GFD v BJD

Federal Court of Australia|2021-11-19|Before: Smith J

Pursuant to s 206G(1)(c) of the Corporations Act 2001 (Cth), and subject to the condition in paragraph 2 below, Alan Ramsay Macalister and Birgitt Alice Macalister (applicants) have leave to manage Kircam Pty Ltd (ACN 117 628 369) (company).
Until such time as both of the applicants are no longer disqualified from managing corporations under Part 2D.6 of the Corporations Act, the company must not engage in any activity other than to act as trustee of the Macalister Superannuation Fund (Fund) and to do things that are reasonably incidental to so acting.
Pursuant to s 126J(1)(b) of the Superannuation Industry (Supervision) Act 1993 (Cth), each of the applicants is not a disqualified person in relation to the Company and the Fund. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

BANKS-SMITH J: 1 The applicants, Mr and Mrs Macalister, formally emigrated from the United Kingdom to Australia in 2004. 2 In 1987 they had established an insurance agency business which eventually operated through the entity known as Motorplus Limited. In 2014 they sold their shares in Motorplus to 116 Cardamon Limited under the terms of a share purchase agreement (SPA). In 2016 Cardamon brought proceedings against the Macalisters on the basis of alleged breaches of warranties under the SPA and obtained judgment against them in the High Court of Justice of England and Wales. That judgment was for damages in the sum of £2,386,247.50, together with interest and costs. 3 The judgment was registered in Australia under the Foreign Judgments Act 1991 (Cth) in 2019, pursuant to orders made by the Supreme Court of Western Australia. 4 The Macalisters were unable to satisfy the judgment debt and were subsequently made bankrupt pursuant to sequestration orders made by a registrar of this Court on 21 December 2020. 5 It follows that as undischarged bankrupts, the Macalisters are disqualified from managing a corporation: s 206B(3) of the Corporations Act 2001 (Cth). They are also disqualified persons for the purpose of Part 15 of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act). 6 By this application the Macalisters, who are both in their 60s, seek orders permitting them to act as directors of Kircam Pty Ltd (Kircam). Kircam is the trustee of the Macalisters' self-managed superannuation fund, the Macalister Superannuation Fund (Fund). Prior to their bankruptcy, Mr and Mrs Macalister were the directors of Kircam. 7 Should they not be permitted to do so, the Fund will cease to comply with the SIS Act unless Kircam can obtain a registrable superannuation entity licence pursuant to s 29D of that Act. As undischarged bankrupts, the Macalisters cannot take any action on behalf of Kircam, including any steps that would enable the Fund to comply with the SIS Act. There is therefore a legitimate foundation for bringing this application. 8 The Macalisters have standing to bring the application notwithstanding their bankruptcy. Their standing arises from their status as disqualified persons under the Corporations Act and the SIS Act. The right to bring the application is not 'the property of the bankrupt' within the meaning of s 5(1) of the Bankruptcy Act 1966 (Cth), nor is it property divisible among creditors for the purposes of s 116 of the Bankruptcy Act. 9 I heard the application on 19 November 2021 and granted the relief sought on that date. These are the reasons for granting the relief.

