Reported Decision : 59 ACSR 373 (2006) 24 ACLC 1308 New South Wales Supreme Court CITATION : Australian Securities & Investments Commission v Maxwell & ors [2006] NSWSC 1052 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 6 February 2006, 20 February 2006, 23 February 2006 JUDGMENT DATE : 10 October 2006 JURISDICTION : Equity Division JUDGMENT OF : Brereton J DECISION : Declarations of contravention pursuant to Corporations Act, s 1317E; pecuniary penalty orders pursuant to s 1317G, injunctive relief pursuant to s 1324; compensation orders pursuant to s 1317H; and banning orders pursuant to s 206C, 206D and 206E: see Schedules A to H. CATCHWORDS : CORPORATIONS – Fundraising – Offers of securities – whether loan agreement was "debenture" within Corporations Act, s 9, and "security" for purposes of Chapter 7 - whether offer to enter into loan agreements was offer of securities for purposes of Part 6D.2 – whether offers to enter into loan agreements required disclosure under Part 6D.2 – conditions of availability of s 708(10) exemption - licensee's satisfaction on reasonable grounds of matters in s 708(10)(b) is condition and requires that licensee sufficiently investigate experience of investor to form relevant opinion - whether advertisement of offers prohibited if disclosure not required by reason of s 708(1) – whether to make singular personal approach to acquaintance is to "publish" a statement referring to an offer – whether Corporations Act s 79 available to impose accessorial civil liability in respect of provisions which are not civil penalty provisions – Carrying on financial services business without a licence - "financial services business" - "financial service" - "financial product advice" – "financial product" – whether loan agreements were financial products - whether by issuing loan agreements, corporation issued, and thereby dealt in, financial products – whether corporation was carrying on a financial services business - whether licensee under old legislation pursuant to transitional provisions was to be treated as if it held an Australian Financial Services Licence under new legislation for purposes of s 708(10) - Misleading and deceptive conduct – where corporations engaged in misleading and deceptive conduct by publishing advertisements and distributing brochures – whether director "knowingly concerned" - where evidence does not implicate director in any relevant conduct after he is shown to have knowledge of matters which falsify representations - Directors duties – whether breached by director authorising, permitting or failing to prevent contraventions by corporation of provisions of Corporations Act (not being civil penalty provisions) – ss 180, 181 and 182 are not concerned with any general obligation owed by directors at large to conduct affairs of company in accordance with law generally or Corporations Act in particular, but with duties owed to company - relevant considerations – whether s 181 duty of good faith is contravened in absence of deliberate conduct known to be not in interests of company - where corporations were closely held proprietary companies in which interests of directors and shareholders were identical, director was young and inexperienced and his role was to provide building and construction expertise while others were responsible for fund-raising role and directors obtained legal and accounting advice - Disqualification orders – when operation of s 206D is attracted – Consent orders – effect of agreement of parties on Court's discretionary powers – Injunctions – whether appropriate to make orders prohibiting respondent from engaging in conduct that is misleading or deceptive or which is likely to mislead or deceive – Declarations of contravention – duplicity - whether declarations of contravention should treat as a single contravention of s 180, and as another single contravention of s 181, whole course of conduct as director of Group of companies over period, rather than particular acts or omissions – whether appropriate to make declarations of involvement (under s 79) in contravention by corporations (being contraventions of provisions which are not civil penalty provisions and do not make provision for accessorial civil liability) – Disqualification orders – relevant considerations. (CTH) Australian Securities and Investments Commission Act 2001, ss 12DA(1), 12GD LEGISLATION CITED : (CTH) Corporations Act 2001, ss 9, 18, 19, 79, 181, 182, 183, 206B, 206C, 206D, 206E, Chapter 6D, ss 700, Part 6D.2, ss 706, 708, 727(1), 734, Chapter 7, ss 761A, 761E, 763A, 764A, 766A, 766B, 766C, 911A, 911B, 911D, 1041H, 1041I, 1317E, 1317G, 1317H, 1324, 1430, 1431, 1432. (CTH) Trade Practices Act 1974, s 52 (NSW) Corporations Law 1989, ss 104, 786, 851 ACCC v Frances [2004] FCA 487 Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 53 ACSR 208 ASC v Gallagher (1993) 11 WAR 105; 10 ACSR 43; 11 ACLC 286 ASIC v Vines (2005) 55 ACSR 617 ASIC v Adler (2002) 41 ACSR 72 ASIC v Adler (2002) 42 ACSR 80; [2002] NSWSC 483 ASIC v Australian Investors Forum Pty Ltd (No 2) (2005) 53 ACSR 305 ASIC v Doyle (2001) 38 ACSR 606 ASIC v Elm Financial Services Pty Ltd (2005) 55 ACSR 411; [2005] NSWSC 1020 ASIC v Elm Financial Services Pty Ltd & Ors [2005] NSWSC 1033 ASIC v Elm Financial Services [2005] NSWSC 1065 Australian Growth Resources Corporation Pty Ltd v Van Reesema (1988) 13 ACLR 261 Australian Innovation Ltd v Petrovsky (1996) 21 ACSR 218 Biala Pty Ltd v Mallina Holdings Ltd (No 2) (1993) 11 ACSR 785; 11 ACLC 1082; (1994) 15 ACSR 1 BMW Australia Limited v ACCC (2004) 207 ALR 452 Byrne v Baker [1964] VR 443 Chew v R (1991) 5 ACSR 473 Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 Compaq Computer Australia Ltd v Merry (1998) 157 ALR 1 Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438; 16 ACSR 607 Forge v ASIC (2004) 52 ACSR 1 CASES CITED : Furs Ltd v Tomkies (1936) 54 CLR 583; 9 ALJ 419 Giorgianni v The Queen (1985) 156 CLR 473 Hamilton v Whitehead (1988) 166 CLR 121 H.L. Bolton (Engineering) Co Ltd v T.J. Graham & Sons Ltd [1957] 1 QB 159 Hogg v Cramphorn [1967] Ch 254; [1966] 3 All ER 420; [1970] Ch 122 (CA) ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248 King v GIO Australia Holdings Ltd (2001) 184 ALR 98 Marchesi v Barnes [1970] VR 434 Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1 North-West Transportation Co Ltd v Beatty (1887) 12 App Cas 589 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 109; 14 ACSR 109 Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 Re Property Force Consultants Pty Ltd (1995) 13 ACLC 1051 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134n; [1942] 1 All ER 378 Sheahan v Verco (2001) 79 SASR 109; 37 ACSR 117 Smithers v Beveridge (1994) 14 ACSR 197 Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177; (1982) ATPR 40-303 Tesco Supermarkets Ltd v Nattrass [1972] AC 153 Vrisakis v ASC (1993) 9 WAR 395; 11 ACSR 162 Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666; (1975) 1 ACLR 219 World Series Cricket Pty Ltd v Parish (1977) 16 ALR 181 Yorke v Lucas (1985) 158 CLR 661 Australian Securities & Investments Commission (plaintiff) Donald Richard Maxwell (first defendant) Oceanwalk Projects Pty Limited (third defendant) Procorp Investments Pty Limited (fourth defendant) Central Development Group Pty Limited (fifth defendant) The Wake (Waitara) Pty Limited (sixth defendant) Alliance Property Developments Limited (seventh defendant) Malcolm Fortune (eighth defendant) Coakley Associates Pty Limited (ninth defendant) Bankstown Project Two Pty Limited (tenth defendant) Drummoyne Constructions Pty Limited (eleventh defendant) Great Northern Constructions Pty Limited (twelfth defendant) Homebush Project One Pty Limited (thirteenth defendant) PARTIES : Liverpool Projects Limited (fourteenth defendant) Mansions on Mann Limited (fifteenth defendant) Maroubra Properties Pty Limited (sixteenth defendant) Miranda Villas Pty Limited (seventeenth defendant) Procorp Investments (Gosford) Pty Limited (eighteenth defendant) Zepher Pty Limited (nineteenth defendant) Jim Kolios (twentieth defendant) Northern Sight Pty Ltd (twenty-first defendant) George Nahed (twenty-second defendant) Troy Pierre Fortune (twenty-third defendant) John William Bennett (twenty-fourth defendant) Jaul Jammal (twenty-fifth defendant) Roy Skaf (twenty-sixth defendant) Lloyd Coakley (twenty-seventh defendant) FILE NUMBER(S) : SC 5298/03 Mr D Stack (plaintiff) Mr D Maxwell (in person) (first defendant) COUNSEL : Mr P Livingstone (ninth & twenty-seventh defendants) Ms J Leary (sol) (twentieth defendant) Mr J Bennett (in person) (twenty-fourth defendant) Mr R Newton (twenty-sixth defendant) Kim Turner, Solicitor, ASIC SOLICITORS : Hunt & Hunt (ninth & twenty-seventh defendants) Leary & Company (twentieth defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRERETON J 10 October 2006 5298/2003 Australian Securities & Investments Commission v Maxwell & Ors JUDGMENT 1 HIS HONOUR: The plaintiff Australian Securities & Investments Commission ("ASIC") alleges that the defendants - who comprise two groups of companies ("the ProCorp Group" and "the Central Development Group"), officers of those companies, and a consultant and an accountant to them, have committed or been involved in contraventions of the Corporations Act in the course of the promotion and conduct of schemes by which each group raised funds from the public for the purchase and development of real estate ("the ProCorp Scheme" and "the Central Development Scheme"). The companies that comprised the two Groups are all now in liquidation. ASIC seeks, against the remaining defendants, declarations of contravention (including pursuant to Corporations Act, s 1317E), pecuniary penalties (pursuant to s 1317G), injunctive relief (pursuant to s 1324), compensation orders (pursuant to s 1317H) and banning orders (pursuant to s 206C, 206D and 206E). 2 The first defendant Mr Maxwell, through his company the second defendant Business Express Success Techniques Pty Ltd ("BEST"), acted as a consultant to both Groups and was responsible for most of the fund-raising under both Schemes. He promoted the Schemes by newspaper advertisements, which referred to an opportunity to earn interest of 30% or 40% per annum on a secured and guaranteed investment of a minimum of $50,000; provided promotional material (prepared, in part, by him and, in part, by the ProCorp and Central Development Groups) to those who responded to such advertisements; and persuaded them to invest in one of or both of the Schemes. 3 The defendants Mr Malcolm Fortune, Mr Troy Fortune, Mr John William Bennett and Mr George Nahed were officers of various companies in the ProCorp Group; and the defendants Mr Jim Kolios, Mr Jaul Jammal and Mr Roy Skaf were officers of various companies in the Central Development Group. The defendants Mr Coakley and his company Coakley Associates Pty Ltd (together, "Coakleys") were accountants, who purported to provide certificates of advice in connection with the ProCorp Scheme, which, if properly given, might have afforded an exemption from the requirements of the fundraising provisions of the Corporations Act, pursuant to s 708(10). 4 Agreements have been reached between ASIC and the remaining defendants, other than Mr Nahed, as to the orders that the Court should be asked to make, and Statements of Agreed Facts have been placed before the Court in support of the orders proposed to be made. I shall address those matters once I have considered the case against Mr Nahed, against whom the matter proceeded undefended. THE CASE AGAINST MR NAHED 5 Mr Nahed was a director of various companies in the ProCorp Group, and the allegations against him relate to his involvement in the ProCorp Scheme. 6 These are proceedings for penalties and banning orders. The contraventions that they allege are capable of being criminal offences, as well as in some cases founding civil penalties and disqualifications. They are proceedings in which the so-called Briginshaw standard of proof applies. The ProCorp Scheme: 7 The third defendant Oceanwalk Pty Ltd (formerly known as Belle Development Pty Ltd), of which Mr Malcolm Fortune and Mr Troy Fortune were directors, and in which Mr Troy Fortune held all the issued share capital, carried on a business of selecting, financing, marketing and project managing land development projects. The ProCorp Scheme involved the raising of funds for the purchase and development of real estate identified by Oceanwalk, including in particular properties at Homebush, Liverpool, Gosford, Five Dock, Newport, Soldiers Point and Ettalong ("the ProCorp Projects"). Mr Nahed was a builder, and companies associated with him were to be the builders of the proposed developments. 8 Separate corporate entities – of which Mr Malcolm Fortune, Mr Troy Fortune, Mr Nahed and Mr Bennett were variously directors – were established to undertake each of the ProCorp Projects: Homebush Project One Pty Ltd, for the Homebush Property; Mansions on Mann Ltd, for the Gosford Property; Liverpool Projects Ltd, for the Liverpool Property; Bankstown Project Two Pty Ltd, for the Five Dock Property; Great Northern Constructions Pty Ltd, for the Newport Property; Drummoyne Constructions Pty Ltd, for the Soldiers Point Property; and Zepher Pty Ltd and Northern Sight Pty Ltd, for the Ettalong Property ("the Project Companies"). 