Thompson and Australian Securities and Investments Commission

[2010] AATA 1063

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 1063

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2010/3652

GENERAL ADMINISTRATIVE DIVISION		)
Re		GRANT THOMPSON

Applicant

And AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Respondent

DECISION

Tribunal Deputy President P E Hack SC

Date16 December 2010  

PlaceBrisbane

Decision The decision under review is set aside; in substitution for the decision set aside it is decided that the discretion to disqualify ought not be exercised.   

.................[Sgd]........................

Deputy President

CATCHWORDS

CORPORATIONS – directors and officers – disqualification from managing corporations – not an appropriate case for the exercise of the discretion to disqualify – decision under review set aside.

Corporations Act 2001 (Cth), ss 206F, 286(1), 344(1), 530A, 533

Australian Securities and Investments Commission v Adler [2002] NSWSC 483; (2002) 42 ACSR 80

Murdaca v Australian Securities and investments Commission [2009] FCAFC 92; (2009) 178 FCR 119

Re Indopal Pty Ltd (1987) 12 ACLR 54

REASONS FOR DECISION

23 December 2010   Deputy President P E Hack SC    

Introduction

1. The applicant, Mr Grant Thompson, was a director of two companies that went into liquidation where reports were lodged by liquidators pursuant to s 533 of the Corporation Act 2001 (Cth). The respondent, the Australian Securities and Investments Commission (by a delegate), having been satisfied that the pre-conditions to the exercise of the power to disqualify under s 206F of the Corporations Act were met, determined to exercise that power and disqualified Mr Thompson from managing corporations for a period of 18 months.

2. Mr Thompson sought a review of that decision in this Tribunal.

3. At the conclusion of the hearing I decided to set aside the Commission’s decision and substitute a decision that the discretion to disqualify ought not be exercised. What follows are my reasons for that decision.

   Background

4. There is little dispute about the primary facts.  The proceedings concern principally two companies – Trinations Financial Planning Pty Ltd (Trinations) and Jheeta Homes Pty Ltd (Jheeta).  Mr Thompson is a financial planner by occupation.  He has no qualifications in either law or accounting.  At all times material to these proceedings he has used the accounting firm RWG Accountants and Advisors (RWG), of which Mr Kevin Rodgers is a principal, to provide accountancy services for himself and the various entities associated with him.

5. Trinations was incorporated in September 2000 and de-registered in November 2009.  Mr Thompson was its only director and member from June 2001.  Trinations ceased trading in November 2003.  It was not particularly successful and according to Mr Thompson its outgoings generally exceeded its receipts.  That is borne out, at least to March 2002, by the Australian Taxation Office detailed account which shows that from the December 2000 quarter to the March 2002 quarter Trinations received a refund of GST, that is, its input tax credits exceeded the GST collected by it.

6. That position appeared to have altered dramatically in the June 2002 and September 2002 quarters when, according to its BAS returns, Trinations was required to pay GST in excess of $6,000 and PAYG of $9,000.  At the time of the lodgement of the June 2002 BAS Mr Rodgers (whose evidence was not challenged nor contradicted) was aware, because his firm had processed the BAS return, that GST of $2,412 and PAYG of $4,859 was payable.  Both of these amounts struck him as being unusually high – the GST because Trinations was still in the establishment phase and incurring losses which he anticipated ought result in another refund and the PAYG because Trinations only had one employee.  Mr Rodgers raised his concerns with Mr Thompson who told him that Trinations had only just engaged a new book keeper and that she may have made some mistakes.  Mr Rodgers was instructed to lodge the BAS and told by Mr Thompson that he would obtain information to amend the BAS once the new book keeper got up to date.

7. The situation was repeated in the following quarter where the BAS, prepared on the bookkeeper’s figures, showed GST of $3,840 and PAYG of $4,148.  Mr Rodgers again raised this apparent error with Mr Thompson.  It appeared to Mr Rodgers that the book keeper may have been treating inter-company loans as taxable supplies rather than as financial supplies, causing an overstatement of GST.

