Young and Companies Auditors and Liquidators Disciplinary Board and Australian Securities and Investments Commission - [2000] AATA 488

DECISION AND REASONS FOR DECISION [2000] AATA 488

ADMINISTRATIVE APPEALS TRIBUNAL )

) No N99/962

GENERAL ADMINISTRATIVE DIVISION       )
           Re      DAVID GREGORY YOUNG
  Applicant
           And    COMPANIES AUDITORS AND LIQUIDATORS DISCIPLINARY BOARD
  Respondent
           And    AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
  Party Joined

DECISION

Tribunal Mr B.J. McMahon (Deputy President)

Date19 June 2000
PlaceSydney

Decision      The decision under review is varied by reducing the period of suspension from eight months to six months.
  ..............................................
  BJ McMahon
  Deputy President
CATCHWORDS
CORPORATIONS – Companies Auditors and Liquidators Disciplinary Board – suspension of registration of liquidator – whether failure to perform adequately and properly the duties of a liquidator – whether breaches of statutory duties occurred in three separate administrations

Corporations Law (Cth) – ss 1292(1),(2),(9), 1317B

Davies v Australian Securities Commission (1995) 59 FCR 221
Law Society of New South Wales v Foreman (1994) 34 NSWLR 408
Law Society of New South Wales v Moulton (1981) 2 NSWLR 736
McDonald v ASC (1997) 15 ACLC 1
Spargold Enterprises Pty Limited (1999) 32 ASCR 363
Comcorp Australia Limited (1996) 21 ACSR 590

REASONS FOR DECISION

Mr B.J. McMahon (Deputy President)

This is an application to review a decision given by the respondent Board on 21 June 1999. The effect of the decision is that Mr Young's registration as a liquidator is to be suspended for a period of 8 months commencing from the date of publication of notice of the Board's order in the Government Gazette. A stay order has been made in the mean time. The Board also decided that Mr Young should pay 75% of the costs of the Australian Securities and Investments Commission (ASIC) incurred in the proceedings before the Board. The proceedings were commenced through an application made by ASIC for Mr Young to be dealt with under section 1292 of the Corporations Law. It was alleged that he had failed to carry out or perform adequately or properly the duties or functions required by an Australian law to be carried out or performed by a registered liquidator within the meaning of paragraph 1292(2)(d)(ii). The application then set out a number of allegations which have largely been repeated in the statement of facts and contentions which it filed in the present proceedings.
Subsection 1292(2) of the Law is as follows:
"1292(2)         The Board may, if it is satisfied on an application by the Commission for a person who is registered as a liquidator to be dealt with under this section that, before, at or after the commencement of this section:
(a)       the person has:
(i)        contravened section 1288 or a corresponding previous law; or
(ii)       ceased to be resident in Australia
(b)a registration of the person under a previous law corresponding to Division 2 has been cancelled or suspended;
(c)the person has been dealt with under a previous law corresponding to subsection (9) of this section; or
(d)that the person has failed, whether within or outside Australia, to carry out or perform adequately and properly:
(i)        the duties of a liquidator; or
(ii)any duties or functions required by an Australian law to be carried out or performed by a registered liquidator;
or is otherwise not a fit and proper person to remain registered as a liquidator;
by order, cancel, or suspend for a specified period, the registration of the person as a liquidator."

By subsection (9) the Board (and therefore this Tribunal) may deal with an errant liquidator by admonishing or reprimanding the person, by requiring the person to give an undertaking to engage in, or to refrain from engaging in, specified conduct, or by requiring the person to give an undertaking to refrain from specified conduct except on specified conditions. In the event of an undertaking being required and not being given, the Board (and this Tribunal) may cancel or suspend, for a specified period, the registration of the person as a liquidator.
The matters alleged against Mr Young arise out of his conduct as an administrator. Section 448D of the Law relevantly provides that a person must not act as an administrator unless he or she is a registered liquidator. As far as section 1292 is concerned, therefore, Mr Young, in acting as an administrator, was carrying out or performing the duties or functions required by an Australian law to be carried out or performed by a registered liquidator.
The corresponding subsection relating to auditors in section 1292 was considered by Hill J in Davies v Australian Securities Commission (1995) 59 FCR 221. His Honour considered that the addition to subparagraph (d) constituted a separate and independent basis for the Board being empowered to cancel or suspend an auditor's registration. There is no reason to discriminate between the treatment of auditors and liquidators in this context. His Honour said (at pages 233 and 234):
"With respect to the submissions put on behalf of Mr Davies there is an obvious difficulty in the construction which is urged on his behalf. Had the legislature intended that it be necessary before s 1292(1)(d) was attracted that it be shown that a registered person was not a fit and proper person to be an auditor, it would have been easy for the legislature to have merely stipulated in s 1292(1)(d) that the person be found not to have been a fit and proper person to remain registered. It would have been unnecessary to have mentioned the specific matters in subpars (I) and (ii) of the paragraph. This is a difficulty in the way of the construction urged by counsel for Mr Davies at least as great as the difficulty thrown up by the use of the words "or is otherwise" for the construction adopted by the Tribunal.
Ultimately the question is one of impression. However, I think the better interpretation is that for s 1292(1)(d) to be attracted there are three separate and independent alternatives. The first is a failure to carry out or perform adequately and properly the duties of an auditor. The second is a failure to carry or perform adequately and properly the duties or functions referred to in subpar (ii) and the third and alternative requirement is that it be shown that the registered person is not a fit and proper person to remain registered. If the words "or is otherwise" have any significance at all it is to express a legislative view that a person who does not carry out or perform adequately and properly the duties or functions referred to in subpars (I) and (ii) will ordinarily not be a fit and proper person to remain registered as an auditor. To the extent that there are cases which do not warrant cancellation or suspension, these may be dealt with either by the general discretion conferred upon the Board in s 1292(1) or the power to impose a lesser disciplinary punishment contained in s 1292(9)."

