchmark Reports and other similar documents (see the shaded rows in each Schedule).  (Specific details of the approval of the various reports are summarised in Schedule 5 - PCL Quarterly & Benchmark Reports, Prospectus & Information Booklets.)  Perusal of the information in the Schedules shows that:-

   (a)Mr Sweeney attended every Board meeting between September 2008 and August 2011, and all but one of the meetings between October 2011 and June 2012.  He attended all three of the meetings at which the 2012 Information Booklets were approved.

   (b)The typical Board meetings lasted for about two hours, but the meetings in October or November each year were usually significantly longer.

   (c)The variable brevity of the minutes, in comparison with the recorded meeting duration indicates that the minutes reflected matters the minute taker regarded as the substance of significant discussions and resolutions.  But the minutes typically did not attempt to record all the details of those discussions.

2. The material provided to the directors for the Board meetings varied over time, but settled into a well established format after the end of 2008.  The dates of the various Board reports, and the period to which they relate, are set out in Schedules 4.1 to 4.5.  Those Schedules summarise the report information about (i) the total loan arrears, (ii) the Burleigh Views loan balance, maturity, and LVR, and (iii) whether or not the Burleigh Views loan was included in the loan arrears report table provided to the directors:- see paragraph 14(f) above.

3. A broad summary of the sequence of events involved in the development of the content of the Board report information is set out below.  (The contents of the various Board reports and meeting minutes inform specific conclusions about the content of the information provided to the PCL Board about the Burleigh Views loan:- see paragraph 77 below.)

4. 2007:- During 2007 the Board papers appear to have included a set of monthly management accounts.  They contained detailed balance sheet and profit and loss statements, with comparisons to budget and past periods.  They also included (i) a list of loans where interest had not been brought to account (“non-accruing” loans), and (ii) a “loan arrears report”, a cashflow projection, and a short summary.  The “loan arrears report” listed the loans that were more than 90 days in arrears.  It detailed their respective current balances, monthly interest, number of months in arrears, and LVR.  It often (but not always) included a brief comment on the current recovery status of the loan.

5. May 2008:- The format of the Board report may have changed in about May 2008.  The available versions of the Board reports contain, in addition to the previous monthly management account format, a multi-page set of “power point” screen printouts.  The “power point” file was usually emailed to the directors shortly before the meeting and was the basis of a presentation by Mr O’Sullivan.  The power point printouts provided an abbreviated summary of the current trading results, with a short commentary on material changes, a budget comparison, and comments on other current matters.  They also contained a short commentary on loan arrears.  The commentary typically (i) quantified the total of loans 90+ days in arrears, (ii) noted the change from the previous month, (iii) identified some of the particular loans that had been added to (or removed from) the list, and (iv) referred directors to an accompanying loan arrears report spreadsheet.  An explanatory chart plotted the loan arrears totals for the last 12 months.  It showed the loan totals in separate categories according to (i) the length of the arrears period, and (ii) their respective proportions of the total PCL loan portfolio.

6. The minutes of the 15 October 2008 meeting suggest that Mr O’Sullivan reported orally to the meeting and made some comments about arrears loans, apparently in addition to the content of the report.  The minutes do not detail the substance of what he reported to the other directors.  However, the objective facts were that PCL had already (i) taken control of the Burleigh Heads property in about June 2008, (ii) been informed of Burleigh Views’ liquidation, (iii) been in contact with the liquidator, (iv) lodged with ASIC formal notice of its assumption of control as mortgagee in possession, (v) received the 3 October 2008 audit management report, and (vi) made a decision (on 14 October 2008) to remove the Burleigh Views loan from the loan arrears report:- see paragraph 25 above.

7. November 2008 onwards:- There were significant changes in the Board material after November 2008, apparently prompted by the 3 October 2008 audit management report.  That report raised various concerns about the financial statements for the year ended 30 June 2008.  One of those concerns was the absence of “as is” independent valuations for loans more than 90 days in arrears, and a request that current valuations be provided by 31 January 2009.  Following that report, Mr Sweeney expressed concern about the absence of valuations.  The changed report format for the 19 November 2008 Board meeting followed Mr Hornby’s appointment as PCL’s chief financial officer, and discussions at the PCL audit committee.  The loan arrears chart was supplemented by an additional table that listed the individual loans.  A separate spreadsheet version of the arrears loans was also sent to the individual directors.

8. Following the 19 November 2008 Board meeting, and in further response to the matters raised in the October 2008 audit management report, the contents of the Board report changed again for the 17 December 2008 Board meeting.  The changes involved the inclusion of a list of “Top 10 Loans” (see paragraph 31 above) and modifications to the additional table of loan arrears.  The arrears table changes were (i) inclusion of only loans more than 90 days in arrears, (ii) a new column indicating any provision made against the loan, (iii) the loan to valuation ratio expressed as a “total” (“TLVR”) value (resulting in many loans with a TLVR substantially exceeding 100%, (iv) the arrears period was recorded in days (rather than months), and (v) grouping of the loans according to their recoverability status.  Those groupings were:-

   (a)Mortgaged property sold by the borrower and awaiting settlement

   (b)Mortgaged property sold by PCL and awaiting settlement

   (c)Property being sold by PCL

   (d)Legal proceedings commenced

   (e)Negotiations for repayment in progress.