9 As well as obtaining finance through conventional sources from lending institutions, the ProCorp Group solicited members of the public to invest in the ProCorp Projects. On 24 September 2001, Oceanwalk retained Mr Maxwell and BEST to solicit lenders in order to raise funds for the ProCorp Projects. 10 Initially, such investments were in the form of a Loan and Guarantee Agreement, by which the investor agreed to lend money to the particular Project Company carrying on the particular ProCorp Project, and the borrower company agreed to pay a "fixed fee" for the loan, generally between 30% and 40% per annum, and covenanted to repay so much of the principal sum and the fixed fee as remained outstanding at the termination date (which was defined as the earlier of the date of settlement of the sale of the subject property, or the expiry of twelve months from the date of the agreement). At that stage of the evolution of the scheme, it was apparently envisaged that disclosure pursuant to Corporations Act, Part 6.2D, would not be required by reason of the exemption afforded by s 708(1) for personal offers, none of which would result in a breach of the twenty investors/$2 million ceiling. 11 In about September 2002, the structure of the investments was changed. The fourth defendant ProCorp Investments Pty Ltd ("ProCorp"), of which Mr Nahed, Mr Bennett and Troy Fortune were the directors and in which Mr Nahed and Troy Fortune each held 50% of the issued capital, was established for the purpose of raising finance for the ProCorp Projects. Investments thereafter were in the form of a Loan Agreement Execution Deed, which incorporated the terms contained in an Information Memorandum, by which the investor agreed to lend money to ProCorp on the basis that the moneys lent would be invested by ProCorp in a particular nominated ProCorp Project; ProCorp covenanted to repay the principal amount of the loan, or so much of it as remained unpaid, within two years of the date of the agreement, three months of completion of the specific project, or a nominated date, whichever was the earlier; ProCorp agreed to pay interest; and Oceanwalk guaranteed the obligations of ProCorp as borrower. As well as applying to new loans, at least some of the existing loans to the separate Project Companies were re-documented into this form, and backdated. 12 This change in the structure of the investments was apparently intended to expand the scope and scale of permissible fundraising, beyond the 20 investors/$2 million ceiling imposed by s 708(1), by taking advantage of the "experienced investor – financial services licensee" exemption afforded by Corporations Act, s 708(10). To that end, Oceanwalk and the ProCorp Group retained Coakleys to raise funds for the ProCorp Projects, and to act as a Financial Services Licensee for the purposes of s 708(10). Coakley Associates held a Securities Dealers Licence under the former Corporations Law, which had a continuing transitional operation after, but was not a Financial Services Licence under, the Corporations Act 2001. 13 Investors were sought, chiefly by Mr Maxwell, through the placement of newspaper advertisements and by approaching potential investors. Such advertisements appeared in the Sydney Morning Herald on 13, 20 July 2002, 3, 10, 17, 24, 31 May, 7 and 21 June 2003; and in the Parramatta Sun on 21 November, 5, 12 December 2001, 13, 20 February, 6, 13, 20, 27 March, 10 and 17 April 2003. The advertisements were to the following effect:- Watch your MONEY GROW 30% per annum and NO FEES It's secured & it's guaranteed Belle Developments Group Pty Ltd an established Building Developer require additional funds for New Projects at HOMEBUSH, GOSFORD & LIVERPOOL. $50,000 minimum participation. Ideal for investors, superannuates and self funded retirees Make a move. It's first in first served. For free details phone DON on 02 9760 198 or 0418 641 148 NOW 14 Don, of course, was Mr Maxwell. Ordinarily, potential investors who responded were provided with a promotional brochure (prepared by Mr Maxwell and/or the ProCorp Group), an Offer document (prepared by Coakleys), and an Information Memorandum (also prepared by Coakleys). 15 The promotional brochures contained the following statements:- Each project gives you a Guaranteed Return Percentage of 30% per annum and will be paid within 6 to 12 months before the projected completion date of the project or on completion of project, whichever comes first Capital security is by a Second Mortgage/Caveat which is placed on the Developing Property along with all the Lenders names on it and is guaranteed by the Developing Company and Oceanwalk Projects Pty Ltd An independent financial controller is appointed who reports to each group on a monthly basis (this is an accountant) so that investors are fully aware of all money movements in the project The Independent Financial Controller and a representative of the investors are the signatories on the Development Companies cheque account. 16 The Information Memorandum contained the following statements:- This Information Memorandum has been prepared by ProCorp and is not a prospectus. It has been prepared for excluded offers or invitations which do not require a prospectus or a disclosure document under Chapter 6D of the Corporations Act 2001. It is not required to be lodged or registered with the Australian Securities and Investments Commission. A loan to ProCorp may only be made by the specific party to whom an Offer is made. The specific party to whom an Offer is made is set out in the accompanying Letter of Offer. … This offer is an 'excluded offer' being made by ProCorp through a financial services licensee, Coakley Associates Pty Limited (the "FSL"). An "excluded offer" simply means that no prospectus or disclosure document is required for the offer or invitation for the securities. Pursuant to section 708(10) of the Corporations Act 2001, the financial services licensee must be satisfied on reasonable grounds that you have previous experience in investing in securities which allows you to assess:- · the merits and risks of the offer · the value of the securities being offered · the risks involved in accepting the offer · your information needs in respect to the offer · the adequacy of information given by the person making the offer. If the FSL determines that the above items have been satisfied, they will give to you before, or at the time when, the offer is made a written statement as to their reasons for being satisfied as to those matters. The statement of reasons will be found at the conclusion of the Letter of Offer accompanying this Information Memorandum. All monies lent by you to ProCorp will be initially placed in a Cash Management Trust (CMT). The CMT account will be opened in the name of ProCorp Investments Pty Ltd, and to provide you with further assurance, the FSL will be the co-signatory on the CMT account. The FSL upon being satisfied that the loan monies will be applied in accordance with the purposes of your loan will advance monies progressively to ProCorp's Approved Development Borrowers(s). 17 The Offer document contained an offer by ProCorp to enter into a loan agreement with the potential investor, and included a statement as follows: - Approved Development Borrower(s): Borrowers(s)approved by both FSL and ProCorp for the purposes of on-lending monies for property development projects. 18 In all, between about November 2001 and September 2003, approximately 120 investors entered into loan agreements with ProCorp or one of the specific Project Companies as borrower, and Oceanwalk as guarantor, by which a total of approximately $9.79 million was lent for the ProCorp Projects ("the ProCorp Group Loans"). Of them, approximately 94 investors entered into loan agreements with ProCorp, guaranteed by Oceanwalk, pursuant to which those investors lent a total of $8.11 million to ProCorp for the ProCorp Projects ("the ProCorp Loans"). Mr Nahed's role: 19 Mr Nahed was a director of each of ProCorp, Bankstown, Drummoyne, Great Northern, Homebush, Liverpool, Mansions, Miranda, Gosford, Zepher and Northern Sight. He remained a director until they went into liquidation. He held 50% of the issued share capital in each of ProCorp, Bankstown, Drummoyne, Great Northern, Homebush, Liverpool, Mansions, Miranda, Gosford and Zepher, and all the issued share capital in Northern Sight. 20 One of the investors, Miled Charles Habib, who had known Mr Nahed for some years, regarded him as a friend and knew him to be a builder, was approached by him in about October 1991 with a proposal: "I'm working with Belle Development Group. There's a new development at Homebush that requires investors. You can earn 40% p.a. on your money over a short period of time. I've got an interest in the company. I won't let you down. If you get other people involved you will get a commission out of it. We will look after you". Mr Habib says: "To the best of my recollection, George provided me with an Information Memorandum for Homebush", and that in the same month, at Oceanwalk's offices in Drummoyne, Mr Nahed introduced him to Malcolm Fortune, whom Mr Nahed described as "the Boss. He is running the office". According to Mr Habib, Mr Nahed and Malcolm Fortune explained the scheme to him, following which he invested $25,000 in Homebush. In April 2002, Mr Habib had a further conversation with Mr Nahed and Malcolm Fortune in which they made representations about the Five Dock project, following which he invested a further $25,000, in Bankstown (which was the Project Company for the Five Dock project). 21 Insofar as Mr Habib suggests that Mr Nahed gave him an Information Memorandum in October 2001, I am unpersuaded: Mr Habib's evidence on the point has the appearance of uncertainty, but more significantly I can find no evidence that there was any Information Memorandum in existence before 2002. 22 On 30 July 2002, Mr Coakley forwarded by facsimile a memorandum addressed to Malcolm Fortune, Troy Fortune, Mr Bennett, Mr Nahed, Mr Karl Burnett (a solicitor who advised ProCorp and Coakleys) and Dominic Milgate, which enclosed the Agenda for a meeting to be held on 1 August and drew attention to several "areas of concern which need to be fixed ASAP". It emphasised Coakley Associates' responsibility for any "excluded offer documentation". 23 Mr Nahed is a signatory to a Deed of Fixed and Floating Charge between Zepher and Australian Equity Investors ("AEI") dated 23 July 2003, in the capacity of one of the directors of Zepher as chargor; a Financier Agreement dated 23 July 2003 between Zepher, AEI as Financier and the Messrs Fortune and Mr Nahed as Covenantors, by which AEI agreed to lend Zepher up to $500,000 for a project at Crows Nest, and Zepher agreed to acquire and develop the Crows Nest property, enter into a loan agreement with AEI, and provide a mortgage and fixed and floating charge; and a Financier Agreement Variation dated 22 August 2003, which increased the amount of the facility to $550,000. However, as AEI's investment was of $500,000, it was exempt from the disclosure requirements, pursuant to s 708(8). 