FEDERAL COURT OF AUSTRALIA

Registrar of Aboriginal and Torres Strait Islander Corporations v Kerkhoffs [2013] FCA 1445

THE COURT DECLARES THAT:

1.    In contravention of ss 265-1, 265-5 and 265-10 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act) the Respondent:

   (a)    failed to exercise her powers and discharge her duties as the chairperson of the board of the Corporation with the degree of care and diligence that a reasonable person would exercise if that reasonable person were an officer of a corporation in the Corporation’s circumstances and occupied the office held by the Respondent and had the same responsibilities as her; and

   (b)    failed to act in good faith, in the best interests of the Corporation and for a proper purpose in the performance of her duties as the chairperson of the board of the Corporation;

   (c)    improperly used her position as the chairperson of the board of the Corporation to gain an advantage for herself and cause a detriment to the Corporation,

by causing, or alternatively, permitting the Corporation between 11 November 2010 and 16 March 2012 to make payments to the Respondent totalling $8,220.17, which were unauthorised.

2.    In contravention of ss. 265-1, 265-5 and 265-10 the CATSI Act the respondent:

   (a)    failed to exercise her powers and discharge her duties as the chairperson of the board of the Corporation with the degree of care and diligence that a reasonable person would exercise if that reasonable person were an officer of a corporation in the Corporation’s circumstances and occupied the office held by the Respondent and had the same responsibilities as her; and

   (b)    failed to act in good faith, in the best interests of the Corporation and for a proper purpose in the performance of her duties as the chairperson of the board of the Corporation;

   (c)    improperly used her position as the chairperson of the board of the Corporation to gain an advantage for herself and cause a detriment to the Corporation,

by causing, or alternatively, permitting the Corporation to forgive rental arrears of tenants, one of whom was the Respondent, totalling $23,194 that was properly owed to the Corporation, at a time when the Corporation was unable to pay its debts.

3.    In contravention of ss 265-1, 265-5 and 265-10 of the CATSI Act the respondent:

   (a)    failed to exercise her powers and discharge her duties as the chairperson of the board of the Corporation with the degree of care and diligence that a reasonable person would exercise if that reasonable person were an officer of a corporation in the Corporation’s circumstances and occupied the office held by the Respondent and had the same responsibilities as her; and

   (b)    failed to act in good faith, in the best interests of the Corporation and for a proper purpose in the performance of her duties as the chairperson of the board of the Corporation;

   (c)    improperly used her position as the chairperson of the board of the Corporation to gain an advantage for herself and cause a detriment to the Corporation,

by causing, or alternatively, permitting the Corporation to enter a contract to sell real property located at 34 Brett Avenue, Mt Isa to the Respondent for below market value consideration at a time when the Corporation was unable to pay its debts.

4.    In contravention of ss 265-1 and 363-1 of the CATSI Act the respondent:

   (a)    failed to exercise her powers and discharge her duties as the chairperson of the board of the Corporation with the degree of care and diligence that a reasonable person would exercise if that reasonable person were an officer of a corporation in the Corporation’s circumstances and occupied the office held by the respondent and had the same responsibilities as her; and

   (b)    failed to take all reasonable steps to secure compliance by the Corporation with its obligations under Parts 7-2 and 7-3 of the CATSI Act,

by not causing the Corporation to maintain written financial records which correctly record and explain its transactions and financial position and performance; and which would enable true and fair financial reports to be prepared and audited.

THE COURT ORDERS THAT:

5.    Pursuant to s 279-15 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) (CATSI Act), that the respondent be disqualified from managing Aboriginal and Torres Strait Islander corporations for a period of 5 years.

6.    Pursuant to s 386-10 of the CATSI Act, the respondent pay the applicant a pecuniary penalty in the amount of $50,000.00.

7.    Pursuant to s 386-15 of the CATSI Act, the respondent pay to Aboriginal and Torres Strait Islanders Corporation for Welfare Services ICN 355 the amount of $31,414.17.

8.    Save in respect of the directions hearing held on 2 August 2013, for which there is no order as to costs, the respondent pay the applicant's costs of the proceeding.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    In the mid 1980s and in recognition of difficulties which Aboriginal Australians were encountering in securing rental accommodation in Mount Isa in Far North Queensland as a result of the competing demands and, inferentially, superior financial resources of those working in the mining industry, an Aboriginal corporation known as the Aboriginal and Torres Strait Islanders Corporation for Welfare Services was established under the then Aboriginal Councils and Associations Act 1976 (Cth) (Aboriginal Councils and Associates Act). The objects of the corporation were set out in its original rules, registered with the Registrar of Aboriginal Corporations under that Act. Rule 6, which contains the objects, makes reference inter alios to:

Acquire, hold, and dispose of real and personal property to further the attainment of the above objects, or any of them.

2    The “above objects” referred to in rule 6, are:

(a)    to provide financial support services to Aboriginal and Torres Strait Islander people;

(b)    to develop a range of community and support services for Aboriginal and Torres Strait Islander people;

(c)    to create unity in the community between existing Aboriginal and Torres Strait Islander organisations;

(d)    to promote dignity and identity and through self help;

(e)    to promote a sense of cooperation between Commonwealth departments and Aboriginal and Torres Strait Islander organisations within the community.

3    A considerable amount of public money was made available to the corporation to serve its objects. With that money, houses were purchased and then made available for rental by the corporation to members of the Mount Isa Aboriginal community. By 2009, the corporation had 33 houses in Mount Isa available for rental.

4    Also by 2009, the Aboriginal Councils and Associations Act had come to be repealed and replaced by another Act, the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) (CATSI Act). The applicant in the present proceeding, the Registrar of Aboriginal and Torres Strait Islander Corporations, who holds office under the CATSI Act is the successor to the Registrar who held office under the Aboriginal Councils and Associations Act. Corporations originally incorporated under that Act are preserved and continued in existence, and now governed by the CATSI Act.

