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1. Company X is....
2. The attached article encapsulates x,y,z breaches by directors
3. The breaches of the Corporations Act 2002 (Cth) may be summarised as.....

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The corporate watchdog won't be taking any action against Commonwealth Bank or its directors over a money laundering scandal that engulfed the banking giant three years ago.

In the immediate aftermath of an explosive 2017 lawsuit against CBA for money laundering breaches, the Australian Securities and Investments Commission said it was looking into whether the bank and its directors had properly disclosed material information to investors.

CBA said ASIC had finished its investigation into the bank and it would not take any enforcement action. Credit:Michael Clayton-Jones

ASIC also said at the time it would look into whether the bank complied with licensing obligations to act efficiently, honestly and fairly, and its financial reporting duties, including whether the potential fine should have been treated as a contingent liability in CBA's accounts.

On Wednesday night, CBA told investors it had been notified by ASIC that the watchdog had finished its investigation and would not take any enforcement action.

The news removes one potential risk facing the bank and comes as it fends off a class action launched on behalf of investors over the money laundering compliance scandal.

CBA was thrown into turmoil by the 2017 money laundering lawsuit from the financial intelligence agency AUSTRAC, which said millions of dollars had been laundered through the bank's ATMs by criminals, including drug and firearms importers.

The bank ultimately settled the case for a record $700 million penalty, after it admitted to a host of breaches, including failing to properly file more than 53,000 reports to AUSTRAC over cash deposits of more than $10,000.

ASIC has also launched a similar investigation into Westpac, after it was hit with an AUSTRAC lawsuit last year alleging more than 23 million breaches of anti-money laundering and counter-terrorism finance laws.

At a parliamentary hearing last month, ASIC deputy chairman Daniel Crennan was quizzed over how long ASIC's Westpac investigation might take. He signalled the Westpac investigation should take less time than the CBA probe, saying ASIC had a senior counsel working on the matter.

Westpac is expected to face a record-breaking penalty in the AUSTRAC case, after it admitted to the vast majority of the alleged breaches earlier this year, including failing to adequately monitor 12 customers who allegedly made suspicious transactions fitting the pattern of payments for child exploitation.

Business Briefing

Start the day with major stories, exclusive coverage and expert opinion from our leading business journalists delivered to your inbox. Sign up for the Herald's here and The Age's here.

Clancy Yeates is a business reporter.

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ASIC won't take action against CBA over money laundering scandal

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Normal text size Larger text size Very large text size The corporate watchdog won't be taking any action against Commonwealth Bank or its directors over a money laundering scandal that engulfed the banking giant three years ago.

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Joanna Smith-Lawson's Post: Storm Financial
1. Storm financial was a public company limited by shares. Its only shareholders were its owners Emmanuel and Julie Cassimatis. It provided financial advice for its clients using its ‘Storm Model”: raising capital for investment against assets, including the family home, and taking out margin loans. In the context of the global financial crisis of the late 2000s many clients started losing heavily (the financial advice always involved share market investment); leading to a drop in capital being invested through Storm. In early 2009 the Commonwealth Bank called in its debt with Storm, triggering voluntary administration, then collapse.[1] In 2016, after a protracted court process, ASIC succeeded in its case that the directors breached their fiduciary duty of care to oversee the operation of the business and steer the operating strategy away from the risk-heavy management model that led to its downfall.[2]
  
2. This article in The Monthly (Schwartz Media) predates the findings of the Court. It is a contemporaneous commentary on the debacle and discusses in some depth the multifaceted nature of the high-risk business model, including dubious relationships formed with banks to enable loans to Storm clients.

 https://www.themonthly.com.au/issue/2011/february/1299634145/paul-barry/eye-storm 

3. The legal problem centred around the definition of directors duties at s 180(1) of the Corporations Act 2001 (Cth). The Court found that the Cassimatises failed in their duty of care to Storm Financial by allowing the business practice to continue unchecked,[3] which harmed it financially (by advising clients inappropriately, it harmed the company’s main source of profit), reputationally (as clients began to associate storm with loss they did not invest with them), legally (it was a business strategy to risk breaking laws and paying the fine in order to make money over and above the fine amount),[4] and as it turns out, existentially. 

Edelman J addressed directors duties in relation to company structure. It was submitted by the respondents that solvent companies only owe obligations to their shareholders due to being in good stead with the law. The implication was that the Cassimatises could run the company as they wished because as the only shareholders they only had to consider themselves, therefore the directors duties were a private matter. This was rejected, as Edelman J reaffirmed that companies have an inherent public nature.[5]
 
The Cassimatises argued that being the only shareholders they had greater leeway to take risk as they authorised their own directorial choices and could not breach s 180(1). This was also rejected. By virtue of being the only directors and shareholders, the Cassimatises were even more able to control the prevailing business practice (of giving generic high-risk advice to vulnerable clients) and steer it away from that which led to Storm’s demise. Edelman J found that a reasonable person in the same position would have not allowed that to happen.[6]
 
ASIC was not able to prove criminal wrongdoing in this case.[7]
 
The Cassimatises were each ordered to pay a $70,000 fine (the maximum available to the court was $200,000) in their individual capacities. They were also disqualified from managing a corporation for seven years under s 206C.[8]
 


[1] ‘Storm Financial Founder Speaks Out’, 7:30 Report (Australian Broadcasting Corporation, 2009) 02:49.[2] Australian Securities and Investments Commission, ‘Directors of Storm Financial Found to Have Breached Their Duties Under the Corporations Act’ (Media release 16-277MR, 26 August 2016).[3] ASIC v Cassimatis (No 9) [2018] FCA 385, [22].[4] ASIC v Cassimatis (No 8) [2016] FCA 1023, [496].[5] Ibid [447].[6] Ibid [22]. “The reasonable director would have taken some alleviating precautions to prevent the giving of that advice.”[7] Ibid [836].[8] ASIC v Cassimatis (No 9) [2018] FCA, 385.

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Description:

Storm Financial Pty Ltd was a Queensland based financial services provider, founded by its sole shareholders and executive directors, Emmanuel George Cassimatis and Julie Gladys Cassimatis.  In around 1994, Storm created a ‘Storm Model’ of advice, effectively a ‘one size fits all’ system, which was recommended to almost 90% of its clients.  In 2009 Storm went into liquidation resulting in approximately 3000 of its clients sustaining significant loss.  It was found that Mr & Mrs Cassimatis did not exercise care and diligence when offering the Storm model to certain investors who were over the age of 50, retired, low income earners or who had little prospect of rebuilding their financial position if significant loss were to occur.[1]

URL:  https://www.smh.com.au/business/banking-and-finance/storm-financial-directors-breached-their-duties-court-20160826-gr2ecr.html

Synopsis:

Mr & Mrs Cassimatis contravened s180(1) of the Corporations Act 2001 (Cth), the duty of exercising their powers as directors with care and diligence.  His Honour Edelman J found that Mr & Mrs Cassimantis “exercised an extraordinary degree of control over every aspect of the Storm Model and Storm’s operations” and that Mr & Mrs Cassimatis would have been aware that “it was a risky strategy, inappropriate for some investors”.[2] His Honour found that this satisfied the objective test – would a reasonable person in the position of a director of a similar company act in the same way as the director who acted?[3]

The actions of Mr & Mrs Cassimatis exposed Storm Financial Pty Ltd to the risk of losing its Australian Financial Services Licence by contravening:

a)    ss945A(1)(b): (repealed in 2012);

b)   ss945A(1)(c): (repealed in 2012);

c)    ss912A(1)(a): a financial services licencee must do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly;

d)   ss912A(1)(c): a financial services licencee must comply with financial services laws,

of the Corporations Act 2001 (Cth), which jeopardised the company’s entire existence.

ASIC sought the following remedies:

1.    Pecuniary penalties pursuant to s1317E and s1317G;[4]

2.    Disqualification from managing corporations pursuant to s206C and/or s206E;[5]

3.    Restraint from holding an Australian Financial Services Licence pursuant to s1324.[6]

[1]‘’16-277MR Directors of Storm Financial found to have breached their duties under the Corporations Act’, Australian Securities & Investments Commission (Web Page) <https://asic.gov.au/about-asic/news-centre/find-a-media-release/2016-releases/16-277mr-directors-of-storm-financial-found-to-have-breached-their-duties-under-the-corporations-act/>. [2]Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023. [3]Daniel v Anderson (1995) 37 NSWLR 438. [4]Corporations Act 2001 (Cth). [5]Ibid.[6]Ibid.

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from being in breach of s1041H, the company has been accused of breaching sections 304 (Compliance with accounting standards and regulations), 305 (True and fair view) and 674(2) (generally available information). [4]
 
Albanese and Elliot were alleged to solely be in breached s108.[5] However, this too has been expanded over the course of the proceeding and ASICs has accused Albanese and Elliot of  breaching s344 (contravention of Part 2M.22 or 2M.3) as well as s108 (Parts of dollar to be disregarded in determining majority in value of creditors etc.).[6] This is due to their lack of reasonable actions taken by the men to comply with accounting standards in the 2012 Financial statement and 

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Description

BCI Finances was one of many companies founded by joint directors Emil and Erwin Binetter (both now deceased) in 1992 and its main business function was to provide other entities with monetary loans for business purposes.[1] All of the Binetter companies became the subject of an Australian Taxation Office (ATO) audit with majority attracting fairly substantial tax assessments retrospectively. Initially the Binetter family appealed the BCI Finances assessment, however, in an effort to thwart the ATO audit, the appeal was dropped and the company was placed into administration in 2014. Although the BCI Finances case lists some tax evasion allegations, the BCI Finances litigation is based on breach of directors’ duties, in particular breach of fiduciary and statutory duties, and common law and equitable duties of care owed to BCI Finances by the directors.

Media link

https://www.afr.com/news/policy/tax/the-tax-scheme-that-tore-a-family-apart-20181015-h16mya

Synopsis

Brothers Erwin and Emil Binetter emigrated to Australia in 1950 and through a variety of business ventures, started to accumulate substantial wealth. In an effort to reduce their exposure to the Australian taxation system, the Binetters set up overseas bank accounts where profits from these companies would be deposited. As part of this strategy, the Binetters entered into ‘back-to-back’ loans[2] and the payment of these loans created a tax deduction under Australian law.

By chance, the ATO was alerted to this behaviour during an unrelated investigation and since this discovery, the ATO and the Binetter family have been engaged in multiple court room battles for tax evasion with the Binetters succeeding due to a lack of evidence. The ongoing tax appeals by BCI Finance provided the ATO with access to incriminating tax evasion documents, therefore, in an effort to cease the ATO investigation, the appeal by BCI Finances was dropped and the company was placed into administration. However, this now provided the liquidators with access to detailed privy conversations between the previous BCI Finances directors, the overseas banks and previous counsel.

It was through these documents the liquidators brought actions against the Binetter family for breach of directors’ duties.[3] Under the Corporations Act 2001,[4] directors have a statutory duty to:

·         act in the company’s best interest through care and diligence to prevent insolvent trading[5]

·         prevent improper use of their position for benefit, directly or indirectly[6]

·         not exercise their powers in a manner detrimental to the company’s interest.[7]

The Court also considered also who owed a fiduciary duty to whom[8] and determined Emil, Erwin, and Andrew (Erwin’s foruth son) owed a fiduciary duty to BCI Finances and had breached this duty. In determining the breach, critical consideration was given to the financial transactions (loans) noting that these provided no benefit to the company.[9] Michael (Erwin’s third son) was also recognised as a ‘de facto’ or ‘shadow’ director[10] also in breach of his duty.

Having found this breach, liability extended to other Binetter members for knowingly participating in these breaches, however, those family were exonerated on almost all matters.[11]

Breach of the common law duty of care can give rise to a common law action in damages. There is no criminal penalty for a breach of duty of care. Breach of a statutory duty can provide the Australian Securities Investment Commission to enforce the civil penalties.[12] The penalties able to be enforced include:

·         pecuniary penalties[13]

·         payment of compensation to the company.[14]

A breach of statutory duties by a person may also be subject to a disqualification order.[15]

[1] BCI Finances Pty Limited (in leq) v Binetter (No 4) [2016] FCA 1351, [15].[2] Funds were advanced by one Binetter company to a foreign bank as security for another loan to a second Binetter company.[3] BCI Finances Pty Limited (in liq) v Binetters (No 4) [2016] FCA 1351, [525].[4] Corporations Act 2001.[5] Corporations Act 2001 s 180, s 181.[6] Ibid s 182.[7] Ibid s 183.[8] Mills v Mills [1938] HCA 4 – Directors of a company are fiduciary agents, and a power conferred upon them cannot be exercised in order to obtain some private advantage or for any purpose foreign to the power; Breen v Williams [1996] HCA 57 approved in Pilmer v The Duke Group Ltd [2001] HCA 31 – Equity imposes on the fiduciary proscriptive obligations - not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict; Allco Funds Management Limited (Receivers and Managers Appointed) (In Liquidation) v Trust Company (RE Services) Limited (in its capacity as responsible entity and trustee of the Australian Wholesale Property Fund) [2014] NSWSC 1251 – It has been the law that directors owe duties of a fiduciary nature to act as best to promote the interests of the corporation whose affairs they are conducting.[9] BCI Finances Pty Limited (in liq) v Binetters (No 4) [2016] FCA 1351, [298].[10] Corporations Act 2001 s 9(b).[11] The defence under s 588H of the Corporations Act 2001 is not available as at one point in time all family members knowingly assisted one of the directors.[12] Corporations Act 2001 s 1317E.[13] Ibid s 1317G – Individuals: up to 5000 penalty units per contravention; Body corporate: 50,000 penalty units.[14] Ibid s 1317H[15] Ibid s 206C.

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Omer Suliman - Smiles Inclusive - Breach of Director's Duty

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Omer Suliman - Smiles Inclusive - Breach of Director's Duty

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1.     Smiles Inclusive is listed on the Australian Stock Exchange (“ASX”) as a public company defined by s 9 Corporations Act 2001 (Cth) with limited liability. It operates as a network of dental practices across Australia under a nationally recognised brand known as, Totally Smiles.

The founder, Mike Timoney is alleged by the company to use company funds for personal reasons totalling such as travel and a breach of fudiciary and statutory breaches legislated in the Corporations Act 2001 (Cth). Also, the company is alleging the breach of Mike Timoney’s failure to disclose his personal interest relating to contracts with Pink Diamond an events company who invoiced Smiles Inclusive with mark-ups whose sole director was Mike’s son James.

2.      https://www.businessnewsaus.com.au/articles/smiles-inclusive-takes-founder-mike-        timoney-to-court.html

https://www.businessnewsaus.com.au/articles/smiles-inclusive-all-frowns-as-board-decay-sets-in.html

3.    It is alleged by the company that founder Mike Tmoney, misappropriated funds totalling $79,878 for personal reasons such as travel between the periods of January 2017 and December 2018. It is alleged that Mike Timoney breach of his fiduciary duty and statutory duty of s 181,[1] 182,[2] s 184[3] and  s 191.[4]  The former chair of the board David Herlihy is also a defendant in the matter for his role of approving payments and transactions made my Mike Timoney.  Additionally, another defendant in this matter is Pink Diamond, an events management company. James Timoney, the son of Mike Timoney was the sole director of the company up until February 2018. James Timoney’s wife Ildi Sanda Redak subsequently took over as the sole director after February 2018.

Additionally, If the allegations are proven, Mike Timoney would have breached his statutory duty under s 181 (1) (a),[5] s 181 (1) (b)[6] and s 182 (1)(a),[7] s 182 (1) (b)[8] as well as the fiduciary duty to act bona fide for the benefit of the company and for purposes and/or provisions regulating related-party transactions .[9] Mike Timoney’s alleged failure to disclose his material personal interest in Pink Diamond to his fellow board members is in breach of the director’s duty to disclose under s191 (1)(a).[10]  Additionally, the allegations of misappropriating funds totalling $78,878 for personal reasons is in breach of s 182 (1)(a)[11], s 182 (1)(b).[12]  Mike Timoney may be liable for civil penalty provisions (maximum of $200,000) under Pt 9.4B,[13] disqualified from office or criminal consequences in breach of statutory duty ss 181-183 [14]as stated in s 184.[15] In cases where directors have profited from their position, the most sought-after remedy is an account of profits or constructive trust, as well as alternative remedies such as equitable compensation; the court can order recession of the contract the director is involved in or an injunction.

[1] Ibid s 181.
[2] Ibid s 182.
[3] Ibid s 184.
[4] Ibid s 191.
[5] Ibid s 181 (1) (a).
[6] Ibid s 181 (1) (b).
[7] Ibid s 182 (1) (a).
[8] Ibid s 182 (1) (b).
[9] Forge v Australian Securities and Investments Commission [2004] NSWCA 448; (2004) 213 ALR 574.
[10] Corporations Act 2001 (Cth) s 191 (1) (a).
[11] Ibid s 182 (1) (a).
[12] Ibid s 182 (1) (b).
[13] Corporations Act 2001 (Cth) pt 9.4B.
[14] Ibid ss 181-183.
[15] Ibid s 184.

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Storm Financial (“Storm”) was one of the most successful financial advisory companies in Australia throughout the late 1990’s and early 2000’s. At the time of the companies collapse there were approximately $4.5 billion in managed funds.

The major issue faced by Storm Financial at the time the GFC hit , leading to the ultimate collapse of the company was the way in which the clients of “Storm” encouraged their clients to obtain the funds to invest. The one size fits all approach was to show the clients how to “double gear” to obtain money to secure their investments. Essentially taking out a mortgage against their home, and then borrowing again against their investments, resulting in catastrophic loss.

2.         https://search-proquest-com.ezproxy.csu.edu.au/docview/1814096796?accountid=10344

This article provides a clear and succinct summary of the findings of the Federal Court in relation to the Civil action that was undertaken in relation to a portion of the investors who lost everything due to the poor financial advice provided to them by Storm Financial, and in particular fiduciary breaches undertaken by Emmanuel and Julie Cassimatis.

3.         Storm financial presents issues relating to a breach of directors duties in terms of what the directors must take into account when advising individual clients with financial advice with respect to the specific circumstances and abilities to facilitate any type of investment portfolio. As discussed, there is a clear breach of s180 of the Corporations Act. Mr and Mrs Cassimatis had extraordinary control over Storm and therefore should have known that the advice being provided was leading to their clients being in a vulnerable position.

This breach is supported by the contraventions with respect to the advice in relation to provisions within the Corporations Act relating to other sections of the act that rely on of misleading comments and/or statements as shown in relation to s1041E (1) & (2)

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1.      Failed Australian tech industry superstar Appster Pty Ltd built apps for their clients and aimed to be a 100-million-dollar company. The Age reports that the liquidator for Appster Pty Ltd Paul Vartelas has alleged that the company traded whilst insolvent for 18 months and the directors have breached their duties in several ways including under the common law, equity, and under the Corporations Act 2001 (Cth), (the Act).[1]

2.       https://ezproxy.csu.edu.au/login?url=http://global.factiva.com/en/du/article.asp?NAPC=S&AccessionNo=WCSMHH0020190305ef35003vi&xsid=S00Ys7p3HVk5DEs5DEpNDUsMpYsM9FyMHn0YqYvMq382rbRQUFBQUFBQUFBQUFBQUFBQUFBQUFBQUFBQUFBQUFBQUFBQQAA

3.      How the alleged breach came about.

Trading whilst insolvent - The liquidator Mr Paul Vartelas said the test of the company’s ability to pay its short-term liabilities quickly if they became due indicates that Appster Pty Ltd was trading insolvently since April 2017 until liquidation commenced in December 2018.[2] Under statute a director contravenes section 588G(2) of the Corporations Act 2001 (Cth) if the director incurs debt while the company is insolvent and fails to prevent the company from the transaction.[3] The possible penalties are that ASIC may apply to the court where a company is insolvent to disqualify the directors for a maximum period of 20 years.[4] Under statute civil penalties may apply including a declaration by the court that a breach of a pecuniary penalty section has occurred. A declaration allows the plaintiff to apply for a pecuniary penalty. This is a sum of money paid by directors to ASIC. Debt proceedings can follow if not paid. The maximum amount is $200,000 per contravention. There are additional statutory remedies that may apply if the company is insolvent, and directors can be personally responsible for the debts of an insolvent company.

Directors breaches of common law, fiduciary and statutory duties - In Equity directors owe a duty to avoid a conflict of interest, and to act for a proper purpose. The directors had a conflict of interest because they had provided directors guarantees and indemnities to the NAB for a mortgage. To reduce their exposure to liability the directors of Appster Pty Ltd deposited large sums of money in to the NAB overdraft weeks before insolvency. This was motivated allegedly by self-interest.

Under the same transaction, directors have an equitable duty to consider the interests of creditors if the company is insolvent.[5] It is alleged that the directors put their own needs ahead of creditors whilst nearing or being insolvent. The court can order equitable compensation where the company makes a loss. This aims to put the company in the position it would have been in before it incurred the loss.

Payments to offshore related entities – The directors made three payments to offshore related entities, that they were also directors of in the six weeks prior to liquidation. This suggests the directors breached their duty to avoid a conflict of interest.[6] They may also have used their position to gain an advantage and breached ss182 and 183 of the Act.[7] If found to be intentionally dishonest or reckless to gain an advantage for themselves they can be found criminally liable and imprisoned for 5 years.[8]

[1] Corporations Act 2001 (Cth) (the Act).
[2] Charlotte Grieve, ‘Fallen tech darling Appster trading while insolvent since 2017,report finds’, The Age (online, 6 March 2019) 1 <https://ezproxy.csu.edu.au/login?url=http://global.factiva.com/en/du/article.asp?NAPC=S&AccessionNo=WCSMHH0020190305ef35003vi&xsid=S00Ys7p3HVk5DEs5DEpNDUsMpYsM9FyMHn0YqYvMq382rbRQUFBQUFBQUFBQUFBQUFBQUFBQUFBQUFBQUFBQUFBQUFBQQAA>.
[3] Corporations Act 2001 (Cth) s588G(2).
[4] Corporations Act 2001 (Cth) s206(D)(1).
[5] Bell Group Ltd (in liq) v Westpac Banking Corp (2008) 70 ACSR 1.
[6] Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134.
[7] Corporations Act 2001 (Cth) ss182, 183.
[8] Corporations Act 2001 (Cth) s588G(3).

