AI-generated summaries. Not legal advice. Always verify against the official judgment on NSW Caselaw.
← All decisions
Court of Criminal Appeal 25 May 2012

Krecichwost v R

[2012] NSWCCA 101

Fraud & dishonesty
CORPORATIONS S 184(2)(A) CORPORATIONS ACT 2001 FACTORS RELEVANT TO DISHONESTY ACCOUNTS DETERMINATION OF PROFIT UNREALISED CAPITAL GAINS

Citation: Krecichwost v R [2012] NSWCCA 101
Court: NSW Court of Criminal Appeal
Date: 25 May 2012
Judge(s): Macfarlan JA (principal judgment); Schmidt J and Grove AJ (agreeing)

Background

The appellant was a director of several companies within the Fincorp Group, a property investment and development group that raised public funds through secured and unsecured notes. In September and October 2003, the appellant signed cheques totalling approximately $3.7 million from Fincorp Investments Ltd and Bridgewater Developments Pty Ltd, purportedly as commission and management fees for the identification of three Victorian properties. The companies that received these payments, including Crest Capital Pty Ltd (owned by the appellant) and Prime Consulting Group Pty Ltd (owned by the appellant's brother), had not in fact provided the services for which payment was made.

Following a jury trial in February 2011, the appellant was convicted on three counts of dishonestly using his position as a director with the intention of gaining a personal advantage, contrary to s 184(2)(a) of the Corporations Act 2001 (Cth). He was sentenced to three years and six months imprisonment, with a non-parole period of eight months. He appealed against his convictions on multiple grounds.

  • Whether the jury's verdicts were unreasonable or unsupported by the evidence
  • Whether the trial proceeded on an erroneous assumption about the companies' ability to pay dividends, and whether this affected the verdicts
  • Whether the trial judge failed to direct the jury adequately on the factors relevant to dishonesty, including the significance of the sole beneficial shareholder's consent and the absence of any third-party disadvantage
  • Whether the trial judge erred in failing to direct the jury on the appropriate point in time at which to assess dishonesty
  • Whether the Crown made unfounded submissions about the companies' financial position
  • Whether evidence was admitted that was irrelevant but prejudicial
  • Whether fresh evidence, said to be inconsistent with witnesses' later testimony at a co-accused's trial, warranted a new trial

Decision

Reasonableness of the verdicts. Macfarlan JA concluded that it was open to the jury to be satisfied beyond reasonable doubt that the appellant was guilty on all three counts. The central factual finding, supported by witness evidence including that of Mr McIlveen and the auditor Mr Bunter, was that the payments were made for services that had not been performed. The appellant's own evidence about conversations with his chief accounting officer did not displace this conclusion.

Dishonesty directions and the role of consent and solvency. The Court addressed arguments that the trial judge should have directed the jury that the consent of the sole beneficial shareholder, or the solvency and profitability of the Group companies, were relevant to the dishonesty inquiry. The Court found no error in the directions given. Even accepting that the companies were solvent and that the appellant was the ultimate beneficial owner, those circumstances did not make honest the use of his directorial position to authorise payments for services he knew had not been rendered.

Profit and dividend capacity. One ground of appeal concerned whether the trial proceeded on a mistaken premise that the companies could not lawfully pay dividends, and whether unrealised capital gains could be treated as distributable profit. The Court considered the relevant accounting and legal principles, including the longstanding requirement that profit be calculated before dividends can lawfully be paid, and found no vitiating error in the way the trial proceeded on this issue.

Fresh evidence. The Court rejected the application to adduce fresh evidence based on testimony given by witnesses at a subsequent trial of a co-accused. Applying the applicable principles, the Court found there was no significant possibility that, had the evidence been available at the appellant's trial, the jury would have acquitted him. The jury had already assessed the relevant witnesses, and the inconsistencies relied upon did not go to the critical question of whether the appellant knew the fees were unjustified.

Orders Made

  • The appeal was dismissed.

Key Takeaways

  • A director's dishonest use of position under s 184(2)(a) of the Corporations Act 2001 can be established even where the relevant companies are solvent and profitable, and even where the director is the ultimate beneficial owner, if the director knew that payments were made for services that were not in fact performed.
  • Consent of a sole beneficial shareholder does not, of itself, negate dishonesty where the director's conduct involves authorising payments on a knowingly false basis.
  • Determining whether unrealised capital gains form part of distributable profit requires careful application of accounting principles and case law; the Court of Criminal Appeal confirmed that the views of the accounting profession carry significant weight in that analysis.
  • In dismissing the fresh evidence application, the Court reaffirmed that fresh evidence will not warrant a new trial unless there is a significant possibility that the evidence, if available at trial, would have resulted in an acquittal.
  • No error arose from the Crown's submissions about the companies' financial position, and the auditor's evidence that he did not sanction payments made on a knowingly false basis was rationally accepted by the jury.

Legislation and Cases Referenced

Legislation
- Corporations Act 2001 (Cth), s 184(2)(a)
- Companies (South Australia) Code
- Criminal Appeal Rules

Cases
- SKA v R [2011] HCA 13; 243 CLR 400
- Macleod v The Queen [2003] HCA 24; 214 CLR 230
- Peters v R [1998] HCA 7; 192 CLR 493
- Davies v R [1937] HCA 27; 57 CLR 170
- Angas Law Services Pty Ltd (in liquidation) v Carabelas [2005] HCA 23; 226 CLR 507
- Federal Commissioner of Taxation v Sun Alliance Investments Pty Ltd (in liq) [2005] HCA 70; 225 CLR 488
- Industrial Equity Ltd v Blackburn (1977) 2 ACLR 421
- Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722
- QBE Insurance Group Ltd v Australian Securities Commission (1992) 38 FCR 270
- Clark v Inglis [2010] NSWCA 144; 79 ATR 447
- In re the Spanish Prospecting Company Ltd [1911] 1 Ch 92
- Dimbula Valley (Ceylon) Tea Co Ltd v Laurie [1961] Ch 353
- Deputy Commissioner of Taxes (SA) v Executor Trustee and Agency Co of SA Ltd (Carden's Case) (1938) 63 CLR 108
- R v Abou-Chabake [2004] NSWCCA 356; 149 A Crim R 417