9. The minutes of the 17 December 2008 PCL Audit Committee meeting (which was held before the Board meeting on the same day) record Mr Sweeney suggesting further changes to the content of the loan arrears report.  Subsequently, the Top 10 Loans table in the Board report for the 31 January 2009 meeting deleted both the valuation amount and the loan maturity date.  But it did include the loan balance, the outstanding interest, the “arrears days” for each loan (except for the Burleigh Views loan all of the “Top 10 Loans” had arrear days) and a “revised TLVR” (which appeared to adjust for the patent error in the previously reported TLVR calculation.  In the February 2009 Board report the Top 10 Loans report altered again, and the loan maturity dates were re-inserted.

10. With that minor change, the “Top 10 Loans” report thereafter remained in this format until February 2012.  In that period the “Top 10 Loans” reports:-

    (a)consistently listed the Burleigh Views loan as the largest loan (a fact that had been apparent from the first versions of the “Top 10 Loans” report)

    (b)disclosed the Burleigh Views loan as having no interest arrears

    (c)disclosed that the Burleigh Views loan had an LVR above 70% - and specifically:-

    (i)a TLVR from 74.92% to 89.3% (from December 2008 to June 2010):- see Schedules 4.2 & 4.3

    (ii)a TLVR of 70.20% to 80.40% (from December 2010 to April 2012):- see Schedules 4.3, 4.4 & 4.5

    (d)gave various maturity dates for the loan - specifically:-

    (i)11 November 2008 (reports between November 2008 and April 2010):- see Schedules 4.1 to 4.3

    (ii)31 December 2010 (reports between May 2010 and February 2011:- see Schedules 4.3 & 4.4

    (iii)30 April 2011 (reports between March 2011 and July 2011):- see Schedule 4.4

    (iv)30 June 2012 (reports between August 2011 and February 2012):- see Schedules 4.4 & 4.5

    (v)Jan 13+ (after March 2012 the reports substituted an “estimated discharge date” for the “maturity date” in the table).

11. January 2009:- There was no table of default loans in the Board report for the January 2009 meeting.  (None was included until the Board report for the June 2012 Board meeting.)  But a format for a detailed spreadsheet of all loan arrears had been decided upon at the 13 November 2008 PCL_AudCC meeting, and a report in that format was sent by email to each of the directors.  The spreadsheet columns detailed the loan maturity date and arrears period, the loan principal and the total outstanding loan balance.  They also recorded, as had been specifically agreed at the November 2008 meeting, the property valuation date, the valuation amount, the LVR (based on the loan principal amount) and the TLVR.  Thereafter, this detailed spreadsheet remained in substantially the same format, and was emailed to each of the directors before each Board meeting.  (As I noted in paragraph 39 above, from about April 2010 onwards, the loan arrears report was automatically generated by the PCL accounting software.  The format of the system generated report was the subject of further discussions with various directors in June 2010, but the substance of the information contained in the report did not thereafter change in any apparently material way.)

12. 18 March 2009:- The Board minutes note the usual “Chairman’s report” by Mr O’Sullivan, and his comments about the trading results for February 2009 and loans in arrears.  They refer to his tabling of a spreadsheet detailing loans which could potentially be repaid by September 2009, and note that he “commented on the circumstances of every loan” - apparently in the context of “emphasising the need for the Company to have increased liquidity”, of between $10m and $15m.  (It is notable that in the 2009 financial year PCL’s “cash” assets declined from $24m to $8m:- see Schedule 3.)

13. July to October 2009:- In August 2009 PCL’s auditors provided a report on a sampling of loan arrears reporting for the period from July 2008 to April 2009.  The report considered that PCL’s overall control of loan reporting was effective and well maintained, without significant errors or irregularities.  But it identified various matters, including PCL’s failures (i) to apply the higher contractual interest rate when calculating loan arrears, and (ii) to adopt a systematic approach to ensure that it used up to date valuation assessments in calculating the TLVR values included in the loan arrears reports.  The PCL management’s responses, which were included in the report, indicated that (i) the practice of charging the lower interest rate was the result of a “commercial” decision, and (ii) that a full review of the loan arrears securities had been undertaken to provide satisfaction that the reported details were correct.  Mr Seymour tabled a copy of the audit report at both the 18 August 2009 Board meeting and the PCL_AudCC meeting on 9 September 2009.  The next day, Mr Hornby emailed to Mr Sweeney, Mr Seymour and Mr Bersten a spreadsheet listing the loans making up the > 90 day arrears total included in PCL’s June 2009 financial statements.  The list did not include the, then outstanding, $15.1m Burleigh Views loan.

