Determination of the Disciplinary Tribunal of Chartered Accountants Australia and New Zealand 28 November 2016 Case Number: D-1119 Member: Anthony Christopher Matthews, FCA Hearing Date: 24 May and 10 November 2016 Tribunal: Legal Adviser: Counsel: Case description: David Fairlie (Chair) Bruce Glanville, FCA Ross Haslam, FCA Zoe Taylor For the Professional Conduct Committee (PCC): Deborah Morris For the Member: Mark Douglas, Barrister Justin Courtney, Solicitor 1. Member failed to carry out or perform adequately and properly certain duties and functions of a registered liquidator. 2. Member entered into an Enforceable Undertaking with ASIC regarding his conduct as a registered liquidator conducting an external administration. 3. Member has committed an act, omission or default which brings, or is likely to bring, discredit on himself and the profession of accountancy. 33 Erskine Street, Sydney NSW 2000 GPO Box 9985, Sydney NSW 2001, Australia T +61 2 9290 1344 charteredaccountantsanz.com Chartered Accountants Australia and New Zealand ABN 50 084 642 571 (CA ANZ). Formed in Australia. Members of CA ANZ are not liable for the debts and liabilities of CA ANZ.
1. NEW BY-LAWS These proceedings were conducted under the new By-Laws of Chartered Accountants ANZ which came into force on 28 July 2016. By virtue of By-Law 42 the Tribunal is empowered to deal with the matter although commenced under the Former Professional Conduct By-Laws. 2. RESUMED HEARING The hearing commenced on 24 May 2016 in Adelaide. At the hearing, the Member produced certain written material for the Tribunal s consideration. The Professional Conduct Tribunal determined that the matter could not proceed further that day until it had time to read the material and the hearing was adjourned. The hearing resumed on 10 November 2016 in Sydney under the new By-Laws and with a differently constituted Tribunal. The Member agreed that the matter could proceed that day as a continuation of the hearing commenced in May notwithstanding that the Tribunal was differently constituted in part. At the resumed hearing it was agreed that allegation 1 should read that the Member failed to perform adequately and properly certain duties. Also at the resumed hearing the Member withdrew his prior admission to allegation 1D on the basis of certain documents which had been provided to the Tribunal prior to commencement of the resumed hearing. 3. DECISIONS 3.1 DECISION ABOUT THE PCC S ALLEGATIONS WHICH ARE SET OUT IN FULL IN SCHEDULE 1 At a hearing of the Disciplinary Tribunal: the Tribunal found allegations 1A(i)-(v) were not established the Tribunal found allegations 1B and 1C were established the Tribunal found allegation 1D was not established the Member admitted allegation 2 and the Tribunal found it established allegation 3 was not pressed and the Tribunal did not consider it the Tribunal found allegation 4 was established in relation to the acts, omissions and defaults set out in allegations 1B, 1C and 2. 3.2 DECISION ABOUT SANCTIONS The Tribunal considered that the appropriate sanction in these circumstances was that the Member receive a reprimand. 3.3 DECISION ABOUT COSTS SANCTION The Tribunal determined that the Member pay to Chartered Accountants ANZ the sum of $16,800 for the costs and expenses of the hearing (paragraph 10.12(l) of By-Law 40). No GST is payable. Page 2 of 8
3.4 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). 3.5 NOTIFICATION TO OTHER BODIES The Member holds registrations and/or memberships with the following bodies, which will be notified of this decision: the Australian Securities and Investments Commission (ASIC) Australian Financial Security Authority Australian Restructuring Insolvency & Turnaround Association. 4. 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: 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). 5. REASONS FOR DECISION 5.1 ALLEGATION 1 Allegation 1 comprised four parts, each of which related to the Member s duties and functions as a registered liquidator as set out in the Enforceable Undertaking entered into between the Member and ASIC pursuant to section 1292(2)(d) of the Corporations Act 2001 (Cth). The Member submitted that these allegations could not succeed because they referred to his duties and functions as a registered liquidator when at the time he had been acting as an external administrator of the relevant company. The Tribunal did not accept this submission for two reasons. First, a person appointed as an external administrator must be a registered liquidator. Secondly, section 1292(2)(d) extends to the duties or functions required by an Australian law to be carried out or performed by a registered liquidator. This includes the duties and functions of an external administrator. Allegation 1A At the resumed hearing the Member gave evidence setting out the steps he took and activities he engaged in, in relation to the matters referred to in allegations 1A(i)-(v). For example: Page 3 of 8
