FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v McDermott, in the matter of Conalpin Pty Ltd (in liq) [2016] FCA 1186

ORDERS

UPON THE DEFENDANT BY HIS COUNSEL UNDERTAKING TO THE COURT THAT:

A.    The defendant will arrange a peer review of 10 of the administrations referred to in Part 1 and Part 2 of Schedule 2 to this order as follows:

(i)    the 10 administrations to be reviewed will be selected by ASIC and notified to the defendant in writing before the period referred to in (ii) below;

(ii)    the review will be undertaken in no less than 6 and no more than 12 months after the date of this order;

(iii)    the review will be undertaken by John Richard Morrow or such other registered liquidator or liquidators with experience in court ordered and creditors’ voluntary liquidations and voluntary administrations who is approved by ASIC;

(iv)    the reviewer will be asked to provide a written report (including a section identifying any matters of concern) to ASIC and the defendant;

(v)    upon receipt of the written report, the defendant will endeavour to address any matters of concern raised in the reviewer’s written report;

(vi)    if the reviewer has not raised in his written report any matters of concern or if, having raised any matters of concern, the defendant has addressed the matters of concern to the reviewer’s reasonable satisfaction, the reviewer will forthwith provide to the defendant and ASIC a letter confirming that reviewer is so satisfied (Letter of Satisfaction); and

(vii)    the cost of the review will be borne by the defendant.

B.    The defendant will endeavour to complete successfully the ARITA Advanced Certification Course.

C.    If the defendant has not within three months of the date of this order convened a meeting of any of the companies in Part 3 of Schedule 2 to this order as required by section 509 of the Corporations Act 2001 (Cth) (Act), the defendant will within 7 days thereafter make application to the court pursuant to the liberty to apply reserved below to cause John Stuart Potts or such other registered liquidator approved by ASIC, to be appointed as joint and several liquidator with the defendant of that company or those companies.

THE COURT ORDERS BY CONSENT THAT:

1.    Pursuant to section 536 of the Act, there be an inquiry by the Court into the conduct of the defendant as registered liquidator, by inquiring into the conduct of the defendant as liquidator, voluntary administrator or administrator of deed of company arrangement (as the case may be) of the companies listed in Schedule 1 to this order, which inquiry is taken to have occurred by the filing by the parties of affidavits and a statement of agreed facts and by the making of submissions in this proceeding.

2.    Subject to order 3 below, pursuant to sections 447E and 536 of the Act, the defendant be prohibited from accepting new appointments as a controller, liquidator or administrator (all within the meaning of the Act) of a company until the last to occur of:

(i)    the third anniversary of this order;

(ii)    the provision of the Letter of Satisfaction as referred to in paragraph A(vi) of the defendant’s undertakings set out above; and

(iii)    the successful completion by the defendant of the ARITA Advanced Certification course referred to in paragraph B of the defendant’s undertakings set out above.

3.    Notwithstanding order 2 above, the defendant may continue to accept appointments as liquidator for the purposes of a members’ voluntary liquidation of a proprietary company (within the meaning of the Act). For the avoidance of doubt, if at any time a members’ voluntary liquidation in which the defendant is acting becomes a creditors’ voluntary liquidation during the period set by order 2 above, the defendant must forthwith resign from that liquidation.

4.    On the last to occur of the events referred to in order 2 of this order, the defendant may accept appointments as controller, liquidator or administrator (all within the meaning of the Act) of a company without further court order.

5.    Pursuant to section 503 of the Act, Ross John McDermott be and is hereby removed as liquidator of each of the companies referred to in Part 1 of Schedule 2 to this order and John Stuart Potts and Ross John McDermott (whose written consents to appointment have been placed on the court file) be and are hereby appointed jointly and severally as liquidators of each of the companies referred to in Part 1 of Schedule 2 to this order.

6.    Pursuant to section 503 of the Act, Ross John McDermott be and is hereby removed as liquidator of Total Elevators Service Pty Ltd (ACN 121 507 426) and Fontana Property Group Pty Ltd (ACN 102 756 178) and John Stuart Potts (whose written consent to appointment has been placed on the court file) be and is hereby appointed as liquidator of Total Elevators Service Pty Ltd (ACN 121 507 426) and Fontana Property Group Pty Ltd (ACN 102 756 178).

7.    Pursuant to section 447A of the Act, Part 5.3A of the Act is to operate in relation to the company referred to in Part 2 of Schedule 2 to this order as if it empowered the Court to appoint an additional administrator of the deed of company arrangement of the company to act as administrator jointly and severally with the incumbent administrator.

8.    Pursuant to Part 5.3A of the Act as it applies by virtue of order 7 above, John Stuart Potts (whose written consent to appointment has been placed on the court file) be and is hereby appointed jointly and severally with Ross John McDermott as deed administrator of the company referred to in Part 2 of Schedule 2 to this order.

9.    The defendant pay ASIC’s costs of the proceeding fixed in the amount of $10,000, to be paid within 180 days of the date of this order.

10.    The proceeding is otherwise dismissed.

11.    Liberty to apply is preserved to both parties, on five business days’ notice to the other party:

(i)    in relation to any matters arising in relation to the operation and implementation of orders 2 to 8 of this order; and

(ii)    for the purposes of making further orders pursuant to sections 502 or 503 of the Act as the Court considers appropriate, if the defendant has not within three months of the date of this order convened a meeting of any of the companies in Part 3 of Schedule 2 to this order, as required by section 509 of the Act.

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

SCHEDULE 1: COMPANIES

PART A COMPANIES: Voluntary Liquidation

1.    Conalpin Pty Ltd ACN 064 718 298 (Conalpin) (Strike Off)

2.    Dolmear Pty Ltd ACN 069 052 455 (Dolmear) (Strike Off)

3.    Rapid Glass Solutions Pty Ltd ACN 132 764 240 (Rapid) (Deregistered)

4.    Total Elevators Service Pty Ltd ACN 121 507 426 (TE Service)

PART B COMPANIES: Voluntary Administration & Voluntary Liquidation

5.    Interactive Projects (VIC) Pty Ltd ACN 070 292 509 (Interactive) (Deregistered)

6.    Altaus Pty Ltd ACN 125 461 958 (Altaus) (Deregistered)

7.    A.C.N. 105 438 926 Pty Ltd ACN 105 438 926, formerly known as Speedfloor Australia Pty Ltd (Speedfloor) (Deregistered)

8.    Hart Empire Pty Ltd ACN 118 125 198 (Hart) (Deregistered)

9.    Machunt Pty Ltd ACN 083 214 340 (Machunt) (Deregistered)

10.    Megavend Pty Ltd ACN 124 853 694 (Megavend) (Deregistered)

11.    Raft Technologies Pty Ltd ACN 110 414 134 (Raft) (Deregistered)

12.    Northview Custom Build Pty Ltd ACN 142 477 236 (Northview)

13.    Pixel Property One Pty Ltd ACN 131 623 231 (Pixel)

PART C COMPANIES: Voluntary Administration & DOCA

14.    Trackerjack Pty Ltd Australasia Pty Ltd ACN 091 648 618 (Trackerjack)

15.    Tegman Pty Ltd ACN 139 630 336 (Tegman) (Strike Off)

16.    Limos Online Australia Pty Ltd ACN 101 677 132 (Limos)

17.    Rizzo Constructions Pty Ltd ACN 091 162 051 (Rizzo)

18.    Hooked-On Constructions Pty Ltd ACN 104 880 828 (Hooked) (DOCA ceased)

19.    Rock Flat Valley Pty Ltd ACN 065 327 559 (Rock) (DOCA ceased)

20.    Procus West Pty Ltd ACN 059 852 452 (Procus) (DOCA ceased)

PART D COMPANIES: Voluntary Administration, DOCA & Voluntary Liquidation

21.    Fontana Property Group Pty Ltd ACN 102 756 178 (Fontana)

22.    TSM Selection Pty Ltd ACN 099 151 765 (TSM Selection)

23.    Dancol Constructions Pty Ltd ACN 100 756 938 (Dancol)

24.    Stoneleighton Developments Pty Ltd ACN 110 525 794 (Stoneleighton)

25.    New Point Properties Pty Ltd ACN 123 070 164 (New Point)

26.    Lefkas Builders Pty Ltd ACN 007 169 002 (Lefkas) (Deregistered)

SCHEDULE 2: JOINT AND SEVERAL APPOINTEES

REASONS FOR JUDGMENT

MOSHINSKY J:

Introduction

1    By an originating process dated 15 December 2015, the plaintiff (ASIC) commenced a proceeding under ss 447E, 449B, 449D, 503 and 536 of the Corporations Act 2001 (Cth) (Corporations Act) concerning the conduct of the defendant in connection with the performance of his duties as:

(a)    registered liquidator of the companies listed in Part A of the schedule to the originating process (the Schedule);

(b)    voluntary administrator and registered liquidator of the companies listed in Part B of the Schedule;

(c)    voluntary administrator and deed administrator of the companies listed in Part C of the Schedule; and

(d)    voluntary administrator and deed administrator of the companies listed in Part D of the Schedule.

2    The Schedule to the originating process listed the following companies:

PART A COMPANIES: Voluntary Liquidation

1.    Conalpin Pty Ltd ACN 064 718 298 (Conalpin) (Strike Off)

2.    Dolmear Pty Ltd ACN 069 052 455 (Dolmear) (Strike Off)

3.    Rapid Glass Solutions Pty Ltd ACN 132 764 240 (Rapid) (Deregistered)

4.    Total Elevators Service Pty Ltd ACN 121 507 426 (TE Service)

PART B COMPANIES: Voluntary Administration & Voluntary Liquidation

5.    Interactive Projects (VIC) Pty Ltd ACN 070 292 509 (Interactive) (Deregistered)

6.    Altaus Pty Ltd ACN 125 461 958 (Altaus) (Deregistered)

7.    A.C.N. 105 438 926 Pty Ltd ACN 105 438 926, formerly known as Speedfloor Australia Pty Ltd (Speedfloor) (Deregistered)

8.    Hart Empire Pty Ltd ACN 118 125 198 (Hart) (Deregistered)

9.    Machunt Pty Ltd ACN 083 214 340 (Machunt) (Deregistered)

10.    Megavend Pty Ltd ACN 124 853 694 (Megavend) (Deregistered)

11.    Raft Technologies Pty Ltd ACN 110 414 134 (Raft) (Deregistered)

12.    Northview Custom Build Pty Ltd ACN 142 477 236 (Northview)

13.    Pixel Property One Pty Ltd ACN 131 623 231 (Pixel)

PART C COMPANIES: Voluntary Administration & DOCA

14.    Trackerjack Pty Ltd Australasia Pty Ltd ACN 091 648 618 (Trackerjack)

15.    Tegman Pty Ltd ACN 139 630 336 (Tegman) (Strike Off)

16.    Limos Online Australia Pty Ltd ACN 101 677 132 (Limos)

17.    Rizzo Constructions Pty Ltd ACN 091 162 051 (Rizzo)

18.    Hooked-On Constructions Pty Ltd ACN 104 880 828 (Hooked) (DOCA ceased)

19.    Rock Flat Valley Pty Ltd ACN 065 327 559 (Rock) (DOCA ceased)

20.    Procus West Pty Ltd ACN 059 852 452 (Procus) (DOCA ceased)

PART D COMPANIES: Voluntary Administration, DOCA & Voluntary Liquidation

21.    Fontana Property Group Pty Ltd ACN 102 756 178 (Fontana)

22.    TSM Selection Pty Ltd ACN 099 151 765 (TSM Selection)

23.    Dancol Constructions Pty Ltd ACN 100 756 938 (Dancol)

24.    Stoneleighton Developments Pty Ltd ACN 110 525 794 (Stoneleighton)

25.    New Point Properties Pty Ltd ACN 123 070 164 (New Point)

26.    Lefkas Builders Pty Ltd ACN 007 169 002 (Lefkas) (Deregistered)

3    The relief sought in the originating process was, in summary, as follows:

(a)    that there be inquiries by the Court pursuant to s 447E or 536 (as applicable) of the Corporations Act into the conduct of the defendant:

(i)    as registered liquidator of the companies listed in Part A of the Schedule;

(ii)    as voluntary administrator and registered liquidator of the companies listed in Part B of the Schedule;

(iii)    as voluntary administrator and deed administrator of the companies listed in Part C of the Schedule; and

(iv)    as voluntary administrator, deed administrator and registered liquidator of the companies listed in Part D of the Schedule;

(b)    the defendant be prohibited from holding the office of liquidator, provisional liquidator, voluntary administrator and/or deed administrator, for such period as the Court considers appropriate;

(c)    at the conclusion of the inquiries referred to in (a)(i) above, orders pursuant to ss 503 and 536 of the Corporations Act that:

(i)    the defendant be removed as the liquidator of the companies listed in Part A of the Schedule where the liquidation of the company is ongoing;

(ii)    an official liquidator or liquidators nominated by ASIC be appointed as liquidator or liquidators of the said companies where the liquidation of the company is ongoing;

(iii)    the defendant make provision for the orderly hand over of the relevant liquidation;

(d)    at the conclusion of the inquiries referred to in (a)(ii) above, orders pursuant to ss 503 and 536 that:

(i)    the defendant be removed as the liquidator of the companies listed in Part B of the Schedule where the liquidation of the company is ongoing;

(ii)    an official liquidator or liquidators nominated by ASIC be appointed as liquidator or liquidators of the said companies where the liquidation of the company is ongoing;

(iii)    the defendant make provision for the orderly hand over of the relevant liquidation;

(e)    at the conclusion of the inquiries referred to in (a)(iii) above, orders pursuant to ss 449B, 449D and 536 that:

(i)    the defendant be removed as the deed administrator of each of the companies listed in Part C of the Schedule where the deed of company arrangement (DOCA) is ongoing;

(ii)    an official liquidator or liquidators nominated by ASIC be appointed as the deed administrator or administrators of each of the companies listed in Part C where the DOCA is ongoing;

(iii)    the defendant make provision for the orderly hand over of the relevant DOCAs to the new deed administrator;

(f)    at the conclusion of the inquiries referred to in (a)(iv) above, orders pursuant to ss 503 and 536 that:

(i)    the defendant be removed as the liquidator of the companies listed in Part D of the Schedule where the liquidation of the company is ongoing;

(ii)    an official liquidator or liquidators nominated by ASIC be appointed as liquidator or liquidators of the said companies where the liquidation of the company is ongoing;

(iii)    the defendant make provision for the orderly hand over of the relevant liquidation.