8. Despite the clear advice from Mr Rodgers, Mr Thompson took no steps to ascertain whether the figures provided to the Australian Taxation Office were correct nor pay the amounts returned as owing.  Thus the amounts showed as being owed continued to attract the general interest charge payable on tax debts.

9. In early 2003, and as a consequence of personal disputes, many of Trinations financial records were stolen.  A complaint was made to police in March 2003.

10. As I have said Trinations ceased trading in November 2003.  Nothing was done by Mr Thompson about the tax debt until November 2007 when the Deputy Commissioner served a director’s penalty notice on him in relation to the $12,757 of primary tax liability.  The consequence of the service of the notice was that Mr Thompson would become personally liable to pay that sum to the Commissioner unless, within 14 days of service, the company went into administration or winding up, or some arrangement was made to discharge the liability.

11. Mr Thompson sought advice from RWG. It was suggested that the company be wound up by way of a voluntary winding up.  A firm of insolvency accountants was approached to see whether a member of that firm would accept appointment as liquidator.  Copies of the directors’ penalty notice, the Australian Taxation Office account (showing a total outstanding of $70,580) and the Trinations financial accounts for the year ended 20 June 2005 (which included the figures for the year ended 30 June 2004) were forwarded to the accountancy practitioners on 9 November 2007.

12. On 20 November 2007 it was resolved that Trinations be wound up. Mr Jason Bettles and Ms Susan Ruth Carter were appointed liquidators.  The report as to affairs, verified by Mr Thompson, disclosed no assets and only one liability, the debt of $70,580 to the Commissioner of Taxation.

13. By letter dated 12 December 2007 the liquidators asked Mr Thompson to have the books and records of Trinations delivered to the liquidators within 14 days.  Seemingly, a similar request was made of RWG.  A letter was sent by RWG to the liquidators on 30 April 2008 enclosing the 2004 and 2005 financial accounts and tax returns.  The letter advised that 2005 was the last tax return lodged and invited the liquidator to contact the author if there were “any questions regarding the above”.

14. A further letter, dated 31 July 2008, was sent by the liquidators to Mr Thompson.  That letter asserted that no response had been received to the 12 December 2007 letter.  There then appears to have been a conversation between Mr Thompson and a representative of the liquidators on 6 August 2008.  An email sent by Mr Thompson to the representative later the same day proved details of the report made to police regarding the stealing of the books of Trinations.  The email said, in part,

    “… you reminded me that the directors [sic] statement had it that all books and bank statements etc were stolen from me…”

    I infer that the “director’s statement” referred to is the director’s questionnaire which the liquidator sent to Mr Thompson for completion with the 12 December 2007 letter and that the fact of the books and records having been stolen was referred to in that questionnaire.

15. An email from the liquidators’ office to the Commission in March 2010 advised that the accounts and the tax returns sent in April 2008 were the only books and records provided to the liquidators.

16. On 25 February 2009 the liquidators of Trinations lodged a report pursuant to s 533 of the Corporations Act with the Commission.

17. Jheeta was incorporated in July 1996 to act as the trustee of the Jheeta Homes Trust[1], a trust established by a deed of settlement dated 3 July 1996.  The Jheeta Homes Trust is a discretionary trust.  Mr Thompson was a director of Jheeta from 3 July 1996 and has remained so.  From March 2001 he has been the sole director.  Mr Thompson was, as well, a beneficiary of the Jheeta Homes Trust and had the role of “appointor” under the trust deed, that is, the person with power to remove and appoint trustees from or to the Jheeta Homes Trust.

    [1]    As will appear, there is another trust with a deceptively similar name, the Jheeta Home Trust.

