'Executive officer'
127 The Liquidators also seek a direction or declaration to the effect that they are not 'executive officers' within the meaning of the definition in Schedule 4 of the EPA or s 412A of the MRA.
128 There is authority to the effect that a liquidator is an 'executive officer' within the meaning of the EPA: Linc Energy Ltd (in Liq) v Chief Executive, Department of Environment and Heritage Protection [2017] QSC 53; (2017) 2 Qd R 720. As the Liquidators seek to distinguish its application, it requires careful consideration.
129 Linc Energy operated a pilot underground gasification project at Chinchilla in Queensland. In April 2016 administrators were appointed to Linc Energy. In May 2016 the respondent department issued an EPO to Linc Energy in respect of certain mining assets. Later that month the administrators transitioned to being liquidators of Linc Energy. The applicant liquidators then disclaimed the assets the subject of the EPO. The applicants and the respondent were in dispute as to whether the disclaimer had the effect of discharging Linc Energy from future compliance with any obligations under the EPO. The primary judge concluded that the disclaimer did not have that effect.
130 A second question in the proceedings then arose as to whether the applicant liquidators might be personally liable to ensure that Linc Energy complied with its obligations under the EPO. Relevantly, the case concerned the meaning of 'executive officer' under the Schedule 4 dictionary of the EPA for the purpose of s 493 and did not consider the potential direct liability of the applicants as 'related persons'.
131 In relation to subparagraph (c)(ii) of the definition of 'executive officer', the applicants contended that they were not concerned with and did not take part in the company's management, as their powers were derived from their office for the purpose of winding up the affairs of the company and they were not managing an ongoing undertaking or business. The applicants therefore submitted that a narrow construction of s 493 should be adopted, whereby a liquidator appointed with identified powers does not fall within the ambit of 'executive officer'. The applicants made three arguments in support of that submission.
132 First, the applicants submitted that the change of status of the company upon winding up limits the scope of liquidators' powers in a way that supports the narrow construction. The Court did not accept this argument, stating that 'the limit on the exercise of a liquidators' power to the purpose of winding up the affairs and distributing property of a company does not relieve the company from its obligations': at [166].
133 Second, the applicants argued that given that s 493 contains conferral of criminal liability, the provision should be strictly construed. His Honour rejected this argument, explaining that in construing remedial legislation, the rule that a penal statute is to be strictly construed is a rule of last resort: at [167]. In so explaining, it is apparent that his Honour did not consider that resort to such a rule was necessary.
134 Third, the applicants argued that liquidators are not executive officers because a company in liquidation is not a going concern, citing Re Home & Colonial Insurance Company Ltd [1930] 1 Ch 102 at 126. The Court distinguished the context of that case and said that 'cases in other contexts generally would support the conclusion that a liquidator is in a general sense an executive officer': at [168].
135 The respondent opposed the applicant's narrow construction of 'executive officer'. The respondent argued that the applicants, as liquidators, fell within the definition of 'executive officer' for the purpose of s 493. The respondent also relied on three arguments.
136 First, it said that the role of a liquidator involves managing the affairs of a company as a question of both fact and law. The Court rejected this argument, stating that the construction of s 493 does not turn on what the liquidators have done as a question of fact: at [169]. That is, whether or not liquidators are executive officers for the purpose of s 493 does not turn on the capacities of the liquidators as a matter of fact.
137 Second, the respondent argued that the purpose of the EPA is best achieved by not excluding liquidators from the meaning of executive officer, citing s 14A of the Acts Interpretation Act 1954 (Qld) (which provides that in the interpretation of a provision of an Act, the interpretation that will best achieve the purpose of the Act is to be preferred to any other interpretation). The Court appeared to accept that argument, stating that '[i]f the narrow construction were accepted there would be no-one with a personal statutory obligation to ensure that the obligations of the company under the EPA were met during the liquidation': at [170].
