Determination of the Disciplinary Tribunal of Chartered Accountants Australia and New Zealand 12 April 2017

Transcription

1 Determination of the Disciplinary Tribunal of Chartered Accountants Australia and New Zealand 12 April 2017 Case Number: D-1154 Member: Ross John McDermott FCA of Victoria Hearing Date: 29 March 2017 Tribunal: Tribunal Legal Adviser: Representation: Case description: David Fairlie (Chair) John Gibson FCA Ross Haslam FCA Zoe Taylor Michael Bradley for the Professional Conduct Committee (PCC) Michael Galvin QC for the Member 1. Member entered into undertakings and consent orders in Federal Court proceedings commenced by ASIC regarding his conduct as a registered liquidator. 2. Member failed to carry out or perform adequately and properly certain duties and functions of a registered liquidator. 3. Member has committed an act, omission or default which brings, or is likely to bring, discredit on himself, Chartered Accountants ANZ and the profession of accountancy. 33 Erskine Street, Sydney NSW 2000 GPO Box 9985, Sydney NSW 2001, Australia T charteredaccountantsanz.com Chartered Accountants Australia and New Zealand ABN (CA ANZ). Formed in Australia. Members of CA ANZ are not liable for the debts and liabilities of CA ANZ.

2 1. DECISIONS 1.1 DECISION ABOUT THE PCC S ALLEGATIONS WHICH ARE SET OUT IN FULL IN SCHEDULE 1 At a hearing of the Disciplinary Tribunal: the Member admitted allegation 2 except for the words and did not repay in subparagraph (e), which were denied. Allegations 1 and 3 were also denied by the Member at the hearing, including allegation 1(b), which had previously been admitted in his Statement of Defence but such admission was withdrawn the Tribunal found the PCC did not establish allegation 1(a) the Tribunal found the PCC did establish allegations 1(b), 2 and DECISION ABOUT SANCTIONS The Tribunal considered that the appropriate sanctions in these circumstances were that: the Member s membership status of Fellow be removed the Member receive a severe reprimand. 1.3 DECISION ABOUT COSTS SANCTION The Tribunal determined that the Member pay to Chartered Accountants ANZ the sum of $24,070, being the full amount submitted by the PCC as the costs and expenses of the proceedings (paragraph 10.12(l) of By-Law 40). No GST is payable. 1.4 DECISION ABOUT PUBLICATION This decision will not take effect while the Member remains entitled to appeal. The Tribunal will publish its decision, mentioning the Member s name and locality, on the website and in the journal of Chartered Accountants ANZ (paragraphs 12.3 and 12.4 of By- Law 40). 1.5 NOTIFICATION TO OTHER BODIES The Member holds registrations and/or memberships with the following bodies, which will be notified of this decision: Tax Practitioners Board Australian Securities and Investments Commission. 2. RIGHT OF APPEAL The Member may, within 21 days after the notification of the written decision with reasons to the Member of this Tribunal s decision, appeal in writing to the Appeals Tribunal of Chartered Accountants ANZ against the decision (paragraph 11.1 of By-Law 40). While the Member remains entitled to appeal, or while any such appeal by the Member awaits determination by the Appeals Tribunal, the following decisions shall not take effect: Page 2 of 11

3 Decision about the PCC s allegations Decision about sanctions Decision about costs sanction. The PCC may, within 21 days after notification of the written decision with reasons to the PCC of this Tribunal s decision, appeal in writing to the Appeals Tribunal of Chartered Accountants ANZ against the decision (paragraph 11.2 of By-Law 40). 3. BACKGROUND This matter relates to the case of Australian Securities and Investments Commission v Ross John McDermott [2016] FCA 1186 before Justice Moshinsky (the Federal Court Proceedings). The Federal Court Proceedings were brought by the Australian Securities and Investments Commission (ASIC) following an investigation into the Member s practice which raised concerns that he had, inter alia, accepted appointments as a liquidator despite conflicts of interest or the perception of there being a conflict. In the Federal Court Proceedings, the Judge made a series of orders by consent of the parties and also recorded undertakings made by the Member. Documents relevant to these proceedings were: the Order of Justice Moshinsky in the Federal Court Proceedings dated 4 October 2016 which contained: - undertakings that the Member would: arrange a peer review of certain administrations he had conducted (Undertaking A) endeavour to successfully complete the ARITA Advanced Certification Course (Undertaking B) arrange certain company meetings within a specified time period, failing which a joint and several liquidator be appointed with him to those companies (Undertaking C) (collectively the Undertakings) - orders made by consent that: there be an inquiry by the Court into the conduct of the Member as registered liquidator (Consent Order 1) subject to Consent Order 3, the Member be prohibited from accepting new appointments as a controller, liquidator or administrator of a company until the last to occur of: the third anniversary of the order the provision of a letter of satisfaction from the reviewer who conducted the peer review successful completion of the course referred to in Undertaking B (Consent Order 2) the Member may continue to accept appointments as liquidator for the purposes of a members voluntary liquidation of a proprietary company (Consent Order 3) on the last to occur of the events referred to in Consent Order 2, the Member may accept appointments as controller, liquidator or administrator without further court order (Consent Order 4) Page 3 of 11

