Blunt v Corporate Affairs Commission

REASONS FOR JUDGMENT The applicant seeks to review what is said to be a decision and conduct of a delegate of the Australian Securities Commission ("the Commission") which has arisen in the course of a hearing which has been held for the purposes of s 600(3) of the Corporations Law. The applicant was a director of a number of companies which had gone into liquidation and in respect of which companies their liquidator had made a report, with respect to matters relating to the ability of the companies to pay their unsecured creditors, under s 533(1) of the Corporations Law. On or about 18 May 1995 the Commission served on the applicant a notice requiring him to show cause why the Commission should not serve a notice on him in accordance with s 600(3) prohibiting him for a period not exceeding five years from being a director or promoter of, or from being in any way (whether directly or indirectly) concerned in or taking part in the management of, a corporation without the leave of the Court. The notice then set out "Areas of Concern to be addressed by Charles Walter Laycock in relation to" each of the six companies of which the applicant had been a director. The Commission appointed a delegate to undertake the hearing required by s 600(3) of the Corporations Law and the hearing was held in December 1995. On the second day of the hearing before the delegate the Commission served an amended notice on the applicant in which two further companies were specified as relevant bodies for the purpose of s 600, namely Sandhurst Mining NL and Balgold Nominees Pty Ltd. As with the earlier notice the amended notice set out "Areas of Concern to be addressed by Charles Walter Laycock in relation to" each of the relevant companies now numbering eight. Those areas of concern were expressed in the following terms: "Benday Holdings Ltd 1. That the company under your management will be unable to pay its unsecured creditors more than fifty cents in the dollar. 2. That the Report as to Affairs of the company disclosed a deficiency of assets over liabilities of $1,099,442. 3. That the company under your management failed to remit $3,155.00 to the ATO. 4. That the company under your management failed to lodge an annual return for the years 1988, 1989 and 1990 in contravention of Section 263 of the Companies (Victoria) Code. Matpro Limited 1. That the company under your management will be unable to pay its unsecured creditors more than fifty cents in the dollar. 2. That the Report as to Affairs of the company disclosed a deficiency of assets over liabilities of $4,762,000. 3. That the company under your management failed to lodge an annual return for the years 1989 and 1990 in contravention of Section 263 of the Companies (Victoria) Code. 4. That you were a director of the following companies that have either been liquidated or are under external administration: i) Matpro Plastics Pty Ltd (ACN 006 586 581) ii) Candtack Pty Ltd (ACN 006 343 479) iii) First Commercial Investments Pty Ltd (ACN 005 669 214). Axtrack Australia Pty Ltd 1. That the company under your management will be unable to pay its unsecured creditors more than fifty cents in the dollar. 2. That the Report as to Affairs of the company disclosed a deficiency of assets over liabilities of $15,643.43. 3. That the company under your management failed to remit $7,300 in Sales Tax to the ATO. 4. That the company under your management failed to lodge an annual return for the years 1990 and 1991 in contravention of Section 263 of the Companies (Victoria) Code and Section 335 of the Corporations Law. I.N.C.O.M.E. Investments Limited 1. That the company under your management will be unable to pay its unsecured creditors more than fifty cents in the dollar. 2. That the Report as to Affairs of the company disclosed a deficiency of assets over liabilities of $43,765,851.19. 3. That the company under your management failed to remit $1,548,822.19 to the ATO. 4. That the company under your management failed to lodge an annual return for the years 1990 in contravention of Section 263 of the Companies (Victoria) Code. 5. That the liquidator could not be certain that the company under your management maintained proper accounting records in accordance with Section 289 of the Corporations Law. IGL Investments Holdings Pty Ltd 1. That the company under your management will be unable to pay its unsecured creditors more than fifty cents in the dollar. 2. That the Report as to Affairs of the company disclosed a deficiency of assets over liabilities of $1,946,587. 3. That the company under your management failed to remit $156,526.92 to the ATO in Group Tax and a number of deductions from employees salaries for superannuation and medical cover. 4. That liquidator (sic) stated that he was unable to obtain the co‑operation of the directors to discuss the affairs of the company and the reasons for its failure. 