24 By 9 September 2003, approximately half of the ProCorp Loans were "technically overdue". The October 2003 loans: 25 Fundraising then appears to have reverted to the original model, using specific Project Companies as borrowers. Between 3 October 2003 and 10 October 2003, deposits from four investors were made into the accounts of specific Project Companies, involving a total of about $500,000, as follows: · Strauss Bankstown 3/10/03 $100,000 · Strauss Great Northern 3/10/03 $100,000 · Kelly Liverpool 9/10/03 $50,000 · Baillie Northern Site 10/10/03 $40,000 · Baillie Mansions 10/10/03 $100,000 · Baillie Homebush 10/10/03 $100,000 · Huin Liverpool 10/10/03 $10,000 26 Mr Nahed appears to have executed the loan agreements referable to the two Strauss investments on behalf of the borrower. Although a signature, which purports to be his, appears on that referable to the Kelly investment, witnessed by Mr Maxwell, it is quite different to his usual signature and I do not accept, without more, that it is his. The other loan agreements are not in evidence. The proceedings: 27 ASIC commenced these proceedings, initially against the first nineteen defendants, which include all the ProCorp Group companies, on 15 October 2003, on which date orders were made ex parte restraining the defendants from dealing with or disposing of any money received from or held on behalf of any client/investor introduced by Mr Maxwell, BEST, Oceanwalk, ProCorp, Central Developments, Malcolm Fortune or Coakley Associates; from dealing with or disposing of any real estate or other property purchased with money received from any such client/investor; and from alienating, encumbering, disposing of, dealing with or removing from Australia, any of their assets. On 20 October 2003, those orders were continued, and the defendants were restrained from carrying on a financial services business and/or from providing a financial service on behalf of another person or entity that carries on a financial business. In addition, a Mareva disclosure order was made. 28 After 15 October 2003, Mr Nahed executed a Financier Agreement Variation dated 17 October 2003, between Zepher and AEI, in the capacity of one of three "Covenantors" (the others being the Messrs Fortune), which purported to vary the Financier Agreement dated 23 July 2003 and an earlier variation dated 22 August 2003; a Mortgage by Zepher to AEI dated 17 October 2003, in the capacity of one of the directors of Zepher as mortgagor; and a Deed of Guarantee and Indemnity dated 17 October 2003 between Mr Nahed and the Messrs Fortune and guarantors and AEI as financier. The Post-order loans: 29 After (and despite) the orders of 15 October 2003, a total of $590,000 was raised for specific Project Companies from a further nine investors, as follows:- · Coombes Liverpool 16/10/03 $50,000 · Coombes Bankstown 16/10/03 $100,000 · Coombes Drummoyne 16/10/03 $100,000 · Burke Bankstown 16/10/03 $50,000 · Bennett Bankstown 7/11/03 $100,000 · Rothwell Drummoyne 12/11/03 $50,000 · Baillie Liverpool 24/11/03 $30,000 · Sollner Liverpool 26/11/03 $50,000 · Kelly Liverpool 26/11/03 $30,000 · Donnan Liverpool 3/12/03 $50,000 · Peterson Northern Sight 10/12/03 $80,000 30 Mr Nahed appears to have executed the loan agreements referable to the three Coombes investments, the Burke investment and the Rothwell investment, on behalf of the borrowers. Although a signature, which purports to be his, appears on those referable to the others, apparently witnessed by Mr Maxwell, it is quite different to his usual signature and I do not accept, without more, that it is his. It follows that I do not accept that he is shown to have executed any loan agreement dated later than 12 November 2003. Upon receipt, the proceeds of these Post-order loans were initially deposited into the appropriate bank account of the specific Project Company for the project to which the investment related, which was the borrower. However, a large proportion was spent, almost immediately, and almost entirely on purposes other than the development of the relevant property. 31 Thus, in the case of Liverpool, $11,000 was withdrawn and deposited into an account in the name of BEST, Mr Maxwell's company, on or about 16 October 2003; $4,500 was paid to Wayne Maxwell, Mr Maxwell's son, on or about 16 October 2003; $13,500 was paid to Wayne Maxwell on or about 16 October 2003; $17,000 was paid to Coldwell Mortgage Services on or about 29 October; $3,750 was paid to Stephen Edwards on or about 21 November 2003; $7,500 was paid to Raphael Ann on or about 21 November 2003; $51,250 was paid to Tamal and Dr Rina Bhattacharya on or about 28 November 2003; $7,500 was paid to Leslie Moore on or about 21 November 2003; $10,000 was transferred to an account in the name of Homebush Project One on or about 5 December 2003; $2,000 was transferred to an account in the name of Citisquare Pty Ltd, a company controlled by Mr Nahed, on or about 8 December 2003; $1,300 cash was withdrawn on or about 9 December 2003; $15,007.50 cash was withdrawn on or about 9 December; and there was a cash cheque withdrawal of $24,750 on or about 7 January 2004. 32 In the case of Bankstown, $43,395 was paid to BEST on or about 15 October 2003; $10,000 was paid to BEST on or about 16 October 2003; a cash payment of $30,000 was made to Wayne Maxwell on or about 21 October 2003; a cash payment of $15,000 was made to Wayne Maxwell on or about 21 October 2003; $50,000 was paid to J Owen, the vendor of the Homebush Property, on or about 18 November 2003; $50,000 was paid to F & P Smith, investors in the Liverpool project, on or about 20 November 2003; $10,007.50 was withdrawn on 27 November 2003; $5,000 was transferred to an ANZ account in the name of Citisquare on 27 November 2003; and $1,000 was transferred to an ANZ account in the name of Citisquare on 4 December 2003. 33 In the case of Drummoyne, $10,000 was paid to Wayne Maxwell on or about 21 October 2003; $15,000 was withdrawn on 27 October 2003, payable to H Gaziler; $15,000 was withdrawn 30 October 2003, payable to Y and F Huseyin; $15,000 was withdrawn 17 November 2003, payable to S Edwards; $10,007.50 cash was withdrawn on 19 November 2003; $20,000 was withdrawn on 26 November 2003; $6,000 was transferred to an ANZ account in the name of Citisquare on 1 December 2003; and $41,861 cash was withdrawn on 15 December 2003. 34 In the case of Great Northern, $10,000 was paid to BEST on or about 16 October 2003; $50,000 was paid to Bankstown on or about 16 October 2003; and $12,532.49 was paid to Citisquare Pty Ltd on or about 10 November 2003. In the case of Northern Sight, there was a payment of $4,000 to BEST on or about 16 October 2003; a cash withdrawal of $35,000 on or about 17 November 2003; a cash withdrawal of $45,000 on or about 17 December 2003; a cash withdrawal of $25,000 on or about 17 December 2003; and a cash withdrawal of $3,000 on or about 7 January 2004. 35 From 27 November 2003, Mr Nahed was the sole director of ProCorp, Bankstown, Drummoyne, Homebush, Liverpool, Mansions, Miranda, Gosford and Zepher, until they went into liquidation. 36 On 3 March 2004, the Court ordered, on the application of ASIC, that Oceanwalk, ProCorp, Alliance, Bankstown, Great Northern, Liverpool, Mansions, Miranda, Gosford and Northern Sight be wound up in insolvency. On 9 March 2004, the Court ordered, on the application of ASIC, that Zepher be wound up in insolvency, and that a provisional liquidator be appointed to Drummoyne and Homebush; those two companies were ultimately wound up in insolvency on 7 March 2005. 37 The liquidator, Mr Donnelly, has reported that there are deficiencies of liabilities over assets in the Project Companies in the order of many millions of dollars. Although that was not so in the case of ProCorp itself, that was only because the liquidator allocated debts to investors against the relevant Project Company, even where ProCorp was the debtor under the loan documentation. Although investors received some interest payments, they have, for all practical purposes, lost their capital. Notice to Mr Nahed: 38 Mr Nahed has had notice of the proceedings from an early stage. Before he was joined personally as a defendant, on 28 November 2003, he swore an affidavit in support of an application on behalf of the ten corporate defendants that were related to him, to vary the Mareva orders for the purpose of permitting some of the developments to proceed. 39 An affidavit sworn on 23 February 2006 by Philip James Thompson, a Senior Investigator of ASIC and the Team Leader for the investigation of the Schemes, establishes that the Originating Process (and ex parte orders of 16 October 2003) were served on the ten corporate defendants related to Mr Nahed on 16 October 2003. Mr Nahed was joined as a defendant on 17 May 2004. He filed a Notice of Appearance on 26 May 2004. He has been represented in the proceedings by a solicitor, Mr Martin. He filed a defence (to the Second Amended Statement of Claim) on 8 July 2004. Mr Martin advised ASIC that he no longer acted for Mr Nahed on 4 November 2005. 40 On 23 January 2006, ASIC delivered a letter that contained notification of the hearing, and 15 folders comprising its Tender Bundle, to Mr Nahed at his home address. On 2 February 2006, Mr Thompson received a telephone call from Mr Nahed, in the course of which Mr Nahed provided contact details, including a home address and phone number, a business address and phone number, and a mobile phone number. A meeting ensued on 3 February 2006, at which amongst other things Mr Thompson confirmed the hearing date and the requirement that Mr Nahed attend; Mr Nahed indicated that he proposed to consult Mr Martin. 41 There was no further contact prior to the commencement of the hearing on 6 February, when Mr Nahed was called but did not appear. On 10 February, Mr Thompson delivered to Mr Nahed's home address a letter which amongst other things advised that the proceedings had commenced in his absence, had been adjourned for the purposes of permitting a settlement to be negotiated with certain other defendants, and would resume on 20 February, when ASIC would be seeking to proceed against him. An identical letter was delivered to Mr Nahed's business address on 13 February. 42 There was no appearance by Mr Nahed on 20 February, when the case against him commenced, and was adjourned to 23 February. On 21 February, Mr Thompson received an email from Mr Martin requesting information relating to the proceedings, and on the same day Mr Thompson told Mr Martin on the telephone that the hearing in relation to Mr Nahed had commenced on 20 February and had been adjourned to 23 February; Mr Martin responded that he was not at that stage acting, but would inform ASIC of his intentions on 22 February. Late on 22 February, Mr Thompson received a telephone message from Mr Martin to the effect that he did not have instructions to act for Mr Nahed and had been unable to contact him since 21 February. 43 I am satisfied that Mr Nahed had due notice of the hearing and did not appear, and that it is permissible to proceed in his absence, pursuant to UCPR r 29.7(2)(a). Fundraising without a disclosure document: 44 ASIC's primary contention is that the ProCorp Scheme contravened the fundraising provisions of the Corporations Act, by reason of the absence of disclosure in accordance with the requirements of Chapter 6D. It contends that the solicitation of persons to lend money for the ProCorp Scheme between about November 2001 and July 2003, resulting in the 120 ProCorp Group Loans and the 94 ProCorp Loans ("the ProCorp Solicitations"), involved contraventions of:- · s 727(1), which provides: A person must not make an offer of securities, or distribute an application form for an offer of securities, that needs disclosure to investors under Part 6D.2 unless a disclosure document for the offer has been lodged with ASIC. · s 734, which provides: (1) A person must not: (a) advertise; or (b) publish a statement that directly or indirectly refers to; an offer, or intended offer, of securities that would need a disclosure document but for subsection 708(1) (exception for 20 issues in 12 months). (2) If an offer, or intended offer, of securities needs a disclosure document, a person must not: (a) advertise the offer or intended offer; or (b) publish a statement that: (i) directly or indirectly refers to the offer or intended offer; or (ii) is reasonably likely to induce people to apply for the securities. 45 Sections 727 and 734 are contained within Chapter 6D of the Corporations Act, entitled "Fundraising". Part 6D.2 governs when an offer of securities requires disclosure under the fundraising rules. Section 706 provides that an offer of "securities" needs disclosure under Part 6D.2 unless s 708 says otherwise. 46 Section 700 provides that, in Chapter 6D, "securities" has the same meaning as in Chapter 7. Corporations Act, s 761A, provides that, for the purposes of Chapter 7 of the Corporations Act, "security" means, inter alia, "a debenture of a body". "Debenture" is defined, in s 9, to mean: a chose in action that includes an undertaking by the body to repay as a debt money deposited with or lent to a body. The chose in action may (but need not) include a charge over property of the body to secure repayment of the money … 47 The terms of the loan agreements into which the investors entered with ProCorp (and previously with the Project Companies) included a covenant by the borrower company to repay the principal amount of the loan. That is an undertaking to repay as a debt money deposited with or lent to the borrower. Accordingly, each loan agreement was a "debenture" within s 9, and a "security" for the purposes of Chapter 7 of the Corporations Act, and an offer to enter into such loan agreements was an offer of securities for the purposes of Part 6D.2. It follows that, unless they fell within one of the exemptions afforded by s 708, offers to enter into the loan agreements required disclosure under Part 6D.2. [In the light of these conclusions, it is unnecessary to consider ASIC's alternative allegation that the ProCorp Scheme was a managed investment scheme]. 48 As has been mentioned, the ProCorp Scheme was originally apparently intended to operate under the 20 investor/$2 million exemption afforded by s 708(1), but subsequently under that afforded by s 708(10), which provides as follows: An offer of a body's securities does not need disclosure to investors under this Part if: (a) the offer is made through a financial services licensee; and (b) the licensee is satisfied on reasonable grounds that the person to whom the offer is made has previous experience in investing in securities that allows them to assess: (i) the merits of the offer; and (ii) the value of the securities; and (iii) the risks involved in accepting the offer; and (iv) their own information needs; and (v) the adequacy of the information given by the person making the offer; and (c) the licensee gives the person before, or at the time when, the offer is made a written statement of the licensee's reasons for being satisfied as to those matters; and (d) the person to whom the offer is made signs a written acknowledgment before, or at the time when, the offer is made that the licensee has not given the person a disclosure document under this Part in relation to the offer. 