4 the Member be removed as liquidator from certain companies and that he and another person be appointed jointly and severally as liquidators of those companies (Consent Order 5) the Member be removed as liquidator from certain companies and that another person be appointed liquidator of those companies (Consent Order 6) that Part 5.3A of the Corporations Act 2001 (Cth) would operate in relation to a specific company as if it empowered the Court to appoint an administrator to act jointly and severally with the incumbent administrator of a deed of company arrangement (Consent Order 7) an additional administrator be appointed jointly and severally to a deed of company arrangement administered by the Member (Consent Order 8) the Member pay ASIC s costs of the proceedings fixed in the amount of $10,000 (Consent Order 9) (collectively the Consent Orders) the reasons of Justice Moshinsky in the Federal Court Proceedings dated 6 October 2016 (Reasons for Judgment) the statement of agreed facts made jointly by ASIC and the Member for the purposes of the Federal Court Proceedings dated 12 September 2016, appended to the Reasons for Judgment (Statement of Agreed Facts). 4. REASONS FOR DECISION 4.1 ALLEGATION 1 The Member submitted that allegation 1 could not be made out because: - the limitations which the Undertakings and Consent Orders placed on the Member s practice as a liquidator were not limitations on his registration as a liquidator - his registration as a liquidator was undisturbed by the Undertakings and Consent Orders - the cancellation or suspension of a liquidator's registration is to be distinguished from the imposition of limitations on a liquidator s practice, such as the prohibition against taking further appointments. The Member submitted that it was recognised in the Reasons for Judgment that these limitations were an alternative form of deterrence to cancellation or suspension of registration. The PCC submitted that: - the expressions conditions on registration as a liquidator or conditions and restrictions on registration as a liquidator as used in allegations 1(a) and 1(b) should be given a broad interpretation and should include conditions or restrictions on the right to practice as a liquidator, not only restrictions noted on the register of liquidators which is maintained by ASIC. The PCC also submitted that the construction placed on these expressions on behalf of the Member was restrictive and overly technical - the Undertakings and Consent Orders imposed conditions or restrictions upon the registration of the Member as a liquidator within the meaning of By-Law 40(2.1(g)), namely: Page 4 of 11