Counsel for the applicant formally submitted that His Honour was in error and that it was necessary to find that a person was not a fit and proper person to remain registered as a liquidator before the powers of the Board could be exercised. He acknowledged, however, that I am bound by what was said by His Honour. As it happens, the fact that I respectfully agree with the Court's reading of the subparagraph was noted at page 234.
It has not been alleged by ASIC that the applicant is not a fit and proper person to remain registered. The case made against him relies on allegations made under subparagraph (ii). Those allegations are that he failed to carry out or perform adequately and properly the duties specified in that subparagraph. The use of the words "failed to carry out" or "failed to perform adequately and properly" indicates the circumstances which will enliven the operation of the subsection. Those circumstances appear to fall short of "professional misconduct" or illegality. Those professional disciplinary cases dealing with statutes using that language should be approached with caution, except where general principles are laid down dealing with situations other than the occasioning of liability to discipline. The Board's discretion arises upon the occurrence of failures of a lesser degree than many of the failures considered in the professional disciplinary cases.
It is also relevant to note at this stage that His Honour held in Davies that there was no concept of reasonableness imported through the use of the words "failed" and "adequately". He said (at page 240):
"Because the provisions of s 1292(1) are brought into play upon it being shown that the duties or functions to which s 1292(1)(d) relate have not been performed in such a way as may be described as adequate and proper, I do not think that any concept of reasonableness is imported through the use of the word "failed". Nor do I think merely because the legislature has used the word "adequately" that some concept of reasonableness has been imported."

The office of administrator is created by Part 5.3A of the Law, which became effective from 23 June 1993. It followed recommendations made in a document which became known as the Harmer Report. The reforms envisaged by the legislation did not involved court procedures, unlike the previous schemes known as "schemes of arrangement". Also, unlike official management, the new type of administration did not require that whatever proposal was to be put resulted in payment of all the debts of the company in full. There were some variations from the recommendations of the Harmer Report in the final legislation. Nevertheless, the objects as set out in section 435A remain an indicator of the purpose of the legislation and serve to assist in its interpretation. Those objects are as follows:
"435A The object of this Part is to provide for the business, property and affairs of an insolvent company to be administered in a way that:
(a)maximises the chances of the company, or as much as possible of its business, continuing in existence; or
(b)if it is not possible for the company or its business to continue in existence – results in a better return for the company's creditors and members than would result from an immediate winding up of the company."

An administrator is appointed by the company, by a liquidator or by a chargee of the company (sections 436A, 436B and 436C). By virtue of section 439A the administrator must convene a meeting within 28 days to decide what to do with the company. One of the possibilities is for the company to enter into a Deed of Company Administration. Between the time of the appointment of the administrator and the meeting pursuant to section 439A, at which a resolution is passed in accordance with section 439C, the administrator is to provide a report to creditors in accordance with section 439A(4). By section 437D, only the administrator can deal with the company's property.
The application was based on a review by ASIC of three administrations carried out by Mr Young. In relation to each, ASIC alleged a number of breaches by Mr Young of his statutory duties or failures to perform those duties adequately or properly. I will deal with each of these allegations to establish findings of fact. In referring to the allegations I will adopt the same numbering system used by ASIC in its statement of facts and contentions as this system is also the basis of other evidence filed in support of, and in opposition to, ASIC's application.
The first administration concerned Wear Protection Pty Ltd. This company had been incorporated on 25 June 1986 and carried on a business of metal form work and stud welding. Mr Widin was appointed liquidator of the company on 25 February 1994. In the course of the liquidation, he appointed Mr Young (his partner) as administrator of the company pursuant to section 436B of the Law on 3 March 1994.
The company entered into a Deed of Company Arrangement (DCA) with its creditors on 20 April 1994 in which Mr Young was appointed administrator. The Deed provided that the administrator's costs and all participating creditors be paid in full within 12 months from future trading profits and the realisation of certain assets. The company traded for some 12 months whilst under the control of the directors and under the DCA. By April 1995, it had ceased trading because the directors had failed to obtain bank financing and there was insufficient work in hand to secure future trading. At a creditors' meeting held on 7 February 1996, the company was wound up pursuant to section 445E of the Law.
ASIC alleges 10 failures by Mr Young to perform his obligations. The first one is as follows:
"2.1 The Administrator recommended the DCA proposal to the creditors for acceptance without ascertaining whether a $142,000 future trading profit was achievable and further and in the alternative failed to exercise due care and diligence as required by s232(4) of the Law in recommending the DCA for acceptance."

