AI-generated summaries. Not legal advice. Always verify against the official judgment on NSW Caselaw.
← All decisions
Supreme Court 10 May 2001

ASIC v Parkes

[2001] NSWSC 377

Fraud & dishonesty
COMPANY LAW MEANING OF 'OFFICER'

Citation: ASIC v Parkes [2001] NSWSC 377
Court: Supreme Court of New South Wales, Equity Division
Date: 10 May 2001
Judge(s): Austin J

Background

The Australian Securities and Investments Commission brought proceedings against a defendant who had been declared bankrupt by the Federal Court in June 1998 and remained an undischarged bankrupt throughout the relevant period. ASIC alleged two distinct categories of misconduct involving several different corporations.

The first category concerned the defendant's alleged management of three companies, Credit Alliance Pty Ltd, W G Herle Pty Ltd, and Barrack Mortgage Managers Pty Ltd, while he was an insolvent under administration. The second category concerned alleged breaches of officer duties owed to separate corporations, including acting dishonestly, making improper use of his position, and causing corporations to make payments that amounted to gifts or transfers of property intended to defraud those companies.

ASIC sought declarations of contravention and a lengthy disqualification order, ultimately requesting a 25-year prohibition on the defendant managing any corporation.

  • Whether the defendant, as an insolvent under administration, had managed one or more corporations without leave of the Court, contrary to section 229(1) of the Corporations Law.
  • Whether the defendant was an "officer" of the relevant corporations for the purposes of the officer duty provisions.
  • Whether the defendant had breached the duty to act honestly (section 232(2)) and the prohibition on improper use of position (section 232(6)).
  • Whether the defendant had caused corporations to make gifts or transfer property with intent to defraud, contrary to section 596(b).
  • Whether the Court had power under section 230(1)(c) and section 1317EA to make a disqualification order, and if so, for what period.
  • The distinction between "managing" a corporation and merely providing consultancy services to it.

Decision

Austin J found that the defendant had contravened section 229(1) by managing corporations while an insolvent under administration. The judgment drew a careful distinction between conduct that constitutes participation in management, which falls within the broad definition in section 91A, and the provision of consultancy or advisory services, which may not. However, on the facts, the defendant's involvement crossed the line into management.

On the officer duty provisions, Austin J found contraventions of both section 232(2) (the duty to act honestly) and section 232(6) (the prohibition on improper use of position). The judgment applied established principles, including those from R v Byrnes (1995) 183 CLR 501, in identifying the elements of each contravention. The defendant's explanations for the relevant conduct were found to be implausible.

Austin J also found contraventions of section 596(b), which prohibits an officer from making a gift or transferring property with intent to defraud the corporation. Together, these findings amounted to repeated breaches of relevant legislation across the context of three different sets of companies, satisfying the threshold requirements under section 230(1)(c).

On the question of the prohibition period, Austin J accepted ASIC's submission that 25 years was appropriate. The factors taken into account included the seriousness of the contraventions, the resulting loss to companies and investors, the high-risk nature of the defendant's field, the recurrent character of the conduct across multiple corporate contexts, and the defendant's apparent lack of contrition. Austin J noted that while a 25-year ban would effectively prevent the defendant from managing a corporation for the rest of his life, it would not prevent him from earning income as an employee using his financial skills under appropriate supervision.

Orders Made

  • Declarations of contravention of sections 232(2) and 232(6) under section 1317EA(2).
  • Declarations of contravention of sections 229(1) and 596(b).
  • An order prohibiting the defendant from managing a corporation for 25 years from the date of the orders, made pursuant to sections 1317EA(3)(a) and 230(1).
  • ASIC directed to prepare short minutes of orders to reflect the reasons for judgment.

Key Takeaways

  • Under section 91A of the Corporations Law, a person manages a corporation if they are "in any way concerned in or take part in" management. Austin J confirmed that this must be distinguished from the provision of consultancy services, which does not automatically constitute management.
  • A contravention of section 229(1), which prohibits an insolvent under administration from managing a corporation, is a strict liability provision: no guilty mind needs to be established by the plaintiff.
  • Section 230(1)(c) empowers the Court to make a disqualification order where a person has repeatedly breached relevant legislation while acting as a relevant officer. Repeated breaches may arise from contraventions of two or more provisions of the same enactment, not just repeated breaches of a single provision.
  • In determining an appropriate disqualification period, the court weighed seriousness, recurrence across multiple corporate contexts, harm caused, and the apparent absence of remorse. These factors justified a prohibition at the upper end of the range.
  • A 25-year disqualification, while effectively a lifetime ban from corporate management, does not prevent the subject from working as an employee under supervision. Austin J treated this distinction as a relevant consideration in assessing proportionality.

Legislation and Cases Referenced

Legislation:
- Corporations Law (prior to amendments effective 13 March 2000): sections 91A, 229(1), 230(1)(c), 230(5), 230(6), 232(2), 232(6), 596(b), 1317EA, 1324
- Corporate Law Economic Reform Program Act 1999 (Cth)
- Supreme Court Act 1970 (NSW)

Cases:
- R v Byrnes (1995) 183 CLR 501
- Australian Securities and Investments Commission v Sweeney [2001] NSWSC 114
- Poyser v CCA (Vic) [1985] VR 533
- Re Altim Pty Ltd [1968] 2 NSWR 762
- Australian Growth Resources Corp Pty Ltd v Van Reesema (1988) 13 ACLR 261
- Marchesi v Barnes [1970] VR 434