4    The application by ASIC was supported by an affidavit of Ms Donna Spinks sworn 15 December 2015. Subsequently, affidavits were filed by the defendant, including affidavits of the defendant sworn on 21 and 24 March 2016. Further affidavits were filed by both parties.

5    ASIC and the defendant have reached an agreement to settle this matter on the terms set out in minutes of proposed consent orders provided to the Court today (Minutes of Proposed Consent Orders).

6    The parties have prepared a statement of agreed facts (Statement of Agreed Facts) which provides the factual basis for the proposed consent orders. A copy of the statement is annexed to these reasons. I am satisfied that the agreed facts are sufficient for the Court to determine the appropriate relief to grant in the proceeding, and provide a sound and proper basis upon which to determine whether to hold an inquiry into the defendant’s relevant conduct and for the conduct of that inquiry and for the making of orders consequent upon that inquiry: see Australian Securities and Investments Commission v Newcrest Mining Ltd (2014) 101 ACSR 46 at [10] per Middleton J and the cases there cited.

7    The parties have provided an outline of joint submissions in support of the proposed consent orders and made oral submissions in support of the proposed consent orders at the hearing today.

8    For the reasons that follow, I am prepared to make orders substantially in the terms of the Minutes of Proposed Consent Orders.

Applicable principles

9    Section 536 of the Corporations Act provides for the Court to inquire into the conduct of a liquidator in connection with the performance of his or her duties, functions and powers, and to take such action as the Court thinks fit.

10    Section 536 provides as follows:

(1A)    In this section: liquidator includes a provisional liquidator.

(1)    Where:

(a)    it appears to the Court or to ASIC that a liquidator has not faithfully performed or is not faithfully performing his or her duties or has not observed or is not observing:

(i)    a requirement of the Court; or

(ii)    a requirement of this Act, of the regulations or of the rules; or

(b)    a complaint is made to the Court or to ASIC by any person with respect to the conduct of a liquidator in connection with the performance of his or her duties;

the Court or ASIC, as the case may be, may inquire into the matter and, where the Court or ASIC so inquires, the Court may take such action as it thinks fit.

(2)    ASIC may report to the Court any matter that in its opinion is a misfeasance, neglect or omission on the part of the liquidator and the Court may order the liquidator to make good any loss that the estate of the company has sustained thereby and may make such other order or orders as it thinks fit.

(3)    The Court may at any time require a liquidator to answer any inquiry in relation to the winding up and may examine the liquidator or any other person on oath concerning the winding up and may direct an investigation to be made of the books of the liquidator.

11    Section 536 grants the Court a “broadly expressed supervisory jurisdiction over the conduct of persons in control of the affairs of a corporation, in circumstances where normal market forces and the exercise by shareholders of their rights to control are attenuated or non-existent”: Hall v Poolman (2009) 75 NSWLR 99 at [53]. The power conferred by the section is not to be narrowly construed or confined by fine distinctions: Hall v Poolman at [54]. And the threshold precondition for the investigation of an inquiry should not be a very high one: Australian Securities and Investments Commission v Edge (2007) 211 FLR 137 at [69] per Dodds-Streeton J.

12    While the Court is entitled to be satisfied that all available and admissible material is before it, it is not equipped to “arrange the presentation of evidence, to investigate its availability to effect the calling of witnesses”: Commissioner for Corporate Affairs v Harvey [1980] VR 669 at 687 per Marks J; Edge at [77]. It has therefore been held to be appropriate that in a s 536 inquiry, the corporate regulator should assist the Court with these matters as the representative of the public interest: Edge at [77].

13    Section 447E relates to the administrator of a company under administration or of a deed of company arrangement. It is in the following terms:

(1)    Where the Court is satisfied that the administrator of a company under administration, or of a deed of company arrangement:

(a)     has managed, or is managing, the company’s business, property or affairs in a way that is prejudicial to the interests of some or all of the company’s creditors or members; or

(b)     has done an act, or made an omission, or proposes to do an act, or to make an omission, that is or would be prejudicial to such interests;

the Court may make such order as it thinks just.

(2)    Where the Court is satisfied that:

(a)     a company is under administration but:

(i)     there is a vacancy in the office of administrator of the company; or

(ii)     no administrator of the company is acting; or

(b)     a deed of company arrangement has not yet terminated but:

(i)     there is a vacancy in the office of administrator of the deed; or

(ii)     no administrator of the deed is acting;

the Court may make such order as it thinks just.

(3)    An order may only be made on the application of ASIC or of a creditor or member of the company.

14    While the scope and operation of the Court’s power under s 536 is well established, the position in relation to s 447E is less clear. In Edge, Dodds-Streeton J considered a challenge to the Court’s power to make inquiry into the defendant’s conduct as an administrator or deed administrator under s 447E, on the ground that no prejudicial or potentially prejudicial conduct had been demonstrated in relation to the relevant companies. Her Honour noted that while such conduct is a precondition to the making an order under s 447E(1), it is not a precondition to the Court determining the existence of such conduct, on an application under s 447E(3): see [97]. Her Honour said (at [97]):

Section 447E(3) provides for an application by ASIC, a creditor or a member, and contemplates that allegations of prejudicial or potentially prejudicial conduct may be made. As Marks J observed in Harvey, an inquiry under s 536 largely retains the adversarial character of common law litigation and, in the present case at least, the procedure adopted for the inquiry is equally appropriate for a determination under s 447E.

15    Further, her Honour accepted a submission on behalf of ASIC that the Court is empowered to inquire into the liquidator’s relevant conduct as an administrator, as an incident of the Court’s inquiry under s 536: see at [98].

16    After the Court has determined to order an inquiry, the task of the Court is to make a judgment about the liquidator’s conduct. If the Court decides the liquidator’s conduct is deficient in some way, the Court must decide whether to make any order.

17    The Court’s power to make orders is expressed broadly as to “take such action as it thinks fit” (s 536) or to “make such order as it thinks just” (s 447E). The power has been held to extend to orders cancelling a liquidator’s registration for a specified period including orders to ensure a person does not act as a liquidator for a specified period: Edge at [613]. Further, s 447A gives the Court the power to “make such order as it thinks appropriate about how this Part is to operate in relation to a particular company”. This section has been construed widely by the Courts (see Australasian Memory Pty Limited v Brien (2000) 200 CLR 270) and continues to apply where a company subject to the voluntary administration process under Pt 5.3A is subsequently wound up: Gibbons v LibertyOne (2002) 167 FLR 310.

18    The role of a liquidator of a company essentially involves (see Edge at [40]-[42]):

(a)    realising the company’s assets;

(b)    investigating and examining the circumstances which precipitated the liquidation and which may reveal improper dispositions of property and criminal offences; and

(c)    distributing the company’s assets among its creditors according to the legislative scheme.

19    A principal task of the liquidator of an insolvent company is to protect the interests of the unsecured creditors.

20    In Re Contract Corporation (Gooch’s Case) (1871) LR 7 Ch App 207, James LJ (at 211) provided a broad summary of the role of a liquidator:

In truth, it is of the utmost importance that the liquidator should, as the officer of the Court, maintain an even and impartial hand between all the individuals whose interests are involved in the winding-up. … It is his duty to the whole body of shareholders, and to the whole body of creditors, and to the Court, to make himself thoroughly acquainted with the affairs of the company; and to suppress nothing, and to conceal nothing, which has come to his knowledge in the course of his investigation, which is material to ascertain the exact truth in every case before the Court.

21    In Edge, Dodds-Streeton J said (at [44]):

The extensive powers vested exclusively in the liquidator entail a corresponding vulnerability in the creditors, members and the public. The liquidator is a fiduciary on whom high standards of honesty, impartiality and probity are imposed both by the Act and the general law. As an officer of the company, the liquidator has a statutory duty of care, diligence and good faith.

22    The role of voluntary administrator is essentially to investigate the affairs of the company and form an opinion as to whether it would be in the interests of the company’s creditors for the company to execute a deed of company arrangement; for the administration to end; or for the company to be wound up. In preparing their report to creditors under s 439A, administrators must give their opinion as to which of these three options is in the creditors’ best interests, together with reasons for that opinion. Section 25.6.4 of the 2011 IPA Code (described below) additionally requires that the report under s 439A includes the estimated return to creditors from a winding up of the company; the effect of related party creditor claims on the estimated return; likely timing of the return to creditors from a winding up of the company; the basis on which remuneration will be sought by the liquidator if the company is placed into liquidation and the administrator is appointed liquidator; and an estimate of the likely costs of administering the winding up of the company. Where a deed is proposed, the report should include a table providing creditors with a direct comparison of the estimated returns and costs in a liquidation and under the deed.

23    Administrators owe a duty not to the creditors or members of a company but to the company itself: Hausmann v Smith (2006) 24 ACLC 688.

24    Insolvency practitioners are subject to standards imposed by:

(a)    Pt 2D.1 of the Corporations Act as an officer of a corporation;

(b)    equitable principles applicable to fiduciaries, including a duty to avoid conflicts of interest; and

(c)    industry codes.

25    A liquidator is appointed and paid to exercise a particular professional skill, and a high standard of care and diligence is required in the performance of duties: In re Windsor Steam Coal Company (1901), Limited [1929] 1 Ch 151 at 165; In re Home & Colonial Insurance Company, Limited [1930] 1 Ch 102 at 125; Pace v Antlers Pty Ltd (in liq) (1998) 80 FCR 485 at 499; Edge at [46]. Since liquidators are included in the statutory definition of “officer” in s 9, they are subject to the statutory duty of care and diligence under s 180 of the Corporations Act.

26    In Pace v Antlers Pty Ltd (in liq), Lindgren J stated (at 499):

In my view, a liquidator must exhibit care (including diligence) and skill to an extent that is reasonable in all the circumstances. “All the circumstances” will include the facts that a liquidator is a person practising a profession, that a liquidator holds himself or herself out as having special qualifications, training and experience pertinent to the liquidator’s role and function, and that a liquidator is paid for liquidation work. “All the circumstances” will also include the fact that some decisions and courses of action which a liquidator is called upon to consider will be of a business or commercial character, as to which competent liquidators, acting with due care, but always without the benefit of hindsight, may have differences of opinion.

27    Both Chartered Accountants Australia & New Zealand (formerly the Institute of Chartered Accountants in Australia or ICAA) (CAANZ) and the Australian Restructuring, Insolvency and Turnaround Association (formerly Insolvency Practitioners Association of Australia or IPA) (ARITA) have published standards of conduct for insolvency practitioners: see Professional Standard APES 330 Insolvency Services by the Accounting Professional & Ethical Standards Board of the ICAA (APES 330); the Code of Professional Practice of the IPA, operative from 31 December 2007 to 31 December 2010 (2008 IPA Code); and the Code of Professional Practice of the IPA, operative from 1 January 2011 (2011 IPA Code).

28    In Australian Securities and Investments Commission v Dunner (2013) 303 ALR 98 at [32], Middleton J cited Re Monarch Gold Mining Co Ltd; Ex parte Hughes [2008] WASC 201 at [37]-[40], where Master Sanderson stated:

37     A code of conduct such as this has no legal status. That is to say, a failure to comply with the terms of the code would not render a practitioner liable for prosecution under the Corporations Act or any other statute. It may lead to disciplinary proceedings by the Insolvency Practitioners Association but that is a different issue ...

38     But the importance of codes such as this is not to be underestimated. Administrators and insolvency practitioners generally are said to act under the supervision of the court. That is right; but the court’s ability to supervise an insolvency practitioner is, in a very real and practical sense, limited. In this day and age, insolvency practice is highly specialised and administrations or liquidations are frequently extremely complex. While it is doubtless comforting to stakeholders that courts have a supervisory role, comfort can also be drawn from the fact that ASIC play a role and that insolvency practitioners are adhering to a detailed code of conduct. This case provides a good example of the importance of the role of ASIC and the importance of the code of conduct.

…

40     It is also important that the administrators paid close attention to their obligations under the code of practice. It shows that the code is something more than a public relations exercise designed to assuage the concerns of those involved with insolvency practitioners. That being so, it seems to me that it is appropriate to make the directions sought. It emphasises the importance to be attached to adherence to the code. It must necessarily add to the status of the code and assure the public generally that the courts regard adherence to its terms as a matter of utmost importance.