Statutory context 10 Section 206A of the Corporations Act provides that a person who is disqualified from managing corporations under Part 2D.6 of the Act commits an offence if: (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 As noted, s 206B(3) relevantly provides that a person is disqualified from managing corporations if the person is an undischarged bankrupt under the law of Australia. 12 A person who is disqualified from managing corporations under Part 2D.6 may only be appointed as director of a company if the appointment is made with permission granted by the Australian Securities and Investments Commission (ASIC) under s 206GAB, or with leave granted by the court under s 206G: s 201B(2). 13 Section 206G of the Corporations Act empowers the court to grant leave for a disqualified person to manage corporations. It relevantly provides: 206G Court power to grant leave (1) A person who is disqualified from managing corporations may apply to the Court for leave to manage: (a) corporations; or (b) a particular class of corporations; or (c) a particular corporation; if the person was not disqualified by ASIC. (2) The person must lodge a notice with ASIC at least 21 days before commencing the proceedings. The notice must be in the prescribed form. (3) The order granting leave may be expressed to be subject to exceptions and conditions determined by the Court. Note: If the Court grants the person leave to manage the corporation, the person may be appointed as a director (see section 201B) or secretary (see section 204B) of a company. (4) The person must lodge with ASIC a copy of any order granting leave within 14 days after the order is made. (5) On application by ASIC, the Court may revoke the leave. The order revoking leave does not take effect until it is served on the person. 14 In Frigger, in the matter of an application by Frigger [2019] FCA 1730, Jackson J summarised the principles relevant to such an application and I respectfully adopt that summary: [8] In Re Altim Pty Ltd [1968] 2 NSWR 762 at 764, Street J identified the fundamental principles which informed the court's discretion under a statutory predecessor to s 206G as follows: The section under which this application is made proceeds upon the basis that a person who is an undischarged bankrupt is prima facie not to be permitted to act as a director or to take part in the management of a company. The Court is given jurisdiction to grant leave for such activities to be carried on, but an applicant who comes to the Court seeking leave must bear the onus of establishing that the general policy of the Legislature laid down in this section ought to be made the subject of an exception in his case. It should be borne in mind that the section is not in any sense a punishment of the bankrupt. Nor should a refusal to grant leave under the section be regarded as punitive. The prohibition is entirely protective, and the power of the Court to grant leave is to be exercised with this consideration in the forefront. [9] Even in the absence of a contradictor it is for the applicants for leave to place before the court evidence in appropriate form that is capable of satisfying the court that, in the given case, an exception should be made to the legislative policy underlying the prohibition in the Act. ASIC's absence is not necessarily to be given significant weight: Watts, in the matter of Watts [2011] FCA 1185; (2011) 284 ALR 403 at [18] (Yates J). [10] Generally, before it can lift the disqualification the court needs to know what the applicants propose to do by way of corporate management, although this may not be necessary if the application is for leave to take part in the management of a specified corporation or corporations: Re Shneider (1996) 71 FCR 69 at 73 (Drummond J). In those cases the court will consider the structure of the companies, the nature of their businesses and the interests of their shareholders, creditors and employees, and any risks to those persons or to the public which may be involved in the applicants assuming positions on the board or in management: Adams v Australian Securities & Investments Commission [2003] FCA 557; (2003) 46 ACSR 68 at [8] (Lindgren J). [11] As one would expect, the attitude of the shareholders to the application can be a relevant factor: see e.g. Jansen v Australian Securities & Investments Commission [2003] FCA 1564 at [12], [14] (Mansfield J). [12] The court will also look to the circumstances in which the debts giving rise to the bankruptcy were not paid, and the extent to which an applicant has cooperated with the trustee in bankruptcy: GRD v BJD [2018] WASC 374 at [12] (Master Sanderson), applying Chye v Australian Securities and Investments Commission [2012] FCA 1405 (Bromberg J). 15 The object of the SIS Act is to make provision for the prudent management of certain superannuation funds (among other funds and trusts) and for their supervision by certain regulators, one of which is the Commissioner of Taxation: s 3(1). In return for such regulation, the funds and trusts may become eligible for concessional taxation treatment: s 3(2). 16 A superannuation fund is a self-managed superannuation fund for the purposes of the SIS Act only if it satisfies the conditions set out in s 17A of the SIS Act. Where the trustee is a body corporate, those conditions include that each director of the trustee is a member of the fund: s 17A(1)(c). 17 Under the SIS Act, a person is disqualified from acting as a responsible officer of a trustee of a superannuation entity if they are an insolvent under administration. It is an offence for a disqualified person to do so: s 126K(4). 18 Section 126J(1)(b) of the SIS Act provides that a disqualified person may apply to this Court for an order that they are not a disqualified person. 19 In Porter, Application under the Superannuation Industry (Supervision) Act 1993 [2012] FCA 1431 Foster J made the following observations about s 126J: [29] … I think that s 126J(1)(b) should be interpreted as conferring a broad discretion upon the Court to decide whether to make the order contemplated by the subsection and, if so, on what terms. In considering whether to exercise the discretion and, if so, how, the Court must take into account the purpose or object of the SIS Act and, in particular, the purpose or object of Pt 15 of that Act. The object of the SIS Act is set out in s 3. The object of Pt 15 is specified in s 119. Therefore, in any given case, when the Court's jurisdiction under s 126J(1)(b) is engaged, the Court is obliged to determine the application by paying due regard to the fact that: (a) Part 15 of the SIS Act is intended to set out rules governing the eligibility of persons to take up positions of responsibility with superannuation entities; and (b) The principal object of the SIS Act generally insofar as superannuation entities are concerned is to make provision for the prudent management and supervision of such entities. 20 His Honour also observed (at [31]) that in applying s 126J the court was entitled to have regard to the jurisprudence developed in relation to the disqualification and reinstatement of officers of corporations pursuant to the Corporations Act, including in relation to s 206G of that Act. 21 Having regard to all of those principles, it can be seen that the main consideration in applications under s 206G(1)(c) of the Corporations Act and s 126J(1)(b) of the SIS Act is therefore the interests of third parties; the shareholders, creditors and employees of the relevant company, and the public at large (Frigger at [34]). As discussed in GFD v BJD [2018] WASC 374 at [11]-[12], other considerations may include: (a) the protection of the public and any shareholders; (b) the nature of the disqualification; (c) the applicant's character and conduct since the disqualification; (d) the structure of the company and the nature of the business; (e) the potential for repetition of contraventions; (f) the risk to survival of the company; (g) the effect on any third parties of the company being unable to have the benefit of the applicant's knowledge; and (h) insofar as bankruptcy is involved, the circumstances in which the debts giving rise to the bankruptcy were not paid and the extent to which an applicant cooperated with the trustee in bankruptcy.

