ASIC v Elm Financial Services Pty Ltd & Ors [2005] NSWSC 1033

New South Wales Supreme Court

ASIC v Elm Financial Services Pty Ltd & Ors [2005] NSWSC 1033 CITATION : This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S) : 11/10/05

JUDGMENT DATE : 13 October 2005

Equity Division JURISDICTION : Corporations List

JUDGMENT OF : Barrett J

DECISION : Declarations of contravention and disqualification order made; undertaking accepted (see paragraph 8 and Schedule)

CATCHWORDS : CORPORATIONS - application by ASIC for declarations of contravention of various investor protection provisions - court invited to make orders by consent on basis of statement of agreed facts - whether agreed facts warrant making of declarations - whether court should give effect to parties' agreement as to penalty

LEGISLATION CITED : Corporations Act 2001 (Cth), ss.206C(1), 206D(1), 206E(1)

CASES CITED : Australian Securities and Investments Commission v Elm Financial Services Pty Ltd & Ors [2005] NSWSC 1020

Australian Securities and Investments Commission - Plaintiff PARTIES : Robert John Kay - Eleventh Defendant

FILE NUMBER(S) : SC 2313/04

Mr D.R. Stack - Plaintiff COUNSEL : Eleventh Defendant in person

Mr Kim Turner, Solicitor for Australian Securities and Investments Commission - Plaintiff SOLICITORS : Eleventh Defendant in person

LOWER COURT JURISDICTION :

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

BARRETT J

THURSDAY, 13 OCTOBER 2005

2313/04 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v ELM FINANCIAL SERVICES PTY LTD & 11 ORS JUDGMENT 1 On 11 October 2005, I made, by consent of the plaintiff (Australian Securities and Investments Commission) and the defendants concerned, declarations of contravention and consequential orders against the ninth and twelfth defendants in these proceedings: Australian Securities and Investments Commission v Elm Financial Services Pty Ltd & Ors [2005] NSWSC 1020. I am now asked by ASIC and the eleventh defendant (Robert John Kay) to make consent declarations and consequential orders in respect of that defendant. 2 ASIC and Mr Kay have tendered a statement of agreed facts (Exhibit K1). I have adopted the course outlined in my earlier judgment with a view to deciding whether, on the basis of the agreed facts, the court is satisfied that the statutory conditions for the making of declarations of contravention have been met. 3 The agreed facts establish that Mr Kay was, at material times, an "officer" of Elm Financial Services Pty Limited and a director of Elm Nominees Pty Limited, Elm Management Pty Limited and Fletcher Securities Pty Limited. They also show that each of those companies contravened provisions of the Corporations Act. In the case of Elm Financial Services and Elm Nominees together, there was one contravention of s.727(1), one contravention of s.601ED(5) and (together with another company) one contravention of each of ss.1041E(1), 1041F(1)(a) and 1041H(1). In the case of Elm Financial Services and Fletcher Securities together, there was one contravention of s.727(1). Elm Financial Services alone committed one contravention of s.601ED(5) and one contravention of s.912A(1)(f). 4 The agreed facts also show that Mr Kay, as a director or other officer, failed in every such case to take reasonable steps to prevent the contravention and thereby himself contravened ss.180(1) and 181(1). Mr Kay is thus seen to have failed in the proper discharge of the duties owed by him as a director or other officer and, in that way, to have contributed to situations in which persons invited to invest money were denied basic protections and safeguards that the law demands they be afforded. 5 The agreed facts cause the court to be satisfied that the statutory conditions for the making of the declarations of contravention of ss.180(1) and 181(1) by Mr Kay have been satisfied. 6 ASIC and Mr Kay have agreed a period of disqualification for Mr Kay (namely, five years), with the disqualification being imposed through orders under ss.206C(1), 206D(1) and 206E(1) so that s.206A(1) operates to impose criminal sanctions if prescribed activities are engaged in during the period of disqualification. The court is also invited to note and accept an undertaking by Mr Kay to comply with the terms of an undertaking given by him to ASIC under s.93AA of the Australian Securities and Investments Commission Act (a copy of that s.93AA undertaking being Exhibit K2). 7 I need not repeat here what was said at paragraphs [9] and [10] of the earlier judgment about the function of the court in such cases. It is sufficient that I record the conclusion of the court that disqualification for five years is an appropriate sanction in the context of the contraventions established on the basis of the agreed facts. 8 In relation to Robert John Kay (the eleventh defendant), the court makes by consent the declarations and orders set out in the Schedule to these reasons and notes and accepts the undertaking set out in that Schedule. In addition, I direct that Exhibit K1 and Exhibit K2 be retained as part of the record of these proceedings. Schedule