29    Section 473(3) of the Corporations Act provides that a liquidator is entitled to receive such remuneration as is determined (where there is no committee of inspection) by resolution of the creditors or by the Court.

30    Section 16.3 of the 2011 IPA Code states that:

If a Practitioner becomes aware that fees have been improperly taken, because, for example, the correct process has not been followed, the Practitioner must immediately repay the amount in question into the Administration account.

Remuneration may then only be redrawn on approval being obtained and an explanation as to why the fees were improperly taken must be provided to creditors at that time …

31    Paragraph 8.14 of APES 330 states that:

A Member in Public Practice shall only draw Professional Fees once the proper resolution, order, or authority has been obtained from the Approving Body and in accordance with the terms of approval.

32    Following the decision in Barbaro v The Queen (2014) 253 CLR 58, there was a question about the appropriateness of courts accepting joint submissions on penalty. However, this matter has now been settled by the High Court in Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 326 ALR 476, where the High Court affirmed that, in civil penalty proceedings, a regulatory authority and a defendant could make, and the Court could entertain, submissions on the appropriate penalty. The High Court confirmed that, in considering whether to make orders as to penalty proposed by the parties, the Court has regard to the public interest, which includes the recognition of the benefit of the settlement of enforcement proceedings. French CJ, Kiefel, Bell, Nettle and Gordon JJ said (at [59]):

It is true that there is a public interest in the imposition of civil penalties as opposed to the purely private interests which are in issue in many civil proceedings. But civil penalty proceedings are by no means the only civil proceedings in which the public interest is involved. Custody disputes involve the public interest. So do group proceedings and schemes of arrangement. So also do taxation, customs and social security appeals, and detention orders; and examples can be multiplied. Yet in each of those cases, it is wholly unexceptionable for a court to accept an agreed submission as to the nature and quantum of relief, provided the court is persuaded that it is an appropriate remedy. Once it is understood that civil penalties are not retributive, but like most other civil remedies essentially deterrent or compensatory and therefore protective, there is nothing odd or exceptionable about a court approving an agreed settlement of a civil proceeding which involves the public interest; provided of course that the court is persuaded that the settlement is appropriate.

33    The Court has regard to the appropriateness of the penalty, including whether the penalty agreed upon by the parties is within an appropriate range. The Court has to satisfy itself that the submitted penalty is appropriate while acknowledging that, uninformed by the agreed penalty submission, the Court might have selected a different figure. It is not necessary for the Court to come to the view that the Court would itself have imposed the same penalties: Australian Securities and Investments Commission, in the matter of Padbury Mining Limited v Padbury Mining Limited [2016] FCA 990 at [65] per Siopis J.

Background facts

Mr McDermott’s background

34    Mr McDermott has been practising in insolvency for at least 22 years. Mr McDermott has been continuously registered as a liquidator pursuant to s 1282 of the Corporations Act (and predecessor provisions) since 24 January 1994. He is not registered as an official liquidator under s 1283.

35    Mr McDermott is a member of the following professional bodies:

(a)    CAANZ, having become a member in 1989; and

(b)    ARITA, having become a member in 1995.

36    Mr McDermott has been in sole practice since 1994, practising under the name Ross McDermott Chartered Accountant.

Summary of ASIC’s concerns

37    ASIC complains about the performance by Mr McDermott of his duties and powers as voluntary administrator, deed administrator and liquidator of the companies the subject of inquiry.

38    A detailed summary of ASIC’s concerns and the facts giving rise to them is set out in the Statement of Agreed Facts. The conduct of concern can be summarised as broadly falling within the following four categories.

(a)    First, Mr McDermott’s relationship with his appointer or referrer influenced his conduct in external administrations giving rise to a concern that Mr McDermott failed to act independently, free of actual, apparent or potential conflicts of interest or with the appropriate degree of care and diligence required of a registered liquidator. ASIC observed this conduct in five external administrations, identified in [10] of the Statement of Agreed Facts.

(b)    Second, Mr McDermott accepted appointments in external administrations in circumstances where, due to a prior or an existing appointment to a related entity, he was in a position of actual or potential conflict of interest, giving rise to a concern that he failed to act with the appropriate degree of care and diligence required of a registered liquidator. ASIC observed this conduct in three external administrations, identified in [11] of the Statement of Agreed Facts.

(c)    Third, Mr McDermott failed to lodge with ASIC a report of suspected offences by officers or former officers of companies to which he was appointed, either in a timely manner or at all. ASIC observed this conduct in four external administrations, identified in [12] of the Statement of Agreed Facts.

(d)    Fourth, Mr McDermott failed to properly inform creditors of the basis for remuneration he was claiming and drew down that remuneration without properly informed creditor approval or, alternatively, Court approval. Further, despite being aware of the inadequacy of such approvals as had been obtained, Mr McDermott failed to repay the remuneration which he had drawn down. ASIC observed this conduct in 21 external administrations and the conduct is described at [145]-[161] and [171]-[174] of the Statement of Agreed Facts.

39    However, ASIC does not suggest that Mr McDermott’s conduct in any of these four categories was dishonest.

Agreed Facts

40    The agreed facts in relation to these concerns are set out in the Statement of Agreed Facts. It is unnecessary to set them out here. The Statement of Agreed Facts is annexed to these reasons and should be treated as forming part of these reasons. I note that in [175] of the Statement of Agreed Facts, Mr McDermott admits that his conduct described in the statement (in particular, but not limited to, the concerns regarding independence) constitutes a “serious failure by him to faithfully perform his duties and observe the requirements of the [Corporations Act], the regulations or the rules”. That paragraph also states that, having reflected on the matters raised by ASIC in this proceeding, he better understands the importance of maintaining high standards of integrity and professionalism in all his activities as a registered liquidator (including as voluntary administrator and deed administrator) and accepts that his failure to do so as set out in the Statement of Agreed Facts undermines public confidence in the office of registered liquidator.

Disposition

41    The parties jointly request the Court to exercise its discretion to make the orders set out in the Minutes of Proposed Consent Orders.

Prohibition from accepting new appointments

42    In relation to Mr McDermott’s registration, the parties agree that Mr McDermott may remain registered but that he be prohibited from accepting any new appointments for a period of three years (subject to having completed a satisfactory peer review of his practice and the ARITA Advanced Certification course, to be completed over a minimum of 12 months).

43    Under s 1292(2)(d) of the Corporations Act, the Companies Auditors and Liquidators Disciplinary Board is empowered to cancel or suspend the registration of a liquidator where:

the person has failed, whether in or outside this jurisdiction, to carry out or perform adequately and properly:

(i)    the duties of a liquidator; or

(ii)    any duties or functions required by an Australian law to be carried out or performed by a registered liquidator;

or is otherwise not a fit and proper person to remain registered as a liquidator

44    The jurisdiction created by s 1292 of the Corporations Act is protective of the public and includes an element of general deterrence: see Re Young and Companies Auditors and Liquidators Disciplinary Board (2000) 34 ACSR 425 at [79]-[80] per McMahon DP.

45    The Court too has recognised that withdrawing from the liquidator the entitlement to accept new appointments operates directly to protect the public from the work of that person and generally by deterring other liquidators from acting in a similar fashion: see Dunner at [218] per Middleton J.

46    The parties submit, and I accept, that, while Mr McDermott’s conduct was not dishonest, he failed to carry out and perform adequately and properly his duties as liquidator, and also his duties and functions as administrator and deed administrator; and that each aspect of his conduct is serious and occurred across multiple appointments.

47    The parties submit, and I accept, that, having regard to the conduct set out in the Statement of Agreed Facts, the Court should indicate its disapproval by nominating three years as the period during which Mr McDermott is prohibited from accepting new appointments (except for appointments as liquidator in a members’ voluntary winding up of proprietary companies). The parties submit, and I accept, that the evidence establishes a basis for a period of prohibition, in particular having regard to the following conduct and circumstances:

(a)    Mr McDermott accepted three appointments (Conalpin Pty Ltd, Dolmear Pty Ltd and Total Elevators Service Pty Ltd) when a clear conflict of interest existed;

(b)    in relation to the Peterson family dispute matters (Conalpin Pty Ltd and Dolmear Pty Ltd), Mr McDermott:

(i)    accepted legal advice that he had no conflict when he should have known the lawyer providing the legal advice was also conflicted;

(ii)    did not resign from his appointment in the face of objections from creditors who asserted he had a conflict of interest;

(c)    in his affidavit material filed in this proceeding, Mr McDermott failed to acknowledge the existence of the actual conflict in his appointments, preferring to concede only the “perception of conflict”;

(d)    the systemic and repeated deficiencies in Mr McDermott’s remuneration reports;

(e)    Mr McDermott drew his remuneration on the basis of deficient remuneration reports and did not seek Court approval for (and did not repay) the funds until almost two years after they were drawn;

(f)    Mr McDermott failed to implement the checklists and procedures recommended to him during various training courses that he attended;

(g)    Mr McDermott failed to complete an ongoing practice review conducted by a peer reviewer;

(h)    at its lowest, the evidence indicates a systematic failure of systems and procedures, and, at its highest, it indicates a lack of understanding of, and in some instances a disregard for, the duties and responsibilities of a liquidator.

48    It is appropriate that Mr McDermott be prohibited from accepting new appointments for a not insignificant period, undertake necessary training, implement appropriate practices and procedures and comply with a peer review regime as provided in the consent orders, in order to reflect the seriousness of the conduct, both by reference to protection of the public from further conduct by Mr McDermott, and for general deterrence. In my view, the three year period of prohibition from accepting new appointments proposed by the parties is appropriate.

Joint appointment with Mr John Potts

49    Mr McDermott has a number of current creditors’ voluntary liquidations and one current deed of company arrangement. The parties request that Mr John Potts be appointed as joint liquidator and deed administrator of the companies referred to in Part 1 and Part 2 (respectively) of Schedule 2 to the Minutes of Proposed Consent Orders.

50    There are 14 voluntary liquidations which Mr McDermott expects to be completed within the next three months. Those liquidations are listed in Part 3 of Schedule 2 to the Minutes of Proposed Consent Orders. If Mr McDermott has not convened a meeting of one or more of those companies as required by s 509 of the Corporations Act within three months of the date of the orders, then it is proposed that Mr McDermott be required by his undertaking at paragraph C of the Minutes of Proposed Consent Orders to make application to the Court for orders for effecting the appointment of Mr Potts (or another registered liquidator approved by ASIC) jointly and severally with him to those companies. The Minutes of Proposed Consent Orders include liberty to apply to facilitate that application.

51    The parties submit that the rationale for seeking a joint appointee for ongoing appointments is to ensure that another registered liquidator shares responsibility with Mr McDermott for supervising the proper conduct of the liquidations and the deed of company arrangement. Such an objective is consistent with the protection of the public, as referred to in Dunner at [218].

52    In relation to the companies listed in Part 1 of Schedule 2 to the Minutes of Proposed Consent Orders, the joint appointment is proposed to be effected by an order pursuant to s 503 of the Corporations Act removing Mr McDermott as liquidator and appointing both Mr Potts and Mr McDermott as joint and several liquidators. It is submitted by the parties that, although the facts are not on all fours, the utilisation of s 503 to make such an order is supported by Re Application of Vouris (2004) 49 ACSR 543 at [14]-[16] per Barrett J; Free & Ors [2010] NSWSC 1079 at [21] per Barrett J; and In the matter of MKC Media Corporation Pty Limited (in liq) [2016] NSWSC 690 at [10], [13]-[14] per Black J.

53    In relation to the deed of company arrangement listed in Part 2 of Schedule 2 to the Minutes of Proposed Consent Orders, the joint appointment is proposed to be effected pursuant to s 447A of the Corporations Act. In support of the utilisation of this provision in this way, the parties refer to Vouris at [19]; and Free at [17].

54    I am satisfied that there is power to make the joint appointments on the bases submitted by the parties, as outlined above. I am also satisfied that it is appropriate to do so in the present circumstances, for the reasons submitted by the parties as outlined above.

Further education and peer review

55    Mr McDermott has previously attended continuing education seminars and engaged a peer reviewer for his insolvency practice. However, ASIC is concerned that he failed to apply the material he learned in the seminars and from the peer review. The details of his failure to apply the new material are set out in the Statement of Agreed Facts at [164]-[167].

56    For this reason, the Minutes of Proposed Consent Orders provide that Mr McDermott is prohibited from accepting new appointments for at least three years and until he has:

(a)    successfully completed the year-long ARITA Advanced Certification course; and

(b)    obtained a peer review of his practice and addressed any concerns raised in the review to the reviewer’s reasonable satisfaction.

57    As recorded in the Minutes of Proposed Consent Orders, Mr McDermott will also give undertakings to the Court that he will endeavour to complete the ARITA course and the peer review.

58    I am satisfied that it is appropriate to make the consent orders and accept the undertakings relating to further education and peer review.

Conclusion

59    For these reasons, I will make orders substantially in the terms of the Minutes of Proposed Consent Orders.

Associate:

Dated:    6 October 2016

APPENDIX

STATEMENT OF AGREED FACTS

For the purposes of this proceeding, this Statement of Agreed Facts is made jointly by the Plaintiff (ASIC) and the Defendant (Mr McDermott).