14. Towards the end of October 2009, and as the end result of some months of discussions during which Messrs Sweeney, Seymour and Bersten reached agreement about the desirable form and content of the loan arrears reports to be provided to the Board, Mr Bersten expressed their views in writing.  He sent a detailed memo to Mr O’Sullivan on 30 October 2009.  The material substance of what he said was that (i) any loan in default for 90 days should be included in the list of loan arrears, (ii) there should be a report on particular loans that had a potential impact on PCL’s balance sheet (he included reference to the Burleigh Views loan as one of two specific loan examples), and (iii) the standing Board agenda should be amended to include a “loan arrears” item to deal with the matters to which he had specifically referred.

15. A few days before Mr Bersten’s memo PCL’s auditors had written a management letter addressing the “going concern” risk of PCL.  On 6 November 2009 Mr Hornby sent Mr Seymour a copy of the auditors 26 October 2009 letter.  The letter stated that the auditors were able to issue an unqualified audit report, but recorded a number of matters of concern.  The first of these involved an increased audit risk as a result of the number of default loans and current economic conditions.  (The 2009 increase over 2008 is reflected in the arrears reports provided to the Board:- see Schedules 4.1 and 4.2.)  The other matters involved (i) PCL’s failure to provide current valuations for default loans, and (ii) a going concern analysis, as a result of PCL’s reduced liquidity.  The letter also noted audit adjustments of three “material mis-statements” in the accounts (varying in amount between $0.12m and $1.55m).  The letter cautioned that the audit had not been “designed to identify all matters that may be relevant to those charged with governance”.

16. Subsequently the typical agenda circulated with the Board papers did include a “loan arrears” item.  But the Board papers themselves usually did not include any specific reference to the status of the Burleigh Views loan - other than what was contained in the “Top 10 Loans” report:- see paragraph 68 above.  More significantly, and despite the contents of Mr Bersten’s memorandum, the Burleigh Views loan was not included in the list of loan arrears reported to the Board.

17. The general format of the Board reports, and the content of the loan arrears spreadsheets, remained much the same after early 2009.  However, from early 2010 onwards, the Board reports appear to have marginally increased in length, and in the apparent scope of the financial analysis they contained.  In August 2010 Mr Hornby informed the directors that the June and December reports would include additional schedules to cover a six and twelve month review of performance.

    Burleigh Views loan overview - PCL Board information & consideration

18. Discussion of the Burleigh Views loan was rarely recorded in the PCL Board minutes.  The few instances where the minutes themselves either specifically record, or justify a reasonable inference of, discussion about the Burleigh Views loan involve the following PCL Board meetings:-

    (a)19 November 2008 - as a result of the October 2008 audit management report:- see paragraphs 26 and 28 above

    (b)17 December 2008 - in connection with consideration of the October 2008 audit management report:- see paragraph 29 above

    (c)14 October 2010 - following the 14 September 2010 audit letter and Mr Seymour’s inspection of the Burleigh Views property:- see paragraphs 41 & 43 above.

19. The absence of regular specific discussion recorded in the Board minutes, the approximate five year period from early 2007 to mid 2012, and the changes in the format of the information provided to the PCL Board over that time, make it difficult to obtain from the minutes alone a demonstrably clear and complete hindsight view of the quality of the reported information, relating to the Burleigh Views loan, during that period.  It is possible, however, to be confident that the information provided to the Board conveyed the following propositions about the Burleigh Views loan.  The loan was:-

    (a)PCL’s largest loan and its only construction and development loan

    (b)consistently identified in the “Top 10 Loans” list included as part of the “chairman’s presentation” in the Board reports after December 2008

    (c)identified in the “Top 10 Loans” list - for almost 18 months (ie., from November 2008 until May 2010) - as well past its supposed “maturity date”

    (d)consistently reported as having a TLVR greater than 70%

    (e)at least from December 2008 onwards, never included in the loan arrears spreadsheet reports provided to the Board.  (That remained the case until the specific disclosure in the April 2012 Information Booklet and the June 2012 Board report.)

20. That summary is unlikely, however, to reflect the full extent of the information known to the PCL Board members, and to Mr Sweeney in particular.  There are several reasons why that is unlikely.  They include the following:-

    (a)Informal directors meetings:- There were frequent (typically fortnightly) informal breakfast meetings of the directors.

    (b)Chairman’s oral presentations:- Mr O’Sullivan’s “Chairman’s report” and oral reports to the Board about “Top 10 Loans” were (as Mr Sweeney accepted) routine features of the Board meetings.

    (c)Mr O’Sullivan’s periodic updates:- Mr O’Sullivan said (in his April 2015 affidavit) that it was his practice to provide regular updates at the Board meetings.  It was his recollection that, three to four times a year, he updated the other directors about details of the Burleigh Views loan.  From some time in 2009 onwards the Burleigh Views loan was, according to Mr O’Sullivan, discussed at most Board meetings.