49 Coakleys apparently issued some documents, called "Statement of Reasons", in purported compliance with s 708(10)(c). However, of 119 loan agreements identified by ASIC, there was no such "Statement of Reasons" at all in respect of 67, and in another 43 cases, such statements as there were post-dated the relevant loan agreement, so that in those 110 cases the exemption under s 708(10) was not available, by reason of non-compliance with s 708(10)(c), even if there had otherwise been compliance with the requirements of s 708(10). Moreover, the vast majority of the "Statements of Reason" that Coakleys issued do not otherwise apparently satisfy the requirements of section 708(10). Even if Coakleys is to be regarded, for relevant purposes, as a Financial Services Licensee – as, for present purposes, I am prepared, without deciding, to assume, because although Coakleys did not hold a Financial Services Licence, they held a Securities Dealers Licence under the former Corporations Law which Mr Coakley believed entitled him, pursuant to Corporations Act 2001, ss 1430 and 1432, to continue to provide financial services during the "transition period" referred to in s 1431 – Coakleys had not met most of the investors, nor investigated their financial circumstances, and they had no reasonable basis for being satisfied that those investors had previous experience sufficient to allow them to assess the merits of the offer, the value of the securities, the risks involved in accepting the offer, their own information needs, and the adequacy of the information given by the person making the offer. Mr Coakley apparently thought that strict or even substantial compliance with s 708(10) was not required because either the investors may have fallen within the 20 investor/$2 million ceiling, or else they were "transfers" of existing investors to the new structure, which he supposed was covered by s 708(15). 50 This manifestly failed to satisfy the requirements of s 708(10), which imposes stringent requirements and obligations upon the relevant financial services licensee if the exemption is to be available. The licensee's satisfaction on reasonable grounds of the matter referred to in s 708(10)(b) is a condition of the availability of the exemption, and requires that the licensee sufficiently investigate the experience of the investor to form the relevant opinion. As Barrett J has recently said of s 708(10) [ASIC v Elm Financial Services [2005] NSWSC 1065, [10] to [11]]: This is, as I have said, a relatively new provision. There was significant debate about it when its introduction was mooted. It was recognised at the time and must be re-emphasised now that s.708(10) casts particular responsibility upon a financial services licensee. The requirement that the licensee be "satisfied on reasonable grounds" as to the matters stated in s.708(10)(b) is one that must be approached with diligence and care. The licensee has a statutory duty to make inquiry about all matters relevant to the opinion it must form and then, of course, to consider whether, in the factual circumstances, there exist the reasonable grounds for it to be satisfied as to the matters stated. Woolly thinking about some general concept of "sophisticated investor" is entirely misplaced. I mention this matter because it is made clear by the agreed facts that the licensed Elm companies were content to consider s.708(10) applicable where even the most cursory attention to the statutory criteria would have made it immediately clear that there were no reasonable grounds for forming the relevant opinions about the relevant investors. 51 The same applies here. The conditions for the operation of the s 708(10) exemption were not satisfied. 52 The promoters apparently took the view that while each project was separately funded, the 20 investor/$2 million ceiling permitted by s 708(1) was separately available for each Project Company. It is unnecessary to decide whether this is correct, for two reasons. First, even if it were correct for the initial structure, it did not survive the restructuring of the loans, after which 94 loans were made, not to the separate Project Companies, but to ProCorp. Secondly, s 734(1) prohibits the advertisement of, or publication of statements referring to, an offer of securities which would need a disclosure document but for s 708(1). Thus, even if disclosure was not required by reason of s 708(1), advertisement of such offers was still prohibited. 53 No disclosure of the type stipulated under Part 6D.2 was made in connection with the ProCorp Scheme, and no disclosure document was lodged with ASIC. It follows that each offer of a loan agreement by ProCorp was an offer of securities that needed disclosure to investors under Part 6D.2 and needed a disclosure document; no disclosure document for any such offer had been lodged with ASIC; it was a contravention of s 727(1) for a person to make such an offer; it was a contravention of s 734(2) for a person to advertise any such offer or intended offer, or to publish a statement that directly or indirectly referred to the offer or intended offer, or was reasonably likely to induce people to apply for the loan agreements; and insofar as any offer on behalf of the separate Project Companies was exempted from disclosure under s 708(1), it was a contravention of s 734(1) for a person to advertise any such offer or intended offer. 54 Accordingly, by making each of the offers that resulted in a ProCorp Loan, ProCorp contravened s 727(1). As there were at least 94 such loans, it would seem that there were at least 94 such contraventions. 55 The newspaper advertisements referred to a "secured and guaranteed" investment at an interest rate of 30% to 40%. That is at least an indirect reference to an intended offer of a loan agreement, and the advertisements were plainly intended and calculated to induce people to apply for loan agreements. The promotional brochures were intended and calculated to induce people to apply for loan agreements, and referred to an intended offer of a loan agreement. The Information Memorandum referred to the offer or proposed offer of a loan agreement. It follows that each publication of an advertisement, information memorandum or brochure was a contravention of s 734(2), or, insofar as any s 708(1) exemption might have been available, of s 734(1). 56 ASIC alleges that Mr Nahed contravened s 734 and s 727 by making, controlling, managing or participating in the solicitation by ProCorp of persons to lend money for the ProCorp Projects between about November 2001 and July 2003 ("the ProCorp Solicitations"). However, as to s 734, there is no evidence that Mr Nahed himself advertised an offer, or published a statement that referred to an offer. In the context of s 734(1) and s 708(1), which contemplate permissible "personal" offers, I do not think that the approaches to his acquaintance Mr Habib involved publishing a statement referring to an offer, in the sense that "publish" is used in s 734 (including its defined meaning of "issue", which in turn is defined to include "circulate, distribute and disseminate", which concepts connote communication to multiple recipients). And as mentioned above, I am unpersuaded that Mr Nahed gave Mr Habib an Information Memorandum in October 2001. As to s 727, the only evidence of Mr Nahed making any relevant offer, is that relating to Mr Habib (which is referable to October 2001, and April 2002, at a time before the scheme was restructured, when specific Project Companies were the borrowers, so that the 20 investor/$2 million exemption may then have been available; at least I am not satisfied that it was not. In any event, the evidence does not go so far as to establish that Mr Nahed himself made an offer to Mr Habib. 57 ASIC alternatively alleges that Mr Nahed aided, abetted, counselled or procured or was knowingly concerned in or party to contraventions by ProCorp, Mr Maxwell and BEST, and Coakleys of ss 727 and 734. This allegation picks up the terminology of Corporations Act, s 79(a) and (c), which define when a person is "involved" in a contravention by another. However, sections 727 and 734 – unlike ss 181, 182 and 183 – do not provide that a person who is "involved in" a contravention of the section, thereby himself or herself contravenes the section. In my view, the availability of s 79 to impose accessorial liability has been carefully and deliberately marked out through the Act – see ss 181(2), 182(2), 183(2) and 1041I(1) - and it was not made available in connection with ss 727 and 734. In that way, the Act specifies when, for the purposes of the Act, consequences attach being "involved" in a contravention. No such consequences are specified for being "involved" in a contravention of ss 727 or 734. Accordingly, the accessorial liability provisions of s 79 are not available, or do not have any relevance, in respect of these sections, which are in any event not civil penalty provisions. 58 I am therefore unable to find that Mr Nahed is personally liable in respect of ProCorp's contraventions of s 727 or s 734 during the period November 2001 to July 2003. However, it follows, from my findings that ProCorp contravened ss 727 and 734 on multiple occasions during that period, and that Mr Nahed was a director of ProCorp, that he has on multiple occasions been an officer of a body corporate that has contravened the Corporations Act while he was an officer, for the purposes of s 206E(1)(a)(i). 59 Neither the Fourth Amended Statement of Claim, nor ASIC's submissions, contain any allegation that Mr Nahed is liable for contravention of ss 727 and 734 in respect of the solicitations for Bankstown, Drummoyne, Liverpool, Great Northern and Northern Sight, which resulted, on and after 3 October 2003, in the October Loans and the Post-order Loans. The need for an Australian Financial Services Licence: 60 ASIC next alleges that during the period November 2001 to July 2003, ProCorp carried on a financial services business in Australia without holding an Australian Financial Services Licence, in contravention of Corporations Act, s 911A, which provides that "… a person who carries on a financial services business in this jurisdiction must hold an Australian financial services licence covering the provision of the financial services." Section 911B requires that a person (called the "provider") must only provide a financial service in Australia on behalf of another person (called the "principal") who carries on a financial services business if certain conditions apply, the effect of which is, inter alia, that either the principal or the provider must hold an Australian Financial Services Licence. With the arguable exception of Coakleys, none of the Defendants held an Australian Financial Services Licence. 61 By s 761A, "financial services business" means a business of providing financial services. Section 766A provides that a person provides a "financial service" when they "(a) provide financial product advice", or "(b) deal in a financial product". Section 766B relevantly defines "financial product advice" to mean: a recommendation or statement of opinion, or a report of either of those things, that: (a) is intended to influence a person or person or persons in making a decision in relation to a particular financial provide or class of financial products, or an interest in a particular financial product or class of financial products; or (b) could reasonably be regarded as being intended to have such an influence. 62 Section 766C(1) relevantly defines "dealing in a financial product" to include the following conduct: (a) applying for or acquiring a financial product; (b) issuing a financial product; … (d) varying a financial product; (e) disposing of a financial product. 63 Section 766C(2) of the Corporations Act extends this definition to include: Arranging for a person to engage in conduct referred to in subsection (1) is also "dealing" in a financial product, unless the actions concerned amount to providing financial product advice. 64 Corporations Act, s 763A(1), defines a "financial product" as follows: For the purposes of this Chapter, a financial product is a facility through which, or through the acquisition of which, a person does one or more of the following: (a) makes a financial investment (see section 763B); (b) manages financial risk (see section 763C); (c) makes non-cash payments (see section 763D). 65 Section 764A(1)(a) specifically defines a "financial product" to include a "security" which, in turn, is defined in section 761A of the Corporations Act to include a "debenture". As has been explained above, the loan agreements were debentures and, therefore, were financial products. 