A    PARTIES

1    ASIC is a body corporate:

(a)    established by s 7 of the Australian Securities Commissions Act 1989 (Cth);

(b)    continued by s 261 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act); and

(c)    able to sue in its corporate name by reason of s 8 of the ASIC Act.

2    ASIC commenced this proceeding under, inter alia, s 536 of the Corporations Act 2001 (Cth) (Act) in order to seek a Court inquiry into the conduct of Mr McDermott as registered liquidator.

3    Since 24 January 1994, Mr McDermott has been continuously registered as a liquidator pursuant to s 1282 of the Act. Mr McDermott’s registration number is 67380.

4    Mr McDermott is a member of the following professional bodies:

(a)    the Chartered Accountants Australia & New Zealand (formerly the Institute of Chartered Accountants in Australia or ICAA) (CAANZ); and

(b)    the Australian Restructuring Insolvency & Turnaround Association (formerly Insolvency Practitioners Association of Australia or IPA) (ARITA).

5    Mr McDermott has conducted and continues to conduct his practice as a registered liquidator through the firm Ross Mr McDermott Chartered Accountant. The principal place of practice of Ross Mr McDermott Chartered Accountant is Suite 6, 233 Cardigan Street, Carlton, Victoria, 3053.

6    The Accounting Professional & Ethical Standards Board of the CAANZ has issued professional standards APES110 Code of Ethics for Professional Accountants and APES 330 Insolvency Services. Mr McDermott is required to comply with APES 330 in his practice as registered liquidator.

7    ARITA (formerly the IPA) has published on its website (www.arita.com.au) a Code of Professional Practice. Mr McDermott is required to comply with the Code in his practice as registered liquidator.

B    SUMMARY OF CONDUCT

8    The genesis of this proceeding was a Compliance Review commenced by ASIC in November 2012 (the Compliance Review).

9    Mr McDermott’s conduct the subject of this proceeding can be summarised as broadly falling within the following four categories identified in the Compliance Review.

10    First, Mr McDermott’s relationship with his appointer or referrer influenced Mr McDermott’s conduct in external administrations giving rise to a concern that Mr McDermott failed to act independently, free of actual, apparent or potential conflicts of interest or with the appropriate degree of care and diligence required of a registered liquidator (Independence Concerns). ASIC observed this conduct in five external administrations namely: Rapid Glass Solutions Pty Ltd (Rapid) (14 July 2010 to 2 December 2010), Trackerjack Australasia Pty Ltd (Trackerjack) (from 27 January 2011 to 3 May 2013), Conalpin Pty Ltd (Conalpin) and Dolmear Pty Ltd (Dolmear) (from 16 May 2012 to 1 June 2012), Fontana Property Group Pty Ltd (Fontana) (from 9 May 2012).

11    Second, Mr McDermott accepted appointments in external administrations in circumstances where, due to a prior or existing appointment to a related entity, Mr McDermott was in a position of actual or potential conflict of interest, giving rise to a concern that in accepting each appointment Mr McDermott failed to act with the appropriate degree of care and diligence required of a registered liquidator (Related Entity Conflict of Interest Concerns). ASIC observed this conduct in three external administrations, Total Elevators Service Pty Ltd (24 November 2009), Conalpin and Dolmear.

12    Third, Mr McDermott failed to lodge with ASIC a report of suspected offences by officers or former officers of companies to which he was appointed, either in a timely manner or at all (Report Concerns). ASIC observed this conduct in four external administrations, namely TSM Selection Pty Ltd (27 September 2009), Rapid, Fontana and Tegman Pty Ltd (9 August 2012).

13    Fourth, Mr McDermott failed to properly inform creditors of the basis for remuneration he was claiming and drew down that remuneration without properly informed creditor approval or, alternatively, Court approval. Further, despite being aware of the inadequacy of such approvals as had been obtained, Mr McDermott failed to repay the remuneration which he had drawn down (Remuneration Concerns). ASIC observed this conduct in 21 external administrations as set out below.

14    It is not suggested Mr McDermott’s conduct under any of these four categories was dishonest.

C    INDEPENDENCE AND RELATED ENTITY CONFLICT OF INTEREST

Mr McDermott’s Referrer Relationship with Latham Moore & Associates

15    Several of Mr McDermott's external administration appointments arose from referrals to Mr McDermott by the firm Latham Moore & Associates (Latham Moore), a firm that specialises in distressed debt. As at 29 November 2012, 16 of Mr McDermott’s 64 administrations had been referred to him by Mr Victor Doree (Mr Doree), a Senior Partner at Latham Moore. Mr McDermott was appointed to the Fontana and Rapid administrations by Latham Moore and his conduct in those administrations gave rise to Independence Concerns, as discussed further below.

Peterson Company Administrations: Issues 1 to 5

16    The following four companies were at all times (before Mr McDermott’s appointment to them) controlled by members of the Peterson family: Ringwood Cove Pty Ltd (Ringwood Cove), Trackerjack, Conalpin and Dolmear.

17    Relevant members of the Peterson family were:

(a)    Geoffrey Peterson and his wife Suzanne Peterson; and

(b)    Geoffrey and Suzanne’s son, Paul Peterson, and his wife Natalie Peterson.

18    On 27 January 2011, Geoffrey Peterson appointed Mr McDermott as liquidator of Ringwood Cove and as voluntary administrator of Trackerjack. The appointments were made as a result of a referral from Joseph Bengasino, a partner of WMB Lawyers. Mr Bengasino had acted for members of the Peterson family and their companies.

19    On 31 March 2011, Trackerjack entered into a Deed of Company Arrangement (Trackerjack DOCA) under which Mr McDermott was appointed deed administrator.

20    Under the terms of the Trackerjack DOCA, another Peterson company, Conalpin, assumed a binding obligation to pay all employee obligations of the former Trackerjack company employees and Paul Peterson agreed to contribute six monthly instalments of $10,000 to a fund to be distributed in the priority specified in s 556 of the Act.

21    Between 30 May 2011 and 30 August 2011, Conalpin paid at least $40,000 to Trackerjack in contribution to the Trackerjack DOCA.

22    In late 2011 or early 2012, a dispute arose between Geoffrey and Suzanne Peterson on the one hand, and Peter and Natalie Peterson on the other concerning the ongoing management and control of Conalpin and Dolmear.

23    On 14 May 2012, Mr McDermott received a telephone call from Mr Bengasino. Mr Bengasino was at the time (to the knowledge of Mr McDermott) acting on the instructions of Geoffrey Peterson, including in relation to the family dispute and in relation to his interests in Conalpin and Dolmear. During that telephone conversation Mr Bengasino informed Mr McDermott that Geoffrey Peterson was to be made a director of Conalpin and Dolmear. On that day, Mr McDermott arranged company searches of each of Conalpin and Dolmear, which showed that Paul Peterson was the sole director of each company.

24    On about 15 May 2012, Mr Bengasino came to Mr McDermott’s office. Mr Bengasino told Mr McDermott that Geoffrey Peterson had been appointed a director of Conalpin and that Paul Peterson had resigned. He informed Mr McDermott that Geoffrey Peterson had concerns about the activities of his son Paul Peterson, including a concern that he was about to remove Conalpin’s stock from its premises. Mr Bengasino told Mr McDermott that in view of the pressing circumstances, steps were immediately required to secure Conalpin’s stock and its books and records otherwise they would be lost to the external administration to the detriment of creditors.

25    In the course of their discussions, Mr McDermott told Mr Bengasino that he was concerned that his earlier involvement with Trackerjack and Ringwood Cove may prevent him from acting, but was advised by Mr Bengasino that he (Mr McDermott) had no conflict.

26    On 15 May 2012, Mr Bengasino gave Mr McDermott copies of documents to be lodged at ASIC showing Geoffrey Peterson had been appointed sole director of both companies.

27    Conalpin and Dolmear were placed in creditors voluntary liquidation on 16 May 2016 and Mr McDermott was appointed liquidator.

28    On 17 May 2012, Mr McDermott attended the companies’ premises in Preston, where he met Paul Peterson and Ian McBain. Mr McBain is an accountant who conducted a corporate advisory business and was advising Paul and Natalie Peterson in relation to the family dispute.

29    On 18 May 2012, Mr McDermott attended the companies’ premises in Nunawading, where he again met Paul Peterson and Ian McBain. Whilst he was in the carpark of the companies’ premises on 18 May 2012, Mr McDermott had a short telephone conversation with one of his staff. During that conversation Mr McDermott provided the details for the completion of a Declaration of Independence, Relevant Relationships and Indemnities (DIRRI) dated 18 May 2012, for Conalpin and Dolmear.

30    Mr McDermott issued a Notice of Meeting to Creditors, dated 17 May 2012, for each of Conalpin and Dolmear. Each Notice attached Mr McDermott's DIRRI dated 18 May 2012, and a Summary of Affairs signed by Geoffrey Peterson.

31    The Conalpin DIRRI:

(a)    correctly disclosed that Mr McDermott had been appointed as Administrator and Deed Administrator of Trackerjack;

(b)    stated that as the Trackerjack DOCA had concluded and he was no longer involved, that he was able to accept the appointment as liquidator of Conalpin;

(c)    made no reference to the payments of at least $40,000 that Conalpin had made to Trackerjack between May and August 2011.

32    Further, the Conalpin DIRRI failed to disclose that Mr McDermott was liquidator of a related company, Ringwood Cove, despite Mr McDermott expressly raising Ringwood Cove in his discussion with Mr Bengasino a few days earlier. When a creditor at the first creditors meeting on 25 May 2012 brought this omission to Mr McDermott's attention, Mr McDermott admitted that he should have disclosed this fact in the Conalpin DIRRI and stated that he did not believe there was a conflict.

33    The Summary of Affairs attached to the Notice of Meeting for Conalpin disclosed each of Paul and Geoffrey Peterson as an unsecured creditor but does not state an amount. It does not show Suzanne Peterson as a creditor.

34    On 18 May 2012, Mr McDermott successfully applied to the Honourable Justice Hargrave of the Supreme Court of Victoria, for orders including a warrant to be issued pursuant to section 530C of the Act, to search and seize the property or books of Conalpin and Dolmear in the possession of Paul Peterson, Natalie Peterson, Ian McBain and another.

35    On 19 May 2012, during conversations with Ian McBain at the companies’ premises at both Nunawading and Preston, Mr McBain made statements to the effect that Mr McDermott was acting at the direction of either Geoffrey Peterson or Mr Bengasino and was not acting independently.

36    On 24 May 2012 at around 2.50pm, Mr McBain sent Mr McDermott an email attaching some records for Conalpin; namely a Balance Sheet as at 16 May 2012, Profit and Loss statement (1 July 2011 to 16 May 2012), Listing of Outstanding Creditors as at 16 May 2012, and details of outstanding employee remuneration and employee names and addresses. Those documents showed a total of $2,037 owing to Geoffrey and Suzanne Peterson for employee entitlements (including superannuation) and sums owing by them and their family trust to Conalpin (as negative amounts totalling $322,463 in the liabilities section of the balance sheet).

37    At 10am on 25 May 2012, Mr McDermott held the first creditors meeting in the Conalpin liquidation. Minutes of that meeting record that Mr McDermott was repeatedly challenged by creditors (via their proxies Messrs McBain, Fung and Phillips) as to Mr McDermott’s conflict of interest in:

(a)    being the deed administrator of the Trackerjack DOCA that received at least $40,000 from Conalpin and being the liquidator of Conalpin;

(b)    his awareness that the liquidations of Conalpin and Dolmear arose from a family dispute; and

(c)    using WMB Lawyers for advice on whether he had a conflict of interest.

38    Mr McDermott responded by stating that he had received legal advice regarding a potential conflict of interest before accepting the role of liquidator of Conalpin and Dolmear. The legal advice referred to by Mr McDermott was the discussion he had with Mr Bengasino of WMB Lawyers.

39    The minutes also record that Mr McDermott received 27 proofs of debt in respect of claims totalling $2,382,003.39. The largest proofs of debt, totalling $1,845,963.30, were lodged by:

(a)    Geoffrey Peterson, claiming $149,758.62 in relation to ‘unpaid wages, superannuation and car payments’;

(b)    Geoffrey Peterson, claiming $780,930 in relation to ‘Agreement with Paul Peterson / Conalpin Pty Ltd for payment of monies related to the continued operation of the business’;

(c)    Suzanne Peterson, claiming $134,344.68 for ‘unpaid wages and superannuation’; and

(d)    Suzanne Peterson, claiming $780,930 in relation to ‘Agreement with Paul Peterson / Conalpin Pty Ltd for payment of monies related to the continued operation of the business’.

40    The minutes of the meeting show that an agenda item at the meeting was whether Mr McDermott should be removed from office. Consents to act as liquidator had been received from Glenn Spooner (Spooner) and Daniel Juratowitch (Juratowitch) of Cor Cordis Chartered Accountants.

41    In relation to his removal from office:

(a)    the minute states:

“The Chairman explained that he may well step aside but was cautious of conducting a meeting with no books and records information (sic) and explained that a judge of the Supreme Court of Victoria had issued a warrant so that the books and records would become available…The Chairman noted he had received an email…the previous night with an MYOB file, but would prefer to look at the records received via warrant from the company premises”

(b)    Mr McDermott stated that the Geoffrey Peterson group of creditors held the dollar value and the Paul Peterson group of creditors held the number value. The minutes state:

“The Chairman explained that at this stage [he] thought that what we might call the Geoff Peterson creditors held the dollar value and Paul Peterson creditors held the number value. He [Mr McDermott] was not prepared to conduct a poll without access to the records and indicated that one of the purposes of the court making the records available is to assist in the proper conduct of meetings such as this.”

