Registrar of Companies v Blake

[2019] NZHC 680

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-001128

[2019] NZHC 680

BETWEEN

THE REGISTRAR OF COMPANIES

Applicant

AND

DAVID BLAKE

Respondent

LANCE JACK RYAN

Respondent

Hearing:

22 March 2019

Appearances:

J Blythe and J Parry for Applicant D Dufty for Mr Blake

No appearance for Mr Ryan

Judgment:

3 April 2019

JUDGMENT OF VENNING J

This judgment was delivered by me on 3 April 2019 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           Meredith Connell, Auckland Counsel:  D Dufty, Auckland

Copy to:            Mr Ryan

THE REGISTRAR OF COMPANIES v BLAKE & RYAN [2019] NZHC 680 [3 April 2019]

Application

[1]    The Registrar of Companies (the Registrar) applies for orders permanently disqualifying David Blake and Lance Ryan from being directors or promoters of, or in any way being concerned or taking part in the management of a company, unless they first obtain leave of the Court. The application is made pursuant to s 383(1) of the Companies Act 1993 (the Act).

[2]    At the time of the application Mr Blake and Mr Ryan were each serving prison sentences for offences in relation to the management of companies and, in Mr Ryan’s case, fraud. By the date of the hearing Mr Blake was on parole. He is represented by counsel and opposes the order. Mr Ryan remains in prison and has taken no steps. He has confirmed he does not oppose the order.

Mr Blake

[3]    The evidence relating to the applications was provided by Martin Murray, a senior investigator in the Registry’s Integrity and Enforcement Team of the Companies Office, a division of Ministry of Business Innovation and Employment (MBIE) and by Peter Seufatu, the manager of the team, and a deputy assignee.

[4]    Mr Murray was not cross-examined. In his evidence he confirmed Mr Blake has been adjudicated bankrupt on three occasions, in 1992, 2004 and 2017. His personal creditors included the Inland Revenue Department (IRD), (including claims for unpaid child support), banks and professional service firms (such as accounting and law firms). There is no record of any moneys being received and distributed to his creditors during his bankruptcies.

[5]    In addition, three companies that Mr Blake has been associated with: EVP New Zealand Ltd, Hygiene Foundation Ltd and Q Technology Ltd, have all been placed in liquidation with losses to creditors.

[6]    Mr Blake was adjudicated bankrupt a second time on 7 July 2004. He would have normally been automatically discharged on 7 July 2007. But the Official

Assignee objected to Mr Blake’s discharge because he had received a number of complaints regarding Mr Blake’s actions during the course of the bankruptcy.

[7]    Prior to his bankruptcy Mr Blake had launched a recruitment franchise business that operated under the EVP brand name. The business was operated through several companies of which Mr Blake was a director. When he was adjudicated bankrupt Mr Blake was required to resign those directorships. He did so but continued to act as a de facto director and took part in the management or control of several of the EVP companies, including EVP Recruitment Group Ltd, EVP New Zealand Ltd, HMP Security Ltd, and EVP Wellington Ltd. EVP New Zealand Ltd was placed into liquidation owing $286,925 to creditors.

[8]    Mr Blake (then known as Mr Hughey) was charged with and ultimately pleaded guilty to the following offences in relation to the EVP group of companies:

(a)three charges of carrying on a business whilst an undischarged bankrupt contrary to s 128A(1)(b) of the Insolvency Act 1967;

(b)two charges of carrying on a business whilst an undischarged bankrupt contrary to s 436(1)(b) of the Insolvency Act 2006;

(the 2010 convictions).

[9]Mr Blake was sentenced to 350 hours of community work.

[10]   As a consequence of the 2010 convictions Mr Blake was automatically prohibited from being a director or promoter of, or in any way, whether directly or indirectly, being concerned or taking part in the management of a company for a period of five years, unless he obtained the leave of the Court.1

[11]   In 2012 the Registrar received a complaint about Mr Blake’s involvement in Hygiene Foundation Ltd. Following an investigation MBIE laid charges in 2015 under

1      Companies Act 1993, s 382(1).

s 382(4) of the Act against Mr Blake for breaching his prohibition in relation to that company and Q Technology Ltd.

[12]   Although Mr Blake was never a director of Hygiene Foundation Ltd his wife and Mr Ryan were. While not a director, Mr Blake was involved in the management of Hygiene Foundation Ltd. When it was placed into liquidation, Hygiene Foundation Ltd owed $700,919 to its creditors.

[13]   Again, while he was never a director or shareholder of Q Technology Ltd, Mr Blake was associated with and took part in the management of the Company. Mr Blake’s wife and Mr Ryan were involved in that Company also. When it was placed into liquidation, Q Technology Ltd owed $618,506 to its creditors.