    (d)Brevity of the Board minutes:- Comparison of the recorded duration of the meetings with the length of the minutes strongly suggests the abbreviated content of the latter.  Mr Sweeney said in his oral evidence that no significant inference could be drawn from either the presence or absence of particular items of information in the reports to the Board - because the Burleigh Views loan was a matter of “constant discussion” and the Board members were “across the transaction all of the time”.

    (e)PCL_AudCC role:- From August 2008 Mr Sweeney was a member of PCL’s audit committee, and appears to have attended all of its meetings between then and May 2012:- see Schedule 8.

    Audit and Compliance committee

21. PCL’s Audit and Compliance Committee (“PCL_AudCC”) was responsible for providing an independent and objective review of financial information prepared by management.  This involved assessing compliance with PCL’s policies and procedures, and review of all internal and external audit reports.

22. Mr Bersten and Mr Seymour were the members of PCL_AudCC until November 2008.  Mr Sweeney began to attend committee meetings in August 2008.  After his November 2008 formal appointment as a committee member, Mr Sweeney and Mr Seymour were the PCL_AudCC members.

23. Schedule 8 lists the dates of the PCL_AudCC meetings, and relevant attendances at them, from June 2008 to May 2012.  (Sometimes representatives of PCL’s auditors attended the PCL_AudCC meetings.  Those occasions are noted in the Schedule, without recording the names of the particular individuals.  There were other occasions when some PCL staff members attended the meetings for a particular reason, but were not regular attendees.  The Schedule also records the fact of those attendances, without always naming the individuals concerned.)  The Schedule details the length of the meeting and the scope of minutes.  It also provides a cryptic description (derived from the minutes) of the apparent principal focus of the meeting.

1. The answer to the first of those questions is in the negative.  It is an answer reinforced by:-

   (a)the contents of the August 2009 PCL’s auditors report, and the later discussions at both the 18 August 2009 Board meeting and the PCL_AudCC meeting on 9 September 2009:- see paragraph 72 above

   (b)the materiality acknowledged in Mr Bersten’s 30 October 2009 memorandum:- see paragraph 75 above

   (c)the repeated inclusion of the Burleigh Views loan in the Top 10 Loans reported monthly to the PCL Board:- see paragraphs 68 & 69 above

   (d)the specific references to the Burleigh Views loan in the Benchmark Reports:- see paragraphs 103 & 105 above

   (e)the specific references to the Burleigh Views loan in the PCL Prospectus documents:- see paragraphs 117 & 122  above

   (f)the references to the Burleigh Views loan in the Information booklets:- see paragraphs 127 to 131 above.

2. The answer to the second question posed at the end of paragraph 169 above is also in the negative - because of the findings I have made about Mr Sweeney’s knowledge of the Burleigh Views loan default:- see paragraphs 134 to 141 and 164 above.

   The banning order power and grounds

3. ASIC’s 29 June 2015 banning order decision was based on a principal finding that PCL’s post July 2010 Quarterly and Benchmark Reports contravened the prohibition in Corp Act s 1041H against engaging in conduct, “in relation to” a financial product or service, that is “misleading or deceptive or … likely to mislead or deceive”. ASIC’s findings were that Mr Sweeney, by approving those reports, had either himself engaged in misleading and deceptive conduct, and had a direct personal liability, or he had been “involved” in PCL’s contravention. Such a contravention, or involvement in such a contravention, enlivens the banning power conferred on ASIC by CorpAct s 920A(1)(e)&(g). In the review proceedings ASIC contended Mr Sweeney’s misleading and deceptive conduct (and alternatively, involvement) extended to his director’s approval of the pre July 2010 reports.

4. In relation to the three Information Booklets, ASIC’s original written contentions in the review proceedings asserted that the Information Booklets were disclosure documents, to which only the CorpAct s 728 prohibition applied. On that basis ASIC contended that the Booklets contravened CorpAct s 728, and that Mr Sweeney’s approval of them constituted involvement in that contravention. However the written contention was briefly stated, and referred neither to PCL’s December 2011 undertaking nor the, apparently related, material differences between the content of the Prospectus documents and the Information Booklets:- see paragraph 125 above. When those matters, and the actual terms of CorpAct s 728, are taken into account, the better view, which ASIC’s post hearing submissions accepted, is that Mr Sweeney’s conduct in relation to the approval of the content of the Information Booklets is in the same category as his approval of the Quarterly and Benchmark Reports, and falls to be considered under CorpAct s 1041H.

5. PCL’s three Prospectus documents (of December 2008, 2009 and 2010) were security offer disclosure documents to which the CorpAct s 728 prohibition certainly did apply. ASIC contended that Mr Sweeney had been “involved” in the contraventions they contained. ASIC’s alternative (and perhaps its preferred) contention was that Mr Sweeney’s approval of each of the Prospectus documents involved a contravention of CorpAct 1041H.