5    The Registrar’s application today is for the imposition of pecuniary penalties, the making of a disqualification order, the ordering of compensation, and for costs of the proceeding in respect of alleged contraventions of the CATSI Act by the chairman of the corporation, Mrs Leigh Kerkhoffs (Mrs Kerkhoffs). Reflecting Mrs Kerkhoffs’ timely acknowledgment of the contraventions alleged and her disposition to cooperate in the administration of justice, the parties have agreed as to the facts which are pertinent to the alleged contraventions.

6    A convenient way of recording the relevant facts is to incorporate in a schedule to this judgment the agreed facts, paragraphs 2 through to and including 73. I propose to highlight particular aspects of the agreed facts as well as to deal with matters particular to Mrs Kerkhoffs’ personal circumstances and the wider context in which the admitted contraventions have occurred in these reasons for judgment. The detail of the contraventions factually is to be found in the agreed facts which are scheduled.

7    Mrs Kerkhoffs became a director of the corporation in 1997. At that time, her late father was the corporation’s chairman. He was an elder of the Kalkadoon community, as is Mrs Kerkhoffs’ mother. In 2009, as her father’s health failed, Mrs Kerkhoffs came to assume the role of chairman. She did so at a time when the corporation was in very particular financial difficulties. Those difficulties, whilst they had occurred over a period when she was a director, were not difficulties for which she was solely responsible. The difficulties were such that the Registrar applied to the Court for the winding up of the corporation. In her but recently assumed role as chairman of the corporation, Mrs Kerkhoffs made and filed an affidavit which formed the basis of the corporation’s opposition to its being wound up.

8    In the result, in February 2010, the winding up application to the Court came to be discontinued by consent. The consent included the proffering of undertakings to the Court in relation to financial reporting. Further, a Mr Ericson, an accountant, was promoted to the Court as appointed to act and did, in fact, act as financial adviser to the board for a period of time. Financial and managerial acumen was always something which the corporation needed. That need was present in 2009, and it remained present up to and including the time when the Registrar appointed a special administrator to the corporation. In initially applying for the winding up of the corporation and in appointing the special administrator, the Registrar was fulfilling the expectations of Parliament in respect of his office.

9    The same applies to his institution of the present proceeding. The Registrar has a particularly difficult role to fulfil in this sense. That Parliament has made separate provision, currently by the CATSI Act, but in earlier times by the Aboriginal Councils and Associations Act, reflects a political value judgment that there is a public interest to be served for all Australians in providing for Aboriginal and Torres Strait Islander Australians to be able to have administration of their affairs. A form in which that self-administration was established was by way of corporations under the Aboriginal Councils and Associations Act and latterly under the CATSI Act.

10    A concomitant, though, of that self-administration is that those who hold office in such corporations must nonetheless observe standards of corporate governance which are akin to those who hold office as a director of a corporation established under the Corporations Act 2001 (Cth). In imposing that particular obligation, necessary as it is, particularly where public funds are deployed, the CATSI Act is pregnant with the potential of a clash between conventional expectations of appropriate corporate governance and directors’ behaviours and the very real, heartfelt obligations of clan and tribe to a fellow member of a clan or tribe in the Australian Aboriginal and Torres Strait Islander community.

11    This case has, for that reason, a wider importance, given that, again as a matter of deliberate parliamentary value judgment, in addressing the challenges that were presented by the recognition in Mabo v Queensland (No 2) (1992) 175 CLR 1 of native title, the Parliament, via the Native Title Act 1993 (Cth), has in turn created a mechanism whereby native title can be held by prescribed bodies corporate also established under the CATSI Act. What I mean by that is that the behaviours that have become the subject of these proceedings carry with them, in terms of outcome, very real lessons in terms of the difficulties presented by reconciling legitimate expectations as to good corporate governance with equally worthy expectations as to the ability of Australian Aboriginals and Torres Strait Islanders, not to be the subject of paternal supervision, but instead to have a determinative say in matters touching upon their aspirations and lifestyle.

12    Because of that, there are features of this case where, in my view, general deterrence must have an overriding impact in relation to sentencing, notwithstanding a very human dimension to the behaviours that have led to the contravening conduct. I shall return to that dimension shortly. It is first necessary to give some detail as to the nature of the contraventions which are alleged and admitted.

13    The contraventions concerned occurred over the three year period which followed Mrs Kerkhoffs’ election as the chairman of the corporation in April 2009. They may be summarised in this way:

(a)    Breaches arising from the forgiveness of rent arrears in the amount of $23,194 owed by Mrs Kerkhoffs to the corporation in respect of rent due for the occupancy of one of the corporation’s houses.

(b)    Next, unauthorised receipt of financial benefits by way of “wages” for reimbursements from the corporation. The “wages” in respect of payments on these dates, 11 November 2010, 16 November 2010, 30 December 2010, 27 January 2011, 9 December 2011, 16 December 2011, 16 December 2011, and 16 March 2012. The total of these unauthorised wages or reimbursements, when added to the arrears of rental, yields a total of $31,414.17. The Registrar seeks an order that, by way of compensation for the payment of this sum under s 386-1(5) of the CATSI Act. That is not opposed by Mrs Kerkhoffs.

(c)    The third source of contravening conduct arises from Mrs Kerkhoffs and her husband’s entry into a contract with the corporation for the sale of the property in which they resided and which had hitherto been rented from the corporation to them, in the amount of $248,000. The worth of that property at the time, even on the basis of an affidavit filed by Mrs Kerkhoffs during the earlier winding up proceeding, was $290,000. At the time when the contract was entered into, the corporation was insolvent, as it was, at least inferentially, at the times when the wages or reimbursements were paid.

