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[2011] FCA 235
Federal Court of Australia
2011-03-17
Barker J
Original judgment source is linked above.
APPLICATION FOR LEAVE TO ACT AS A DIRECTOR 1 By application filed 27 January 2011, Karen Sandra Carey, the applicant applies to the Court pursuant to s 206G of the Corporations Act 2001 (Cth) (Act) for leave to act as a director of Consumers Health Forum of Australia Ltd (CHF). 2 The application came on for hearing on Friday 11 March 2011, and was supported by the affidavit of the applicant, also filed 27 January 2011. 3 Amongst other things, the applicant's affidavit indicated that the applicant had lodged a notice with ASIC on 22 December 2010, being at least 21 days before the date of filing the application, as required by s 206G(2) of the Act. 4 On 11 March 2011, the Court required the applicant to file by 18 March 2011 an affidavit verifying that CHF supported the application. 5 The Court also then ordered that the application would be determined on the papers.
facts 6 On 23 July 2010, the applicant was declared bankrupt pursuant to her own application. 7 The circumstances of the applicant's bankruptcy are fully explained in her affidavit. 8 In 1996 the applicant was implanted with a mechanical heart valve which failed causing thromboembolism (blood clots form on the valve and break off, circulating in the blood stream until they lodge in a blood vessel resulting in permanent death of the tissue fed by that blood vessel) as a result of which the applicant suffered infarcts to her left kidney, spleen and two strokes. In 1997, the applicant underwent a second openheart surgery to explant the mechanical valve and replace it with a tissue valve. As a result of the second openheart surgery the applicant received severe scarring on her heart that interrupts the transmission of the electro cardiac signal that keeps the heart beating regularly, requiring a pacemaker to be implanted. Unfortunately, at the time of the implant the applicant received a hospital acquired infection causing endocarditis with a multiantibiotic resistant bacteria. This required several more heart surgeries, including a third openheart surgery to replace the valve for a third time. As a result the applicant has serious ongoing health problems and can only work part time. 9 The applicant was informed that the most likely cause of the original mechanical valve failure was a chip on the valve surface. In the investigation of the cause it became clear that thromboembolism was a well known complication of the use of mechanical valves occurring at a rate of 2-5% per patient year. The applicant had not been warned of this risk and had come into contact with many other patients who had also not been warned of the risk. 10 In 1998, the applicant commenced a claim against the valve manufacturer and the surgeon in relation to the faulty valve for a failure to warn of the risks of thromboembolism despite adequate anticoagulation. Prior to commencing the claim and at two key stages in the preparation of the claim the applicant sought advice on prospects and was told she had a very strong case. The applicant stated she spent more than $1,000,000 on her legal fees which exhausted her financial resources. 11 The applicant states that in 2004, the matter was heard and she lost the case, with the judge finding that although she had not been warned by any of the parties, the risk of thromboembolism of 2-5% was not sufficient to have changed her mind, had she been given the proper warnings. The applicant says the judge failed to take into account that the rate was per patient per year, meaning a cumulative risk of 20-50% after ten years. The other parties costs were awarded against the applicant and were estimated to be in the vicinity of $3,500,000. 12 The applicant appealed but security for costs of $150,000 were awarded against the applicant which she was unable to fund and so her appeal was struck out. 13 The applicant states that other than the costs awarded against her, she had no other financial problems and despite her significant health problems she managed to amass approximately $1,000,000 by working hard and managing her financial resources. The applicant says that this money was spent on her own legal costs of the court case and that the bankruptcy was caused by the loss of the claim and no other cause. 14 As a result of her experience, the applicant says she has become an active consumer advocate in the healthcare sector. She has been the Chair of the Health Consumers Council of Western Australia and she has sat on a range of policy committees for both the Federal and Western Australian State Government, including: (1) Prosthesis and Devices Committee (P&DC) which provides recommendations to the Federal Minister for Health in relation to Sch 5 and the funding of prosthesis and devices by private health funds. The committee assesses items on the basis of safety, quality, effectiveness and cost effectiveness. (2) Policy Advisory Group (PAG) which provides advice and recommendations to the Federal Minister for Health in relation to issues arising from the new legislation regulating prosthesis and devices and funding by the private health industry. (3) National Cardiac Procedures Register, which has oversight of the design and pilot of the National Cardiac Procedures Register which will collect data on the health outcomes of a wide range of cardiac procedures including cardiac devices. The pilot is being run by Monash University and funded by the Commonwealth. (4) Patient First (Consultant Producer), which provides patient information in the form of a 24 page brochure, video and website. Produced under contract to the WA Safety and Quality Council, this program will be delivered to all patients in WA public hospitals and provides information to assist patients to engage in their own healthcare by sharing health decisions, minimising adverse incidents and increasing their selfmanagement skills in the community. (5) Absolute Risk Tool