138 Third, the respondent argued that admissible extrinsic materials favour the inclusion of liquidators within the meaning of executive officer. The respondent referred to the Explanatory Note to the Bill for the EPA and a departmental guideline. The Court doubted that reference to the extrinsic materials assisted in the construction of s 493: at [172].
139 The Court rejected the applicants' narrow construction of s 493, holding that liquidators are captured by the definition of executive officers in s 493 for four reasons.
140 First, the Court held that there is no support in the text of s 493 for the exclusion of liquidators from the definition of executive officers. Second, there is no support in the EPA generally or other relevant materials for the exclusion of liquidators from the definition. Third, exclusion of liquidators does not best achieve the purpose of s 493, nor the EPA objects provision, and nor the EPA's public purpose. Fourth, including liquidators within the meaning of executive officers would not produce an absurd result or otherwise cause legal difficulty.
141 The decision was the subject of an appeal. The liquidators successfully argued on appeal that the disclaimer had taken effect to terminate obligations under the EPO. However, the validity of the finding that the liquidators were executive officers was not considered on appeal. Rather, it was assumed to be correct: see Longley v Chief Executive, Department of Environment and Heritage Protection [2018] QCA 32; (2018) 3 Qd R 459 at [126] (McMurdo JA), [148] (Bond J).
142 In the present case, the Liquidators argue that as a matter of fact they do not fall within the definition of executive officers.
143 The Liquidators seek to distinguish Linc Energy, pointing to the concurrent appointment of the Receivers and the fact that it is the Receivers who are managing the assets of the company, a factual scenario not present in Linc Energy where no receivers were appointed. In particular, they refer to the decision of Ormiston J in Corporate Affairs Commission (Vic) v Bracht [1989] VR 821 and of the High Court in Australian Securities and Investments Commission v King [2020] HCA 4.
144 In Bracht, Ormiston J considered the provisions of the then Companies (Victorian) Code. Mr Bracht was alleged to have contravened s 227 which provided that a person who was an insolvent under administration could not be a director or promoter of, or be in any way (whether directly or indirectly) concerned in or take part in the management of a corporation without the leave of the Court. His Honour held that to 'take part in' the management of a corporation connoted the 'active participation of a … person in the management of a corporation': at 831. Such participation had to be 'real and direct', but did not have to amount to 'ultimate control': at 831. The concept of 'management' comprehends (at 830):
…activities which involve policy and decision-making, related to the business affairs of a corporation, affecting the corporation as a whole or a substantial part of that corporation, to the extent that the consequences of the formation of those policies or the making of those decisions may have some significant bearing on the financial standing of the corporation or the conduct of its affairs.
145 The decision in Bracht was important in terms of its influence on subsequent amendments to companies legislation. This influence is traced by Nettle and Gordon JJ in ASIC v King at [112]-[123].
146 In ASIC v King the High Court confirmed that if the group senior executive has the requisite capacity to affect significantly the subsidiary's financial standing, then that senior executive is an 'officer' of the subsidiary company within the meaning of s 9 of the Corporations Act.
147 Mr King was CEO of MFS Ltd, which at the time was the ASX-listed parent company of the MFS Group (later called Octaviar), a funds management group with a market capitalisation of $3 billion and a number of managed investment schemes, including one known as the Premium Income Fund (PIF). In 2007, MFSIM (an entity that was a member of the group) arranged a $200 million loan facility with the Royal Bank of Scotland in its capacity as the responsible entity of the PIF. A question arose as to the use of the loan funds that were provided to MFSIM for the benefit of the PIF. MFSIM made a payment of $130 million to the group's treasury company, MFS Administration, and the money was used by MFS Administration to meet a debt due by it in circumstances where there was no evident promise of repayment or security for that advance.
148 Mr King had ceased to be a director of MFSIM more than six months prior to the transaction.
149 ASIC commenced enforcement proceedings against Mr King alleging that he was nonetheless an 'officer' of MFSIM and had breached his duties under s 601FD(1) of the Corporations Act. ASIC alleged that Mr King had breached those duties by (amongst other things) not acting honestly and failing to take steps that a reasonable person would take in his position to ensure MFSIM as responsible entity for the PIF complied with the PIF constitution.