5 the Undertakings imposed conditions which restricted, limited or modified the Member s entitlements as a registered liquidator and imposed additional burdens upon him Consent Orders 1, 2, 5, and 6 qualified as restrictions on his registration. Consent Order 2 in particular restricted the Member from accepting further engagements for three years. The Tribunal determined that the expression condition or restriction on registration as a liquidator should be given a broad interpretation and included not only those matters which might be recorded on the official register. However, the Tribunal accepted that the condition or restriction must affect the ability of the Member to practice as a registered liquidator in order for By-Law 40(2.1(g)) to apply. The Tribunal determined that: 4.2 ALLEGATION 2 - in relation to allegation 1(a), none of the Undertakings imposed a condition on the Member s registration as a liquidator even on a broad interpretation of the meaning of that phrase. This is because the Undertakings involved only a review of his prior administrations, a commitment to further training and a requirement that he convene meetings within specified periods of time. None of these matters restrict his ability to practice as a liquidator - in relation to allegation 1(b), the Consent Orders imposed a clear burden on the Member s ability to practice as a liquidator, in particular Consent Order 2. The PCC submitted that: - all of allegation 2 was made out based on the admissions contained in certain paragraphs of the Statement of Agreed Facts and the Reasons for Judgment as set out below: in relation to allegation 2(a), Statement of Agreed Facts paragraphs 11, 31, 32, 49, 50 and in particular paragraph 51 in relation to allegation 2(b), Statement of Agreed Facts paragraphs 49, 51 and in particular paragraph 53 in relation to allegation 2(c), paragraph 47 of the Reasons for Judgment in relation to allegation 2(d), Statement of Agreed Facts paragraphs 13 and 145 to 150 and in particular paragraph 145 in relation to allegation 2(e), Statement of Agreed Facts paragraphs 13 and 151 to 160 and in particular paragraph 159 in relation to allegation 2(f), Statement of Agreed Facts paragraphs 162 to 164 and in particular paragraph 164 in relation to allegation 2(g), Statement of Agreed Facts paragraphs 162 to 170 and in particular paragraph 166 in relation to allegation 2(h), paragraph 47 of the Reasons for Judgment - the admissions and findings demonstrated that the Member s standard of professional care and conduct fell well below the professional standard of skill and competence required by the By-Laws. Allegation 2 was not admitted in the Member s Statement of Defence, but was admitted at the hearing except for the words and did not repay in subparagraph (e). The Member submitted that there was no statutory obligation to repay the fees he had charged, and accordingly, his failure to do so was not a breach of By-Law 40(2.1(a)). Page 5 of 11

6 The PCC conceded there was no statutory obligation on the Member to repay the fees, but submitted that there was a professional obligation to do so. The Tribunal is satisfied that under section 16.3 of the ARITA Code of Professional Conduct (previously section 16.3 of the IPA Code 2011) which states that If a Practitioner becomes aware that fees have been improperly taken, because, for example, the correct process has not been followed, the Practitioner must immediately repay the amount in question into the Administration account, the Member had a professional obligation to repay the remuneration, and that failure to comply with the professional obligation amounted to a breach of By-Law 40(2.1(a)). 4.3 ALLEGATION 3 The PCC submitted that: - to make out the breach, the Tribunal need only find that discredit has been brought or may be brought to at least one of the Member, Chartered Accountants ANZ or the profession of accountancy - the material in the Federal Court Proceedings brought discredit to the Member and also to Chartered Accountants ANZ and the profession of accountancy - the media reports and ASIC press releases referring to the Federal Court Proceedings which were contained in the PCC s casefile also brought discredit to the Member - the fact that the Member being a registered liquidator consented to not accepting new engagements for three years, would discredit him in the public eye - the Federal Court Proceedings contain a litany of misconduct which discredit the Member and the profession. The Member submitted that allegation 3 was misconceived because: - allegation 3 only refers to the acts, omissions or default as set out in allegation 1 which are limited to the act of the Member s entry into the Undertakings and the Consent Orders - the act of entering into Undertakings or Consent Orders cannot, of itself, bring discredit on a member, Chartered Accountants ANZ or the profession of accountancy. The Tribunal determined that allegation 1, as drafted, entitled the Tribunal to consider all of the matters contained in the Federal Court Proceedings when considering allegation 3. The Tribunal accepted the PCC s submission that the Reasons for Judgment contain a litany of misconduct which discredited the Member and the profession. 5. REASONS FOR SANCTIONS The PCC submitted that: - the misconduct in each category was serial, sustained and systemic - a liquidator has a unique obligation as an officer of the court - the Member had a position of public trust and referred specifically to the following paragraphs in the Reasons for Judgment: 20. In Re Contract Corporation (Gooch s Case) (1871) LR 7 Ch App 207, James LJ (at 211) provided a broad summary of the role of a liquidator: In truth, it is of the utmost importance that the liquidator should, as the officer of the Court, maintain an even and impartial hand between all Page 6 of 11