18. From June 2006 Jheeta engaged in the business of finance broker and mezzanine funder and continued in that business until December 2007.  At material times it was the mortgagee of real property in both Queensland and New South Wales. On 14 December 2007 Mr Thompson became the sole director and member of Pelicans Riverside Restaurant Pty Ltd (Pelicans).  On the same date Mr Thompson, in his capacity as appointer of the Jheeta Homes Trust removed Jheeta as trustee of the Jheeta Homes Trust and appointed Pelicans in its stead.  Jheeta then ceased its trading activities.

19. Then, on 11 January 2008, the Jheeta Home Trust was established with Jheeta as the trustee.  Mr Thompson was the principal beneficiary and appointer of the Jheeta Home Trust.  The Jheeta Home Trust was set up as a vehicle to acquire a private residence for Mr Thompson to live in.

20. On 20 January 2008 Jheeta, as Trustee of the Jheeta Home Trust, executed a contract to purchase a residential property at Sorrento, Queensland for a price of $1.6m.  An initial deposit of $1,000 was payable (and was paid) on the execution of the contract and a further amount of $159,000 was payable on 21 January 2008.

21. Jheeta Homes did not have $159,000 in its bank account on 21 January 2008 however another entity controlled by Mr Thompson, Trinations Securities Pty Ltd (Trinations Securities), did.  That entity had funds in excess of $400,000 available to it on that day.  Despite that, Mr Thompson did not make arrangements for the balance deposit of $159,000 to be paid as the contract required.  He explained this failure on the basis that he had not been in his office on the afternoon of that day when the real estate agent forwarded bank account details and that no one else had the ability to access funds to effect the transfer.

22. The following day, 22 January 2008 saw a considerable fall on the stock exchange.  The consequence of that was that Mr Thompson saw the need to preserve the cash available to his entities.  On this or the following day he negotiated with the vendor’s agent for the vendor to accept a deposit bond in lieu of a cash deposit and to substitute a nominee company as purchaser.  By this stage Mr Thompson doubted his capacity to use the property as his private residence and had in mind putting together a syndicate of investors to purchase the property as an investment property.

23. Solicitors acting for Jheeta wrote to the solicitors for the vendors early on 24 January 2008 seeking confirmation of an agreement in those terms.  It is not known whether there was a response sent however on 29 January 2008 the vendors, by their solicitors, terminated the contract for the failure to pay the balance deposit.  On 1 February 2008 solicitors acting for the vendors issued a statutory demand for $159,000 and served it on Jheeta on 4 February 2008.  There were further discussions thereafter between Mr Thompson and one of the vendors in which Mr Thompson sought the vendors’ agreement to the payment of a sum of money.  Nothing ultimately came of these negotiations.

24. On 3 April 2008 Ms Carter and Mr Bettles were appointed liquidators of Jheeta for the purposes of a voluntary winding up.  Jheeta had no assets and effectively only one creditor, the vendors of the property, who lodged a proof of a debt for $249,000. But at the commencement of the winding up Jheeta held the legal interest in several mortgages. Transfers of the mortgages had not been effected on the retirement of Jheeta, and the appointment of Pelicans, as trustee of the Jheeta Homes Trust.

25. On 14 April 2008 the liquidators wrote to Mr Thompson seeking the books and records of Jheeta.  Mr Thompson says, and I accept, that he passed this letter to RWG.  Mr Thompson contacted the liquidators’ office at some stage to advise that RWG had all the books and records.  A company register was provided to the liquidators on 30 May 2008.  Further letters were sent by liquidators to Mr Thompson demanding productions of books and records on 16 May 2008, 17 June 2008 and 3 September 2008.  On 15 April 2008 the liquidators wrote to RWG seeking records of Jheeta Homes in the possession of the firm. It is an available inference, which I draw, that that letter was sent following contact by Mr Thompson with the liquidators. An employee of RWG wrote to the liquidators on 20 May 2008 enclosing a copy of the trust deed.  The letter said, in part:

    “Please note that there are no Financial Statements for the year ending 30 June 2007 available, as the trust was set up on 11 January 2008 for Mr Thompson to purchase a family home.