6. Mr Sweeney resisted ASIC’s contention that he bore direct liability for any of the contraventions asserted by ASIC. His resistance was apparently justified in relation to CorpAct s 728. That provision is directed at offering securities under a misleading disclosure document. The only documents that involved offers of those kinds were the various PCL prospectus. Their terms indicate that the only offeror was PCL. Accordingly, I do not consider that there is scope for a finding of Mr Sweeney’s direct liability for any contravention of that provision.

7. In relation to contravention of CorpAct s 1041H, ASIC articulated the relevant distinction between direct liability and involvement in PCL’s contravention as turning on the extent of Mr Sweeney’s knowledge of the relevant facts that gave the publication its misleading or deceptive character. ASIC’s contention was that Mr Sweeney’s actual approval of each of the contentious publications made them his own, and gave rise to direct liability for the contravention, irrespective of the extent of his personal knowledge. The criterion for determining “involvement” in a Corp Act contravention (whether of s 728 or s 1041H) is, in the circumstances of the present matter, relevantly provided by CorpAct s 79(c). It is whether or not the person “has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention”. The concept of being “knowingly concerned” requires knowledge of the essential elements of the contentious conduct, but neither intention to contravene nor knowledge of the contravening character of the conduct:- Yorke v Lucas (1985) 158 CLR 661; Roumanus v Orchard Holdings (NSW) Pty Ltd [2012] FCA 775; (2012) 90 ACSR 677; Gore v ASIC [2017] FCAFC 13 at [6]-[16], [38] & [165]-]166]. Involvement requires some relevant conduct. But passive acquiescence in the contravening conduct of others may suffice:- Sutton v AJ Thompson Pty Ltd (in liq) (1987) 73 ALR 233.

8. In the circumstances of the present matter it is neither necessary nor material to consider whether Mr Sweeney’s conduct, in approving the contents of the various contentious documents, involved his direct personal contravention of CorpAct s 1041H. As I set out below, I am satisfied that Mr Sweeney was knowingly involved in a significant number of PCL’s contraventions.

9. ASIC’s contentions about the misleading or deceptive content of the various Reports, Prospectus and Information Booklets identified numerous, and partly repetitive (or at least overlapping), matters.  It is not necessary, for the purpose of determining whether ASIC’s banning power was enlivened, to address specifically each of the matters ASIC identified.  Nor is there any practical utility, for the purpose of addressing considerations relevant to the exercise of the power, in attempting such an exercise.  It is both sufficient, and convenient, to categorise, and simplify, the various contentions, in so far as they involved Mr Sweeney.  That categorisation includes (i) express factual assertions (double underlined below), (ii) statements of opinion, and (iii) non-disclosures.  It is set out below.  In relation to those matters I regard as being of principal significance, I have added an indication of my finding.

   (a)Matters relating to the fact of loan default and recovery shortfall risk:-

   (i)The mis-statement of the amount (and loan portfolio proportions) of PCL’s loan arrears (by virtue of the exclusion of the Burleigh Views loan), after the October 2008 Benchmark Report

   [Finding:- PCL CorpAct s 1041H contravention - Mr Sweeney involved]

   (ii)Statements of opinion (in the Benchmark Reports) that the directors considered the recovery of loan arrears amounts was “reasonably certain”

   [Finding:- PCL CorpAct s 1041H contravention - Mr Sweeney involved]

   (iii)The non-disclosure (at least after September 2010) of the absence of a current development approval for the incomplete development, and the inconclusive investigations about the likelihood of obtaining an appropriate approval

   [Finding:- PCL CorpAct s 1041H contravention - Mr Sweeney involved]

   (iv)The non-disclosure (until the April 2011 Benchmark Report) of the Burleigh Views loan default, and PCL’s entry into possession

   [Finding:- PCL CorpAct s 1041H contravention - Mr Sweeney involved]

   (v)Statements of opinion (in the April and October 2011 Benchmark Reports) that the directors considered the Burleigh Views loan was likely to be recovered in full

   [Finding:- PCL CorpAct s 1041H contravention - Mr Sweeney involved]

   (vi)The non-disclosure (until the January 2012 Information Booklet) of Burleigh Views’ liquidation

   (vii)The non-disclosure (until the ambiguous contents of the January 2012 Information Booklet) of the risk of a recovery shortfall on the Burleigh Views loan

   [Finding:- PCL CorpAct s 1041H contravention - Mr Sweeney involved]

   (b)Factual assertions about the state of the development:-

   (i)Inaccurate claims (in the October 2008, April and October 2009 Benchmark Reports) that the Burleigh Views development was nearing completion

   [Finding:- PCL CorpAct s 1041H contravention - Mr Sweeney involved]

   (ii)Inaccurate claims (in the April and October 2011 Benchmark Reports) that PCL was completing the development - when it was not in fact undertaking any such work, and had no present ability or lawful authority to do any development work

   [Finding:- PCL CorpAct s 1041H contravention - Mr Sweeney involved]

   (iii)The inaccurate claims in the Information Booklets that PCL was awaiting “final construction approval” - when there was no relevant approval at all

