Australian Securities and Investments Commission v Starnex Securities Pty Ltd

REASONS FOR JUDGMENT 1 The Australian Securities and Investments Commission (ASIC) applies to have the fifth defendant, Mr Camiolo, disqualified from managing corporations for a period of two years. Such an order may be made under s 206E of the Corporations Act 2001 (Cth) if ASIC is able to show that Mr Camiolo (1) has at least twice been an officer of a corporation that has contravened the Act while he was an officer of the corporation and, on each occasion, he failed to take reasonable steps to prevent the contravention; or (2) has himself twice contravened the Act while he was an officer of a corporation; or (3) has been an officer of a corporation and has done something which would contravene s 180(1) or s 181. Section 180(1) imposes upon a director or officer of a corporation an obligation to exercise his powers and discharge his duties with an appropriate degree of care and diligence. Section 181 requires a director or officer to exercise his powers and discharge his duties in good faith in the best interests of the corporation and for a proper purpose. 2 Initially ASIC and Mr Camiolo asked that a disqualification order be made by consent. I declined to take that course. Section 206(E)(1)(b) provides that the court may make a disqualification order if it is "satisfied that the disqualification is justified". It is not possible to be satisfied that an order is justified simply because the person to be disqualified agrees to that course. A similar view of the provision seems to have been taken by Bryson J in Re One.Tel Ltd (in liq); Australian Securities and Investments Commission v Rich (2003) 44 ACSR 682. There the parties submitted a consent order for a disqualification but the judge examined the facts for himself and only made the order when he was satisfied that, in all the circumstances, it should be made. 3 What then are the facts? They appear principally in the affidavit of Mr Grant, an investigator with ASIC. Mr Grant conducted an investigation into the affairs of Icorp Technologies Ltd, Contech Australia Ltd (Contech), Starnex Capital Ltd and Starnex Securities Pty Ltd (Starnex Securities). Mr Camiolo was a director of each company. The companies were incorporated in May 2000, April 2001, May 2002 and August 2002 respectively. The principal business of Starnex Securities was to act as a broker to arrange loans for its clients. The remaining companies did not appear to actively transact business. 4 Mr Grant instituted his investigation following a complaint received from one of Starnex Securities' clients, Northwest Earthmoving Pty Ltd (Northwest), who had paid a commitment fee of $36,300 for a credit facility of $9,000,000. Although the facility was not provided the commitment fee was not repaid. 5 During the course of the investigation Mr Camiolo was required to attend at the offices of ASIC on several occasions to be examined about the affairs of Starnex Securities. He did not attend at the appointed times, causing the examinations to be rescheduled. Mr Camiolo had no valid reason for failing to attend. He was simply being uncooperative. I eventually made an order that Mr Camiolo appear for examination. Only then did Mr Camiolo attend. 6 As the investigation proceeded ASIC obtained documents about the affairs of the companies. They disclosed a number of things, none of which were to Mr Camiolo's credit. First and foremost it was discovered that the companies were insolvent. Most of the money which had come into the Starnex Securities accounts (usually by way of a brokerage fee) was paid to meet the debts of another company, channelled into unrelated ventures and applied to discharge Mr Camiolo's personal expenses or expenses of his family. The money in the Contech account was treated in an equally irregular manner. 7 Second, aside from Northwest there were other clients who had requested Starnex Securities to procure a loan but, when that loan was not forthcoming, were not repaid their commitment fee. Thousands of dollars were withheld from clients in this way. 8 Third, on at least one occasion, and perhaps more, Starnex Securities advertised that it would arrange commercial mortgages for "no brokerage fees". Despite this statement a brokerage fee was charged, albeit under a different guise. 9 Fourth, Mr Camiolo and Starnex Securities may have engaged in misleading conduct in contravention of ss 12DA(1) and 12DB(1) of the Australian Securities and Investments Commission Act 2001 (Cth). Section 12DA(1) prohibits conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive. Section 12DB(1) prohibits the making of false or misleading representations in connection with the supply or possible supply of financial services. As previously noted Northwest, a client of Starnex Securities, had sought a $9,000,000 loan. In due course Starnex Securities informed Northwest in writing that it had "obtained conditional approval" for the loan. Mr Camiolo said that he had obtained a verbal confirmation that the loan had been conditionally approved. That explanation turned out to be false. The lender had not given its approval for the loan. 10 Fifth, the companies have committed many offences. As regards the public companies, the following offences were committed by at least one and often all of the companies - contrary to s 201A they did not have at least three directors; contrary to s 201D the appointed directors had not signed consents to act prior to their appointment; contrary to s 327 there was a failure to appoint an auditor within one month of incorporation; contrary to s 292 the companies did not prepare annual financial reports and directors' reports; contrary to s 301 the companies did not have their financial reports audited; contrary to s 314 the companies did not send annual reports to members; contrary to s 319 the companies did not lodge annual financial reports with ASIC; contrary to s 345 the companies failed to lodge an annual return with ASIC by 31 January each year; contrary to s 146 the companies did not notify ASIC of changes of their principal places of business; contrary to ss 168 and 169 there was a failure to maintain registers of members; contrary to s 251A there was a failure to keep minute books; contrary to s 205B the companies did not notify ASIC of changes in details of directors and secretaries within twenty-eight days; contrary to s 250N there was a failure to hold an annual general meeting within eighteen months of registration; and contrary to s 286 there was a failure to keep appropriate financial records which would enable true and fair financial statements to be prepared and audited. The private company, Starnex Securities, also contravened ss 345, 146, 251A, 205B and 286. 11 The foregoing establishes that Mr Camiolo failed to act responsibly as a director of the companies. He appears to have little or no knowledge of how a company should be managed. He certainly has little appreciation of the legal obligations imposed on a corporation in relation to its administration and record keeping. 12 In Re Gold Coast Holdings Pty Ltd (in liq); Australian Securities and Investments Commission v Papotto (2000) 35 ACSR 107 Anderson J said (at 111) that: "The factors to be considered which govern the exercise of the court's powers of disqualification are the character of the offender, nature of the breaches, structure of the company and nature of its business, interests of shareholders, creditors and employees, risks to others from continuation of offenders as company directors, honesty and competence of the offender, hardship to the offender and his personal and commercial interests, and the offender's appreciation that future breaches could result in future proceedings …" See also HIH Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80. The following factors are also relevant considerations: whether or not a disqualification order is needed to protect the public; whether or not the disqualification order will adversely affect the interests of shareholders, creditors or employees; and whether or not the errant director is conducting the company's affairs to secure his own interests at the expense of the interests of others: see HIH Insurance Ltd (2002) 42 ACSR at 96-99. 13 ASIC has established that an order should be made against Mr Camiolo. It is in the public interest that he be quarantined from the management of any company for some period. A two year disqualification is warranted and an order to that effect will be made. If, after the period of disqualification, Mr Camiolo intends to re-enter the world of corporate commerce, he must amend his ways. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.