No contradictor 22 There is no contradictor to the application. ASIC and the Commissioner of Taxation have been notified of the application. ASIC has indicated through correspondence with the Macalisters' solicitors that it neither opposes nor consents to the application. Similarly, the Commissioner has indicated that they would take no part in the application. 23 I am satisfied that the Macalisters' joint trustees in bankruptcy, Ian Charles Francis and Joanne Emily Dunn (Trustees), have been served with the application. They have not sought to convey any position with respect to the application. 24 Regardless of the absence of a contradictor, I am satisfied that the Macalisters have made full disclosure of matters relevant to their application, having regard to the affidavit evidence.

Evidence 25 The Macalisters relied on four affidavits filed in support of the application, being an affidavit of Mr Macalister, an affidavit of their daughter and shareholder of Kircam, Kirsty Wardle, and two affidavits of a solicitor, Evan Taylor, who acts for the Macalisters in this application. The following facts may be distilled from the affidavit evidence. 26 Mr Macalister is 67 years old and Ms Macalister is 60 years old. 27 Over the years, the Macalisters accumulated benefits under a number of different pension schemes, which they eventually rolled into the Motorplus Limited Directors' Pension Scheme (Scheme). 28 Following their emigration to Australia, the Macalisters sought advice on how to access the benefits in the Scheme for their retirement in Australia, as they had no intention of returning to the UK. The result of that advice was the incorporation of Kircam, which became trustee of the Fund. The Fund trust deed was in evidence. Also in evidence was a letter from the Deputy Commissioner of Taxation dated 22 February 2007 giving notice that the Fund was a regulated complying superannuation fund under the SIS Act. 29 The Fund also complies with the requirements of the United Kingdom's HM Revenue & Customs for a 'qualified recognised overseas pension scheme', and therefore the Macalisters were able to transfer their pension benefits from the Scheme to the Fund. Confirmation of this status was in evidence. 30 The Macalisters are the only members of the Fund. The Fund is only for members who have attained the age of 55 years. 31 Prior to the sequestration orders the Macalisters were the only directors of Kircam, in accordance with the SIS Act. They managed Kircam from their appointment as directors on 19 December 2005 until their bankruptcy. The only shareholder of Kircam is the Macalisters' daughter, Ms Wardle. 32 Kircam does not carry on any activity other than to act as trustee of the Fund. 33 Mr Macalister deposed to the fact that the assets held by the Fund originated from the Scheme and are not in any way referable to, or derived from, the proceeds of the sale of Motorplus or assets of the Macalisters in their own right. 34 The Macalisters have not received any benefits from the Fund since freezing orders and ancillary asset disclosure orders were made against them by the Supreme Court of Western Australia on 8 November 2019. To the best of their knowledge, the Macalisters have complied with the orders. 35 The Macalisters have indicated that they have no intention of managing any company apart from Kircam.

