Australian Securities and Investments Commission v Murdaca - [2008] FCA 1399 - FCA 2008 case summary — Zoe

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Australian Securities and Investments Commission v Murdaca

[2008] FCA 1399

Federal Court of Australia|2008-09-16|Before: Gordon J

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Court

Federal Court of Australia

Decision date

2008-09-16

Before

Gordon J

Source

Original judgment source is linked above.

Judgment (48 paragraphs)

[1]

A. INTRODUCTION 1 On 29 September 2006, pursuant to s 206F(1) of the Corporations Act 2001 (Cth) ("the Act"), a delegate of the Australian Securities and Investments Commission ("ASIC") disqualified the respondent, Antonio Murdaca ("Murdaca"), from managing corporations for two years ("the disqualification"). Murdaca applied to the Administrative Appeals Tribunal ("the AAT") under s 43 of the Administrative Appeals Tribunal Act 1975 (Cth) ("the AAT Act"), for review of the disqualification. On 18 March 2008, the AAT set aside the disqualification: Murdaca v Australian Securities and Investments Commission [2008] AATA 209. 2 ASIC has appealed to this Court, pursuant to s 44 of the AAT Act, contending that the decision of the AAT is affected by several errors of law. ASIC's principal complaint is that the AAT misconstrued and misapplied s 206F of the Act. I agree. These reasons for decision identify the errors and explain why the matter will be remitted to the AAT, differently constituted, to be heard and determined according to law.

[2]

B. BACKGROUND FACTS 3 On 10 July 2006, ASIC issued a notice to Murdaca pursuant to s 206F(1)(b) of the Act. The notice required Murdaca to demonstrate why he should not be disqualified from managing corporations. In relevant part, it stated: The records of [ASIC] show that you are or were an officer of three (3) corporations that have been wound up, being: 1. Australian Automotive Motor Inspection Centre Pty Ltd ACN 104 887 863 (in liquidation) ["AAMIC"]; 2. Amalgamated Motor Industries Pty Ltd ACN 094 472 741 (deregistered) ["AMI"]; 3. Market Place Properties Pty Ltd [ACN] 095 039 795 (deregistered) ["MPP"] where a liquidator has reported under subsection 533(1) of the [Act] that each of the corporations may be unable to pay its unsecured creditors more than 50 cents in the dollar. In these circumstances, you are required to demonstrate, in accordance with subparagraph 206F(1)(b)(i) of the Act, why you should not be disqualified from managing corporations. … In making a decision under subsection 206F(1) of the Act ASIC is required to give you an opportunity to be heard in relation to why you should not be disqualified from managing corporations. AREAS OF CONCERN ASIC has identified a number of concerns about your conduct which are described in Attachment "A". The documents on which these concerns are based are listed in Attachment "B". 4 After conducting a hearing and receiving written submissions, on 29 September 2006 ASIC disqualified Murdaca from managing corporations for two years. On 20 February 2007, Murdaca applied to the AAT for review of the disqualification. On 2 April 2007, the AAT refused Murdaca's application for a stay of the disqualification. 5 On 10 August 2007, ASIC and Murdaca each filed a statement of facts and contentions ("SFCs") in the AAT. For present purposes, three paragraphs of ASIC's SFC headed "Other corporations" are relevant: 5.28 [Murdaca] was also a director of Delitat Pty Ltd (ACN 083 271 612) (deregistered) ("Delitat") and Total Motor Vehicle Protection Pty Ltd (ACN 080 916 936) (deregistered) ("TMVP"). A copy of the historical company extract for each company is at ST1, and ST2. Each of these companies was placed into liquidation in a creditors['] voluntary winding up. In each case, Mr [Ross] McDermott was the administrator and subsequently the liquidator. In each case, he lodged a report with [ASIC] pursuant to section 533 of the Act. These reports are referred to at T5.8, page 149-150. A copy of these reports is at ST3 and ST4. 5.29 In the case of Delitat, [Murdaca] was a director from 9 July 1998 until 15 February 2002. The company was wound up on 4 April 2003. In his section 533 report, the liquidator stated that he believed that, at the time of being wound up, [Murdaca] was a "deemed director". 5.30 In the case of TMVP, [Murdaca] was a director from 1 December 1997 until 15 February 2002. The company was wound up on 4 April 2003. Again, the liquidator stated that he believed that, at the time of being wound up, [Murdaca] was a "deemed director". 6 The AAT heard the application for review on 17, 18 and 28 January 2008. Witnesses were called by both parties. The parties filed and served written submissions after the hearing. As noted earlier, the AAT set aside the disqualification. Before turning to consider the AAT's decision it is necessary to consider s 206F of the Act and its proper construction.