[14]   Mr Blake ultimately faced jury trial in the Auckland District Court on 4 September 2017. On 19 September 2017 Mr Blake was convicted on the following charges:

(a)being a promoter of a company whilst prohibited (Hygiene Foundation Ltd);

(b)managing a company whilst prohibited (Hygiene Foundation Ltd); and

(c)                  managing a company whilst prohibited (Q Technology Ltd); (the 2017 convictions).

[15]   On 17 November 2017 Mr Blake was sentenced to two years and four months’ imprisonment. At sentencing Judge Ryan observed that, Mr Blake had caused losses, largely financial, to a number of victims. The Judge stated:2

[59] I am sceptical about your  claim that  after the previous offences,  despite legal advice and despite discussions with the Official Assignee and then the Companies Office, you still do not understand. That appears to be patent nonsense and a practised excuse. When confronted by others about your wrongdoing, you simply shrug your shoulders and say, “I’m terribly sorry, I

2      R v Blake and Ryan [2017] NZDC 28774.

didn’t understand and I won’t do it again.” Unfortunately, you have done it again.

[16]   As a consequence of the 2017 convictions, Mr Blake is currently disqualified from being a director of or being able to take part in the management of a company until 19 September 2022.3

[17]   Mr Blake has sworn an affidavit in opposition to the application and was cross- examined. In his affidavit he says his experience is in sales and sales management. He has no formal qualifications. If he is permanently prohibited from being involved in the management of a company it will prevent him from undertaking many roles in the sales management industry.

[18]   While accepting he has been bankrupted on three occasions Mr Blake notes the first one was at his own request and his ex-wife was the only petitioning creditor in the latter two. One was due to unpaid child support. The other was due to a property dispute. None of the bankruptcies were because he had failed in business. He blamed bad legal advice for his first bankruptcy and the failure of his lawyer to attend court on time (with a cheque) for his second.

[19]   While Mr Blake accepts he has convictions because he involved himself in companies when he was prohibited from doing so, he notes that as a result he is already disqualified until 19 September 2022. By then he will be 62 years old.

[20]   Mr Blake considers the charges brought against him prevented him from continuing with the EVP business and the business failed for that reason. While he accepts creditors made claims of $286,926 those claims were from franchisees who wanted their money back. In his view they were not actual claims for direct loss but were inflated with claims involving intangibles, such as poor health leading to loss of earnings, which were not sustained at trial.

[21]   Mr Blake considered that the total creditor claims of $700,919 in relation to Hygiene Foundation Ltd were overstated. They were closer to $300,000 as the Court found. He says he was only the sales manager and had nothing to do with the financial

3      Companies Act 1993, s 382(1)(a).

aspects of the company. He considers he was unfairly convicted of the charges in relation to Hygiene Foundation Ltd and Q Technology Ltd. But he acknowledged that his appeal against conviction was abandoned.

[22]   Mr Blake also sought to explain his involvement with another company, Taste 888 Ltd. While there was some reference to that entity in Mr Murray’s affidavit, Mr Blake denied involvement in its management. The cross-examination of Mr Blake on the issue was inconclusive, and the Registrar did not seek to rely on that involvement in the final oral submissions to the Court. I put Mr Blake’s association with that entity to one side.

Lance Ryan

[23]   Mr Ryan has been adjudicated bankrupt on two previous occasions, in 2001 and 2014. His creditors included the IRD, finance companies and individuals. No dividends or distributions were made to creditors in the first bankruptcy. Mr Ryan presently remains an undischarged bankrupt.

[24]   Mr Ryan has been convicted of numerous offences both under the Act and arising from general fraudulent activity under the Crimes Act 1961. On 18 February 2005, Mr Ryan (then known as Mr Thompson) was sentenced to three years and three months’ imprisonment for making false statements on the Companies’ register regarding PropertyPro Ltd and for numerous charges of dishonesty relating to offending committed between 2000 and 2003.4

[25]   Mr Ryan was also involved with Mr Blake’s recent offending that led to the 2017 convictions. He aided Mr Blake in the offending and held a “back of house” or “enforcement” role in the businesses. He was jointly charged with Mr Blake and on 19 September 2017, Mr Ryan was convicted on three charges of aiding Mr Blake to promote or manage a company whilst prohibited. On 17 November 2017 he was sentenced to two years and two months’ imprisonment.5

4      Ministry of Economic Development v Thompson DC Auckland CRI-2004-092-4718, 18 February 2005.

5      R v Blake [2017] NZDC 28774 at [151].

[26]   Again, as an automatic consequence of the convictions Mr Ryan is disqualified from being a director of or being able to take part in the management of a company until 19 September 2022.6