   [Finding:- PCL CorpAct s 1041H contravention - Mr Sweeney involved]

   (c)Matters relating to policy and disclosure compliance:-

   (i)Inaccurate claims (in the Benchmark Reports and Prospectus) in relation to compliance with the equity capital ratio in Benchmark 1 of not being involved in property development

   (ii)The failure to disclose the absence of valuations (of the Burleigh Views property) that complied with the requirements of either PCL’s Credit and Procedure Policies or Regulatory Guide 69

   [Finding:- PCL CorpAct s 1041H contravention]

   (iii)Mis-statement of the LVR for the Burleigh Views loan (in the Benchmark Reports and Prospectus) - by relying on non-complying valuations and failing to include completion costs in the LVR assessments

   [Finding:- PCL CorpAct s 1041H contravention]

   (iv)The non-disclosure of the inadequacy of the valuations cited in the various reports - because of their assumptions about the existence of an appropriate development approval

   (v)Inaccurate assertions about the GST assumptions involved in the valuations

   [Finding:- PCL CorpAct s 1041H contravention]

   (vi)Inaccurate claims (in the Benchmark Reports and the Prospectus) that the Burleigh Views LVR was on “a cost to complete” basis

   [Finding:- PCL CorpAct s 1041H contravention]

10. In relation to the factual assertions, no question of materiality is relevant to their characterisation as misleading.  That characterisation does not depend on the subjective intentions or knowledge of the author, but is potentially influenced by the context, audience and surrounding circumstances:- see Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at [209]; Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177. However, in the circumstances of the present matter, none of those potential considerations has significant relevance. Each of the underlined statements, with the possible exception of the “not involved in property development” statement, was misleading. That possible exception recognises the reality that, despite its intentions, as mortgagee in possession PCL never did undertake, nor did it ever have the requisite lawful authority or means to undertake, any development work. In any event, the significance of the claim is wholly overshadowed by the misleading statements about the loan arrears amounts, and by the non-disclosure of the Burleigh Views default, PCL’s possession of the property, its inactivity in realising the security, and the reasons for that inactivity.

11. Mr Sweeney was knowingly involved in the positive statement contraventions where I have recorded a finding to that effect in paragraph 178 above.  The basis for those findings is contained in my earlier findings about Mr Sweeney’s knowledge of the Burleigh Views loan default, and his knowledge of the fact of, and the reasons for, PCL’s exceptional treatment of the loan once it entered into possession as mortgagee.

12. In relation to the various statements of opinion, as ASIC asserted, the contentious statements contained implied assurances of reliability and reasonable grounds:- Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304 at [32]; MGICA (1992) Ltd v Kenny & Good Pty Ltd 140 ALR 313 at 356-7. The statement that the PCL directors considered recovery of the stated loan arrears was “reasonably certain” was misleading - essentially because of the unrevealed exceptional treatment of the Burleigh Views loan, and the recovery shortfall risk that had prompted that exceptional treatment. The April and October 2011 statements that the directors considered the Burleigh Views loan was likely to be recovered in full, was misleading - essentially because the directors in fact knew (i) that there was a significant risk of non-recovery if the property could not be developed and had to be sold “as is”, (ii) there was a long standing and unresolved difficulty with progressing the development, and (iii) they had not in fact carried out any meaningful feasibility analysis that justified the stated recovery opinion.

13. Mr Sweeney was knowingly involved in the opinion statement contraventions where I have recorded a finding to that effect in paragraph 178 above.  The basis for those findings is contained in my earlier findings about Mr Sweeney’s knowledge of the Burleigh Views loan default, and his knowledge of the fact of, and the reasons for, PCL’s exceptional treatment of the loan once it entered into possession as mortgagee.

14. The characterisation of the various non-disclosures as misleading or deceptive requires an impressionistic assessment.  That assessment is influenced by the person’s knowledge, and status, function or responsibility in relation to the information, business or matter to which the contentious non-disclosure relates.  It is also influenced by the content, circumstances, purpose and recipient, of the communication from which the contentious information has been withheld:- ASIC v PFS Business Development Group Pty Ltd (2006) 57 ACSR 553 at [362]. The essential concept is that of a reasonable expectation that if information was known it would be disclosed:- Demagogue Pty Limited v Ramensky (1992) 39 FCR 31. Consequently the apparent materiality of the non-disclosed information is a relevant consideration in the characterisation of any contentious non-disclosure.