    If you have any queries in relation to this matter, please do not hesitate to contact us.”

26. The letter from the liquidators to Mr Thompson (which was apparently copied to RWG) of 17 June 2008 sought “the books and records for the Jheeta Homes Trust up to and including [14 December 2007].”  Those records were said to include the financial statement for the Jheeta Homes Trust for the years ending 30 June 2005, 30 June 2006 and 30 June 2007.

27. No further books and records were provided to the liquidators.

28. On 18 July 2008 the liquidators of Jheeta lodged a report pursuant to s 533 of the Corporations Act with the Commission.

    The statutory setting

29. The power serviced by the Commission in the present case is set out in s 206F of the Corporations Law. So far as it is relevant it provides:

    “(1)ASIC may disqualify a person from managing corporations for up to 5 years if:

    (a)within 7 years immediately before ASIC gives a notice under paragraph (b)(i):

    (i)the person has been an officer of 2 or more corporations; and

    (ii)while the person was an officer, or within 12 months after the person ceased to be an officer of those corporations, each of the corporations was wound up and a liquidator lodged a report under subsection 533(1) … about the corporation’s inability to pay its debts; and

    (b)ASIC has given the person:

    (i)a notice in the prescribed form requiring them to demonstrate why they should not be disqualified; and

    (ii)an opportunity to be heard on the question; and

    (c)ASIC is satisfied that the disqualification is justified.

    (1A)…

    (2)       In determining whether disqualification is justified, ASIC:

    (a)must have regard to whether any of the corporations mentioned in subsection (1) were related to one another; and

    (b)may have regard to:

    (i)the person’s conduct in relation to the management, business or property of any corporation; and

    (ii)whether the disqualification would be in the public interest; and

    (iii)any other matters that ASIC considers appropriate.”

30. In Murdaca v Australian Securities and investments Commission[2] the Full Court described the operation of s 206F in this way:

    [2] [2009] FCAFC 92; (2009) 178 FCR 119.

    [101] …

    (a)Subsection (1) of s 206F comprises, in ascending order of importance:

    (i) A trigger mechanism (the conditions, filters or gateway) embodied in subs (1)(a) (stage 1);

    (ii) A procedural fairness requirement (the giving of a show cause notice and an opportunity to be heard): subs (1)(b) (stage 2); and

    (iii)A merits decision captured in the requirement that ASIC be satisfied that disqualification is justified: subs (1)(c) read with s 206F(2) (stage 3).

    (b)ASIC's power to disqualify a person from the management of corporations must be exercised for the purposes for which it was granted. Those purposes are the protection of all those persons who deal with corporations from the consequences of the actions of those corporate officeholders who, either through incompetence or dishonesty or a combination of the two, bring about the failure of corporations and thus cause loss to others (Rich v Australian Securities and Investments Commission(2004) 220 CLR 129 at [47]-[50]) and the maintenance of professional management standards in the public interest (Visnic v Australian Securities and Investments Commission (2007) 231 CLR 381 at [11] and [26]).

    (c)Section 206F does not give reports prepared by liquidators pursuant to s 533 of the Act any particular status or weight. ASIC may approach the exercise of its power of disqualification under s 206F(1)(c) in any way it thinks fit, subject to complying with s 206F(1) and (2) and subject to respecting and applying the principles referred to in subparagraph (b) above.

    (d)Subsection (2) of s 206F informs the exercise of the power given to ASIC by subs (1)(c) . Subparagraph (a) of subs (2) lays down a mandatory requirement to which regard must be had and subpara (b) sets out matters to which regard may be had. ASIC is not obliged to have regard to the s 533 report or reports which triggered the disqualification process when considering whether disqualification is justified. No doubt it may do so in an appropriate case but it is not obliged to do so. Rather, it is authorised and empowered to make a decision on the merits as to whether disqualification is justified. It would make no sense at all if it were also required to involve itself in a merits-based decision in relation to the correctness of the relevant s 533 report or reports at stage 1 of the process.