[27]   Finally, and relevantly for present purposes, Mr Ryan has also recently been sentenced on further dishonesty offending following a prosecution by the Serious Fraud Office. This offending arose from his involvement with Arena Capital Ltd, purportedly a foreign exchange company but in fact a Ponzi scheme. In the space of a year Mr Ryan and an associate received $8.39 million from approximately 900 investors. Mr Ryan personally took approximately $1.4 million and applied over $1 million to purchase a property. Company money was also spent on personal items. The offending took place while Mr Ryan was bankrupt. Creditors are likely to only receive approximately 34 cents in the dollar. Mr Ryan is currently serving a sentence of seven years, six months’ imprisonment for that offending.

[28]   Mr Seufatu explained why the Registrar was seeking permanent banning orders in this case. He said that of the approximately 1,000 complaints received each year, only 20 resulted in prosecution. In 2017, 11 resulted in prohibition under s 382 of the Act. The Registrar had brought this application for a permanent ban as he had not come across other offending as serious and repetitive as the offending by Mr Blake and Mr Ryan. Under cross-examination, Mr Seufatu accepted that there were more serious cases in terms of the nature of offending and quantum of loss but maintained his evidence that Mr Blake’s and Mr Ryan’s conduct was the most serious example of persistent misconduct and failure to comply with the Act.

The statutory framework

[29]   The applications are made under s 383 of the Act. As relevant the section provides:

383     Court may disqualify directors

(1)Where—

(a)a person has been convicted of an offence in connection with the promotion, formation, or management of a company

6      Companies Act 1993, s 382(1)(a).

(being an offence that is punishable by a term of imprisonment of not less than 3 months), or has been convicted of a crime involving dishonesty as defined in section 2(1) of the Crimes Act 1961; or

(b)a person has committed an offence for which the person is liable (whether convicted or not) under this Part; or

(c)a person has, while a director of a company and whether convicted or not,—

(i)persistently failed to comply with this Act, the Financial Markets Conduct Act 2013, the Takeovers Act 1993, or the takeovers code in force under that Act or, if the company has failed to so comply, persistently failed to take reasonable steps to obtain compliance with those Acts or the code; or

(ii)been guilty of fraud in relation to the company or of a breach of duty to the company or a shareholder; or

(iii)acted in a reckless or incompetent manner in the performance of his or her duties as director; or

…

the court may make an order that the person must not, without the leave of the court, be a director or promoter of, or in any way, whether directly or indirectly, be concerned or take part in the management of, a company permanently or for a period specified in the order.

(1A) The court may make an order under this section permanent or for a period longer than 10 years only in the most serious of cases for which an order may be made.

(2)A person intending to apply for an order under this section must give not less than 10 days’ notice of that intention to the person against whom the order is sought, and on the hearing of the application the last-mentioned person may appear and give evidence or call witnesses.

(3)An application for an order under this section may be made by the Registrar, the FMA, the Official Assignee, or by the liquidator of the company, or by a person who is, or has been, a shareholder or creditor of the company.

(3A)     Subsection (3B) applies on the hearing of—

(a)an application for an order under this section by the Registrar, the FMA, the Official Assignee, or the liquidator; or

(b)an application for leave under this section by a person against whom an order has been made on the application of the Registrar, the FMA, the Official Assignee, or the liquidator.

(3B)The Registrar, the FMA, the Official Assignee, or the liquidator (as the case may be)—

(a)must appear and call the attention of the court to any matters that seem to him, her, or it to be relevant; and

(b)may give evidence or call witnesses.

(4)An order may be made under this section even though the person concerned may be criminally liable in respect of the matters on the ground of which the order is to be made.

…

(5)The Registrar of the court must, as soon as practicable after the making of an order under this section, give notice to the Registrar that the order has been made and the Registrar must give notice in the Gazette of the name of the person against whom the order is made.

(6)Every person who acts in contravention of an order under this section commits an offence and is liable on conviction to the penalties set out in section 373(4).

…

[30]   It is helpful to consider s 383 in the context in which it appears in the Act. The Act has several sections that provide for the disqualification or prohibition of persons from being company directors or being involved in the management of a company. The prohibition can be automatic following conviction, by notice given by the Registrar, or by order of the Court as is sought in the present case.