This is probably the most important allegation made against Mr Young. His profit forecast of $142,000 must have been an important factor in the creditors agreeing to proceed with administration under Part 5.3A of the Law. The company, of course, did not achieve the forecast profit of $142,000 or anything like it. The question is whether Mr Young should have made his recommendation in the light of information that was available to him and, indeed, in the light of information that was not available to him.
The company had been experiencing declining sales and had been making consistent losses for a number of years. The fact that the appointment of the administrator was in the course of a liquidation was itself an indication that it would be difficult to turn the company around. Accounts for 1991 were the only accounts available. Those for the two subsequent years did not come into existence until well into the course of the administration. The fact that more up to date accounts were not available was another warning sign. No cash flow forecast was made. At that early stage in the operation of the legislation there were no guidelines requiring such a forecast, although one would have thought this was a basic tool necessary to found a profit forecast upon which creditors could rely.
The forecast was based on information largely supplied by the directors. This in turn was largely based on anticipated contracts for which the company had merely quoted at that stage. A profit forecast based upon quotations is obviously based on insubstantial grounds. Even assuming that the quotations were accepted, however, the only firm estimates put forward by the directors were for a period of nine months. Mr Young extrapolated those estimates to a 12 month period by a mere mathematical calculation in arriving at his annual profit forecast. Important negatives were not taken into account, although information relevant to the estimates had been made available by the directors. For example, major repairs to the Caterpillar engine which the directors had noted was not taken into account. There was no evidence of an independent evaluation of the status of work in progress, the jobs not started, the costs to complete or the profitability of that work.
Notwithstanding this, Mr Young included in his report a statement that "at this stage, it is estimated $142,000 will be the net profit from trading and completing work in progress and new contracts over the next 12 months". Mr Sutherland, an accountant specialising in insolvency who gave evidence on behalf of Mr Young, considered that it was not unreasonable for the applicant to consider that the profit was achievable with the limited information he had available to him and with the time constraints placed upon his investigations. I do not accept this as a mitigating factor. If information was limited, or if time constraints were impractical, then those factors ought to have been referred to in the report in order to give the creditors an opportunity to make their own judgement as to whether they would accept Mr Young's recommendation relating to the DCA proposal.
It was said on behalf of Mr Young that his decision was a commercial judgement, that it was easy to criticise it in hindsight, that the legislation under which he operated was new, that there were no guidelines in place from the courts or from ASIC as to the extent of investigations which should be carried out by administrators or as to the material that should be included in their statutory report. In my view, irrespective of the time at which one considers contemporary standards, there is a clear obligation to include obvious information necessary for creditors to make an informed decision and a clear obligation to refer to the absence of any such information if it was not available.
The next allegation was as follows:
"2.2 The Administrator failed to carry out the terms of the DCA as required by s444G of the Law, by carrying on Wear's business when it was not part of his duties under the Deed and further and in the alternative by failing to exercise due care and diligence as required by s232(4) of the Law in failing to carry out the terms of the DCA."

The Deed contains two paragraphs as follows:
2.4 Upon execution of this Deed of company arrangement, the company shall not employ staff, or place orders for goods and services without the prior written approval of the administrator.
2.5 Upon execution of this Deed of company arrangement, the administrator shall cease to be involved in the carrying on of the company's business except to the extent as provided in clause 2.4 and shall have no liability for any debts of whatsoever kind that the company may incur after the date of this Deed and the company hereby indemnifies the administrator against any claim that may be made against him in relation to any debts which may hereafter be incurred by the company."

From these clauses it is apparent that the Deed did not envisage the administrator carrying on business of the company. Mr Sutherland agreed that the Deed could have been better worded. In my view, however, the obligations of the administrator created by these clauses are clear. Mr Young was precluded from carrying on the company's business. They override defining powers given to an administrator under clauses 2(z) and 2(z)(a) of schedule 8A of the regulations (the provisions prescribed under regulation 5.3A.06) in relation to carrying on business and selling the property of the company. In fact, Mr Young was actively involved in carrying on the company's business and concerned himself in sales, purchases, collection of trade debtors, payment of wages and salaries and indeed the disposal of the company's assets. A submission that suggested whether Mr Young was "involved in the carrying on of the company's business" was a legal question cannot succeed. The activities in which Mr Young was involved were too widespread to be classified as a partial involvement in the company's business. Even partial involvement was precluded by the terms of the Deed. On any view of the evidence, Mr Young failed to perform the duty of complying with the terms of the Deed.
It was said on his behalf that his actions should be considered as reasonable, having regard to the alleged obscurity of the relevant clauses in the Deed. Mr Sutherland said that a better drafted Deed might have assisted in clarifying Mr Young's powers. However, he went on:
"I note that the legislation had just been enacted so that the drafting of Deeds of company arrangements at that time was somewhat new for practitioners and their legal advisors. I consider that Mr Young has acted reasonably in taking a conservative approach and exercising his powers under schedule 8A…"

The question is not whether Mr Young acted reasonably. The question is not whether it was pragmatically convenient for him to do what he did. The fact is that he breached his obligations under the Deed and this allegation must be found to be made out.

The third allegation is in the following terms:
"2.3 The Administrator failed to take any adequate steps upon the non compliance of the company with clauses 2.6 and 2.7 of the DCA so that contrary to the terms of the DCA, and contrary to s444G of the Law, the company used moneys payable to the Administration Fund for the purpose of funding operating losses, when such funds, pursuant to clause 2.2 of the DCA were to be held in the Administration Fund on trust for the participating creditors, and further and in the alternative failed to exercise due care and diligence as required by s232(4) of the Law in administering the DCA."