14    Though it is not the subject of an application for a compensation order, the corporate insolvency is, on any view of the evidence, principally the result of a failure, and it is a concerted failure over many years on the part of the corporation, to recover rent as and when it fell due from tenants. That seems to be a position inherited by Mrs Kerkhoffs when she assumed the role of chairman. I say that having regard to the balance sheet for the corporation for the financial year ending 30 June 2009, wherein arrears of rental in the amount of $388,051.42 is shown by way of an asset with that exact same sum also being shown by way of provision for doubtful debts. That arrears in turn, as the prior year column in that balance sheet discloses, had increased over the year from a sum at the end of the 2008 year of $318,767.42 to $388,051.42.

15    Mrs Kerkhoffs was, of course, a director in 2008, although not then chairman. I have the very strong impression from the facts that the 2008 figure was one which had increased over the years rather than just the result of arrears for the 2008 year.

16    It emerged on closer examination of the composition of the board of directors of the corporation, at a time when the arrears were of this order, that a majority of the board were relatives of Mrs Kerkhoffs. Mrs Kerkhoffs deposed, and I do not doubt, that she felt under considerable family pressure, particularly from her mother and elder in relation to matters touching upon the governance of the corporation. She is, in many ways, a representative respondent. By that, I mean that, while she is individually responsible and while she readily acknowledges individual responsibility, those responsibilities for good corporate governance are not hers alone. They were shared by all of the members of the board.

17    It was put on her behalf that there was nothing surreptitious in the conduct that led to the approval of the particular wages payments or the writing off of rental arrears, including her own, or the entry into the contract for the sale of the property. They are, in one way or another, transactions that are minuted transactions. To that extent, I accept that the conduct was not surreptitious. Indeed, it looks to be conduct which was continuing practices which had developed over time in the corporation. Further, it is possible that some at least of the reimbursements or wages may well have been reimbursements in respect of expenditures incurred on behalf of the corporation by Mrs Kerkhoffs. She acknowledges, though, that she cannot prove this. That in turn is a reflection of the casual way in which matters touching upon the corporation’s finances were dealt with, and had been dealt with, at least inferentially for many, many years.

18    One of the other directors of the corporation, Ms Connie Craigie, was, it transpired, also a member of the applicant in a native title case determined by the Court, Doyle on behalf of the Kalkadoon People #4 v State of Queensland (No 3) [2011] FCA 1466. The fact of a determination having been made on behalf of the Kalkadoon people occurred to me in the course of submissions, and upon reading Mrs Kerkhoffs’ affidavit, in which she made reference to her being a member of the Kalkadoon people. Upon further investigation, correspondence between one of the directors and the member of the applicant group was revealed. It was that which provoked my reflecting on the wider ramifications of this case in terms of behaviours that are expected of all corporations, which do include prescribed bodies corporate established under the CATSI Act.

19    There are then multiple contraventions which are established as a result of the particular behaviours to which I have briefly referred and which are the subject of greater detail in the agreed statement of facts. In short, they comprise unauthorised payments, unauthorised rental forgiveness, or rental forgiveness where there was a self-interest, an attempt in respect of a sale at under value, and manifest and continuing inadequacy of keeping of books and records.

20    Mrs Kerkhoffs was not a full time or managing director. None of the other directors held full time office. The corporation did have a full time officer. That person was Mrs Kerkhoffs’ sister, Mary-Jo. The evidence discloses that Mary-Jo was not qualified in terms of bookkeeping or financial management abilities. Further, she adopted what one might charitably term a casual approach, even in the keeping open of the office of the corporation. The Registrar has, in the affidavit material and, as a result of the investigation that has led to the proceeding, opined that the present is the worst case encountered in respect of the keeping of books and the general organisation of the office.

21    What, then, of Mrs Kerkhoffs’ circumstances? She is presently 42 years old. She was born and raised in Mount Isa. Though she attended many different schools, she did complete grade 12 at Kalkadoon High School. The name is surely associated with her clan in Mount Isa. Her previous work experience has included duties as an assistant in a materials testing laboratory, and various social services sector roles. These include particularly, with reference to the Aboriginal community, that of a field officer for the Mount Isa Aboriginal Legal Service, and working for a corporation which represents native title holders.

22    In August 2010, Mrs Kerkhoffs and her husband established a filter cleansing business. That business is operated by a company, Kerkhoffs Transport Proprietary Limited, of which she is director. She and her husband have five children, who range in age from 22 through to 5 years old, the last child born in March 2008. Four of those children live at home with Mr and Mrs Kerkhoffs. The second oldest child has moved away from home. The other four are financially dependent on Mr and Mrs Kerkhoffs.

23    Apart from Kerkhoffs Transport, Mrs Kerkhoffs is also a director of Kalkadoon Community Proprietary Limited. That particular body corporate has a role of negotiating with and liaising with mining companies and other parties who have various agreements with Kalkadoon native title holders, including Indigenous Land Use Agreements. That corporation also assists other Kalkadoon organisations with budgeting.

24    The seed money for Kerkhoffs Transport came from Indigenous Business Australia. The business is one which enjoys modest but undoubted success on the evidence. It looks to be a good example of how such advances can bear fruit for those of Aboriginal background. The business employs five people on a casual basis.

25    In the year ended 30 June 2012, Kerkhoffs Transport had revenue of some $200,000 and a profit of about $20,000. Income from that company and various forms of government assistance provide the major source of income for the family.

26    Mrs Kerkhoffs has the role of director of Kerkhoffs Transport because her literacy and numeracy skills are greater than those of her husband, whom I infer has strengths in one might call hands on work. The two obviously have made a good combination in relation to that particular corporation.

27    Throughout the period which is the subject of the charges, Mrs Kerkhoffs was an officer of the corporation, within the meaning of that term in s 683-1(3)(b) of the CATSI Act. As director and, more particularly, as the chairman, it fell to her to comply with the duties that are imposed by ss 265-1, 265-5, and 265-10 of the CATSI Act. She has contravened those provisions by virtue of the conduct that I have summarised briefly above. It was her task to perform her duties with due care and to the best of her knowledge and expertise. It was also her task to ensure that the corporation complied with its record keeping and reporting requirements which are set out in Pt 7-2 and 7-3 of the CATSI Act.

