CITATION: Owen v Commissioner for Fair Trading, Office of Fair Trading [2006] NSWADT 92 DIVISION: General Division APPLICANT PARTIES: John Desmond Owen RESPONDENT Commissioner for Fair Trading, Office of Fair Trading FILE NUMBER: 053336 HEARING DATES: 19/12/2005 SUBMISSIONS CLOSED: 01/05/2006 DATE OF DECISION: 03/31/2006 BEFORE: Montgomery S - Judicial Member CATCHWORDS: Property, Stock and Business Agents Act - Real Estate agent - declaration that agent is disqualified person - Real Estate agent - declaration that agent is disqualified person MATTER FOR DECISION: Principal matter Administrative Decisions Tribunal Act 1997 Corporations Act 2001 LEGISLATION CITED : Licensing and Registration (Uniform Procedures) Act 2002 Property, Stock and Business Agents Act 1941 Property, Stock and Business Agents Act 2002 Clarke v Commissioner for Fair Trading [2004] NSWADT 273 Cross v Commissioner for Fair Trading, Office of Fair Trading [2005] NSWADT 69 Davidson v Commissioner for Fair Trading [2004] NSWADT 200 CASES CITED: Deputy Commissioner of Taxation v Clark [2003] NSWCA 91 McDonald v Commissioner for Fair Trading [2004] NSWADT 124 McDonald v Director General of Social Security (1984) 1 FCR 354 Smith v Commissioner for Fair Trading [2004] NSW ADT 182 APPLICANT In person REPRESENTATION: RESPONDENT M Grinbergs, Legal Officer ORDERS: 1. The decision of the Commissioner for Fair Trading to refuse to renew Mr Owen's licence is set aside ; 2. The matter is remitted for reconsideration by the Commissioner with the recommendation that the licence be granted if Mr Owen satisfies all the other requirements for the grant of the licence. REASONS FOR DECISION 1 Mr Owen has applied to the Tribunal for a review of the decision of a delegate of the Commissioner for Fair Trading ("the Commissioner") to refuse to renew his Real Estate Licence. The decision was taken under section 18(1)(b) of the Licensing and Registration (Uniform Procedures) Act 2002 ("the applied Act") on the ground that Mr Owen is a "disqualified person" under section 16(1)(e) of the Property, Stock and Business Agents Act 2002 ("the Act"). The Legislation 2 Mr. Owen and the Commissioner are before the Tribunal as parties by virtue of section 67(2) of the Administrative Decisions Tribunal Act 1997 ("the ADT Act"). 3 The term "real estate agent" is defined in section 3 of the Act. Section 8 of the Act provides that a person must not act as or carry on the business of (or advertise, notify or state that the person acts as or carries on the business of or is willing to act as or carry on the business of a real estate agent, unless the person is the holder of a real estate agent's licence. Section 14 of the Act provides that a person is eligible to hold a licence only if the Director-General is satisfied that the person is not a disqualified person. Section 16(1)(e) of the Act provides: 16 Disqualified persons (1) A person is a disqualified person for the purposes of this Act if the person: … (e) at any time in the 3 years preceding the application for the licence or certificate of registration, was concerned in the management of a corporation when the corporation was the subject of a winding up order or when a controller or administrator was appointed, unless the Director-General is satisfied that the person took all reasonable steps to avoid the liquidation or administration … 4 Section 17 of the Act provides for the grant of real estate agents' licences and that Part 2 of the Licensing and Registration (Uniform Procedures) Act 2002 applies to and in respect of a licence. 5 Prior to its repeal, section 23(9B) of the Property, Stock and Business Agents Act 1941 ("the former Act") provided: 23 Procedure (1) An application for a licence or for renewal of a licence is to be made in a form approved by the Director-General. … (9B) A licence shall not be granted to a corporation: (a) where the corporation is the holder of a licence at the commencement of section 5 of the Auctioneers and Agents (Amendment) Act 1975 or where the corporation, not being the holder of a licence, makes application for a licence before that commencement, after a day that is three years after that commencement, or (b) where the corporation makes application for a licence after that commencement, unless at least half the number of directors of the corporation are licensed in respect of the class or classes of business that the corporation carries on or proposes to carry on. 6 Section 18 of the applied Act provides that a licensing authority may grant the application, either unconditionally or subject to such conditions, or refuse the application. Section 23 of the applied Act provides that an applicant who is aggrieved by the licensing authority's decision to refuse the application may apply to this Tribunal for a review of the decision. 