Consideration 36 In this case the only members of the Fund are the Macalisters. Ms Wardle has indicated in her affidavit evidence that she supports the application. Kircam does not have any employees and there are no known creditors that conceivably have a claim to the assets of the Fund. Kircam carries on no other business other than acting as trustee of the Fund. Kircam has no subsidiaries and its structure is uncomplicated. Its sole business activity is to act as trustee of the Fund. In all of those circumstances, the people who might be affected by the orders sought all support the application. 37 There is no reason to believe that the Macalisters will not comply with their obligations under the Corporations Act and the SIS Act if the relief is granted. The Macalisters managed Kircam without any apparent issue from their appointment on 19 December 2005 and no objection to the application has been received. 38 It has not been alleged that the Macalisters have failed to cooperate with the Trustees. The Trustees, who are on notice of this application, have not raised any issue as to compliance by the Macalisters with their obligations as undischarged bankrupts. 39 The Macalisters' disqualification from managing corporations and superannuation funds arises from their failure to satisfy a judgment debt. Having read the judgment in the relevant proceedings (116 Cardamon Limited v Macalister [2019] EWHC 1200 (Comm) (Cockerill J)), it is apparent that the conduct resulting in the judgment debt arose from breaches of warranties as to the status of the company's accounts, but did not involve any apparent dishonesty on the part of the Macalisters. Whilst they were found to be liable, the trial judge noted the following: [13] Nor, I should add, is there anything sinister in the fact that Mr and Mrs MacAlister did not call any factual witnesses. Although they were the Company's sole shareholders and directors up to the date of the SPA in 2014, they had been absentee owners for some time, having moved to Australia in 2002. Mr and Mrs MacAlister are both now in their mid-sixties and retired. [14] Between 2002 and the date of the SPA, the day-to-day management of the Company was in the hands of its management team. Mr and Mrs MacAlister's role over this period was primarily limited to reviewing accounting information (such as Management Accounts) for the Company, as well as reviewing and approving its annual audited Accounts. 40 Accordingly, I do not consider that the circumstances in which the debt arose are such as would deny the grant of the relief sought in this application. 41 It was submitted by the Macalisters that leaving aside legal fees, Cardamon is their only known creditor. Upon their discharge from bankruptcy that debt will be released, if it is not satisfied in the interim, by operation of s 153(1) of the Bankruptcy Act. 42 I am cognisant of the risk to the Fund and Kircam arising from the disqualification of the Macalisters from holding the position of directors. It cannot comply with its obligations under the SIS Act. If the orders are not made, the Fund would only remain a self-managed superannuation fund if an entity holding an RSE licence granted pursuant to s 29D of the SIS Act was to be appointed trustee: s 17A(4)(a). 43 Further, without anyone to act on its behalf, Kircam is unable to comply with its obligations under the Corporations Act. That would expose Kircam and the Macalisters to the potential for deregistration of Kircam for failure to pay annual fees. 44 Importantly, the Macalisters have offered as a condition to the grant of leave that there be an order to the effect that until such time as they are no longer disqualified from managing corporations under Part 2D.6 of the Corporations Act, Kircam must not engage in any activity other than to act as trustee of the Fund and to do things that are reasonably incidental to so acting.

Determination 45 In my view the matters raised on this application that I have referred to at [36]-[44] above favour the grant of leave and so the lifting of the disqualification insofar as Kircam is concerned. Accordingly, there will be orders as sought by the Macalisters. I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Banks-Smith.

Corporations Act 2001(Cth)ss 29D, 201B, 206A, 206B, 206G, 206GAB, Part

Superannuation Industry (Supervision) Act 1993(Cth)ss 3, 17A, 29D, 126J, 126K, Part

Bankruptcy Act 1966(Cth)ss 5, 116, 153

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