28    It was likewise Mrs Kerkhoffs’ task to bring forward any matters which were within her knowledge which might affect the ability of the corporation to fulfil legal and financial obligations. The forgiveness of rent which she owed and the entering into a contract with the corporation by her and her husband for the purchase of a property at an undervalue were each matters that required disclosure before the board, and further and prudently at least, an abstaining from voting in respect of those matters. That the contract for the sale did not proceed was solely the result of the appointment by the Registrar of the Special Administrator, and that official’s termination of the contract.

29    The end result of the special administration, or at least the result to date, has been a need on the part of the corporation to dispose of four of its properties in order to meet debts. Those debts exceeded $600,000. In turn, that means that the pool of rental properties available to Aboriginal Australians in Mount Isa via the corporation has been reduced from 33 to 29. Truly, behaviours on the part of Mrs Kerkhoffs that were deferential to what she saw as Kalkadoon obligations have led to a detriment to Kalkadoon people and other Aboriginal Australians within the Mount Isa area for that reason.

30    I am completely persuaded that an apology proffered by Mrs Kerkhoffs today reflects her deep understanding, and shame for that matter, in respect of that result. I am quite sure that she feels that deeply and that she tried to the best of her ability to balance what she saw as obligations to a mother much respected and an elder with obligations in relation to corporate governance. It is just that the former has triumphed over the latter. Where those particular clan and within clan family obligations are not present, the performance of Kerkhoffs Transport demonstrates that she is not without ability to act as a director.

31    Where particular clan obligations and intimate family obligations have intruded, Mrs Kerkhoffs has succumbed to those obligations, as opposed to observing what one might term wider obligations through the corporation to the Aboriginal community more generally. These are very, very difficult circumstances, and by no means unique to Mrs Kerkhoffs. They disclose in respect of all Aboriginal corporations, a potential risk that balancing between clan obligations and obligations of prudent financial management is a singular challenge to the worthy social experiment represented by incorporation under the CATSI Act and the various roles which such corporations fulfil. Those particular considerations, as I have mentioned, intrude in relation to deterrence, both with respect to pecuniary penalty as well as on the subject of whether there should be disqualification.

32    It was put on behalf of Mrs Kerkhoffs in able and sympathetic submissions advanced on her behalf that there ought not to be a disqualification, having regard to the pecuniary penalty to be imposed. I have given that particular submission very close consideration indeed.

33    In relation to disqualification and with respect to corporations incorporated under what is now the Corporations Act, Santow J in Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80 highlighted a number of considerations which are pertinent to disqualification. His Honour did so by reference to earlier authority, particularly Commissioner for Corporate Affairs (Western Australia) v Ekamper (1987) 12 ACLR 519. Having regard to these cases, the following are considerations which, according to the circumstances of particular cases, are relevant to consider:

    the character of the offenders;

    the nature of the breaches;

    the structure of the companies and the nature of their business;

    the interest of shareholders, creditors, and employees;

    the risk to others from the continuation of offenders as company directors;

    the honesty and competence of offenders;

    the hardship to offenders and their personal and commercial interests; and

    the offenders’ appreciation that future breaches could result in future proceedings.

34    It is plain enough that these should not be applied uncritically as if they were but a checklist. Further, it is equally plain that some of these considerations are not germane to a company which is established for charitable purposes such as the corporation. Equally, it is plain that, in their generality, they do not take into account the very particular circumstances which attend the roles which corporations incorporated under the CATSI Act discharge. Mrs Kerkhoffs’ character, apart from the conduct which is admitted, is unblemished. Indeed, she has the virtue which has proved to be the vice also, so far as the contraventions are concerned, of a deep interest in and loyalty to values of the Kalkadoon people.

35    The result, though, as I have said, is that there has been an insolvency which was, in its way, spectacular, and a related diminution of houses available to the Aboriginal community in Mount Isa for rental via the corporation. I have the very strong impression that the worthy goal that saw the investment of public moneys, via the corporation, in that housing was not met by the provision of continuing support by way of administrative expertise for the achievement of those goals. By that, I mean it is all very well to invest a large lump sum of public money in the provision of housing for the Aboriginal community, but fraught if one does not accompany that investment with the provision of skills to assist self-administration, initially perhaps by way of external support and then as skills within the Aboriginal community increase, by way of a gradual handover. Just to provide a large lump sum of public money is fraught with the risk of what occurred in this case. This is not to diminish nor, it must be said, has Mrs Kerkhoffs in any way sought to diminish, the contravening conduct on her part, but it is, to put it in a wider and necessary context. Hence my earlier observation that she is, in many ways, a representative respondent. Her failings and those of her fellow directors are also, in an indirect sense, failings of those who have committed public funds without the prudent provision of support for those who are expected to administer them and who may not, through no fault of their own, have the requisite skills.

36    Such is the need to bring home the need for prudent administration of corporations under the CATSI Act, my view is that there is a need for disqualification. In stating that, I wish to make it plain that I do not see this as a case where there should be an uncritical application or translation of that disqualification into the seeking of disqualification by the Australian Securities and Investment Commission of Mrs Kerkhoffs from directorships of companies incorporated under the Corporations Act. There needs to be a very discriminating value judgment to be made as to the imperatives that intruded on the contravening conduct here, and the likelihood or otherwise that they would attend the governance of a corporation that conducts, for example, the business of Kerkhoffs Transport. There is not a direct translation.

37    That said, those who take on the role of board responsibilities in corporations incorporated under the CATSI Act need to understand that that role carries with it duties that are akin to those which fall upon directors of corporations incorporated under the Corporations Act. One does not serve the interests of one’s clan or tribal group by failing to adhere to those duties. Whilst I have taken into account that this is a case where a pecuniary penalty is warranted, and warranted to the extent that I shall shortly pronounce, I nonetheless have the view that disqualification is necessary.