Implementation Expert Group (Chairperson). The Absolute Risk Tool is a method of assessing patients' needs for treatment and medication that has been demonstrated to deliver significantly improved prescribing of cardiac related medications and in turn improved health outcomes and lower cost. The Federal Government has established the Expert Group to develop an implementation strategy to rollout the Absolute Risk Tool to all GPs and consumers. (6) Health Consumers' Council of WA (HCC) (Past Chairperson), which is a nongovernment community based organisation that provides the consumer voice in healthcare. Funded by the WA Department of Health, HCC provides independent advocacy for patients with clinicians, health service providers and the government and consumer representation on more than 120 committees. (7) National Service Improvement Framework (NSIF) for Heath, Stroke and Vascular Health Expert Working Group (NHPAC) (Chairperson), which is currently developing NSIFs for each of the Health Priority Areas. Each area developed their NSIF through the formation of an expert group. The NSIF will be put before AHMAC in October and, if approved, will provide high level direction for the provision of services across Australia for the next five years. 15 The applicant currently works part time as a consultant for GSB Consulting and Communications Pty Ltd, who provide strategic and policy consulting services to Federal and State governments. The applicant says that in this role, she has been the project manager on the following projects: National Environmental Health Strategy 2009 - 2012 (client Australian Government 2007). Future Directions in eHealth (client Australian Government 2007). Review of Electronic Support Systems (client Australian Government 2008). Review of Patient and Clinician Information for Women with Gynaecological Cancer and their Practitioners (Cancer Australia 2008). Right Patient, Right Time, Right Treatment (an independent study by Wyeth Australia 2008). National Diabetes Services Scheme (NDSS) Strategy (client Diabetes Australia 2008). 16 In November 2009, an episode of Australian Story was broadcast on ABC television about the applicant's experience, focussing on the applicant's role as a consumer advocate. 17 The applicant says that in September 2010, she was asked by the Health Consumers Council of Western Australia to accept their nomination to the management committee of CHF. This committee is a notforprofit government funded nongovernment organisation whose objectives are to provide advocacy and representation for consumers in the healthcare sector. CHF is the peak national body and provides representatives to key government committees. Many of the committees that she served on have been appointments by CHF. CHF also receives funds in the form of membership fees. It has an annual budget of approximately $2,000,000 per year which is derived from conducting a range of consumerfocused projects and consultations to inform position statements and consumer representations. 18 At the time of the nomination, CHF was an association and therefore did not have directors. The applicant believed that her nomination was to the management committee. 19 The applicant says she accepted the nomination and voting elections were conducted, and the applicant was advised in midNovember that she had been successful. The applicant says she was unaware that in the meantime CHF intended to change their structure from an association to a company and that, pending agreement of members at the Annual General Meeting to be held on 25 November 2010, the election was for directors, rather than a board of management. The change in structure arose following legal advice that because the management committee was operating on a national level it was not able to remain an association unless it restricted its activities to a single State. CHF had recently been awarded a large project by the Federal Government that would require CHF to operate in multiple jurisdictions and so it was decided that the change to a company was essential. 20 As soon as the applicant became aware that her election was to a position of director, she informed the Executive Director of CHF that she was unable to serve as a director without the permission of the Court. The applicant states she has not signed the consent to become a director. 21 On 25 November 2010 at the Annual General Meeting it was agreed by the members that CHF would become incorporated and since then it has been incorporated. The applicant says that CHF and their members feel that her experience as a consumer advocate and public profile will be beneficial to their organisations and CHF have requested that the applicant seek the approval of the Court to become a director. 22 The applicant states that there are no directors fees attached to the position. All costs including travel and accommodation are met by CHF and therefore there will be little financial impact imposed if the applicant is able to act in this capacity. The committee meets four times per year, two of these meetings are facetoface in Canberra and the other two are by teleconference, the cost of which is met by CHF. 23 CHF has six elected board members and an additional three positions that allow coopting of directors with specific skills. The applicant says she has been informed by CHF that these positions will be filled by people with legal, accounting and marketing experience. The financial management of CHF is under a Finance and Audit Subcommittee and CHF employs an external accountant to maintain all financial activities and to provide monthly reports to the committee. CHF undergoes an independent audit on an annual basis and audits specific projects in accordance with its contract with the Federal Government. 24 By affidavit, filed 15 March 2011, CHF by Carol Bennett, its Chief Executive Officer, has confirmed the contents of the affidavit of the applicant and supports her application for Court approval for her to take up her elected role as a director of CHF.