15. The Burleigh Views loan default, PCL’s entry into possession, and the loan recovery risk that prompted the exceptional treatment PCL accorded to the loan, were all material matters.  They were material because of the contents of Benchmark 5 (certainly after June 2010):- see paragraph 93 above.  They were also material because their disclosure was necessary to explain and assess the exceptional strategy, and to derive a proper understanding of PCL’s competence and candour in the management of the debenture business.  Contrary to ASIC’s submission however, I do not consider that Burleigh Views’ liquidation was itself a material matter.  PCL’s business was a secured lender that claimed to observe the benchmark loan to valuation ratios favoured by ASIC in Regulatory Guide 69.  The broad thrust of the disclosure requirements in Benchmark 5 related to the identification and quantification of default loans, and corresponding details of the action taken by the lender to enforce the loan security.  That structure pre-supposed the financial incapacity of the borrower, and placed a focus on the value and realisation of the secured property.  For these reasons, I do not consider that the liquidation of Burleigh Views was, of itself, a consideration whose non-disclosure was material, or otherwise provided a basis for characterising the contentious publications as misleading.

16. Mr Sweeney was knowingly involved in the non-disclosure statement contraventions where I have recorded a finding to that effect in paragraph 178 above.  The basis for those findings is contained in my earlier findings about Mr Sweeney’s knowledge of the Burleigh Views loan default, and his knowledge of the fact of, and the reasons for, PCL’s exceptional treatment of the loan once it entered into possession as mortgagee.

17. In relation to the remaining matters - those I have characterised as relating to policy and disclosure compliance (see paragraph 178(c) above) and not otherwise specifically addressed in the preceding paragraphs - I am not satisfied that Mr Sweeney was “involved” in the various contraventions.  Each of them involved the quality and content and of the valuations for the Burleigh Views property - and highlighted particular deficiencies in the content of the documents said to constitute the relevant valuation.  There is no evidence that Mr Sweeney ever saw any of these valuations.  In his role as a non-executive director, he was not required to examine them, and he was entitled to accept information given to him by PCL management about their content and effect.  (That information appears to have been reflected in the content of the various disclosure documents, and in regular “compliance checklists” - asserting compliance with PCL’s CPP manual requirements - that were regularly provided by PCL management:- see paragraph 14(h) above.)

    Discretion - financial services

18. The findings I have made enliven ASIC’s CorpAct s 920A banning power. However, Mr Sweeney contended its exercise was inappropriate - because his conduct in relation to PCL’s funds management and reporting obligations had not been, relevantly, in connection with the provision of financial services. In addition, Mr Sweeney disavowed any intention to either provide financial services, or to carry on a financial services business. That disavowal led, in conjunction with implicit reliance on the exceptional circumstances involved in the Burleigh Views loan, to the submission that ASIC had no basis for apprehending future financial services non-compliance by Mr Sweeney. Complementing that submission and the disavowal, Mr Sweeney also indicated that he had offered ASIC undertakings that he would not (i) serve as the sole director of any corporation, (ii) apply for an AFSL, and (iii) become an authorised representative of any AFSL holder.

19. Mr Sweeney’s submission recognised that ordinarily “dealing in a financial product” would involve the provision of a “financial service”, and thus require the dealer to hold an AFSL:- see CorpAct ss 911A & 766A.  But it pointed out that if a person’s conduct only related to the issue of their own securities, then the person’s transactions were excluded from categorisation as “dealing in a financial product”:- see CorpAct s 766C(4). In addition, Mr Sweeney’s submissions pointed out that he had at no stage of his role as a PCL director had the status of either an AFSL holder or that of an “authorised representative” of a licensee. Underlying these submissions was an emphasis on the general protective purpose of CorpAct Chapter 7, and on part of a passage (underlined below) from the reasons of Deputy President Jarvis in Seagrim v ASIC [2012] AATA 583.  In his reasons for decision the Deputy President first set out the Chapter 7 statement of purpose (in CorpAct s 760A), and then continued - as follows:-

    [88] I consider that the discretion to impose banning orders should be exercised in such a way as to achieve the objectives set out in this section.  It is accordingly appropriate to take into account that a principal consideration is that the power to make a banning order should be to protect the public from persons who do not comply with the requirements of the Act when providing financial products and services, and also to deter the persons whose conduct is in question and other persons in the industry from contravening the Act.  The imposition of banning orders will have a punitive effect on the persons banned, but the discretion should not be exercised by reference to that consequence, but rather by reference to the need to protect the public, and the deterrent effect of banning orders, which are the overriding considerations.  … personal hardship if a banning order is made is a mitigating factor which may be taken into account.

1. The preceding passage demonstrates the selective emphasis involved in Mr Sweeney’s submission. There is a significant protective and deterrent purpose in the Chapter 7 provisions, and no reason to limit the appropriate exercise of the CorpAct s 920A power to persons who are (or were) either AFSL licence holders or authorised representatives. Indeed the numerous alternative criteria that enliven the power are inconsistent with any such limitation. That inconsistency was noted, and the inappropriateness of the limitation contended for on Mr Sweeney’s behalf rejected, in a 2008 decision of this Tribunal (seeTweed v Australian Securities and Investments Commission [2008] AATA 5) - and repeated in O’Sullivan v ASIC [2017] AATA 644 at [725]-[733].

