FEDERAL COURT OF AUSTRALIA

Searle v Australian Securities & Investments Commission [2006] FCA 208

CORPORATIONS – application for leave to manage a corporation under section 206G of the Corporations Act 2001 (Cth) – where the Australian Securities and Investments Commission intervened in the proceeding – where the Australian Securities and Investments Commission did not object to the granting of leave but sought the imposition of appropriate conditions on the applicant - where applicant and intervenor agreed on appropriate conditions - whether court should exercise discretion to grant leave

Corporations Act 2001 (Cth), ss 206G, 206B

Re Magna Alloys and Research Pty Ltd (1975) 1 ACLR 203 - followed

RONALD WESLEY SEARLE v AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION

NSD 1009 OF 2005

RARES J

23 FEBRUARY 2006

SYDNEY

THE COURT:

1.         Grants leave to the applicant pursuant to section 206G of the Corporations Act 2001 (Cth) to manage Transtar Express Pty Ltd ACN 001 150 563, Kagua Pty Ltd ACN 001 130 856, Edgely Pty Ltd ACN 089 763 646 and Nitestar Express Pty Ltd ACN 103 144 378 (‘the Transtar Group’).

2.         The grant of leave in Order 1 is conditional upon the following terms:

(a)        Mr John Wesley Searle is to continue to be a director of the companies in the Transtar Group until at least 18 January 2010.

(b)        The applicant is to report to Mr John Weslyn Searle as Managing Director on all activities of the Transtar Group until 18 January 2010.

(c)        Within three weeks of leave being granted to the applicant to manage companies in the Transtar Group, the companies in the Transtar Group are to appoint an auditor who is a registered company auditor.

(d)        A registered company auditor is to audit the companies in the Transtar Group during the financial years 30 June 2006 to 30 June 2009 (inclusive) and the Transtar Group is to ensure that copies of each of those audited statements are to be provided to the Australian Securities and Investments Commission within 14 days of the auditor signing the audit reports.

(e)        For the purpose of the audits referred to in condition (d) above the applicant and Mr John Weslyn Searle are to provide all such assistance as is requested by the auditor to enable the auditor to determine the adequacy of internal controls within the Transtar Group and to ascertain, monitor and pay any or all of the Transtar Group's liabilities.

(f)         The applicant is to provide to the Australian Securities and Investments Commission within one month of leave being granted to the applicant to manage companies within the Transtar Group, evidence of the documented procedural protocol applicable to drivers within the Transtar Group concerning the measures that the drivers must take in informing the Transtar Group's administration that their conduct has resulted in the issue of the traffic infringement notices.

(g)        The applicant is to complete a course of continuing education in relation to directors’ duties and company management held by the Australian Institute of Company Directors or such other course approved by the Australian Securities and Investments Commission within 12 months of the date of these orders and to provide the Australian Securities and Investments Commission with proof of satisfactory completion before 1 March 2007.

(h)        The applicant is to take all reasonable steps, either by himself or by his solicitor or agents, to liquidate the net amount (taking into account any credits or offsets in relation to cancellation of registration of vehicles registered in the name of Aluform Express Pty Ltd ACN 000 679 729, to which the applicant claims Aluform Express Pty Ltd is entitled) owed by Aluform Express Pty Ltd at the date of its deregistration (5 January 2003) to the State Debt Recovery Office of New South Wales and to provide a receipt or report of attempts to do so to the Australian Securities and Investments Commission by 30 June 2006.  For the purpose of clarification, the applicant's estimate of the net amount is to be given in good faith.

3.                  The applicant and the intervener have liberty to apply on seven (7) days notice.

4.                  Notes that the parties have agreed that there be no Order as to the costs of the proceedings.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     In this application, for which I heard evidence on 15 February 2006, the applicant seeks an order under section 206G of the Corporations Act 2001 (Cth) (‘the Act’) granting him leave to manage the following corporations: Transtar Express Pty Ltd, Kagua Pty Ltd, Edgely Pty Ltd and Nitestar Express Pty Ltd (collectively described as ‘the Transtar Group’) notwithstanding the fact that he was disqualified by a force of section 206B upon having been convicted of two offences under section 1308(2) in early 2005. 

