Nenna v Australian Securities and Investments Commission

Judgment - ex tempore (revised 28 november 2017)

1. By Originating Process filed on 15 November 2017, the Plaintiff, Mr Jonathan D'Sylva applies for leave to manage two corporations, namely Endeavour Energy Network Management Pty Ltd and Ausconnex Management Pty Ltd ("Companies") under s 206G of the Corporations Act 2001 (Cth). The need for that application arises under s 206B(3) of the Corporations Act, which provides that: "A person is disqualified from managing corporations if the person is an undischarged bankrupt under the law of Australia."
2. Mr D'Sylva presently does not occupy a management role with the Companies, although he has some involvement with them to which I will refer below. He has been offered a position, subject to the outcome of this application, as General Manager, Strategy and Development of the Companies. An order is also sought under s 1322(4) of the Act to validate this application, notwithstanding that the full period of notice contemplated by s 206G of the Corporations Act has not been given to the Australian Securities and Investments Commission ("ASIC") of this application, in circumstances that ASIC has been provided the relevant material and indicated that it does not seek to be heard in respect of the application.
3. I will first refer to the affidavit evidence, then to the submissions made, and then to the application of the relevant principles in the circumstances that emerged from the evidence.
4. The application is supported by a detailed affidavit of Mr D'Sylva dated 31 October 2017, which sets out the circumstances which led to his bankruptcy. Mr D'Sylva indicates that he, together with other members of his family, became involved in the purchase of properties, initiated by his parents when he was twenty years old. That involved an expanding portfolio of properties, of which a substantial number, fourteen, were located in the Pilbara region of Western Australia. That strategy was highly leveraged, involving, at its peak the purchase of properties with a substantial value, in which there was positive equity, but also substantial debt. The loaned funds were made available by well-known Australian trading banks which, presumably, did not consider that there was anything that prevented their lending in respect of the relevant strategy at the time the loans were made. It appears that Mr D'Sylva made financial contributions to the purchase of those properties, including at least the last of the properties purchased over the period, and other family members also made such contributions. That strategy came under pressure when the level of activity in the mining industry in Western Australia reduced, and presumably demand for properties in the Pilbara also reduced. An attempt was made to reduce the level of risk in the strategy, by selling a property, which reduced the repayment amounts to some extent but did not free additional equity where the sale proceeds were retained by the relevant bank against the debt owed to it secured by other properties.
5. In mid-2017, Mr D'Sylva and his brother reached a view that they could not continue to meet the various loan repayments, sought advice from a professional insolvency practitioner, and proposed a personal insolvency agreement to their creditors, namely the banks and government agencies for rates and taxes. That personal insolvency agreement was not approved and Mr D'Sylva declared bankruptcy on 14 September 2017. He has therefore been in bankruptcy for a relatively short period of nearly three months.
6. There is in evidence a letter from Mr D'Sylva's trustee in bankruptcy dated 30 October 2017, which indicates that the trustee assessed Mr D'Sylva as being liable to make a contribution from income, for the period 14 September 2017 to 30 September 2018, payable by instalments and that the instalments due have been paid. The trustee also confirms that, during the period in which the trustee has been a controlling trustee and during the period of the bankruptcy to date, Mr D'Sylva has cooperated with the trustee's requests for the provision of information and documents and that the trustee is unaware of any failure by Mr D'Sylva to comply with the obligations under the Bankruptcy Act 1966 (Cth).
7. Mr D'Sylva also refers to his qualifications and to personal circumstances, including contributions he has made to the wider community. He also refers to the circumstances in which he was made redundant by his previous employer, and then offered a consultancy position with the Endeavour Energy group of companies and subsequently offered employment with the Companies as General Manager, Strategy and Development. There is evidence both from Mr D'Sylva and from the General Manager, Safety, Human Resources and Environment at Endeavour Energy Group that Mr D'Sylva has disclosed the fact of his bankruptcy both to the chief executive officer and the General Manager, Safety, Human Resources and Environment.