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Jordan Thomas – Queensland Nickel Pty Ltd

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Jordan Thomas – Queensland Nickel Pty Ltd

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Queensland Nickel Pty Ltd, a nickel refinery based in northern Queensland, went into voluntary administration in 2016; more than 500 workers were not paid their wages, and a large number of creditors are presently attempting to recover their debt. Clive Palmer was a director of the Queensland Nickel refinery spanning over a period just shy of five years, and was neither a director or on the board at the time of liquidation, although he purportedly had been acting as a shadow director. Parbery of PPB Advisory, the liquidator, alleges that Queensland Nickel were trading insolvent under Palmer’s direction as shadow director at the time of liquidation, and that Palmer has breached a number of further director’s duties, some of which would see him personally liable for the debts incurred by the company while trading insolvent and breaching the Corporations Act 2001 (Cth), resulting in a Mareva order being imposed against him for the duration of the proceedings.

https://www.afr.com/chanticleer/clive-palmers-fight-after-the-collapse-of-queensland-nickel-rages-on-20180606-h110yz

A person is considered a director under the Corporations Act 2001 (Cth) if they act in the position of a director or the directors are accustomed to act in accordance with that person’s instruction or wishes irrespective of their specific appointing as a director.[1] If found to be true, the speculation surrounding Palmer’s actions as a shadow director will see him personally liable for the debts incurred by Queensland Nickel as if he were a validly appointed director. Clive Mensink was the appointed director of the company and his liability is slightly less ambiguous.

Trading insolvent is a breach of such significance that it is one of the few that will pierce the corporate veil. A company is deemed to be insolvent if it is unable to pay its debts at the time of those debts falling due, as outlined in section 95a of the Corporations Act 2001 (Cth).[2] The lifting of the corporate veil will find an individual personally liable under Section 588G of the Act[3], outlining a director’s duty to prevent insolvent trading by a company where the person is a director of the company at the time a debt is incurred within the natural and ordinary meaning of a debt and the company is insolvent at that time and continues to trade. If found guilty of trading insolvent, Palmer and Mensink will be required to repay the debts of up to $207 million personally.

Directors are given fiduciary obligations including the duty to act with care and diligence,[4] and a director found guilty of not doing so may be disqualified from acting as a manager of a corporation.[5] Penalties may be those of contravention, pecuniary penalty orders, relinquishment orders, refund orders and compensation orders.[6] They must act purely within the interests of the company, and other alleged breaches of the Corporations Act 2001 (Cth) have been centered on questionable transactions and other decisions made by Palmer on behalf of the board, including the making and forgiving of several loans. Palmer’s wife is simultaneous being questioned by the Court over transactions with no apparent explanation, and further damages Clive Palmer’s case. Ss 182 and 183 of the Act[7] prohibit any personal advantage or detriment to the company arising as a result of their position, and Palmer is at severe risk of being found guilty of such a breach.

[1] Corporations Act 2001 (Cth) s 9.[2] Ibid s 95a.[3] Ibid s 588G.[4] Ibid s 180(1).[5] ASIC v Adler (2002) 41 ACSR 72.[6] Corporations Act 2001 (Cth) Part 9.4B.[7] Ibid ss 182-183.

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Jamie Cozens-O’Loughlin – Rio Tinto Mozambique Coal 

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Jamie Cozens-O’Loughlin – Rio Tinto Mozambique Coal 

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Rio Tinto Group (Rio Tinto) is the combination of Australian publically listed company Rio Tinto Limited and the UKs publically listed company Rio Tinto plc. Rio Tinto is one of the world’s largest metals and mining corporations.

Article URL: https://asic.gov.au/about-asic/news-centre/find-a-media-release/2018-releases/18-119mr-asic-takes-further-action-against-rio-tinto-limited-and-its-former-ceo-and-cfo/

In August 2011 Rio Tinto finalised the acquisition of Riversdale Mining limited (As part of the acquisition this name was amended to Rio Tinto Coal Mozambique (RTCM)) for over $US 4 billion due to the assumption that this acquisition would eventuate to produce 45 million tonnes of coal per year by 2030. This however, was not the case and after a number of revaluations and setbacks it was found that the value of RTCM was between negative $US4.9 billion and $US300 million.[1] RTCM was then sold to International Coal Ventures Pty Ltd in Oct 2014 for a mere $US50 million.[2]

Whilst Rio Tinto has faced litigation globally for their actions, the Australian Securities and Investments Commission (ASIC), has commenced proceeding in the Australian Federal Court. The company, its former CEO, Thomas Albanese, and its former CFO, Guy Elliott are facing accusations that they provided misleading and/or deceptive statements in their 2012 annual report. [3]

Specifically, ASIC alleged that the company breached S1041H (Misleading or deceptive conduct) Corporations Act 2001 (Cth) (Corporations Act). This allegation has since expanded over the course of the proceedings and further from being in breach of s1041H, the company has been accused of breaching sections 304 (Compliance with accounting standards and regulations), 305 (True and fair view) and 674(2) (generally available information). [4]

Albanese and Elliot were alleged to solely be in breached s108.[5] However, this too has been expanded over the course of the proceeding and ASICs has accused Albanese and Elliot of  breaching s344 (contravention of Part 2M.22 or 2M.3) as well as s108 (Parts of dollar to be disregarded in determining majority in value of creditors etc.).[6] This is due to their lack of reasonable actions taken by the men to comply with accounting standards in the 2012 Financial statement and therefor, failing to meet their requirement to act with care and diligence as required of them as directors.

Due to these breaches, ASIC’s has asked the court to ensure Albanese and Elliot disqualified from managing corporations for such period that the court sees fit. The matter is set to next appear in the Federal Court on 24 July 2019.[7]

[1] Peter Ker, ‘How How Rio Tinto's Mozambique mess unfolded’ (Oct 2018) Financial Review <https://www.afr.com/business/mining/how-rio-tintos-mozambique-mess-unfolded-20171018-gz3ana>.

[2]Darren Gray, ‘ASIC expands legal action against Rio Tinto, two former execs’ (01 May 2018) <https://www.smh.com.au/business/companies/asic-expands-legal-action-against-rio-tinto-two-former-execs-20180501-p4zclb.html>.

[3] ASIC, ’18-119MR ASIC takes further action against Rio Tinto Limited and its former CEO and CFO’ (Media Release, 01 May 2018)  <https://asic.gov.au/about-asic/news-centre/find-a-media-release/2018-releases/18-119mr-asic-takes-further-action-against-rio-tinto-limited-and-its-former-ceo-and-cfo/>.

[4] ASIC, above n 3.

[5] ASIC, ’18-061MR ASIC takes action against Rio Tinto and its former CEO and CFO for misleading and deceptive conduct’ (Media Release, 2 March 2018) < https://asic.gov.au/about-asic/news-centre/find-a-media-release/2018-releases/18-061mr-asic-takes-action-against-rio-tinto-and-its-former-ceo-and-cfo-for-misleading-and-deceptive-conduct/>.

[6] ASIC, above n 3.

[7] Ibid.

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Australian Property Custodian Holdings Ltd (APCHL) was the responsible entity for Prime Retirement and Aged Care Property Trust (Prime Trust), a managed investment scheme whose business was retirement villages and aged care facilities.

In 2006, without benefit to, or approval from Prime Trust members, the directors of APCHL amended the scheme’s constitution, introducing substantial new fees including a fee for listing on the ASX, payable to APCHL.  After Prime Trust collapsed in 2010, its members losing more than AUD 550 million, ASIC brought action against the directors for breaches of their duties.

https://search-proquest-com.ezproxy.csu.edu.au/docview/2155030214?accountid=10344

The breaches occurred in 2006, when APCHL directors William Lewski, Mark Butler, Kim Jacques and Michael Wooldridge, passed resolutions to amend the Prime Trust constitution.  Following this, a new director, Peter Clarke was appointed, and two further resolutions were passed; one to lodge the amended constitution with ASIC, the other to pay a listing fee to companies associated with Mr Lewski (resulting in payment of AUD 33 million).

Proceedings, brought by ASIC in the Federal Court, resulted in disqualifications and fines declared by Murphy J.  The directors appealed to the Full Court of the Federal Court which overturned the decision. In December 2018, the High Court of Australia unanimously allowed two of three appeals by ASIC, reinstating decisions by Murphy J except with regard to Peter Clarke.

The High Court held that the amendment resolution was invalid.  It contravened

s 601GC(1)(a) requiring a special resolution by members of the scheme (which did not occur) and s 601GC(1)(b) which permits an amendment by the responsible entity only if it does not adversely affect members rights (which it did).[1]

The lodgement and payment resolutions were based on an invalid amendment, therefore involving breaches of directors’ duties under s 601FD of the Corporations Act.  These included:

Negligence - the duty to exercise reasonable care and diligence, s 601FD(1)(b).

Loyalty - the duty to act in the best interests of the members of the Trust and to give priority to the interests of the members of the Trust over their own interests, s 601FD(1)(c).

Improper Use – the duty to not make improper use of their position to gain, directly or indirectly, an advantage for themselves or for any other person or to cause detriment to the members of the scheme, s 601FD(1)(e).

Compliance – the duty to ensure the responsible entity complies with the Corporations Act and its constitution, s 601FD(1)(f) (i & iii).[2]

The full Federal Court must now resentence the directors (excluding Mr Clarke), and consider a cross appeal from ASIC regarding the adequacy of the original penalties.

Murphy J originally disqualified Mr Lewski from managing a company for fifteen years and fined him AUD 230,000, Mr Wooldridge was disqualified for 2 years and three months and fined AUD 20,000.  Messrs Jacques and Butler were each disqualified for four years and fined AUD 20,000.[3]  Given that the High Court did not uphold ASIC’s appeal against the Full Federal Court’s reversal of a breach of s 209(2), it seems unlikely that harsher penalties will be imposed.

[1] Katy Barnett, ‘Australian Securities and Investments Commission v Lewski’ Melbourne Law School, Opinions on High (online at 15 December 2018) < https://blogs.unimelb.edu.au/opinionsonhigh/2018/12/15/asic-v-lewski-case-page/> [2] ibid[3] ‘Australian Property: High Court decision on Prime Trust directors’, Troubled Company Reporter Asia Pacific (online at 17 December 2018), <https://ezproxy.csu.edu.au/login?url=http://global.factiva.com/en/du/article.asp?NAPC=S&AccessionNo=TRCRAP0020181218eech00003&xsid=S00Ys7p3HVk5DEs5DEpNDUsMpYsM9FyMHn0YqYvMq382rbRQUFBQUFBQUFBQUFBQUFBQUFBQUFBQUFBQUFBQUFBQUFBQQAA >

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When the Australian Wheat Board (AWB Limited) was in existence, it was Australia’s largest agribusiness and one of the world’s largest wheat exporters, accounting for 16% in world trade in wheat and 3% of Australia’s total exports.[1] The UN established an Oil for Food Program, whereby money from the sale of oil was put into an escrow account which in turn, could be used by Iraq to buy wheat.[2] Proceedings were brought against directors Mr Flugge and Mr Geary because of their failure to investigate the illegal practice of inflating the price of wheat (at the request of the Iraq Government) so as to enable the AWB to withdraw the excess amount from the escrow account and then pay Iraq directly with hard currency, in contravention of UN sanctions.[3]

News Article:

https://www.gtlaw.com.au/insights/awb-oil-wheat-scandal-duty-directors-investigate

Synopsis:

ASIC sought civil penalties against former chairman and director of AWB, Trevor Flugge and former senior officer of AWB, Peter Geary.[4] These were for alleged breaches of their duties under section 180(1) (to exercise reasonable care and diligence), and section 181 (to act in good faith and for a proper purpose) of the Corporations Act 2001 (Cth).[5]

These alleged breaches occurred as a consequence of the conduct of the AWB in relation to their sales of Australian wheat to Iraq under the ‘Oil for Food’ program.[6] This program did not remove the sanctions in place by the UN which prevented the availability of funds and other financial resources to Iraq.[7] New contracts were negotiated between Iraq (via the Iraq Grain Board) and the AWB in 1999.[8] This contract stipulated that the AWB was required to pay a transport fee of $US 12 per tonne of wheat and were informed by the Iraqi Government that these payments were approved by the UN.[9] The AWB would not have been able to obtain this export contract without that stipulation.[10] It is estimated that the AWB paid Iraq US$223 million in hard currency in this way, thus contravening UN sanctions.[11] This conduct came to light after the US invasion of Iraq in 2003, when the US Government conducted their own inquiry into inland transport fees, consequently accusing the AWB of contravention of UN sanctions.[12]

ASIC sought a penalty of $200,000 under section 1317G(1) of the Corporations Act 2001 (Cth).[13] They also sought a disqualification period of 10 years under section 206(C) of the Corporations Act 2001 (Cth).[14] However, application for relief under section 1317S and section 1318 of the Corporations Act 2001 (Cth) could be available.[15] To obtain relief, Trevor Flugge and Peter Geary must display to the court that:[16]

·         they acted honestly;

·         whether under the circumstances, they ought to be excused; and

·         to what extent, if any, the should be relieved.

The impacts on shareholders and other stake holders were great. Shareholders lost half the value of their shares.[17] Also A$500,000 in trade was forfeited and the positions of many senior executives became untenable.[18] The conduct of the AWB had also cast a shadow over Australia’s reputation overseas.[19]

[1] Terence RH Cole QC, Report of the Inquiry into certain Australian companies in relation to the UN Oil-for-Food Program (Report, November 2006) [9.1]-[9.2].
[2] ‘AWB “oil for wheat” scandal – the duty of directors to investigate’, Insights (Web Page) <https://www.gtlaw.com.au/insights/awb-oil-wheat-scandal-duty-directors-investigate>.
[3] Ibid.
[4] ASIC v Flugge & Geary [2016] VSC 779 [1].
[5] Ibid.
[6] Ibid [4].
[7] Ibid.
[8] Ibid [6].
[9] J Robson, ‘Summary of Judgment: ASIC v Flugge & Geary [2016] VSC779’, Supreme Court of Victoria (Web Page, 15 December 2016) < http://assets.justice.vic.gov.au//supreme/resources/b299177a-7636-4a1a-add8-739a60aefb43/summaryofjudgmentasicvfluggeandgeary2016vsc779.pdf>.
[10] Ibid.
[11] Ibid.
[12] Ibid.
[13] ASIC v Flugge (No 2) [2017] VSC 117 [4].
[14] Ibid.
[15] Ibid [57].
[16] Ibid.
[17] Terence RH Cole QC, Report of the Inquiry into certain Australian companies in relation to the UN Oil-for-Food Program (Report, November 2006) xi.
[18] Ibid.
[19] Ibid.

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1.      Appster Pty Ltd (Appster) was an Australian application development company which was created in 2011 by its two directors, Mark McDonald and Josiah Humphey. Appster announced in December 2018 that it would go into voluntary liquidation with accrued debts of approximately 2.65 million dollars[1]. Although the circumstances of Appster’s collapse is still under investigation, it has been suggested that the rapid expansion of the company caused cashflow issues to the extent that the company may have been trading while insolvent for at least 12 months prior to entering liquidation.[2]

2.      https://www.smartcompany.com.au/startupsmart/news/appster-may-have-traded-while-insolvent/

3.      The investigations undertaken by Appster’s liquidator to date suggest that the company had been trading while insolvent for at least 12 months prior to going into liquidation.[3] The test for solvency of a company is a ‘cash flow test’ defined by s95A of the Corporations Act (‘the Act’)[4] and is based on an assessment of the ability of the company to pay its debts when they become due and payable.[5]

Section 588G of the Act imposes a statutory obligation upon directors of a company to prevent insolvent trading. Contravention of s 588G occurs when a director of a company to incurs a debt when the company is insolvent and there are reasonable grounds for the director to believe that the company is insolvent. If a case is brought against the directors for breach of s 588G, there are limited defences available to them prescribed by s 588H of the Act. Potential defences include that the director may have had reasonable grounds to believe the company was solvent[6] and that the director took all reasonable steps to prevent the company from incurring a debt.[7]

There are potential civil and criminal penalties if it is proven that a director has contravened s588G. ASIC may apply for a ‘civil penalty order’ which may result in a penalty of up to $200,000. If a director has been found to have acted dishonestly and knew that the company was insolvent at the time of incurring the debt, they can be in contravention of s 588G(3) which is a criminal offence with a maximum liability of 2000 penalty units and/or five years imprisonment.[8]

Appster’s liquidator has also identified that the company made at least three substantial payments to related entities that possess the same directors as Appster in the six-week period before entering into voluntary administration. Transactions made to strip a company of its assets to avoid payment to creditors can be deemed to be unreasonable director-related transactions under s 588FDA of the Act, and could be deemed voidable by the court as an obstruction of creditors rights.[9]

In addition to contravening s 588FDA, the directors could also be found to have breached their duties under s 184(2) by using their position to gain personal advantage by transferring assets away from Appster to related entities to avoid payment to creditors. Civil and criminal penalties are also applicable where breach of s 184(2) is proven.

[1] Paul Vartelas, Statutory report by a liquidator to creditors (Report No 7EAJ12866, 4 March 2019) 12.
[2] Ibid 13.
[3] Ibid.
[4] 2001 (Cth).
[5] Corporations Act 2001 (Cth) s 95A(1).
[6] S 588H(2).
[7] S 588H(5).
[8] S 4AA of the Crimes Act 1900 (NSW) defines a penalty unit as $110.
[9] S 588FE(6A)

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CellOS Software Limited is public, but unlisted Australian software company in the field of data analytics. Jason Huber (Mr Huber) is the company's founder and Chief Executive Officer. Mr Huber's responsibility was to raise equity capital as CellOS's primary source of funding.

Link to media release: https://corrs.com.au/insights/directors-beware-federal-court-warns-against-diverting-share-trading-opportunities[1]

CellOSs alleges that Mr Huber carried out a scheme against it and whilst doing that breached various statutory and fiduciary duties he owned to CellOS, particularly under s 181, 182 and 183 of the Corporations Act 2001 (Cth).[2]

Mr Huber's scheme was as follows:

-          CellOS was not generating enough revenue and was dependent upon new equity capital or debt funding to continue its business. Mr Huber was personally responsible for securing funding to CellOS.

-          From late 2012, Mr Huber established a web of offshore companies to hold his CellOS shares (entities controlled by Huber). The Huber controlled entities have disguised Mr Huber's involvement.

-          From 2012 Huber controlled entities bought shares from early investors in CellOS without disclosing his involvement to the vendors or CellOS. The transactions were entered without CellOS's knowledge.

-          From 2012, Huber sought potential investors for CellOS to raise funds for CellOS. But instead of CellOS issuing shares to the investors, Mr Huber had the investors purchase shares from Huber controlled entities.

-          Huber had CellOS enter a loan agreement with one of his offshore companies LGA Energy Investments to loan CellOS $25 million without disclosing his interest in LGA. The loan allowed Huber to benefit from funds that were converted to shares. The loan allowed Huber to lend funds to CellOS under the LGA loan and to obtain more shares by exercising the conversion option. Huber directed LGA to transfer shares to Huber controlled entities for no consideration.

-          Huber had CellOS enter into another loan arrangement with another associated company, Pized Management and did not disclose his interest.[3]

It was found in this case that Mr Huber contravened following sections of the Act:

-          Section 181 by not acting in good faith and for proper purpose;

-          Section 182(2) by improperly gaining personal advantage for himself and others involved in the scheme and caused detriment to CellOS;

-          Section 183 by improperly using information obtained from his position as a director to gain personal advantage for himself and others and caused detriment to CellOS.[4]

Breach of sections 180 - 183 are civil penalty provisions[5]. They require the court to issue a declaration of contravention under s 1317E. If such declaration is issued, a court may order the person to pay the Commonwealth a pecuniary penalty up to $200,000.[6] The court can also order that the director be disqualified from managing corporations.[7]
The court may also order that:

-          The director pay damages to the company.[8]

-          An injunction be imposed restraining the future breach of duty.[9]

-          A receiver be appointed over the property of the company.[10]

[1] Corrs Chambers Westgarth, Directors beware: Federal Court warns against diverting share trading opportunities (29 January 2019) <https://corrs.com.au/insights/directors-beware-federal-court-warns-against-diverting-share-trading-opportunities>.[2] CellOS Software Ltd v Huber [2018] FCA 2069.[3] Ibid. [4] Ibid. [5] Corporations Act 2001 (Cth) s1317(3).[6] Ibid s 1317G.[7] Ibid s 206C. [8] Ibid s 1317H.[9] Ibid s 1324. [10] Ibid s 1323.