    In the event that reliance is placed upon the s 533 report or reports at stage 3 of the process, ASIC will be called upon to assess the worth of that report or those reports at that stage in order to decide whether disqualification is justified.

    (e)Section 206F is an alternative to Court action by ASIC. It is meant to be a quick and cheap alternative to Court action. However, it cannot be utilised just because ASIC feels that it would like to take action against a particular individual. Certain preconditions for action must be satisfied. But, in the end, the merits consideration by ASIC is intended to take place only once in the process — not at two stages. In a sense, the preconditions provided for in subparas (a) and (b) of s 206F(1) are jurisdictional requirements which must be satisfied before ASIC's power to disqualify under s 206F is enlivened.

    (f)To interpret s 206F as the appellant has contended would lead to endless challenges during the s 206F disqualification process directed to the validity of the relevant s 533 reports and would be likely to render s 206F unworkable.”

    The issues

31. It is common ground that the “trigger mechanisms” and the “procedural fairness requirement” have been satisfied.  What remains in issue is the third stage, the merits decision.  Given that the Commission is advancing an affirmative case it is as well to set out the case that was advanced on its behalf by Ms Gass of counsel.  The case for the Commission was summarised in its written submissions (as amended in the course of argument) in this way:

    “Jheeta …

    35In summary, the contentions in relation to Jheeta … are that the:

    (i)statutory requirements of 206F(1) have been satisfied;

    (ii)applicant made a poor strategic decision when, as a director of Jheeta …, he signed a contract for sale on 20 January 2008 when Jheeta … did not have the funds to pay the deposit when due;

    (iii)applicant failed to ensure that Jheeta … complied with its contractual obligation to pay $159,000 deposit by 21 January 2008;

    (iv)applicant contravened s 344(1) of the Corporations Act by failing to take all reasonable steps to ensure that Jheeta … complied with section 286(1) of the Corporations Act;

    (v)obligations imposed by s 344(1) and 286(1) of the Corporations Act are not overridden by the Trust Deed;

    (vi) applicant failed to comply with s 530A(1) of the Corporations Act by failing to deliver to the liquidator all the books in his possession that related to the company, and in the extent that he did provide them, they were not delivered in accordance with s 530A(1) ‘as soon as practicable’.

    Trinations

    36In summary, the contentions in relation to Trinations are that the:

    (i)applicant failed to discharge his duties as a director of Trinations with the degree of due care and diligence required by s 180(1) of the Corporations Act when he allowed Trinations to accumulate liability to the Australian Tax Office … since 2002;

    (ii)applicant failed to comply with s 530A(1) of the Corporations Act by failing to deliver to the liquidators all the books in his possession that related to the company, and in the extent that he did provide them, they were not delivered in accordance with s 530A(1) ‘as soon as practicable’.

    Other matters that ASIC may have regard to

    37ASIC contends in relation [to] other matters that ASIC may have regard to under s 206F(2)(a) and (2)(b) (ii), that the applicant:

    (i)may have contravened s 182 of the Corporations Act by transferring funds between companies of which he was a director, at his discretion, to advantage himself or the company to which the funds were transferred, improperly using his position as a director.

    (ii)failed to act with due care and diligence in a manner reasonably expected of a company director under s 180(1) when, in the documents provided in Appendix III of the applicant’s evidence he indicated an intention to use company funds for a personal purpose, or, alternatively, failed to ensure that Jheeta … entered into a legal transaction in its correct capacity as Trustee.”