In the course of his administration, Mr Young received a number of sums of money. Instead of keeping the administration fund (which was in the nature of a trust fund) and the company's day to day funds separate, he operated only one bank account. It was required by the DCA that the administration fund be kept separate and be dealt with in a certain way. The administration fund, however, was mixed with day to day trading funds. In effect, therefore, the administration fund was used partly to fund trading losses during the DCA and to play post-Deed creditors. The result of this was that the priority creditors (whose interests should have been preserved) received a smaller dividend and the participating creditors (whose interests ought also to have been preserved) received nil.
It was submitted that there was no evidence that the participating creditors would have received a dividend had this course not been followed. In my view, it is not necessary to demonstrate this in order to show a breach of the administrator's obligations. It was submitted that there was a lack of legislative guidance as to how administrators should deal with the Deed funds. That may be so. It would be basic accounting, however, to differentiate between those funds and trading funds. The need to keep them apart does not arise from any sophisticated accounting concept. This basic need would have been apparent at the time notwithstanding the absence of any guidelines.
It is apparent from evidence given before the Board and before me that Mr Young paid the post-Deed creditors because he believed that their debts were incurred by him as administrator. This appears to be contrary to the legal position. In paying post-Deed creditors in full, Mr Young has in effect created a "new class" of priority creditors and accordingly reduced the dividend to those creditors who would otherwise be entitled to the funds under section 556 of the Law. The position of post-Deed creditors has since been clarified by an amendment to the Law. Section 553(1A) was inserted for this purpose.
The fourth allegation was in these terms:
"2.4a) The Administrator failed to prepare a deed instrument under s444A(3) that accurately set out the terms of the DCA approved by creditors, by failing to include a provision that he report to creditors on a quarterly basis during the DCA period despite indicating that he would so report and further and in the alternative he failed to exercise due care and diligence as required by s232(4) of the Law by preparing a deed instrument that did not include a provision consistent with his indication to creditors that he would report to them on a quarterly basis;
b) The Administrator failed to adequately and properly monitor compliance with clause 4.2 of the DCA which required submission of a monthly financial report to the Administrator by the company, including his failure to use the powers available to him under clause 4.3 of the DCA, and further and in the alternative, he failed to exercise due care and diligence as required by s232(4) of the Law in monitoring compliance with clause 4.2."

The minutes of the meeting of creditors of 30 March contained a record of a statement made by Mr Young that the directors would be required to report on the company to the administrator on a monthly basis and that the administrator would in turn report to creditors on a quarterly basis. In fact, Mr Young did not receive monthly reports nor did he insist upon receipt of them as he was empowered to do by the Deed. The Deed instrument as prepared by the solicitor did not contain the terms relating to the quarterly reporting to creditors by the administrator and indeed he failed to report at those intervals.
There can be no doubt that this allegation has been made out. Mr Sutherland attempted to modify its effect by a tortuous reading of the minutes. In my view, the intention and the words are plain and both the Deed and the acts to be done pursuant to the Deed were deficient.
The fifth allegation is in the following terms:
"2.5The Administrator withdrew from Wear's DCA bank account $6,000 in excess of the $20,000 approved for his remuneration without obtaining approval from creditors pursuant to s449E(1)."

All parties agree that this allegation is also made out. Mr Young has admitted that the remuneration was overpaid because of an oversight which was rectified when the monies were repaid. Repayment, of course, ensured that there was no financial loss to the creditors. It has to be said, however, that repayment did not take place until after the discrepancy had been pointed out during the course of the audit.
The next allegation was in the following terms:
"2.6The Administrator failed to carry out the terms of the DCA as required by s444G of the Law by failing to implement clause 3(b) of the Prescribed Provisions under clause 2.1 of the DCA by failing to convene a meeting of creditors around April/May 1995 to consider what action may have been taken in relation to the future of the DCA and further and in the alternative by failing to exercise due care and diligence as required by s232(4) of the Law in carrying out the terms of the DCA by breaching clause 3(b) of the Prescribed Provisions in or about April/May 1995."

On Mr Young's behalf, Mr Sutherland also agreed that this allegation had been made out. Pursuant to clause 7.3 of the DCA, the administrator should have called a meeting in April or May 1995 for creditors to determine whether to terminate or vary the Deed. It is likely that the company would have been wound up if such a meeting was called, as the company had ceased trading and no alternative proposal had been put by the directors.
The seventh allegation is in the following terms:
"2.7The Administrator breached s.439A(4)(b)(ii) and (iii) of the Law by failing to provide reasons for his opinions in relation to each of the alternatives referred to in the sub sections."

Section 439A(4) prescribes the documents which must accompany a notice convening a creditors' meeting. The documents must consist of a report by the administrator about the company's business, property, affairs and financial circumstances, together with a statement setting out the administrator's opinion about each of the following matters:
"(i)Whether it would be in the creditors' interests for the company to execute a Deed of company arrangement;
(ii) Whether it would be in the creditors' interests for the administration to end;
(iii)Whether it would be in the creditors' interests for the company to be wound up;
and his or her reasons for those opinions …."

Mr Young failed to provide separate opinions in relation to each of the three separate matters. However, I agree with Mr Donnelly, who gave evidence on behalf of ASIC, that a reading of Mr Young's report to creditors dated 22 March 1994 indicates that Mr Young had made it clear that he recommended the DCA and did not recommend the other two alternatives. The decision in Comcorp Australia Limited (1996) 21 ACSR 590, delivered some time after the date of the administrator's report, established that three separate opinions and the reasons for each opinion would be required. It might be said that Mr Young did provide separate opinions in relation to the three choices but only expressed his reasons for the opinion he supported. It may be that from a technical point of view, this allegation has been proven, but from a practical point of view it would have been clear to creditors what Mr Young's opinion was.
This failure on the part of Mr Young to "perform adequately and properly" his duties or functions as an administrator was a minor failure. It may be noted at this stage that not all the failures or breaches involving findings against Mr Young are of the same order of seriousness. Clearly some are more important than others and some are merely of peripheral importance.
The next allegation is as follows:
"2.8The Administrator failed to make a report to the ASC pursuant to s.438D(1) of the Law that the directors of Wear may have been guilty of various offences under the Law."