2                     During the course of the hearing there was a potential issue of statutory construction raised as to whether, under the Crimes (Local Courts Appeal and Review) Act 2001 (NSW), section 63 operated, upon the filing of an appeal against the severity of his sentences, to stay the automatic disqualification provided by section 206B.  The applicant gave evidence that his counsel and solicitor told him that that was the effect of the section and he continued to manage the Transtar Group until the Chief Judge of the District Court heard his appeal against severity and allowed it, by reducing the sentence, on the one appeal with which he proceeded.  Mr Lahood, the applicant's solicitor, at both this hearing and the criminal matter, gave evidence supporting the applicant's account. 

3                     I had the opportunity of observing the applicant in the witness box for a considerable period while he was cross examined and formed the view that he was a person who was responsible, diligent and capable.  I accept his evidence that he would not have continued to manage the group during the period after his initial conviction on 18 January 2005 in the Local Court had he received advice that it was not appropriate to do so.  I am satisfied that he conducted himself in accordance with the legal advice he received.  Whatever may be the true position under the Crimes (Local Courts Appeal and Review) Act 2001 (NSW).  I do not think it matters in terms of considering the applicant's fitness to be granted the leave which he seeks, to ascertain the correct answer to that question.  This is because I find that he acted in an entirely reasonable and sensible fashion on legal advice, which he was given, which provided him with no reason to think that he was not entitled to act as he did.

4                     The circumstances of the offences have been set out in the judgment of Chief Judge Blanch, in his remarks on sentence on 7 March 2005.  The evidence of the applicant before me supplemented the circumstances.  It indicated that one of the reasons he filled the forms in which led to the conviction and contained the false statements was that he was given those by the longstanding accountants of the Transtar Group who told him, in effect, that it was appropriate so to act.  The two circumstances relied on in support of the convictions were, first, that the form seeking the deregistration of the company, Aluform Express Pty Ltd (‘Aluform’) asserted that that company had no outstanding legal liabilities and, secondly, that that company was not a party to any legal proceedings.

5                     The falsity of the first of those statements consisted in the fact that there were debts owed to the New South Wales State Debt Recovery Office in respect of outstanding parking and other motoring offences committed by drivers of various vehicles which were registered in the name of Aluform but operated in the overall business structure of the Transtar Group.  The evidence before me reveals that somewhere in the order of just over $30,000 including penalties and interest, was due to the State Debt Recovery Office and outstanding at the time that the applicant signed the forms.

6                     There is evidence before me which I accept, that the applicant considers on a basis that appears to me to be reasonable, that the State of New South Wales, through the Roads and Traffic Authority or some other instrumentality owes an offsetting amount, perhaps not in the same sum, in respect of the cancelled registrations of vehicles that had been registered in Aluform's name and that some reduction in the outstanding debt should be given in respect of that.  Hence, in the short minutes of order that have been agreed by the parties, there is provision made for that matter to be investigated in the proposed condition 2(h).

7                     The other issue of falsity was the statement that the company was not a party to any legal proceedings when in fact there were proceedings on foot that had been the subject of a subrogated action defended by an insurance company under third party or other motor vehicle accident insurance.  While the applicant was aware of those proceedings, he believed that, in accordance with the normal understanding people would have of insurance companies taking over proceedings on behalf of insureds, the matter was in the hands of the insurer and was of no significant consequence.  In respect of that matter, Chief Judge Blanch allowed the appeal against severity and reduced the fine that the Magistrate in the Local Court had imposed from $3000 to $300.

8                     There was no appeal in the end against the severity of the other fine of $3000 in respect of the outstanding liabilities false statement.