1. I will deal with the matters in turn.  I note at the outset that the two companies were not valid.

   Jheeta

2. I do not accept the allegation of “a poor strategic decision”.  At the time of the decision Jheeta had available to it the funds that Trinations Securities was prepared to lend to it.  Mr Thompson, as the sole director of both entities, was perfectly entitled to commit Jheeta to pay the balance deposit of $159,000 in the expectation that Trinations Securities would lend Jheeta Homes the amount required.

3. At the time of the decision, Mr Thompson had no reason to think that Jheeta would be unable to pay its debt as and when it fell due.

4. The second proposition, that Mr Thompson failed to ensure that Jheeta Homes complied with its contractual obligation to pay the balance deposit on 21 January 2008, is no doubt correct in substance. Mr Thompson was, on his own admission, dilatory. He did not cause the company to honour its contractual obligation, not because he proposed not to have it honour its obligation but because he simply did not get around to paying the balance deposit. He was, in that regard, not as efficient as he might have been. But I doubt that the power to disqualify under s 206F of the Corporations Act is intended to be engaged by every inefficiency of a company’s directors where the trigger mechanism of the s 533 reports is satisfied.

5. In Australian Securities and Investments Commission v Adler[3] Santow J set out a series of propositions derived from the cases, about the power to disqualify.  His Honour’s first proposition was that:

   “Disqualification orders are designed to protect the public from the harmful use of the corporate structure or from use that is contrary to proper commercial standards.

   Mr Thompson’s conduct in failing to pay the balance deposit on 21 January 2008 was not said to be dishonest; it was not an intentional failure and it would hardly be described as gross incompetence. Mr Thompson was simply inefficient. There is, in my view, nothing in the Commission’s first contention.

   [3] [2002] NSWSC 483; (2002) 42 ACSR 80.

6. The Commission’s case did not criticise Mr Thompson’s conduct in this transaction after 21 January 2008.  That, in my view, is a proper approach.

7. Next it is said that Mr Thompson contravened s 344(1) of the Corporations Act by failing to ensure that Jheeta Homes complied with s 286(1) of the Corporations Act.  That latter subsection obliges a company to,

   “keep written financial records that:

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

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

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

8. On analysis, the Commission’s case is based on the view of the liquidator, expressed in a supplementary report to the Commission of 5 November 2009.  That report stated in part:

   “We consider that a company should, as a minimum, maintain the following books and records in order to comply with s 286:

   ·Aged creditors ledger

   ·Financial statements including balance sheets and profit and loss statements

   ·Income tax returns.”

   The author of this opinion was not called to give evidence (although I was told from the bar table that she was unwell) nor was any other evidence called to support the opinion despite Mr Thompson putting the conclusion very much in issue in advance of the hearing and despite Mr Rodgers, a chartered accountant of some 25 years experience, giving unchallenged evidence to the contrary.  Mr Rodgers, who was not cross-examined, said of the liquidator’s opinion:

   “In my professional experience the opinions do not make sense as there were no trade creditors.  Jheeta Homes in its capacity as Trustee of the Jheeta Home Trust did not trade and accordingly financial statements and income tax returns did not apply.”

9. I can see no reason why I ought not accept that evidence.  On the contrary, it appears entirely sound and correct.

10. In truth, the real issue arises in relation to the Commission’s next point, that relating to the delivering up to the liquidator of books and records.  At the outset of the hearing the Commission identified the documents that were not provided as being,

    ·   Income tax returns for the period 2001 to 2007;

    ·   Financial accounts for the same period; and

    ·   Records of transactions, including loans and other agreements for that period.

11. The obligation in s 530A(1) of the Corporations Act is in those terms:

    “(1)  As soon as practicable after the Court orders that a company be wound up or appoints a provisional liquidator of a company, or a company resolves that it be wound up, each officer of the company must:

    (a)  deliver to the liquidator appointed for the purposes of the winding up, or to the provisional liquidator, as the case may be, all books in the officer's possession that relate to the company, other than books possession of which the officer is entitled, as against the company and the liquidator or provisional liquidator, to retain; and

    (b)  if the officer knows where other books relating to the company are–tell the liquidator or provisional liquidator where those books are.”

