Australian Securities & Investments Commission v Maxwell & Ors

DECISION : Director disqualified for 5 years

CATCHWORDS : CORPORATIONS - Directors and officers - Disqualification - Where corporations have repeatedly contravened fundraising provisions - relevant considerations - aggravating and mitigating circumstances

LEGISLATION CITED : Corporations Act 2001 (Cth), ss 180(1), 181(1), 206D(1), 206E(1), 206G, 727(1), 734(1), 734(2), 911A, 1041I

CASES CITED : ASIC v Adler (2002) 42 ACSR 80; [2002] NSWSC 483

Australian Securities & Investments Commission (plaintiff) Donald Richard Maxwell (first defendant) Oceanwalk Projects Pty Limited (third defendant) Procorp Investments Pty Limited (fourth defendant) Central Development Group Pty Limited (fifth defendant) The Wake (Waitara) Pty Limited (sixth defendant) Alliance Property Developments Limited (seventh defendant) Malcolm Fortune (eighth defendant) Coakley Associates Pty Limited (ninth defendant) Bankstown Project Two Pty Limited (tenth defendant) Drummoyne Constructions Pty Limited (eleventh defendant) Great Northern Constructions Pty Limited (twelfth defendant) Homebush Project One Pty Limited (thirteenth defendant) PARTIES : Liverpool Projects Limited (fourteenth defendant) Mansions on Mann Limited (fifteenth defendant) Maroubra Properties Pty Limited (sixteenth defendant) Miranda Villas Pty Limited (seventeenth defendant) Procorp Investments (Gosford) Pty Limited (eighteenth defendant) Zepher Pty Limited (nineteenth defendant) Jim Kolios (twentieth defendant) Northern Sight Pty Ltd (twenty-first defendant) George Nahed (twenty-second defendant) Troy Pierre Fortune (twenty-third defendant) John William Bennett (twenty-fourth defendant) Jaul Jammal (twenty-fifth defendant) Roy Skaf (twenty-sixth defendant) Lloyd Coakley (twenty-seventh defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5298/03 Australian Securities & Investments Commission v Maxwell & Ors (No 2) JUDGMENT (Ex tempore) 1 HIS HONOUR: On 10 October 2006 I delivered a judgment in which I reached a number of conclusions concerning the 22nd defendant, George Nahed. In short, I concluded that a company of which he was a director, Procorp, had committed numerous contraventions of the Corporations Act 2001 (Cth), s 727(1), s 734(2) or (1), s 911A and s 1041I. I also found that other companies of which he was, at the relevant time, a director - Bankstown, Drummoyne, Great Northern, Liverpool and Northern Sight - had committed numerous contraventions of ss 911A and 1041H. However, I was not satisfied that Mr Nahed was personally liable for any of those contraventions, nor that he had breached his director's duties under ss 180(1) or 181(1). That conclusion was based essentially on the limited experience which he brought to the role of director in the companies and, more particularly, on the allocation of responsibility in those companies among the several directors, in that the two Messrs Fortune had prime responsibility for fund raising, whereas Mr Nahed's responsibility was on the building and construction side of the projects. I stood over to today the question of what consequential orders should be made against Mr Nahed.