9                     The question for the court was succinctly stated by Bowen, CJ in Eq in Re Magna Alloys and Research Pty Ltd (1975) 1 ACLR 203 at 205.  His Honour noted that an applicant who came seeking relief bore an onus of establishing that the general policy of the legislature laid down in an analogue of section 206B ought be made the subject of an exception in his or case.  His Honour continued:

            ‘The court in exercising its discretion will have regard to the nature of the offence of which the applicant has been convicted, the nature of his involvement and the general character of the applicant including his conduct in the intervening period since he was removed from the board and from management.  Where, as here, the applicant seeks leave to become a director and to take part in the management of particular companies the court will consider the structure of those companies, the nature of their businesses and the interests of their shareholders, creditors and employees.  One matter to be considered will be the assessment of any risks to those persons or to the public which may appear to be involved in the applicants assuming positions on the board or in management’

10                  In this case, the two offences I have described appeared to me, as they did to both the applicant and the Chief Judge of the District Court, to differ in character.  The offence involving the false statement about the company not being a party to any legal proceedings is one which, in its true context, does not appear to me to involve any serious issue of lack of probity or anything other than a clear and wrong, but, in all the circumstances, unfortunate slip by the applicant in filling in and signing a form on advice.

11                  The other conviction, which was the one that attracted the more serious penalty, is of a different order and involved an attempt, on one view, to avoid paying a substantial sum of money due to the State by making a false statement that there were no outstanding liabilities.  I have considered the evidence on this matter and the applicant's attitude that he has now clearly set out to resolve this issue and to pay what is due to the State Authorities subject to, what seems to me to be not unreasonable, trying to find from the State Authorities any offsetting amounts that might be due back to Aluform.  The evidence before me shows that Mr Lahood has made some considerable efforts to ascertain from the relevant New South Wales Authorities the amount of registration moneys which ought be refunded but has not even received the courtesy of a reply to any of his attempts to find this information out.  Hopefully that situation will remedy itself in the period allowed in the proposed orders.

12                  I have formed the view that the applicant is genuinely contrite and remorseful for the errors which he committed and recognises that what he did was wrong.  It seems to me to be a lapse in an otherwise clean and good record.  The applicant has managed these companies with his family for over 20 years.  The transport industry is one which is notoriously difficult in economic terms and yet the evidence shows that the companies in the Transtar Group have over 70 employees and also engage something in the order of about 10 contractors.  They appear to be otherwise well managed.  There are no matters which the Australian Securities and Investments Commission (‘the Commission’), which intervened in the proceedings, was able to bring to attention as to the business practices of the applicant or the Transtar Group which might give any rise to concerns that there was a risk to the public or to those in the companies from the applicant being allowed to be a director, once again, as he seeks.

13                  At the conclusion of the oral evidence I inquired of counsel for the Commission whether it was the Commission's position that the disqualification should remain and that there be no leave granted.  Counsel, on instructions, said that that was not the Commission's position and that the Commission considered that appropriate conditions could be imposed.

14                  I expressed some preliminary thoughts as to conditions that appeared to me to have some relevance which the parties might wish to consider.  After some debate during the course of the day on which the hearing occurred, the parties were able to prepare an agreed position which in my opinion is an appropriate one and is reflected in the short minutes of order which have been provided to the court for the hearing today. 

15                  It appears to me that the interests of the companies as revealed in the evidence, their shareholders, who are the applicant's family and himself, the creditors and the employees would be best met by allowing him to resume a position in the management, as a director of the companies, but under the overall supervision of his father who has agreed to the proposed conditions involving him in the management during the period of the balance of the disqualification to which the applicant would otherwise have been subject under section 206B.

16                  For these reasons, which I have necessarily stated shortly because the matter is not contested and because the Commission, which represents the public interest (cf:  Associated Minerals Consolidated Ltd v Wyong Shire Council [1975] AC 538 at 560A-C; [1974] 2 NSWLR 681 at 692B-D), has itself considered the orders appropriate, it appears to me to be a proper exercise of my discretion that I make orders in the terms proposed by the parties.

Associate:

Dated:              14 March 2006