In this case, the Administrative Appeals Tribunal upheld ASIC’s 1 year disqualification period for one director (and extended the period to 18 months for another) in circumstances where the directors were not sufficiently involved in the business or management of the companies, such that they failed to prevent the companies from trading while insolvent. The Tribunal also provided some useful analysis of ASIC’s disqualification power under section 206F of the Corporations Act 2001 (Cth), emphasising that hardship to the company will be no defence where it is in the public interest that a disqualification order be made. Directors and other officers are reminded of the need to ensure they are adequately involved in, and have a sufficient understanding of, the affairs of their companies to reduce the possibility of orders being made against them in the event that the companies find themselves in financial strife.
This case involved a review of a 1 year disqualification from managing corporations imposed by ASIC under section 206F of the Corporations Act 2001 (Cth) (Act) on Mr Gabay and Mr O’Neill in their capacity as either directors or secretaries within the Beacon group of companies (Beacon Group). The Administrative Appeals Tribunal noted that:
- the power conferred on ASIC under section 206F is protective and not punitive in character;
- section 206F directs attention to whether disqualification is justified as the consequence of the person’s conduct, whether the disqualification is in the public interest and any other matters considered appropriate;
- inevitable hardship and difficulty that the period of a disqualification may present is not a defence to a disqualification order where the disqualification is necessary to protect the public interest; and
- it is not necessary under section 206F to make a positive finding that there has been a contravention of the Act (although that may be relevant).
The Tribunal affirmed the 1 year disqualification of Mr O’Neil and extended the disqualification of Mr Gabay to 18 months on a number of basis including that:
- on the evidence, Mr Gabay and Mr O’Neil were aware or ought to have been aware of the insolvency of one or more companies in the Beacon Group since at least June 2009 but failed to prevent further trading until the Beacon Group was wound up in January 2010;
- in many respects, the manner in which Mr Gabay and Mr O’Neil conducted themselves in relation to the management business and property of the Beacon Group indicated a serious lack of care and diligence;
- neither Mr Gabay nor Mr O’Neil exercised their powers or discharged their duties with the required degree of care and diligence in relation to familiarising themselves with or keeping accurate financial or other records to record and explain the complex transactions of the Beacon Group; and
- there was a tendency to delegate to such an extent that the directors did not discuss or involve themselves in exercising even the supervisory or oversight roles appropriate to their position as directors so they did not have a sufficient degree of control.
See the case.