FEDERAL COURT OF AUSTRALIA Birdseye v Companies Auditors and Liquidators Disciplinary Board [2002] FCAFC 284 CORPORATIONS LAW – disqualification from managing a corporation – effect of leave to manage – cancellation of registration as an auditor Corporations Act 2001 (Cth), ss 1292, 206A, 206 B, 206G, 296G, 1296 Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 cited Freeman v Secretary, Department of Social Security (1988) FCR 342 cited Griffiths v Migration Agents Registration Authority [2001] AATA 240 cited Re Webb v Tax Agents Board of Queensland (1992) 28 ALD 464 cited NICHOLAS GUY BIRDSEYE v COMPANIES AUDITORS AND LIQUIDATORS DISCIPLINARY BOARD and AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION S 98 of 2002 COOPER, CARR & FINKELSTEIN JJ ADELAIDE 10 SEPTEMBER 2002 IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY S 98 of 2002 On Appeal from a Single Judge of the Federal Court of Australia BETWEEN: NICHOLAS GUY BIRDSEYE Appellant AND: COMPANIES AUDITORS AND LIQUIDATORS DISCLINPLINARY BOARD and AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Respondents JUDGES: COOPER, CARR & FINKELSTEIN JJ DATE OF ORDER: 10 SEPTEMBER 2002 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The appellant pay the respondents' costs of the appeal. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY S 98 of 2002 On Appeal from a Single Judge of the Federal Court of Australia BETWEEN: NICHOLAS GUY BIRDSEYE Appellant AND: COMPANIES AUDITORS AND LIQUIDATORS DISCLINPLINARY BOARD and AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Respondents JUDGES: COOPER, CARR & FINKELSTEIN JJ DATE: 10 SEPTEMBER 2002 PLACE: ADELAIDE REASONS FOR JUDGMENT THE COURT: 1 The appellant, Mr Birdseye, is an accountant. Unfortunately for him (one can easily be wise after the event), he invested in property during the 1980s and fell victim to the 1990 property crash. This had a disastrous effect. Mr Birdseye was unable to pay his debts. So he became a bankrupt, the sequestration order being made on 9 September 1998. As a result Mr Birdseye became "subject to a section 229 prohibition" within the meaning of s 91 of the Corporations Law as it was then in force. The section 229 prohibition meant that Mr Birdseye could not manage a corporation without leave of the court. Furthermore, Mr Birdseye's registration as an auditor was liable to be cancelled by the Companies Auditors and Liquidators Disciplinary Board on application by the Australian Securities and Investments Commission under s 1292. Such an application was made, and on 3 May 2001 the Board cancelled Mr Birdseye's registration. The Administrative Appeals Tribunal affirmed its decision. An appeal to a single judge under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) was not successful, and we now have an appeal from the judge. 2 To understand the issues that arise on the appeal it is necessary to examine the course of events before the Board. Before we undertake that task we should mention that by the time the application was heard by the Board the applicable provisions of the Corporations Law had been changed by the Corporate Law Economic Reform Program Act (1999) (Cth). Section 229 was repealed and new disqualification provisions were now to be found in Part 2D.6 of the Corporations Law. The circumstances in which a person could be disqualified from managing a corporation were set out in ss 206B, 206C and 206E. A disqualified person could apply under s 206G of the Law for leave to manage corporations. 3 ASIC lodged its application against Mr Birdseye on 30 April 1999. For reasons which are not explained in the appeal papers, the application did not come on for hearing until 3 May 2001, apparently through no fault of ASIC. By that time, Mr Birdseye's period of disqualification had approximately six months to run. The total period of disqualification was three years: see s 206B in combination with the transitional arrangements in item 14 of s 1469. 4 Mr Birdseye had a plan, which he hoped would avoid the cancellation of his registration. The day before the Board hearing Mr Birdseye filed an application in the Supreme Court of South Australia for leave to manage corporations. He informed the Board of his application and asked that it adjourn the hearing until the conclusion of the Supreme Court proceeding. Mr Birdseye told the Board that he wished to argue that if the Supreme Court made the order sought he would no longer be prohibited from managing corporations and ASIC's application would fail. However the Board refused to adjourn the hearing. The Board took the view that any order made by the Supreme Court "would … not have lifted from [Mr Birdseye] the disqualification from managing corporations that [was] the subject to the application." The Board was also of opinion that there were discretionary factors, which told against an adjournment. The factors included Mr Birdseye's delay in making his application to the Supreme Court and the indeterminate period of the requested adjournment. Having refused to adjourn the hearing, the Board considered ASIC's application. It found that it had " no discretion in the matter" and ordered that Mr Birdseye's registration as an auditor be cancelled. 5 Mr Birdseye took his case to the Tribunal as he was entitled to do under s 1317B of the Corporations Law. When the case came on for hearing before the Tribunal, the Supreme Court application had still not been disposed of. So once again Mr Birdseye requested an adjournment, which the Tribunal refused to grant. It gave a number of reasons. Two were not the subject of challenge on this appeal, although it is possible that the Tribunal was wrong in its rulings. As there has been no argument on these two issues we propose only to identify but not rule on them. This is appropriate because, even if the Tribunal were in error, it would not affect the outcome of the appeal. First, the Tribunal said that on review it was required to determine the correctness of the Board's decision at the time it was made. Accordingly, so the Tribunal reasoned, if it turned out that between the Board's decision and the hearing before the Tribunal, Mr Birdseye obtained leave to manage corporations that would not affect the case. The Tribunal referred to cases such as Freeman v Secretary, Department of Social Security (1988) FCR 342 (and the cases therein referred to) Re Webb v Tax Agents Board of Queensland (1992) 28 ALD 464 and Griffiths v Migration Agents Registration Authority [2001] AATA 240 as authorities which supported its view. There are, however, cases to which the Tribunal did not refer that offer a competing view. Second, the Tribunal said that it could not review the Board's decision to refuse an adjournment. It said that this was not a "decision" for the purposes of s 1317B because it was not an operative or final decision. Reference was made to Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321. At least in a practical sense, however, the decision to refuse an adjournment may have been an operative decision. Moreover, the decision may have infected the final decision made by the Board so that it need not be separately reviewed. 