[3]

C. THE LEGISLATION AND ITS PROPER CONSTRUCTION 7 Part 2D.6 of the Act is directed to disqualification of persons from managing corporations. ASIC maintains a public register of disqualified directors and other officers: s 1274AA of the Act. Disqualification can be automatic (s 206B), by reason of court order (ss 206C, 206D and 206E) or as a result of a discretionary decision by ASIC when certain preconditions exist, including an adverse report by a liquidator as to the solvency of a company the person has managed (s 206F). It is the last category of disqualification that is at issue in this appeal. 8 Section 206F, entitled "ASIC's power of disqualification", provides so far as is relevant that: (1) ASIC may disqualify a person from managing corporations for up to 5 years if: (a) within 7 years immediately before ASIC gives a noticeunder paragraph (b)(i): (i) the person has been an officer of 2 or more corporations; and (ii) while the person was an officer, or within 12 months after the person ceased to be an officer of those corporations, each of the corporations was wound up and a liquidator lodged a report under subsection 533(1) … about the corporation's inability to pay its debts; and (b) ASIC has given the person: (i) a notice in the prescribed form requiring them to demonstrate why they should not be disqualified; and (ii) an opportunity to be heard on the question; and (c) ASIC is satisfied that the disqualification is justified. … (2) In determining whether disqualification is justified, ASIC: (a) must have regard to whether any of the corporations mentioned in subsection (1) were related to one another; and (b) may have regard to: (i) the person's conduct in relation to the management, business or property of any corporation; and (ii) whether the disqualification would be in the public interest; and (iii) any other matters that ASIC considers appropriate. (Emphasis added.) 9 I should note that it is now settled that ASIC does not exercise the judicial power of the Commonwealth when it acts under s 206F: Visnic v Australian Securities and Investments Commission (2007) 231 CLR 381.

[5]

(a) they make, or participate in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or (b) they exercise the capacity to affect significantly the corporation's financial standing; or (c) they communicate instructions or wishes (other than advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors or the corporation) to the directors of the corporation: (i) knowing that the directors are accustomed to act in accordance with the person's instructions or wishes; or (ii) intending that the directors will act in accordance with those instructions or wishes. 11 "Officer" of a corporation is defined in s 9 of the Act and is in analogous terms. "Officer" includes: (a) a director or secretary of the corporation; or (b) a person: (i) who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or (ii) who has the capacity to affect significantly the corporation's financial standing; or (iii) in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors or the corporation); or … A person (not a director of a corporation) may be disqualified from managing a corporation if they are otherwise involved in, or participate in, the management of the corporation in the prescribed ways. These latter capacities are sometimes described as being a "deemed director" or a "shadow director": Ho v Akai Pty Ltd (in liq) (2006) 24 ACLC 1526. Such descriptions can, at times, be misleading. Names and labels aside, what is required is a critical assessment of the way in which a corporation is managed and then an assessment as to whether the conduct of the person concerned falls within one or more of the categories identified.

[32]

35 Consistent with the authorities (see [16]) to the effect that an oral hearing is not required, there was nothing to suggest that ASIC failed to comply with its statutory obligations in the manner in which it conducted that oral hearing. Moreover, even if there was an error of the kind complained of by Murdaca (and there was not), such an error would not deprive the AAT of the statutory authority to deal with the application on the merits. That is not to say that the provisions in s 206F(1)(b) for notice and opportunity to be heard have no teeth at all. Suppose that ASIC decided to disqualify a person the day after issuing a notice and without providing any opportunity to be heard, whether by written submission or otherwise. Upon an application for review under s 43, the AAT could set aside the disqualification decision on that basis alone. The AAT would not, however, be deprived of the power to decide de novo whether, with the benefit of proper notice and opportunity, disqualification might still be justified. 36 To understand why, it is necessary to return to the basic structural provisions of the AAT Act and the authorities explaining those provisions. Section 43(1) of the AAT Act gives to the AAT "all the powers and discretions that are conferred by any relevant enactment on the person who made the decision...". Important consequences flow from that provision. It is all the "powers and discretions" which ASIC had when making the disqualification order, not the procedures which bind ASIC, to which the AAT accedes: cf Minister for Immigration and Multicultural and Indigenous Affairs v Ahmed (2005) 143 FCR 314 at [41] and [44]. The AAT's procedures are prescribed by s 39 of the AAT Act: see also Sullivan v Secretary, Department of Transport (1978) 1 ALD 383 at 402-403. As a result, any failure on the part of ASIC to comply with its statutory procedures will not deprive the AAT of statutory authority to deal with an application for review of the decision of ASIC. Any such defect is "cured" by the AAT when an applicant is made aware of the substance of the allegation made against them and the AAT provides them with an opportunity to respond to the allegations: eg Zubair v Minister for Immigration and Multicultural and Indigenous Affairs (2004)139 FCR 344 at [32]. 37 Counsel for Murdaca attempted to distinguish the foregoing authorities on the basis that, in contrast to the relevant provisions in the migration legislation, the requirements of s 206F(1)(b) are substantive preconditions to the enlivening of the administrative disqualification jurisdiction rather than procedural due process requirements, such that a defect could not be cured on review by the AAT. In effect, counsel took the view that the AAT's review of a s 206F disqualification decision by ASIC was not and could not be a hearing de novo. That view is entirely inconsistent with the basic structure of ss 39 and 43 of the AAT Act as explained by the case law. In the absence of any explicit legislative statement to that effect in s 206F(1), the submission must be rejected. 38 The contention that ASIC's decision (and therefore the AAT's) was vitiated by jurisdictional error based on a denial of natural justice is thus both without foundation and irrelevant.

Australian Securities and Investments Commission v Murdaca

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