in relation to allegation 1A(i), the Member took advice from a law firm to identify possible claims against the holding company and ultimate holding company for insolvent trading in relation to allegation 1A(v), that the Member had investigated the relevant sale contracts and formed the view that the value of the contracts was only in the order of $2,000 to $3,000. More generally, the Member submitted that administrators have a broad discretion in the conduct of an administration. Given the apparently small amount likely to be available to unsecured creditors and the fact that there was a secured creditor with a large debt, the Member concluded that it was not in the interest of the creditors to expend further funds on pursuing possible claims. On balance the Tribunal was satisfied that the Member had not failed to adequately and properly carry out his duties and functions as a registered liquidator as set out in allegation 1A. Allegation 1B In relation to allegation 1B, whilst the Member did not concede that he had failed to properly document the matters set out in allegations 1A, he acknowledged that he could have been more expansive in the information that was provided to the creditors. The Member did not demonstrate to the Tribunal s satisfaction that he had properly documented the relevant matters. Allegation 1C In relation to allegation 1C, ASIC formed the view that the Member failed to provide an adequate report to creditors under section 439A. The Member did not provide a copy of that report to the Tribunal and the Tribunal was not satisfied that such a report had been adequately prepared by the Member. Allegation 1D In relation to allegation 1D, a report dated 16 April 2014 under section 438D of the Corporations Act 2001 was produced prior to the resumed hearing. This document reports possible director misconduct to ASIC. The Tribunal was satisfied that the allegation was not established. 5.2 ALLEGATION 2 The Member admitted allegation 2 and, having considered the evidence before it, the Tribunal is satisfied that the allegation is established. 5.3 ALLEGATION 4 In relation to allegation 4 the PCC submitted that the Member s conduct brought discredit on the Member, Chartered Accountants ANZ and the profession of accountancy. In support of the submission the PCC produced the ASIC press release about the Enforceable Undertaking given by the Member, as well as a number of press articles which identified the Member as the administrator of the relevant company. The Member in his evidence said my philosophy is to cooperate with AFSA and with ASIC in relation to the manner in which they manage insolvency practitioners in Australia. They set a very high standard and there is nothing wrong with that and I accept that, that's what they ought do and that's what we ought set out to achieve... you must get in there and get the job done within the time and, whilst I acknowledge that ASIC has, and I'm quite happy to comply with them, I say that the work that I did, whilst not perfect, was sufficient.. In this regard the Member s submission appears to be that entering into the Enforceable Undertaking did not bring discredit either to himself, Chartered Accountants ANZ or the profession of accountancy. The Tribunal takes seriously the fact that the Member entered into an Enforceable Undertaking and in that Undertaking admitted that he failed to carry out or perform adequately and properly the duties or functions required by an Australian law to be Page 4 of 8
carried out or performed by a registered liquidator". In the Tribunal's view this, and subsequent media reporting, has brought discredit to the Member and the profession of accountancy. There was no reference in the press articles to the fact that the Member was a member of Chartered Accountants ANZ. 6. REASONS FOR SANCTIONS The PCC submitted that a reprimand was an appropriate sanction. In relation to costs the PCC submitted: the Member should pay the full costs of the initial hearing and the resumed hearing which were estimated at $26,400 had the Member submitted earlier the material produced at the first hearing, the matter may have been able to be concluded on that day. The Member submitted that: no sanction ought be imposed particularly because allegation 1A was not established entering into the Enforceable Undertaking in itself was a sufficient sanction because: o o he could not act as a registered liquidator for a period of two months it contained extensive education and training requirements which he had substantially completed although the time period for completion had not expired he had fully cooperated with ASIC and Chartered Accountants ANZ at all times. In relation to costs the Member submitted: costs of no more than $3,000 should be payable by him, being the average paid under the Former Professional Conduct By-Laws for matters heard by the Professional Conduct Tribunal in 2015 he was entitled to formulate his case after hearing Chartered Accountants ANZ's submissions against him and therefore he should not be penalised for doing so at the resumed hearing allegation 1A was found not to be established and this took up a substantial part of the hearing time an amount of $26,400 would be regarded as penal in nature and equivalent of a fine. The Tribunal accepted the PCC's submission that a reprimand, but no more serious sanction, was warranted in the circumstances. The Tribunal did not accept that entering into the Enforceable Undertaking by the Member was a sufficient sanction in itself. In relation to costs the Tribunal determined that an amount of $16,800 should be paid by the Member. This represented the whole of the costs incurred in relation to the initial hearing and an amount of $7,500 in relation to the costs of the resumed hearing. This represented a significant discount on the costs incurred at the resumed hearing. Chair Disciplinary Tribunal Page 5 of 8