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Kimberley Elliott - Commonwealth Bank of Australia

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Kimberley Elliott - Commonwealth Bank of Australia

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The Commonwealth Bank of Australia (CBA) is a publically listed company, incorporated by the Corporations Act 2001 (Cth). As an Australian Securities Exchange (ASX) listed company, it has obligations to inform the share market of issues that may impact share value.[1] In 2015,[2] CBA was advised by the Australian Transaction Reports and Analysis Centre (AUSTRAC) that there were significant breaches of CBA’s obligation under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) to have an anti-money laundering and counter-terrorism financing program in place, to comply with that plan, and to report certain transactions to AUSTRAC.[3]

The news article chosen to discuss the relevant breaches is: https://www.afr.com/business/banking-and-finance/money-laundering-scandal-what-cba-admitted-to-and-why-it-happened-20180604-h10xm3

CBA implemented a new Intelligence Deposit Machines, a system that allowed customers to deposit funds that were not subject to usual clearance requirements and then transfer the funds immediately,[4] without adequate risk management in place[5] to address money laundering considerations. Despite concerns being raised by AUSTRAC, the practice continued without review for three years.[6] In addition, CBA admitted to more than 53,000 breaches of mandatory reporting requirements to AUSTRAC.[7] The CBA’s anti-money laundering and counter-terrorism financing program required oversight by the Board of Directors and Senior Management.[8] CBA acknowledged there was inadequate oversight of the program and did not fulfil their mandate to ensure adequate oversight of corporate governance, risk and compliance.[9]

As a consequence of this acknowledgment, CBA reduced the remuneration of its Board of Directors by 20% in 2018.[10] Breaches of reporting requirements[11] and non-compliance with an anti-money laundering and counter-terrorism financing program attracts a civil penalty.[12] In such cases, AUSTRAC may apply for a pecuniary penalty amount to be paid to the Commonwealth.[13] CBA settled with AUSTRAC for a pecuniary penalty of $700 million in June 2018.

Separately, CBA shareholders have launched a class action lawsuit against the CBA to recover loss of share value resulting from CBA’s failure to disclose its breaches of the AML/CTF Act when it first became aware in 2015 that it had contravened s674 of the Corporations Act 2001 (Cth). The class action claims also allege that directors of CBA and senior management participated in deceptive and misleading conduct.[14] To make out the claims, the shareholders will have to prove that the breaches caused loss in value on shares when they fell in 2017 – a claim that CBA vehemently denies.[15]

References

A Legislation

Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth)

Corporations Act 2001 (Cth)

B Other

AUSTRAC (Cth), ‘AUSTRAC and CBA agree $700m penalty’ (Media Release, 4 June 2018) <http://www.austrac.gov.au/media/media-releases/austrac-and-cba-agree-700m-penalty>

Eyers, James, ‘Money Laundering Scandal: What CBA Admitted to, and Why it Happened’, Australian Financial Review (online, 4 June 2018) <https://www.afr.com/business/banking-and-finance/money-laundering-scandal-what-cba-admitted-to-and-why-it-happened-20180604-h10xm3>

Legg, Michael and James D Metzger, ‘CBA Admissions will Make Class Action Easier but Shareholders Still Have a Lot to Prove’, The Conversation (online, 15 December 2017) <https://theconversation.com/cba-admissions-will-make-class-action-easier-but-shareholders-still-have-a-lot-to-prove-89153>

[1] The continuous disclosure requirements as detailed by Corporations Act 2001 (Cth), s674.
[2] Michael Legg and James D Metzger, ‘CBA Admissions will Make Class Action Easier but Shareholders Still Have a Lot to Prove’, The Conversation (online, 15 December 2017) <https://theconversation.com/cba-admissions-will-make-class-action-easier-but-shareholders-still-have-a-lot-to-prove-89153>
[3] James Eyers, ‘Money Laundering Scandal: What CBA Admitted to, and Why it Happened’, Australian Financial Review (online, 4 June 2018) <https://www.afr.com/business/banking-and-finance/money-laundering-scandal-what-cba-admitted-to-and-why-it-happened-20180604-h10xm3>
[4] Ibid.
[5] The money laundering risk of the system had been rated ‘high’ and CBA acknowledged inadequate controls were put in place to manage the risk. See Legg and Metzger (n 2).
[6] Eyers (n 3).
[7] There were 53,500 breaches of reporting transactions over $10,000 and a 100 breaches of reporting of suspicious account activity. See Eyers (n 3).
[8] Legg and Metzger (n 2).
[9] AUSTRAC (Cth), ‘AUSTRAC and CBA agree $700m penalty’ (Media Release, 4 June 2018) <http://www.austrac.gov.au/media/media-releases/austrac-and-cba-agree-700m-penalty>
[10] Ibid.
[11] Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), ss41 and 43.
[12] Ibid, s82.
[13] Ibid, s176.
[14] As defined by Corporations Act 2001 (Cth), s1041H.
[15] Legg and Metzger (n 2).

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Sarah McCullough - Sino Australia Oil and Gas limited

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Sarah McCullough - Sino Australia Oil and Gas limited

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Sino Australia Oil and Gas Limited (Sino) was a holding company of a Chinese company which claimed to provide specialised drilling services to the oil and gas industry in China.[1] Sino raised approximately $13.6 million as part of an initial public offering (IPO) and was listed on the stock exchange on 13 December 2013.[2] The Australian Securities and Investments Commission (ASIC) took action against Sino, and Sino’s managing director, Mr Tianpeng Shao, for breaching its continuous disclosure obligations and making false and misleading statements in its prospectus.[3]

An example of a mainstream media article can be found in the West Australian: https://thewest.com.au/news/wa/court-finds-ipo-investors-duped-ng-ya-115495

This article highlights numerous breaches of director’s duties by Mr Shao, specifically breaches of s 180(1) of the Corporations Act 2001 (Cth) (‘the Act’) for not exercising his duties with the care and diligence expected by a reasonable person. These breaches centre around the presentation of false or misleading information to investors and the failure to disclose information to investors that might allow them to make an informed decision.

Mr Shao signed the director’s declaration and authorised the released prospectuses subsequent to the initial one.[4] By failing to have the documents translated so he could understand their content, Mr Shao did not act with due diligence.[5] Further, the prospectuses had a number of false or misleading claims and failed to disclose important information including:

●     Claims that Sino held two patents which it did not;[6]

●     Claim regarding service contracts that either did not exist or were smaller than claimed;[7]

●     A failure to disclose that the $13.6 million profit forecast for the year ending December 2013 as stated in a previous prospectus would not be met.[8]

●     A failure to declare in the prospectuses a loan agreement Sino held with one of its Chinese subsidiaries.[9]

The false and misleading information, as well as missing information, is a breach s 728 of the Act.[10] A finding that Mr Shao’s failure to act with appropriate care and diligence contributed to Sino’s breaches is a potential further breach of s 180(1) of the Act.[11]

Mr Shao also failed to make sure he understood the disclosure requirements involved with being a publicly listed company, again breaching s 180(1) of the Act. Finally, the attempts by Mr Shao to transfer $7.5 million to China in circumstances which would make it not recoverable[12] is a further breach of s 180(1).[13]

Mr Shao attempted to use a defence that he did not understand English or the Australian legal system[14] and therefore relied on the information provided by the Australian directors.[15] This defence was rejected as it does not allow directors to breach their own duty of care.[16]

ASIC sought – and was granted – declarations under s 1317J of the Act that Mr Shao had committed 9 breaches of his director’s duties under s 180(1) of the Act. These declarations allowed ASIC to seek pecuniary penalties. The maximum penalties are up to 5000 penalty units per contravention or three times the detriment avoided or benefit gained by the contravention.[17] The declarations also allowed ASIC to seek - and be granted -an order disqualifying Mr Shao from managing corporations for 20 years.[18] Finally, a finding that the breaches of director’s duties by Mr Shao caused damage to Sino also leaves him open to a compensation order which did eventuate in this case.[19]

[1] ASIC v Sino Australia Oil and Gas Limited (in liq) [2016] FCA 934, [2].[2] Australian Securities and Investments Commission, ‘Court finds against Sino Australia Oil and Gas Limited and its former chairman Tianpeng Shao’ Media Release 16-255MR, 12 August 2016) <https://asic.gov.au/about-asic/news-centre/find-a-media-release/2016-releases/16-255mr-court-finds-against-sino-australia-oil-and-gas-limited-and-its-former-chairman-tianpeng-shao/>.[3] Ibid.[4] ASIC v Sino Australia Oil and Gas Limited (in liq) [2016] FCA 934, [4].[5] ASIC v Sino Australia Oil and Gas Limited (in liq) [2016] FCA 1488, [67].[6] Ibid [23].[7] Ibid [43-44].[8] Ibid [25-27].[9] Peter Williams, ‘Court finds IPO investors duped’, (Online, 14 August 2016) The West Australian <https://thewest.com.au/news/wa/court-finds-ipo-investors-duped-ng-ya-115495>.[10] Section 728 of the Corporations Act 2001 (Cth) prohibits a person from offering securities under a disclosure document that is misleading, that omits required information, or where circumstances had changed that require disclosure.[11] ASIC v Sino Australia Oil and Gas Limited (in liq) [2016] FCA 1488, [66].[12] Peter Williams, ‘Court finds IPO investors duped’, (Online, 14 August 2016) The West Australian <https://thewest.com.au/news/wa/court-finds-ipo-investors-duped-ng-ya-115495>.[13] ASIC v Sino Australia Oil and Gas Limited (in liq) [2016] FCA 1488, [76].[14] Peter Williams, ‘Court finds IPO investors duped’, (Online, 14 August 2016) The West Australian <https://thewest.com.au/news/wa/court-finds-ipo-investors-duped-ng-ya-115495>.[15] Corporations Act 2001 (Cth) s 189 provides a defence for directors who rely on on information, or professional or expert advice, given or prepared by another director in relation to matters within the director's authority[16] ASIC v Healey (2011) 83 ACSR 484; [2011] FCA 717.[17] Corporations Act 2001 (Cth) s 1317G. 1 penalty unit = $210 as per Crimes Act 1914 (Cth) s 4AA(1).[18] Corporations Act 2001 (Cth) s 206C.[19] Ibid s 1317H.

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Taryn Peck’s Post – Padbury Mining Limited

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Taryn Peck’s Post – Padbury Mining Limited

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1.

AustSino Resources Group Limited, formerly Padbury Mining Limited (‘Padbury Mining’)[1]is an Australian public listed company operating in the mining industry in the mid-west region of Western Australia.[2] In April 2014, Padbury Mining made an Australian Stock Exchange (‘ASX’) announcement that it had secured $6 billion to fund a deep water port and associated railway network at Oakajee. It was later revealed that the funding was dependant on conditions withheld from the market.[3]

2.

The Business News Western Australia article can be found below:

https://ezproxy.csu.edu.au/login?url=http://global.factiva.com/en/du/article.asp?NAPC=S&AccessionNo=WABN000020160819ec8j000m9&xsid=S00Ys7p3HVk5DEs5DEpNDUsMpYsM9FyMHn0YqYvMq382rbRQUFBQUFBQUFBQUFBQUFBQUFBQUFBQUFBQUFBQUFBQUFBQQAA.

3.

The ASX announcement made by Padbury Mining did not identify Superkite Pty Ltd and Alliance Super Holdings Pty Ltd as being the parties that had undertaken the funding obligation, nor were the contractual pre-conditions on which the provision of the funding depended disclosed.[4] Mr Gary Wayne Stokes and Mr Terence Martin Quinn, were executive directors of Padbury Mining.[5] Both individuals were involved in the drafting of the announcement and authorised its release without seeking independent legal advice.[6]

In 2015, the Australian Securities and Investments Commission (‘ASIC’) commenced civil proceedings in the Federal Court against Padbury Mining and the two of its directors, over their breach of duties as directors with respect to the disclosure obligations of the company. The Court’s findings were that Padbury Mining was in breach of s 1041H, s 674(2) and Mr Stokes and Mr Quinn were in breach of s 674(2A) and 180(1), of the Corporations Act 2001 (Cth).[7]

The provision of section 1041H[8] relates to engaging in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive. Padbury Mining made a misleading and deceptive representation in their announcement that they had secured $6 billion in funding for the Oakajee project. Padbury Mining breached its continuous disclosure obligations under s 674(2)[9] by failing to disclose to the market the existence of conditions which would determine whether they were entitled to receive the $6 million funding. As Mr Stokes and Mr Quinn facilitated the breach of s 674(2) they were in breach of s 674(2A). This pertains to the director’s actions under s 180(1).[10]

Under s 180(1),[11] a director of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise. The Court’s determination of a breach of section 180(1)[12]came as Mr Stokes and Mr Quinn admitted (with the Court in agreeance) that when the ASX announcement was approved they ought to have been reasonably aware that it was misleading and deceptive and would be harmful or potentially harmful to Padbury Mining.[13]

Mr Stokes and Mr Quinn were each ordered to pay an individual penalty of $25,000[14]and jointly $200,000 towards ASIC’s costs to conduct proceedings.[15] Additionally, a three-year period of disqualification period was ordered.[16] Mr Stokes was granted leave to manage his self-managed superannuation fund with conditions.[17] Mitigating circumstances including Mr Stokes’ and Mr Quinn’s cooperation with ASIC at an early stage of the proceedings and the initiation of a trading halt were taken into account.[18] The maximum pecuniary penalty in this instance that could have been imposed was $200,000[19]and life disqualification.[20]

[1]Padbury Mining Limited, ‘Change of Company Name’ AustSino Resources Group Limited (ASX Announcement, 2 February 2017) <http://aust-sino.com/files/files/717_3._Change_of_Company_Name_-_03Feb2017.pdf >. [2]Australian Securities and Investments Commission v Padbury Mining Limited[2016] FCA 990 [2] (‘Australian Securities and Investments Commission Case’).[3]Australian Securities and Investments Commission, ‘16-263MR Padbury Mining directors banned for three years due to 'Oakajee Funding Secured' announcement’ (Media Release, 19 August 2016).[4]Australian Securities and Investments Commission Case (n 2) [4].[5]Ibid [5].[6]Ibid [6].[7]Australian Securities and Investments Commission (n 3).[8]Corporations Act 2001 (Cth).[9]Ibid.[10]Ibid.[11]Ibid.[12]Ibid.[13]Australian Securities and Investments Commission, ‘16-263MR Padbury Mining directors banned for three years due to 'Oakajee Funding Secured' announcement’ (Media Release, 19 August 2016).[14]Australian Securities and Investments Commission Case (n 2) [10],[12].[15]Ibid; [14].[16]Ibid [89]; Corporations Act 2001 (Cth) s 206C(1). The case of Gillfillan v Australian Securities and Investments Commission (2012) 92 ACSR 40 was instructive in assessing whether the proposed three year disqualification period was appropriate; The James Hardie case was also referred to.[17]Australian Securities and Investments Commission Case (n 2) [89].[18]Ibid [86].[19]Corporations Act 2001 (Cth) s 1317G.[20]Ibid s1317G, s 206C.

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Geoff McCarron-Benson: ASIC v Padbury Mining Limited [2016] FCA 990

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Geoff McCarron-Benson: ASIC v Padbury Mining Limited [2016] FCA 990

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In 2014, Padbury Mining released an ASX report stating that it had secured a $6 billion loan to build a port and rail project in Western Australia - the Oakajee project. This would open the region to cheaper exports and greater profitability. The market reacted positively, and the share price had surged 170%.

The problem was the loan was subject to several pre-conditions which were unlikely to be fulfilled. Ultimately, the lender - who had not been named in the release - pulled out and the project failed.

Padbury shares had been placed on a self-imposed trading halt within four hours of the release,[1] but not before 200 million shares were traded.[2] Investors were furious and several class actions were initiated. Further, ASIC investigated and decided to initiate its own proceedings against Padbury and its two directors.

Media release from the ABC:

●     https://www.abc.net.au/news/2016-08-19/padbury-mining-directors-fined-and-banned/7768184

There were also several notices of the proceedings posted by ASIC as the matter progressed, including;

●     https://asic.gov.au/about-asic/news-centre/find-a-media-release/2016-releases/16-263mr-padbury-mining-directors-banned-for-three-years-due-to-oakajee-funding-secured-announcement/

The breaches by the company and directors were as follows;

1. That Padbury contravened s 1041H(1) of the Corporations Act 2001 (“Act”) such that its representation to the ASX that it had secured funding for the Oakajee project was “misleading and deceptive and likely to mislead or deceive” because Padbury was not in a position to obtain the funds.

2. That Padbury contravened s 674(2) of the Act by not including details of the conditions precedent for the loan of $6 billion.

3. That the directors both contravened s 674(2A) of the Act by allowing the misleading information to be published and facilitating the contravention of s 674(2).

4. That the directors contravened s 180(1) of the Act by approving the release and “thereby causing or otherwise permitting” Padbury to contravene s 1041H.

You will notice that Padbury (the company) was pursued for direct contravention of the relevant statutory provisions while the directors were charged with facilitating the contravention.

The media release was co-written by two directors - Mr Stokes and Mr Quinn - and released without obtaining independent legal advice.[3] As soon as they realised the mistake, they acted swiftly to halt trading, and both fully cooperated with the ASIC investigation. It is because of this that they both received relatively token penalties - a pecuniary penalty of $25,000 each plus disqualification from acting as a director for 3 years.[4] They were also ordered to pay ASIC’s costs which amounted to $200,000.[5] Possible penalties could have been $200,000 and life disqualification.[6]

Interestingly Mr Stokes was allowed to maintain the directorship of his self-managed Super fund.[7] The orbita for the sentencing, his Honour Siopis J referred to the James Hardie case[8] when he noted that while the actions were not dishonest, both Mr Stokes and Mr Quinn “ought to have been aware of the facts of the matter which rendered the draft ASX announcement misleading”.[9] Also, that their action was a “serious departure from the standards expected of directors”.[10] In summing up, Honour Siopis J noted “considerable weight is to be placed on the early cooperation and contrition exhibited”,[11] however, the breach itself was substantial and thus required at least nominal pecuniary penalty.

[1] ASIC v Padbury Mining Limited [2016] FCA 990 [7].[2] Ibid [9].[3] Australian Mining, ASIC takes Padbury Mining to court (24 June 2015) <www.australianmining.com.au/news/asic-takes-padbury-mining-to-court>[4] ASIC v Padbury Mining Limited [2016] FCA 990 [10-13].[5] Ibid [14].[6] Corporations Act 2001 (Cth) s 1317G.[7] ASIC v Padbury Mining Limited [2016] FCA 990 [90].[8] Gilfillan & Ors v Australian Securities and Investments Commission [2012] NSWCA 370.[9] ASIC v Padbury Mining Limited [2016] FCA 990 [81].[10] Ibid [81].[11] Ibid [88].

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Michelle Howard's Post - Brimarco Pty Ltd

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Michelle Howard's Post - Brimarco Pty Ltd

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Mr. James Meaden was the sole Director of Brimarco Pty Ltd.  The company designed, engineered and manufactured specialized, purpose-built and production vehicles. It operated from a purpose-built factory located in Ballarat where it had qualified tradespeople and subcontractors to supplement its workforce[1].

Media Stream: - https://www.thecourier.com.au/story/3504104/debts-totalling-2m-left-by-firm/

How did the alleged breaches come about?

The day before Brimarco was placed in liquidation, Mr. Meaden chose to transfer $34,000 to another company, Tough As Pty Ltd.  By transferring these funds to another company that he was also a director of, Mr. Meaden breach his fiduciary duty by: -

Not acting in the best interest of the Brimarco Pty Ltd.

Using his position as a director which gained an advantage for himself.

Causing detriment to the company.

Since Mr. Meaden was also aware that the day after the transfer there was a hearing to wind up the company, the courts have seen this as a deliberate act in conduct, with the acknowledgement that it was not in the best interest of Brimarco Pty Ltd.  The transfer of the funds can be seen as reckless and dishonest.

There was also an investigation done by ASIC which also found that Mr. Meaden engaged in illegal phoenix action[2].  This involves the Director transferring company assets to another one.  Ultimately leaving the original company an empty shell for the external administrator. The liquidators identified the transfer of the $34,000 along with another transaction that suggested the company could possibility be insolvent. This also breached his duty as a director by: -

Possibility of trading while insolvent.

What provisions of the Corporations Act or common law do these breaches raise?

Under the Common Law Mr. Meaden would be seen as a fiduciary of Brimarco Pty Ltd.  This imposes a duty of absolute loyalty on him toward the company.  Under the Profit rule, He must not make a personal profit from his position.

The Provisions of the Corporation Act that Mr. Meaden has breached are: -

s 181(1)(a) gives rise to director’s fiduciary duty to act in the best interest of the company[3].

s 182(1) a director must not improperly use their position to (a) gain an advantage for themselves (b) cause detriment to the Corporation[4].

S 184 a director of a corporation commits an offence if they (a) are reckless and (b) are intentionally dishonest[5].

S 588G a director has a duty to prevent insolvent trading[6].

Potential penalties that the directors may be liable for?

A Director who is involved in a contravention of section 181 and 182 is liable for a civil penalty. These Civil penalties are: -

A pecuniary penalty order of up to $200,000 per violation[7].

A disqualification order from acting as a director[8].

A compensation order[9].

Section 182 also carries a criminal penalty.  Under section 184 it provides that the director will commit a criminal offence if this section is breached with the requisite mens rea - namely if the person uses their position intending to gain an advantage for themselves directly.

The penalties for a breach of the criminal provision are: -

2000 penalty units at $210.00 per unit[10].

Up to 5 years in prison [11].

[1] Alex Hamer, ‘Workers owed thousands after Brimarco Pty Ltd went into receivership in April’, The Courier (online, 19 November 2015) < https://www.thecourier.com.au/story/3504104/debts-totalling-2m-left-by-firm/>.

[2] Shaw Gidley, ‘Liquidators assist ASIC in Director Prosecution for Phoenix Activity’, Newsletter (online, 2 May 2018)< http://shawgidley.com.au/liquidators-assist-asic-in-director-prosecutions-for-phoenix-activity/>.
[3] Corporation Act 2001 (Cth) s 181(1)(a).
[4] Ibid s 182(1). [5] Ibid s 184.   [6] Ibid s 588G. [7] Corporation Act 2001 (Cth) s 1317G.  [8] Ibid s 206C. [9] Ibid s 1317H.  [10] Crimes Act 1914 (Cth) s 4AA. [11] Corporations Act 2001 (Cth) Schedule 3.