42    Mr McDermott was challenged by a creditor (Fung) as to Geoffrey Peterson’s proof of debt and the detail surrounding that proof of debt. The minutes record that Geoffrey Peterson responded that “the relevant information would be given at the relevant time”.

43    The minutes also record that, despite saying that he had been provided with no details of the debts claimed by Geoffrey and Suzanne Peterson, Mr McDermott allowed Geoffrey Peterson to vote for the full amount of those debts, in relation to an adjournment of the meeting and an adjournment of the motion to remove Mr McDermott as liquidator.

44    The minutes of the meeting do not record:

(a)    Mr McDermott requesting information or further details about the proofs of debt submitted by Geoffrey and Suzanne Peterson; or

(b)    an issue being raised regarding the appointment of Geoffrey Peterson as a director or the removal of Paul Peterson as a director.

45    The meeting was adjourned to 1 June 2012.

46    On 30 May 2012, Mr McDermott provided a revised DIRRI for Conalpin and Dolmear in which he disclosed:

(a)    his appointment as liquidator of Ringwood Cove; and

(b)    that Conalpin had accepted employee liabilities for Trackerjack under the Trackerjack DOCA.

47    At the resumed meeting of creditors held on 1 June 2012, the minutes record that concerns were again raised about verification of the proofs of debt. On this occasion, Mr McDermott questioned Geoffrey Peterson’s claim and asked if further evidence was available. He noted that Geoffrey Peterson’s claim did not appear consistent with the company records located in its MYOB book-keeping file. Mr McDermott admitted Geoffrey and Suzanne Peterson to vote only for the amount of their verified annual leave, being $547.37 each. Resolutions were moved by Geoffrey Peterson for approval of Mr McDermott’s remuneration, but defeated.

48    At the end of the meeting on 1 June 2012, the creditors resolved to remove Mr McDermott as liquidator of both Conalpin and Dolmear and replace him with Spooner and Juratowitch.

49    Mr McDermott subsequently applied to the Supreme Court of Victoria for approval of his remuneration as liquidator of Conalpin and Dolmear. Paul Peterson opposed the application. The application was heard on 15 April 2013. In dismissing the application on 24 July 2013, Efthim AsJ found that:

(a)    Mr McDermott had a conflict of interest and should not have accepted appointment as liquidator of those companies;

(b)    WMB Lawyers also had a conflict of interest in advising Mr McDermott in relation to this conflict, having previously acted for Paul Peterson and knowing of the Peterson family dispute.

Issue 1: Mr McDermott consented to his appointment as liquidator of Conalpin in conflict of interest.

50    Mr McDermott failed to recognise that:

(a)    as Conalpin had made payments in the Trackerjack DOCA, the liquidator of Conalpin would be required to investigate and consider clawing back any those payments as voidable transactions within the meaning of s 588FE of the Act;

(b)    as a consequence, the payments made by Conalpin may be voidable against Trackerjack by Mr McDermott as liquidator of Conalpin under s 588FE(3) of the Act;

(c)    this would place the liquidator of Conalpin in a position of conflict as to the best interests of Conalpin’s creditors and Trackerjack’s creditors; and

(d)    that conflict could not be resolved by “monitoring”, as stated by Mr McDermott in his Conalpin DIRRI.

Issue 2: Mr McDermott failed to respond appropriately to queries and challenges to his appointments to Conalpin and Dolmear on the basis of his apparent conflict

51    Mr McDermott failed to recognise that, at least by 25 May 2012, he had an irreconcilable conflict of interest which should have led him to resign at or as soon as possible after the creditors meeting on 25 May 2012.

52    Apart from acknowledging the omission in respect of Ringwood Cove, Mr McDermott sought to justify his decision to accept appointment to Conalpin on the basis of legal advice, being his discussion with Mr Bengasino of WMB Lawyers.

53    Mr McDermott should not have taken or relied on advice from WMB Lawyers as to whether he had a conflict, as he should have recognised that they too had a conflict of interest in offering that advice.

54    Although the minutes of the meeting indicate that Mr McDermott accepted that he may step aside, he did not do so at that meeting and allowed Geoffrey Peterson to vote to effectively defer the resolution to remove him until the meeting reconvened on 1 June 2012.

Issue 3: Mr McDermott failed to properly investigate and ascertain the directorship of Conalpin and Dolmear at the time of his appointment.

55    The statement by Mr Bengasino that Geoffrey Peterson had been appointed a director of Conalpin and that Paul Peterson had resigned, and the production by Mr Bengasino of the documents showing the appointment on 15 May 2012, were an insufficient basis on which to accept Geoffrey Peterson’s status as a director, particularly in circumstances where Mr McDermott had in his possession a company search from 14 May 2012 showing Paul Peterson as sole director and was aware of the dispute between Geoffrey and Paul Peterson.

56    Mr McDermott accepted and presented to the creditors of Conalpin and Dolmear the Summary of Affairs of a company signed by Geoffrey Peterson as a director of Conalpin and Dolmear (respectively) and did not properly investigate whether Geoffrey Peterson was a director, beyond accepting the statement of, and documents provided by, Mr Bengasino.

57    Mr McDermott failed to adequately investigate the circumstances of Geoffrey Peterson’s appointment and, more generally, how Geoffrey Peterson was in a position to provide current information concerning the affairs of Conalpin and Dolmear.

Issue 4: Mr McDermott accepted an unsupported proof of debt from a person who appointed him and opposed moves by other creditors to remove him.

58    Regulation 5.6.23 of the Corporations Regulations 2001 (Cth) provides that a creditor must not vote in respect of a debt the value of which is not established, unless a just estimate of its value has been made.

59    Mr McDermott failed to faithfully perform his duties by accepting proofs of debt by Geoffrey and Suzanne Peterson totalling $1,845,963.30 for the purposes of voting on resolutions adjourning the creditors meeting on 25 May 2012 and removing Mr McDermott as liquidator in circumstances where:

(a)    the Summary of Affairs signed by Geoffrey Peterson as the director of Conalpin, showed Geoffrey Peterson as a creditor but did not state the amount owing to him and did not show Suzanne Peterson as a creditor at all;

(b)    records of Conalpin sent to him by McBain on the afternoon before the meeting including a balance sheet, list of creditors and outstanding remuneration entitlements, showed total outstanding remuneration entitlements to each of Geoffrey and Suzanne Peterson totalling $2,037 and made no reference to any other debts to them in the order of $780,000 each, or any sum;

(c)    he had not previously requested, and did not at the meeting request, any further information or details about the debts claimed, despite the uncertain description provided and the fact that they had not been referred to in either the Summary of Affairs signed by Geoffrey Peterson or the books and records supplied by Mr McBain;

(d)    he had been challenged by another creditor (Fung) as to the detail surrounding the proof of debts.

60    While there was no poll taken at the meeting on the issue of Mr McDermott’s removal from office, the proofs of debt were relied upon by Mr McDermott in calculating that the dollar value of creditors opposed the motion to remove him.

61    A prudent liquidator would have sought a resolution to adjourn the meeting pending receipt of supporting documentation to substantiate the claims by Geoffrey and Suzanne Peterson and admitted the claims for voting for $1 in respect of that resolution and any other resolutions put to the meeting.

62    In accepting the proofs of debt submitted by Geoffrey and Suzanne Peterson, Mr McDermott:

(a)    placed himself in a position in which his own interest in remaining as liquidator would be affected by his decision whether or not to admit the proofs of debt;

(b)    acted in a manner that suggested bias in favour of the interests of his appointer Geoffrey Peterson;

(c)    failed to act as a prudent liquidator would have acted.

Issue 5: Mr McDermott failed to properly investigate a related party transaction in which Trackerjack entered into a loan with the NAB to finance a property purchased by Suzanne Peterson.

63    Following his appointment by Geoffrey Peterson as voluntary administrator of Trackerjack, from about 31 January 2011, Mr McDermott had evidence that a St George Bank home loan was held in the name of “Trackerjack Australasia Pty Ltd in its own capacity and as trustee for the GN & SM Peterson Family Trust”. The home loan related to a property at 36 Visage Hyatt, Coolum in Queensland, registered in the name of Geoffrey’s wife, Suzanne Peterson.

64    Mr McDermott therefore had grounds to suspect that Trackerjack may have contributed to the payments in relation to the home loan:

(a)    such that Trackerjack may have had an equitable interest in the property the subject of the home loan; and/or

(b)    in circumstances where a reasonable director would not have entered into the transaction, such that the payments constituted uncommercial transactions voidable against Suzanne Peterson by Mr McDermott under s 588FE(3) the Act;

(c)    such that the payments may have constituted an unreasonable director-related transaction voidable by Mr McDermott under s 588FE(6A) of the Act.

65    Mr McDermott raised the issue of the home loan with Mr Bengasino. Mr Bengasino informed Mr McDermott that any challenge in respect of the home loan payments would be aggressively disputed by Geoffrey and Suzanne Peterson.

66    Investigations would have revealed the home loan related to a property at 36 Visage Hyatt, Coolum in Queensland, registered in the name of Suzanne Peterson (Coolum property).

67    Mr McDermott’s 23 February 2011 report to creditors of Trackerjack pursuant to s 439A of the Act did not disclose the existence of the Trackerjack home loan account, Coolum property or any of the potential claims that might have been brought by a liquidator of Trackerjack.

68    Accordingly, when the creditors considered whether Trackerjack ought to enter a DOCA (as recommended by Mr McDermott in the s439A Report) or to be placed into liquidation, the creditors were not given the opportunity to consider the prospect of claims that may be pursued in a liquidation but would not be pursued under the proposed DOCA.

69    McDermott’s explanation for his failure to disclose the relevant matters in his s439A report was that at the time his attention was not drawn to home loan payments as being a possible uncommercial transaction, and in any event he would still have required further investigation to reach a concluded view on the matter, including whether there were genuine defences to such action. He also claims that he would still have recommended the DOCA to Trackerjack’s creditors even if home loan payments had been raised in the s439A report.

70    McDermott nevertheless accepts the failure of adequate investigation and reporting was a serious omission by him in the proper exercise of his duties and responsibilities as a voluntary administrator and evidenced a failure by him to act independently in the best interest of creditors of the Peterson companies.

Fontana Property Group Pty Ltd: Issues 6 and 8

71    On 19 March 2012, receivers and managers, Geoffrey Niels Handberg and Brent Leigh Morgan of Rogers Reidy, were appointed to Fontana. The director, secretary and sole shareholder at the time the company was placed in receivership was Joseph Anthony Fontana.

72    On 9 May 2012, Mr Fontana resolved to appoint Mr McDermott as voluntary administrator of Fontana. Mr Doree of Latham Moore referred the administration of Fontana to Mr McDermott.

73    At the time of Mr McDermott’s appointment as voluntary administrator of Fontana, to the extent they were available to him, the company books and records were in disarray. Fontana was a company within a group of companies operating primarily through a single bank account. Mr McDermott could not identify which entity in the group, including Fontana, was responsible for which particular liability.

74    On or about 2 June 2012, Fratoni Pty Ltd (Fratoni) lodged a proof of debt in the administration of Fontana claiming $375,000.00 with the description “loan to company”. A further proof of debt for $375,000 was lodged on behalf of Fratoni on 12 July 2012.

75    The records kept by Mr McDermott in relation to his conduct of the voluntary administration of Fontana do not record any steps taken by Mr McDermott to investigate the Fratoni proof of debt at any time before either the second meeting of creditors on 13 June 2012 or the reconvened second meeting of creditors on 16 July 2012.

76    Mr McDermott’s first report to Fontana’s creditors is dated 6 June 2012 (Fontana First Report). The Fontana First Report annexes a balance sheet for Fontana as at 30 June 2011. That balance sheet included as an asset “Loan - Fontana Family Trust $466,535”. Fratoni was the trustee of the Fontana Family Trust. That is, the balance sheet showed a debt owing by Fratoni to Fontana, not the other way around (as the proofs of debt on behalf of Fratoni might have suggested).

77    In the Fontana First Report, Mr McDermott noted that Fontana was clearly insolvent and recommended that the creditors resolve that Fontana be wound up. He also stated that he believed the Director had committed a number of offences including but not limited to contravening Chapter 2D of the Act, (as he was “inclined towards the view that whilst the director was acting in the interests of the companies as a whole, he may not be acting in the interests of the individual companies”). The Fontana First report further states that “A conclusion with respect to this issue would require further investigation”.

78    Mr McDermott held the second meeting of creditors on 13 June 2012. Consistently with his Fontana First Report, the minutes of that meeting record that Mr McDermott recommended that Fontana be wound up.

79    The minutes also record that Mr Doree requested an adjournment to enable a deed of company arrangement to be drafted for consideration by the creditors. The Fontana Second Meeting of Creditors was adjourned for that purpose.