Mr Sutherland agrees (and I agree with him) that Mr Young should have reported the possibility of insolvent trading by directors to ASIC by means of a section 438D report. The company appears to have been insolvent since at least June 1991. No reasons were advanced by Mr Young as to why the report was not made. Section 438B(2) requires directors to give to the administrator a statement about the company's business, property, affairs and financial circumstances within seven days after the administration of a company begins. This statement was not made available to Mr Young within the time stipulated. That failure should also have been reported.
It was contended on Mr Young's behalf that he did not become aware of the company trading whilst insolvent until he received the historical financial reports of the company in July 1994, some two months after he had retired as administrator. It was said that he had no obligation to make a report pursuant to section 438D if he became aware of offences after his retirement from that position. I do not accept this as a sufficient reason for failure to report. It is not up to the administrator to assess the guilt or innocence of an officer of a company. He is required to report only if it appears to him that an officer may have been guilty of an offence. The fact that there had been a winding up order, that there had been a deficiency of working capital in each year since 1991, that approximately $16,000 was owed in respect of group tax, that the company had limited work in progress and that the administrator was aware of past losses are all sufficient to base a reasonable opinion that an officer of the company may have been guilty of insolvent trading.
The ninth allegation is in the following terms:
"2.9The Administrator, in purporting to set out his opinions in the statement made pursuant to s.439A(4)(b) of the Law, failed to specify whether there were any transactions that appeared to him to be voidable transactions in respect of which money, property or other benefits may have been recoverable by a liquidator under Part 5.7B of the Law, as required under reg. 5.3A.02."

The applicant agrees with this contention. The fact that there were no apparently voidable transactions is not, in my view, sufficient reason for failing to comply with regulation 5.3A.02. Mr Young is under an obligation to make a report on the subject, whether or not he holds an opinion that any transaction may have been voidable.
The final allegation is in these terms:
"2.10The Administrator failed to indicate that in a liquidation there would be available assets for distribution amongst the priority creditors and further and in the alternative he failed to exercise due care and diligence in failing to so indicate."

In his report to creditors, Mr Young should have indicated that priority creditors would have been paid in full in the event of a liquidation. Mr Young did not advise priority creditors in his report that by adoption of the DCA, they would place their prospect of recovery at risk. Had it been specifically drawn to their attention, this risk may have precluded some such creditors from voting in favour of approval of the scheme. In fact, the funds were not made available to priority creditors through defects in the administration which have been referred to previously, particularly in the first allegation.
The second company administration to be examined by ASIC was that relating to K & S Ammann Pty Ltd. The principal activity of this company was carrying and rubbish removal. Mr Young was appointed voluntary administrator of the company on 13 February 1995 under section 436A of the Law. The company entered into a DCA with its creditors on 24 April 1995, in which Mr Young was also appointed administrator. The DCA provided that the administrator's costs and all participating creditors were to be paid in full from funds raised from re-financing the business and/or from future profits for the next two years. If creditor claims were not paid in full in two years, then the DCA was to be extended up to a maximum of three years. If a minimum of $100,000 was not available from the proposed re-financing within six months, the business was to be sold by the administrator. If creditors were not paid in full within three years, a creditors' meeting was to be called to consider the position. As with the previous company, the Deed administrator was not to be involved in carrying on the company's business.
The company traded for seven months while under the control of the directors and Mr Young. On 22 December 1995, after the directors had failed to provide funding as provided for in the DCA, the business was sold. At a subsequent creditors' meeting held on 24 January 1997, the company was wound up pursuant to section 445E of the Law.
The first failure alleged against Mr Young in relation to this company is as follows:
"4.1The Administrator recommended the DCA proposal to the creditors for acceptance without providing creditors with sufficient information on which they could reasonably be expected to rely in making their decision on whether or not to support the proposed DCA and further and in the alternative failed to exercise due care and diligence as required by s232(4) of the Law in recommending the DCA for acceptance."

The administrator had gone to the trouble of applying to the Supreme Court for an order that the time for convening the meeting of creditors be extended so that he could prepare a meaningful report and obtain appropriate financial information. Although he obtained financial statements for the years 1992 to 1995 inclusive, he did not provide this information in his section 439A report to creditors, nor did he table the information at the meeting of creditors held on 4 April 1995. This financial information was critical in enabling creditors to form their own opinion as to whether the DCA proposal would provide a greater sum than the estimated return of 78 cents in the dollar in a winding up.
Instead of making full financial information available, Mr Young merely attached to his report a profit and loss statement for the period 13 February 1995 to March 1995, being a period of just under six weeks. This statement showed "net profit from normal trading" of $12,786 for that period.
The financial information was not prepared on an accrual basis and made no provision for annual costs occurring outside the accounting period such as advertising, insurance, repairs and maintenance, spare parts, tyres and superannuation. The significance of these expense items was apparent from the historical financial statements which he had received. As a result of this inadequate information, the creditors were disadvantaged in forming an opinion as to the desirability of the proposed administration.
Again it was said on Mr Young's behalf that at the time the report was sent to creditors, there were no guidelines in the legislation or from ASIC on the financial information that should be provided. Mr Sutherland pointed out that the legislation had only recently been enacted and consideration as to what should be included within such reports was a matter of conjecture and speculation.
I do not accept this opinion. Whatever standards are to be applied, clearly basic financial future profitability based on the fullest available financial information should have gone to creditors. Having acquired this information, it was inappropriate and indeed misleading for Mr Young to truncate it by omitting accrual items.
The next failure alleged was as follows:
"4.2 The Administrator acted in breach of the Deed (and thereby contravened s444G of the Law), by carrying on K & S Ammann's business when such action was expressly precluded by the Deed and further and in the alternative failed to exercise due care and diligence as required by s232(4) of the Law in failing to comply with the terms of the Deed."