[31]   Under ss 382(1)(a) and (b) of the Act a person convicted of a qualifying offence in connection with the promotion, formation or management of a company or convicted of an offence under ss 377 to 380 of the Act or any crime involving dishonesty is automatically banned from being a director or promoter of, or in any way, whether directly or indirectly, being concerned or taking part in the management of a company for five years unless leave of the Court is obtained.7 Both Mr Blake and Mr Ryan are currently subject to such statutory bans until 19 September 2022 following their 2017 convictions.8

7      Companies Act 1993, s 382.

8      Mr Ryan’s statutory term will in fact extend beyond that period as he pleaded guilty to the further criminal offending on 20 October 2017.

[32]   Where a company is placed into liquidation or otherwise fails as described in s 385(1), the Registrar (or the FMA) has additional powers and may, by notice, prohibit a person from being a director, promoter or being concerned in or taking part, whether directly or indirectly, in the management of a company for a period not exceeding 10 years if, within five years prior, the person was a director of, or concerned in, or took part in the management of a company to which the section applies and the Registrar is satisfied the manner in which the affairs of the company were managed was wholly or partly responsible for the section applying to that company.9

[33]   In addition, if a company has been removed from the Register on certain grounds, the Registrar (or FMA) has additional powers to prohibit persons from managing companies for up to 10 years.10

[34]   Sections 382, 385 and 385AA provide for defined maximum terms of disqualification. Only the Court may ban a person from being a director or otherwise being concerned or taking part in the management of a company permanently or for more than 10 years. Section 383(1A) confirms the Court may make a permanent order or an order for a period longer than 10 years only in the most serious of cases.

The approach to s 383

[35]   In First City Corporation Ltd v Downsview Nominees Ltd Gault J considered an application to ban Mr Russell under s 189(1)(c) of the Companies Act 1955, the predecessor of s 383.11 Gault J noted:12

The section must be looked upon as one of the provisions of the Act providing for denial of the privilege of participating in the conduct of business under the shelter of limited liability. It is penal in nature although the disqualification should be approached with protection of the public in mind rather than punitively.

The section must be read with s 188A which imposes automatic disqualification of five years in those circumstances which are also covered by s 189(1)(a),(b) and (d). So far as they have been retained in s 189 they will be resorted to when disqualification for a period longer than five years is seen to be warranted.

9      Companies Act 1993, ss 385(3) and (4).

10     Sections 385AA(1) and (2).

11     First City Corporation Ltd v Downsview Nominees Ltd [1989] 3 NZLR 710 (HC).

12     At 766.

Section 189(1)(c), which the plaintiff relies upon here, extends to the diverse conduct of persistent failure to comply with the Act, fraud on, or breach of duty to, the company, and reckless or incompetent performance of the duties of an officer. The whole structure and context of the section suggests to me that it is aimed not at minor acts of negligence or carelessness, but at conduct that is wilful or deliberate or culpable so as to involve dishonesty or gross or serious failure to meet the relevant standards to be expected of an officer of the company. In assessing conduct in particular cases, any motive for the conduct as well as the seriousness of the consequences will be relevant. Previous instances of misconduct may lead the Court to be more likely to exercise the discretion it has under the section to order disqualification.

[36]   Gault J found that during the time Mr Russell controlled the company substantial losses were incurred to the detriment of creditors. To protect the public from the risk of further reckless and incompetent conduct by Mr Russell the Judge imposed a ban of five years.

[37]   In Davidson v Registrar of Companies Miller J considered the scope of s 385 of the Act.13 Mr Davidson, a lawyer, had been a director of companies in the Bridgecorp Group. Following the failure of that group, the Registrar of Companies investigated the matter and issued a notice banning Mr Davidson from the management of companies for a period of two and a half years. Mr Davidson appealed.

[38]   Miller J referred to Gault J’s observations in First City Corporation Ltd v Downsview Nominees Ltd that, while s 189 was penal in nature, the disqualification should be approached with protection of the public in mind rather than punitively.14 Miller J went on to note that in relation to s 385:

[91] … As Gault J observed, it is both. As I explain below, the legislation initially examines mismanagement contributing to insolvency, without focusing on the conduct of any given director. Causation having been established, the Registrar may prohibit anyone falling into the class of directors and managers. Prohibition is aimed not at remedying wrongs done to shareholders and creditors of the insolvent company but at protecting the public from unscrupulous or incompetent directors in future, deterring others, and setting appropriate standards of behaviour. At the same time, any given director or manager inevitably experiences prohibition as a punishment; it is an adverse consequence of an inquiry into his or her involvement in an insolvent company.

