Adams v Australian Securities and Investments Commission

ASIC's position 5 There is no contradictor to the application. The Australian Securities and Investments Commission (ASIC) was notified of the application on 17 January 2023 and was provided with a draft of the application on 10 February 2023. 6 By letter dated 27 February 2023 ASIC advised that it had reviewed the draft application and supporting documents provided on 10 February 2023 and that it elected not to oppose the application.

Statutory framework 7 Section 206B(1)(b)(i) of the Corporations Act disqualifies a person from managing corporations if he or she is convicted of an offence that is a contravention of the Corporations Act and is punishable by imprisonment for a period greater than 12 months. Section 201A(1) provides that it is an offence for a disqualified person to manage a company. 8 Section 206G(1) of the Corporations Act provides that a disqualified person may apply to the Court for leave relevantly to manage a particular corporation. 9 The Court has a broad discretion whether to grant leave pursuant to s 206G of the Corporations Act.

Principles 10 The principles regarding the disqualification and reinstatement of officers of corporations under the Corporations Act, including in relation to s 206G of the Corporations Act, provide guidance in the exercise of the discretion: Frigger, in the matter of an application by Frigger [2019] FCA 1730 at [18] (Jackson J). 11 The relevant considerations for the Court were summarised in Adams v Australian Securities and Investments Commission [2003] FCA 557 at [8] (Lindgren J); and restated in Duffy, In the matter of Westgate Ports Limited [2010] FCA 608 at [19] (Gordon J), as follows: 1. The Applicant bears the onus of establishing that the Court should make an exception to the legislative policy underlying the prohibition; 2. The legislative policy is one of protecting the public, not one of punishing the offender: Re HIH Insurance Ltd (in prov liq) and HIH Casualty and General Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80 at [56]; cf Australian Securities and Investments Commission v Vizard (2005) 145 FCR 57 at [35] and Rich v Australian Securities and Investments Commission (2004) 220 CLR 129 at [41] - [43]; 3. Another objective is to deter others from engaging in conduct of the particular kind in question; 4. 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; 5. The Court in exercising its discretion will have regard to the following factors (Re Magna Alloys 1 ACLR 203 at 205; cited in Re Zim Metal Products 2 ACLR 553 at 555): (i) the nature of the offence; (ii) the Applicant's general character, including conduct prior to and in the period since the offence; (iii) any risks to shareholders, creditors, employees or to the public should the Applicant assume the management position proposed; (iv) any acknowledgement of wrongdoing and co-operation by the Applicant; (v) whether the Applicant's general character is such that he has never before offended, whether he is a valuable and contributing member of the community and whether re-offending is unlikely: see for example, Pace 17 ACLC 1674 at [7]; (vi) the structure of the companies. (The Applicant referred to Jansen v Australian Securities and Investments Commission [2003] FCA 1564, where Mansfield J found the shareholding structure to be of significance in granting leave, as the company had only three shareholders, including the applicant, and the other shareholders were aware of his background and were supportive of his application: in particular at [12] and [14]); (vii) the degree of control which the Applicant would be able to exercise (Re Marsden 29 SASR 454; cited in Pace 17 ACLC 1674 at [23]) and the level of supervision (Pace 17 ACLC 1674 at [29]); and (viii) whether the Applicant has before the Court a specific proposal to take part in the management of a specified corporation or corporations, and whether what is proposed accords with proper commercial standards (see Re Shneider (1996) 71 FCR 69 in which Drummond J stated that the legislative policy of public protection could not be met without a specific and commercially proper proposal before the Court. Re Shneider 71 FCR 69 concerned the predecessor of s 206G of the Act, s 229(3) of the Corporations Law, however the legislative policy and the approach to be adopted would be consistent, particularly as s 206G specifically refers to leave to manage a particular corporation). 12 This summary has been cited on a number of occasions, including in Nenna v Australian Securities and Investments Commission [2011] FCA 1193; (2010) 198 FCR 321 at [26]; and In re Gay [2014] TASSC 22 at [9]-[10]. 13 Mr Castledine filed useful written submissions that addressed each of the matters referred to in the above extract from Duffy at [19(5)], and I will adopt a similar approach in these reasons.