80    The second meeting of creditors as adjourned from 13 June 2012 was reconvened on 16 July 2012. The minutes record that at that meeting, Mr McDermott recommended that Fontana enter a DOCA. The resolution in favour of a DOCA was proposed and seconded by parties related to Fontana. The resolution was opposed by the proxy for the CBA (Mr Dennett), who required the CBA’s concerns that recoveries available in the liquidation may be lost in a DOCA be noted in the minutes.

81    The proxy for the CBA held the CBA's proof of debt for $390,440 but, according to the minutes, the quantum of the proxy was objected to by Mr Doree, who claimed that he had received a letter indicating the CBA's claim was $180,000 only and that the CBA proof of debt ought to be reduced to $180,000. Mr McDermott resolved the dispute as to quantum by allowing the CBA to vote for an amount halfway between the two figures, at $285,000. The minutes record that this was agreed to by the proxy for the CBA.

82    The minutes also record that the CBA proxy objected to the Fratoni proof of debt for $375,000. Mr Doree (proxy for Fratoni) asserted that it was money lent to Fontana and that CBA had knowledge of it. Mr McDermott said he was unable to agree or disagree and indicated that he would mark the Fratoni proof of debt as disputed and “the claim could be reviewed and the outcome of the voting adjusted accordingly”.

83    The CBA proxy requested that the voting on the DOCA be completed as a poll and Mr McDermott agreed. The outcome of the vote was six creditors with a total value of $623,875 for and one creditor (CBA) with a value of $285,000 against. If the Fratoni proof of debt for $375,000 had been disallowed, the DOCA would not have passed on value.

84    On 3 September 2012, Mr McDermott emailed Mr Doree in relation to, among other things, the $466,535 loan to Fratoni as follows:

“…can you please explain why the Fontana Family Trust is unable to extinguish the $466,535 owing to [sic] it.

We have undertaken a search of Fratoni Pty Ltd which we understand to be the trustee of the Fontana Family Trust and it is not subject to the Receivership or otherwise compromised. Why can't it pay the $466,535 above?”

85    On 3 September 2012, Mr Doree emailed Mr McDermott as follows in response to Mr McDermott's query about the $466,535 loan to Fratoni:

“[T]he accountant made the changes to the management accounts for whatever reason however Fratoni does not agree with this position. It has put money into various entities and has not received money from FPG [Fontana]. There is no support for the accountants position and I have asked him why he did this and he has not answered me stating that FPG [Fontana] owes him money.”

86    Mr McDermott sought further information regarding the loan to Fratoni from the company accountant. However, the accountant declined to provide that information because his fees had not been paid.

87    On 5 September 2012, Mr McDermott sent a further s 439A Report to Creditors in relation to a deed of variation to the DOCA. In that report on Variation to DOCA, Mr McDermott reported to the creditors on the $466,535 loan to Fratoni as follows [at p 799]:

“The trustee of the Fontana Family Trust is Fratoni Pty Ltd A.C.N. 071 050 872 and it disagrees that the $466,535 as above is outstanding from it. It maintains that the entries were undertaken by the accountants without proper authority. I have contacted the accountants and asked for support in respect to the entries however at this stage they have refused to respond.”

[Financial information about Fratoni Pty Ltd is set out]

“In conclusion, the prospect of recovery from Fratoni Pty Ltd would appear to be difficult. Nevertheless the director accepts that the $1,179,061 [the $466,535 loan to Fratoni is included in this sum] is outstanding to the company from him and the issues involving the other entities may therefore not be relevant.”

“Due to the broader issues associated with the group of companies and the director’s exposure to the Commonwealth Bank, I have been advised that the director is considering an arrangement under Part X of the Bankruptcy Act…”

88    The Fontana DOCA ultimately failed and on 7 August 2014, Mr McDermott was appointed liquidator of Fontana.

Issue 6: Mr McDermott relied upon an unsupported proof of debt to resolve that Fontana enter a DOCA as favoured by his appointer

89    In the Fontana First Report, Mr McDermott recommended that Fontana be wound up. At the second meeting of creditors on 13 June 2012, Mr McDermott repeated that recommendation. However, the meeting was adjourned to allow the creditors to consider a DOCA.

90    When the meeting reconvened on 16 July 2012, a DOCA was proposed and recommended by Mr McDermott. The DOCA was passed, but only because Mr McDermott allowed Fratoni to vote the full value of its proof of debt of $375,000, over the objection of the CBA proxy Mr Dennett.

91    Mr McDermott failed to conduct adequate enquiries into the legitimacy of the Fratoni proof of debt, particularly in circumstances where the balance sheet for Fontana annexed by Mr McDermott to the Fontana First Report showed a debt of $466,535 owing by Fratoni to Fontana and did not record any liabilities owing by Fontana to Fratoni.

92    In the circumstances described, a prudent liquidator would have sought substantiating documentary evidence before dealing with the claim and in the interim would have admitted the Fratoni claim to vote for $1.

93    In the circumstances, Mr McDermott should not have admitted Fratoni to vote for the full value of the proof of debt.

Issue 8: Mr McDermott’s relationship and dealings with his appointer (and the Fontana family more generally) were inappropriate for a person in the position of a voluntary administrator and deed administrator

94    On 2 July 2012, Mr McDermott emailed Fran Fontana, the mother of Joseph Fontana (the director of Fontana) at the email address for Fratoni, with a copy to Mr Doree. The email commenced “Dear Fran” and had a familiar and friendly tone. The content of the email was essentially personal advice to Fran Fontana on options for the recovery of Fontana family personal property from the receivers and managers of Fontana and to offer his further assistance in relation to that recovery.

95    Mr McDermott’s email to Ms Fontana is suggestive of a relationship in which Mr McDermott was appointed to act for the Fontana family, when in truth his duty as voluntary administrator and deed administrator of Fontana was to act in the best interests of creditors.

96    This, together with the following additional matters, suggests Mr McDermott failed to act in the best interests of creditors of Fontana and instead preferred the interest of the Fontana family. The additional matters are:

(a)    the tone and content of Mr McDermott’s email to Mr Doree on 31 August 2013 attaching a proposed letter to Fontana’s creditors, and Mr McDermott’s apparently uncritical acceptance in that email of Mr Doree’s statements advice:

“Attached is suggested letter as discussed yesterday.

I haven’t analysed this issue, but “thinking aloud” although the Deed of Company Arrangement allows the company to trade, there may still be restrictions on the company trading as a result of the Receivership. I am sure you considered such issues.

If the letter is not appropriate please let me know…”

(b)    failing to investigate the validity of the $375,000 proof of debt lodged by Fratoni and accepting that proof of debt in full, in circumstances where that amount changed the outcome of the vote in relation to the proposed DOCA;

(c)    failing to investigate adequately the recoverability of the $466,535 loan to Fratoni; and

(d)    failing to lodge with ASIC a timely report concerning suspected offences under the Act, notwithstanding that he had referred to potential offences in the First Fontana Report.

Rapid Glass Solutions Pty Ltd: Issue 9

97    Mr Doree of Latham Moore referred the liquidation of Rapid to Mr McDermott. Mr McDermott emailed Mr Doree on 14 July 2010 attaching the appointment documents and a tax invoice. In the email, Mr McDermott stated that Mr Doree (not the director) “… will need to complete the financial information on the summary of affairs and supply a list of creditors”.

98    Mr McDermott was appointed liquidator of Rapid in a creditors’ voluntary liquidation on 17 July 2010.

99    At the first meeting of creditors on 28 July 2010, a Committee of Inspection comprised the following persons:

(a)    Mr Doree of, and as a creditor representative for, Latham Moore;

(b)    Andrew Morrison of Kliger Partners Lawyers, representing Rapid’s largest creditor, Alyakim Aluminium Fabricators Pty Ltd (Alyakim); and

(c)    David Chapman of, and as creditor representative for, Hayton Kosky Lawyers.

100    The minutes of meeting record that Mr McDermott had received indications that the business operated by Rapid had been the subject of a transaction or transactions between Rapid and another company that could amount to phoenix activity.

101    On or about 12 August 2010, Mr McDermott received a letter from Kliger Partners providing further indications that the business operated by Rapid had been the subject of a phoenix transaction or transactions between Rapid and Spectrum Commercial Glazing Pty Ltd (Spectrum). The letter stated that if transfers of certain contracts had occurred without Rapid receiving reasonable consideration in return, such transfers would constitute uncommercial transactions.

102    On 25 August 2010, Mr McDermott sent a circular to the Committee of Inspection advising of his concern as to phoenix activity involving Spectrum and that he was in contact with ASIC in relation to that phoenix activity.

103    On 18 November 2010, Mr McDermott sent a further circular to the Committee of Inspection together with a circular minute of Meeting of the Committee. The circular advised the Committee of Inspection of an offer of settlement on behalf of Spectrum in respect of the phoenix activity allegation as between Rapid and Spectrum. Mr McDermott recommended that the offer of $20,000 to be paid in $1,000 instalments over 20 months was the best available without litigation and should reluctantly be accepted if no creditors wish to bear the risk of litigation.

104    Messrs Doree and Chapman both returned the circular minute voting “for” the proposed settlement. Mr Morrison of Kliger Partners did not return the minute and accordingly did not vote “for” or “against” the proposed settlement.

105    On 1 December 2010, Mr McDermott filed with ASIC the circular minute of meeting of the Committee of Inspection indicating that no reply was received by Mr Morrison and accordingly the proposed settlement was passed by the majority voting in favour.

106    Mr Chapman’s firm, Hayton Kosky Lawyers, acted for Spectrum. Mr Doree was similarly associated with Spectrum and had referred the liquidation of Rapid to Mr McDermott. Latham Moore had also acted for Rapid.

107    Mr Rowe of Alyakim had earlier (on 9 September 2010) emailed Mr McDermott raising directly the independence of Hayton Kosky Lawyers: “In regards to Hayton Kosky Lawyers acting for both Rapid Glass Solutions and Spectrum Commercial Glazing and Latham Moore (representing Michael Blick) working from the same business address, Is this a conflict of interest?”.

108    On 2 December 2010, Mr McDermott responded to this email, advising, “A conflict of interest is a matter for these respective firms and their representative professional body”.

109    Mr McDermott advised creditors of the settlement in his annual report to creditors on 18 August 2011 stating:

“The major parties associated with the company became involved in a successor company, Spectrum Commercial Glazing Pty Ltd and upon my appointment I formed the view that this successor had removed good will belonging to Rapid Glass Solutions Pty Ltd.

Accordingly, after examination of the ongoing work available to the company I settled my dispute with Spectrum Commercial Glazing Pty Ltd by way of a payment of $20,000 over twenty months. This payment schedule is due to conclude in August 2012.

I believe the director and former director of Rapid Glass Solutions Pty Ltd contravened Chapter 2D of the Corporations Act by entering the arrangement with Spectrum Commercial Glazing Pty Ltd, however the subsequent negotiations and payments to Rapid Glass Solutions Pty Ltd have settled this dispute.”

110    Mr McDermott did not advise creditors that, as at the time of his annual report, the agreement was six months in arrears and that he had received only $4,000 to date.

Issue 9: Mr McDermott failed to identify and take adequate action to avoid the decision by the Committee of Inspection on the approval of the settlement being infected by conflicts of interest

111    Mr McDermott was aware that, while representing creditors of Rapid in respect of work done for Rapid before its liquidation, Mr Chapman of Hayton Kosky Lawyers and Mr Doree of Latham Moore were also acting for Spectrum. The potential conflict of Mr Chapman was also raised directly with Mr McDermott by Mr Rowe of Alyakim.

112    Mr McDermott failed to recognise that at the time of the circular resolution on 18 November 2010 both Mr Chapman and Mr Doree could not bring an independent mind to evaluate whether the proposed settlement was in the interests of the body of creditors of Rapid. Mr McDermott could and should have taken steps to ensure that any approval of the settlement was not infected by that conflict of interest.

113    A prudent liquidator:

(a)    would have been aware that the Act does not provide for resolutions of creditors or committees of inspection to be passed by circular resolution; and

(b)    if the resolution had been put to a properly convened meeting of the committee of inspection, would have ensured that Messrs Doree and Chapman abstained from voting due to their obvious conflict in representing both the company in liquidator and Spectrum;

(c)    would therefore not have been in a position to seek the resolution at any meeting of the committee of inspection but would have called a formal meeting of creditors.

114    Mr McDermott should have avoided the conflict (and the invalid resolution) by convening a meeting of all of Rapid’s creditors to vote on whether or not to accept the proposed settlement and provide creditors with the opportunity to fund litigation. This alternative was not offered to Rapid’s general body of creditors.

Total Elevators Service Pty Ltd: Issue 11

115    Mr McDermott was appointed administrator of Total Elevators (Vic) Pty Ltd (TE Vic) on 15 June 2009.

116    On 4 August 2009 TE Vic executed a DOCA and appointed Mr McDermott as deed administrator.

117    Pursuant to the TE Vic DOCA, TE Vic agreed to procure that a related company, Total Elevators Service Pty Ltd (TE Service), would contribute the following amounts to the DOCA:

(a)    certain employee entitlements;

(b)    $8,400 before the execution of the DOCA (which was received) and $1,200 every month thereafter for 17 months making the total TE Service contribution to the TE Vic DOCA $30,000.

118    On 24 November 2009, Mr McDermott accepted appointment as liquidator in a creditors’ voluntary liquidation of TE Service.

