(1) Character of the offenders;
(2) Natures of the breaches;
(3) Structure of the companies and the nature of their business;
(4) Interests of shareholders, creditors and employees;
(5) Risks to others from the continuation of offenders as company directors;
(6) Honesty and competence of offenders;
(7) Hardship of offenders and their personal and commercial interests and
(8) Offenders' appreciation that future breaches could result in further proceedings.
28 I have considered these matters in connection with the relevant facts for each offender, which I have set out in this and my earlier judgment. I have come to the conclusion that a period of disqualification is justified and that two years is appropriate for each of Mr Durant, Mr Rowley, Mr Bradnam, Mr Christopher Jones, Mr Monsell and Mr Wells. I consider the same period is appropriate for Mr Nicholas Jones, Mr Troost and Mr Rowley because while their conduct was more serious, disqualification is more harmful to them.
Timothy Donald Somerville
29 There was read for Mr Somerville an affidavit sworn 9 September 2009. The incorporated legal practice of which he is a director employs 49 people. He had never been charged with or convicted of any offence. He is a member of the Law Society Specialist Accreditation Committee. He has been a director of a number of companies. Paragraphs 14 to 17 of his affidavit together with the heading are as follows:
"Explanation of My Involvement
14 Over the years I have advised a great number of directors of insolvent companies, certainly too many for me to put a specific number on it. Depending on the circumstances, I have given different types of advice. I have often advised that the company should cease to trade, and the business should be shut. On other occasions, I have advised that the company be placed into administration with a view to entering into a deed of company arrangement. On other occasions, I have given the advice which is the subject of these proceedings.
15 I have only given the advice referred to in these proceedings where I have obtained instructions that the company has a business which would be profitable and viable if not for the debt or debts currently facing it, where the assets of the company would be minimal if the business ceased to trade, and where the stigma of administration would probably destroy the goodwill of the business. In such cases, I honestly believed that the creditors would be better off if the company could continue to trade and pay off its creditors over time.
16 In all such cases, I believed that it was likely that at least some of the creditors would be paid, who would not be paid otherwise, and that the continuing employees, who would otherwise be unsecured creditors of the old company would be likely to be paid their entitlements. I believed that, if the business were closed down, no such creditors would be paid anything like what they would be paid pursuant to the sale of the business as advised by me. That view was based on years of advising in relation to insolvent companies and being familiar with the methodology and costs involved in administering insolvent companies and them being wound up.
17 In the circumstances of my experience in the area I did not see the need to obtain the advice of experienced Counsel, rather than relying on my own opinions. In forming my own opinions I also relied upon the opinions of accountants with whom I conferred. Had I realised that my conduct was such as to be involved in breaches of the Corporations Act by those to whom I was providing advice as has been found by this Honourable Court, I would not have given that advice."
30 In cross examination, Mr Somerville said that he had given similar advice to that complained of on dozens of occasions, commencing about 10 years ago. He continued to give that advice even after he knew that ASIC was conducting the investigations which brought about these proceedings. He agreed that he had been told by Mr Krejci, one of the accountants involved in liquidating some of the companies, that Mr Krejci considered the transactions to be uncommercial but he thought that was incorrect. He said to Mr Krejci that no one had challenged the transactions and "until the Court proves otherwise I will continue to promote them".
31 In fairness I should say that where the last sentence of paragraph 15 of Mr Somerville's affidavit reads, "In such cases, I honestly believed that the creditors would be better off if the company could continue to trade and pay off its creditors over time", what was explained in cross examination was that what was meant was if the business could continue to trade rather than the company. I regret to have to come to the conclusion that I do not accept that statement. The advice given to Mr Troost in the letter and verbally, makes it perfectly clear that the view of Mr Somerville was that the creditors were unlikely to be paid and that it was really in the hands of the same director of the new company whether any payment was received or not, and by whom. Although he had every chance to do so, Mr Somerville gave no evidence that he considered that the creation of the "V" class shares was anything other than a subterfuge and there was an opportunity for him to do so after he had read and considered para [50] of my earlier judgment.
