Dean-Willcocks v Companies Auditors and Liquidators Disciplinary Board

Serious Question to be Tried 6 The first question for consideration is whether there is a serious question raised by the applicant which would warrant the granting of a stay. The application for a stay is based on an alleged error of law in the Board's reasoning in that it invoked an erroneous test as to what constitutes a conflict of interest and misapplied the relevant law. The contention for the applicant is that on its face, the Board's reasons for determination disclose an error of law. 7 By way of example, one of the allegations of ASIC in relation to Mr Dean-Willcocks is that he accepted an appointment as administrator where there existed a prior continuing professional relationship with a related practice and the appointee company during two years prior to appointment. ASIC alleges that this acceptance by Mr Dean-Willcocks displayed a lack of professional independence and a conflict of interest in relation to the administrations of nominated companies, including a company known as Freedom and two others known as Holilop and Callen. There were other specific allegations in relation to inadequate disclosure, conflict of interest, the offer of an inducement and the offer of consideration to secure appointment. 8 In its reasons for determination, the Board states at para 5.3 entitled "Perception of Lack of Objectivity" that references in the Practice Standards to conflicts should be read as referring to a real possibility of conflict or potential conflict, and not simply to a theoretical, fanciful or speculative conflict. The Board also notes in this paragraph that in the case of conflict between the law and standards, the law must prevail. 9 The applicant says that the error is encapsulated in the following statement in sub-paragraph (g) of par 5.4: '(g) The result is that if, on an objective view, the relationship when created, results in a real possibility of impairment of independence then the definition will apply, and CWS was a related practice. Thus the decision as to whether CWSPL was a related practice of RDW or not does not depend on being able to identify particular circumstances of any appointment or administration as having a real possibility of impairing independence in connection with a particular appointment. In our view this result accords with the spirit or purpose of the concept of related practice namely that a related practice should be treated in effect as part of the practice concerned for the purpose of various provisions of the ICAA code.' (Emphasis added). 10 In subparagraph (j), the reasons state: 'The definition of "person in a practice" is … predicated on an unstated assumption that persons actually in the same practice might have a relationship which, of its very nature, "might" impair independence. In such a case the analysis of potential conflict is not required and the answer is presumed. Put another way, the likelihood of potential conflict is regarded by the professional bodies as being so great that there is an irrebuttable presumption of impairment of independence.' (Emphasis added). 11 The primary contention for the applicant is that there is an obligation on the Board to look at and evaluate the specific circumstances of each particular appointment and form a view as to whether there is a likelihood of conflict. There is only a conflict where there is something that can be seen from the circumstances apparent at the time of appointment which generates a conflict situation. There is no relevant conflict if there are no circumstances to indicate that conflict is likely to arise in the real world in a particular case. 12 The reasons for determination at para 5.5(d)(ii)(A) quote the submission of ASIC as presenting the issue in these terms: 'Whether the relationship alone is enough and whether or not the conflict only arises where there is knowledge of the circumstances that might unfold in the course of investigation at the time of appointment.' 13 In support of its submissions on the question of whether there is a serious question to be tried in relation to the application for a stay, counsel for the applicant referred to the decision in Pongrass Group Operations Pty Ltd v Lowerpinems Pty Ltd (1994) 15 ACSR 341. In that case, Sackville J considered the principles applicable where it was proposed that a person who had a prior connection with the company be appointed as liquidator. At page 345, his Honour said: '…a proposal to appoint as a liquidator a person who has had a prior nexus with the relevant company should receive close scrutiny. It is also clear that due recognition should be given to the legitimate fears and perceptions of a substantial body of creditors. In this case, the wishes of Sensor Technologies Pty Ltd, as expressed by Mr Shearer … should be taken into account. However, in my view, it is necessary to examine the evidence carefully and not to act on fears or suspicions that are not explained or justified by reference to underlying facts. Furthermore, it is relevant, although by no means decisive to take account of the advantages of continuity of administration if they apply in the circumstances of a particular case.' (Emphasis added). 14 After giving due consideration to the prior nexus between Ferrier Hodgson and the respondent, His Honour decided that on balance it was not inappropriate that the proposed appointee be appointed as liquidator of the company. Other cases which indicate that it is necessary to look at the particular circumstances of each case before making a decision as to whether there is a reasonable apprehension of a conflict of interest in relation to the appointment of a proposed liquidator include Commonwealth of Australia v Irving (1996) 144 ALR 172; Network Exchange Pty Ltd v MIG Communications Pty Ltd (1994) 13 ACSR 544 and Advance Housing Pty Ltd (In Liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230. 15 In Irving, Branson J, after a careful analysis of the facts, considered that it had been shown that a fair minded person informed of the facts could reasonably entertain a doubt as to the capacity of Mr Irving to be independent in circumstances where he was required to investigate the past conduct of a person with whom he had a professional relationship. It was on this basis that Her Honour expressed the view that it would not be appropriate for Mr Irving to continue as an administrator of the estate of the respondent. 16 These authorities support the view that in the present case, there is a serious question as to whether the broad approach taken by the Board was in accordance with the established legal and equitable principles applicable to liquidators and administrators. In failing to investigate and consider the circumstances of particular appointments, and by accepting the relationship and the potential for conflict as the decisive consideration, it is at least reasonably arguable that the Board applied the test at too high a level of generality. 17 In my view, there is a serious question to be tried in this matter arising from the way in which the issue dividing the parties was formulated in the Board's reasons for determination. This question concerns whether the relationship alone is sufficient, or whether there must be requisite conduct where, having regard to the circumstances of each particular appointment at the time of the appointment, there are circumstances known which could lead to conflict of interest. It is arguably necessary to investigate the particular circumstances of appointment in relation to specific entities in order to determine whether there is a possibility of conflict.