38    The Registrar submitted that a period of seven years was necessary. There is no bright line in respect of what would or would not be an adequate period of time. It certainly must be sufficiently long to bring home, not just to Mrs Kerkhoffs but more widely particularly, the unacceptability of the conduct revealed in this case. Neither, though, should it be so long as to prevent someone who does have a deep interest in her people from providing leadership. Balancing those two considerations is difficult. The view that I have reached is that a period of five years is appropriate by way of disqualification.

39    As to pecuniary penalties, and it has been rightly highlighted on behalf of the Registrar and not gainsaid on behalf of Mrs Kerkhoffs, there are particular contraventions. Some are a course of conduct, the ongoing keeping of inadequate books and records being one. Some are separate incidents of contravention. It is necessary to take into account penalties in respect of separate incidents as well as the course of conduct. It is necessary to bear in mind the maximum penalty which can be imposed for individual contraventions. The maximum is $200,000 in respect of the contravention. There is also a need to avoid a checklist approach to the ascertainment of the appropriate penalty.

40    It was put on behalf of the Registrar that, so far as an approach to dealing with multiple contraventions was concerned, that of Foster J in Clean Energy Regulator v MT Solar Pty Ltd [2013] FCA 205 at [73] to [89] offered a recent illustration. I agree with that. I have taken into account what fell from his Honour there. Here, there are particular acts which breach multiple provisions as well, as I have said, as other acts which amount to a course of conduct. In his submissions, and purely by way of illustration as to what might be termed an indicative penalty, counsel for the Registrar tabulated particular individual penalties, and then submitted that one should apply to that a totality principle, as well as taking into account the discount which should be afforded those who cooperate in the administration of justice in the way that Mrs Kerkhoffs has, by ready acknowledgement of contravening conduct and an acknowledgement in a timely way. I have taken into account that particular table. It was acknowledged that there is no precedent based on patterns of behaviour of a like kind. Truly, this is a unique case which requires a unique penalty.

41    The worry with any penalty is ability to pay, which is not great in the case of Mrs Kerkhoffs. For all that, this is a case of serious breaches and breaches also, insofar as there are courses of conduct, which are over a lengthy period. Further, that period occurred after what ought to have been a wakeup call constituted by the Registrar’s winding up application, and the benign outcome of that application as it transpired. Further, that benign outcome included expert accounting input from Mr Ericson, whose affidavit I have taken into account in relation to advice offered. Here again, I have the very strong impression that clan and family loyalties proved triumphant over an understanding of what ought to have occurred, having regard to Mr Ericson’s advice.

42    As with a disqualification period, there is truly no bright line in relation to penalty. In the end, there is a need for an intuitive value judgment, which reflects, as I have said, justice in terms of a very real need for general deterrence being tempered with mercy arising from particular circumstances, financially and from family, as well as with a ready and timely acknowledgment of contravention.

43    A submission made on behalf of the Registrar was that the imposition of one penalty, which is open as a matter of law to impose, in the amount of $50,000 was appropriate. That sum was not gainsaid on behalf of Mrs Kerkhoffs, but that was in the context that the penalty should be sufficient alone without the additional burden of disqualification. In my view, the amount proposed by the Registrar is sufficient unto this day. In making that observation, I expressly also take into account that there will be a compensation order in the sum that I’ve mentioned, and, further, that in the ordinary course of events, costs will follow the event.

44    This is one of those cases where it is necessary, unequivocally, to send a wider message. It is for that reason that I have determined the penalty in the amount of $50,000 and disqualification for a period of five years. In so doing, I am very conscious that there will be a particular hardship indeed for Mrs Kerkhoffs, and necessarily more widely for her family with that.

45    There are value judgments to exercise as to the way in which payment will be made. It would be possible, in my view, for the Court to make orders for payment by instalments, but there is apt to be an arbitrariness about that, which may not meet changing circumstances. For that reason, though I have considered that possibility, I choose not to make an order for payment by instalments. Instead, it will be for the Registrar to determine the way in which, and rate at which, repayments of the various debts which will come as a result of the Court’s order to be payable to the Commonwealth by Mrs Kerkhoffs are to be paid.

46    Further, there may well be, in the circumstances of this case, humane considerations which may lead to the making of recommendations to the responsible Minister at some stage for the writing off of some or all of particular amounts that are owed. These are not value judgments for me to make. I mention them solely because it is not my intention in making reference to a need for general deterrence to foreclose in any way the prospect of what one might term executive clemency.

Associate:

Dated:    23 December 2013

schedule

Agreed Statement of Facts

2.    The Registrar is entitled to commence this proceeding and seek the relief set out in the Originating Application pursuant to ss. 279-15, 386-1, 386-15, and 386-20 of the CATSI Act.

The Corporation

3.    The Aboriginal and Torres Strait Islander Corporation for Welfare Services (ICN 355) (the Corporation) was incorporated on 8 March 1985 under the Aboriginal Councils and Associations Act 1976 (Cth) (the ACA Act). At the time of its incorporation, the Registrar’s predecessor under the ACA Act approved the rules of the Corporation.

4.    On 1 July 2007, the ACA Act was replaced by the CATSI Act and the Corporation became registered under the CATSI Act by operation of the Corporations (Aboriginal and Torres Strait Islander) Consequential, Transitional and Other Measures Act 2006 (Cth).

5.    The Corporation is a not-for-profit charitable entity and its principal activity is to provide affordable rental accommodation to Aboriginal and Torres Strait Islander people in Mt Isa. Mt Isa has a very tight rental market due to the extensive mining activities in the surrounding region and without the services provided by the Corporation some Aboriginal and Torres Strait Islander people would be unable to secure housing in Mt Isa.

6.    The Corporation currently owns 29 rental properties. It owned 33 prior to the Corporation being placed under special administration on 15 October 2012. Nearly all of the properties were purchased with public funds, sourced from the Commonwealth Government.