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1.      Queensland Nickel Pty Ltd was established in July 1971, owning and operating the Palmer Nickel and Cobalt Refinery in North Queensland.[1] Clive Palmer claimed that after resigning, he had no involvement in money-making decisions of the company.[2] However, there have been questions raised about Clive Palmer acting as a shadow director and allegations made about insolvent trading and breach of directors duties.

2.      https://www.abc.net.au/news/2017-07-05/clive-palmer-mensink-queensland-nickel-breach-duty-sue/8679470

3.      Multiple large donations made to the Palmer United Party before and after Clive’s resignation raise questions about whether he acted as a shadow director.[3] Palmer also requested financial assistance from the government in late 2015 and was rejected as the government cited the company’s refusal to provide full details to the government as well as the large donations to Palmer United.[4] Clive Palmer resigned in February 2015 and claimed he had no involvement in any money-making decisions of the company.

Queensland Nickel became insolvent in November 2015, entering into voluntary administration in January 2016, with 237 workers being terminated. The company blamed low nickel prices and the refusal of the government to support the industry, although they had made a donation of $288,516 to Palmer United in the days leading up to the termination. [5]

The Corporations Act provides that a director can be a person whom the directors of the company are accustomed to act in accordance with their instructions or wishes (shadow director).[6] It is alleged that Clive Palmer was involved in money-making decisions of the business and the directors of the company acted within his instructions and wishes and therefore he acted as a shadow director. A company director has the duty to act in good faith, exercising care and diligence to act in best interests of the company and avoid conflict of interest.[7]

Legal proceedings that began in 2017 against Queensland Nickel Pty Ltd allege that Mr Palmer and his nephew, Mr Mensink are personally liable for damages for insolvent trading and for breach of director’s duties at common and statutory law.[8] There is no legal difference between a director formally appointed and a shadow director. Both men breached their duties as director of Queensland Nickel as they put the company in large amounts of debt, resulting in the loss of hundreds of jobs. Clive Palmer and Mr Mensink did not act in good faith or in the best interests of the company. The Act also provides that a director may be made personally liable for the debts incurred by the company that has traded while insolvent.[9] As Mr. Mensink was a director of the company and Mr.Palmer a shadow director, they are both personally liable for debts incurred by Queensland Nickel. Further, breach of directors duties impose a criminal offence, and can result in pecuniary penalties of up to $200,000 or imprisonment for up to five years.[10]

[1] Australian Securities and Investments Commission (ASIC), Search Company and Other Registers: QUEENSLAND NICKEL PTY LTD (July 1971) <https://connectonline.asic.gov.au/RegistrySearch/faces/landing/SearchRegisters.jspx?_ga=1.7489210.968551972.1453086768&_adf.ctrl-state=9vk9adr9v_4> [2] Anil Hargovan, Was Clive Palmer a ‘shadow’ director of Queensland Nickel (April 2016) <https://theconversation.com/was-clive-palmer-a-shadow-director-of-queensland-nickel-57642> [3] Rory Callinan, Clive Palmer was Queensland Nickel director when $700,000 was donated to the Palmer United Party (February 2016) <https://www.smh.com.au/politics/federal/clive-palmer-was-queensland-nickel-director-when-700000-was-donated-to-the-palmer-united-party-20160201-gmiqgg.html> [4] Joshua Robertson, Clive Palmer’s Queensland Nickel refinery to cut hundreds of jobs (Jan 2016) <https://www.theguardian.com/australia-news/2016/jan/15/clive-palmers-queensland-nickel-refinery-to-cut-hundreds-of-jobs> [5] Josh Bavas, Clive Palmer under pressure to repay millions taken from struggling Townsville refinery to fund political party (Jan 2016) <https://www.abc.net.au/news/2016-01-16/qld-nickel-donated-nearly-$290k-just-2-weeks-before-sackings/7093096> [6] Corporations Act 2001 (Cth) s9.[7] Corporations Act 2001 (Cth) s180.[8] Michaela Cash, Court proceedings commenced against former directors of Queensland Nickel (July 2017) <https://ministers.jobs.gov.au/cash/court-proceedings-commenced-against-former-directors-queensland-nickel-0>. [9] Corporations Act 2001 (Cth) s588G.[10] Corporations Act 2001 (Cth) schedule 3.

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The financial boom in the years leading up to 2008 allowed the practices of advice companies such as Storm Financial to flourish using questionable methods. Storm promoted a ‘one size fits all’ investment model called ‘Stormify’ to the recently, or soon to be, retired who could not service the financial burden they signed up for. Storm was not alone in the disservice done to their vulnerable clients as the banks, primarily Commonwealth, through liberal lending criteria and high sales targets were enablers of the model.

Storm Financial, the banks and complacency from the Australian Securities and Investments Commission (ASIC)[1], led to a perfect storm waiting for the inevitable collapse.

<https://www.themonthly.com.au/issue/2011/february/1299634145/paul-barry/eye-storm>

The disastrous three billion dollar collapse of Storm Financial could have been avoided, or the effect severely reduced, had ASIC not been complacent in complaints received about Storm as early as a decade earlier.[2] Once ASIC finally decided to take action after the collapse and after the private sector law firms initiate class action against Storm and the banks.[3]

ASIC was initially considering using s73 of the Trade Practices Act (TPA) to make the banks ‘linked credit providers’ thus making them jointly liable for the conduct of Storm Financial. This was independently criticized as “unlikely to succeed.”[4] A charge was never preferred under the TPA.

ASIC finally took action in late 2010, alleging the founding directors, Emmanuel and Julie Cassimatis, breached s180 (1) of The Corporations Act in which they failed to take due care and diligence as they, ‘…caused or 'permitted' (by omission to prevent) inappropriate advice to be given to the relevant investors.’[5]

They were found to have had an “…extraordinary degree of control over…the Storm model and Storm operations.”[6] They were each fined $70,000 of the maximum $200,000.

Storm Financial was alleged to have contravened multiple sections of The Corporations Act including:

·       912A(1)(a)

·       912A(1)(c)

·       945A(1)(b)

·       945A(1)(c)

·       1041E(1)

Eight years later, the company was found guilty of some but not all of these sections.[7]

ASIC did take some action prior to the company going into administration in January 2009. A $2 million dividend payment from Storm to its founding directors was stopped by ASIC in December 2008, a matter of weeks before collapse.[8] This should have put ASIC on alert if nothing else.

The 2008 global financial crisis and the effect of the collapse of companies like Storm Financial led to a Parliamentary Inquiry into financial products and services in Australia.[9] Part of that report indicated a regulatory anomaly which did not serve the clients of Storm Financial. The inquiry found that the margin lending product sold by Storm did not fall within Chapter Seven of The Corporations Act and were therefore not under the mandate of ASIC.[10]

In October 2009, that anomaly was remedied by Parliament. Margin loans were added to the definition of financial product by the passage of the Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009. This type of product now falls under the supervision of ASIC

[1] Paul Barry, ‘In the eye of the storm’ The Monthly February 2011 [32].[2] Ibid.[3] Paul Barry, ‘In the eye of the storm’ The Monthly February 2011 [4].[4] Ibid [10].[5] Ruth Williams, ‘Storm Financial directors breached their duties: court’ The Sydney Morning Herald 26 August 2016 [7].[6] ASIC v Cassimatis (No 9) [2018] FCA 385 [8].[7] Ibid [3&4].[8] ‘Inquiry into financial products and services in Australia’ November 2009, Parliamentary Joint Committee on Corporations and Financial Services [3.31].[9] ‘Inquiry into financial products and services in Australia’ November 2009, Parliamentary Joint Committee on Corporations and Financial Services.[10] Ibid [3.100].

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By mid March, America's champion fraudster Bernie Madoff will have served two years of a 150-year prison sentence for stealing billions of dollars from his rich and famous investors. As he chalks up the anniversary on his North Carolina jail wall, our corporate cop, the Australian Securities and Investments Commission (ASIC), will have barely begun its action against Australia's champion wealth destroyer Storm Financial Ltd, whose reckless advice cost 3000-4000 investors in Queensland, New South Wales and Victoria around $3 billion.

Yet these financial collapses happened at almost exactly the same time: Bernie Madoff was led away in handcuffs in December 2008, just as Storm's banks pulled the plug on the big Townsville-based financial planner and its unfortunate clients. There are, of course, huge differences between the two cases, not least that Bernie Madoff pleaded guilty and Storm's founder, Emmanuel Cassimatis, didn't steal investors' money. But there are also strong similarities; these two super salesmen helped wreck the lives of thousands of elderly investors.

Cassimatis' ex-partner, Ron Jelich, who sold his financial planning business on the Gold Coast to Storm and became a key player in the group, told a parliamentary inquiry in 2009 that the collapse had inflicted "total horror, emotional despair and psychological terror" on "thousands of loyal, innocent, trusting, decent Storm clients", whose lives had "been shattered, in many instances, beyond repair". Yet more than two years later, Emmanuel and Julie Cassimatis, the two principals of Storm, have not been punished, no adviser has lost his financial services licence - as far as we know - and the banks who put up the money for investors to gamble with have not been made to pay. Or, not by ASIC.

All the action so far has come from the private sector, with legal firm Slater & Gordon negotiating an undisclosed $400-million settlement with the Commonwealth Bank for 1500 investors last year (plus smaller settlements with ANZ and NAB) while also pursuing two actions for damages against the Bank of Queensland (BoQ) since mid 2009. Another law firm, Sydney-based Levitt Robinson, is also suing Commonwealth Bank on behalf of a further 300 clients.

Just before last Christmas, ASIC finally joined the queue, launching three legal actions in the Federal Court against Emmanuel and Julie Cassimatis, Storm Financial Ltd and its main lenders - Commonwealth Bank, Macquarie Bank and BoQ. So why did it take so long? First, ASIC's chairman, Tony D'Aloisio, believed the banks would settle; second, the lawyer in charge of ASIC's investigation, Tim Castle, walked out last March because he wanted a tougher approach; and third, the wheels at ASIC grind exceedingly slowly.

In early 2010, ASIC was telling the public that Storm was its number one priority and promising progress by March. Then it was August, then November, then late December. But we can now expect to wait two to three years before we see any results. Or eight years if it follows the pattern of ASIC's ill-fated case against Jodee Rich and One.Tel, which ended in a huge and costly defeat. The long delay increases the likelihood that Storm's elderly investors will die before victory is declared - should ASIC manage a rare win.

If ASIC succeeds, it could establish an important principle for future investors: that the banks who lent money to Storm's clients were "linked credit providers" under section 73 of the Trade Practices Act (TPA) and can therefore be sued for any damage inflicted by Storm's misdeeds.

ASIC is using this legal weapon in its damages action against Macquarie Bank and BoQ on behalf of two investors in their sixties, Barry and Deanna Doyle. The Doyles, from the Townsville suburb of Kirwan, 'double-geared' into the stock market by borrowing against their home and using the cash to raise yet more money to invest. Barry worked as a part-time librarian, earning $17,500 per year; Deanna was retired and collected $7000 per year from Centrelink. Yet, thanks to Storm, BoQ and Macquarie, they ended up owning a share portfolio costing $2.26 million, with debts to match, on which their annual interest payments eventually rose to $191,800.

The Doyles pitched up at Storm's Townsville headquarters in March 2006 with a house worth $450,000 and $640,000 in superannuation. Two-and-a half years later their super had gone, the share portfolio had been sold and they had racked up a debt of $456,000 on their (previously unencumbered) home, with insufficient income to make the repayments. In other words, they had been wiped out. In return for this disastrous investment advice, which saw them increase their borrowings or exposure to the stock market no fewer than 11 times in 25 months, the Doyles paid Storm $152,000 in fees.

ASIC is alleging that BoQ and Macquarie acted unconscionably by letting the Doyles enter a high-risk transaction in which they were likely to lose their home, while they (BoQ and Macquarie) held the Doyles' house and shares as security and were bound to make money. But ASIC is also hoping to use section 73 of the TPA to make the two banks jointly liable for Storm's many false and misleading representations. And that may be harder, because this part of the TPA was designed for (and has only succeeded against) car dealers. One legal expert describes ASIC's line of attack as "brave" and "novel". For which, read: unlikely to succeed.

Certainly, neither Macquarie nor BoQ has plans to concede, with the latter issuing a press statement to say, "It is our intention to defend this action vigorously." BoQ went on to say it had "never provided margin loans, never promoted Storm Financial products, never managed geared equities and never [taken] any commission from Storm."

BoQ had 370 customers from Storm, who borrowed around $105 million against their homes. Macquarie had 1000 clients who borrowed an estimated $800 million in margin loans that were secured against shares. The biggest lender was Commonwealth Bank and its subsidiary Colonial Geared Investments, who had 2300 customers between them (borrowing against their homes and on margin); they have already admitted they were partly at fault.

The Doyles' experience is quite typical of how Storm investors were pushed to the brink. Elderly couples with little or no income were loaded to the max with debt and persuaded to put their houses and super on the line. If the stock market then fell by 10% they were told to put in more cash and buy more shares, because shares were cheap. If the market rose by 10%, they were told to borrow more money and buy more shares to maximise their gains. Storm's computer system reviewed clients on a regular basis and sent out notices en masse, telling people to take the next "step". Thus, in May 2007, as the market rose, 438 clients were stepped up; in July it was 787; in August 878; in October 787 and in December another 400-500. As far as one can tell, practically everyone did what they were told without demur.

There were two main problems with this approach: first, investors generally didn't earn enough to cover their interest payments; and second, the gearing effect meant they would lose everything if markets went down by 30-40%, which they did (and more) during 2008. The strategy worked famously for Storm, which collected a fat 7% fee every time more money was invested.

As Ron Jelich put it in his evidence to the parliamentary inquiry, "Clients became nameless cogs in a giant money-making machine. I can see now that Storm and the banks saw the client base as a resource that could be tapped for more and more money. In essence, the best interests of the clients were subjugated to the best interests of Storm and the banks. I am now ashamed that I did not take a stronger stand with Storm Head Office on behalf of my clients."

Townsville investor Phil Green told me in January 2009 that he had paid $700,000 in fees and interest to Storm and the banks during the ten years he was with them. He earned $46,000 per year from his job at Townsville Court and owned a house worth less than $400,000 but he had been loaded up with $1.8 million in debt to fund his share portfolio. I asked him how he was going to pay the interest on that. He replied: "From day one they [Storm] told me it would fund itself." How did he know? "That's what they told me."

In fact, the sums could only begin to work for Phil if the market rose by at least 4% per year. He needed that just to service the loans, and would have needed even more to pay the fees. In the good times from 2003-07, the market did rise continuously but Storm kept doubling him up until the crash of 2008, and then kept increasing his exposure throughout that year, as the markets sank. He looked likely to lose his home, his super and his marriage.

Fortunately, he has held his family together and has been offered a settlement by Commonwealth Bank that would allow him to keep his house. But he's still reeling from the shock of it all. He's heard that another Storm investor committed suicide over Christmas. I ask him how he's coping. "I'm taking it day by day," he tells me.

Another Townsville investor, Steve Reynolds, received similar advice. A Vietnam veteran on a disability pension, Reynolds had negligible income but was able to borrow $420,000 on his house from BoQ and another $750,000 from Macquarie to invest in shares. His loan application documents for BoQ record his income as $100,000 per year. Reynolds says he was asked to sign blank forms and that someone then fiddled the figures. According to Ron Jelich, this happened to many Storm clients: "Paperwork relating to loans was often subject to 'creative' manipulation," he told the parliamentary inquiry, "particularly in relation to income and assets."

Steve Reynolds' loan came from BoQ's North Ward branch in Townsville, which was owned by franchisees Declan Carnes and Matthew Buchanan, whose company, Senrac Pty Ltd, is the third defendant in the ASIC case against BoQ and Macquarie. The North Ward branch was BoQ's star performer, winning the titles 'Best Branch' and 'Best Manager' in the years 2005 and 2006. Now we know how it did it - by breaking the rules and lending money to borrowers who could not afford the repayments. In 2006 it exceeded its loan budget threefold.

Commenting on the victory in October 2006, BoQ's managing director, David Liddy, congratulated Carnes and Buchanan on their "passion, achievement, courage, integrity and team work". But by January 2009, at the latest, Liddy and his team at BoQ knew this wasn't the only way the dynamic duo had exceeded their targets.

As Ellen Fanning revealed on 60 Minutes in June 2010, an internal review conducted by the bank's head of credit risk just after the collapse found borrowers from the North Ward branch had not been interviewed face-to-face by the bank, while the figures on some loans had been cooked. Or, in the words of the review, "It could be construed that income and ongoing commitments may have been manipulated to achieve approval."

The BoQ review examined the Reynolds case and concluded that his stated $100,000 income was "obviously not true". It also noted that his $750,000 margin loan with Macquarie had been ignored in calculating his assets and liabilities, and his capacity to service the loan, while 5% of his share portfolio had nevertheless been counted as annual income. The review noted other cases in which this had happened, some of which are now included in ASIC's claim.

However, none of this convinced BoQ that it needed to settle with investors, as Commonwealth Bank soon did. Indeed, in June 2009 BoQ told the Australian Securities Exchange: "Based on the Bank's knowledge and enquiries to date: There is no evidence of improper or dishonest practices or conduct by the Bank in connection with Storm clients."

Three months later, David Liddy assured the parliamentary inquiry, "If there was wrongdoing in the [North Ward] branch and we had identified wrongdoing, we would take action." At this point, the bank's internal credit review had not yet surfaced. Indeed, it did not see the light of day until May 2010 when the Queensland Supreme Court ordered the bank to produce it.

Other banks also gave Storm customers special treatment and had close relationships with Cassimatis. One senior executive at Macquarie, Mickey Perret, even accepted Christmas presents from the man he called 'Manny'. More substantially, Macquarie Bank drew up a 13-page agreement in December 2004 headed "Working in Alliance", in which it agreed to charge Storm clients lower interest rates, allow them higher loan valuation ratios and provide extra time to meet margin calls. This allowed Storm's investors to gear up further and take bigger risks. It also exposed them to greater danger when the market plummeted because their investments fell further in value. Indeed, it was one of the main reasons so many Storm investors ended up with negative equity.

Colonial (owned by Commonwealth Bank) also offered lower interest rates and higher loan valuation ratios and was super keen to get Storm's business. In mid 2007 it spent heavily to sponsor a glamorous gala for Storm investors in the fifteenth-century Odescalchi Castle in Italy, where celebrities Tom Cruise and Katie Holmes were married.

These close and co-operative relationships will get a work-out in ASIC's second damages case - against Storm and the banks - that alleges Storm was running an unlicensed managed investment scheme and that the banks were "knowingly concerned" in this illegal activity. If ASIC can convince the court of this, it can then seek orders for compensation. However, experts I consulted aren't confident that ASIC will be able to prove its case or show that it caused investors to lose money. The practical difference is that ASIC would have known more about what Storm was doing if the company had filed a prospectus, as licensed investment schemes are required to do. But it's hard to believe ASIC would have closed Storm down or issued warnings strong enough to deter investors.

It seems Storm's clients did exactly as they were told. They stumped up cash again and again, even as the market fell. Trusting their advisers, they walked into the fire. Quite reasonably, they may also have put their faith in ASIC, which gave Storm the government's tick of approval by licensing Manny and his boys to dispense financial advice.

Licensing is the rock on which ASIC's regulation of the financial planning industry is founded. If you visit the regulator's website you'll see dire warnings of the dangers of taking advice from an unlicensed financial planner. But the experience of the Storm case suggests a licence from ASIC doesn't necessarily make investors safe. Those who lost hundreds of millions of dollars in property group Westpoint also found little protection.

In its defence, ASIC says it can't be expected to police everyone, but if its army of public servants were unable to notice there was something very wrong with Storm, you wonder why it's in business. Storm was one of the biggest financial planning networks in Australia, with 115 staff, $4.5 billion of funds under management and 14,000 clients (of whom 4000 were already 'Stormified' and using the one-size-fits-all model of investment). The group had a highly visible and aggressive marketing campaign, with TV ads, weekly seminars and enthusiastic endorsement from the ex-Australian cricket coach John Buchanan.

Its founder was also high profile. He lived in a white, five-level house on the most prominent hill in Townsville and commuted to Brisbane in his personal Learjet. In 2007 he harvested $24 million in dividends for him and his wife. All of this was financed by the highest fees in the marketplace.

On top of this, ASIC actually received complaints about companies associated with Cassimatis and his high-risk approach in the early 1990s but did nothing. It then received further complaints about Storm in 2006 and again sat on its hands. Even in late 2008, by which time Storm's investors had lost their shares, their houses and their super, and the company was on the brink of insolvency, ASIC still wasn't interested. In mid December that year I rang ASIC to ask what action they were taking and was told: "We've had a few complaints but we're not investigating." They eventually got their boots on two days before Christmas 2010.

As BoQ said on the day ASIC's legal actions were finally announced, roughly 18 months after Slater & Gordon filed its first damages suit on behalf of Storm investors, "We have every sympathy for customers who lost money ... We too put faith in the regulatory system and can understand our customers' frustration at the collapse of a financial planner that had the tick of approval from government regulators."

On that point at least, you have to agree. It's time for some answers on what's wrong with ASIC and why it can't do better.

Paul Barry
Paul Barry is a journalist and investigative reporter. He is the author of Who Wants to be a Billionaire? The James Packer Story and The Rise and Rise of Kerry Packer.

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By mid March, America's champion fraudster Bernie Madoff will have served two years of a 150-year prison sentence for stealing billions of dollars from his rich and famous investors.