8. Mr D'Sylva has rightly not accepted the offer of employment unless and until he is given leave by the Court to manage the Companies. The view has been taken that, by his employment as General Manager, Strategy and Development, he would be a member of the senior leadership team of the Companies, and his acceptance of that employment would have the effect that he would be managing the relevant Companies. I note, of course, that he would be doing so together with other members of the senior management team, in a reporting line to the chief executive officer and ultimately to the board. There is evidence that the board has been made aware of Mr D'Sylva's proposed appointment and supports that appointment.
9. I also note that Mr D'Sylva's evidence is that the tasks that he has been asked to undertake under the consulting engagement are not the same tasks that would be completed in the General Manager, Strategy and Development role, and a review of the consulting agreement gives rise to no reason to question that view. There is therefore no suggestion that, at the time of this application, Mr D'Sylva has been involved in activities which are inconsistent with the prohibition which is presently applicable to him under s 206G of the Corporations Act.
10. The application is also supported by an affidavit dated 27 October 2017 of Mr Andrew Pittman, General Manager, Safety, Human Resources and Environment for the Endeavour Energy Group which refers to the nature of the group's activities in the electrical distribution business and to the corporate structure of the group. Mr Pittman is a member of the executive leadership team, on which it is proposed that Mr D'Sylva would also sit, and expresses the view that a person appointed to the position of a General Manager, as Mr D'Sylva is proposed to be, would be involved in managing the Endeavour Energy Group. Mr Pittman also refers to the nature of the business of one of the companies with which Mr D'Sylva would be involved, Ausconnex, as a separate business entity to provide services in the new line of businesses and the responsibilities of the proposed General Manager, Strategy and Development role, to which Mr D'Sylva would be appointed.
11. Mr Pittman refers to the circumstances in which the Endeavour Energy Group undertook a recruitment process for the role of General Manager, Strategy and Development and has formed the view that Mr D'Sylva is the person best qualified for the role. He also confirms that the chief executive officer and Mr Pittman have discussed Mr D'Sylva's bankruptcy and wish to proceed with the offer of employment notwithstanding that matter. He expresses the view that both the chief executive officer and he consider Mr D'Sylva to be of good character and do not consider that his employment in the position of General Manager, Strategy and Development will present a risk to the shareholders, creditors or employees of the Companies. I should pause to note that there is nothing in Mr D'Sylva's evidence as to the circumstances of the bankruptcy or the trustee's correspondence that gives rise to any reason to question that view. Mr Pittman also confirms that the steps which Mr D'Sylva has presently been undertaking in his consulting role did not extend to management of the Companies, and Mr Pittman points out that, in that role, no staff have reported to Mr D'Sylva and he has not had authority to enter into contracts or involved himself in business decisions for the Companies.
12. Mr D'Sylva also relies on the affidavit of Mr Foulsham, a graduate employed by the firm of solicitors acting for him in this application, who refers to service of the application on ASIC and to ASIC's confirmation that, on the assumption that the application would be in the same terms as contained in the documents provided to it, ASIC did not seek to be heard. ASIC has since been advised of the further application brought under s 1322 of the Corporations Act which, on any view, could not affect its substantive attitude to the application.
13. I have had the benefit of detailed submissions of Ms Hamilton-Jewell who appears for Mr D'Sylva in the application. Ms Hamilton-Jewell draws attention to the applicable principles, which were set out in Duffy, in the matter of Westgate Ports Pty Ltd [2010] FCA 608; (2010) 79 ACSR 267 at [19], albeit that case, as many of the cases, was dealing with circumstances in which a person had been disqualified from managing the corporation by reason of a conviction for serious offences. There is, of course, a significant difference between bankruptcy, which reflects no more than a person's inability to meet their debts as and when they fall due and may be the result of difficult economic circumstances, and a disqualification arising from contraventions of legislative provisions including provisions of the Corporations Act.