7.    On 15 October 2012 the Corporation was placed under special administration by a delegate of the Registrar pursuant to s. 487-1 of the CATSI Act. The period of special administration ended on 31 May 2013 and five new directors were appointed by the special administrator pursuant to s. 499-5(3)(d) of the CATSI Act.

8.    On 15 October 2012 the Corporation was insolvent. Its cash assets amounted to $444.13 whereas it owed its creditors $650,643.57 (excluding GST) and it was not collecting sufficient rent to cover its outgoings.

9.    The special administrator was required to sell four of the Corporation’s properties to pay all of the debts of the Corporation.

The Corporation's rules and policies

10.    From 8 March 1985 until the commencement of these proceedings, the Corporation had a constitution which established the internal governance rules of the Corporation and the objectives of the Corporation (the 1985 Rules).

11.    The 1985 rules were approved by the Registrar’s predecessor upon incorporation. Those Rules were replaced by an approved constitution on 9 November 1990 (the 1990 Rule Book).

12.    On 15 June 2009 a delegate of the Registrar registered a Registrar initiated constitution that was consistent with the CATSI Act (the 2009 Rule Book).

13.    On 3 May 2013 a delegate of the Registrar registered a new constitution that was changed by the special administrator pursuant to s. 499-5(3)(a) of the CATSI Act (the 2013 Rule Book).

14.    At all relevant times, the Rules specified that a governing committee or board of not less than five directors be established.

15.    At all relevant times, the Rules specified that the business and affairs of the Corporation was to be managed by or under the direction of the directors of the Corporation.

16.    At all relevant times, the Rules required the directors to use the money and property of the Corporation to carry out the business and objects of the Corporation.

17.    At all relevant times, the Rules required the Corporation to keep proper records and accounts. The 2009 Rule Book and the 2013 Rule Book required the Corporation to keep its records and accounts at the Corporation's “document access address”.

18.    At all relevant times, the Rules required that all cheques, withdrawal forms and banking documents must be signed by at least two directors.

19.    At all relevant times, the Rules required that all accounts must be approved for payment at a directors' meeting.

The Respondent

20.     The Respondent, Leigh Lynette Kerkhoffs, was appointed a director of the Corporation during 1997 and remained a director of the Corporation until the Corporation was placed into special administration on 15 October 2012 (Relevant Period).

21.    In or around April 2009, the Respondent was elected as the chairperson of the Corporation and remained in that role until the Corporation was placed under special administration on 15 October 2012.

22.    Throughout the Relevant Period, in her role as a director of the Corporation, and in particular from April 2009 in her role as chairperson, the Respondent made, or participated in making, decisions that affected the whole, or a substantial part, of the business of the Corporation.

23.    Throughout the Relevant Period, the Respondent had the capacity to significantly affect the Corporation's financial standing.

24.    By reason of the facts in paragraphs 20 to 23 above, throughout the Relevant Period, the Respondent was an "officer" of the Corporation within the meaning of s 683-1(3)(b) of the CATSI Act.

The Respondent's duties as director and/or chairperson

25.    Throughout the Relevant Period, the Respondent's duties as director and/or chairperson included, relevantly:

(a)    performing her duties as director and/or chairperson in accordance with ss. 265-1, 265-5 and 265-10 of the CATSI Act;

(b)    acting at all times in the best interests of the Corporation and in furtherance of the Corporation's objectives;

(c)    performing her duties with due care and to the best of her knowledge and expertise;

(d)    ensuring the Corporation complied with its record keeping and reporting requirements under Parts 7-2 and 7-3 of the CATSI Act;

(e)    bringing to the attention of the board of directors of the Corporation from time to time any matters that, to her knowledge, may have significantly affected the ability of the Corporation to fulfil its legal and financial obligations.

26.    The duty in paragraph 25(a) arose from the fact that, during the Relevant Period, the Respondent was an officer of the Corporation within the meaning of the CATSI Act.

27.    The duty in paragraph 25(b) arose from s 265-5 of the CATSI Act.

28.    The duty in paragraph 25(c) arose from s 265-1 of the CATSI Act.

29.    The duty in paragraph 25(d) arose from the requirements of s. 363-1 of the CATSI Act.

30.    The duty in paragraph 25(e) arose from one or more of the duties under ss.265-1 and 265-10 of the CATSI Act.

Respondent's conduct during the Relevant Period

Failure to maintain adequate books and records

31.    Section 322-10(1) of the CATSI Act requires an Aboriginal and Torres Strait Islander corporation to keep written financial records that:

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

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

32.    Section 327-1(1) of the CATSI Act states that an Aboriginal and Torres Strait Islander corporation must prepare and lodge with the Registrar the following reports (the Annual Reports):

(a)    a general report in relation to each financial year; and

(b)    any reports (which might include a financial report, or directors' report, for a financial year) that are required by the Corporations (Aboriginal and Torres Strait Islander) Regulations 2007 (Cth); and

(c)    any reports that are required by the Registrar.

33.    Clause 16.(1) of the 1990 Rule Book and clauses 7 and 8 of the 2009 Rule Book required the Corporation to keep proper records and accounts. The 2009 Rule Book required the Corporation to keep its books and records at the Corporation's document access address.

34.    On 9 July 2009, the Registrar commenced winding up proceedings against the Corporation, being Federal Court proceeding QUD 170 of 2009 (the 2009 Winding Up Proceedings).

35.    On 1 February 2010 the 2009 Winding Up Proceedings were discontinued by consent upon the following undertakings being made by the Corporation:

Upon the undertaking of the [Corporation] to report to the [Registrar] up until and including 31 December 2011, or until released in writing by the [Registrar], as follows:

(i)    within fourteen (14) days of the holding of any meeting required by law to be held, provide to the [Registrar] minutes of such meeting;

(ii)    within fourteen (14) days of the change of any director or resignation of any director, report such change or resignation to the [Registrar]; and

(iii)    within fourteen (14) days of the end of each month the [Corporation] provide a report as to the financial performance of the [Corporation] in the preceding month, and so long as Mr [Justin] Ericson remains a director of the [Corporation], the defendant is to cause Mr [Justin] Ericson to prepare and approve the report.