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Mikayla - Commonwealth Bank of Australia

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Mikayla - Commonwealth Bank of Australia

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The Commonwealth Bank’s director’s anti-money laundering scandal is to date one of the most significant breaches in Australian corporate law. The Commonwealth Bank of Australia is one of Australia’s leading companies for financial integrated services. Whereby, the company offers a range of financial services that are not limited to banking. With such services comes high responsibility; thus the directors must fulfil specific requirements that ensure disclosure and compliance is upheld in conjunction with Australian corporate law. The board structure of the Commonwealth Bank involves different levels of duties with roles including the chairman, managing director/chief executive officer, chairman and Independent Non-Executive Director.[1] In 2017 the CBA'S Directors were found to be in breach of money laundering within 53,000 separate incidents in breach of anti-terror laws and money laundering.[2] In addition, the agency AUSTRAC which acts as a regulator for money laundering in Australia pursued legal action against the Commonwealth Bank due to the bank admitting to breaches to statutory requirements of disclosure duties were not fulfilled. The director’s failure of the duty of disclosure is centred around the company’s failure to flag the 53,000 transactions, whereby large sums of money were transacted through the Commonwealth Banks smart ATMs.

Consequently, the legal issue is that the directors failed to disclose these transactions to their shareholders and investors, thus breaching the Corporations Act 2001 (Cth).[3]Whereby, section 180(1) outlines that 'A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise'.[4] In effect, the directors of the CBA through their non-disclosure failed to act with care and diligence and effectively breached their duty and powers. Additionally, to section 180(1) is section 180(2) which conveys the business judgement rule which establishes the elements of forming a judgement, in which the directors of the corporation failed to meet the criterion of this section through their non-disclosure conduct.[5] Through this misconduct, the directors failed to act in good faith, misused their position and withheld relevant information.[6] Following the anti-money laundering proceedings by AUSTRAC, the shareholders initiated separate legal proceeding against the CBA. The class action against the bank held the grounds that the director’s actions amounted to misleading and deceptive conduct and failure to maintain the required continuous disclosure, breached the law under the Corporations Act 2001 (Cth).

In addition to the breaches established by the Corporations Act 2001 (Cth), it was also established that the misconduct of the Commonwealth Bank of Australian, was in breach of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth).[7] Whereby, it was found that the directors failed to fulfil the requirement of appropriate assessments of money laundering terrorism financing, particularly assessments of the intelligent deposit machines, failed to implement controls to manage the risks of the intelligent depositing machines, failed to submit report regarding transactions exceeding $10,000 and failed to report suspicious transactions associated with money laundering.[8]

The following article provides an analysis of the money laundering Commonwealth Bank case:
Carrington Clarke, 'CBA admits breaching money laundering, counter-terror laws more than 53,000 times, expects more charges’ ABC (Online), 14th December 2017 <https://www.abc.net.au/news/2017-12-13/cba-breached-money-laundering,-counter-terrorism-laws/9257224>.

[1] Commonwealth Bank of Australia, Board Composition, Performance and Committees (Web Page) < https://www.commbank.com.au/about-us/shareholders/corporate-profile/corporate-governance.html>.
[2] AUSTRAC, AUSTRAC and CBA agree $700m penalty (Webpage, 4th June 2018) < http://www.austrac.gov.au/media/media-releases/austrac-and-cba-agree-700m-penalty> .
[3] Corporations Act 2001 (Cth).
[4] Ibid s180(1).
[5] Ibid s180(2).
[6] Ibid s184.
[7] Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth).
[8] AUSTRAC, AUSTRAC and CBA agree $700m penalty (Webpage, 4th June 2018) < http://www.austrac.gov.au/media/media-releases/austrac-and-cba-agree-700m-penalty>.

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Boards frequently take advice from a range of internal executives and external advisors. But when does that advice cross the line into influence?

The AICD asks John Price, Commissioner, Australian Securities and Investments Commission (ASIC) about what it means to be a shadow director and the risks involved for the individual, the board and the company.

The issue of shadow or de facto directors highlights the importance of transparency in corporate governance and accountability for decision-making in the company. Boards must be alive to the potential risks and those involved in management must be careful not to unwittingly be labelled as a shadow or de facto director.

This has gained prominence in light of the appointment of administrators to Queensland Nickel Pty Ltd (QN). The administrators have said that Clive Palmer may have been a shadow or de factor director of QN. If a court finds that he was a de facto or shadow director, Mr Palmer may face the same prosecution and penalties as though he may have been duly appointed director.

What is a shadow or de facto director?

Under the Corporations Act 2001 (the Act) a person may be considered a director if:

they act in the position of a director - referred to as a "de-facto director"; or

the directors of the company are accustomed to act in accordance with the person's instructions or wishes - referred to as a "shadow director".

According to John Price, whether a person is shadow or de facto director will depend on the specific business and circumstances of the company in question.

"One exception to being a shadow director is for people who are advising the board in their professional capacity, e.g. accountants and solicitors," he said.

Shadow or de facto directors can include someone who:

exercises top-level management functions;

undertakes tasks that would typically be expected of a director; or

regularly attends and/or has a vote at board meetings.

Duties of shadow and de facto directors

Both de facto and shadow directors have the same statutory duties and liabilities under the Act as the appointed directors of the company, and can be held liable for breaches of directors' duties.

Principally, a shadow director must act in the best interests of the company and must not prefer his or her own interests to those of the company.

Liabilities of shadow and de facto directors

If a shadow or de facto director fails to fulfil their statutory duties as a director, ASIC may take regulatory action, or the de facto director may be sued by the company, its shareholders or a third party.

This was seen in Chameleon Mining's case against Phillip Grimaldi (Grimaldi v Chameleon Mining NL [2012] FCAFC 6), where Mr Grimaldi had negotiated the acquisition of a large asset, found investors for the company, among other things without being an appointed director. He was liable to compensate Chameleon for losses incurred as a result of his actions as a de factor director.

In addition, a director may face criminal prosecution by ASIC, the imposition of civil penalties (fines), being personally liable for the debts of the company if it trades while insolvent, and being disqualified from managing a company.

It is important to note that your directors' and officers' insurance policy may not provide coverage for the actions of de factor or shadow directors. This is usually confined to duly appointed directors.

Risks for directors, the company and its stakeholders

While legal, the actions of shadow or de facto directors carry with it some serious risks for boards. A shadow director may compromise the ability of appointed directors to discharge their duties.

"The lack of internal or formal accountability of shadow and de facto directors may also carry with it increased risk of rogue decision-making or illegal phoenix activity by shadow or de facto directors," Price says.

"The extension of statutory duties and liabilities to shadow and de facto directors reinforces the importance of transparency and accountability in corporate governance. Shareholders, creditors, employees and other stakeholders are entitled to know who makes, or participates in making decisions that affect the business, so that they can make fully informed decisions about their investment or relationship with the company."

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Boards frequently take advice from a range of internal executives and external advisors. But when does that advice cross the line into influence? The AICD asks John Price, Commissioner, Australian Securities and Investments Commission (ASIC) about what it means to be a shadow director and the risks involved for the individual, the board and the company.

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[1] Australian Securities and Investments Commission v Cash Store Pty Ltd (in 

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Amber’s Post- Rio Tinto Mozambique Coal Cover Up

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Amber’s Post- Rio Tinto Mozambique Coal Cover Up

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Rio Tinto is a leading international mining group combining Rio Tinto plc, a London and New York Stock Exchange listed company, and Rio Tinto Limited, which is listed on the Australian Securities Exchange.[1] Rio Tinto's business is globally discovering, mining, and processing mineral resources. [2]

In August 2011, Rio Tinto acquired Riversdale Mining Limited at a total cost of approximately $US$4 billion.[3]  Following the acquisition Rio Tinto delisted Riversdale and renamed it Rio Tinto Coal Mozambique (RTCM). Rio Tinto expected to mine coal in Mozambique at low cost, and then transport most of the coal along the Zambezi River via barges.[4]  However, the project suffered many setbacks, and Rio Tinto sold RTCM in 2014 for only $US50 million. [5]

Australian Securities and Investment Commission (ASIC) have commenced proceedings in the Federal Court against Rio Tinto Limited, former Chief Executive Officer Tom Albanese (Albanese) and former Chief Financial Officer Guy Elliot (Elliot). [6]

ASIC proceedings against Rio Tinto Limited concerns misleading and deceptive conduct together with a failure to comply with accounting standards.[7] Rio Tinto Limited contravened sections 304, 305 and 1041H of the Corporations Act 2001 (Cth) (the Act) with respect to its 2012 Interim Financial Statements.[8]ASIC alleges Rio Tinto "should have disclosed the substantial impairment" in relation to its coal business in Mozambique to the ASX in its 2012 interim financial statements.[9] Rio Tinto failed to recognise the impairment of RTCM in the 2012 interim financial statements in accordance with relevant accounting standards.  Further to this Rio Tinto Limited contravened section 674(2) of the Act in failing to comply with its continuous disclosure obligations by failing to disclose a substantial impairment in the carrying value of the operating assets of RTCM in its 2012 Interim Financial Statements. ASIC has sought from the Court a pecuniary penalty against Rio Tinto Limited. [10]

ASIC proceedings against Albanese and Elliott concerns a failure of complying with director duties of care and diligence. [11] Contravening section 180 of the Act in relation to the contraventions by Rio Tinto Limited and their provision of information to the audit committee and auditors of Rio Tinto Limited. Additionally, Albanese and Elliott contravened section 344 of the Act for a failure to take all reasonable steps to comply with or to secure compliance by Rio Tinto Limited with the relevant accounting standards in relation to the 2012 Interim Financial Statements. [12]  By allowing Rio Tinto Limited to engage in such conduct, Albanese and Elliott failed to exercise their powers and discharge their duties with the care and diligence required by law as directors and officers of Rio Tinto Limited. Including a failure to disclose to the audit committee and the auditor’s information of which Albanese and Elliott were aware was relevant to the impairment. [13] ASIC has sought from the Court pecuniary penalties against Mr Albanese and Mr Elliott and to be disqualified from managing corporations for such periods as the Court thinks fit.[14]

The matter is set down for a further case management hearing in the Federal Court, Sydney on 14 May 2019. [15]

URL: https://www.smh.com.au/business/companies/asic-expands-legal-action-against-rio-tinto-two-former-execs-20180501-p4zclb.html

[1] ASIC, ’18-061MR ASIC takes action against Rio Tinto and its former CEO and CFO for misleading and deceptive conduct’ (Media Release, 2 March 2018) 1[2] ASIC, ’18-061MR ASIC takes action against Rio Tinto and its former CEO and CFO for misleading and deceptive conduct’ (Media Release, 2 March 2018) 1[3] ASIC, ’18-061MR ASIC takes action against Rio Tinto and its former CEO and CFO for misleading and deceptive conduct’ (Media Release, 2 March 2018) 1[4] ASIC, ’18-061MR ASIC takes action against Rio Tinto and its former CEO and CFO for misleading and deceptive conduct’ (Media Release, 2 March 2018) 1[5] Darren Gray, ‘ASIC expands legal action against Rio Tinto, two former execs’, Sydney Morning Herald (online at 1 May 2018) <https://www.smh.com.au/business/companies/asic-expands-legal-action-against-rio-tinto-two-former-execs-20180501-p4zclb.html> [6] ASIC, ’18-119MR ASIC Takes Further Action against Rio Tinto Limited and its former CEO and CFO’ (Media Release, 1 May 2018) 1[7] Darren Gray, ‘ASIC expands legal action against Rio Tinto, two former execs’, Sydney Morning Herald (online at 1 May 2018) <https://www.smh.com.au/business/companies/asic-expands-legal-action-against-rio-tinto-two-former-execs-20180501-p4zclb.html>[8] ASIC Press Release – ASIC Takes Further Action against Rio Tinto Limited and its former CEO and CFO[9] ASIC Press Release – ASIC Takes Further Action against Rio Tinto Limited and its former CEO and CFO[10] ASIC, ’18-119MR ASIC Takes Further Action against Rio Tinto Limited and its former CEO and CFO’ (Media Release, 1 May 2018) 1[11] ASIC, ’18-119MR ASIC Takes Further Action against Rio Tinto Limited and its former CEO and CFO’ (Media Release, 1 May 2018) 1[12] ASIC, ’18-119MR ASIC Takes Further Action against Rio Tinto Limited and its former CEO and CFO’ (Media Release, 1 May 2018) 1[13] ASIC, ’18-119MR ASIC Takes Further Action against Rio Tinto Limited and its former CEO and CFO’ (Media Release, 1 May 2018) 1[14] Darren Gray, ‘ASIC expands legal action against Rio Tinto, two former execs’, Sydney Morning Herald (online at 1 May 2018) <https://www.smh.com.au/business/companies/asic-expands-legal-action-against-rio-tinto-two-former-execs-20180501-p4zclb.html>[15] Darren Gray, ‘ASIC expands legal action against Rio Tinto, two former execs’, Sydney Morning Herald (online at 1 May 2018) <https://www.smh.com.au/business/companies/asic-expands-legal-action-against-rio-tinto-two-former-execs-20180501-p4zclb.html>

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1.     Known as being one of the ‘Big Four’ banks in Australia, The Commonwealth Bank of Australia (CBA) is a multinational bank founded in 1911 that provides a variety of financial services including but not limited to investment, insurance and business and institutional banking. In 2017, the CBA was investigated by the Australian Securities and Investments Commission (ASCI) after it was found that the bank had failed to inform shareholders that there had been suspicious use of their Intelligent Deposit Machines by money launders and criminal gangs.[1] The ASCI specially investigated into whether the CBA’s directors had complied with their disclosure duties pursuant of the Corporations Act 2001 (CTH).

2.     Pat McConnell, ‘CBA’s board needs to take ultimate responsibility for the bank’s failing’, (2018) The Conversation <http://theconversation.com/cbas-board-needs-to-take-ultimate-responsibility-for-the-banks-failings-91485>

3.     The legal issue in question in this case was whether the directors of CBA had breached their duties as directors by hiding or failing to disclose information from their investors and shareholders, pursuant of s 180 (1) Corporations Act 2001 (CTH). The breach occurred after it was confirmed by the CBA Chairwomen, Catherine Livingstone, that the CBA knew that the intelligent deposit machines were at risk of being targeted by criminal elements such as money launders in 2015, but failed to disclose this information until 2017, 2 years after the board was aware of the situation.[2]

Allegedly, the directors of the CBA held back this information because of the fear that this information would significantly drop the share price of the company, which would affect some 80,000 shareholders.[3]

Potentially, the directors of CBA are in breach of their statutory duty pursuant of s 180 (1) Corporations Act 2001 (CTH), which states,

A director or other officer of the corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would…

To establish that the directors of CBA were in breach of their duties to the shareholders, the court must find that by withholding this information of the potential risk, the directors of CBA were not acting like as a reasonable person would, pursuant of s 180 (2) (C) Corporations Act 2001 (CTH).

It can be argued that the directors of CBA intentionally withheld this information from their investors to protect the share price of the company. Pursuant of s 183 (1) Corporations Act 2001 (CTH), the directors can be found to have withheld the information to ensure confidence was not lost in the company and the share price didn't drop.

If proven, the directors would be liable for not acting in good faith and can be held to be in breach of s 184 (1) Corporations Act 2001 (CTH) having been reckless and intentionally dishonest and therefore in breach of their duties.

If found guilty of the offense, the directors may face civil penalty provisions contained in section 9.44 of the Corporations Act 2001 (CTH). Pursuant of s 1317 (1) Corporations Act 2001 (CTH), if the court is satisfied that a person has contravened a civil penalty provision, it must make a declaration of contravention. This is a perquisite to the making of a pecuniary penalty order.

There is no obligation of the court to pursue this remedy, but they have ground to enforce a pecuniary penalty of up to $200,000.00 pursuant of s 1317. Given the circumstances of the case, the CBA replaced the chairwomen at the time, Catherine Livingstone, with former Chairman David Turner given that under her leadership, the information was withheld.[4]

Shareholders of CBA could have sought equitable compensation for the damage of the significant drop in share price as a result of withholding the information pursuant of s 1317 (h), however, after the CBA agreed to settle for $700m the share price did not significantly drop.[5]

There could be criminal consequences to the actions of directors. By intentionally withholding the information and intentionally being dishonest pursuant of s 209 (3) of the act.

Resources
[1] Peter Ryan, (2017) ‘Commonwealth Bank: ASIC to investigate CBA over money-laundering scandel’ ABC NEWS <http://www.abc.net.au/news/2017-08-11/asic-to-investigate-cba/8796542>

[2] Aleks Vicovich,(2017) ‘CBA Leadership accused of duty breaches', Investor Daily <https://www.investordaily.com.au/regulation/42056-cba-leadership-accused-of-duty-breaches>

[3] Rosemary Langford, (2017) ‘CBA, director’s duties and the legal importance of reputation explained’,Australian Financial Review <https://www.afr.com/news/economy/cba-directors-duties-and-the-legal-importance-of-reputation-explained-20170813-gxv1b9>

[4] Patrick Durkin, (2019) ‘ASIC Interviewing CBA’s Ian Narev, Catherine Livingstone’  Australian Financial Review <https://www.afr.com/business/banking-and-finance/asic-interviewing-cbas-ian-narev-catherine-livingstone-20190304-h1by72>

[5] Stephen Letts, (2018) ‘Was the CBA really taken to the Cleaners with its $700 million Money Laundering Fine?’ ABC News <https://www.abc.net.au/news/2018-06-06/what-did-we-learn-from-cba-700-million-fine/9836016>

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1.Queensland Nickel Pty Ltd was the manager of a Joint Venture operating the Queensland Nickel Yabulu Refinery involving Joint Venture partners QNI Resources and QNI Metals. Queensland Nickel's director at the time Clive Mensik pointed to low nickel price as the reason for the company entering voluntary administration. However for some time before and up until becoming insolvent QN was involved in irregular transactions that are questionable as to whether they were in the best interest of the company or within the discretionary powers of a director. Further allegations were made as to trading while insolvent.

3. Following the collapse of QN liquidators sought to recover what they could of the $300 million of outstanding debts owing to creditors. The administrators FTI Consulting investigated the operational activities of QN for the 6 years prior to its appointment as administrator in January 2016. Transactions made on behalf of QN were found to be irregular in both amount and frequency. Transaction were made in the nature of donations and loans to related parties that were subsequently forgiven, to the detriment of QN.

The administrators identified 29th November 2015 as the date that QN had become insolvent and report further substantial debts had been incurred since then. Clive Mensink was the official director at the time however the administrators allege that Clive Palmer was at all relevant times acting as a shadow director. The alleged breaches would apply to the person acting as a director or in the capacity of a director of QN at the time of the alleged breaches regardless if they were officially registered as the director. s9

Alleged breaches include statutory and fiduciary breaches of a directors duties to act with care and diligence[1], in good faith in the best interest of the company and for a proper purpose[2], to avoid conflict of interest[3] and to prevent insolvent trading[4]. In addition to common law and equitable liability, these breaches also give rise to civil liability under statute[5] and may include potential criminal offences.

The penalty for breach of each civil obligations ss 180(1), 181, 182 and 183 in the event of a declaration of a contravention by the courts[6] is a pecuniary[7] maximum $200,000 per contravention or a disqualification order[8]. Additionally, criminal charges may be attached if the director is found to have acted dishonestly or recklessly in relation to breaching obligations of acting in good faith or for a proper purpose[9], avoiding conflict of interest[10], and preventing insolvent trading[11].The penalty in such cases is 2000 penalty units and/or five years imprisonment per contravention. In the event of a conflict of interest criminal liability may arise regardless of dishonesty[12], the applicable penalty being 10 penalty units and or up to three months in prison. In the case of having breached the duty to prevent insolvent trading, the director may also be held personally liable to compensate the company for the debts incurred since insolvency[13].

[1] Corporations Act 2001 (Cth) s180(1). [2] s181.  [3]ss 182, 183. [4]s588g. [5]s1317E. [6] s1317E. [7] s1317G. [8]s206C. [9]s184(1). [10] ss 184(2).  [11] 588G(3).  [12]s191(1A). [13] s1317H.

2.

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Nicole Barclay - Queensland Nickel Pty Ltd

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Nicole Barclay - Queensland Nickel Pty Ltd

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Part 1
Queensland Nickel Pty Ltd (‘Queensland Nickel’) is the Australian company that operated the Queensland Nickel Yabulu Reﬁnery (‘Refinery’), a joint venture agreement between QNI Resources Pty Ltd and QNI Metals Pty Ltd.[1]  Queensland Nickel was placed into voluntary administration on 18 January 2016, at that time, owing in excess of $200m to secured and unsecured creditors.[2]  It has been reported that the voluntary administration arose primarily from a substantial drop in nickel prices, high value cash transfers to related parties, and limited assets available to keep the Refinery operational.[3]  Notably, it is alleged that prior to the decision being taken to place the company into administration, the company had been trading while insolvent since at least 27 November 2015.[4]

[1] Robert Baxt, ‘The possible role of shadow directors in the collapse of Queensland Nickel Pty Ltd’ (2016) 34 Company and Securities Law Journal 304, 305.[2] John Park et al, Queensland Nickel Pty Ltd (Administrators Appointed) ACN 009 842 068: Report by Administrators Pursuant to Section 439A of the Corporations Act (11 April 2016) 4 [1], 25 [5.6].[3] Ibid 25 [5.5].[4] Ibid 43 [6.6.19]; Baxt (n 1) 306.

Part 3
The allegation of insolvent trading is one of the legal issues which arises in the corporate example of Queensland Nickel.  This is because the Corporations Act 2001 (Cth) (‘Act’) imposes a duty on directors to prevent insolvent trading.[1]  Importantly, the duty to prevent insolvent trading will only attach to the directors of the company if they are a director of the company at the time the insolvent trading is found to have occurred.[2]  A director is defined broadly in the Act,[3] meaning that de facto and shadow directors owe the same duties as validly appointed directors.