The nature of the offence 14 On 8 June 2022 Mr Castledine pleaded guilty to one count of conduct contrary to s 1043A(2) of the Corporations Act, an offence under s 1311(1) of the Corporations Act. That offence was described by the sentencing judge as communicating inside information, being price sensitive information, to a person he knew or ought reasonably to have known would, or would be likely to, acquire shares in a company known as Lonrho Mining Ltd. 15 The date of the offence was 16 August 2012. At that time Mr Castledine had worked as a stockbroker for some years and was a registered Australian Financial Services representative. He was also a corporate advisor to Lonrho. The information concerned the discovery of a large diamond at one of Lonrho's African tenements. That information was relayed to him by the managing director and chief executive officer of Lonrho, was provided in confidence, and was not publicly available. 16 Less than seven hours later, Mr Castledine called an identified shareholder, who held a significant number of shares in Lonrho. The call was lawfully intercepted by the Australian Crime Commission. The script of the phone call was before the sentencing judge. It is fair to say that the script reveals that Mr Castledine was excited by the news and was out celebrating. The shareholder specifically asked him if Lonrho had gone into a trading halt. 17 There was no evidence that Mr Castledine or anyone else gained financially from the provision of the inside information or that the shareholder took any action upon receiving the information. 18 Nevertheless, the sentencing judge identified that the conduct was a serious example of offending, as Mr Castledine was well aware of his obligations and the potential impact of disclosing inside information. He was also a trusted advisor of Lonrho and the company was entitled to assume he would keep the information confidential. He made it obvious to the shareholder that there was a window of opportunity before Lonrho went into a trading halt. 19 Although the sentencing judge noted that there was a lack of planning or sophistication in the offence, his Honour also considered that the conduct in calling the shareholder was calculated and demonstrated a significant lack of integrity. His Honour accepted that Mr Castledine was feeling exuberant and had been out celebrating, but considered that to the extent Mr Castledine may have been affected by alcohol, it was not a mitigating factor. He did not accept a submission that the conduct was a momentary lapse of judgement. 20 The offence was regarded as serious because it involved a breach of confidentiality and trust, which are essential to the orderly operation of the commercial world. The sentencing judge regarded the offending as being in the middle range of offending of the kind. 21 Mr Castledine was sentenced to 13 months' imprisonment to be released forthwith upon entering into a recognisance in the sum of $5,000 to be of good behaviour for a period of two years. The sentencing judge took into account as a mitigating factor: the fact that you will be banned from managing corporations under s 206B of the Corporations Act for a period of five years.

General character 22 Before and after the offence, from 2011 to 2019 Mr Castledine was a member of the board of Parkerville Children and Youth Care and actively involved in fundraising for Parkerville. 23 There were a large number of character references from persons who had involvement with Mr Castledine in his professional life and in his charitable work before the sentencing judge, and they were also before this Court. 24 The sentencing judge concluded that Mr Castledine retained many good and supportive friends who vouched for his integrity and commitment to charitable work. 25 Mr Castledine has no other relevant offending history.

Risks to stakeholders and public 26 Mr Castledine submitted that there are no significant risks to third parties should he assume directorship and management of Perizia, for the following reasons: (a) the only shareholders of Perizia are he and his wife; (b) Ms Castledine supports the application; (c) Perizia has no employees; (d) the only proposed business activity of Perizia is to participate in the buying and selling of shares; (e) Mr Castledine's expertise and experience in share trading is advantageous to Perizia; (f) as Perizia is a small proprietary limited company there is no risk of a repetition of the type of disclosure conduct that led to his conviction; (g) Perizia would be more likely to efficiently meet payment instalments that it has entered into with the Australian Taxation Office if he is able to manage Perizia and it receives funds through that process; and (h) there is no element of public protection involved, as Perizia has operated without issue from the appointment of Mr Castledine and Ms Castledine as directors in 2006, and Mr Castledine does not propose to provide any consulting services through Perizia to any other entity going forward. 27 I note that there was affidavit evidence from Ms Castledine confirming her support for the application, and I will return to some of her evidence below.

