Balancing of interests in director bannings - a thoughtful AAT decision
The Administrative Appeal Tribunal makes its decisions afresh, de novo, replacing the decision of the government decision maker with its own.
After hearing a challenge to ASIC’s 2 year ban on a Mr Lee for having been a director of two failed companies, the AAT decided not to disqualify him: see s 206F Corporations Act.
Its reasons were given thoughtfully and usefully, balancing the various interests in a case like this. Some extracts [paraphrased] follow, starting with some facts:
As a new director, Mr Lee was being ‘stonewalled’ about the companies’ financial affairs - a red flag. It is axiomatic a director must be across the financial affairs of the company. That does not mean he must undertake the accounting and tend to the books himself ... At a minimum, he must make proper enquiries that enable him to be satisfied the company remains solvent. The law reports – and the financial press – are full of stories about what happens to directors who fail to properly inform themselves about the affairs of companies which go broke on their watch. Some of them are subject to orders under s 206F.
Mr Lee should have insisted on the production of the financial information but he said he assumed the company’s financial affairs were relatively straight-forward. The company was not trading, and it was not incurring debts. It did not have creditors … 'What could possibly go wrong? …What went wrong was Mr M', as the AAT went on to explain.
In making its decision, the AAT noted that Lee had acknowledged his shortcomings at the hearing and was candid about the mistakes he made. 'It is not clear that a period of disqualification will achieve significantly more'.
The system of regulation works more effectively if directors are constantly reminded of the importance of discharging their duties in this regard. It is a message that must be heard by those, like Mr Lee, who are effectively nominee directors. They need to appreciate that directors are not an ornament …
This case provides an opportunity to administer a lesson to other directors. But we also accept the shortcomings were not especially obvious or egregious. In all the circumstances, we accept the public interest (promoted as it is through deterrence) tips in favour of disqualification, but not decisively so.
Other interests might be relevant. Mr Lee’s interests in being disqualified as a director will likely have a significant impact on this work as a consultant, and as a director.
It is harder to fix the damage to his professional reputation. These reasons will, in and of themselves, rake over those coals. A disqualification will likely be a hammer blow to his business and reputation.
We do not criticise ASIC over the conclusions it reached on the material before it, or the process it followed. Our decision is our own. We are satisfied the other interests we have discussed weigh against disqualifying Mr Lee.
In conclusion, when we weigh all the considerations together, we are satisfied that Mr Lee should not be denied the opportunity to be a director.
Mr Lee (and any other director or adviser reading these reasons) should appreciate our decision was reached after careful deliberation, and with some hesitation. Ultimately, though, we have concluded the decision of ASIC under review must be set aside.
Lee and ASIC [2020] AATA 2661