7 Mr Owen has applied to the Tribunal for a review of the Commissioner's decision and asserts that he is not a "disqualified person" for the purposes of the licence renewal. Background 8 Mr Owen has held a number of licences and certificates under the Act. These included a real estate agent's licence, which he held until 2 July 2005. 9 From 24 September 2001, Mr Owen was licensee-in-charge, and from 15 August 2002 to 5 April 2004 he was a director of Park Trent Investments Pty Ltd ("PTI"). An external administrator was appointed to PTI on 14 March 2003 and a liquidator was appointed on 10 April 2003. 10 In March 2004 Mr Owen sought a corporation licence on behalf of Shalala Realty Pty Ltd. In this application, Mr Owen disclosed that he was the subject of a winding up order or the appointment of a controller or administrator of PTI. In April 2004, Mr Owen resigned from his position as director of PTI. Shortly thereafter he was advised that he was not eligible to hold a licence as he was a "disqualified person" under section 16(1)(e) of the Act. The Commissioner subsequently refused to grant the corporation licence on the same basis. 11 In June 2005, Mr Owen sought a renewal of his licence. He disclosed in his application that in the preceding 3 years he was a director or person concerned in the management of a corporation that was the subject of a winding up order or the appointment of a controller or administrator. In July 2005 the Commissioner refused to grant the renewal of Mr Owen's licence on the ground that he was a "disqualified person" under section 16(1)(e) of the Act. That decision was affirmed following an internal review. 12 On 5 October 2005, this Tribunal granted a stay of the decision on the condition that Mr Owen has no contact with any trust moneys. Mr Owen's case 13 Mr Owen appeared and provided evidence in support of his application. The facts are not generally in contention. I considered the events of the winding up of PTI in some detail in the matter of Cross v Commissioner for Fair Trading, Office of Fair Trading [2005] NSWADT 69. There is no dispute with respect to them in this matter. Nor is it in dispute that Mr Owen was one of only two directors for the duration of his appointment for approximately 20 months, and of this time, he was a director for approximately 7 months before the company was externally administered. 14 However, Mr Owen contends that he was invited to be a director and licensee in charge of PTI only because at that time section 23(9B) of the Property, Stock and Business Agents Act 1941 required that half the number of directors of the corporation be licensed. Prior to his appointment as a director he was an employed salesperson from August 2001. He says that he did not pay any money for such an appointment nor did he acquire or was offered to purchase any shares in PTI. He says that his appointment was to enable PTI to continue to trade with a Corporate Licence. He was an employed person notwithstanding that he consented to the appointment as a director. 15 Mr Owen said that at the time of his appointment he was lead to believe that Mr Koot was the Company Secretary and Accountant and that Mr Cross was the corporation's Managing Director. He concedes that the official records do not show Mr Koot was ever appointed. He says that he relied on the advice of Mr Cross as to his role and that of Mr Koot, and he did not seek any evidence of the PTI office holders. 16 Mr Owen contends that he was not involved in the control and management of PTI or its financial affairs other than to be responsible for the day to day management of the conduct of its real estate agency activity and in particular to administer and maintain the trust account. He did not attend PTI board meetings and he was not provided with any of its financial statements. Mr Cross was the person who owned and controlled PTI's financial affairs. At the time the administrator was appointed PTI employed approximately 25 staff. The outstanding creditors were the ATO and the OSR in the approximate amount between $100,000 -$150,000 and PCS Pty Ltd (computer system operators) for an undisclosed (disputed) amount. 17 With regard to the question of what he did to prevent PTI from going into liquidation Mr Owen contends that he was not in a position to influence the events. He said that PTI had a financial controller who looked after the day to day running of the financial side of the business. Mr Owen made it his business to make sure that the trust accounts were kept properly and up to date. He said that PTI was a family company and its financial strengths and weaknesses were very much the province of Mr Cross. 