12. It is to be remembered that up until 14 December 2007 Jheeta acted as the Trustee of the Jheeta Homes Trust but that on and from that date, it had been replaced as trustee by Pelicans.  By virtue of clause 7(8) of the trust deed constituting the Jheeta Homes Trust, a trustee, if removed (as Jheeta Homes was on 14 December 2007),

    “shall hand to the new Trustee all books, records, documents and other material pertaining to the Trust.”

13. There are then immediate difficulties that confront the Commission’s reliance upon the allegation of a breach of s 530A of the Corporations Act. The first is that, prima facie, the new trustee was entitled to the books and records that related to the dealing of Jheeta when it had been the trustee and Jheeta was obliged to hand them to the new trustee. Thus, and assuming that the records were books of Jheeta, they were no longer in possession of Jheeta’s officers, they were in the possession of Pelican’s officers. Moreover, it is not clear to me, nor did the case for the Commission ever seek to explain, why the books of Jheeta as trustee of the Jheeta Homes Trust related to Jheeta in its subsequent capacity as trustee of the Jheeta Home Trust.  Reference was made in the Commission’s submissions to Re Indopal Pty Ltd[4].  That case is authority for a proposition expressed in the headnote in these terms:

    “the identity and value of trust assets, as well as trust liabilities, are very much part of the ‘affairs’ of an insolvent company trustee, whether or not the company has ceased to hold the office of trustee under the terms of the trust.”

    [4] (1987) 12 ACLR 54

14. But two things must be said about that.  First, the conclusion of McLelland J was directed to the question whether a report as to affairs required to be completed by the directors was required to particularise a trust’s assets and liabilities at the commencement of the winding up.  The other is that what informed his Honour’s view was the trustee’s right of indemnity.  The present case is an entirely different case.  Jheeta was not insolvent in its earlier capacity as trustee of the Jheeta Homes Trust. For all practical purposes Jheeta, after its removal as trustee of the Jheeta Homes Trust was a shell – it had no assts beyond, one assumes, its subscribed capital of $100, and no liabilities. It held the legal interest in some mortgages but it held them on behalf of the new trustee, Pelicans, which had the beneficial interest in those mortgages.  

15. I am not then persuaded that the liquidators were entitled to require production of the records of Jheeta as trustee of the Jheeta Homes Trust.  Equally, I am not persuaded that Mr Thompson, in his capacity as director of Pelicans, was not entitled to retain those records (assuming that he held them) as against the liquidator.

16. But there is, in any event, a further answer to the contention.  The email from the liquidator’s representative to the Commission of 12 March 2010 suggests that Mr Thompson responded promptly to the liquidator’s first request by advising that his accountants had all the books and records and would be sending them to the liquidators.  The accountants were also the object of demands from the liquidators.  It appears some documents were provided to the liquidators on 17 September 2008.  But they were provided by the accountants.  It has not been shown that Mr Thompson had possession of any books and records of Jheeta (in whatever capacity) that he did not provide to the liquidators.

17. Finally, in relation to this aspect, there is no evidence that the liquidators were impeded in performance of their tasks by any failure to deliver books or any delay in doing so. Reference should be made to the issue of the mortgages held by Jheeta. These matters, not unnaturally, excited the attention of the liquidators particularly when it transpired that Mr Thompson, after the commencement of the winding up, had executed a release of mortgage as director of Jheeta. But the liquidators were able to be persuaded that the mortgages held in Jheeta’s name were not held beneficially and cooperated in the assignment or transfer of the mortgages when required. The Commission’s delegate concluded that Mr Thompson’s execution of the mortgage release was irregular but not relevant to the issue of disqualification.   