Balance of Convenience 18 In relation to the balance of convenience, ASIC accepts that publication of the notice that the applicant seeks to have stayed will have an adverse effect on the applicant's reputation. ASIC recognises that the applicant has been a registered liquidator and official liquidator for a substantial period of time and has a substantial reputation at stake. It also acknowledges the inconvenience which will arise if applications have to be made for the applicant's removal from the numerous positions to which he has been appointed. On the other hand, ASIC refers to the important fact that the Board has exercised a broad discretion as to the appropriate sanction. It notes that the Board's determination represents the evaluation of an experienced and qualified expert body, and requires due deference because of this evaluation. It is further urged that on a general basis and paying due regard to the protective nature of the Board's function the issues raised are directed to protection of the public interest as opposed to the resolution of competing private interests. ASIC refers to the application of appropriate standards and sanctions which are fundamental to the proper discharge of its functions, and points out that there is a weighty and legitimate necessity to ensure compliance with carefully formulated Codes of professional conduct. 19 The applicant, on the other hand, submits that ASIC points to no prospect or potential circumstance where any actual conflict of interest may arise or detriment be caused. The applicant also emphasises that the conduct occurred between 5 to 8 years ago, and that there have been no complaints about appointments after 2003 when the joint venture came to an end. There is uncontested evidence from Mr Dean-Willcocks that he has no present intention of entering into any similar arrangements. The applicant also points to the substantial expense and inconvenience in making applications for substituted appointees to handle the large number of commitments, liquidations and administrations in question. In addition, the applicant is also extremely concerned as to the impact on his reputation and that of his practice. In the event that he is ultimately successful, the applicant contends that publication of the Board's determination will cause irreparable harm which is not compensable. The lack of any likely or reasonably foreseeable harm arising if the stay is granted and an early hearing with a tight expedited schedule imposed is important in relation to the balance of convenience. 20 I conclude that the balance of convenience in this case, especially in view of the absence of any indication of any possible or likely prospect of harm to the public, falls in favour of the applicant. I consider that it is clearly a matter which must be expedited and I have imposed a tight timetable to progress the matter and to ensure an early hearing. 21 In the circumstances, I grant the order sought and I have made the necessary orders as to enable the prompt prosecution of this matter. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin.

Associate: Dated: 19 May 2006 Counsel for the Applicant: I M Jackman SC

Solicitor for the First Respondent: Australian Government Solicitor

Counsel for the Second Respondent:: Dr G Flick SC

Solicitor for the Second Respondent: Australian Securities & Investments Commission

Date of Hearing: 20 April 2006