7 the individuals whose interests are involved in the winding-up.... It is his duty to the whole body of shareholders, and to the whole body of creditors, and to the Court, to make himself thoroughly acquainted with the affairs of the company; and to suppress nothing, and to conceal nothing, which has come to his knowledge in the course of his investigation, which is material to ascertain the exact truth in every case before the Court. 21. In Edge, Dodds-Streeton J said (at [44]): The extensive powers vested exclusively in the liquidator entail a corresponding vulnerability in the creditors, members and the public. The liquidator is a fiduciary on whom high standards of honesty, impartiality and probity are imposed both by the Act and the general law. As an officer of the company, the liquidator has a statutory duty of care, diligence and good faith. 25. A liquidator is appointed and paid to exercise a particular professional skill, and a high standard of care and diligence is required in the performance of duties: In re Windsor Steam Coal Company (1901), Limited [1929] 1 Ch 151 at 165; In re Home & Colonial Insurance Company, Limited [1930] 1 Ch 102 at 125; Pace v Antlers Pty Ltd (in liq) (1998) 80 FCR 485 at 499; Edge at [46]. Since liquidators are included in the statutory definition of officer in s 9, they are subject to the statutory duty of care and diligence under s 180 of the Corporations Act. 26. In Pace v Antlers Pty Ltd (in liq), Lindgren J stated (at 499): In my view, a liquidator must exhibit care (including diligence) and skill to an extent that is reasonable in all the circumstances. All the circumstances will include the facts that a liquidator is a person practising a profession, that a liquidator holds himself or herself out as having special qualifications, training and experience pertinent to the liquidator s role and function, and that a liquidator is paid for liquidation work. All the circumstances will also include the fact that some decisions and courses of action which a liquidator is called upon to consider will be of a business or commercial character, as to which competent liquidators, acting with due care, but always without the benefit of hindsight, may have differences of opinion. - the Member s approach to both the investigation conducted by ASIC prior to the Federal Court Proceedings, and to the Federal Court Proceedings themselves, showed that he made no attempt to accept any responsibility for his conduct until the last minute. This was revealed in the extremely detailed affidavits in which the Member denied the allegations against him, despite ultimately accepting the Consent Orders and Undertakings - the Member s approach to the Tribunal s proceedings was similar in that he denied many of the allegations and, until the day of the hearing, sought to rely on his affidavits filed in the Federal Court Proceedings. At the hearing, however, the Member admitted allegation 2, (save for part of subparagraph 2(e)) and also informed the Tribunal, through his counsel, that he no longer relied on his affidavits and would not seek to resile from any of the admissions in the Statement of Agreed Facts - there was every likelihood that he would maintain his practice style and that it was necessary to send a strong message to the profession and the public that Chartered Accountants ANZ will not tolerate serial conduct of this nature. Page 7 of 11

8 Accordingly the orders sought by the PCC were that the Member: - be suspended until 4 October 2019 which was the same period referred to in Consent Order 2 - receive a severe reprimand - be required to pay a fine in an amount between $10,000 and $20,000 - have removed from his membership, the status of Fellow. The Member submitted that: - the sanctions imposed on him in the Federal Court Proceedings were serious and sufficient as a punishment - he should not be suspended - further sanctions other than a reprimand were not necessary - he had already suffered the consequence of the $10,000 in costs paid to ASIC and he was required to pay the ongoing costs of the peer review process - neither ASIC nor the Federal Court of Australia saw suspension as being appropriate - the allegations in the Federal Court Proceedings referred to his practice as a liquidator and did not relate directly to his practice as a chartered accountant - there was no finding of dishonesty against him in the Federal Court Proceedings - insolvency was a very difficult area of practice and there are all sorts of nasty people who make it extremely difficult for liquidators to do their job. The Member submitted that he tried his best to deal with these issues. The Tribunal takes seriously the fact that a liquidator holds a position of public trust and accepted the PCC s submissions in that regard. The Tribunal also accepted the PCC s submission that the Member s conduct was serial, sustained and systemic and determined that the appropriate sanctions were: - to remove the Member s membership status of Fellow - to severely reprimand the Member - that the Member pay the full costs of the proceedings. The Tribunal determined that it was not appropriate to suspend or fine the Member because: - the conditions and restrictions imposed in the Federal Court Proceedings were severe but appropriate. In particular the requirements that the Member undertake further training and be subject to supervision by a joint liquidator were sufficient to seek to ensure an improvement in the Member s business practices - the Member was prohibited from accepting new appointments as a liquidator until 4 October the conduct did not involve any dishonesty - the Member has already incurred significant costs and loss of revenue. 6. REASONS FOR COSTS SANCTION The PCC submitted that the Member be required to pay full costs in the amount of $24,070. Page 8 of 11