66 By distributing the Information Memorandum and the promotional brochures, which contained recommendations and statements of opinion that were intended to influence readers in making a decision in relation to the loan agreements, or at the very least could reasonably be so regarded, ProCorp was, during the relevant period, providing "financial product advice". And by issuing the loan agreements, ProCorp issued financial products, and thereby dealt in financial products. The extent and regularity with which it did these things establishes that ProCorp was carrying on a financial services business. 67 A person is exempt from the requirement to hold an Australian Financial Services Licence for a financial service they provide in any of the circumstances described in s 911A(2), which include (by sub-s (2)(b)) where the service is the issue of a financial product by that person (called the product provider) pursuant to an arrangement (called an intermediary authorisation) between the product provider and a financial services licensee under which the financial services licensee may make offers to people to arrange for the issue of financial products by the product provider, and the product provider is to issue financial products in accordance with such offers, if they are accepted; provided that the offer pursuant to which the issue is made was covered by the financial services licensee's Australian Financial Services Licence. 68 But, despite the involvement of Coakleys, that is not in fact how the ProCorp Scheme worked: only four investors were introduced through Coakleys, and though the Offer document and the Information Memorandum were in at least some cases on letterhead of Coakleys, ProCorp issued loan agreements other than pursuant to offers made by Coakleys. Accordingly, ProCorp carried on a financial services business in Australia without holding an Australian Financial Services Licence, in contravention of Corporations Act, s 911A. 69 ASIC alleges that, in connection with the ProCorp Solicitations, Mr Nahed contravened s 911A by being in the business of providing a financial service (by providing financial product advice, through making, controlling, managing or participating in the ProCorp Solicitations between about November 2001 and July 2003) without a licence. Alternatively, ASIC alleges that Mr Nahed contravened s 911B, by providing that financial service on behalf of the ProCorp Group without a licence. 70 However, I do not accept that the evidence shows that Mr Nahed was himself in the business of providing a financial service, which is what is required to establish a contravention of s 911A. As to whether he provided a financial service on behalf of ProCorp, the only evidence of Mr Nahed's participation, during the relevant period, in the provision of "financial product advice", or the issuing of the loan agreements, is that relating to Mr Habib. What Mr Nahed said to Mr Habib does not amount to providing financial product advice, as defined; Mr Habib's evidence discloses no relevant statement of opinion or recommendation by Mr Nahed. 71 Further, ASIC alleges that, in connection with the ProCorp Solicitations, Mr Nahed aided, abetted, counselled or procured or was knowingly concerned in or party to contraventions by ProCorp of s 911A. However, for reasons advanced above in respect of ss 727 and 734, the accessorial liability provisions of s 79 are not available in respect of s 911A (or s 911B). 72 ASIC next alleges that, in connection with the October 2003 and the Post-order Loans, Mr Nahed contravened s 911A by being in the business of providing a financial service (by providing financial product advice, through making, controlling, managing or participating in the solicitations for those loans) without a licence. Alternatively, ASIC alleges that Mr Nahed contravened s 911B, by providing that financial service on behalf of Bankstown, Drummoyne, Great Northern, Liverpool and Northern Sight, when neither they nor he held a licence. 73 The evidence does not establish that Mr Nahed was, during this period, himself carrying on a financial services business. But each of Bankstown, Drummoyne, Great Northern, Liverpool and Northern Sight issued loan agreements during this period, and thereby issued financial products, and thus dealt in financial products. Having regard to Corporations Act, s 18, 19 and 911D, this amounts to those companies each carrying on a financial services business, in contravention of s 911A. 74 The evidence does not establish that, during this period, lenders were given financial advice, at least by Mr Nahed; the only evidence is of dealings with Mr Maxwell, and even that is not shown to have involved "financial advice" as defined. But did Mr Nahed, on behalf of any of the companies, issue a loan agreement? I have found that Mr Nahed executed the two loan agreements dated 3 October 2003 referable to the Strauss investments (on behalf of the borrowers Bankstown and Great Northern), the three loan agreements dated 16 October 2003 referable to the Coombes investments (on behalf of the borrowers Liverpool, Bankstown and Drummoyne), the agreement also dated 16 October referable to the Burke investment (on behalf of the borrower Bankstown), and the agreement dated 12 November referable to the Rothwell investment (on behalf of the borrower Drummoyne). In each case, his signature (and that of the lenders) was witnessed by Mr Maxwell, but it does not follow that all parties signed at the same time, nor that Mr Nahed signed first; indeed I would conclude (having regard to the terms of the loan agreement, and the evidence of Mr Zollner, Mr Coombes and Mrs Kelly) that the usual practice was that Mr Maxwell produced the agreements to the lenders, who signed them, and then Mr Maxwell retained the signed documents, to which Mr Nahed's signature was affixed subsequently. At least, I am not comfortably satisfied that Mr Nahed signed any loan agreement, in or after October 2003, before it had been signed by the lender. 75 Nonetheless, s 761E has the effect that the lenders did not "acquire" their "debentures" until the borrower executed the Loan Agreement, and the relevant financial product was therefore "issued" when Mr Nahed on behalf of the relevant company affixed his signature. The question is whether Mr Nahed thereby provided a financial service, by issuing a financial product, on behalf of the relevant company. The issuer of the debenture was undoubtedly the company, not Mr Nahed [s 761E(4)]. While s 911B is readily capable of application to the situation of an employee of a financial services business providing financial services advice, it is not so amenable to the issue by a corporation of a debenture. Mr Nahed did not issue the debentures on behalf of the companies; rather he was the organ or instrument by which the companies themselves issued the debentures, and in such circumstances the liability if any of a person in Mr Nahed's position would be liability as an accessory for the corporation's contravention, rather than liability as a principal for doing something "on behalf of" the corporation: cf Tesco Supermarkets Ltd v Nattrass [1972] AC 153, 170 (Lord Reid); H.L. Bolton (Engineering) Co Ltd v T.J. Graham & Sons Ltd [1957] 1 QB 159, 172 (Lord Denning MR); Hamilton v Whitehead (1988) 166 CLR 121, 127]. Accordingly, I do not accept that Mr Nahed contravened s 911B as alleged, because he did not issue the debentures on behalf of the companies. 76 Finally, ASIC alleges that, in connection with the October and Post-order Loans, Mr Nahed contravened s 911A or alternatively s 911B as an accessory. However, for the reasons already explained, the accessorial liability provisions of s 79 are not available, at least for civil purposes, in respect of these sections. 77 I am therefore unable to find that Mr Nahed is personally liable for any contravention of s 911A or s 911B. However, it follows, from my findings that ProCorp contravened s 911A during the period November 2001 to July 2003, and that Mr Nahed was a director of ProCorp during that period, that he was, once again, an officer of a body corporate that has contravened the Corporations Act while he was an officer, for the purposes of s 206E(1)(a)(i). And the same conclusion follows, yet again, from my findings that each of Bankstown, Drummoyne, Great Northern, Liverpool and Northern Sight contravened s 911A in respect of the October and Post-order loans, and that Mr Nahed was a director of those companies during that period. Misleading and deceptive conduct: 78 ASIC next alleges that ProCorp engaged in conduct, in relation to financial products and/or financial services, that was misleading or deceptive or likely to mislead or deceive, contrary to Australian Securities and Investments Commission Act ("ASIC Act"), s 12DA(1) and/or Corporations Act, s 1041H(1). 79 ASIC Act, s 12DA(1), provides as follows: A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive. 80 Corporations Act, s 1041H(1), provides as follows: A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive. 81 Conduct is misleading and deceptive if it leads the victim into error [Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191, 198 (Gibbs CJ)]. The section is contravened even if the perpetrator acted honestly and reasonably and without intent to mislead or deceive and without negligence [Parkdale v Puxu, 197 (Gibbs CJ)]. While the issue of whether conduct is misleading or deceptive, is to be determined objectively, and while evidence that some person has in fact formed an erroneous conclusion is admissible and may be persuasive, it is neither essential to nor conclusive of whether the conduct was misleading or deceptive or likely to mislead or deceive [Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177; (1982) ATPR 40-303, 43,752 (Deane and Fitzgerald JJ)]. But although the test is objective, the attributes of the target audience are relevant, and once the relevant section (or sections) of the public, by reference to whom the question of whether conduct is (or is likely to be) misleading or deceptive falls to be tested is identified, then "the matter is to be considered by reference to all who come within it, including the astute and the gullible, the intelligent and the not so intelligent, the well educated as well as the poorly educated, men and women of various ages pursuing a variety of vocations" [Taco Bell, 43,751 (Deane and Fitzgerald JJ)]. 82 ASIC complains about two different categories of conduct on the part of ProCorp. The first, pleaded in paragraphs 140 to 156 of the Fourth Amended Statement of Claim, concerns the advertisements, and the promotional and loan documentation issued to investors, in the period November 2001 to July 2003, which are said to have contained statements which were false or misleading or which were likely to mislead or deceive potential investors. 83 ASIC alleges that the advertisements conveyed misrepresentations (1) that the loans would be secured, (2) that they were low risk and (3) that they were suitable for superannuates and self-funded retirees. I accept that the advertisements conveyed the first representation alleged; it expressly asserted, "It's secured …". Since the loan documentation never contained any provision for security, not only were the loans not secured, but there were no reasonable grounds for supposing that they would be. In that respect, the advertisements were misleading. The advertisements contained no express statement that the loans were low risk, though there was an express statement that they were ideal for superannuates and self-funded retirees. In truth, as the loans would at best rank after mortgages to conventional financiers, and involved investment in speculative property development projects, they were a high-risk investment. But it does not follow that it is misleading to describe them as "ideal for investors, superannuates and self-funded retirees", which is mere puffery. While the references to "secured and guaranteed" and to "ideal for … superannuates and self-funded retirees" on their own might suggest that the loans are a safe investment, the advertisement must be read as a whole. The advertisement also refers to "investors", and to the interest rate of 30%, and to the investment being in building projects, the first of which is as consistent with high as with low risk, and the second and third of which implicitly suggest a higher than usual risk. I am not persuaded that read as a whole it conveys that the loans were low risk. But the representation to the effect that the loans were secured is sufficient to render the advertisements misleading. 