SCHEDULE 1 - THE PCC S ALLEGATIONS It is alleged that while a member of Chartered Accountants Australia and New Zealand the Member is liable to disciplinary action in accordance with: 1. Former Professional Conduct By-Law* 40(a) in that the Member failed to observe a proper standard of professional care, skill or competence in the course of carrying out his professional duties in that when conducting the External Administration of Sapphire (SA) Pty Ltd ACN 076 858 029 (Sapphire) from 14 March 2014 to 21 May 2014 (External Administration), the Member failed to carry out or perform adequately and properly the duties and functions of a registered liquidator, in that he failed to: A. (i) Identify a claim against Sapphire s holding company and/or Sapphire's ultimate holding company for insolvent trading; (ii) (iii) (iv) (v) Investigate a deed of settlement compromising debts in the weeks prior to commencement of the External Administration; Investigate unrelated debts assigned for one cent in the dollar in the days prior to the commencement of the External Administration; Investigate the difference in the value of stock as at 31 January 2014 and the value of stock disclosed in the Report as to Affairs dated 2 April 2014; and Investigate the attempted assignment of two sale contracts leading up to the commencement of the External Administration; B. Properly document the matters referred to in paragraph A. above; C. Provide an adequate report to creditors under section 439A of the Corporations Act 2001 (Cth); and D. Report possible director misconduct to ASIC. 2. Former Professional Conduct By-Law* 40(ea) in that on 30 November 2015 the Member gave to or entered into an Enforceable Undertaking with ASIC (which undertaking was not an undertaking in respect of procedural matters in respect of or in the course of the conduct of proceedings or an investigation by ASIC) regarding his conduct as a registered liquidator conducting the External Administration. 3. Former Professional Conduct By-Law* 40(f) in that by reason of the matters set out in paragraph 1 above the Member failed to act in accordance with paragraphs 130 and 150 of APES 110 Code of Ethics for Professional Accountants when conducting the External Administration. 4. Former Professional Conduct By-Law* 40(j), in that the acts, omissions and defaults as set out in paragraphs 1-3 above bring, or are likely to bring, discredit on the Member, Chartered Accountants ANZ and/or the profession of accountancy. *As defined in By-Law 42 Page 6 of 8
SCHEDULE 2 - RELEVANT BY-LAWS Former Professional Conduct By-Laws 40. A Member, Non-Member Practice Entity or Provisional Member shall be liable to disciplinary action in any of the following events, whether occurring before or after the coming into operation of these By-laws: (a) if he, she or it has, in the opinion of either of the Tribunals referred to in By-law 41, failed to observe a proper standard of professional care, skill or competence in the course of carrying out his, her or its professional duties; (ea) if he, she or it, with or without any admission of liability, guilt or responsibility, has given or entered into an undertaking (whether enforceable or not) or consented to any order in connection with any proceedings or any threatened or proposed proceedings or any investigation by any statutory authority, regulatory authority, statutory body or professional body in any jurisdiction in Australia or elsewhere (other than an undertaking or order in respect of procedural matters in respect of or in the course of the conduct of the proceedings or investigation); (f) if he, she or it has committed any breach of the Supplemental Charter, these By-laws or the Regulations (including the Regulations prescribing any ruling on the standards of practice and professional conduct, including the technical standards, required by the Institute to be observed); (j) if he, she or it has committed any act, omission or default which, in the opinion of either of the Tribunals referred to in By-law 41 brings, or is likely to bring, discredit upon himself, herself or itself, the Institute or the profession of accountancy. 41 (a) For the implementation of the procedures referred to in this Section, there shall be the following Tribunals: (i) (ii) a Professional Conduct Tribunal appointed by the Board as hereinafter provided; and an Appeal Tribunal appointed by the Board as hereinafter provided. 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: Page 7 of 8
(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; (f) with or without any admissions, has given or entered into an undertaking (whether enforceable or not) or consented, accepted or agreed to any order in connection with any matter or proceedings or any threatened or proposed proceedings or any review, audit or investigation by any statutory or regulatory authority or body, or professional body in any jurisdiction in Australia or elsewhere (other than an undertaking or order in respect of procedural matters in respect of or in the course of the conduct of the proceedings or investigation); (h) has committed any breach of the Supplemental Charter, these By-Laws or the Regulations, any pronouncements issued by the Accounting Professional and Ethical Standards Board, Australian Accounting Standards Board and Auditing and Assurance Standards Board (or their successor entities) including the Code of Ethics, or any applicable pronouncements, instruments, technical or professional standards or guidance issued by any similar body whether in Australia or in a foreign jurisdiction; (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 8 of 8