Once again, Mr Young had only one bank account which mixed funds between the administration fund and the day-to-day trading activities. He carried on business in that he paid the outstanding creditors relating to debts incurred in the DCA period and collected outstanding debtors, both those existing prior to and after the execution of the DCA. These activities were not intended to be carried out by the administrator under the terms of the Deed. It is not correct to say, as Mr Sutherland asserted, that the payment of debtors was only in connection with the cleaning up of a business to prepare it for sale or to discharge after sale obligations.
The next allegation is as follows:
"4.3The Administrator failed to carry out the terms of the DCA as required by s.444G of the Law by using moneys that would otherwise have been available to participating creditors to fund losses which arose from continuing the operation of K&S Ammann and further and in the alternative failed to exercise due care and diligence as required by s232(4) of the Law in failing to carry out the terms of the DCA."

This breach stems from the mixing of administration and trading funds, to which I have already referred. It also arises from the fact that net proceeds from the sale of the business were applied in paying post-Deed creditors to the detriment of participating creditors for whose benefit the monies should have been retained.
It appeared in evidence given before me that the opinion put forward by Mr Sutherland that Mr Young's actions were reasonable was based upon an inadequate appreciation by him of the real fund position. In any event, it is immaterial, as I have said earlier, whether Mr Young's actions were reasonable in determining what the ultimate distribution may have been in a liquidation. He was bound by the terms of the Deed and failed to meet his obligations.
The next allegation is as follows:
"4.4The Administrator failed to carry out the terms of the DCA as required by s.444G of the Law by breaching clause 3(b) of the Prescribed Provisions under clause 2.1 of the DCA by failing to act promptly to call a meeting of creditors to consider varying or terminating the DCA or winding up K & S Ammann, after it had become apparent that the DCA could not achieve its purpose and further and in the alternative failed to exercise due care and diligence as required by s232(4) of the Law in failing to carry out the terms of the DCA."

There is no doubt that Mr Young was aware of the declining fortunes of the company for some time as he himself pointed out in his quarterly report dated 13 November 1995. Nevertheless, he did not call a meeting of creditors to consider terminating the DCA or varying the DCA or winding up the company until 24 January 1997. At that time, there was no alternative other than to place the company into liquidation.
Mr Sutherland agrees that a meeting should probably have been called early in 1996 to place the company in liquidation. However, he asserted on Mr Young's behalf that if the company had gone into liquidation early in 1996, there would have been difficulty in pursuing recovery of many of the trade debtors. It was his view that failure to call a more timely meeting of creditors had not caused detriment to participating creditors.

I reject that submission. It was Mr Young's obligation to call the meeting earlier. It was then up to the creditors who were, after all, supporting the company to determine what its future should be.
The next allegation is as follows:
"4.5The Administrator was paid remuneration out of the DCA fund, otherwise than in accordance with s.449E(1)."

This allegation arises out of the minutes in possession of ASIC recording a resolution fixing the administrator's remuneration to a maximum of $20,000. However, Mr Young gave evidence both before the Board and before me that the minutes were inaccurate and were subsequently amended. This evidence was not controverted. Furthermore, of the $57,390 paid to Mr Young, some part may have been in respect of the voluntary administrator's remuneration up to 4 April 1995. In the circumstances, I do not consider that the evidence justifies a positive finding in relation to this allegation.
The third company administration related to Hotel Plus Pty Limited. This is a company which was incorporated on 21 February 1994 and which carried on business as an events coordinator. Mr Young was appointed voluntary administrator of the company on 3 April 1996 under section 436A of the Law. The company entered into a DCA with its creditors on 29 May 1996, under which Mr Young was appointed administrator. It provided for the company making two payments to a Deed fund and contributing 50% of its profits after deducting the two payments by 31 December 1997. In fact, the company traded for some seven months while under the control of the directors and under a DCA. The company was unable to make the first Deed payment. It was wound up at a creditors' meeting held on 17 January 1997.
Four allegations are made in relation to this administration. The first is as follows:
"6.1 The Administrator:
i)failed to prepare a deed instrument under s444A(3) that accurately set out the terms of the DCA approved by creditors; and…"

The meeting of creditors resolved that the administration should be automatically terminated if accounts were not provided for two consecutive months. The Deed which Mr Young had prepared, however, merely provided that a further meeting was to be called in that event. Clearly then, the administrator failed to prepare a Deed instrument that accurately set out the terms of the DCA approved by creditors.
On his behalf it was said that Mr Young had given minutes of the meeting and of his report to an experienced insolvency lawyer who drafted the DCA. Nevertheless, it is agreed that the lawyer was deficient. I cannot, however, absolve Mr Young from responsibility for checking the Deed.
The next allegation was as follows:
"ii)failed to implement the provisions or carry out the DCA in the manner in which the creditors had resolved that the DCA be carried out; and…"

The Deed provided for reports to be obtained from the principal director of the company, Mr Harrington, on a monthly basis. Mr Young did not receive the statements, nor did he pursue them. Furthermore, he did not call a meeting of creditors until 17 January 1997. Had he observed the terms of the Deed, the meeting would have been called no later than 17 August 1996.
It was said on Mr Young's behalf in relation to this allegation and the following allegation, that clause 9.2 of the Deed merely provided that the administrator "in his absolute discretion" could determine both the form and content of the report to be submitted to him on a monthly basis. It was said that he had exercised his "absolute discretion" to determine that reports were not necessary. This is mere casuistry. The discretion goes to form and content not to the presence or absence of any such report.
The third allegation is as follows:
"iii)purported to continue to act as the Administrator of the DCA at a time when the DCA had by operation of its terms terminated; and…"

This follows from the previous allegation. In fact there was a self-actuating clause terminating the administration which was completely ignored by Mr Young as I have indicated.
The fourth allegation which is in the following terms:
"iv)further and in the alternative to both i) and ii) above, failed to exercise due care and diligence as required by s232(4) of the Law in failing to carry out and recognise the terms of the DCA."

is supplementary to all of the other three allegations made in connection with this company.