2 In the interim, ASIC on 13 October 2006 forwarded a copy of the judgment to Mr Nahed at his last known address, and informed him that the matter was listed for hearing today for submissions in relation to the relief to be sought against him, and that it was a matter for him or his legal representative as to whether they wished to make submissions in reply and attend. Thereafter a number of conversations took place on 16 October between Mr Ashy Imani, a lawyer in the employ of ASIC, and Mr Nahed, in which Mr Nahed said that he had crushed his leg and that it was swollen, and queried whether he needed to attend today. He sought some information as to the remedies that ASIC would be seeking, and was ultimately informed that the only relief to be sought would be a banning order. He was not informed of the duration of the order to be sought, but had he read the judgment with which he had been provided, he would have been alerted well and truly to the possibilities. 3 Mr Nahed foreshadowed to Mr Ashy Imani the possibility that he might call the court, and was told that he should do what he needed to in relation to not being able to attend today. The court has received no communication from Mr Nahed. What he informed ASIC of does not amount to a complete inability to attend. He must be taken to be aware that, in the absence of contact from him or an appearance by him today, the matter would proceed in his absence, as it has of course on the question of liability to this point. 4 ASIC submits that a banning order for a duration of in the order of five years, corresponding to that which I made against Mr Skaf, would be appropriate. The relevant considerations seem to me to be as follow: 5 First, there is a significant distinction between Mr Nahed and the other defendants against whom banning orders have been made, with the exception of Mr Coakley, in that only Mr Nahed and Mr Coakley have not been found, at least by agreement, to be guilty of a contravention of a pecuniary penalty provision of the Corporations Act. 6 However, s 206E, which grounds a banning order, does not depend on the same considerations as, for example, s 180. I have found that a company or companies of which Mr Nahed was, at the relevant time, a director, committed, over a sustained period, numerous contraventions of the fund-raising provisions of the Act, to the considerable prejudice of the public. Though Mr Nahed's failure to prevent such contraventions or to take steps to do so was, in the circumstances, not such as to render him guilty of a breach of his director's duties, s 206E makes clear that even if there is not a breach of duty by the director, he or she may be liable for disqualification merely by being a director of a company which repeatedly contravenes provisions of the Act. While I have found that ss 180 and 181 are not to be viewed as a means of visiting de facto accessorial liability on directors, for contraventions of the law by their corporations, s 206E, to the contrary, does visit on directors consequences for failing to prevent contraventions by their companies, by exposing the directors to disqualification. 7 While I think the distinction between those officers whose conduct I have found, albeit by agreement, to amount to contraventions of their duties, on the one hand, and Mr Coakley and Mr Nahed on the other, whose conduct does not amount to such a breach, is a distinction which needs to be recognised in the sanction imposed, nonetheless, I think some disqualification is justified in order to make it plain, both to Mr Nahed and to the community, that serious responsibilities attend the office of the director of a company, particularly one which engages in fund raising and deals with the public in the way in which these corporations did. That may also be said about the responsibilities of a director of a company when the company is bound by orders of the court, as these corporations were at relevant times in and after October 2003. 8 The distinctions to which I have referred, between the directors who have been found guilty of contraventions of their duties and Mr Nahed, would suggest that his responsibility and culpability is to be seen at the lower end of the scale of those involved in this case, and I think that is the starting point. 9 However, there are some countervailing considerations which also need to be taken into account. One is that even after he was on notice of the Mareva orders by late November 2003, there continued to be disbursements from the assets of the corporations amounting, in all, to in excess of $231,000. By this time Mr Nahed was the sole director of the relevant corporations, the other directors having resigned, and he had assumed their exclusive management. The evidence does not enable me to say at this stage to what extent Mr Nahed, as distinct perhaps from Mr Maxwell, was responsible for those ongoing disbursements, but at least some were to a company, Citisquare, associated with Mr Nahed. At the least, it can be said that, at a time when he was the sole director, and when the companies were bound by Mareva orders of this court, he failed to ensure that the companies under his sole control complied with those orders. That is a matter which legitimately raises concern as to his understanding of the responsibilities of a company director. 10 A second matter which, to some extent, distinguishes his position from that of Mr Jammal and even Mr Skaf, is that whereas in the Central Development Scheme (in which those defendants were involved) the losses were, in very approximate terms, in the order of $3,000,000, in the Procorp Scheme (in which Mr Nahed was involved) the total losses were within the order of - again very roughly - $12,000,000, and involved many more investors than were involved in the Central Development Scheme. This is an aggravating circumstance. 11 Unlike Mr Jammal, who invested and lost his own moneys in the venture, there is no evidence that Mr Nahed suffered any corresponding or similar loss of his own moneys. 12 A further significant matter is that, unlike each of the other defendants with whom I have dealt, Mr Nahed has not participated in the proceedings, despite his plain knowledge of them, and despite his occasional communications with officers of ASIC, both when the substantive hearing approached early this year, and in the last day or so before this hearing. Unlike the other defendants, he put ASIC to proof of the case against him and, while ASIC did not ultimately prove the whole of the case which it mounted, the case would have been very much simpler had he co-operated in the manner in which the other defendants did. 13 The effect of this is that there has been no display of contrition on the part of Mr Nahed - not even to the extent of the defendants who, short of expressing contrition as Mr Bennett did, at least reached agreement with ASIC - nor any evidence that he now understands the responsibilities of a director, nor even any claim to the pragmatic type of discount which co-operation entitled the other defendants to pray in their aid. 14 Essentially I think that two considerations weigh uppermost in determining an appropriate period of disqualification. The first is the lesser culpability of Mr Nahed's conduct as I have found it, which would suggest a disqualification for a shorter period than any other of the defendants than, perhaps, Mr Coakley. The second, countervailing, one, is the much greater difficulty that I have in Mr Nahed's case than with any of the other defendants - except, perhaps, Mr Maxwell - of being satisfied that he has an understanding of the responsibilities of a director and is likely to be fit to act as such in the future. 15 Balancing those countervailing considerations, I have come to the conclusion that there is merit in ASIC's submission that a disqualification for the same duration as Mr Skaf, that is for five years, is appropriate. Having revisited the observations of Santow JA in ASIC v Adler (2002) 42 ACSR 80; [2002] NSWSC 483, it seems to me that his conduct does not approach the type of conduct described by his Honour as attracting disqualifications in the range of 7 to 12 years. On the other hand, I am much less satisfied in his case than in most of the others that he understands the responsibilities of a director and is likely to be fit to discharge those responsibilities in the future. 16 One matter which has occasioned me some reservation is the possibility that, as a builder, Mr Nahed may wish to carry on business through the structure of a proprietary company, and it may well be unreasonable that he be prevented from obtaining the advantages and protection of limited liability in that respect. However, the disqualification which I propose will not prevent him from making an application under s 206G to manage a particular Corporation or a particular class of Corporation which would address this potential problem, if he were so minded. 17 Accordingly, my order is that, pursuant to the Corporations Act, ss 206D(1) and/or 206E(1), the 22nd defendant, George Nahed, is disqualified from managing corporations for five years from the date of these orders.

18 I note that ASIC does not seek any costs order in the circumstances that Mr Nahed is a bankrupt. 19 I reserve liberty to ASIC to apply in connection with the funds the subject of the undertaking previously given by Chaon Jankovic, any such application to be made on five days' notice to Ms Jankovic and to the Court.

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