13     Davidson v Registrar of Companies [2011] 1 NZLR 542 (HC).

14 At [89].

[39]   Miller J confirmed that s 385 did not specify the individual director must have been responsible for the insolvency. On the evidence Mr Davidson lacked the degree of financial literacy required of a director of a finance company and had failed to monitor management or respond adequately to concerns expressed by the internal auditor and otherwise had failed to acquit his duties as a director of a finance company. While Mr Davidson was a man of integrity prohibition served the purposes of standard setting and general deterrence. The appeal was dismissed.

[40]   The focus of s 385 is, as noted, directed more towards mismanagement leading to the failure of the company, rather than misconduct. Section 383 is, on the other hand, directed at individual misconduct rather than mismanagement. Ms Blythe submitted that both aspects, personal misconduct and mismanagement were engaged in the present case. While I accept that as part of the overall consideration mismanagement is also relevant, the proper focus on an application under s 383 is on misconduct, particularly when considering an application to impose a ban of longer than 10 years and, in the worst cases, a permanent ban.

[41]   The Australian Corporations Act 2001 (the Corporations Act) contains several provisions dealing with the disqualification or banning of directors. The Corporations Act provides for an automatic disqualification for directors convicted of certain specified offences, which runs for a period of five years upon release from prison, rather than upon conviction, unless the offender does not serve a term of imprisonment.15

[42]   The Australian Securities and Investments Commission (ASIC) may, in certain cases, apply to extend the automatic disqualification period for up to an additional 15 years.16 In the event of contravention of civil penalty provisions, ASIC may apply to the Court for disqualification orders for a period the Court considers appropriate.17 Next, where an officer has been associated with two or more company failures within seven years, ASIC may apply to the Court for an order disqualifying the person from managing a corporation for up to 20 years.18 Finally, for repeated contravention of the

15 Corporations Act 2001, ss 206B(1) and (2).

16     Sections 206BA(1) and (2).

17     Section 206C(1).

18     Section 206D(1).

Corporations Act, the ASIC may apply to have a person disqualified for a period the Court considers appropriate.19

[43]   In ASIC v Adler Santow J reviewed previous decisions under the Corporations Act and set out a series of propositions derived from those cases:20

(i)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. ASIC v Hutchings (2001) 38 ACSR 387 at 395; ASIC v Pegasus Leveraged Options Group Pty Ltd & Anor [2002] NSWSC 310; ASC v Forem - Freeway Enterprises (1999) 30 ACSR 339 at 349-350; ASC v Donovan (1998) 28 ACSR 583 at 602; ASC v Roussi (1999) 32 ACSR 568 at 570 - 571 ; Re Strikers Management Pty Ltd; ASC v Dimitri (Burchett J, Federal Court of Australia, 7 May 1997, unreported); Re Tasmanian Spastics Association; ASC v Nolan (1996) 23 ACSR 743 at 751;

(ii)The banning order is designed to protect the public by seeking to safeguard the public interest in the transparency and accountability of companies and in the suitability of directors to hold office: ASC v Roussi (supra) at 570; Re Gold Coast Holdings Pty Ltd ASIC v Papatto (2000) 35 ACSR 107 at 112;

(iii)Protection of the public also envisages protection of individuals that deal with companies, including consumers, creditors, shareholders and investors: ASC v Roussi at 570; Re Gold Coast Holdings Pty Ltd (supra) at 112; Re Tasmanian Spastics Association (supra) at 751;

(iv)The banning order is protective against present and future misuse of the corporate structure: ASC v Donovan (supra) at 603;

(v)The order has a motive of personal deterrence, though it is not punitive: Re Magna Alloys & Research Pty Ltd (1975) ACLR 203 at 205; ASIC v Pegasus Leveraged Options Group Pty Ltd & Anor (supra); ASC v Donovan at 607; Re Tasmanian Spastics Association at 751;

(vi)The objects of general deterrence are also sought to be achieved: ASC v Donovan at 602;

(vii)In assessing the fitness of an individual to manage a company, it is necessary that they have an understanding of the proper role of the company director and the duty of due diligence that is owed to the company: ASC v Donovan at 607;

(viii)Longer periods of disqualification are reserved for cases where contraventions have been of a serious nature such as those involving dishonesty: ASC v Donovan at 605-607;

19     Corporations Act 2011, s 206E(1).

20     ASIC v Adler [2002] NSWSC 483, (2002) 46 ACSR 80 at [56].

(ix)In assessing an appropriate length of prohibition, consideration has been given to the degree of seriousness of the contraventions, the propensity that the defendant may engage in similar conduct in the future and the likely harm that may be caused to the public: ASIC v Pegasus Leveraged Options Group Pty Ltd & Anor; ASIC v Parkes (2001) 38 ACSR 355 at 386; ASC v Forem-Freeway Enterprises; ASC v Roussi at 570-571;

(x)It is necessary to balance the personal hardship to the defendant against the public interest and the need for protection of the public from any repeat of the conduct: ASC v Donovan at 607; ASIC v Parkes (supra) at 386;

(xi)A mitigating factor in considering a period of disqualification is the likelihood of the defendant reforming: ASC v Forem-Freeway Enterprises at 351; …

[44]   I accept that similar considerations apply to the relevant provisions of the Act and particularly in relation to an application under s 383. Several of the considerations are found in the comments of Gault J in First City Corporation Ltd v Downsview Nominees Ltd and of Miller J in Davidson v Registrar of Companies.21 In addition, repeated offending against the provisions of the Act and failure to comply with orders under the Act are also aggravating features.