84 ASIC alleges that the promotional brochure conveyed misrepresentations that the loans would be secured by a second mortgage over the ProCorp properties and that a caveat would be lodged to record the interests of all investors; that the loans were low risk investments; and that an independent financial controller, who was an accountant, would be appointed to supervise the accounts, and would control the expenditure of funds. I accept that the promotional brochure conveyed representations that the loans would be secured by a second mortgage over the ProCorp properties and that a caveat would be lodged to record the interests of all investors; and that an independent financial controller, who was an accountant, would be appointed to supervise the accounts, and would control the expenditure of funds. I am not persuaded that the promotional brochure conveyed a representation that the loans were low-risk investments. 85 I accept that the representations that the loans would be secured by a second mortgage over the ProCorp properties, and that a caveat would be lodged to record the interests of all investors, were misleading: given that the loan documentation never made provision to that effect, there cannot have been reasonable grounds for ProCorp to suppose that the loans would be secured. The representations about an independent financial controller are in a somewhat different category, since they are expressed in terms which relate to a future matter, and the mere circumstance that such a representation does not eventuate does not make it false or misleading: it will be so only if there was no reasonable basis for making it when it was made. In that respect, however, no independent financial controller was ever appointed, and I would infer that there was no intention on the part of ProCorp of appointing any such independent financial controller. Accordingly, although not in every respect for which ASIC contends, the promotional brochure was misleading. 86 ASIC alleges that the Information Memorandum conveyed misrepresentations (1) that no disclosure document was required for the ProCorp Scheme, and (2) that money lent would be placed in a trust account and expended under the control of Coakley who would ensure that all compliance requirements were satisfied. As to the first, what the Information Memorandum, read as a whole, conveys about the requirement for disclosure is that, if the requirements of s 708(10) are satisfied, then no disclosure document is required. I do not accept that the Information Memorandum fairly read conveyed the first suggested misrepresentation in the absolute terms alleged. Although I have found that a disclosure document was in the event required, that was because the requirements of s 708(10) were not satisfied. As to the second, no trust account was ever established and Mr Coakley and his company provided no such supervision as was represented. I would infer that there was no intention on the part of ProCorp that he do so. In that respect, therefore, the Information Memorandum was misleading. 87 ASIC alleges that the Offer document conveyed misrepresentations that Coakleys had approved the ProCorp Projects in their capacity as holder of an Australian Financial Services Licence. I would accept that the Offer document conveyed a representation that Coakleys, in their capacity as holder of an Australian Financial Services Licence, had approved the specific ProCorp Companies to which ProCorp was to on-lend the borrowed funds. The alleged falsity of this is that Coakley Associates did not in fact hold such an Australian Financial Services Licence. Coakleys held a security dealers licence under the former Corporations Law ("the old legislation", the effect of which was that they were exempt under the transitional provisions (s 1431) until 27 September 2003 from inter alia Part 7.6 of the Corporations Act, which includes s 911A and 911B, the sections that imposes the requirement to hold an Australian Financial Services Licence. However, while a licensee under the old legislation was in some respects given authorities as if it held an Australian Financial Services Licence under the new legislation (s 1431(2)), no such authority was conferred in respect of s 708(10). It follows that Coakleys could not act as a licensee for the purposes of s 708(10), and in conveying that they held an Australian Financial Services Licence the Offer was materially misleading. However, the greater vice in the representation, I would have thought, is that it conveyed that Coakleys had undertaken a professional assessment of the Project Companies and as a result approved them, which Coakleys plainly had not. In these respects, the Offer document was misleading. 88 The advertisements, promotional brochure, Information Memorandum and Offer document were plainly issued in trade or commerce, and in relation to a financial product and/or financial services, namely the issue of debentures constituted by the resultant loan agreements. I have concluded above that each of them was, in one or more respects, misleading or deceptive or likely to mislead or deceive. By issuing them, ProCorp engaged in conduct in contravention of ASIC Act, s 12DA(1) and/or Corporations Act, s 1041H(1). 89 The second category of conduct relied upon, pleaded in paragraphs 157 to 196 of the Claim, relates to the period after 15 October 2003, when ASIC had commenced these proceedings and obtained interlocutory relief. ASIC alleges that the loan agreements which were presented to investors and executed after that date – the Post-order Loans - contained misrepresentations to the effect (1) that there were no civil proceedings pending involving the relevant Project Company as a defendant, and (2) that the moneys lent would be used for the costs of and incidental to the specific project for which the loan was made. 90 As to the first of these alleged misrepresentations, each of the relevant loan agreements contained a statement that there were no civil proceedings pending involving the relevant Project Company as a defendant. As these proceedings were by then already pending, that statement was false. As to the second, the statement led the reader to conclude that funds advanced would be expended only on the particular ProCorp Project identified. But at least from 15 October, all the ProCorp Group companies were restrained from making any such expenditure, so that such a statement was, at best, misleading. 91 These loan agreements were presented to investors for execution in trade or commerce, and the relevant statements in them were in relation to a financial product and/or financial services, namely the issue of debentures constituted by the resultant loan agreements. I have concluded above that each of them was, in one or more respects, misleading or deceptive or likely to mislead or deceive. By presenting them to potential investors, the relevant companies engaged in conduct in contravention of ASIC Act, s 12DA(1) and/or Corporations Act, s 1041H(1). I would also infer that, had the true facts been known to them, the investors who subscribed after 15 October would not have done so. 92 ASIC alleges that Mr Nahed contravened these provisions as a principal, or alternatively as an accessory. By s 1041I, a person who suffers loss or damage by conduct of another person that was engaged in in contravention of s 1041H may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention, whether or not that other person or any person involved in the contravention has been convicted of an offence in respect of the contravention, subject to section 1044B. By s 79, a person is involved in a contravention if, and only if, the person: (a) has aided, abetted, counselled or procured the contravention; or (b) has induced, whether by threats or promises or otherwise, the contravention; or (c) has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention. The widest of those concepts is that of being "knowingly concerned" in a contravention, and even that involves (a) knowledge of the essential facts which constitute the contravention which, in the case of provisions such as those in issue here, requires knowledge that the relevant representation is being made and is misleading, and (b) some intentional participation or assistance in the contravening conduct [Giorgianni v The Queen (1985) 156 CLR 473, 494, 501; Yorke v Lucas (1985) 158 CLR 661; Smithers v Beveridge (1994) 14 ACSR 197, 201]. The mere circumstance that a person is a director of a company that engages in contravening conduct is insufficient to establish that he or she is a person involved in it. As Finklestein J explained in Compaq Computer Australia Ltd v Merry (1998) 157 ALR 1, 4-5 [see also King v GIO Australia Holdings Ltd (2001) 184 ALR 98, [7]]:- A contravention of s 52(1) of the Trade Practices Act can occur regardless of whether the corporation is acting honestly or reasonably: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 197 ; 42 ALR 1. But where it is sought to make a person liable as an accessory to a contravention of s 52(1) based on s 75B it is necessary to establish that the person has intentionally participated in the contravention. To establish intentional participation it must be proved that the person has knowledge of the essential matters that make up a contravention of s 52(1): see generally Yorke v Lucas (1985) 158 CLR 661 ; 61 ALR 307; Edwards v R (1992) 173 CLR 653 ; 107 ALR 190. In this regard "knowledge" means actual and not constructive knowledge. For example, it would not be sufficient merely to show that the person charged with accessorial liability had shut his eyes to the obvious if that is intended to be a substitute for actual knowledge: Giorganni v R (1985) 156 CLR 473 ; 58 ALR 641. Of course, where there is a combination of suspicious circumstances and a failure to make an inquiry it may be possible to infer knowledge of the relevant essential matters: Pereira v Director of Public Prosecutions (1988) 82 ALR 217 ; 63 ALJR 1 at 3. 93 The only evidence of involvement by Mr Nahed in any of the relevant pre-October 2003 conduct is the suggestion that he may have given Mr Habib a copy of the Information Memorandum. However, for reasons previously explained, I am not comfortably satisfied that Mr Nahed did so. Accordingly I am not satisfied that he engaged in, or was involved in, any of that contravening conduct. 94 As to the Post-order conduct, it was on 27 November 2003 that Mr Nahed became the sole director of ProCorp and the Project Companies. As his affidavit, sworn 28 November 2003, shows, he intended to embark on a course of endeavouring to proceed with and complete at least some of the developments, and to obtain the release of funds for that purpose. He knew, at least from some time before 27 November, that the proceedings were pending, and that the injunctions were on foot. But the evidence does not implicate him in any relevant conduct after he is shown to have knowledge of those matters: he is not shown to have known of the pendency of the proceedings and injunctions on 16 October 2003 (the date of four of the five post-order loan agreements that he signed) or on 12 November (the date of the fifth). I am unable to be comfortably satisfied that he was knowingly concerned in, and thus involved in, the contraventions of ASIC Act, s 12DA(1) and/or Corporations Act, s 1041H(1) associated with the Post-order loans. Breach of director/officer duties: 95 It is next alleged that Mr Nahed breached his duties as a director of the ProCorp Companies – in particular, those duties referred to in sections 180(1), 181(1) and 182(2) of the Corporations Act - by permitting, allowing and participating in the various contraventions committed by those companies, namely:- · ProCorp, making each of the offers which resulted in a loan agreement, in contravention of s 727(1); · ProCorp, publishing each advertisement, information memorandum and promotional brochure, in contravention of s 734(2); · ProCorp carrying on a financial services business in Australia without holding an Australian Financial Services Licence, in contravention of Corporations Act, s 911A; · ProCorp engaging in conduct, in trade or commerce, and in relation to financial products and/or financial services, which was misleading or deceptive or likely to mislead or deceive, in contravention of ASIC Act, s 12DA(1) and/or Corporations Act, s 1041H(1), by (1) making the misrepresentations contained in each advertisement, information memorandum and promotional brochure, and (2) representing in the post-order loan agreements that there were no civil proceedings pending involving the relevant ProCorp Group company as a defendant, and that funds advanced would be expended only on the particular project identified. 96 Section 180(1) of the Corporations Act provides as follows: A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a) were a director or officer of a corporation in the corporation's circumstances; and (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. 97 Section 181(1) provides as follows: A director or other officer of a corporation must exercise their powers and discharge their duties: (a) in good faith in the best interests of the corporation; and (b) for a proper purpose. 98 Section 182(1) provides as follows: A director, secretary, other officer or employee of a corporation must not improperly use their position to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation. 