Clive Mensink was the sole director of Queensland Nickel during the period within which it is alleged the company became insolvent and continued to trade until the appointment of administrators,[4] however, it is alleged that Clive Palmer had been acting as a de factor or shadow director at the relevant time.[5]  Thus, if this allegation is proven, Clive Palmer will be in breach of the duty to prevent insolvent trading in the same way as Clive Mensink.[6]  Notably, the insolvent period was allegedly triggered by a notice of default issued by a major supplier of Queensland Nickel, Aurizon Operational Limited, after which Queensland Nickel is alleged to have continued to incur debts in the amount of $771m.[7]

If the allegations of insolvent trading are upheld, the directors may be held personally liable for the debts incurred during the insolvent period.[8]  A breach of s 588G of the Act can also attract civil and criminal penalties.[9]  The civil penalties include a declaration of contravention,[10] pecuniary penalty,[11] disqualification order,[12] and orders for compensation.[13] The potential criminal penalties include a potential fine of up to $420,000 and imprisonment for 5 years, or both,[14] as well as compensation.[15]

[1] Corporations Act 2001 (Cth) s 588G.[2] See Corporations Act 2001 (Cth) s 588G(1). [3] Corporations Act 2001 (Cth) s 9.[4] John Park et al, Queensland Nickel Pty Ltd (Administrators Appointed) ACN 009 842 068: Report by Administrators Pursuant to Section 439A of the Corporations Act (11 April 2016) 22 [5.3].[5] Ibid 28 [6.4.1].[6] Robert Baxt, ‘The possible role of shadow directors in the collapse of Queensland Nickel Pty Ltd’ (2016) 34 Company and Securities Law Journal 304, 306.[7] Park (n 4) 44 [6.6.19].[8] Corporations Act 2001 (Cth) s 588M.[9] See Corporations Act 2001 (Cth) ss 588G(2) and 588G(3) respectively.[10] Corporations Act 2001 (Cth) s 1317E(1).[11] Ibid 1317G(1).[12] Ibid s 206C.[13] Ibid ss 588J, 1317H(1).[14] Ibid s 1311; see also Corporations Act 2001 (Cth) Sch 3.[15] Corporations Act 2001 (Cth) ss 588K.

Note: For the purposes of this exercise, while it is acknowledged that in addition to the insolvent trading allegations, there may be other sources of alleged breaches of director’s duties prior to the voluntary administration of Queensland Nickel Pty Ltd, these are considered out of scope.

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The report by voluntary administrators FTI Consulting into the collapse of Clive Palmer's Townsville refinery, Queensland Nickel, will be very uncomfortable reading for the federal MP today.

His short political career as the member for Fairfax looks set to be terminated by voters at the upcoming federal election, and Palmer's career as a businessman is now on the line following the damning FTI Consulting report which alleges a number of breaches of the Corporations Act and director's duties occurred on Palmer's watch.

The administrators conclude that Palmer and his nephew, the company's managing director, Clive Mensink, "in our view, appear to have been reckless in exercising their duties and powers as directors ".

Crucially, the 124 page report alleges Palmer acted as a shadow director of Queensland Nickel, and that it appeared to be trading while insolvent for several weeks before it was placed into voluntary administration.

Here's what they say in the executive summary:

Our investigations have determined that QN became insolvent no later than 27 November 2015 and remained insolvent up to the Appointment Date.

A critical factual matter for resolution with respect to the timing of this is the status of QN's liability to a major trade creditor.

If both claims were proven true, Palmer could be personally liable for Queensland Nickel's debts.

While Palmer stated publicly that he "retired" from the company after becoming a federal MP in 2013, FTI Consulting lists two more occasions when he was a director, including nearly a year between April 2013 and April 2014, plus a few weeks between January and February 2015.

FTI goes to the heart of the allegation that Palmer was a shadow and/or de facto director at other times and concludes:

Our observations indicate Mr Palmer, a former Director of the Company, appears to have acted as a shadow/de facto director of QN at all material times from February 2012 up to the date of our appointment on 18 January 2016 (excluding any tenure as appointed Director, as outlined below).

The administrators go into detail on Palmer's actions, including being a signatory on three QN bank accounts where "he has capacity to authorise transactions on these accounts solely and independent to the other authorised signatories".

They also say:

From May 2014 and at all material times up to 18 January 2016 (excluding the period of his third tenure as an appointed Director), Mr Palmer exercised powers in controlling the decisions of the Company by way of:

1. either expressly approving or rejecting expenditure requests of varying amounts both within and below his approval threshold, or in the alternative, failed to act on such a request, controlling the Company's ability to obtain supply or services, or to undertake repairs or other works, in the day to day operations of the refinery;

2. dealing with Company staff in day to day operational matters, including (but not limited to):
(a) supplier contract negotiations;
(b) ore supplies (pricing and shipments);
(c) the sale of surplus operational equipment (motor vehicles); and
(d) employment and remuneration matters.

As a result, the administrators say they " have conducted investigations on the basis that Mr Palmer is a shadow/de facto director of QN, and owed the same duties to QN as the formally appointed Director, Mr Mensink " .

They go on to say four sections of the Corporations Act may have been breached and that there are indications the directors may be in breach of their common law and fiduciary duties and may have also committed offences under Section 184 of the Act.

The possible offences include:

* They directed and/or authorised QN to enter into transactions with related parties which do not appear to have been in the best interests of QN or for a proper purpose;

* In their capacity as Directors' of QN, they each appear to have failed to exercise discretion and avoid the conflict between the interests of QN and their own personal interests in related parties, and as Directors, shareholders and/or political party members of the related parties, may have gained an advantage directly and indirectly;

* The Directors may have gained the advantage as a result of the use of their position as a Director of QN and the information obtained by them as a Director;

* Their actions appear to have caused significant detriment to QN, having potentially appropriated assets ordinarily available to QN, and extinguishing any and all available alternatives and opportunities to QN in any short and long term business strategy.

The outlook for Queensland Nickel's creditors, who meet next Friday, April 22, to vote on whether to place the business into liquidation, is bleak.

Secured creditors may recover all their money, depending on what the assets are sold for, unsecured creditors, including around 800 workers owed $73 million in entitlements, will receive no more than 50 cents in the dollar according to the administrators, and will hope that a compensation scheme set up by the federal government will make up the difference.

In the meantime, the administrators have foreshadowed the potential for legal action against the notoriously litigious Palmer, and Mensink, on several fronts, including "Unfair Preference" recovery actions, and the recovery of "uncommercial and director-related transactions".

One specific conclusion is a timebomb that could send Palmer's entire business empire crashing down, depending on whether creditors have the stomach and cash for a major legal battle with the businessman.

FTI Consulting certainly plants the seed, saying:

There is a prospect of a net recovery... from an Insolvent Trading claim against the Directors if funding was available to pursue the claims.

Either way, Palmer has a major battle to save his reputation ahead of him.

Here is the full report by FTI Consulting:

Administrator's report, Queensland Nickel
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'RECKLESS': Administrators set out the litany of problems at Clive Palmer's Queensland Nickel

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The report by voluntary administrators FTI Consulting into the collapse of Clive Palmer's Townsville refinery, Queensland Nickel, will be very uncomfortable reading for the federal MP today.

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Sally Eales - Commonwealth Bank of Australia

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Sally Eales - Commonwealth Bank of Australia

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The Commonwealth Bank of Australia (CBA) is an Authorised Deposit-Taking Institution (ADI) and is listed on the Australian Stock Exchange (ASX).    In 2012, the CBA installed Intelligent Deposit Machines (IDMs) to accept non-staff assisted cash deposits in branches.  All ADI’s (including the CBA) are required under the Anti Money-Laundering and Counter Terrorism Financing Act[1](AML/CTF Act) to report all significant cash transactions (that is cash deposits of AU$10,000 or more) to AUSTRAC (Australian Transaction Reports and Analysis Centre).  There was, however, an error in the coding of such deposits through IDMs and as such the CBA did not submit 53,506 transaction threshold reports as required over a three-year period.[2]  The CBA was found to have breached the AML/CTF Act.

Under s180(1)[3] directors must discharge their duties with a reasonable person’ degree of care and diligence to avoid harm to the company. Financial harm was caused to the CBA as it was fined $700 million dollars – the largest single civil penalty ever handed down to an Australian company.[4] The announcement of the fine saw the value of CBA shares decline sharply. Harm is, however, not limited to financial impact.  It also includes harm to the company’s reputation.[5]  The breach of the AML/CTF Act caused harm to the CBA’s reputation as it is an approved ADI and is listed on the ASX.  As the largest Australia ADI, the CBA’s reputation is critical to the stability of the financial services sector and damage to its reputation could extent to other companies within the market.

The directors’ failure to discharge their duty with care and diligence could also be breached by the failure to comply with the AML/CFT Act itself.  It could be considered a breach of a director’s duty of care and diligence by not preventing the breach of the AML/CTF Act by having a strong compliance and reporting culture.  The directors could also have breached this duty because the CBA has admitted to breaching the AML/CTF Act (this is known as the stepping stones liability).[6]

Directors also have a duty to act in good faith under s 181(1)(a).[7]  The directors of the CBA were aware of these breaches in 2015 but declared as late as their 2017 Annual report that the company was compliant with all relevant disclosure requirements.[8]  Having knowledge of the AML/CTF breaches but not disclosing them to shareholders or the marketplace could be a breach of good faith.

Australian Securities and Investments Commission v Healey[9](Centro case) saw directors were found to be in breach of their duty of care and diligence in relation to financial reporting obligations.

The penalty for breach of s180(1)[10]is a civil penalty such as a declaration of contravention[11], imposition of a disqualification order[12], a pecuniary penalty order[13]and/or a compensation order[14].

The penalty for breach of s181(1)(a)[15]is civil action and, if it can be proven that the directors acted dishonestly or recklessly under s184(1)[16]there is the possibility of criminal action.

Resources

[1]Anti-Money Laundering and Counter Terrorism Financing Act 2006 (Cth).[2]AUSTRAC, ‘AUSTRAC and CBA agree $700m penalty’, AUSTRAC(Web Page, 4 June 2018) <http://www.austrac.gov.au/media/media-releases/austrac-and-cba-agree-700m-penalty>.
[3]Corporations Act 2001(Cth) s180(1).
[4]AUSTRAC, ‘AUSTRAC and CBA agree $700m penalty’, AUSTRAC(Web Page, 4 June 2018) <http://www.austrac.gov.au/media/media-releases/austrac-and-cba-agree-700m-penalty>.
[5]Rosemary Langford, ‘CBA, director’s duties and the legal importance of reputation explained’,Australian Financial Review(Web Page, 15 August 2017) <https://www.afr.com/news/economny/cba-directors-duties-and-the-legal-importance-of-reputation-explained-20170813-gxv1b9>.
[6]Rosemary Langford, ‘CBA, director’s duties and the legal importance of reputation explained’,Australian Financial Review(Web Page, 15 August 2017) <https://www.afr.com/news/economny/cba-directors-duties-and-the-legal-importance-of-reputation-explained-20170813-gxv1b9>.
[7]Corporations Act 2001(Cth) s181(1)(a).
[8]Aleks Vicovich, ‘CBA Leadership accused of duty breaches', InvestorDaily (Web Page, 23 October 2017) <https://www.investordaily.com.au/regulation/42056-cba-leadership-accused-of-duty-breaches>.
[9] [2011] FCA 717.
[10]Corporations Act 2001 (Cth) s180(1).
[11]Corporations Act 2001 (Cth) s1317E.
[12]Corporations Act 2001 (Cth) s206C.
[13]Corporations Act 2001 (Cth) s1317G.
[14]Corporations Act 2001 (Cth) s1317H.
[15]Corporations Act 2001 (Cth) s181(1)(a).
[16]Corporations Act 2001 (Cth) s184(1).

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There is a view within Canberra that CBA sets the standards for the rest of corporate Australia, as the country's largest company by market capitalisation, and also because of its immense importance to the health and functioning of the financial system.

ASIC case

Lawyers suggested that ASIC might focus on three areas in pursuing a case against CBA.

Did directors weigh up the risks to the bank's reputation when deciding how to respond to AUSTRAC's allegations? Was there continuous disclosure to the sharemarket about the AUSTRAC allegations, and also accounting disclosure in regards to contingent liability?

If AUSTRAC succeeds in its court action against CBA then a fine could be imposed, which has been the subject of speculation that ranges from as low as $18 million to $500 million.

CBA has said it will argue the alleged failure to report 53,000 suspicious transactions that led to the action by AUSTRAC as a single error and therefore liable for a single $18 million fine.

CBA admitted, however, "it is not possible to reliably estimate the possible financial effect on the group".

A third area that ASIC might pursue is a discussion around the bank's financial licence and whether directors and management did everything required to ensure the services covered by its licence were provided efficiently, honestly and fairly.

Mr Medcraft leaves the role of ASIC chairman in November and in his 6½ years in the job he has been highly critical of what he sees as a failure in banking culture.

The reason for his criticism has been a number of scandals at the banks including CBA, which has had problems with CommInsure and its financial planning arm.

If ASIC pursues CBA directors, there have been court cases where judgments have been made on directors' duties to protect a company's reputation.

In 2016, Justice Edelman said directors duties included protecting a company's reputation. This was in the court case ASIC v Cassimatis, where the regulator alleged the directors of Storm Financial breached their duties of care and diligence. It won.

In his judgment, Justice Edelman wrote: "A corporation has a real and substantial interest in the lawful or legitimate conduct of its activity independently of whether the illegitimacy of that conduct will be detected or would cause loss. One reason for that interest is the corporation's reputation. Corporations have reputations, independently of any financial concerns, just as individuals do."

Justice Edelman continued: "I conclude that the foreseeable risk of harm to the corporation which falls to be considered in s 180(1) is not confined to financial harm. It includes harm to all the interests of the corporation. The interests of the corporation, including its reputation, include its interests which relate to compliance with the law."

Under section 180(1) of the Corporations Act a director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of a company or had the same responsibilities within the corporation as the director or officer.

Ruling significant

Rosemary Langford, a senior lecturer at the University of Melbourne's law school, describes Justice Edelman's ruling as significant in a forthcoming paper in the Company and Securities Law Journal.

"Although stakeholder considerations that have a financial impact are more clearly within the ambit of the duty of care, Edelman J's inclusion of non-financial factors is significant," Dr Langford writes.

When CBA released a record $9.9 billion annual profit on Wednesday, Ms Livingstone, who became the bank's chairman in January, said in a statement that the board "acknowledges the significance of the allegations, recognises the high degree of public interest in this matter, and that this issue impacts the reputation not only of the bank but of the industry more broadly".

Another case ASIC might rely upon if it does pursue a case against CBA is ASIC v Healey, which was a case where executive and non-executive directors of the Centro companies were found to have breached their duty of care and diligence in relation to financial reporting obligations.

A CBA spokesperson yesterday said it was not aware that any regulator other than AUSTRAC was considering action against CBA.

Shareholders and governance experts have demanded more action from the bank over the money laundering scandal after CBA's board docked short-term bonuses from the executive team for the 2017 financial year, and also cut director fees by 20 per cent.

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ASIC may pursue case alleging Commonwealth Bank directors breached duties

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There is a view within Canberra that CBA sets the standards for the rest of corporate Australia, as the country's largest company by market capitalisation, and also because of its immense importance to the health and functioning of the financial system. Lawyers suggested that ASIC might focus on three areas in pursuing a case against CBA.

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1. Storm Financial Limited was a financial advice company founded and operated by directors Mr Emmanuel and Mrs Julie Cassimates. Storm Financial operated a system of financial advice where clients were advised to invest substantial amounts in index funds, using a ‘double gearing’ strategy; a model formulated in house by Storm Financial.[1]

The Storm Model was applied to all clients irrespective of their financial position and involved clients taking out both a home loan as well as a margin loan in order to purchase units in index funds, create a ‘cash dam’ and maintain a sufficient amount of default funds to pay Storm Financial advice fees.[2] Clients were then advised to take further ‘step’ investments over time; even though clients’ were in negative equity positions and this was not in their best interest to do so.

By failing to give reasonable consideration to the circumstances of the relevant investors; ASIC alleged the directors breached their duty of care and diligence to Storm Financial Ltd by providing advice to vulnerable clients in accordance with the Storm Model, exposing clients severely to the consequences of a volatile market.[4]

2. Mainstream Media Article (see below for link)

https://www.afr.com/business/banking-and-finance/storm-financials-emmanuel-and-julie-cassimatis-fined-70000-each-20180329-h0y4j3

3. The directors breached their duties of care and diligence pursuant to s 180(1) of the Corporations Act 2001 (Cth) (“Corporations Act”) by exercising their powers in a way which caused or 'permitted' (by omission to prevent) inappropriate advice to be given to its vulnerable investors.

It can be argued that Mr and Mrs Cassimatis had an extraordinary degree of control over Storm', and that a reasonable director with the responsibilities of Mr or Mrs Cassimatis would have known that the Storm Model was being applied to financially vulnerable clients, that its application was likely to lead to inappropriate advice and that the consequences of that inappropriate advice would be catastrophic for Storm.[5]

In effect, it would have been simple for Mr and Mrs Cassimatis to take precautionary measures to attempt to avoid the application of the Storm Model to its financially vulnerable client base, which they failed to do so.[6]  This caused Storm Financial Ltd to contravene ss 912A(1)(a)[7], 912A(1)(c)[8], 945A(1)(b)[9], 945A(1)(c)[10] and 1041E(1)[11] thus exposing the company to a foreseeable risk of harm, legal action and possible penalties which are greater than that to which a director, acting with the required degree of care and diligence, would permit Storm to be exposed.[12]

A breach of s 180(1)[13] can give rise to the imposition of civil penalties, including but not limited to a declaration of contravention[14], on application by ASIC, the Court may disqualify a person from managing corporations for a period that the Court considers appropriate[15]; a Court may order a person to pay the Commonwealth a pecuniary penalty in relation to the contravention of a civil penalty provision up to a maximum of $200,000 each[16].

As a result of the findings the Court imposed pecuniary penalties on the directors of Storm Financial Limited and Mr and Mrs Cassimatis were ordered to pay $70,000 each under a Federal Court ruling.[17] The penalties against Emmanuel and Julie Cassimatis also include a ban from managing corporations for a period of seven years.

[1] MinterEllison, Federal Court Finding that Storm Financial Directors Breached Their Duties <https://www.minterellison.com/articles/federal-court-finding-that-storm-financial-directors-breached-their-duties[2] Ibid [3] Hamilton-Smith, Lexy, ‘Storm Financial clients slam $140k fine after 3000 investors left destitute’ https://www.abc.net.au/news/2018-03-22/storm-financial-founders-fined-140k-over-800m-company-collapse/9576418 (online article 23 March 2019)  [4] MinterEllison, Federal Court Finding that Storm Financial Directors Breached Their Duties <https://www.minterellison.com/articles/federal-court-finding-that-storm-financial-directors-breached-their-duties [5] ASIC v Cassimatis (No 9) [2018] FCA 385, [22][6] Ibid [7] Corporations Act 2001 (Cth)[8] Ibid [9] Ibid [10] Ibid [11] Ibid [12] ASIC v Cassimatis (No 9) [2018] FCA 385, [22][13] Corporations Act 2001 (Cth)[14] s 1317E Corporations Act 2001 (Cth)[15] s 206C Corporations Act 2001 (Cth)[16] s 1317G Corporations Act 2001 (Cth)[17] https://www.afr.com/business/banking-and-finance/storm-financials-emmanuel-and-julie-cassimatis-fined-70000-each-20180329-h0y4j3

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"They (Cassimatis) focused on managing Storm's profitability and paid too little attention to the interests of vulnerable investors," Justice John Dowsett said.

Investors had been lured to Storm by its apparent success.

A year before it buckled the company's annual revenue was $77 million and it had $120 million in assets.

Clients were advised to borrow money against their homes to fund investments in the ASX300, which is made up of Australia's 300 largest companies.

"Some of the relevant investors lost their family homes, or incurred lengthy postponements of their planned retirements," Justice Dowsett said.

"By failing to give reasonable consideration to the circumstances of the relevant investors, Storm provided inappropriate advice which exposed the relevant investors to these devastating consequences."

During Federal Court hearings in 2016 it was determined the pair had breached the civil, not criminal, duties of directors stemming from the Corporations Act.

Simple precautions could have helped Storm avoid giving inappropriate advice to vulnerable investors, the court found.

The maximum fine that could have been imposed was $200,000.

AAP

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Storm Financial's Emmanuel and Julie Cassimatis fined $70,000 each

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"They (Cassimatis) focused on managing Storm's profitability and paid too little attention to the interests of vulnerable investors," Justice John Dowsett said. Investors had been lured to Storm by its apparent success. A year before it buckled the company's annual revenue was $77 million and it had $120 million in assets.