14. Ms Hamilton-Jewell also draws attention to the decision of Barrett J, in Re Application of Chapman [2006] NSWSC 99; (2006) 228 ALR 586; 56 ACSR 706, which she rightly recognises is analogous in several respects to the present case. His Honour there noted, and Mr D'Sylva has accepted, that the applicant bears the onus of establishing that the Court should make an exception to the legislative policy underlying the prohibition that is, relevantly, that a person who is in bankruptcy should not be concerned in the management of corporations. His Honour also noted (at [11]) that: "The legislative policy is one of protecting the public and it is to that consideration that attention must principally be directed, with the plaintiff showing that protection of the public will not be compromised by the grant of leave sought. There are other objectives which may be regarded as subsidiary."
15. His Honour there observed (at [12]) that the position where a person suffered a financial stress leading to bankruptcy was different from that where a person had committed criminal offences or been involved in dishonest endeavours. His Honour noted the relevance of the circumstances that brought about the prohibition, which in this case I have addressed above, and that the financial structure of the relevant company or companies was relevant. In this case, it is significant that the Companies are large commercial entities, with a structured management environment, and it is proposed that Mr D'Sylva will perform a role, reporting to the chief executive officer and ultimately the board as one of a number of members of a senior management team, where a separate reporting line through the chief financial officer will be responsible for the financial affairs of the Companies.
16. His Honour there also noted the significance, which also seems to me to be a matter of importance in this case, of the fact that a sophisticated entity had formed the view that a person should be offered employment, notwithstanding his bankruptcy. His Honour also referred to the relevance of the fact, also present in this case, that the trustee in bankruptcy had not expressed opposition to the relevant application, and that ASIC had been notified of the application and had indicated that it does not intend to intervene to oppose the application, as is also the case here. It seems to me that the Court can at least draw, from that matter, the conclusion that ASIC has not formed a view that there is anything in the circumstances of Mr D'Sylva's bankruptcy as disclosed by this application that suggests that there is a risk to the public interest or to the community from Mr D'Sylva performing the proposed role.
17. It seems to me that in this case, as in Re Application of Chapman above, several factors support the grant of leave which is sought, including the circumstances that gave rise to Mr D'Sylva's bankruptcy, particularly its family context and the external economic factors which brought about difficulty for the borrowings; the conduct of Mr D'Sylva in recognising that difficulty, proposing an arrangement with his creditors and, when that arrangement was not accepted, submitting to bankruptcy; his cooperating with his trustee in bankruptcy and his making the required contributions to the bankruptcy; and the attitude of the Companies and their ultimate holding company, including their senior management and the board, to the proposed appointment.
18. For this reason, subject to one matter as to the form of order that I will raise with Ms Hamilton-Jewell, I am satisfied that the order sought should be made. I am also satisfied that an order under s 1322(4) of the Corporations Act should be made in the relevant circumstances, so far as the application has been brought with less than twenty-one days' notice to ASIC. Such an order has been made in the case of other applications of a similar character: Nenna v Australian Securities and Investments Commission [2011] FCA 1193; (2011) 198 FCR 32 284 ALR 386; 86 ACSR 204 at [43]; Stokes, in the matter of Padbury Mining Ltd [2016] FCA 1000. In this case, it is plainly in the interests of Mr D'Sylva and the Companies that matters be resolved sooner rather than later, and there can be no useful purpose in delaying the application, when ASIC has already formed a view that it does not seek to be heard. In those circumstances, the Court can be readily satisfied that it is just and equitable that an order under s 1322 be made and that no substantial injustice has been or is likely to be caused to any person by, in effect, abridging the time which ASIC has had to consider the application, when ASIC has already formed a view that it does not seek to be heard.
19. I make orders in accordance with the short minutes of order initialled by me and placed in the file.