Any acknowledgement of wrongdoing and cooperation by the applicant 28 Mr Castledine entered his plea of guilty at the first reasonable opportunity. This was considered a significant mitigating factor by the sentencing judge, and was said to indicate Mr Castledine's acceptance of responsibility for his behaviour. 29 As to remorse, his Honour noted that any remorse on the part of Mr Castledine was tinged with frustration at the time that it have taken for the matter to be resolved. The sentencing judge acknowledged that the time period between the offending and the sentence was some 10 years, and he had been 'in limbo' for a very long time. His Honour was not satisfied that there had been cooperation by Mr Castledine with any authorities but did not consider that to be an aggravating factor. 30 Further, it was not in issue that Mr Castledine has had an unblemished record during the long lapse of time since committing the offence, during which he continued to work as a stockbroker and consultant in the financial services arena.

Structure of Perizia and position of other director 31 Perizia is a small proprietary company. 32 Ms Castledine, as its other director, filed an affidavit in support of the application. She says that due to her role as a horse breeder, she is not actively monitoring the stock market for trading opportunities; she is often uncontactable due to her role as a horse breeder; she ordinarily only buys and sells shares after discussing the matter with Mr Castledine; and she does not have the same level of skill and experience in share trading. 33 Mr Castledine deposed that he sought to manage Perizia for a number of reasons, including that Perizia has a current payment plan in place with the Australian Taxation Office which would best be serviced if he could execute trades as and when they arise; that profits from share trading are the main source of income to Perizia; in his experience opportunities to purchase and sell shares are time sensitive; that in his experience, his wife is often difficult to contact due to her role as a horse breeder.

Degree of control 34 Mr Castledine would be jointly managing Perizia with his wife, as they did prior to his conviction, and without supervision by his wife.

Specific proposal put forward 35 Mr Castledine has proposed to limit the activities of Perizia to buying and selling shares, and sub-underwriting. 36 These activities are intended to benefit him and his wife as the only shareholders of Perizia, and so that Perizia will be able to meet its obligations under the payment plan with the Australian Tax Office.

Consideration 37 Having regard to the above matters, I consider that it is appropriate to exercise the Court's discretion in favour of the order sought, and with an express condition that until such time as Mr Castledine is no longer disqualified from managing corporations, Perizia must not engage in any activity other than buying and selling shares and sub-underwriting. 38 In In re Gay, the applicant similarly sought leave to manage or act as director of a company. Pearce J noted that Mr Gay had been made subject to the formal expression of his wrong by the imposition of a criminal conviction, and had suffered the condemnation, shame and loss of reputation which accompanies a criminal prosecution. Mr Castledine has similarly suffered such condemnation, as his evidence revealed, and has also endured a long period of uncertainty as to his position. These matters, combined with the fact that the sentencing judge criticised his integrity and noted the seriousness of the offence, have a significant role in deterring Mr Castledine from any further offending. Noting the protective nature of such provisions in the Corporations Act, having regard to the absence of other offending and the lapse of time since the offending, I consider there is little risk to any person other than Mr and Ms Castledine from permitting Mr Castledine to continue to manage Perizia. 39 I also accept the force of Mr Castledine's submissions in this regard, outlined at [26] above. 40 I also accept that Ms Castledine, although aware of her responsibilities as a director, defers to Mr Castledine for advice, and that is not surprising considering his expertise in the area of share trading. Perizia is more likely to continue to operate and meet its obligations to the Australian Taxation Office with Mr Castledine's assistance. There was no suggestion that Ms Castledine would cease being a director. I consider the fact that she remains a director to be relevant to the exercise of my discretion. 41 One matter I raised with counsel for Mr Castledine was the emphasis that the sentencing judge placed on the five year ban from managing corporations as a mitigating factor, as I have extracted at [21] above. I queried whether the grant of leave might detract from the punitive effect of disqualification in the context of the sentence imposed for the offence. A similar question was raised in In re Gay at [43]. It is not apparent from the sentencing remarks whether the sentencing judge took into account the prospect that this application might be made. I was informed by counsel that the prospect of the application was not raised at the time of sentencing as the potential to bring it had not at that point been considered. 42 I accept the submission of counsel for Mr Castledine that it can safely be assumed that the sentencing judge was aware of the potential for an application such as this to be made, and was aware of Mr Castledine's skills and experience in the corporate sphere. Furthermore, Mr Castledine still remains subject to the five year ban with respect to managing corporations more generally. I do not consider the grant of leave to manage one private company undermines the deterrent or punitive effect of the sentence otherwise imposed by the sentencing judge on Mr Castledine.

Outcome 43 For those reasons, I allowed Mr Castledine's application. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Banks-Smith.