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1.     Storm Financial Limited (“Storm”) was founded in Townsville by Emmanuel and Julie Cassimatis on 23 May 1994 as initially a private company with the name Cassimatis Securities Pty Ltd, eventually trading as Storm Financial Limited until 9 January 2009 when external administrators were appointed.[1] At the time of becoming an unlisted public company Storm had approximately 14,000 clients and $4.5 billion of funds under its management using what was known as the “Storm Model” which encouraged clients to take out loans against their property and margins loans to fund increases in their investments which in a rising market provided significant gains, however when the market fell in 2008 the banks involved called these loans for payment.[2] In relation to the collapse of Storm and subsequent litigation, ASIC was successful in proving the directors breached their duty as directors under s 180(1), as well as proving Storm provided inappropriate advice to certain investors under s 945A.[3]

2.     https://www.afr.com/business/banking-and-finance/storm-financials-emmanuel-and-julie-cassimatis-fined-70000-each-20180329-h0y4j3

3.     The legal problem in relation to the directors was based around the duties of directors under s 180(1) of the Corporations Act 2001 (Cth) and a class of investors who were identified as being particularly vulnerable, though were still advised to invest in the Storm Model. Edelman J considered the test as set out in Vrisakis v Australian Securities and Investments Commission (1993) 9 WAR 395 which considered three factors to whether a breach of s 180(1) had been made:

a.      Harm is not limited to financial harm, and includes all interests of a corporation, including reputation and compliance with the law,

b.     Balancing should not be taken literally and hence decisions must ensure the risk outweighs the harm, which is possible,

c.      Interpretation of the act must be considered with reference to how a reasonable person who is a director would have acted. As the directors exercised complete control, the foreseeable risk of a contravention was both financially dangerous but could cause the company to collapse.[4]

The directors made submissions that as sole directors and shareholders they only needed to consider their interests, in effect, the shareholders were consenting to the decisions of the directors. In addition, Mr and Mrs Cassimatis submitted a director who is also the sole shareholder of a solvent company cannot breach s 180(1) as the only interests are the shareholders even if the decision, they make is “risk or foolhardy”.[5]  This argument was rejected by Edelman J at 498 finding the submission was not consistent with the text of s 180(1), not consistent with the history and context of s 180(1), and was unprincipled and not support by authority.[6]

Edelman J found both directors “contravened s 180(1) of the Corporations Act by exercising their powers in a way which caused or “permitted’ inappropriate advice to be given to relevant investors.[7]

Storm was also found to have contravened s 945A(1)(b) and s 945(A)(1)(c) of the Corporations Act.

The findings were based upon civil breaches of the act and as a result both directors were fined $70,000 and banned from managing corporations for seven years under s 206C, however this could have been permanently.[8] It is noted a maximum fine of $200,000 could have been imposed under s 1317G.[9]

[1] Australian Securities & Investments Commission, Australian Government, Search ASIC Registers <https://connectonline.asic.gov.au/RegistrySearch/faces/landing/SearchRegisters.jspx?_adf.ctrl-state=10bt801491_4>.[2] Michael Legg, ‘A Comparison of Regulatory Enforcement, Class Actions and Alternative Dispute Resolution in Compensating Financial Consumers’ (2016) 38 Sydney Law Review 311, 312.[3] MinterEllison, Federal Court Finding that Storm Financial Directors Breached Their Duties <https://www.minterellison.com/articles/federal-court-finding-that-storm-financial-directors-breached-their-duties>.  [4] MinterEllison, Federal Court Finding that Storm Financial Directors Breached Their Duties <https://www.minterellison.com/articles/federal-court-finding-that-storm-financial-directors-breached-their-duties>.  [5] Australian Securities & Investments Commission v Cassimatis (No 8), Federal Court of Australia, 26 August 2016 at 496[6] Ibid at 498[7] Ibid At 833[8] Corporations Act 2001 (Cth) s 206C is part of the civil penalty regime in Pt 9.4B. See Australian Securities & Investments Commission v Elm Financial Services Pty Ltd (2005) 55 ACSR 544.[9] Corporations Act 2001 (Cth) s 1317G.

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Joanna Smith-Lawson's Post: Storm Financial

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Joanna Smith-Lawson's Post: Storm Financial

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1. Storm financial was a public company limited by shares. Its only shareholders were its owners Emmanuel and Julie Cassimatis. It provided financial advice for its clients using its ‘Storm Model”: raising capital for investment against assets, including the family home, and taking out margin loans. In the context of the global financial crisis of the late 2000s many clients started losing heavily (the financial advice always involved share market investment); leading to a drop in capital being invested through Storm. In early 2009 the Commonwealth Bank called in its debt with Storm, triggering voluntary administration, then collapse.[1] In 2016, after a protracted court process, ASIC succeeded in its case that the directors breached their fiduciary duty of care to oversee the operation of the business and steer the operating strategy away from the risk-heavy management model that led to its downfall.[2]

2. This article in The Monthly (Schwartz Media) predates the findings of the Court. It is a contemporaneous commentary on the debacle and discusses in some depth the multifaceted nature of the high-risk business model, including dubious relationships formed with banks to enable loans to Storm clients.

https://www.themonthly.com.au/issue/2011/february/1299634145/paul-barry/eye-storm

3. The legal problem centred around the definition of directors duties at s 180(1) of the Corporations Act 2001 (Cth). The Court found that the Cassimatises failed in their duty of care to Storm Financial by allowing the business practice to continue unchecked,[3] which harmed it financially (by advising clients inappropriately, it harmed the company’s main source of profit), reputationally (as clients began to associate storm with loss they did not invest with them), legally (it was a business strategy to risk breaking laws and paying the fine in order to make money over and above the fine amount),[4] and as it turns out, existentially.

Edelman J addressed directors duties in relation to company structure. It was submitted by the respondents that solvent companies only owe obligations to their shareholders due to being in good stead with the law. The implication was that the Cassimatises could run the company as they wished because as the only shareholders they only had to consider themselves, therefore the directors duties were a private matter. This was rejected, as Edelman J reaffirmed that companies have an inherent public nature.[5]

The Cassimatises argued that being the only shareholders they had greater leeway to take risk as they authorised their own directorial choices and could not breach s 180(1). This was also rejected. By virtue of being the only directors and shareholders, the Cassimatises were even more able to control the prevailing business practice (of giving generic high-risk advice to vulnerable clients) and steer it away from that which led to Storm’s demise. Edelman J found that a reasonable person in the same position would have not allowed that to happen.[6]

ASIC was not able to prove criminal wrongdoing in this case.[7]

The Cassimatises were each ordered to pay a $70,000 fine (the maximum available to the court was $200,000) in their individual capacities. They were also disqualified from managing a corporation for seven years under s 206C.[8]

[1] ‘Storm Financial Founder Speaks Out’, 7:30 Report (Australian Broadcasting Corporation, 2009) 02:49.[2] Australian Securities and Investments Commission, ‘Directors of Storm Financial Found to Have Breached Their Duties Under the Corporations Act’ (Media release 16-277MR, 26 August 2016).[3] ASIC v Cassimatis (No 9) [2018] FCA 385, [22].[4] ASIC v Cassimatis (No 8) [2016] FCA 1023, [496].[5] Ibid [447].[6] Ibid [22]. “The reasonable director would have taken some alleviating precautions to prevent the giving of that advice.”[7] Ibid [836].[8] ASIC v Cassimatis (No 9) [2018] FCA, 385.

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These potential breaches of director’s duties include failing to place the group entities reliant on Orchard group into voluntary admission following the Orchard group entering receivership, transferring company assets and liabilities before receivers were appointed and the procurement of loans under the Corporate group to pay debts incurred by the orchard group[10]. Mr Young breached his duty to prevent insolvent trading under s 588G of the Corporations Act 2001 (Cth) a

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The Kleenmaid group is an Australian listed company consisting of two groups of companies; The Kleenmaid Corporate Group and the Orchard Group[1], together forming a national white goods distributor that entered voluntary administration in 2009 with reported consolidated debts of around $96 million[2]. Former Director, Mr Bradley Young was the Managing Director of one of the Kleenmaid group of companies - EDIS Service Logistics PTY LTD, a company that was licenced to import, wholesale and retail Kleenmaid appliances.[3]

The Australian Securities and Investments Commission (ASIC) initiated criminal charges against the Directors alleging breaches in duties by trading while insolvent and knowingly committing fraud[4].

Media article:
https://asic.gov.au/about-asic/news-centre/find-a-media-release/2016-releases/16-257mr-former-kleenmaid-director-sentenced-to-nine-years-imprisonment-for-fraud-and-insolvent-trading/

ASIC asserted that Mr Young dishonestly secured a $13 million Westpac loan on behalf of EDIS Service Logistics to purchase inventory from Orchard KM Pty Ltd (formerly Kleenmaid) with the knowledge of Orchard KM’s substantial loss-making and indebtedness, concealing this from Westpac Bank. Mr Young was also found guilty of incurring debts to the approximate value of $4.2 million trading while insolvent[5].

By entering into the Westpac loan agreement and continuing to operate after the company became insolvent in June 2007[6], Mr Young in his role of Director breached a number of different statutory and fiduciary duties pursuant to the Corporations Act[7].

Under the Act, Mr Young breached his statutory duties to exercise his power and discharge his duties with due care and diligence that a reasonable person would exercise[8] and to exercise these duties in good faith and for proper purpose.[9] These potential breaches of director’s duties include failing to place the group entities reliant on Orchard group into voluntary admission following the Orchard group entering receivership, transferring company assets and liabilities before receivers were appointed and the procurement of loans under the Corporate group to pay debts incurred by the orchard group[10]. Mr Young breached his duty to prevent insolvent trading under s 588G of the Corporations Act 2001 (Cth) and further, faced charges of fraud under s 408C of the Criminal Code 1899 (QLD).

Under section 588G (3) of the act[11] each of the 17 criminal insolvent trading charges carries a maximum penalty of $200,000 or imprisonment for five years, or both. Under the Queensland Criminal Code[12] the maximum penalty for a charge of fraud is 14 years imprisonment[13].

In 2016, Mr Young was convicted on one count of fraud and 17 counts of insolvent trading and received a nine-year term of imprisonment. Co - director Mr Gary Armstrong was sentenced to seven years imprisonment in 2015 following a guilty plea and Mr Young’s brother, founder and third co director Mr Andrew Young is awaiting trial on similar charges[14].

[1] Deloitte, The Kleenmaid Group (Administrators Appointed) (S439A Report, 14 May 2009) 3.<https://www2.deloitte.com/content/dam/Deloitte/au/Documents/finance/insolvency/kleenmaid/deloitte-au-fas-kleenmaid-group-administrators-report-to-creditors-140509.pdf>[2] Casey Briggs, ‘Former Kleenmaid director Bradley Young jailed for nine years over fraud, insolvent trading’, ABC News (online, 12 August 2016) <https://www.abc.net.au/news/2016-08-12/bradley-young-former-kleenmaid-director-jailed-nine-years/7729984>.[3] ASIC, ‘Former Kleenmaid director sentenced to nine years imprisonment for fraud and insolvent trading’ (online, 15 August 2016) <https://asic.gov.au/about-asic/news-centre/find-a-media-release/2016-releases/16-257mr-former-kleenmaid-director-sentenced-to-nine-years-imprisonment-for-fraud-and-insolvent-trading/>.[4] Ibid.[5] Ibid.[6] Deloitte (n1) 3-4.[7] Corporations Act 2001 (Cth).[8] Corporations Act 2001 (Cth) s 180.[9] Ibid s 181.[10] Tony Boyd, ‘Kleened out’, The Weekend Australian (online, 19 May 2009)< https://www.theaustralian.com.au/business/business-spectator/kleened-out/news-story/cd702ec6b0462c22cda0befd1ab11bb8>[11] Ibid s588G (3).[12] Criminal Code 1899 (QLD) s408C.[13] Ibid s408C (2)(a) ; ASIC, ‘ASIC brings criminal charges against former Kleenmaid directors’ (online, 16 February 2012) <https://asic.gov.au/about-asic/news-centre/find-a-media-release/2012-releases/12-27ad-asic-brings-criminal-charges-against-former-kleenmaid-directors/>.[14] ASIC (n3).

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You are here:

1. News centre

2. Find a media release

3. 16-257MR Former Kleenmaid director sentenced to nine years imprisonment for fraud and insolvent trading

A former director of one of the Kleenmaid group of companies, Bradley Wendell Young was sentenced to nine years imprisonment last Friday after being found guilty by a District Court jury of 18 offences arising out of the collapse of the national whitegoods distributor.

Following a trial which lasted for 71 days, on 5 August 2016, the jury found Mr Young guilty of:

one count of fraud by dishonestly gaining loan facilities from Westpac Bank in November 2007 totalling $13 million;

Two counts of criminal insolvent trading of debts totalling $3.5million relating to two additional loan facilities from Westpac Bank in July 2008; and

15 counts of criminal insolvent trading of debts totalling more than $750,000 that were incurred during the period October 2008 to April 2009.

The jury found Mr Young not guilty on one count of criminal insolvent trading.

Mr Young was sentenced to nine years imprisonment for the Westpac fraud and a total of three and a half years imprisonment for the insolvent trading charges. The court ordered that Mr Young's parole date in respect of the fraud be set at 5 February 2021 and for the insolvent trading charges was to be 21 months later.

At the time the offences were committed, Mr Young was the Managing Director of EDIS Service Logistics Pty Ltd, which, following a corporate restructure in November 2007, was licensed to import, wholesale and retail Kleenmaid appliances. Prior to the restructure, EDIS had been the spare parts distributor for Kleenmaid appliances.

During the trial, the court heard that it was Mr Young who proposed the plan whereby EDIS would obtain funding from Westpac to acquire inventory from Orchard KM Pty Ltd (formerly known as Kleenmaid Pty Ltd) which was the main trading company in the old Kleenmaid Group, and that at the time, Mr Young was aware of the dramatic loss-making and indebtedness of the Kleenmaid Group. The Crown's evidence was that Mr Young, along with fellow director Gary Collyer Armstrong failed to disclose to Westpac that EDIS and Orchard KM did not trade at arms-length and concealed the serious debt position of Orchard KM.

The court also heard that by the time administrators were appointed to the Kleenmaid group of companies, on 9 April 2009, Kleenmaid's consolidated debts amounted to approximately $96 million which included $26 million in customer deposits that had been paid for appliances yet to be delivered and that Kleenmaid's balance sheet deficit was approximately $83 million.

In passing sentence, Judge Farr said '...insolvent trading...can wreak havoc on a business community' and '...you showed a callous disregard for the fortunes of those affected by your behaviour in risking other people's money in extraordinary amounts.'

'This is a strong endorsement of ASIC's case, highlighting the severity with which such behaviour should be viewed and should send a signal to all directors and companies that we will pursue them through the courts when they break the law,' ASIC Commissioner John Price said.

Background

Following a plea of guilty, in October 2015, Mr Armstrong was sentenced to seven years imprisonment in relation to the $13 million Westpac fraud and the two Westpac criminal insolvent trading charges. Mr Armstrong was one of the witnesses called to give evidence for the prosecution during Mr Young's trial. Mr Armstrong will not be eligible for parole until 2 February 2018 (refer: 15-283MR).

A date is yet to be set in relation to the trial of the former Director and founder of Kleenmaid, Andrew Eric Young; Bradley Young's older brother.

The Commonwealth Director of Public Prosecutions prosecuted the matter.
Editor's note 1:
On 31 August 2016, Mr Young filed an application to appeal his conviction and sentence. The appeal is currently scheduled to be heard on 15-16 November 2018.
Editor's note 2:
An appeal by Mr Young against his conviction and sentence was heard in the Queensland Court of Appeal on 15 & 16 November 2018. Judgement has been reserved for a decision.

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16-257MR Former Kleenmaid director sentenced to nine years imprisonment for fraud and insolvent trading

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You are here: News centre Find a media release 16-257MR Former Kleenmaid director sentenced to nine years imprisonment for fraud and insolvent trading A former director of one of the Kleenmaid group of companies, Bradley Wendell Young was sentenced to nine years imprisonment last Friday after being found guilty by a District Court jury of 18 offences arising out of the collapse of the national whitegoods distributor.

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1.

Storm Financial Limited (“Storm Financial”) was an Australian unlisted company that provided financial planning services to clients, the directors of which were Emmanuel and Julie Cassimatis.[1] Storm Financial provided its services based on a model that involved clients borrowing against the equity in their homes, obtaining a margin loan, using those funds to in index funds and establishing a cash reserve.[2] The model was advised and applied to all Storm Financial’s clients, even financially more vulnerable clients such as retirees, provided they had the capacity to borrow funds.[3] It is the contravention of director’s duties in relation to the provision of this model (including related advice) which has led to the legal problem discussed in point 3 below.

2.

The Sydney Morning Herald media release is below:

https://www.smh.com.au/business/banking-and-finance/storm-financial-directors-breached-their-duties-court-20160826-gr2ecr.html

3.

The Australian Securities and Investment Commission (“ASIC”) identified the potential alleged breach of the Corporations Act 2001 (Cth) (“Corporations Act”)[4] by the directors of Storm Financial. For two years the directors had allegedly given inappropriate financial advice in regards to the company’s model to retired or near-retired people with limited assets and income.[5] Many of Storm Financial’s retired or near-retired clients lost their investments when the global financial crisis hit.[6] ASIC alleged that by providing financial planning advice under Storm Financial’s model (described in point 1 above) to vulnerable investors who: were retired or close to retirement, had little assets and low income, and had no prospect of recovering their financial position in the event of loss, the directors breached their duty of care and diligence.[7]

The alleged breach is concerned with the provisions of the Corporations Act. Specifically, it is alleged that the directors each contravened s 180(1).[8] Section 180(1)[9] holds a director must exercise their powers and duties with the degree of care and diligence that a reasonable person would exercise if they were a director. It can be argued the directors of Storm Financial exercised their powers in a way which allowed inappropriate advice to be given to the vulnerable investors advised by Storm Financial; thereby providing financial advice in a manner which caused Storm Financial to contravene the Corporations Act.[10] ASIC alleged that Storm Financial's exposure to risk was greater than that which a director acting with care and diligence would have allowed. The acts of the directors are therefore argued to be in contravention of s 180(1) of the Corporations Act.[11]

There are numerous potential penalties that the director’s may be liable for, as a result of the breach of s 180(1) of the Corporations Act. Following the making of a declaration of contravention,[12] a breach of s 180 can give rise to penalties including: a pecuniary penalty order payable to the Commonwealth of Australia up to a maximum of $200,000[13] or (in the case of a corporation/scheme civil penalty provision) a disqualification order to disqualify the directors of Storm Financial from managing corporations[14] and/or an injunction from holding an Australian Financial Services Licence (“AFSL”), which is a licence that allows a business to provide financial services.[15]

[1] Ruth Williams, ‘Storm Financial directors breached their duties: court’, The Sydney Morning Herald (online, 26 August 2016) <https://www.smh.com.au/business/banking-and-finance/storm-financial-directors-breached-their-duties-court-20160826-gr2ecr.html>.[2] Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023 [4]. [3] Williams, above n 1.[4] Corporations Act 2001 (Cth) (“Corporations Act”).[5] Williams, above n 1.[6] Ibid.[7] Australian Securities and Investment Commission v Cassimatis [No 9] [2018] FCA 385 [8], [17].[8] Section 180(1) of the Corporations Act. [9] Ibid.[10] Australian Securities and Investment Commission v Cassimatis [No 9] [2018] FCA 385 [27]. [11] Ibid [33].[12] Corporations Act s 1317E(1).[13] Ibid s 1317G).[14] Ibid s 206C.[15] Ibid s 1324.

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Queensland Nickel is a proprietary limited company founded in 1966 and owned by Clive Palmer which owns and operates the Palmer Nickel and Cobalt Refinery at Yabulu in North Queensland.  The refinery was established in 1971 and acquired by Palmer in 2009 from BHP Billiton.  Mr Palmer's brief 26-day directorship of the company coincided with the handing out of more than $700,000.00 in donations to the Palmer United Party (PUP), raising questions about his claim of not being involved in the running of the business.

It was reported that one day after Mr Palmer became a director, Queensland Nickel was listed in the Electoral Commission records as donating $110,000.00 to PUP, three days later, another donation of $220,000.00 and then a larger donation of $440,000.00 another two days later. [1]  Even larger donations were also listed as having been made during Mr Mensink's time in the role, Mr Palmer's nephew, whom also had a lengthy association with PUP.  One of the largest donations appeared to be a $2.8 million donation, just days after Mr Palmer resigned as director and Mr Mensink returned to the role.

Queensland Nickel became insolvent on 29 November 2015 and on 19 January 2016 entered into voluntary administration having laid off 237 workers, citing low nickel prices. Whilst Mr Palmer resigned as director in February 2015, Queensland Nickel's administrators allege that Mr Palmer was a shadow director, involved in making the company's financial decisions despite his resignation.  In the eyes of the law there is no difference between a formally appointed director, a shadow director and a de facto director[2] and they hold the same duties and obligations as a registered director under the Act.[3]  This includes fiduciary and statutory duties to act in good faith, for proper purpose and for the company's best interests,[4] to prevent insolvent trading,[5] to avoid conflicts of interest[6] and the duty not to improperly misuse information or position,[7] all of which impose civil penalties when breached[8] with the potential of imposing pecuniary penalties.[9]  Additionally, a directors failure to exercise their powers and discharge their duties in good faith and in the best interests of the company or for a proper purpose, imposes a criminal offence,[10] carrying pecuniary penalties of up to $200,000 and or imprisonment for up to five years if breached. [11]  There is also a potential personal liability to pay compensation[12] for the debts the company has incurred once it began insolvent trading, which allegedly, is approximately $771 million since its insolvency on 29 November 2015.  Palmer could also face potential bankruptcy and not to mention the unravelling of his corporate empire.[13]

Mainstream article -
https://www.smh.com.au/politics/federal/clive-palmer-was-queensland-nickel-director-when-700000-was-donated-to-the-palmer-united-party-20160201-gmiqgg.html

[1]Rory Callinan, ‘Clive Palmer was Queensland Nickel director when $700,000 was donated to the Palmer United Party’, Sydney Morning Herald, February 1, 2016.[2]Grimaldi v Chameleon Mining NL (No 2) [2012] FCAC6.[3]Corporations Act 2001 (Cth) s 9.[4]Ibid s 180(1).[5]Ibid s 588G.[6]Ibid s 191.[7]Ibid ss 182-183.[8]Ibid s 1317E.[9]Ibid s 1317G.[10]Ibid s 184.[11]Ibid Schedule 3.[12]Ibid s 1317H.[13]Lauren Moroney, ‘4 takeaways for directors following QLD Nickell collapse’, Legal Vision (Article, 22 April, 2016) < https://legalvision.com.au/4-takeaways-for-businesses-from-clive-palmer-and-qld-nickels-collapse/>.