150 'Officer' is broadly defined in s 9 of the Corporations Act as follows:
'officer' of a corporation means:
(a) a director or secretary of the corporation; or
(b) a person:
(i) who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or
(ii) who has the capacity to affect significantly the corporation's financial standing; or
(iii) in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding 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)
(c) a receiver, or receiver and manager, of the property of the corporation; or
(d) an administrator of the corporation; or
(e) an administrator of a deed of company arrangement executed by the corporation; or
(f) a liquidator of the corporation; or
(g) a trustee or other person administering a compromise or arrangement made between the corporation and someone else.
Note: Section 201B contains rules about who is a director of a corporation.
151 ASIC argued that Mr King was liable under s 601FD of the Corporations Act as an 'officer' of MFSIM in that he was a person who had the capacity to affect significantly MFSIM's financial standing (s 9 paragraph (b)(ii) of the definition) because he was the CEO and an executive director of MFS Ltd with overall responsibility for MFSIM as a member of the MFS Group; and because Mr White, the deputy CEO of MFS Ltd and an executive director of MFSIM, had reported directly and frequently to Mr King in the performance of Mr White's role in MFSIM, and customarily acted in accordance with Mr King's instructions and wishes in that role (at [9]-[10]).
152 Mr King argued that to be an 'officer' of a corporation he needed to be appointed in some formal office within MFSIM, whether as a director or senior executive.
153 The High Court unanimously disagreed with Mr King. The majority concluded that 'it would be an extraordinary state of affairs if those who actually determine the course of a company's financial affairs could avoid responsibility for their conduct by the simple expedient of deliberately eschewing any formal designation of their responsibilities': at [46].
154 The High Court held that officers of a corporation are not defined through whether or not they hold an 'office' but instead s 9 is functional in character as it is concerned with the stipulated quality of a person's actions or capacity and their effects. Section 9 of the Corporations Act thereby requires consideration of the role the person played in the corporation, not their official title.
155 The High Court emphasised the importance of the principle that if individuals have the capacity to affect significantly the financial standing of a company then they can be an 'officer' of a corporation.
156 The High Court also referred to the significance of management. In the context of whether the approach to the meaning of 'officer' may lead to the unintended consequence of capturing those who are on any view unrelated to the management of the company, the High Court stated (at [40]):
Section 179(2) of the [Corporation] Act notes that s 9 defines both 'director' and 'officer' and states that '[o]fficer includes, as well as directors and secretaries, some other people who manage the corporation or its property (such as receivers and liquidators)'. Section 179(2) confirms that the definition of 'officer' in s 9 is intended to capture those managing the corporation or its property, as distinct from those who are able to affect the corporation by the exercise of rights as a counterparty to a transaction involving the corporation. Thus, para (b)(ii) 'does not refer to a person who has [the relevant] capacity as a third party but is not involved in the management of the corporation's affairs'.
157 Bracht was not referred to in Linc Energy and the Linc Energy decisions pre-date ASIC v King. The Liquidators in the present matter rely on those decisions as authority for the proposition that despite the fact that the Liquidators held the statutory role of liquidators and were also officers of CuDeco, the question of whether or not they are executive officers within the meaning of paragraph (c)(ii) of the Schedule 4 definition is to be resolved as a question of fact, focusing on their limited role in circumstances where there is a concurrent receivership, and having regard to the concept of management as discussed in Bracht.
158 It can be accepted that the focus of Jackson J in Linc Energy was on the powers and statutory obligations of a liquidator rather than the quality of the conduct of the Linc Energy liquidators in their particular role. However, viewed properly, Jackson J's approach was consistent with the search for content rather than title, as is indicated by his Honour's assessment of the statutory powers held by a liquidator. As there was no question in that case of those powers being tempered by a concurrent appointment of receivers, it was sufficient to assume the capacity to exercise all of the relevant powers and obligations of a liquidator appointed under statute. There is also a distinction in this case with the factual scenario addressed in Bracht and ASIC v King, although the principles are applicable. In both of those cases the question before the respective Courts related to the role of a person who did not hold an official position with the relevant companies.