18 Mr Owen said that when he received an ATO Director Penalty Notice in March 2003, he sought the advice of Mr Koot, PTI's Accountant. He was advised that PTI had no alternative but to appoint a liquidator. By that time the advice he received from Mr Koot was that PTI's financial affairs were basically beyond repair. He said that that was the first meeting that he attended and that he did so only because he had become personally involved through the receipt of the ATO Penalty Notice. Before he could further consider what he should be doing the administrator was appointed. 19 Mr Owen asserts that Mr Cross had absolute control of PTI and concealed all affairs from Mr Owen as his co- director. He says that the question that this Tribunal should ask in establishing whether he took all reasonable steps to avoid the liquidation is: "What could have Mr Owen done when Cross concealed all relevant and material information from its co-director as to the financial affairs of PTI? Further, what could have Mr Owen done when the first indication arrived with the Taxation letter which was given to Mr Koot and some 5 days later an administrator came on the scene? 20 Mr Owen asserts that an obvious answer could be that his discovery came too late as all the problems were brewing well before then. He says that it is absurd to suggest that he should have made inquiries before he received the ATO notice, as he had no cause to suspect anything. After receiving the notice, the Administrator came on the scene and he was in the hands of the Administrator. Any advice that he could have received at that time would not have assisted him as the administrator was appointed in a space of 5 days. 21 Moreover, Mr Owen says that after PTI ceased to trade Park Trent Properties Group Pty Limited came into existence. He then became a director and licensee in charge of that corporation. It applied for a corporation licence in May 2003 and it was granted on December 2003. 22 Mr Owen referred to a number of authorities upon which the Commissioner relies and sought to distinguish each of them on their own particular facts. He says that the cases show firstly, that the applicant had to have knowledge of the matters indicating that the person or entity was unable to pay debts; secondly, that once discovering the matter causing concern the applicant was obliged to take reasonable steps to rectify them in order to avoid bankruptcy or liquidation; and thirdly, that the applicant having reasonable time to do something about rectifying the financial problem should do so. Here, Mr Owen says that he had no knowledge of the affairs; there were no signs whatsoever from August 2002 to 9 March 2003 to suggest that PTI was unable to pay debts. When the first sign arrived in the form of the ATO Notice he took it to Mr Koot who then stated PTI should be placed into administration and did so five or less days later. He says that it must be inferred from this time frame that Mr Koot had done or must have done something or was doing something about administration even when Mr Owen delivered the letter because it was 10 days after the date of the ATO Notice that the administrator came in. The Commissioner's case 23 The Commissioner relies on the brief of evidence filed in the matter and the documents contained in it. Mr Grinbergs filed written submissions and also presented oral submissions in support of the Commissioner's position. 24 The essence of the Commissioner's case is that a director's duties and obligations arise as a consequence of holding that position and that Mr Owen has accepted those duties and obligations when he agreed to become a director of PTI. The Commissioner contends that Mr Owen should have made the relevant inquiries to satisfy himself of PTI's financial affairs. He had an obligation as a director to do so. 25 The Commissioner concedes that the extent of the assets and operation of PTI governed by Mr Owen as co-director could be seen as relatively modest. Mr Grinbergs submitted that even if it is accepted that Mr Owen was not involved in the control or management of PTI, and became a director out of mere formality, he is still a person concerned in the management of a corporation with corresponding obligations arising from the operation of corporations law, including a duty to prevent insolvent trading. He referred to the matter of Deputy Commissioner of Taxation v Clark [2003] NSWCA 91, in which Spigelman CJ, in finding that a total failure to participate by a wife "silent" co-director did not satisfy a defence of "good reason" for the purposes of section 588FGB(5) of the Corporations Act 2001 and corresponding tax liability that had successfully already been claimed against the other husband "active" co-director, stated at 166-168: 166 The change in the policy of the Corporations Act to permit single director companies abolished a requirement which had, as a practical matter, resulted in many small businesses having sleeping directors, often spouses. Although this change acknowledged the fact that some directors did not participate in management in the past, it does not, in my opinion, alter the basic requirement of the law that directors should participate. 