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Mr Palmer then stayed on as a director for just 26 days before resigning on February 16 - the same day Mr Mensink is recorded as returning to the role .

Clive Palmer's 2014-15 donations were belatedly revealed in official Australian Electoral Commission figures. Credit:Alex Ellinghausen

Asked on Monday about the donations and his directorship, Mr Palmer denied any issue, texting Fairfax yesterday say only that there was "no basis in article (sic)".

Last week he was quoted in the media as saying: "Of course I have no personal responsibility. I retired from business over three years ago."

A spokesman for Mr Palmer said the change in directorship related to a period when senior management including Mr Mensink were on leave.

He said Mr Palmer at the time took leave from Parliament. The spokesman said the company's auditors have signed off on the company being solvent at the time.

Clive Mensink is so elusive, even his own uncle claims he doesn't know where he is.

Exactly what business decisions were made at the North Queensland business during this 26 day period of shifting directors' chairs has not been made public.

Australian Electoral Commission disclosure records revealed on Monday that Palmer businesses donated $10 million to the Palmer United Party last financial year, including nearly $6 million from Queensland Nickel. The $5.9 million donated by Queensland Nickel was the largest single corporate donation in the 2014-15 financial year.

The Electoral Commission records show Queensland Nickel made a series of hefty donations to the Palmer United Party during the 26-day period when Mr Palmer was director.

On January 23, one day after Mr Palmer became a director, Queensland Nickel is listed as donating $110,000 to PUP, according to the company's official political party donation disclosure records for last financial year.

Three days later, Queensland Nickel donated again, this time $220,000. Then two days later an even larger donation of $440,000 is recorded. A number of other donations are listed during the 26-day timeframe but all are under $25,000.

While numerous other donations were made during Mr Palmer's time as a director an even larger number were made during Mr Mensink's time in the role.

One of the largest appeared to be a $2.8 million donation made on March 4, 2015, just days after Mr Palmer resigned the directorship and Mr Mensink returned to the director's role.

Queensland Nickel went into voluntary administration on January 18 this year having layed off 237 workers, with the company blaming a slump in nickel prices for its collapse.

In January company managing director Mr Mensink said: "The prime reason for QN administration and associated events is the price of nickel, which is at its lowest for 15 years."

Mr Mensink has had a lengthy association with PUP, having been listed as the party's agent on its 2014-2015 political party disclosure return, run as its candidate for the state seat of Mundingburra in the 2015 election and for the federal Senate in the seat of Dickson in 2013

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Clive Palmer was Queensland Nickel director when $700,000 was donated to the Palmer United Party

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Mr Palmer then stayed on as a director for just 26 days before resigning on February 16 - the same day Mr Mensink is recorded as returning to the role . Asked on Monday about the donations and his directorship, Mr Palmer denied any issue, texting Fairfax yesterday say only that there was "no basis in article (sic)".

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1.

Storm Financial Ltd was a financial advisory company that was heavily operated under executive directors Mr and Mrs Cassimatis.[1] Considered to be one of the largest fiscal planning networks in Australia, the company operated with 115 staff and managed funds in excess of 4 billion dollars.[2] The main functionality of the firm was to provide advice to 14,000 clients of whom 3000 were investment clients.[3]The clientele demographic consisted of those who were over the age of 50, retired or close to retirement, had little income, few assets and with limited prospects of rebuilding financial positions in the event of loss.[4] The modus operandi of the company often began with attracting clients to the business through investment education seminars.[5] The storm business model was the predominate strategy pitched to potential and existing clients as an investment opportunity using debt, mortgaging the home, using margin lending and reinvesting funds into share markets.[6] However, the problem with this operation was the lack of due care, diligence and disclosure by the directors to clients on investment opportunities.[7] Specifically, the storm model was implemented to over 90% of its clients, which was found to be inappropriate for some investors who suffered financial loss as a result. [8]

2.
The attached mainstream article: https://www.abc.net.au/news/2018-03-22/storm-financial-founders-fined-140k-over-800m-company-collapse/9576418.[9]

3.
The ideology of the storm model was to encourage investors to borrow against the value of their home and other valuable assets, to secure a loan, and use the money to reinvest the funds on the Australian Securities Exchange.[10] However, the model was marketed in a way that was misleading to vulnerable clients. For example, during a stable economy, the storm model had the potential to increase profitability.[11] However, in a decreasing market, and in particular during the global financial crisis of 2008 when the directors misconduct took place, stock market investments plummeted, triggering margin calls that could not be responded to with the result that the collateral for the loans, including the family home, were lost or placed at risk.[12]

It was throughout this period, that the company was heavily overseen by Mr and Mrs Cassimatis, who against better judgments during the course of their undertakings, breached a number of fiduciary and statutory duties pursuant to the Corporations Act 2001 (Cth) (CA). These include:

Directors and other officers failing to act with a degree of care and diligence when providing financial advice to clients;[13]

Providing advice to clients that was contradictory to clients actual financial position;[14] and

Failed to provide financial services that were in line with acting efficiently, honestly and fairly;[15]

As a result of the findings, pecuniary penalties were imposed and each director was ordered to pay a $70,000 fine.[16] Yet to be determined was the disqualification from managing corporations.[17] The Australian Securities and Investments Commission asserted an injunction to prevent Mr and Miss Cassimatis from providing financial services however this was rejected by the court on the basis that the injunction prevented unlawful conduct and not lawful.[18]

References

[1]Australian Securities and Investments Commission v Cassimatis (No 9) [2018] FCA 385.[2] Michael Legg, ‘A Comparison of Regulatory Enforcement, Class Actions and Alternative Dispute Resolution in Compensating Financial Consumers’ (2016) 38(3) Sydney Law Review 311.[3] Ibid.[4]Australian Securities and Investments Commission v Cassimatis (No 9) [2018] FCA 385.[5] Dimity Kingsford Smith, ‘Regulating Investment Risk: Individuals and the Global Financial Crises’ (2009) 32(3) University 0f New South Wales Law journal 516.[6] Parliamentary Joint Committee on Corporations and Financial Services, Parliament of Australia, Inquiry into Financial Products and Services in Australia (Report, November 2009) 19-28[7] Ibid.[8] Ibid.[9] Lexi Hamilton Smith,’ Storm Financial clients slam $140k fine after 3,000 investors left destitute’, Australian Broadcasting Commission (online at 23 March 2018) <https://www.abc.net.au/news/2018-03-22/storm-financial-founders-fined-140k-over-800m-company-collapse/9576418>.[10]Australian Securities and Investments Commission v Cassimatis (No 9) [2018] FCA 385.[11]Michael Legg, ‘A Comparison of Regulatory Enforcement, Class Actions and Alternative Dispute Resolution in Compensating Financial Consumers’ (2016) 38(3) Sydney Law Review 311.[12] Michael Legg, ‘A Comparison of Regulatory Enforcement, Class Actions and Alternative Dispute Resolution in Compensating Financial Consumers’ (2016) 38(3) Sydney Law Review 311.[13]Corporations Act 2001 (Cth) s180(1)[14] Ibid s 945(b) now s 961(b)[15] Ibid, s 912A(1)[16] Ibid s 131E, s 1317G.[17] Ibid s 206E[18]Australian Securities and Investments Commission v Cassimatis (No 9) [2018] FCA 385.

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1.

Storm Financial Ltd was a profitable,[1] unlisted financial advice company that operated a system of financial advice (the ‘double gearing Storm model’), created by its executive directors – Emmanuel Cassimatis and Julie Cassimatis. The Storm model, which led to many clients sustaining significant losses, failed to take into account each person’s individual circumstances and involved recommendations to: take out a mortgage and a margin loan to invest in shares and pay the company’s fees; and taking ‘step’ investments over time by borrowing more money. In 2010, ASIC brought proceedings against the directors, alleging that, the directors breached their duty of care to Storm Financial in managing the company by causing and permitting it to be exposed to legal liability arising from the implementation of the Storm Model, which could have resulted in the loss of its Australian Financial Services Licence, putting the existence of the company in jeopardy.[2]

2.

https://www.afr.com/business/banking-and-finance/storm-financials-emmanuel-and-julie-cassimatis-fined-70000-each-20180329-h0y4j3

3.

How did the alleged breaches come about?

The directors failed to exercise due care and diligence with respect to the provision of financial advice in a way that a reasonable person in their position would have done so in the circumstances of the corporation and with the same responsibilities as the directors.[3]

They allowed the company to provide inappropriate financial advice to a group of financially vulnerable investors, in breach of ss 945 A(1)(c), 912A(1)(a) and 912A(1)(c) of Corporations Act.[4] The collective effect of these breaches was a breach by the directors of due care and diligence pursuant to s 180(1). This is because of the extent of control Mr and Mrs Cassimatis exercised over the Storm model. [5]

What provisions of the Corporations Act or common law do these breaches raise?

Pursuant to the Corporations Act[6]s 180(1), a director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a) were a director or officer of a corporation in the corporation's circumstances; and (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. In Australian Securities and Investment Commission v Citrofresh International Ltd,[7] allowing the company to contravene the Corporations Act[8] was held to be a breach of the required duty of care, skill and diligence. s 180(1) is a civil penalty provision.

Common law

Under the common law, directors owe duties of care, skill and diligence to the company.[9] Damages may be awarded to the company provided that the plaintiff company can prove loss due to the conduct of the directors.

Who can sue the directors?

ASIC may bring an action against the directors if it is in the public interest to do so[10] and may recover damages and property from the directors on behalf of the company. The liquidator may also sue the directors in the name of the company, if the liquidator believes that the directors have breached their duties to the company.[11]

Potential penalties that the directors may be liable for

The court may make an order of declaration of contravention;[12] and a pecuniary penalty order up to a maximum of $200,000 each.[13] The court may also order the disqualification of the directors from managing corporations for a period of time.[14] Pursuant to s 1324 of the Corporations Act,[15] the court may order an injunction against Mr and Mrs Cassimatis restraining them from holding an Australian Financial Services Licence (AFSL) or providing financial services under an AFSL.

[1] Anil Hargovan, ‘Storm without power: Low civil penalties for Directors of Storm Financial’ (May 2018) Governance Directions 3; ‘Storm Financial’s Emmanuel and Julie Cassimatis fined at $70,000 each’, The Australian Financial Review (online, 29 March 2018) <https://www.afr.com/business/banking-and-finance/storm-financials-emmanuel-and-julie-cassimatis-fined-70000-each-20180329-h0y4j3>: A year before Storm Financial Ltd folded and an external administrator was appointed, the annual revenue of the company was $77 million and it had $120 million worth of assets; See also ASIC v Cassimatis (No 9) [2018] FCA 385 [6].[2] ASIC, ‘Civil Penalty Proceedings against the Cassimatises’, Summary of ASIC actions (Web Page, 28 October 2016) <https://storm.asic.gov.au/proceedings/summary-of-asic-actions/>.[3] Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023[833].[4] 2001 (Cth).[5] Australian Securities and Investment Commission v Cassimatis [No 9] [2018] FCA 385 [8], [17]: The directors’ operations of the company were said to be ‘extraordinary’ and a ‘weighty consideration in assessing the degree of culpability which [the directors] must bear for the mismanagement of Storm.’.[6] 2001 (Cth).[7] (2007) 164 FCR 333.[8] 2001 (Cth). [9] Daniels t/as Deloitte Haskins & Sells v Anderson (the AWA case) (1995) 37 NSWLR 438.[10] Australian Securities and Investment Commission Act 2001 (Cth) s 50.[11] Corporations Act 2001 (Cth) s 477(2)(a).[12] Ibid s 1317E.[13] Ibid s 1317G(1).[14] Ibid s 206C; See also Corporations Act 2001 (Cth) s 206E(1)(a)(iii), (b): ‘On application by ASIC, the Court may disqualify a person from managing corporations for the period that the Court considers appropriate if a person has been an officer of a body corporate and has done something that would have contravened subsection 180(1) or section 181 if the body corporate had been a corporation and the Court is satisfied that the disqualification is justified.’.[15] 2001 (Cth).

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"They (Cassimatis) focused on managing Storm's profitability and paid too little attention to the interests of vulnerable investors," Justice John Dowsett said.

Investors had been lured to Storm by its apparent success.

A year before it buckled the company's annual revenue was $77 million and it had $120 million in assets.

Clients were advised to borrow money against their homes to fund investments in the ASX300, which is made up of Australia's 300 largest companies.

"Some of the relevant investors lost their family homes, or incurred lengthy postponements of their planned retirements," Justice Dowsett said.

"By failing to give reasonable consideration to the circumstances of the relevant investors, Storm provided inappropriate advice which exposed the relevant investors to these devastating consequences."

During Federal Court hearings in 2016 it was determined the pair had breached the civil, not criminal, duties of directors stemming from the Corporations Act.

Simple precautions could have helped Storm avoid giving inappropriate advice to vulnerable investors, the court found.

The maximum fine that could have been imposed was $200,000.

AAP

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Storm Financial's Emmanuel and Julie Cassimatis fined $70,000 each

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"They (Cassimatis) focused on managing Storm's profitability and paid too little attention to the interests of vulnerable investors," Justice John Dowsett said. Investors had been lured to Storm by its apparent success. A year before it buckled the company's annual revenue was $77 million and it had $120 million in assets.

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Storm Financial provided financial services to the public, according to its investment model “Stormify” developed by Storm’s director, Mr Emmanuel Cassimatis. This unregistered managed investment scheme encouraged investment clients to borrow money against their homes and obtain margin loans to invest in index funds. The investment model “Stormify” was inappropriate for the majority Storm’s clients and in the market downturn during the global financial crisis, investor losses were magnified on account of the double gearing characteristics of the model.  The risk profile of investors were inappropriate for this managed investment scheme because these investors were ‘vulnerable’ with limited assets and little chance of financial recovery if they were to suffer an investment loss.

The mainstream article – ‘Storm Financial former directors breached law Federal Court finds’[1].

The Australian Securities and Investment Commission (ASIC) asserted that Mr and Mrs Cassimatis (the only shareholders of the company) had breached the duty of care and diligence owed to the company under Section 180 (1) of the Corporations Act 2001 (Cth)[2]. Mr and Mrs Cassimatis in the exercise of their powers and duties as directors of Storm financial had an extraordinary control over the company and the Cassimatis’s had breached their duty because they caused inappropriate advice to be given to investors which exposed Storm to the risk of facing regulatory action which could have resulted in the loss of its AFSL, putting the very existence of the company in jeopardy, thus contravening s 180(1) of the Corporations Act 2001 (Cth)[3].

Mr and Mrs Cassimatis failing to discharge their respective duties pursuant to s 180(1) of the Corporations Act 2001 (Cth)[4] are liable to the imposition of pecuniary penalties pursuant to s 1317E and s 1317G of the Corporations Act 2001 (Cth)[5]. Mr and Mrs Cassimatis may be disqualified from managing corporations pursuant to s 206C and s 206E of the Corporations Act 2001 (Cth)[6]. Additionally, Mr and Mrs Cassimatis may be restrained from providing financial services under an AFSL as an injunction, pursuant to s 1324 of the Corporations Act 2001 (Cth)[7].

[1] Lexy Hamilton-Smith , ‘Storm Financial former directors breached law Federal Court finds’, ABC Premium News (Sydney), August 26, 2016.[2] Corporations Act 2001 (Cth) s 180(1).[3] Corporations Act 2001 (Cth) s 180(1).[4] Corporations Act 2001 (Cth) s 180(1).[5] Corporations Act 2001 (Cth) s 1317E, s 1317G.[6] Corporations Act 2001 (Cth) s 206C, s 206E.[7] Corporations Act 2001 (Cth) s 1324.

Main Stream Article - https://search-proquest-com.ezproxy.csu.edu.au/docview/1814096796?accountid=10344

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AustralianSuper is a non-profit super fund and its purpose is to provide retirement benefits (by earning financial returns on funds) to the members. The directors are appointed by the Trustee’s shareholders: the Australian Council of Trade Unions (ACTU) and the Australian Industry Group (Ai Group).

There has been an alleged breach of director’s duties arising from public statements by an alternate board member that indicate a conflict in interest between their duties to AustralianSuper and their duties to the ACTU.

Media Article:

https://www.afr.com/personal-finance/superannuation-and-smsfs/actu-claims-business-is-afraid-of-14trn-in-workers-super-20190314-h1cdgh

ACTU has recently called upon industry super funds backed by unions engage in shareholder activism to pressure companies to better worker conditions[1].

Michelle O’Neil, the current ACTU President[2] and current alternate director for AustralianSuper, acted on this matter on behalf of the ACTU[3] and has made statements indicating that: “the [money] in industry superannuation funds is workers' money that the union movement will use as an industrial relations weapon to force companies to raise wages and conditions.”[4]

Given her position as an alternate director for AustralianSuper, her actions on behalf of ACTU indicate that there is a potential breach of both fiduciary and statutory duties under the Corporations Act (the Act).

Under s180-183 of the Act Ms O’Neil has a statutory duty to exercise her duties with: care and diligence, good faith and for proper purpose, and not to gain an advantage for someone else. Using her powers as a director of AustralianSuper  to engage in shareholder activism and/or use members’ funds for industrial relation reasons may not meet the proper purposes test and contravene the act.

There is a potential for a fiduciary breach due to a conflict of interest between Ms O’Neil’s duties as an officer of ACTU and her duties to AustralianSuper. Fitzsimmons v R[5] made it clear that whilst the existence of a conflict might not be a breach of fiduciary duty the pursuit of that conflict would be. Her actions on behalf of ACTU may be considered pursuit of the conflict, as could any future attempt to sway AustralianSuper into using member funds for industrial gain.

As Ms O’Neil was appointed by ACTU to the AustralianSuper board, as shareholder, the question is raised as to whether acting in the interest of the appointee would breach her duties as a director. Common law indicates that this would be a breach, and a director must act in the interest of the company for whom they are on the board over the appointer.

Breach of s180-183 are considered civil breaches. Under s1317G the penalty for each contravention under the civil penalty provision is the greater of 5,000 penalty units ($1,050,000) or the benefit/detriment resulting from the breach x 3. Alternatively under s206C ASIC can seek a disqualification order to bar Ms O’Neil from managing corporations for a period of time.

[1] https://www.afr.com/business/actu-demands-industry-funds-act-against-bhp-20190222-h1blme
[2] https://www.actu.org.au/about-the-actu/elected-officers
[3] Ibid
[4] https://www.afr.com/personal-finance/superannuation-and-smsfs/actu-claims-business-is-afraid-of-14trn-in-workers-super-20190314-h1cdgh[5] (1997) 23 ACSR 355; 15 ACLC 666

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ClearView Life Assurance Limited is a life insurer operating under an Australian Financial Service (AFS) licence.  ClearView had a number of issues raised at the recent Royal Commission in relation to both what was sold (low value or “illusory”[1] life insurance products) and how it sold them (outbound call centre, which may have used inappropriate sales tactics and not adhered to statutory requirements).

There are a number of mainstream articles in relation to the primary breaches of the Corporations Act 2001 (Cth).

Stephanie Chalmers, ‘Royal commission: Insurer ClearView admits to breaking law with more than 300,000 sales calls’, ABC News (online), 10 September 2018 <https://www.abc.net.au/news/2018-09-10/australias-biggest-insurers-admit-to-misconduct/10221120>.

But specifically, in relation to the flow on allegations of breaches of director’s duties, one of the submissions to the royal commission captures this well:

Consumer Action Law Centre, ROYAL COMMISSION INTO MISCONDUCT IN THE BANKING, SUPERANNUATION  AND FINANCIAL SERVICES INDUSTRY, Submission on Round 6 Hearings – Case Studies Insurance <https://policy.consumeraction.org.au/wp-content/uploads/sites/13/2018/10/181001-RC-insurance-final-case-study-subs.pdf>.

The alleged breach of director’s duties flow from the primary breaches to the Corporations Act 2001 (Cth) and Australian Securities and Investments Commission Act 2001 (Cth).  Specifically targeting vulnerable customers, using pressure selling tactics and selling illusory insurance are allegations of unconscionable conduct[2].   There was also an alleged breach of hawking prohibitions[3] by not giving customers the ability to be put on the do not call register and not giving a product disclosure statement.  Due to this kind of conduct occurring within the organisation, it carries a flow on implication that there was a breach of director duties of care and diligence[4] and good faith[5] and possibly the criminal provision of good faith, use of position and use of information[6].

The potential penalties for breaching the civil provisions under sections 180 and 181 of the Corporations Act 2001 (Cth) are a declaration of contravention[7] which can then give rise to a pecuniary penalty of up to $200,000 per contravention[8] or disqualification from being able to act as a director[9].  A compensation order may also occur (for the director to compensate the company for loss suffered due to the director breach)[10].

A breach of the criminal provision of section 184 of the Corporations Act 2001 (Cth) may give rise to a potential penalty of 2,000 penalty units (which would currently equal $420,000 at $210 per penalty unit[11]) and/ or 5 years in prison[12].

[1] Australian Securities and Investments Commission v Cash Store Pty Ltd (in liquidation) [2014] FCA 926.[2] Corporations Act 2001 (Cth) s 992A, Australian Securities and Investments Commission Act 2001 (Cth) ss 12 CA, 12 CB.[3] Corporations Act 2001 (Cth) s 992A.[4] Ibid s 180.[5] Ibid s 181.[6] Ibid s 184.[7] Ibid s 1317E.[8] Ibid s 1317G.[9] Ibid 206C.[10] Ibid s 1317H.[11] Crimes Act 1914 (Cth) s 4AA.[12] Corporations Act 2001 (Cth) Schedule 3.