36.    The Corporation’s compliance with its undertaking to report under the Federal Court orders of 1 February 2010, is set out in the table below:

37.    At no time prior to 31 December 2011, did the Registrar release the Corporation from its undertaking to provide monthly reports.

38.    When the Corporation was placed under special administration on 15 October 2012 it:

(a)    had failed to lodge its required Annual Reports for the financial years ended 30 June 2006, 2007, 2008, 2009, 2010 and 2011 with the Registrar;

(b)    did not have accurate records of the 33 rental properties it managed, such as lease agreements and rental records such as rental income and liability statements for each property;

(c)    had not lodged a Business Activity Statement with the Australian Taxation Office since the quarter ended 31 March 2011;

(d)    had not prepared a monthly management financial report since February 2011;

(e)    had not prepared audited financial statements for the Corporation since the financial year ended 30 June 2010;

(f)    did not maintain payment vouchers or supporting documentation for all cheque payments;

(g)    did not maintain time sheets for employees of the Corporation;

(h)    had not updated its asset register since 30 June 2010;

(i)    did not maintain a general ledger cash book and therefore bank reconciliations were not carried out regularly;

(j)    had not paid the superannuation withheld from employee wages to the employees’ superannuation fund or the Australian Taxation Office for several years;

(k)    did not maintain an up-to-date register of members or minute books that recorded the proceedings and resolutions of directors’ and members’ meetings.

39.    As at 15 October 2012, the Corporation maintained little to no business records, and had no organised system of maintaining business records.

40.    By failing to ensure the Corporation kept proper records and accounts, the Respondent:

(a)    acted in a manner that was inconsistent with how an ordinary person of ordinary prudence with the knowledge and experience of the Respondent might be expected to have acted in all the circumstances at the relevant time if she was acting on her own behalf;

(b)    failed to exercise her powers and discharge her duties in good faith in the best interests of the Corporation;

(c)    failed to exercise her powers for a proper purpose;

(d)    caused detriment to the Corporation;

(e)    failed to secure compliance by the Corporation with Parts 7-2 and 7-3 of the CATSI Act; and

(f)    acted contrary to the 2009 Rule Book.

Payment of unauthorised amounts to the Respondent

41.     On or about the following dates, the Corporation paid the following amounts totalling $8,220.17 to the Respondent:

(a)    11 November 2010 - $1,200 for wages;

(b)    16 November 2010 - $1,000 for wages;;

(c)    30 December 2010 - $1,000 marked “to be reimbursed”;

(d)    27 January 2011 - $1,000 for wages;

(e)    9 December 2011 - $2,000 for wages;

(f)    16 December 2011 - $1,280 for reimbursement for rent; and

(g)    16 March 2012- $740.17 for reimbursement of bedroom door painting,

(together, the Payments).

42.    None of the Payments were approved for payment at a meeting of the directors in accordance with clause 8 of the 2009 Rule Book.

43.    The Respondent procured the Payments by instructing Mary-Jo Craigie (the respondent’s sister), the administrative assistant of the Corporation to make the payment.

44.    At the times that the Respondent procured and received each of the Payments, the Respondent knew that the payment had not been approved for payment at a meeting of the directors in accordance with clause 8 of the 2009 Rule Book.

45.    Further, at the times that the Respondent procured and received each of the Payments, she should have known that the Payments were not in the best interests of the Corporation.

46.    By procuring the Payments without the authority of the directors, the Respondent:

(a)    acted in a manner that was inconsistent with how an ordinary person of ordinary prudence with the knowledge and experience of the Respondent might be expected to have acted in all the circumstances at the relevant time if she was acting on her own behalf;

(b)    failed to exercise her powers and discharge her duties in good faith in the best interests of the Corporation;

(c)    failed to exercise her powers for a proper purpose;

(d)    improperly used her position to gain an advantage for herself;

(e)    caused detriment to the Corporation; and

(f)    acted contrary to the 2009 Rule Book.

Forgiveness of rental arrears of tenants

Respondent's rental arrears

47.    On 19 October 2009, the Corporation approved a write-off of rental arrears owing by the Respondent and twelve other tenants of the Corporation.

48.    The amount of rental arrears owing by the Respondent and written off was in the amount of $23,194.

49.    The approval was given at a directors’ meeting, which four directors attended (two via telephone), being Dorrie Prowse, Sara Norway, Sharon Boelen and the Respondent.

50.    On 19 October 2009 the Corporation had eight directors, including the Respondent. Clause 5.17 of the 2009 Rule Book required a majority of directors to be present at a meeting to form a valid quorum.

51.    The Respondent did not submit any declaration of interest in relation to the resolution to write-off the rental arrears.

52.    The Respondent knew that the write-off had not been approved:

(a)    at a meeting of directors where a quorum of directors was present in accordance with clause 5.17 of the 2009 Rule Book; and

(b)    by a majority of directors in accordance with clause 5.20 of the Rule Book.

53.    Further, at the time of the write-off of the Respondent’s rental arrears, she should have known:

(a)    it was a financial benefit to a director, namely herself;

(b)    it required the approval of the members of the Corporation in accordance with clause 5.15 of the 2009 Rule Book and s. 284-1 of the CATSI Act; and

(c)    it was not in the best interests of the Corporation.

54.    By receiving the financial benefit of the write-off, which was made without the proper authority of the directors or the approval of the members, the Respondent:

(a)    acted in a manner that was inconsistent with how an ordinary person of ordinary prudence with the knowledge and experience of the Respondent might be expected to have acted in all the circumstances at the relevant time if she was acting on her own behalf;

(b)    failed to exercise her powers and discharge her duties in good faith in the best interests of the Corporation;

(c)    failed to exercise her powers for a proper purpose;

(d)    improperly used her position to gain an advantage for herself;

(e)    caused detriment to the Corporation; and

(f)    acted contrary to the 2009 Rule Book.