Finally it was contended as follows:
"7 General Contention
The administrator by his conduct has preferred his own interests to those of the three companies concerned and their participating creditors . Further and in the alternative, the administrator has acted in breach of 1292(20(d)(ii) by acting in a manner inconsistent with the objects of Part 5.3A as set out in S535A of the Law."

Even Mr Donnelly, who gave evidence on behalf of ASIC, did not believe that this general contention could be sustained. I agree with him. The initial reports to creditors in the matters of Wear and Ammann may have been misleading to creditors and Mr Young's dealing with payment of funds was incorrect, resulting in certain creditors being favoured over others. There is no evidence, however, that these principal areas of misconduct were as a result of Mr Young preferring his own interests to those of the respective companies or their creditors. He was paid only professional fees and indeed reduced the level of these fees on certain occasions. He may not have called meetings of creditors when required to do so under the Deeds, he may have failed to pay the proceeds of realised assets in his administrations into an administration fund to be held in trust for participating creditors rather than applying those proceeds in paying post-Deed creditors. He may have failed to implement the terms of the of the respective Deeds. Nevertheless, there is no evidence, in my view, of personal preferment and no evidence that the administrator's own interests have prevailed over those he was intended to serve.
I am satisfied that Mr Young has failed to carry out or perform adequately and properly duties or functions required to be performed by a registered liquidator acting as administrator of the three companies involved in the above survey. The question now to be decided is whether his registration as a liquidator should be cancelled or suspended for a specified period, or whether the remedies described in subsection 1292(9) should be invoked. As I have indicated, ASIC did not contend that Mr Young was not a fit and proper person to remain registered as a liquidator. On the basis of the above findings, I agree that an absence of fitness and propriety has not been made out. Were it otherwise, then it would be unthinkable to make any order which allowed continued registration. Counsel for ASIC continually referred to the consequences of adverse findings as the sanction. I think it more appropriate to refer to it as a proper order made pursuant to the subsection.
This is because it is clear that the proceedings are not concerned with punishment. The jurisdiction created by the subsection is of a protective nature. Although the legislation dealt with in Law Society of New South Wales v Foreman (1994) 34 NSWLR 408 required a finding of professional misconduct (and therefore must be differentiated to some extent from the legislation presently under consideration) the observations of the Court (and particularly by Mahoney JA) are helpful. His Honour said:
"What, then, are the purposes of the orders to be made and the considerations to be taken into account? It has frequently been said that disciplinary procedures and the orders made in the course of them are directed not to the punishment of the solicitor but to the protection of the public. This, of course, is true. The protection of the public has been described as, for example, the primary purpose or a primary object of such proceedings: Walter v Council of Queensland Law Society Inc (1988) 62 ALJR 153 at 157E; 77 ALR 228 at 235; Smith v New South Wales Bar Association (1992) 176 CLR 256 at 270 per Deane J; or one of the primary objects of the proceedings and the orders made: see Wentworth v New South Wales Bar Association (1992) 176 CLR 239 at 251. In the relevant sense, the protection of the public is in my opinion not confined to the protection of the public against further default by the solicitor in question. It extends also to the protection of the public against similar defaults by other solicitors and has, in this sense, the purpose of publicly marking the seriousness of what the instant solicitor has done.
But, in my opinion, it would be wrong to confine the objects of disciplinary proceedings and the purposes to be achieved by the orders made in them strictly to matters of this kind. Those purposes and objectives have traditionally been seen as having a wider operation. In the end, the question to be determined is whether the solicitor is a fit and proper person to be a solicitor of the Court and the orders to be made are to be directed to ensuring that, to the extent that she is not, her practice is restricted."