5. That the liquidator could not be certain that the company under your management maintained proper accounting records in accordance with Section 289 of the Corporations Law. 6. That due to lack of books and records the liquidator could not be certain of any payment to directors of either remuneration or outgoings, or any reductions made in favour of creditors subject to directors' guarantees within the period of six months preceding the commencement of the winding up of the company under your management. 7. That in the Preliminary Report of the official Liquidator, the failure of the company under your management was attributed to lack of managerial controls. The Computer Room Australia Pty Ltd 1. That the company under your management will be unable to pay its unsecured creditors more than fifty cents in the dollar. 2. That the Report as to Affairs of the company disclosed a deficiency of assets over liabilities of $291,839. 3. That the company under your management failed to lodge an annual return for the year 1990 in contravention of Section 263 of the Companies (Victoria) Code. 4. That the company under your management failed to remit the amounts of $43,968 and $11,438 to the ATO. 5. That the company may have traded while being insolvent in contravention of Section 592(2) of the Corporations Law. 6. That it is likely that the company under your management made excessive payments to its legal advisers (Messrs Ambrosy & Fox) who were associated with persons who controlled 50% of the company. This resulted in no funds being available to pay off debts. Sandhurst Mining NL 1. That the company under your management will be unable to pay its unsecured creditors more than fifty cents in the dollar. 2. That the Report as to Affairs of the company (dated 4 February 1993) disclosed a deficiency of assets over liabilities of $1,431,029 as at 4 November 1992. The Section 533 Report of the company disclosed the deficiency to have an estimated realisable value as at 4 November 1992 of $13,641,292. 3. That the Report as to Affairs of the company under your management failed to remit: (i) $31,478 in Fringe Benefits Tax to the ATO (ii) $314,540 in Group Tax to the ATO (iii) $47,613 in payroll Tax to the Western Australian State Government (iv) $27,770 in payroll Tax to the New South Wales State Government. 4. That the directors of the company breached Section 592 of the Corporations Law in that they had reasonable grounds to expect the company could not pay its debts when debt of $519,409 was incurred in the period 1 November 1990 to 30 April 1991 for the following reasons: (i) In late 1989 the assets of Sandhurst Mining NL ("Sandhurst") were not generating income to meet interest and other obligations. (ii) As at 30 June 1990 Sandhurst had a deficiency in working capital. (iii) On 31 October 1990 the National Australia bank dishonoured some cheques presented against the Sandhurst bank account. (iv) An amount of $1.2 million was due and payable to the Swiss Bond holders in November 1990 on account of interest. (v) A number of writs and summons had been filed against Sandhurst and numerous creditors were demanding repayment. (vi) By November 1990 Group Tax in the amount of $262,969.16 remained unpaid. Furthermore by April 1991 payroll tax in the amount of $77,902.34 remained unpaid. 5. That the company under your management failed to lodge an annual return for the year 1990 in contravention of Section 335 of the Corporations Law. 6. That the liquidator was of the opinion that the major cause of the company's failure was poor management and poor investment decisions. The liquidator was of the opinion that the Sandhurst Group of companies collapsed as a consequence of the following: (i) the mining operations of the group largely carried out by the Balmoral Gold Trust No 1 were making losses in the period 1987 to 1990. (ii) Sandhurst maintained substantial offices thereby incurring significant administration costs that could not be maintained given the lack of income from mining activities and investments made. (iii) In the second half of 1987 the group acquired a substantial number of interests in Canadian mining companies utilising funds borrowed pursuant to as Swiss Bond facility. The investments proved to be a failure and did not produce any income with which to maintain interest and Bond repayment obligations. 7. That entering into the major financing transactions and/or guarantees given may not have been in the interest of the company or its creditors: (i) The liquidator notes that the company was unable to generate sufficient income to continue paying the annual interest in relation to the Swiss bonds. (ii) The proceeds of the Swiss Bonds were applied to investments which proved to be a failure. Balgold Nominees Pty Ltd 1. That the company under your management will be unable to pay its unsecured creditors more than fifty cents in the dollar. 2. That the Report as to Affairs of the company (dated 4 February 1993) disclosed a deficiency of assets over liabilities of $1,189,272 as at 4 November 1992. The Section 533 Report of the company revealed the deficiency to have an estimated realisable value as at 4 November 1992 of $26,389,272. 