[45]   Santow J went on to identify features applicable to the following three categories of disqualification orders: short range (up to three years); mid-range (from seven to 12 years); and long range (25 years or more).

[46]   In Santow J’s decision the following features would support the imposition of the longest periods of disqualification (25 years or more):22

·large financial losses;

·high propensity that defendants may engage in similar activities or conduct;

21     First City Corporation Ltd v Downsview Nominees Ltd [1989] 3 NZLR 710 (HC); and Davidson v Registrar of Companies [2011] 1 NZLR 542 (HC).

22     At [56](xiii).

·activities undertaken in the fields in which there was potential to do great financial damage such as the management in financial consultancy;

·lack of contrition or remorse;

·disregard for law and compliance with corporate registers;

·dishonesty and intent to defraud;

·previous convictions and convictions for similar activities.

[47]   For mid-range, serious, though not the worst cases, where the period of disqualification would range from seven to 12 years, Santow J identified the relevant factors as:23

·serious incompetence and irresponsibility;

·substantial loss;

·defendants engaging in deliberate causes of conduct to enrich themselves at others’ expense but with lesser degrees of dishonesty;

·continued unlawful contraventions of the law and disregard for legal obligations;

·lack of contrition or acceptance of responsibility but as against that the prospect that the individual may reform.

23     At [56](xiv).

The Registrar’s submissions

[48]   In support of his application for a permanent ban against Mr Blake the Registrar submits that the losses associated with Mr Blake’s bankruptcies were significant. In relation to the two most recent bankruptcies they total $720,290.

[49]   The Registrar dismisses Mr Blake’s explanation for the failure of EVP New Zealand Ltd and drew the Court’s attention to the sentencing notes of Judge Doogue which noted that:24

[11]  The aggravating features of this offending are that it was calculated  and sustained over a period of time requiring a number of intricate acts, and numerous acts. The other aggravated features of the offending are the losses occasioned to the victims.

[50]   In relation to the 2017 convictions concerning the management of Hygiene Foundation Ltd and Q Technology Ltd the Registrar submits that, as Judge Ryan found, Mr Blake’s role was very much “front of house” and that it seemed very clear that Mr Blake engaged and directed the employees and made financial commitments to them without consulting with anybody else or obtaining authority from anybody else.25 This was despite the fact that at the time he was subject to a statutory prohibition from doing so under s 382 of the Act.

[51]   Ms Blythe emphasised that Mr Blake’s offending caused considerable loss and harm to employees and creditors. As well as general mismanagement leading to losses to creditors Mr Blake had deliberately breached the statutory provisions of the Act which prohibited him from acting in that way.

[52]   Ms Blythe submitted that Mr Blake was plainly unsuitable and not fit to act as a director or manager. It was clear he had continued to minimise his role in the failure of the companies. He sought to pick and choose explanations to justify his actions. As Judge Ryan had observed, when confronted by others about his wrongdoing, Mr Blake simply shrugged his shoulders and said “I’m terribly sorry, I didn’t understand and I won’t do it again” but unfortunately he had done it again.26 Rather than learning

24     R v Hughey DC Auckland CRI-2009-004-009023, 24 March 2011.

25     R v Blake [2017] NZDC 28774 at [12] and [20].

26 At [59].

from the demise of EVP and his two bankruptcies the Judge considered that instead, what Mr Blake had learnt was how to circumvent the Companies Office. For those reasons the Registrar sought that he be permanently banned.

Mr Blake’s submissions

[53]   While accepting that Mr Blake’s actions were serious and perhaps even properly categorised as moderately serious, Mr Dufty submitted they were not the most serious which was required under s 383(1A) for a permanent ban. He submitted that a ban of more than 10 years was not justified and the permanent disqualification sought by the Registrar was both unjustified and unnecessary.