32 The purpose of the law creating an offence if directors allow a company to continue to trade when it is insolvent, is to prevent further debts being incurred and to allow for an orderly winding up and distribution of assets among the creditors. The effect of the transactions of which Mr Somerville was the architect, was to ensure that this could not happen. I have the greatest difficulty in accepting that Mr Somerville considered that his actions in these cases was proper and in accordance with the law. This is because he must have known the consideration for the sale of assets was not full consideration and was really a fiction and he must have know the transactions were uncommercial. If, however, he did consider that to be the position, then having regard to his position as a legal adviser it shows, I consider, that he ought not be a director, so that so far as these proceedings are concerned, he should be prohibited from taking part in the management of a company for a considerable time.
33 I should say that while there is evidence that Mr Somerville has been involved in what he said were "dozens of cases" apart from the specific ones under consideration here, there is no evidence about those other transactions except that they existed. It would, however, have been open to Mr Somerville to show that some of the other transactions did bring about a real benefit to creditors of the original company but he has not done so. I do not think that this evidence of other transactions should play any part in determining the question of penalty apart from enabling the inference to be drawn that there was a scheme as originally determined by me.
34 So far as hardship to Mr Somerville is concerned, it has not been put that he is unable to continue to practice as a solicitor either as a sole practitioner or in partnership. His corporate structure is one of choice but not an essential choice.
35 In my opinion, the conduct of Mr Somerville was far more serious than that of the other directors and a longer period of disqualification is called for. However, this is not a case which calls for disqualification for a very long period. It is not a case where substantial loss in HIH terms has been incurred as a result of the conduct. Nor is it a case where Mr Somerville has made a great amount of money from his involvement in the breaches. Nevertheless, I do regard the conduct as serious. I accept that the considerations of punishment and general deterrence should be considered together, yet it is important to send a message to the public and those closely engaged in corporate activity that conduct resulting in obvious breaches of the law which is likely to cause disadvantage to creditors of insolvent companies and which deprives them of their statutory rights will not be countenanced and this conduct is in general made worse by dressing it in misleading garments.
36 ASIC has asked for disqualification for 12 years. I consider that excessive and unnecessarily punitive. To some extent, deterrence and punishment are achieved by the publicity resulting from this case and the eventual costs order.
Result
37 Each of the defendants other than the first and second defendants will be disqualified for two years from managing corporations. The first defendant, Mr Somerville, will be disqualified from managing corporations for a period of six years.
Costs
38 I indicated I would give my tentative views on costs and invite submissions. No orders for costs were sought against the third, seventh, ninth and tenth defendants because they consented to the findings of contravention. Mr Troost did not oppose such a finding, even though represented. Mr Bradnam did not appear at the first hearing and the arguments on behalf of Mr Rowley were really directed to phase two. It might seem unfair that no costs orders are sought against four defendants, all of whom made submissions in phase two, whereas costs orders are sought against Messrs Rowley, Bradnam, Durant and Troost, the second and third of whom did not appear at the first hearing. So far as the second defendant is concerned, it was involved in only one contravention with which Mr Somerville was associated and there seems no point in making a separate order against it. The position of ASIC as to costs is not clear and I will wait for further submissions.
39 Mr Somerville is really responsible for the whole of these proceedings. That does not mean, however, that he should bear all the costs, but he should bear a substantial part of them. I indicate that my initial feeling is that a proper proportion would be 60 per cent of the costs, but I am prepared to hear further submissions on that. I should add that the transcript indicates that ASIC does not seek costs against any defendants, but that is a mistake. The costs of ASIC are not to include costs of copying authorities. Whilst it is helpful to the Court and particularly for a judge sitting in Hospital Road, it is not a cost the defendants should bear.
Proposed orders