18. But, so far as the books of Jheeta are concerned, if there is a vice in Mr Thompson’s conduct it is not a failure to deliver up books, at worst, it is a failure to chase up his accountants who had possession of them.

    trinations

19. Ms Gass, counsel for the Commission, accepts that it is permissible for me to consider whether, as Mr Rodgers suggested, it was likely that Trinations would not have had a debt to the Commissioner of Taxation had the BAS returns been properly prepared.  In my view it is likely that that is the case.  But nonetheless it was wrong of Mr Thompson not to deal with the matter promptly.  It was not in the best interests of Trinations for Mr Thompson to do nothing and, to that extent, he was at fault.

20. But, given Mr Rodgers evidence, I accept that there was not, in truth, a loss to the revenue. That said, the Commissioner of Taxation has undoubtedly incurred additional expenses as a consequence of Mr Thompson’s failure to act on the incorrect BAS returns.

21. The next issue concerning Trinations relates to the complaint of failure to deliver up books, at all or in a timely fashion. At the outset, the books identified were the Trinations tax return for 2002[5], financial statements for 2004 to 2007 and records of transactions, loan and other agreements.

    [5]    An assertion that the 2006 and 2007 returns ought to have been, but were not, produced was abandoned when it was pointed out that the evidence was that those returns had not been prepared and lodged

22. The case for the Commission relies on the fact that the liquidators were continuing to demand documents as leading to an inference that Mr Thompson did not deliver to the liquidators all of the books and records of Trinations. In the circumstances of the present case I do not regard that as a reasonable inference, all the more so when no evidence has been elicited from either of the liquidators or from any employee in the liquidators’ office.

23. The financial accounts for Trinations for the year ended 30 June 2002 were produced at the hearing. So far as I am able to tell those accounts had not been produced to the liquidators however there is no evidence of which I am aware that the liquidators ever sought those accounts. The 2004 and 2005 accounts and tax returns were provided to the liquidators on 30 April 2008 by RWG. The liquidators were invited to contact RWG if there were any questions regarding the accounts provided. Had the liquidators wanted the 2002 accounts they merely had to ask RWG. Absent evidence of such a request, I infer that the liquidators did not regard the 2002 accounts as relevant. Moreover it may be wondered why, if the liquidators sought more records, that they did not take that issue up directly with RWG.

24. The same is true of the other records said not to have been delivered to the liquidators. There is no evidence that the liquidators required, but did not receive, some records or classes of records. There is no evidence that the liquidators were prevented from performing their work by an absence of records. With the exception of the bank statements referred to below there is no evidence that Mr Thompson had any records that were not delivered to the liquidators.

25. The one exception concerns some Trinations bank statements for the period between March 2003 and June 2004. According to Mr Thompson, these were overlooked and came to light only recently when he was preparing for these proceedings. The failure in this regard was, I am satisfied, unintentional and is not shown to have had any adverse consequences.

    Other matters

26. Sensibly, the Commission abandoned the other allegations. The suggestion that there had been some impropriety in the transfer of funds between related entities was not persisted with. Nor did the Commission persist with the allegation that the failure of a trustee to describe its capacity on mortgages reflected an absence of due care and diligence on the part of Mr Thompson.

    Conclusions

27. In the result, Mr Thompson’s faults are very minor. On the least favourable view of the evidence he has been inefficient by not arranging to pay the balance deposit. He was again, perhaps, dilatory in not ensuring that RWG had carried out his instructions to deliver up books to the liquidators.

28. But these matters do not warrant the exercise of the discretion to disqualify. Thus I set aside the decision and substitute a decision that the discretion not be exercised.     

    I certify that the 59 preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President P E Hack SC

    Signed: ............[Sgd]...............................................................
      Associate

    Dates of Hearing  15 & 16 December 2010
    Date of Decision  23 December 2010
    Applicant  Unrepresented
    Counsel for the Respondent     Ms E Gass
    Solicitors for the Respondent    Australian Securities & Investments Commission