167 In my opinion, there is no justification for a doctrine which would hold sleeping directors to be `de facto non-directors', who should be relieved of their liabilities. Although, as a practical matter, the conduct of such directors may never meet the requisite standard of participation in management, such conduct should not be excused as a "good reason" in law. 168 Accordingly, the Respondent's total reliance on her husband in the management of SCI is not a "good reason", within the meaning of s588FGB(5), for her non-participation in the management of the company at the time when payments were made to the Appellant. The Respondent cannot, on that basis, resist her liability under s588FGA as a director of SCI. 26 Mr Grinbergs submitted that the test for establishing whether a person took all reasonable steps to avoid bankruptcy was stated in Clarke v Commissioner for Fair Trading [2004] NSWADT 273 at paragraph 10-11, and later followed in Cross. In Clarke the Tribunal's President stated: 10 It has expressed the following views as to the approach to be taken in examining the question of whether the licence holder took 'reasonable steps' to avoid the bankruptcy or insolvency: (i) A general inquiry into the wisdom or otherwise of the original financial dealings that ultimately ended in bankruptcy or insolvency is not contemplated by the Act. The point at which the inquiry commences is when the applicant was 'faced with the possibility' of bankruptcy or insolvency ( Davidson at [20]) or was 'aware' or 'should have been aware' ( McDonald at [21]) of that possibility. The focus is the steps taken to avoid the relevant event (see Smith at [17]) – in cases of the present kind, administration, and later liquidation. (ii) Subject to (i), in assessing reasonableness the Tribunal must examine all the relevant facts and circumstances. (McDonald at [25]), (iii) The steps taken by the applicant must be objectively reasonable in the sense that they would be those taken by a 'reasonable person endowed with the knowledge and experience of the [applicant]'. (McDonald at [26-27]) 11 To these should probably be added a fourth, though it is obvious enough from the provision: (iv) The person under notice has the task of satisfying the Commissioner that he or she took all reasonable steps to avoid the insolvency. 27 In response to Mr Owen's assertion that he first became aware of the possibility of insolvency upon service of the ATO Notice and subsequent advice from Mr Koot, the Commissioner observes that Mr Owen does not indicate that he made any further inquiries before or after service of the Notice as to PTI's financial situation, or that he sought any second opinion from a qualified advisor after the advice from Mr Koot was received. He merely accepted the decision to place the company into administration. The Commissioner submits that it appears that Mr Owen has acquiesced with PTI being externally administered so that the associated businesses of Mr Cross, particularly Park Trent Property Group Pty Ltd, could continue to trade. 28 The ATO Notice indicates that the tax liabilities dated back to the period 1 July 2000 to 30 September 2000. The Commissioner submits that Mr Owen was experienced in the operations of corporate entities, and the associated obligations of directors. He has been a director of JDR Developments Pty Ltd since 10 June 1990. 29 It is submitted that a director maintaining his obligations under the Corporations Act, should have made some inquiry into PTI's financial status either prior to or after accepting the appointment as director, and that given the extent of the unsecured creditors any reasonable inquiry would have revealed a strong possibility of insolvency. Mr Owen has provided no evidence of any inquiry undertaken prior to or since his appointment as a director. 30 Mr Grinbergs referred to a number of decisions of this Tribunal where the issue of steps taken to avoid bankruptcy or liquidation have been considered. He submits that the matters can be distinguished on their facts. 