119    In his DIRRI for TE Service, Mr McDermott disclosed his role as Deed Administrator of TE Vic.

120    In particular, Mr McDermott disclosed that:

“[TE Vic] has entered into a Deed of Company Arrangement (DOCA). Mr Ross, Mr McDermott is the Deed Administrator…

Reason why not an Impediment or Conflict

The terms of the Deed have been determined and no variation or termination is anticipated.

The Deed involves receipt of monthly instalments, which will create a fund for distribution to creditors.

Total Elevators Service Pty Ltd, is not eligible for a dividend from the Deed.”

121    However, the TE Service DIRRI did not disclose that:

(a)    pursuant to the terms of the TE Vic DOCA, TE Vic was to procure that TE Service was to pay the monthly instalments under the DOCA; and

(b)    payments made by TE Service to TE Vic under the TE Vic DOCA may be voidable by the liquidator of TE Service and that Mr McDermott would be required to investigate whether the payments made by TE Service to TE Vic were voidable transactions, and potentially commence proceedings against TE Vic to recover those payments.

122    On 4 December 2009, Mr McDermott, in his capacity as liquidator of TE Service, chaired the first meeting of creditors for TE Service. The minutes do not include any reference to Mr McDermott raising or otherwise discussing at the meeting the implications of his earlier (and ongoing) appointment as deed administrator under the DOCA for TE Vic.

123    Mr McDermott failed to recognise that:

(a)    as TE Service had made payments under the TE Vic DOCA, the liquidator of TE Service would be required to investigate and consider clawing back those payments as voidable transactions such that the payments may be voidable against TE Vic by Mr McDermott as liquidator of TE Service under s 588FE(3) of the Act;

(b)    this would place Mr McDermott in a position of conflict of interest between the best interests of TE Service’s creditors and TE Vic’s creditors; and

(c)    accordingly, Mr McDermott should not have accepted appointment as liquidator of TE Service.

D    REPORTING CONCERNS: Issues 7, 10, 12 and 13

124    Section 438D of the Act requires an administrator to report suspected offences to ASIC as soon as practicable and in any event, within six months of becoming aware of the suspected offences.

125    Section 533(1)(d) of the Act requires liquidators to report suspected offences to ASIC as soon as practicable and in any event, within six months of becoming aware of the suspected offences.

126    Mr McDermott failed to faithfully perform his duties or observe the requirement of s 438D and s 533 of the Act by failing to lodge with ASIC a timely report concerning suspected offences in relation to the following external administrations:

(a)    Fontana Property Group Pty Ltd;

(b)    Rapid Glass Solutions Pty Ltd;

(c)    TSM Selection Pty Ltd;

(d)    Tegman Pty Ltd.

127    The undue delay associated with the lodgement of the s 438D and s 533 reports would likely have prejudiced ASIC’s capacity to take action in respect of the suspected offences.

Fontana: Issue 7

128    In the Fontana First Report of 6 June 2012, Mr McDermott stated that he believed the Director had committed a number of offences including but not limited to contravening Chapter 2D of the Act as he was “inclined towards the view that whilst the director was acting in the interests of the companies as a whole, he may not be acting in the interests of the individual companies”. The Fontana First report further states that “A conclusion with respect to this issue would require further investigation”.

129    On 12 July 2012, the receiver and manager, Brent Leigh Morgan lodged with ASIC a Report under s 422 of the Act reporting possible offences under the Act.

130    Mr McDermott did not lodge a s 438D report for the voluntary administration period (9 May 2012 to 7 August 2014) despite having identified suspected offences in the Fontana First Report.

131    Mr McDermott did not lodge any report concerning suspected offences under the Act until he lodged a s 533 report on 1 July 2015, more than three years after Mr McDermott identified suspected offences in his Fontana First Report.

Rapid: Issue 10

132    Mr McDermott did not lodge a s 533 report until 18 October 2012, notwithstanding that Mr McDermott was aware of the ‘phoenix’ activity by at least 25 August 2010, when Mr McDermott sent the circular to the Committee of Inspection referring to that activity. This is an undue delay of at least 25 months that would likely have prejudiced ASIC’s capacity to take any action in respect of the suspected offences.

TSM Selection: Issue 12

133    Mr Doree at Latham Moore referred the administration of TSM Selection Pty Ltd (TSM Selection) to Mr McDermott. Mr McDermott was appointed Administrator of TSM Selection on 30 September 2009.

134    On 27 October 2009, Mr McDermott sent his First Report to Creditors under s 439A in relation to TSM Selection (TSM Selection First Report).

135    In the section of the TSM Selection First Report titled ‘Offences’, Mr McDermott stated the following:

“I am of the view that the relationship between these two companies is that of a Phoenix…

In conclusion I believe the Director may have breached his duty in respect to Chapter 2D of the Corporations Act concerning the duties of Directors to act in the interests of the company. In order to reach a finalized view in respect to this, however further work would be necessary, including a detailed analysis of the long service leave liability, and a valuation of the business goodwill.”

136    The two companies Mr McDermott referred to were TSM Selection under the directorship of David Ivo Chapman and TSM Selection (Vic) Pty Ltd under the directorship of former TSM Selection Director, Michael Thorley.

137    Under s 438D of the Act, because it appeared to Mr McDermott as administrator of TSM Selection that an officer of the company may have been guilty of an offence in relation to TSM Selection, he was required to lodge a report about the matter as soon as practicable. He failed to do so.

138    On 19 November 2009, TSM Selection entered into a DOCA and Mr McDermott became the Deed Administrator. Mr McDermott also did not lodge a s 438D report during the period he was deed administrator.

139    On 30 July 2010, the DOCA failed and Mr McDermott became the liquidator of TSM Selection.

140    Under s 533 of the Act, because it appeared to Mr McDermott that an officer of TSM Selection may have been guilty of an offence in relation to TSM Selection, he was required to lodge a report about the matter as soon as practicable and in any event within 6 months of forming that view.

141    Mr McDermott did not lodge a s 533 report reporting suspected offences under ss 180, 181, 183, 286 and 344(1) of the Act, until 27 March 2012, some 29 months after first referring to suspected offences under the Act by a director and former director of TSM Selection in his TSM Selection First Report.

Tegman: Issue 13

142    On 9 August 2012, Mr McDermott sent his First Report to Creditors under s 439A in relation to Tegman (Tegman First Report).

143    In the Tegman First Report, Mr McDermott stated the following in relation to offences:

“I believe the director, and former director Ms Seitanidis, have committed a number of offences including but not limited to contravening Chapter 2D of the Corporations Act. The provisions within this chapter require directors to act with care and diligence and good faith in respect to their conduct of company affairs.

The creation of this company seems to have been with the intent to defeat the personal creditors of Ms Tova Wurzel. This may contravene provisions of legislation other than the Corporations Act including but not limited to the Bankruptcy Act.”

144    Mr McDermott did not lodge a s 438D Report notifying ASIC as to possible offences by the Director of Tegman until 8 September 2014, approximately 25 months after his Tegman First Report.

E    REMUNERATION CONCERNS: Issues 14 and 15

145    The Compliance Review disclosed systemic deficiencies in the processes Mr McDermott used to seek approval of his remuneration from creditors.

146    Those deficiencies were present in the administrations of the following companies: Fontana, Rapid, TE Service, TSM Selection, Tegman, Interactive, Altaus, Speedfloor, Hart, Machunt, Dancol, Megavend, Raft, Northview, Pixel, Stoneleighton, New Point, Limos, Lefkas, Rizzo, Hooked, Rock and Procus.

147    The majority of the deficiencies identified by ASIC were identical across all of the above administrations and they are summarised below.

Issue 14: Failure to provide creditors with adequate remuneration reports

148    Mr McDermott failed to tailor remuneration reports in order to provide sufficient information to creditors, contrary to section 20.1 of the 2008 IPA Code and section 23.1 of the 2011 IPA Code. In the remuneration reports, Mr McDermott:

(a)    essentially ‘cut and pasted’ the template for remuneration reports provided in the IPA Code, including most or all of the task areas appearing in that template. He did this for all administrations and liquidations;

(b)    failed to tailor at all the template description of IPA Code Task Area and General Description of tasks in the IPA Code for both completed and prospective work in the following entity: TSM Selection;

(c)    made only minimal tailoring of the template description of IPA Code Task Area and failed to tailor at all the General Description of tasks in force at the time he issued the report in the following entities: Rapid, TE Service, Interactive, Altaus, Speedfloor, Machunt, Megavend and Pixel;

(d)    failed to tailor at all the template description of IPA Code Task Area and General Description of tasks in the IPA Code in relation to completed work only and failed to give any description of work or tasks in relation to liquidator/deed administrator prospective fees in the following entities (i.e. provided no future fees tasks table): Fontana, Tegman, Hart, Machunt, Dancol, Raft, Northview, Stoneleighton, New Point Properties, Limos, Lefkas, Rizzo, Hooked, Rock and Procus;

(e)    did not include any details with respect to the remuneration he was seeking for the period between the date of the report and the date of the meeting of creditors at which Mr McDermott proposed to seek approval of his remuneration in the following entities: Fontana, TSM Selection, Tegman, Interactive, Altaus, Speedfloor, Hart, Machunt, Dancol, Megavend, Raft, Northview, Pixel, Stoneleighton, New Point Properties, Limos, Lefkas, Rizzo, Hooked and Procus.

149    As a result, the remuneration reports in all of those administrations failed to:

(a)    provide the creditors of the relevant companies with sufficient information to make an informed assessment as to whether the proposed remuneration was reasonable, contrary to the requirements of section 13.3.2. of the 2008 IPA Code and section 15.3.2 of the 2011 IPA Code;

(b)    contain a proper summary description of the major tasks performed by Mr McDermott in the relevant administrations, contrary to the requirements of section 13.3.3 of the 2008 IPA Code and section 15.3.3 of the 2011 IPA Code.

150    Further, contrary to s 449E(1B) of the Act, the resolutions proposed by Mr McDermott for his future remuneration “bundled” his remuneration in that they did not distinguish between:

(a)    the remuneration he was seeking for the period between the issue of the report and the creditors meeting (the voluntary administration period); and

(b)    the remuneration he was seeking for the period beyond the creditors meeting on the basis of an appointment as deed administrator or liquidator.

Issue 15: Drawing down and retaining company moneys as remuneration while aware of failure to comply with remuneration approval process

151    Section 14.3 of the 2008 IPA Code and section 16.3 of the 2011 IPA Code includes the following:

“If a Practitioner becomes aware that fees have been improperly taken, because, for example, the correct process has not been followed, the Practitioner must immediately repay the amount in question into the administration account.

Remuneration may then only be redrawn on approval being obtained.”

152    Mr McDermott sought and obtained resolutions approving his remuneration and drew down remuneration notwithstanding the deficiencies in the remuneration reports.

153    When Mr McDermott drew down that remuneration he should have known, that:

(a)    deficient remuneration reports had been distributed to the creditors or committee of inspection ahead of the resolutions approving those fees;

(b)    at the time that Mr McDermott sought and obtained those resolutions the creditors or committee of inspection had insufficient information to make an informed assessment as to whether the proposed remuneration was reasonable; and

(c)    in any event:

(i)    in the administrations and deed administrations in which he had drawn that remuneration he had not yet satisfied the requirement of s 449E(7) of the Act to provide reports to creditors or the committee of inspection setting out the matters specified in that provision prior to the determination of his remuneration under s 449E(1) (in the case of administrations) or s 449E(1A) (in the case of deed administrations) by way of the relevant resolutions;

(ii)    in the liquidations in which he had drawn that remuneration he had not yet satisfied the requirements of s 499(6) of the Act to provide reports to creditors or the committee of inspection setting out the matters specified in that provision prior to the fixing of his remuneration under s 499(3) of the Act by way of the relevant resolutions.

154    By reason of the Compliance Review, from about late November 2012, Mr McDermott knew that the resolutions approving his remuneration were in many instances invalid, as the approvals have been given based on deficient remuneration reports

155    On 20 March 2013, ASIC sent a letter to Mr McDermott which relevantly stated as follows:

Thank you for meeting with us on 7 March 2103. As foreshadowed at that meeting, the purpose of this letter is to:

1.1    set out the steps you have already taken, or propose to take, in response to the concerns raised in our letter of 1 March (as communicated by you to us during our meeting on 7 March);

1.2    invite you to a further meeting with ASIC (at a time to be arranged) with a view to identifying the terms of an enforceable undertaking that you would be prepared to offer to ASIC – and that ASIC would be prepared to accept.

1.3    Confirm that you are to review your remuneration reports on all open files to determine whether you have complied with your obligations under the Act and the IPA Code.

.....

Remuneration reports

…We request that you provide us with a list of all non-compliant remuneration reports and detail your proposal to correct the deficiencies. We note that s16.3 of the IPA code requires that where a Practitioner has drawn remuneration inappropriately he should:

10.1    repay the remuneration to the administration;

10.2     seek fresh approval by creditors; and

10.3     provide creditors with an explanation for the error

…We recommend you classify your list of deficient remuneration reports into the following categories and consider the appropriate remedies for each:

156    From late March 2013 until 7 May 2015, Mr McDermott and ASIC had a number of further communications concerning remuneration issues, including a further meeting on 9 April 2013.

157    On 24 June 2014, Mr McDermott’s solicitor, Anthony Serong of Serong Legal, served upon ASIC the Supreme Court of Victoria Originating Process and Affidavit in Support concerning his application for Court approval of his remuneration.