   Mr Sweeney’s personal circumstances

2. As I noted at the start of these reasons, Mr Sweeney has had decades of experience, at a senior management level, in the Australian financial services industry.  He also has a long standing history of active involvement with his church, including significant roles in financial management of diocesan affairs.  Unsurprisingly, in view of both of those long periods of service, Mr Sweeney has a considerable reputation as a man of competence, skill and integrity.  There are numerous testimonials to that effect, from a wide range of people, most of whom had known Mr Sweeney, in various capacities, for over 20 years.  These consistently expressed views about Mr Sweeney’s intrinsic abilities and character are quite compelling.  Nothing in either my extensive review of the material put into evidence, or my observations of Mr Sweeney in the course of his oral evidence, caused me to question the justification for those views.

3. I also accept the genuineness of Mr Sweeney’s evidence that he does not have any current intention to either carry on, or be relevantly involved in, any financial services business.  To that extent, there is little basis for apprehension about his future non-compliance with financial services laws.  Nevertheless, I am equally satisfied that Mr Sweeney at least acquiesced in PCL’s exceptional treatment of the Burleigh Views loan, and that he did so with knowledge of the potential for a significant shortfall in the loan recovery.  It is not necessary for me to make any finding that his knowledge was actually and subjectively influential at the time of his approval of any particular publication.  I doubt that it was.  It is more likely that, influenced by his impressions of the competence and confidence of PCL management, and of Mr O’Sullivan in particular, he mistakenly accepted the exceptional treatment of the Burleigh Views loan as a matter that was outside the scope of his role, as a non-executive director, in voicing critical and sceptical concerns.  But this acquiescence was badly mistaken.  Whilst there may have been some justification, as a matter of commercial judgment, for PCL’s exceptional recovery strategy for the Burleigh Views loan, there was never any justification for the inaccuracies in the various reports and Prospectus.  Neither was there any justification for withholding from those documents a candid recognition of that exceptional recovery strategy and the risks and uncertainties that it involved.

4. PCL’s contraventions were significant and sustained. Mr Sweeney’s involvement in them was similarly sustained. The protective purposes of CorpAct Chapter 7, and in particular the banning power contained in CorpAct s 920A, point compellingly to the appropriateness of the banning order ASIC made.

   Conclusion

5. ASIC’s decision of 29 June 2015 is affirmed.

I certify that the preceding 193 (one hundred and ninety-three) paragraphs are a true copy of the reasons for the decision herein of Mr P W Taylor SC, Senior Member.

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

Associate

Dated: 8 November 2017

Date(s) of hearing:	6-10 & 13-15 February 2017
Counsel for the Applicant:	Ms K Morgan SC & Mr C McMeniman
Solicitors for the Applicant:	Ms A Rose, Webb Henderson
Counsel for the Respondent:	Ms K Williams SC & Ms M Avenell
Solicitors for the Respondent:	Mr N Goodstone, Australian Securities and Investments Commission

Schedules

1         PCL Profit & Loss // Balance Sheet - Summary

2         PCL Financial Liabilities - Summary

3         PCL Cash Flow - Summary

4.1      PCL Board Reports 2007 & 2008

4.2      PCL Board Reports 2009

4.3      PCL Board Reports 2010

4.4      PCL Board Reports 2011

4.5      PCL Board Reports 2012

5         PCL Quarterly & Benchmark Reports, Prospectus & Information Booklets

6.1      PCL - Board Meetings, duration, minutes, and attendances - 2007 & 2008

6.2      PCL - Board Meetings, duration, minutes, and attendances - 2009

6.3      PCL - Board Meetings, duration, minutes, and attendances - 2010

6.4      PCL - Board Meetings, duration, minutes, and attendances - 2011

6.5      PCL - Board Meetings, duration, minutes, and attendances - 2012

7         Burleigh Views property valuations / estimates / feasibilities

8PCL - Audit and Compliance Committee Meetings, duration, minutes, and attendances

Schedule 1 - PCL Profit & Loss // Balance Sheet - Summary

Schedule 2 - PCL Financial Liabilities - Summary

Schedule 3 - PCL Cash Flow - Summary

Schedule 4.1 - PCL Reports 2007 & 2008

Schedule 4.2 - PCL Reports 2009

Schedule 4.3 - PCL Reports 2010

Schedule 4.4 - PCL Reports 2011

Schedule 4.5 - PCL Reports 2012

Schedule 5 - PCL Quarterly & Benchmark Reports, Prospectus & Information Booklets

Schedule 6.1 - PCL - Board Meetings, duration, minutes and attendances – 2007 & 2008

Schedule 6.2 - PCL - Board Meetings, duration, minutes and attendances - 2009

Schedule 6.3 - PCL - Board Meetings, duration, minutes and attendances - 2010

Schedule 6.4 - PCL - Board Meetings, duration, minutes and attendances - 2011

Schedule 6.5 - PCL - Board Meetings, duration, minutes and attendances - 2012

Schedule 7 - Burleigh Views property valuations / estimates / feasibilities

Schedule 8 - PCL - Audit and Compliance Committee Meetings, duration, minutes and attendances