99 The statutory duty imposed by s 180(1) reflects, and to some extent refines, that which obtains at general law. As Santow J (as his Honour then was) explained in ASIC v Adler (2002) 41 ACSR 72, [372], both the common law and equity imposes on directors a duty of care and skill [Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 109; 14 ACSR 109; Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438; 16 ACSR 607], the content of which is essentially the same as the statutory duty [Sheahan v Verco (2001) 79 SASR 109; 37 ACSR 117, 134 (Mullighan J); Daniels v Anderson, 603 (Powell JA); see also Australian Innovation Ltd v Petrovsky (1996) 21 ACSR 218, 222 (Lockhart J)]. Similarly, the statutory duties imposed by s 181 and s 182 reflect, and to some extent refine, corresponding obligations of directors under the general law. 100 In determining whether a director has exercised reasonable care and diligence, as s 180(1) expressly contemplates, the circumstances of the particular corporation concerned are relevant to the content of the duty. These circumstances include the type of company, the provisions of its constitution, the size and nature of the company's business, the composition of the board, the director's position and responsibilities within the company, the particular function the director is performing, the experience or skills of the particular director, the terms on which he or she has undertaken to act as a director, the manner in which responsibility for the business of the company is distributed between its directors and its employees, and the circumstances of the specific case [Re City Equitable Fire Insurance Co Ltd [1925] Ch 407, 427; (Romer LJ); Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115, 125 (Tadgell J); ASC v Gallagher (1993) 11 WAR 105; 10 ACSR 43; 11 ACLC 286; Daniels v Anderson, 504-505; ASIC v Adler, [372]; Explanatory Memorandum to the CLERP Bill 1999 (para 6.75)]. 101 Directors are not required to exhibit a greater degree of skill in the performance of their duties than may reasonably be expected for persons of commensurate knowledge and experience, in the relevant circumstances [ASC v Gallagher]. And while directors are required to take reasonable steps to place themselves in a position to guide and monitor the management of the company [Daniels v Anderson (1995) 37 NSWLR 438, 495-505; 16 ACSR 607, 659-668], they are entitled to rely upon others, at least except where they know, or by the exercise of ordinary care should know, facts that would deny reliance [Re City Equitable Fire Insurance Co; Biala Pty Ltd v Mallina Holdings Ltd (No 2) (1993) 11 ACSR 785, 856–8; 11 ACLC 1082; (1994) 15 ACSR 1, 60–2; Daniels v Anderson (1995) 37 NSWLR 438, 502-504; 16 ACSR 607, 665–6; Re Property Force Consultants Pty Ltd (1995) 13 ACLC 1051 (QSC)]. 102 The constitution of the corporation, and concomitantly the identity of those to whom the duty is owed, is of importance because the duties referred to in ss 180, 181 and 182 are not duties owed in the abstract, but duties owed to the corporation. As Clarke and Sheller JJA observed in Daniels v Anderson (at NSWLR 504), the duties imposed by former s 232 (the predecessor of s 180) reflected the concept of negligence at general law, in that a director owes to the company a duty to take reasonable care in the performance of the office. In Vrisakis v ASC (1993) 9 WAR 395, 449–50; 11 ACSR 162, 211–13; Ipp J (as his Honour then was) (with the concurrence of Malcolm CJ) held that although the statutory duty of care and diligence would be contravened if a director had not exercised a reasonable degree of care and diligence in the exercise of his powers or the discharge of his duties, even if there was no actual damage, that could only be so if it was reasonably foreseeable that the relevant conduct might harm the interests of the company - which means the corporate entity itself, the shareholders, and, where the financial position of the company is precarious, the creditors of the company - and, moreover, that in determining whether the relevant duty had been breached, the foreseeable risk of harm must be balanced against the potential benefits which could reasonably be expected to accrue to the company from that conduct [see also ASIC v Doyle (2001) 38 ACSR 606, 641]. As His Honour explained: Under s 229(2), however, there is no reference to damage suffered by the company, and an offence may notionally be committed under that section without any damage having been sustained. The question is merely whether the defendant director has exercised a reasonable degree of care and diligence in the exercise of his powers in the discharge of his duties. Nevertheless, a criminal offence will not have been committed if an omission to take care did not carry with it a foreseeable risk of harm to the company. No act of commission or omission is capable of constituting a failure to exercise care and diligence under s 229(2) unless at the time thereof it was reasonably foreseeable that harm to the interests of the company might be caused thereby. That is because the duty of a director to exercise a reasonable degree of care and diligence cannot be defined without reference to the nature and extent of the foreseeable risk of harm to the company that would otherwise arise. Further, the mere fact that a director participates in conduct that carries with it a foreseeable risk of harm to the interests of the company will not necessarily mean that he has failed to exercise a reasonable degree of care and diligence in the discharge of his duties. The management and direction of companies involve taking decisions and embarking upon actions which may promise much, on the one hand, but which are, at the same time, fraught with risk on the other. That is inherent in the life of industry and commerce. The legislature undoubtedly did not intend by s 229(2) to dampen business enterprise and penalise legitimate but unsuccessful entrepreneurial activity. Accordingly, the question whether a director has exercised a reasonable degree of care and diligence can only be answered by balancing the foreseeable risk of harm against the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question. 103 One consequence of this, of present significance, is that where there is an identity of interest between the directors and the shareholders, so that in effect the directors are the shareholders, the requirement to prevent self-interested dealing, constrain management and strengthen shareholder control – which is fundamental purpose and rationale of these duties - is much less acute. That is a circumstance which can impact considerably on the content of the duties. The significance of a correspondence between the identity of the directors and the shareholders is illustrated by the circumstance that, at general law, a fully informed general meeting can prospectively or retrospectively ratify the actions of directors of the company, though they involve negligence, breach of fiduciary duty or the exercise of the directors' powers for an improper purpose [North-West Transportation Co Ltd v Beatty (1887) 12 App Cas 589; Furs Ltd v Tomkies (1936) 54 CLR 583; 9 ALJ 419; Hogg v Cramphorn [1967] Ch 254, 265-266; [1966] 3 All ER 420 (Buckley LJ); [1970] Ch 122 (CA); Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134n; [1942] 1 All ER 378; Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666; (1975) 1 ACLR 219]. Where the directors and the shareholders are one and the same, ratification is implicit. Although the shareholders of a company cannot release the directors from their statutory duties imposed by s 180, 181 and 182 [Forge v ASIC (2004) 52 ACSR 1, 81-82; ASIC v Australian Investors Forum Pty Ltd (No 2) (2005) 53 ACSR 305, 314-315; Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 53 ACSR 208, 219 [32]], their acquiescence in a course of conduct can affect the practical content of those duties, including any question of whether directors acted with a reasonable degree of care and diligence, and whether they made improper use of their position [Angas Law Services Pty Ltd (in liq) v Carabelas, 218-219, [29]-[32]]. 104 There are cases in which it will be a contravention of their duties, owed to the company, for directors to authorise or permit the company to commit contraventions of provisions of the Corporations Act. Relevant jeopardy to the interests of the company may be found in the actual or potential exposure of the company to civil penalties or other liability under the Act, and it may no doubt be a breach of a relevant duty for a director to embark on or authorise a course which attracts the risk of that exposure, at least if the risk is clear and the countervailing potential benefits insignificant. But it is a mistake to think that ss 180, 181 and 182 are concerned with any general obligation owed by directors at large to conduct the affairs of the company in accordance with law generally or the Corporations Act in particular; they are not. They are concerned with duties owed to the company. In ASIC v Elm Financial Services Pty Ltd (2005) 55 ACSR 411, Barrett J, in acceding to an application to make orders agreed to by the parties in the context of contraventions not dissimilar to those involved here, accepted that by failing to prevent contraventions by the relevant company, two directors failed in the duties owed by them as officers. And in subsequent proceedings in the same matter, ASIC v Elm Financial Services Pty Ltd [2005] nswsc 1065, his Honour accepted that failures by other directors to take reasonable steps to prevent contraventions by the relevant company were contraventions of s 180(1) and 181(1). Some explanation of his Honour's reasoning appears from yet other proceedings in the same matter, ASIC v Elm Financial Services Pty Ltd & Ors [2005] NSWSC 1033, in which his Honour said:- 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. 105 Anything that Barrett J says in this field is entitled to the greatest respect, but if what his Honour said in that passage suggests that the relevant duty of the directors was to persons invited to invest money by way of loan, as distinct from to the company, then I am unable to agree. In my opinion, if a contravention of s 180(1) is to be established, it must be founded on jeopardy to the interests of the corporation, and not to protection of the interests of potential investors (though the interests of investors may be relevant to the interests of the corporation, as potential creditors). 106 As to section 181(1), which requires a director or other officer of a corporation to exercise his or her powers and discharge his or her duties in good faith in the best interests of the corporation, and for a proper purpose, in Chew v R (1991) 5 ACSR 473, Malcolm CJ (at 499) summarised the requirements of the duty to act in good faith as including that directors (1) must exercise their powers in the interests of the company, and must not misuse or abuse their power; (2) must avoid conflict between their personal interests and those of the company; (3) must not take advantage of their position to make secret profits; and (4) must not misappropriate the company's assets for themselves. The words "in the best interests of the corporation" emphasise the significance of the relevant constituencies - in particular, the shareholders as a whole, and the creditors in the case of impending insolvency. This duty is imposed not to secure compliance with the various requirements of the Corporations Act, but, as it was at general law, to prevent abuses of directors' powers for their own or collateral purposes. Likewise, the duty imposed by s 182 is intended to forbid directors from abusing their position for their own advantage or the corporation's detriment, and not with securing compliance with the various requirements of the Corporations Act. 107 One of the predecessor provisions of s 181 was discussed by Gowans J in Marchesi v Barnes [1970] VR 434, in terms which emphasise that the section is not concerned with the conduct of a director in relation to creditors or other persons dealing with or concerned with the company or anybody else but the company itself, and that a breach of the obligation to act bona fide in the interests of the company involves a consciousness that what is being done is not in the interests of the company, and deliberate conduct in disregard of that knowledge. His Honour said (at 437): Involved in all this is the conception of "acting honestly in the discharge of the duties of the office of a director". The Full Court in Byrne v Baker ,[1964] VR 443, has attributed the source of the language used in s124(1) (formerly s107(1)) to the judgment of Romer, J, in Re City Equitable Fire Insurance Co Ltd , [1925] 1 Ch 407; [1924] All ER Rep 485, a judgment which in turn refers to the language of Lindley, MR, in Lagunas Nitrate Co v Lagunas Syndicate , [1899] 2 Ch 392, at p. 435; [1895-9] All ER Rep Ext 1349: "act honestly for the benefit of the company they represent". This is the language it has become customary to use in respect of a director's duty in the exercise of his powers or position. "They must exercise their discretion bona fide in what they consider--not what a Court may consider--is in the interests of the company, and not for any collateral purpose" (per Lord Greene, MR, in Smith v Fawcett, [1942] 1 Ch 304, at p. 306). The company in this passage means the company as a whole. This background to the language of the section appears to justify the conclusions, first, that the section is not concerned with the conduct of a director in relation to creditors or other persons dealing with or concerned with the company or anybody else but the company itself; secondly, that it is concerned with the performance of his fiduciary duty to the company; and, thirdly, that to "act honestly" refers to acting bona fide in the interests of the company in the performance of the functions attaching to the office of director. A breach of the obligation to act bona fide in the interests of the company involves a consciousness that what is being done is not in the interests of the company, and deliberate conduct in disregard of that knowledge. This constitutes the element of mens rea in the criminal offence created by the statute. If the term "fraud" is applicable in this situation, it is only so in the sense of a "fraud" on the power". In effect, the common law obligation in respect of acting honestly, as with the common law obligation to act with due diligence has been made a statutory duty, and failure to perform it, provided there is the proper mental element, has been made a criminal offence. 