158    On 17 July 2014, Mr Serong received a letter from Donna Spinks of ASIC. Ms Spinks confirmed she had received the court documentation. The letter also relevantly stated:

…I also refer to our letter dated 20 March 2013 to your client where we advised that s16.3 of the IPA Code (2nd version) requires that where a Practitioner has drawn remuneration inappropriately he should: repay the remuneration; seek fresh approval by creditors; and provide creditors with an explanation for the error…

In respect of each amount for which approval is claimed in the court application please advise:

(1)    Whether your client has repaid the relevant amount to the appropriate company’s bank account in accordance with s. 16.3 of the IPA Code (2nd version);

(2)    In relation to amounts that have been repaid, details of repayment;

(3)    In relation to amounts that have not been repaid, details of where those amounts have been held and the reasons for the failure to repay those amounts.

Notwithstanding that the court application has been made, it remains ASIC’s expectation that all remuneration drawn improperly will be repaid…until such time as the court approves the remuneration…

159    Whatever Mr McDermott’s state of knowledge at the time he drew down that remuneration, by no later than 30 November 2012, when he advised ASIC that he would be convening meetings to resolve the issue of inadequate remuneration resolutions McDermott knew that such approvals that he had obtained were inadequate. Notwithstanding, and contrary to his obligations under the IPA Code, he did not repay any remuneration into the relevant administration accounts.

160    Mr McDermott drew his remuneration on the basis of deficient remuneration reports and failed to repay those amounts contrary to his obligations under the IPA Code in the following administrations or liquidations: Fontana, Rapid, TE Service, TSM Selection, Tegman, Interactive, Altaus, Speedfloor, Hart, Machunt, Dancol, Megavend, Pixel, Stoneleighton, New Point, Limos, Lefkas, Rizzo, Hooked, Rock and Procus.

161    On 25 July 2014, Associate Justice Gardiner made orders pursuant to Mr McDermott’s application for Court approval of remuneration, which included orders that:

1.    Pursuant to section 447A of…the Act, compliance with section 449E(7)(a) of the Act be dispensed with in respect of the remuneration reports sent by the plaintiff to creditors of companies listed in the schedule during the periods of time which the companies were under voluntary administration or a deed of company arrangement was in place.

2.    Pursuant to section 447D of the Act, the resolutions, passed by creditors in the course of the administrations and deed administrations, as the case may be, of the companies listed in the schedule to this order in respect of the plaintiff’s remuneration as administrator or deed administrator, were validly passed as required by the Act, notwithstanding that the plaintiff may not have complied with the requirements of section 449E(7)(a) of the Act.

Issue 16: Mr McDermott's Failure to Properly Implement Practice Improvements

162    On 6 December 2012, Mr McDermott met with Richard John Morrow (Morrow). Morrow is a consultant to Ferrier Hodgson and has been a registered liquidator since 1985 and an official liquidator since 1992. During the meeting:

(a)    Mr McDermott informed Morrow that ASIC had recently carried out a Compliance Review of a number of his files and had some concerns about his insolvency practice although he was uncertain of the reasons for ASIC’s concerns;

(b)    Mr McDermott engaged Morrow to conduct a review of his insolvency practice;

(c)    Mr McDermott said that in addition to his insolvency practice, which comprised approximately 60 current appointments, he was also a registered tax agent and had a general accounting practice;

(d)    Mr McDermott disclosed that he did not have insolvency software installed and although he did have his own professional indemnity insurance he did not have an automatic open cover facility to cover the risks generally encountered by an insolvency practitioner on appointment;

(e)    Morrow advised Mr McDermott that in the short term, he should arrange his own insurance, install Core IPS Insolvency software, work through the APES 330 accounting standard (for insolvency practitioners in public practice) and develop a remuneration checklist using resources provided by the IPAA;

(f)    Mr McDermott said he would be calling a number of creditor’s meetings prior to Christmas 2012 in order to ratify his remuneration.

163    On 7 December 2012, Morrow sent Mr McDermott an engagement letter. On 30 March 2013, Morrow sent Mr McDermott a second engagement letter in relation to the practice review which stated:

(a)    the review of Mr McDermott’s practice would be repeated quarterly over a period of 18 months (a total of 7 attendances at his offices); and

(b)    each review would consider three new files, as well as re-visiting the three files reviewed the previous quarter, to ensure that any shortcomings on those files had been rectified.

164    On 21 and 22 October 2013, Mr Morrow conducted a review of Mr McDermott’s practice. In a telephone call with Mr McDermott on 6 December 2013, Mr Morrow outlined a number of his concerns arising from the review. Among other things, Mr Morrow observed that, although Mr McDermott had attended various workshops, there was no evidence on his files that he had put that learning into practice and that Mr McDermott had not tailored the example of the remuneration report Mr Morrow had given him to reflect the work actually done.

165    On 6 January 2014, Morrow produced a report to ASIC and Mr McDermott in relation to his October review of Mr McDermott’s practice. For the purposes of his review, Mr Morrow reviewed three external administration (or ‘EXAD’) files. The report recorded the various shortcoming observed by Morrow and noted where Mr McDermott had informed Morrow that particular deficiencies had been rectified or otherwise addressed. Morrow also noted matters that were to be followed up at the second review. Morrow found, amongst other things, that:

(a)    all administration files he reviewed did not have CORE checklists on them, or had electronic checklists that were not as detailed as the hard copy versions and were not able to be reviewed by the appointee at designated milestones;

(b)    all administration files he reviewed did not have investigation checklists on them; and

(c)    on one administration file standard letters to company banks, lawyers or accountants had either not been sent or had not been sent in a timely manner.

166    Although it was anticipated between Mr Morrow and Mr McDermott that Mr Morrow would conduct ongoing reviews, Mr McDermott did not engage Mr Morrow for a second or subsequent review. As a consequence, Morrow is unable to say whether the deficiencies referred to in his report were in fact rectified or otherwise addressed.

167    In addition to the 6 January 2014 report, Morrow also observed the following matters:

(a)    although Mr McDermott had attended ARITA workshops on independence and remuneration, Morrow found no evidence that Mr McDermott had implemented the practices and checklists that were presented in the workshops. In particular, the remuneration checklist (the use of which is taught in the ARITA remuneration workshop) and conflict check documentation was not being utilised on any of the three files at the time of the review;

(b)    between the review and the issue of the report in January 2014, Mr McDermott informed Morrow that the remuneration and conflict checklists were being implemented, but Morrow was unable to verify this;

(c)    although Mr McDermott had obtained the corporate investigation guide from the Australian Insolvency Management Practice in the CCH Reporter, Morrow found no evidence that the guide was being followed. There was little or no documentation to establish that routine investigations were being undertaken (for example as to voidable transactions or director’s loan accounts) and the documentation that did exist was generally incomplete or missing entirely.

168    Mr McDermott has provided ASIC with a copy of the standard pro-forma remuneration checklist and independence/conflict checklist he now uses.

169    Since Mr McDermott became aware of ASIC’s concerns Mr McDermott has:

(a)    voluntarily attended continuing professional development seminars or workshops in the period up to November 2013, as follows:

(i)    Ten IPAA Insolvency (lunchtime) Forums on 5 February 2013, 5 March 2013, 2 April 2013, 14 May 2013, 4 June 2013, 2 July 2013, 6 August 2013, 3 September 2013, 1 October 2013 and on 12 November 2013 (the 12 November 2013 forum was described as an Independence Refresher).

(ii)    On 24 April 2013, he attended the IPA Remuneration Seminar held at the Vibe Savoy Hotel from 8:30am to 12:30pm. This seminar required “pre-reading” and completion of an “Advance Preparation Exercise”.

(iii)    On 17 May 2013, he attended the IPA Independence Seminar held at the Vibe Savoy Hotel from 8:30am to 12:30pm. This seminar required “pre-reading” and completion of an “Advance Preparation Exercise”.

(b)    He has continued to attend monthly meetings of the Melbourne Central Insolvency Discussion Group of experienced liquidators.

(c)    He has continued studies at University of Melbourne to obtain a Master of Tax, including successfully completing the Melbourne Law School subject Corporate Insolvency and Reconstruction (mark H2A), taught by Justice Finkelstein and Carl Moller of the Victorian Bar.

(d)    He has caused his assistant, Helen Thalassonis to:

(i)    complete the IPA Introduction to Insolvency Program in November 2013;

(ii)    complete the ARITA Remuneration – Training in September 2015; and

(iii)    commence the ARITA Advanced Certification Program.

170    Apart from attendance at the monthly meetings of the Melbourne Central Insolvency Discussion Group and his studies for a Masters of Tax, Mr McDermott has not himself attended insolvency specific workshops or seminars since November 2013, despite the matters raised in Mr Morrow’s report of 6 January 2014.

Issue 17: Mr McDermott's Failure to Properly Deal with Remuneration Deficiencies

171    In an email from Mr McDermott to ASIC dated 7 December 2012, Mr McDermott stated, “I have reviewed my files and accept there are a number where the remuneration shown has not been properly approved as a result of my remuneration reports.”

172    21 administrations involved deficient remuneration reports. As set above, Mr McDermott did not take timely action to remedy the deficiencies.

173    The 21 companies whose administrations were covered by the application are TSM Selection, Interactive Projects, Altaus, Speedfloor, Hart, Machunt, Dancol, Megavend, Raft, Northview, Pixel, Stoneleighton, New Point, Limos, Lefkas, Rizzo, Hooked, Fontana, Tegman, Rock and Procus.

174    Accordingly, in the period from at least the end of 2012 to 25 July 2014, Mr McDermott:

(a)    was aware that his remuneration for the 21 administrations covered by the application had been improperly drawn; but

(b)    did not repay his remuneration into the relevant administration accounts as required by the 2011 IPA Code.

F    OTHER FACTS RELEVANT TO RELIEF

175    Mr McDermott admits that his conduct described above (in particular, but not limited to, the Independence Concerns) constitutes a serious failure by him to faithfully perform his duties or observe the requirements of the Act, the regulations or the rules. Having reflected on the matters raised by ASIC in this proceeding, he better understands the importance of maintaining high standards of, integrity and professionalism in all his activities as a registered liquidator (including as voluntary administrator and deed administrator) and accepts that his failure to do so as set out in this statement undermines public confidence in the office of registered liquidator.

Signed on behalf of ASIC by its lawyer:

(signature)

Dated: 12/9/2016

Signed by Mr McDermott

(signature)

Dated: 12/9/2016

SCHEDULE OF COMPANIES

PART A COMPANIES: Voluntary Liquidation

1.    Conalpin Pty Ltd ACN 064 718 298 (Conalpin) (Strike Off)

2.    Dolmear Pty Ltd ACN 069 052 455 (Dolmear) (Strike Off)

3.    Rapid Glass Solutions Pty Ltd ACN 132 764 240 (Rapid) (Deregistered)

4.    Total Elevators Service Pty Ltd ACN 121 507 426 (TE Service)

PART B COMPANIES: Voluntary Administration & Voluntary Liquidation

5.    Interactive Projects (VIC) Pty Ltd ACN 070 292 509 (Interactive) (Deregistered)

6.    Altaus Pty Ltd ACN 125 461 958 (Altaus) (Deregistered)

7.    A.C.N. 105 438 926 Pty Ltd ACN 105 438 926, formerly known as Speedfloor Australia Pty Ltd (Speedfloor) (Deregistered)

8.    Hart Empire Pty Ltd ACN 118 125 198 (Hart) (Deregistered)

9.    Machunt Pty Ltd ACN 083 214 340 (Machunt) (Deregistered)

10.    Megavend Pty Ltd ACN 124 853 694 (Megavend) (Deregistered)

11.    Raft Technologies Pty Ltd ACN 110 414 134 (Raft) (Deregistered)

12.    Northview Custom Build Pty Ltd ACN 142 477 236 (Northview)

13.    Pixel Property One Pty Ltd ACN 131 623 231 (Pixel)

PART C COMPANIES: Voluntary Administration & DOCA

14.    Trackerjack Pty Ltd Australasia Pty Ltd ACN 091 648 618 (Trackerjack)

15.    Tegman Pty Ltd ACN 139 630 336 (Tegman) (Strike Off)

16.    Limos Online Australia Pty Ltd ACN 101 677 132 (Limos)

17.    Rizzo Constructions Pty Ltd ACN 091 162 051 (Rizzo)

18.    Hooked-On Constructions Pty Ltd ACN 104 880 828 (Hooked) (DOCA ceased)

19.    Rock Flat Valley Pty Ltd ACN 065 327 559 (Rock) (DOCA ceased)

20.    Procus West Pty Ltd ACN 059 852 452 (Procus) (DOCA ceased)

PART D COMPANIES: Voluntary Administration, DOCA & Voluntary Liquidation

21.    Fontana Property Group Pty Ltd ACN 102 756 178 (Fontana)

22.    TSM Selection Pty Ltd ACN 099 151 765 (TSM Selection)

23.    Dancol Constructions Pty Ltd ACN 100 756 938 (Dancol)

24.    Stoneleighton Developments Pty Ltd ACN 110 525 794 (Stoneleighton)

25.    New Point Properties Pty Ltd ACN 123 070 164 (New Point)

26.    Lefkas Builders Pty Ltd ACN 007 169 002 (Lefkas) (Deregistered)