[54]   Mr Dufty noted that under s 382(1) of the Act, if a person was convicted of certain offending they were automatically disqualified for five years. Logically for a period longer than five years he submitted the Court should require additional grounds and more than just the bare qualifying criteria. For a period of more than 10 years and even a permanent ban, the grounds required should be substantial. A lifetime ban would require circumstances at the extreme end of the available range. He submitted that care ought to be taken in relying on factors that did not focus on individual misconduct. For instance, insolvency in and of itself did not indicate misconduct. Disqualification on the basis of mismanagement was governed by s 385 of the Act, not s 383.

[55]   Mr Dufty then referred to management bans sought by the Financial Markets Authority (FMA). Under s 46(1) of the Financial Markets Authority Act 2011, the FMA can obtain enforceable undertakings not to participate in the management of entities. He noted there are very few such undertakings provided, and they had of course been imposed by consent.

[56]   While accepting that Mr Blake’s convictions reflected serious offending he submitted it was far from “the most serious of cases for which an order may be made”. He submitted that even when taken with the prior convictions, the 2017 convictions still fell well short of serious misconduct. Mr Dufty emphasised that Mr Blake’s strict parole conditions created issues for him. He wishes to obtain a job that has some

management responsibility which will prove difficult if he is banned from any management role.

[57]   In summary, Mr Dufty submitted that a permanent disqualification under s 383 was designed for cases involving significant public interest and considerable loss. Mr Blake’s case was not one of those. Although Mr Dufty initially submitted that any disqualification beyond five years was unnecessary he conceded that between five to 10 years might be available, but no more.

Decision

[58]   The criteria for the Court to make an order under s 383 and the procedural requirements are satisfied. The Registrar has standing to make the current application.27 Mr Blake has committed an offence under Part 21 of the Act.28 The Registrar has given Mr Blake the appropriate period of notice.29 The Registrar has appeared (through counsel) and called the attention of the Court to relevant matters.30 The fact Mr Blake has been held criminally liable does not prevent the Court making an order under s383.31

[59]   The Court may make an order under s 383 but may only impose a permanent ban or a ban longer than 10 years in the most serious of cases.

[60]   Is Mr Blake’s case properly described as one of the most serious of cases? Mr Blake’s personal bankruptcies and the failure of the companies he was involved in with the subsequent losses to creditors are not, of themselves, qualifying criteria for an order under s 383. But once the criteria for an order are established, the Court is entitled to look at the broader context and background behaviour of the respondent to determine if an order should be made and if so, for how long. Personal financial failures and the failure of companies with which a respondent is associated with may be an indicator of recklessness towards obligations which would be a relevant consideration. Mr Blake seeks to explain his bankruptcies on the basis of poor legal

27     Companies Act 1993, s 383(3).

28     Section 383(1).

29     Section 383(2).

30     Section 383(3B)(a).

31     Section 383(4).

advice (in the first case) and the failure of his legal adviser (in the second). He seeks to explain his subsequent offending on the basis he was not aware of his obligations. A person who assumes a role in the management of a company should make him or herself aware of the obligations associated with such a role. Mr Blake has a pattern of blaming other people for his failings.

[61]   The most relevant features of Mr Blake’s actions are the breaches of the provisions of the Insolvency Acts and the Act and the resultant criminal convictions: not once, not even twice, but in relation to multiple charges, on separate dates and in relation to separate matters.

[62]   Mr Blake first offended on 1 June 2006 when he carried on a business whilst an undischarged bankrupt. He committed four such offences between October 2007 and March 2008. He was sentenced for that offending on 24 March 2011 by Judge Doogue.32

[63]   Following those convictions Mr Blake was automatically prohibited under     s 382(1) of the Act from acting as a director or promoter or otherwise being involved in the management of a company without leave of the Court. As at that time, March 2011, Mr Blake could have been under no illusion whatsoever as to his obligations. But within a relatively short period of time, in 2012 the Registrar of Companies received a complaint about Mr Blake’s involvement in a company. Mr Blake was then charged with and ultimately convicted of offending under s382(4) in relation to two companies (and three charges). The offending had commenced on 1 December 2011, less than a year after he had been sentenced for the earlier offending.

[64]   While Mr Blake sought to explain his actions and suggest he was not aware what he did was wrong, he knew enough not to hold a directorship but still deliberately involved himself in the management of the companies using his wife and Mr Ryan as fronts people. His explanation was rejected by the jury. As Judge Ryan observed:33

When confronted by others about your wrongdoing, you simply shrug your shoulders and say, “I’m terribly sorry, I didn’t understand and I won’t do it again.” …

32     R v Hughey DC Auckland CRI-2009-004-009023, 24 March 2011.

33     R v Blake [2017] NZDC 28774 at [59].

[65]Mr Blake does not exhibit the responsibility required of a company director.