6 The issue on appeal and the principal reason the Tribunal refused to grant an adjournment was its view that the Board had been required to cancel Mr Birdseye's registration under s 1292(7) once it was satisfied that Mr Birdseye was a bankrupt, regardless of the outcome of the Supreme Court proceeding. That is, according to the Tribunal, even if the Supreme Court had made an order under s 206G, Mr Birdseye still remained disqualified from managing corporations under Part 2D.6. 7 The present appeal from the decision of the Tribunal can only succeed if the Tribunal erred on a question of law: s 44(1) of the Administrative Appeals Tribunal Act. For reasons, which we will explain immediately, we think that the Tribunal did not err in law on the principal issue with which it was required to deal. To the contrary we think it clear that a successful application for an order under s 206G would not mean that Mr Birdseye was no longer "disqualified from managing corporations" within the meaning of s 206B(3). 8 The language and structure of the relevant provisions in force in 1998, and the provisions that have replaced them, show quite clearly that an order giving leave to manage a corporation, a group of corporations or even all corporations, does not alter the status of a disqualified person. Section 91(1) defined a person "subject to a section 229 prohibition" to be a person who was "prohibited as mentioned in that section". The prohibition to which reference was made was a prohibition against managing a corporation without the leave of the court. That is, one of the characteristics of a person "subject to a section 229 prohibition" was that he could, with leave, manage corporations. But the fact that such leave was obtained did not remove the characteristic for the purposes of s 1292(7). The only effect of obtaining leave was that the statutory disqualification was suspended for the period the leave operated, although it could operate for the length of the period of disqualification. It should also be remembered that leave could be granted on terms. So the leave could have been conditional. Moreover, once the leave had run its course the person would not again become "subject to a section 229 prohibition". Rather, if the period of disqualification had not run out, the original prohibition remains operative. 9 Under the new legislation the position is even clearer. A person who is disqualified from managing a corporation commits an offence if he participates in the management of a corporation in one of the ways mentioned in s 206A. The section provides, however, that it is a defence to the contravention if the disqualified person has obtained permission to manage the corporation. In other words, the provision proceeds on the assumption that a person is disqualified from managing corporations though he has obtained leave under s 206G. If Mr Birdseye's contention were correct, a person who had been granted leave to manage corporations could not contravene s 206A, and so would not need the defence provided by s 206A(1). 10 Mr Birdseye also says that both the Board and the Tribunal had a discretion not to cancel his registration and were in error in holding that they were under a statutory duty to make the order sought. Without wishing to be disrespectful to Mr Birdseye's arguments, and it is clear that he has prepared himself quite well for the appeal, the point is hopeless as even a cursory examination of s 1292 will show. Section 1292 empowers the Board to cancel the registration of a person as an auditor or liquidator in a variety of circumstances. For example a person's registration may be cancelled if he has ceased to be resident in Australia, or has failed to perform adequately and properly the duties of an auditor or liquidator or has contravened particular specified provisions of the Law. In those cases, the Board's power of cancellation is conferred in the following language: "the board may": see ss 1292(1), (2), (3), (4), (5) and (6). However, when the Board is faced with a person who is disqualified from managing corporations or is incapable because of mental infirmity of managing his or her affairs, the Board's power is differently expressed. Here the section provides that "the Board shall" order the cancellation. The distinction between the heads of power is stark. It is plain that in the latter case Parliament intended the cancellation to be automatic but the Board was to have discretion in the other cases. This construction is confirmed by s 1292(7) of the Corporation Act 2001 where "must" has been substituted for "shall": 11 Mr Birdseye raises one last point. He says there had been a "miscarriage" because he received a defective notice of the Board's decision. The notice stated that the Board had made its order under s 1292(1) whereas it acted under s 1292(7). The Board gave notice of its decision because it was required to do so by s 1296. But as that section makes clear the validity of its decision is not affected by a failure to comply with s 1296(1): see 1296(3). If its decision is not affected by the failure to give the required notice a deficient notice could hardly invalidate it. 12 For the foregoing reasons we would dismiss the appeal with costs. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court. Associate: Dated: 10 September 2002 The appellant appeared in person. Counsel for the first respondent: Ms K Bean Solicitor for the first respondent: Australian Government Solicitor Counsel for the second respondent: Ms C Francas Solicitor for the second respondent: Australian Securities & Investment Commission Date of Hearing: 21 August 2002 Date of Judgment: 10 September 2002