31 Mr Grinbergs submitted that Mr Owen should have become aware of PTI's circumstances prior to his appointment as a director. A limited inquiry would have revealed some information. He was aware or should have been aware of the lack of independence between Mr Cross and Mr Koot and the lack of explanation and advice with respect to the appointment of an administrator. After the service of the ATO Notice he had an obligation to use his own resources to obtain advice. In the circumstances the Tribunal could not be satisfied that Mr Owen took all reasonable steps to avoid the liquidation or administration and therefore the decision of the Commissioner should be affirmed. Findings and reasons 32 The issue for this Tribunal is: what is the correct and preferable decision? The Tribunal does not undertake a general review of the conduct of an agency in arriving at the decision that is the basis of the application before it. The Tribunal makes its own decision in place of the Commissioner's, and there is no presumption that the decision of the Commissioner is correct: (McDonald v Director General of Social Security (1984) 1 FCR 354 at 357). The actions of the agency in relation to the assessment and grant of a licence to another applicant cannot be relevant to these proceedings. 33 Previous decisions of this Tribunal can provide useful guidance as to the types of factors that may be relevant in determining this application. In examining the question of whether Mr Owen took reasonable steps to avoid the insolvency it is necessary to ascertain when Mr Owen should have been aware of that possibility: Clarke. 34 The evidence is that Mr Owen became a director of PTI on 15 August 2002, an external administrator was appointed to PTI on 14 March 2003 and a liquidator was appointed on 10 April 2003. I accept Mr Owen's evidence with respect to the circumstances in which he was appointed as a director. I also accept that it is probable that at the time of his appointment as a director of PTI its financial situation was such that liquidation was inevitable. However, it does not follow that Mr Owen can avoid being caught by the provisions of section 16(1)(e) simply because he was not aware of that situation. It is a matter of what he could have done to avoid the liquidation. 35 I agree with the Commissioner's contention that a director's duties and obligations arise as a consequence of holding that position and that Mr Owen has accepted those duties and obligations when he agreed to become a director of PTI. I also agree that it would have been prudent for Mr Owen to make the relevant inquiries to satisfy himself of PTI's financial affairs. In my opinion, a reasonable person endowed with Mr Owen's knowledge and experience would have carried out a full investigation of the affairs of a corporation, including a trust account audit, before taking on a position of a director for the purposes of providing compliance with the Act and enabling the corporation to obtain a corporation licence. If Mr Owen had done so he could have discovered PTI's true financial situation or if he was unable to obtain the relevant information could have declined to become a director or sought indemnities. 36 If Mr Owen had discovered PTI's true financial situation he may have been able to obtain advice in an effort to avoid the insolvency. Nevertheless, given what is now known, it is doubtful whether anything that Mr Owen could have done would have avoided the liquidation. That being the case, there are no steps that Mr Owen should have taken to avoid the liquidation. The steps that he could have taken would have merely protected him from any liability that might have flowed as a consequence of his position as a director. 37 In the circumstances of this matter I am satisfied that Mr Owen is deemed to have taken all reasonable steps to avoid the liquidation because there was nothing else he could have done to avoid it. It follows that Mr Owen is not a disqualified person for the purposes of the Act. Accordingly, the decision to refuse to renew his licence should be set aside. The appropriate order is to remit the matter for reconsideration by the Commissioner, with the recommendation that Mr Owen's licence be granted if he satisfies all the other requirements for the grant of the licence. Orders 1. The decision of the Commissioner for Fair Trading to refuse to renew Mr Owen's licence is set aside. 2. The matter is remitted for reconsideration by the Commissioner with the recommendation that Mr Owen's licence be granted if he satisfies all the other requirements for the grant of the licence. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.