[66]I turn to consider the various factors identified as relevant by Santow J.

[67]   There are significant but not substantially large financial losses as a result of the failure of the companies Mr Blake was involved in.

[68]   There is a high likelihood that without an order preventing him from carrying on as a director or manager of a company, Mr Blake will engage in similar activities or conduct.

[69]   Mr Blake, unlike Mr Ryan, has not been involved in businesses where there is potential to do great financial damages – such as in management and financial consultancy, although the franchising operation in EVP may have had that potential.

[70]   There is an apparent lack of contrition or remorse by Mr Blake given his failure to accept responsibility and his continued attempts to blame others for his failings. Mr Blake has displayed an arrogant disregard for the law and the compliance obligations.

[71]   Unlike Mr Ryan however, Mr Blake has not been found guilty of direct dishonesty or intent to defraud.

[72]   Weighing up all those factors, I consider that Mr Blake’s case can be categorised as falling within the range of the most serious of cases but not at the extreme end of such range. The above factors considered in the context of Mr Blake’s offending (in relation to more than one entity), repeated offending in relation to ignoring his statutory obligations as a bankrupt and once convicted, and his use of trusts to avoid statutory obligations support the conclusion that Mr Blake’s is one of the most serious of cases.

[73]   Mr Blake’s conduct was wilful and deliberate. He set out to circumvent the statutory ban imposed on him as a result of his earlier convictions. Despite his protestations of ignorance, the pattern of behaviour was clear and deliberate. While a further period of disqualification may cause Mr Blake difficulty, it should not prevent him being employed as a salesman. Further, if he is in any doubt as to whether what

he proposes to engage in involves taking part in or managing a company, he can seek leave of the Court and explain the specific nature of the role he is seeking to fulfil.

[74]   Mr Blake is an appropriate candidate for a significant period of disqualification. However, I accept that the sums lost are not at the extreme end and nor has Mr Blake been guilty of criminal dishonesty. In determining the period that Mr Blake should be disqualified for I take into account the fact he is currently subject to a statutory ban for a period of five years under s 382 which does not expire until 19 September 2022. The period of disqualification imposed by the Court will run concurrently with that and from the date of this order. An appropriate order for disqualification is a disqualification for a period of 12 years from delivery of the judgment.

[75]   Mr Ryan is a more serious case. His offending is considerably more serious and sustained than that of Mr Blake. In addition to being convicted in 2017 in relation to three charges of assisting Mr Blake to promote or manage a company whilst prohibited (an offence under s 382(4) of the Act), in February 2005 he was convicted of three charges of making a false statement on the Companies Register contrary to   s 370 of the Act and two charges of taking part in the management or control of a business contrary to s 128A of the Insolvency Act 1967. On that occasion he was convicted and sentenced in relation to numerous offences of dishonesty as defined in s 2(1) of the Crimes Act, namely 39 charges of using documents for pecuniary advantages and 18 charges of misleading a social welfare officer. The offending involved opening bank accounts and obtaining benefits in other people’s names, which caused the Department of Social Welfare losses of approximately $100,000.

[76]   More recently Mr Ryan was convicted of further dishonesty offending in relation to Arena Capital Ltd.34 The offending involved two charges of altering a document with intent to defraud, one of forgery, one of false accounting and one of theft by a person in a special relationship. In sentencing Mr Ryan Judge Farish categorised the business of the company as a Ponzi scheme orchestrated by Mr Ryan. She described his offending as an elaborate farce perpetuated on investors and noted

34     R v Ryan [2018] NZDC 13386.

that he used another person as a patsy. The Judge considered there were several aggravating features in relation to the offending, including the extent of loss and harm to the 900 investors. The Judge rejected Mr Ryan’s suggestion that he had made a “mistake” in establishing Arena Capital Ltd. Rather she considered Mr Ryan had engaged in a concerted pattern of elaborate fraud which continued until he was found out.

[77]   Mr Ryan has been guilty of persistent and ongoing dishonest behaviour involving the use of the company structures to obtain money from the public. His case is one of the most serious cases and is an appropriate case for a lifetime ban.

Result/orders

[78]   David Blake is prohibited, for a period of 12 years from the date of this judgment, without leave of the Court, from being a director or promoter of or in any way, whether directly or indirectly, being concerned or taking part in the management of a company pursuant to s 383(1) of the Companies Act 1993.

[79]   Lance Jack Ryan is permanently prohibited, without leave of the Court, from being a director or promoter of, or in any way, whether directly or indirectly being concerned or taking part in the management of a company pursuant to s 383(1) of the Companies Act 1993.

Venning J