3. That the Report as to Affairs disclosed that the company under your management failed to remit: (i) $328,656 in Group Tax (ii) $14,028 in Fringe Benefits Tax to the ATO (iii) $48,492 in Payroll Tax to the Western Australian State Government. 4. That the directors of the company breached Section 592 of the Corporations Law in that they had reasonable grounds to expect the company could not pay its debts when debt of $247,468 was incurred in the period 1 November 1990 to 30 April 1991 for the following reasons: (i) The company had a deficiency in working capital as at 30 June 1990 and had in fact a deficiency since at least June 1987. (ii) The company was relying on funds from Sandhurst Mining NL ("Sandhurst") to maintain operations. (iii) Balgold Nominees Pty Ltd ("Balgold") had a debt to Sandhurst of in excess of $25 million and would be called upon to meet that debt as Sandhurst was in default of interest to Swiss Bond holders. (iv) The majority of trade debt between July 1990 and April 1991 were in excess of 90 days overdue and there was a trend of increasing debts overdue 90 days from September 1990.. (v) Group Tax in the amount of $345,611.24 had accrued by November 1990 and payroll Tax of $63,913.31 remained unpaid by April 1991. (vi) Numerous creditors were demanding repayment, some of which were negotiated repayment programs. 5. That the company under your management failed to lodge an annual return for the year 1990 in contravention of Section 335 of the Corporations Law. 6. That the liquidator was of the opinion that the major cause of the company's failure was poor management and poor investment decisions. The liquidator was of the opinion that the Sandhurst Group of companies collapsed as a consequence of the following: (i) The mining operations of the group largely carried out by the Balmoral Gold Trust No 1 were making losses in the period 1987 to 1990. (ii) Sandhurst maintained substantial offices thereby incurring significant administration costs that could not be maintained given the lack of income from mining activities and investments made. (iii) In the second half of 1987 the group acquired a substantial number of interests in Canadian mining companies utilising funds borrowed pursuant to as Swiss Bond facility. The investments proved to be a failure and did not produce any income with which to maintain interest and Bond repayment obligations." After a hearing lasting four days the hearing was adjourned. The applicant challenged the validity of the issue of the notices at a hearing held in February 1996 before the delegate who decided on 30 September 1996 that the delegate of the Commission was within his power in issuing both notices. On 17 October 1996 the applicant made an application to the Administrative Appeals Tribunal to review the delegate's decision and on 4 February 1997 the Tribunal held that the decisions to give the notices were not reviewable by the Tribunal as they were characterised as not determinative of legal rights but as a step along the way to determining whether or not to serve a prohibition notice. The resumed hearing occurred on 13 March 1997. Subsequently the delegate resigned and Mr David Forbes was appointed on 7 April 1997 as delegate of the Commission to conduct the hearing in his place. The further hearing was fixed for 14 May 1997 on which date the applicant's legal advisers handed to Mr Forbes a document entitled "Request for particulars of areas of concern". The document requested particulars in the following form: "1. The Australian Securities Commission ("the Commission") is requested to provide the usual particulars of Charles Walter Laycock ("Mr Laycock") which it continues to be concerned may be capable of justifying the service of a notice upon Mr Laycock pursuant to s 600(3) Corporations Law. 2. The Commission is requested to provide details of the basis upon which it continues to be concerned that it may be open to arrive at a conclusion of the public presently required protection from Mr Laycock acting in his capacity as a company director." The expression "usual particulars" was then defined expansively. On 2 July 1997 Mr Forbes responded by letter to the applicant's solicitors in the following terms: "I refer to the Request for Particulars of Areas of Concern served on the ASC in relation to this matter. The ASC considers that sufficient information as to the Areas of Concern is contained in the Notice to Show Cause dated 18 May 1995 and the amended Notice to Show Cause dated 6 December 1995 served upon your client. There are no additional matters of concern to the ASC. In conducting hearings of the kind to which your client is subject the ASC is exercising an administrative, rather than a judicial function. As such the ASC complies with its natural justice obligations by providing relevant persons with full details of the areas of its concern prior to the outset of a hearing. I propose to resume the hearing on 23 July 1997. Please advise within seven days if this date is not suitable."