9 The Member submitted that $24,070 in costs appeared to be excessive. The Tribunal determined that it was appropriate that the Member pay the full costs given his approach to the Tribunal hearing, in particular his reliance on his affidavits filed in the Federal Court Proceedings which amounted to over 2,500 pages, and his denial of allegation 2 until the day of the hearing. Such conduct resulted in the PCC incurring significant unnecessary costs which ought to be paid by the Member. cjjal Dist iplinary Tribunal Page 9of11

10 SCHEDULE 1 - THE PCC S ALLEGATIONS It is alleged that while a member of Chartered Accountants Australia and New Zealand (Chartered Accountants ANZ) the Member is liable to disciplinary action in accordance with: 1. By-Law 40(2.1(g)) in that the Member: a) entered into undertakings in Federal Court of Australia proceedings Australian Securities and Investments Commission v McDermott, in the matter of Conalpin Pty Ltd (in liq) [2016] FCA 1186 that imposed conditions on his registration as a liquidator; and b) entered into Consent Orders in Federal Court of Australia proceedings Australian Securities and Investments Commission v McDermott, in the matter of Conalpin Pty Ltd (in liq) [2016] FCA 1186 that imposed conditions and restrictions on his registration as a liquidator, including that the Member be prohibited from accepting new appointments as a controller, liquidator or administrator of a company until at least 4 October By-Law 40(2.1(a)) in that the Member failed to carry out and perform adequately and properly his duties as a liquidator and his duties and functions as administrator and deed administrator and therefore failed to observe a proper standard of professional care, skill and competence in the course of carrying out his professional duties in circumstances where the Member: a) accepted three appointments when a clear conflict of interest existed; b) accepted legal advice that he had no conflict when he should have known the lawyer providing the legal advice was also conflicted and did not resign from his appointment in the face of objection from creditors who asserted the Member had a conflict of interest; c) in affidavit material failed to acknowledge the existence of the actual conflict in his appointments; d) had systemic and repeated deficiencies in his remuneration reports; e) drew remuneration on the basis of deficient remuneration reports and did not seek Court approval for (and did not repay) the funds until almost two years after they were drawn; f) failed to implement the checklists and procedures recommended to him during various training courses; g) failed to complete an ongoing practice review conducted by a peer reviewer; and h) was responsible for, at the lowest, a systematic failure of systems and procedures and, at the highest, a lack of understanding of, and in some instances a disregard for, the duties and responsibilities of a liquidator, as found by the Federal Court of Australia and as admitted by you in Australian Securities and Investments Commission v McDermott, in the matter of Conalpin Pty Ltd (in liq) [2016] FCA By-Law 40(2.1)(k) in that the acts, omissions and defaults as set out in paragraph 1 above bring, or may bring, discredit on the Member, CA ANZ and/or the profession of accountancy. Page 10 of 11

11 SCHEDULE 2 - RELEVANT BY-LAWS 40. Except as provided by By-Law 41, the By-Laws in this Section 5, including the following paragraphs of this By-Law 40, do not apply to Members who are also members of NZICA in respect of disciplinary matters over which NZICA has jurisdiction and which relate to the practice of the profession of accountancy by NZICA s members in New Zealand. Nothing in this By-Law 40 excludes from the operation of this Section 5, conduct of a Member: (a) (b) who was, but is no longer, a member of NZICA; or who has subsequently also become a member of NZICA. Except as provided by By-Law 41, no Member shall be sanctioned under both this Section 5 and NZICA Rule 13 in respect of the same conduct. 2 Disciplinary action 2.1 A Member is liable to disciplinary sanctions under these By-Laws if (whether before or after the date of adoption of this By-Law) that Member: (a) has failed to observe a proper standard of professional care, skill, competence or diligence in the course of carrying out that Member's professional duties and obligations; (g) has agreed to, or has had imposed, any condition or restriction on any professional membership, registration or licence in that Member's name; (k) has committed any act, omission or default which, in the opinion of the Professional Conduct Committee, Disciplinary Tribunal or Appeals Tribunal brings, or may bring, discredit upon that Member, CA ANZ or the profession of accountancy; or Page 11 of 11