To the extent that the legislative provisions can be compared, therefore, it seems that protection of the public should be the principal determinant of a proper order but that this may be achieved by an order affecting the registration of the person in question. In other words, deterrence is an element of public protection.
At the hearing before the delegate, ASIC submitted that Mr Young's registration should be suspended for a period of 12 or 18 months. The Board considered that an appropriate order would be to suspend his registration for 8 months. Unfortunately, they did not expose their process of reasoning in arriving at this conclusion. At the hearing before me, ASIC submitted that the period of suspension should be for 2 years. This seems to me to be just as arbitrary. I do not understand the reasoning behind the submission that proof of the allegations was easier the second time around, partly because Mr Young admitted to some of them. Neither period of 8 months or 2 years has been arrived at by reference to any guidelines. There have been too few cases before the Board in relation to section 1292 to establish any consistent pattern of periods of suspension.
As I have indicated earlier, it is common ground that Mr Young is, in fact, a fit and proper person to remain registered as a liquidator. Should that registration be suspended for any period? The correctness or otherwise of Mr Young's conduct is to be judged at the time the conduct occurred (Law Society of New South Wales v Moulton (1981) 2 NSWLR 736 at 740). Much was made of the newness of the legislation, of the absence of guidelines and, indeed, of the corresponding absence of experience on Mr Young's part. The Wear administration was in fact Mr Young's first administration. Since the administrations in question, gaps in the relevant law have been filled by such decisions as McDonald v ASC (1997) 15 ACLC 1 and Spargold Enterprises Pty Limited (1999) 32 ASCR 363. Mr Young, however, cannot justify his failures by reference to these gaps in the development of the law. The failures which I have reviewed would be failures according to ordinary standards of prudence, then or now. Although Mr Young had little experience as a administrator, he had had a long career in the insolvency field and as a liquidator. What was required of him, and what he failed to do, did not involve decisions relating to special knowledge of the new provisions. These failures must be met with an appropriate order which recognises the need for both the protection of the public in the future and the deterrence of other liquidators. It seems to me that a period of suspension must be inevitable. The only question is how long should that period be.
There are a number of factors which should be acknowledged as considerations that favour Mr Young. Firstly, the allegations relate to a closed period between 3 March 1994, when he was appointed administrator of Wear, and 17 January 1997, when the creditors of Hotel Plus resolved that the company be wound up. No allegations of any other failures have been made concerning administrations during the last three years. I accept Mr Young's evidence that he has since changed his practices so as to avoid the problems or potential problems identified by ASIC. He now maintains a separate account for Deed funds. He makes certain that he has no involvement in the business of a company under administration. Deeds are drafted only by experienced insolvency lawyers. He now makes it a practice to provide cashflow forecasts.
Mr Young has been an administrator or liquidator in more than 80 companies, including 33 voluntary administrations without any complaint from ASIC except those reviewed in the present proceedings.
Since the decision of the Board in June 1999, Mr Young has voluntarily refrained from accepting any new appointments as a registered liquidator on his own account and has worked under the supervision of his partner, except in one instance where, because of geographical necessity, he was obliged to accept a joint appointment.
The Board has made a decision to the effect that Mr Young should pay 75% of ASIC's costs of the proceedings before it, although no specific order has been made for payment of a particular amount. ASIC contends that its costs should be quantified at $61,950.50, covering counsels' fees, experts' fees and ASIC's own legal and investigative costs. Seventy five per cent of that is $46,449.38. Power to award costs is found in section 223 of the ASIC Law. An order made by the Board under that section is not reviewable by this Tribunal, whose jurisdiction is limited by section 1317B of the Corporations Law. It is true that if the Tribunal, in exercising that jurisdiction, found that a person had not failed to carry out his duties as alleged, then the sub-stratum of the power to award costs would have disappeared. Nevertheless, that is not the case in the present proceedings. I am unable to review the Board's costs order in the light of the findings I have made. I can, however, take that order into account as a pecuniary imposition on the applicant which he will suffer. The prospect of such impositions on others will act as a deterrent. To the extent that it serves that purpose, Mr Young would submit that any proper order should be influenced so that any period of suspension should be reduced or, in fact, should be replaced by a subsection (9) remedy. In imposing a suspension of eight months the Board, of course, would not have taken into account its own costs order as it would not have known the amount of costs involved at that stage. In addition to a monetary liability of the magnitude I have described, Mr Young has also incurred considerable costs on his own account. Senior counsel was briefed both before the Board and before this Tribunal. Whilst that liability was incurred voluntarily, the fact that failures by a liquidator could lead to such a liability must also act as a deterrent.
Mr Young has volunteered undertakings as to his future conduct. His counsel complained that they had not even been acknowledged, let alone addressed by ASIC. Although I accept that they were offered in good faith, an undertaking to observe proper standards in the future does not, it seems to me, advance Mr Young's position. The imposition of such conditions pursuant to subsection (9) would also be pointless while Mr Young is under legal obligations to meet the ordinary conditions of his continuing registration.
A large number of character references was tendered. None of these was questioned by ASIC. All the authors attest to Mr Young's trustworthiness and professional competency. I have no reason to reject any of them. There were, however, similar references before the Board. None of the references, as far as I have been able to see, address specifically any of the particularised failures and give as the opinions of the authors an endorsement of Mr Young's competency and trustworthiness, notwithstanding their knowledge of such failures.
Having taken all these factors into account, I consider nevertheless that a subsection (9) remedy is inappropriate principally because of the number of failures involved and the seriousness of some of them. I consider a period of suspension inevitable. The choice of the period is largely a question of judgement or impression. There are no available guidelines from ASIC or from the cases to indicate, with reference to section 1292, what period would be appropriate for what circumstances. My own impression is that the Board's decision was not disproportionate to its findings. On the other hand, the period of suspension advocated by ASIC would, in my view, be more than was necessary to effect the objects of the Act and to ensure protection of the public and deterrence of careless liquidators. Some of the matters alleged are not as important as others. The important allegations, however, (such as 2.1, 2.2, 2.3, 2.8, 4.1, 4.2, 4.4 and 6.1(iii)) require a recognition of their gravity and an imposition of a period of suspension. The term suggested by the Board is not unreasonable. However, I consider that the Board's period of suspension ought to be reduced to some extent because of the deterrence of its costs order when it is properly quantified.
In the result, I have concluded that an appropriate order is to vary the decision under review by reducing the period of suspension from eight months to six months.

I certify that the 90 preceding paragraphs are a true copy of the reasons for the decision herein of Mr B.J. McMahon (Deputy President)
Signed:         .....................................................................................
  Dominika Rajewski, Associate
Date/s of Hearing  15-17 May & 2 June 2000
Date of Decision  19 June 2000
Counsel for the Applicant        Mr G.C. Lindsay, SC
Solicitor for the Applicant         Gordon & Johnstone Solicitors
Solicitor for the Respondent    Australian Government Solicitor
Counsel for the Party Joined   Mr Jonathon Priestley
           Solicitor for the Party Joined    Principal Legal Officer, ASIC