Consideration 25 Section 206B of the Act provides for the automatic disqualification of a person from managing corporations if the person is an undischarged bankrupt under the law of Australia, its external territories or another country. 26 In this case, the applicant is an undischarged bankrupt under the law of Australia and so, from the date of her bankruptcy on 23 July 2010, was automatically disqualified from managing corporations. 27 The expression "managing corporations" is not defined in the Act. However, s 206A of the Act, which makes it an offence for a disqualified person to manage a corporation, gives some meaning to the expression, in that it is an offence if a person: makes or participates in making decisions that affect the whole or a substantial part of the business of a corporation; exercises the capacity to affect significantly the corporation's financial standing; communicates instructions or wishes (other than advice given by the person in the proper performance or functions attaching to the person's professional capacity or their business relationship with the directors or the corporation) to the directors of the corporation, knowing that the directors are accustomed to act in accordance with their instructions or wishes or intending that the directors will act in accordance with those instructions or wishes. 28 There is little doubt that acting in the office of director and serving on the board of a corporation falls within the expression "managing corporations" because, at least, it involves the person in the making of decisions that effect the whole or a substantial part of the business of a corporation. 29 A "corporation", pursuant to s 57A of the Act includes any body corporate and so includes CHF. 30 Under s 206G(1) the person who is disqualified from managing corporations may apply to this Court for leave to manage: (a) corporations; or (b) a particular class of corporations; or (c) a particular corporation; if the person was not disqualified by ASIC. 31 There are many cases discussing the general principles governing the exercise of the discretion to grant leave. The summation of Lindgren J in Adams v Australian Securities and Investments Commission [2003] FCA 557 at [8], (2003) 46 ACSR 68 at 71, is often referred to in this regard: see for example Duffy, In the matter of Westgate Ports Limited (ACN 096 501 727) [2010] FCA 608, [19], Gordon J. Six points are of primary relevance: (1) The applicant bears the onus of establishing that the Court should make an exception to the legislative policy underlying the prohibition; (2) That legislative policy is one of protecting the public, not one of punishing the offender; (3) Another objective is to deter others from engaging in conduct of the particular kind in question; (4) A further objective is the more general one of deterring others from abusing the corporate structure to the disadvantage of investors, shareholders and others dealing with a company; (5) The prohibition itself contemplates that there will be hardship to the offender. Therefore hardship to the offender alone is not a persuasive ground for the granting of leave; and (6) The Court will have regard to the nature of the offence of which an applicant has been convicted, where relevant, and the nature of his involvement, and the general character of the applicant, including in the intervening period since disqualification. Where the applicant seeks leave to become a director and to take part in the management of particular companies, the Court will consider the structure of those companies, the nature of their businesses and the interests of their shareholders, creditors and employees. The Court will assess any risks to those persons or to the public which may appear to be involved in the applicant's assuming positions on the board or in management. 32 Underlying all of these considerations, is the basic principle that the function of a provision like s 206G is protection of the public from the activities of the dishonest, unscrupulous, untrustworthy, irresponsible or merely incompetent manager: Friend v CAC (1988) 7 ACLC 106 at 115, Powell J; Didovich v Australian Securities and Investments Commission (1998) 29 ACSR 122 at 126. 33 As noted above, the person seeking leave must lodge a notice with ASIC at least 21 days before commencing the proceeding and use the prescribed form. This enables the primary authority concerned with the oversight of corporations to make submissions to the Court from a regulatory viewpoint, on account of the public interest. By s 206G(3), the Court may grant leave subject to exceptions and conditions determined by the Court. 34 In this particular case, the applicant is not disqualified from managing corporations by ASIC, she was disqualified by operation of s 206B(3) of the Act, as explained above. 35 Therefore, the applicant is entitled to seek the leave of the Court to manage a corporation, pursuant to s 206G(1). 36 As noted above, the applicant has given required notice to ASIC in accordance with s 206G(2). ASIC however has not involved itself in this proceeding. 37 In this case, as the facts amply disclose, the applicant does not wish to engage in managing corporations generally or for financial reward. Rather, she seeks a very particular permission to be involved in the management of a nonprofit incorporated body, CHF, on a voluntary basis. 38 In doing so, the applicant would be one of six elected board members and up to three additional coopted directors involved in the management of CHF through the board. 39 She would not be directly involved in handling financial matters. 40 The reason why the applicant wishes to be a director on the board of CHF is explained in her affidavit and the confirming affidavit of the proper officer of CH;: she has appropriate health advocacy and representation experience relevant to consumers in the health care sector and CHF as the peak national body that provides representatives to key government committees in this area of policy activity, has encouraged her involvement. 41 I accept the evidence of the applicant in support of her application and that filed on behalf of CHF. I note that ASIC has not considered it appropriate to appear or make submissions in relation to the application. 42 In all of these circumstances, I consider it appropriate to grant the leave sought by the applicant. There is no suggestion that the public, generally speaking, are likely to be endangered in any relevant respect by the granting of leave. To the contrary, they may be the beneficiaries of the applicant's involvement in the management of CHF.
conclusion and order 43 In these circumstances, the application is granted. The Court orders that: 1. The applicant have leave to manage a particular corporation, namely, Consumer Health Forum of Australia Ltd as a director of that corporation and a member of its board of directors. 44 I note that it remains, for this order to have effect, for the applicant to lodge a copy of the order with ASIC within 14 days of the date of the order, pursuant to s 206G(4) of the Act. 45 I also note that pursuant to s 206G(5), on the application of ASIC, the Court may revoke the leave. I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker.
Adams
Australian Securities and Investments Commission