159 The Schedule 4 (c)(ii) definition of executive officer expressly states that it does not matter whether or not the person holds the office of director. Clearly the fact that such office is held is not of itself determinative of the question, but nor can the role of the Liquidators in that capacity be ignored.
160 Liquidators are officers of a company: s 9 of the Corporations Act. They also hold a named office in a corporation for which the Corporations Act prescribes certain duties and powers. Whilst the Liquidators urge an interpretation of 'executive officer' by reference only to the facts of the relationship between them, the Receivers and CuDeco, they occupy a particular position that carries with it powers relevant to the management of the company (noting the directors have no management powers upon liquidation of the company). Liquidators are in fact bound by the legislation to make certain decisions and do certain acts for and on behalf of the company. They are to use their own discretion in the management of the affairs and property of the company and the distribution of its property (s 477(6)). The role of the Liquidators in this case is not to be assessed in a vacuum, devoid of the content of that role that arises from their position as liquidators.
161 Even having regard to the limitations on the decision-making and management capacity of the Liquidators in light of the concurrent role of the Receivers, I am of the view that 'executive officer' for the purpose of Schedule 4 of the EPA and s 412A(5) of the MRA is to be understood broadly so as to include the Liquidators in this case.
162 The text of the definition does not suggest any limit on the number of persons who may be executive officers at any particular time. There is no bar on concurrently appointed receivers and liquidators (and others) potentially falling within the definition at a given time.
163 Nor does the text impose a limitation such that in order to meet the definition of executive officer the person must have a management role that includes the capacity to manage decisions relating to particular obligations under the EPA. In other words, the fact that the Receivers may have control of the decision-making process for CuDeco with respect to the EPOs that have been issued does not deny the potential for the Liquidators, who still retain some management powers, to fall within the definition.
164 So much is confirmed by reference to, for example, the defence provided by s 493(4) of the EPA (and see also to similar effect s 412A of the MRA). Section 493(4) provides that it is a defence to the offence of failing to ensure that the corporation complies with the EPA for an executive officer to prove that, if they were in a position to influence the conduct of the corporation in relation to the offence then they took all reasonable steps to ensure the corporation complied, or that they were not in a position to influence the conduct of the corporation in relation to the offence. In particular the second limb of the defence anticipates a broad meaning of executive officer, with a defence available where decision-making on the part of the executive officer with respect to the environmental offence is circumscribed. A narrow interpretation of executive officer, premised on capturing only those with the ability to influence such conduct, would have the potential to deny any role for the statutory defence.
165 The fact that in this case the Liquidators retained a management and decision-making role which had the capacity to affect the corporation (as described in Bracht) is reflected in the decision made by the Liquidators to issue notices disclaiming the Mining Leases, Exploration Permit and Environmental Authorities. As noted in Linc Energy, the fact that the Liquidators are not running the operations of the company as a going concern is not decisive (and is in any event a common feature of liquidations). They continue to have other powers relating to CuDeco, and in particular with respect to its creditors (see [6] above).
166 In those circumstances, I decline to make the direction or declaration sought to the effect that the Liquidators are not 'executive officers' within the meaning of Schedule 4 of the EPA or s 412A of the MRA.
167 The potential for the Liquidators to prove a defence should any proceedings be issued under s 493 of the EPA remains. Similarly, in the unlikely event that any proceedings were to issue under s 412A of the MRA, the obligation remains under s 412A(2) of the MRA for the decision-maker to take into account whether the executive officer was in a position to influence the company's conduct with respect to the relevant offence.
168 The declaration and directions that I have indicated will be made (at [112] and [125] above) should assist the Liquidators in this regard.