Other rental arrears

55.    On a date or dates between 1 July 2009 and 30 June 2010, the Corporation approved a write-off of rental arrears owing by tenants to the Corporation in the amount of $388,051 which included the write off of arrears in respect of the respondent of $23,194.26 as well as the write off of arrears in respect of 85 other tenants.

56.    At the time that the write-off or write-offs were approved, the Respondent:

(a)    was a director and chairperson of the Corporation; and

(b)    she should have known that the write-off or write-offs were not in the best interests of the Corporation given its poor financial position.

57.    By permitting the write-off or write-offs to be made, the Respondent:

(a)    acted in a manner that was inconsistent with how an ordinary person of ordinary prudence with the knowledge and experience of the Respondent might be expected to have acted in all the circumstances at the relevant time if she was acting on her own behalf;

(b)    failed to exercise her powers and discharge her duties in good faith in the best interests of the Corporation;

(c)    failed to exercise her powers for a proper purpose; and

(d)    caused detriment to the Corporation.

Contracting with a related-party

58.    On 20 August 2009, at a meeting of the Corporation’s directors, at which the Respondent was present, the meeting approved the sale of the Corporation’s property at 34 Brett Avenue, Mt Isa, Queensland (the Property) to the Respondent and her husband for an amount of $248,000. The sale did not proceed at that time.

59.    However, subsequently, on 8 October 2012, the Respondent signed a contract for the purchase of the property for $248,000, which was well below the market value of around $300,000.

60.    On 20 August 2009 the Corporation had eight directors, including the Respondent. Clause 5.17 of the 2009 Rule Book required a majority of directors to be present at a meeting to form a valid quorum.

61.    The Respondent did not submit any declaration of interest in relation to the resolution to sell the Property to her and her husband.

62.    On 20 August 2009, the Respondent filed an affidavit in Federal Court proceeding QUD 170 of 2009, in which she deposed that she was aware that the Property had a value of $290,000 as at 19 August 2009.

63.    On 19 October 2012 the special administrator terminated the sale of the Property to the Respondent and her husband. In March 2013 the special administrator sold the Property to an arms lengths purchaser for $340,000.

64.    At the time that the decision to sell the Property was made, the Respondent knew that the decision had not been approved:

(a)    at a meeting of directors where a quorum of directors was present in accordance with clause 5.17 of the 2009 Rule Book; and

(b)    by a majority of directors in accordance with clause 5.20 of the 2009 Rule Book.

65.    Further, at the time that the Respondent caused or permitted the Corporation to sell the Property to her and her husband for $248,000, she should have known that the decision to sell the Property:

(a)    was a related-party benefit and required approval of the members in accordance with clause 5.15 of the 2009 Rule Book and s. 284-1 of the CATSI Act;

(b)     meant the Property would be sold for less than market value and would provide a benefit to herself and her husband and cause a financial detriment to the Corporation; and

(c)    was not in the best interests of the Corporation.

66.    By causing or permitting the Corporation to sell the Property to her, which was made without the proper authority of the directors, the Respondent:

(a)    acted in a manner that was inconsistent with how an ordinary person of ordinary prudence with the knowledge and experience of the Respondent might be expected to have acted in all the circumstances at the relevant time if she was acting on her own behalf;

(b)    failed to exercise her powers and discharge her duties in good faith in the best interests of the Corporation;

(c)    failed to exercise her powers for a proper purpose;

(d)    improperly used her position to gain an advantage for herself;

(e)    caused detriment to the Corporation; and

(f)    acted contrary to the 2009 Rule Book.

Financial Detriment to the Corporation

67.    The total amount of the Payments to the Respondent was $8,220.17. The Respondent also received the benefit of a write-off of her rental arrears in the amount of $23,194.00. The total amount of these financial benefits was $31,414.17.

68.    In addition, as at 31 January 2013, had rental been charged on the rental properties of the Corporation at 75% of market rent, $145,546.00 would have been available to the Corporation to pay the debts of the Corporation and for maintenance and improvement to the Corporation’s properties each year.

69.    Accordingly, a total amount of $176,960.17 was not available to the Corporation to pursue its charitable purposes, being:

(a)    to provide financial support services to Aboriginal and Torres Strait Islander people;

(b)    to develop a range of community support services for Aboriginal and Torres Strait Islander people;

(c)    to create unity in the community between existing Aboriginal and Torres Strait Islander organisations;

(d)    to promote dignity and identity through self-help;

(e)    to promote a sense of co-operation between Commonwealth departments and Aboriginal and Torres Strait Islander organisations within the community;

(f)    to acquire, hold and dispose of real and personal property to further the attainment of the above objects or any of them; and

(g)    to raise or obtain by grant or loan, funds to further the attainment of the above objects or any of them.

70.    The special administrator was required to sell four of the Corporation’s properties (developed and vacant land) to pay all of the debts of the Corporation. These properties were therefore not available to provide existing or future affordable accommodation to Aboriginal and Torres Strait Islander people in Mt Isa.

71.    The Respondent's conduct referred to in paragraphs 65 to 66 above therefore caused financial detriment to the Corporation in that the Respondent caused the Corporation to expend money and incur liabilities which were not in:

(a)    the best interests of the Corporation; or

(b)     furtherance of the Corporation's objectives.

Contravention of civil penalty provisions

72.    The conduct set out above has:

(a)    materially prejudiced the interests of the Corporation or the interests of its members;

(b)    materially prejudiced the ability of the Corporation to pay its creditors.

73.     The Corporation’s funds were used to confer substantial financial benefits on the Respondent, to the detriment of the fulfilment of the objectives of the Corporation and the intended purposes for which the public funding from the Commonwealth of Australian was provided to the Corporation to purchase the Corporation’s properties.