The ASIC website contains a Banned & Disqualified search portal. The public can find out if a person is disqualified from management of a corporation, or from auditing an SMSF or if a person is banned from practicing in the financial services and credit industry.

A search will disclose various periods of disqualification and the reason. A permanent disqualification is rare.

The factors required for a permanent disqualification order were recently examined in the decision of Appeal Justice Ward in the Supreme Court of New South Wales In the matter of Idylic Solutions Pty Ltd – Australian Securities and Investments Commission v Hobbs [2013] NSWSC 106.

Background to the Hobbs disqualification orders

Commencing in 2002, David Hobbs marketed in Australia investment funds that he had set up offshore. Their operation was described in the ASIC media release of 6 November 2012 (referring to the reasons for judgment published on 24 October 2012 [2012] NSWSC 1276) as follows:

He ‘targeted Australian investors and self-managed superannuation funds’ so successfully that by 2008 ‘More than $50 million was invested in the funds, which consisted of 14 individual investment funds in countries including New Zealand, the United States, Hong Kong, Vanuatu, the Bahamas, Anguilla, and the Turks and Caicos Islands.’

‘The Court found Mr Hobbs was the 'mastermind' behind the scheme with 'effective control' over all of the scheme funds and there was 'ample evidence' of improper payments out of fund monies including ponzi payments, the payment of Mr Hobbs’ private expenses and payments to Mr Hobbs’ family and also to some scheme administrators.’

The Australian investors were given false representations about the scheme at so-called investment or financial education presentations, including that –

  • the offshore investments were legal
  • there was no risk of losing the money they invested because it was “capital guaranteed”
  • their investment would return likely 'around 4% per month'
  • that their investment could be redeemed on 60 days’ notice after 12 months

What factors did the court in Hobbs take into account to set the disqualification period as permanent?

The Corporations Act confers a general power upon the Court to disqualify a person from managing a corporation for breach of a corporation/scheme civil penalty provision, if it is justified by the person’s conduct or other matter (s. 206C); and, if there have been repeated (at least two) contraventions of the Act (s. 206E).

In Hobbs, the personal contraventions / conduct are drawn from a variety of provisions in the Corporations Act and can be summarised as:

  • involvement in the operation of unregistered managed investment schemes,
  • providing financial services within Australia without an Australian Financial Services Licence
  • making false and misleading representations about financial products (see above)
  • improperly using his position as a director to gain a financial advantage for himself

The court drew upon the definitive statement of factors to be considered in setting an appropriate disqualification period described by Justice Santow in ASIC v Adler (No 5) (2002) 42 ACSR 80. The factors differ in each case.

In Hobbs, the factors were –

  1. The seriousness of the contraventions: was emphasised by ASIC, in particular the departure from standards expected of directors and officers / managing corporations; and the potential / actual consequences of the contraventions.
  2. The mitigating factors: that Mr Hobbs put forward (and the court’s views) were:
    • his contrition: which the court found was heavily qualified, and more an expression of regret than an acceptance of responsibility;
    • his financial position: which was there was ‘little or no prospect of as return to work’ – the court found was not properly put into evidence
    • his medical condition: which was that he suffered from advanced and severe multiple sclerosis – which the court found was not supported by tender of expert medical evidence
    • his reputation: which he said had been destroyed by the publicity of the proceedings was a penalty in itself – the court rejected this
    • his statement of intent: to not work in the financial services industry again – the court decided that this did not give sufficient protection to the public
  3. The factors drawn from the facts:
    • the pattern of behaviour and its repetition
    • the intentional and dishonest nature of the conduct
    • the significant losses sustained by the investors
    • putting into place a corporate structure offshore to evade the Australian authorities
    • the contraventions involved 11 different companies, hundreds of investors, more than AU $50 million of investor funds
    • the long period of time the scheme was conducted

The court concluded that the imposition of permanent disqualification orders was necessary for the protection of the public and to deter others from such behaviour.

The disqualification orders

Pursuant to ss 206C and 206E of the Corporations Act 2001 (Cth) David Hobbs be permanently disqualified from managing any corporation.

Further specific orders were made to permanently restrain David Hobbs from being involved in any managed investment scheme, and from the financial services business.

And a search on the ASIC Banned and Disqualified register against David Hobbs will reveal that he is disqualified permanently.