108 Although, in ASIC v Vines (2005) 55 ACSR 617, Austin J found it unnecessary to resolve a difference of approach, as to the meaning of the words "act honestly" in the predecessors of s 181, which had emerged between Marchesi v Barnes and a less stringent test not requiring subjective dishonesty favoured by King CJ in Australian Growth Resources Corporation Pty Ltd v Van Reesema (1988) 13 ACLR 261, his Honour's discussion of the issue shows that the weight of authority firmly favours Marchesi v Barnes:- [1099] His Honour's observations had been taken to mean that a defendant would not be held to have breached the statutory duty of honesty unless it was shown that he or she was conscious that what was being done was not in the interests of the company. Conversely, directors who honestly believed their decision to be in the interests of the company did not contravene this section even though they acted for a purpose that, judged objectively, was not a proper purpose (see Ford's Principles of Corporations Law, Butterworths (looseleaf), at [8065]). Marchesi v Barnes has been followed in several cases: Corporate Affairs Commission v Papoulias (1990) 20 NSWLR 503 ; 2 ACSR 655; Southern Resources Ltd v Residues Treatment & Trading Co Ltd (1990) 56 SASR 455 ; 3 ACSR 207; Feil v Commissioner of Corporate Affairs (1991) 9 ACLC 811 and Fitzsimmons v R (1997) 23 ACSR 355. [1100] A different approach was taken in Australian Growth Resources Corporation Pty Ltd v Van Reesema (1988) 13 ACLR 261, where King CJ said (at 272): The section therefore embodies a concept analogous to constructive fraud, a species of dishonesty which does not involve moral turpitude. I have no doubt that a director who exercises his powers for a purpose which the law deems to be improper, infringes this provision notwithstanding that according to his own lights he may be acting honestly. [1101] In Chew v R (1992) 173 CLR 626, Dawson J said (at 642): For my own part I cannot, with respect, equate dishonesty in the context of s 229(1) [the precursor of s 232(2)] with mere impropriety … the use of power for an impermissible purpose, viewed objectively as it should be, may be improper, but it is not necessarily dishonest. Whether the element of dishonesty is adequately encompassed by the remarks of Gowans J in Marchesi v Barnes is something which does not fall for decision in this case, but it is, I think, necessary to give the word ' honestly' in a provision creating a criminal offence a somewhat wider scope than King CJ was prepared to give it in Australian Growth Resources Corp Pty Ltd v Van Reesema . [1102] In Forge v ASIC (2004) 52 ACSR 1, the primary judge concluded that the appellants had breached s 232(2) to the Briginshaw standard, applying King CJ's interpretation of the previous statutory provision in the Van Reesema case (see at [146]). In the NSW Court of Appeal McColl JA (with whom Handley and Santow JJA agreed) referred to the differing approaches to the requirement to "act honestly" taken by Gowans J in Marchesi v Barnes and by King CJ in Van Reesema, but she found it unnecessary to resolve the issue (at [223]–[249]). This was because the primary judge had in fact found the appellants to have been subjectively dishonest. [1103] It is also unnecessary to seek to resolve the differences of approach to the meaning of the words "act honestly" in the present case. ... 109 While the words "act honestly" have not been retained in the current section, the historical origins of the duty, as explained by Gowans J, which led his Honour to equate to "acting honestly" with "acting bona fide in the interests of the company" are equally applicable to the current section. In this context, absence of good faith requires much more than negligence. In my opinion, s 181 is contravened only where a director engages deliberately in conduct, knowing that it is not in the interests of the company. 110 Generally speaking, therefore, ss 180, 181 and 182 do not provide a backdoor method for visiting, on company directors, accessorial civil liability for contraventions of the Corporations Act in respect of which provision is not otherwise made. This is all the moreso since the Corporations Act makes provision for the circumstances in which there is to be accessorial civil liability. Whether there were in this case breaches of the directors' duties – and, in particular, of their duty of care and diligence - depends upon an analysis of whether and to what extent the corporation's interests were jeopardised, and if they were, whether the risks obviously outweighed any potential countervailing benefits, and whether there were reasonable steps which could have been taken to avoid them. 111 The essential issue here is whether, in the context of these corporations, Mr Nahed contravened his duties as a director by permitting, allowing and participating in the various contraventions committed by those companies or any of them. The jeopardy to the companies was the potential incurring of a liability for contraventions of the fundraising, financial services and misleading conduct provisions of the Corporations Act. Those provisions are not civil penalty provisions, so the potential exposure was to criminal conviction and fine, or a compensation order. (The countervailing benefits were the perceived profits to be derived from the developments which the fundraising would facilitate). 112 The relevant circumstances include that these were closely held proprietary companies, in which the interests of the directors and those of the shareholders were identical: the directors were the shareholders. Mr Nahed was not much more than 21 years of age when the schemes were being promoted. He was a builder. His role in the ProCorp Scheme, at least until late 2003, was to provide the building and construction expertise for the developments. The transcripts of the examinations of participants such as Mr Malcolm Fortune, Mr Bennett, Mr Maxwell and Mr Coakley are remarkable for their silence as to any involvement of Mr Nahed in fundraising. The fund-raising role was Mr Malcolm Fortune's, aided by Mr Maxwell and Coakleys. The directors obtained legal advice, and retained Coakleys to provide the appropriate financial advice to ensure that the scheme complied. While, by August 2002, Mr Nahed should have been aware of the concerns expressed by Coakleys in their letter of 30 July 2002, he would also have been aware that lawyers and accountants had been retained to advise ProCorp on compliance issues. 113 Given Mr Nahed's background and the particular skills (building) that he brought to the companies, the apparent distribution of responsibility among the directors of the ProCorp Companies, and the involvement of the lawyers and accountants, upon which he was entitled in the absence of grounds for doubt to rely, I am not persuaded that Mr Nahed ought to have known or ascertained that ProCorp was making, and publishing statements referring to, offers of securities, or carrying on a financial services business, or issuing misleading and deceptive publications, in contravention of the Corporations Act, or was otherwise relevantly in default of his directors' duties. To the contrary, until the intervention of ASIC, he was entitled to suppose that the fundraising activities of ProCorp were being performed in accordance with appropriate legal and accounting advice. In those circumstances, his duty of care and diligence did not require him to do more than he did to ascertain whether the scheme was not compliant, and it follows that, insofar as he permitted, allowed or failed to prevent the various contraventions committed by those companies, that did not involve a breach of his duty of care and diligence as a director of the relevant ProCorp companies. Although his position changed when he became sole director on 27 November 2003, it is not apparent that he authorised, permitted, or failed to prevent any relevant contravention after that date. 114 I am therefore not comfortably satisfied that Mr Nahed permitted, allowed or participated in any contravention committed by the ProCorp companies in such a way that, in his and their particular context, he should be found to have breached his duty of care and diligence as a director of the Project Companies. Even less is he shown to have breached his duty of good faith: in the circumstances of his position in these companies, Mr Nahed's duty, to exercise his powers and discharge his duties in good faith in the best interests of the corporation and for a proper purpose, did not require him to do more than he did to ascertain whether the scheme was not compliant, and was not contravened by him insofar as he permitted, allowed and/or failed to prevent the various contraventions committed by ProCorp and the Project Companies. Similarly, as to section 182(1), in those same circumstances failure to prevent those contraventions does not amount to an "improper" use by Mr Nahed of his position as a director to gain an advantage for himself or to cause detriment to the corporation. 115 I am not comfortably satisfied that Mr Nahed has been in breach of his duties as a director in any of the respects alleged. Section 206D disqualification: 116 Corporations Act, s 206D, provides as follows: (1) On application by ASIC, the Court may disqualify a person from managing corporations for up to 20 years if: (a) within the last 7 years, the person has been an officer of 2 or more corporations when they have failed; and (b) the Court is satisfied that: (i) the manner in which the corporation was managed was wholly or partly responsible for the corporation failing; and (ii) the disqualification is justified. (2) For the purposes of subsection (1), a corporation fails if: (a) a Court orders the corporation to be wound up under section 459B because the Court is satisfied that the corporation is insolvent; or (b) the corporation enters into voluntary liquidation and creditors are not fully paid or are unlikely to be fully paid; or (c) the corporation executes a deed of company arrangement and creditors are not fully paid or are unlikely to be fully paid; or (d) the corporation ceases to carry on business and creditors are not fully paid or are unlikely to be fully paid; or (e) a levy of execution against the corporation is not satisfied; or (f) a receiver, receiver and manager, or provisional liquidator is appointed in relation to the corporation; or (g) the corporation enters into a compromise or arrangement with its creditors under Part 5.1; or (h) the corporation is wound up and a liquidator lodges a report under subsection 533(1) about the corporation's inability to pay its debts. 117 The operation of s 206D is attracted if the relevant person is an officer when the corporations fail. Although a note to the section suggests that, to satisfy s 206D(2)(h), a corporation must begin to be wound up while the person is an officer or within 12 months after the person ceases to be an officer - though the report under subsection 533(1) may be lodged by the liquidator at a time that is more than 12 months after the person ceases to be an officer - it is not readily apparent why that is so, and neither I nor counsel for ASIC has been able to explain the rationale for that note. 118 ProCorp, Bankstown, Great Northern, Liverpool, Mansions, Miranda, Gosford and Northern Sight were wound up in insolvency pursuant to order made on 3 March 2004. Zepher was wound up in insolvency pursuant to order made on 9 March 2004, on which date a provisional liquidator was appointed to Drummoyne and Homebush; those two companies were ultimately wound up in insolvency pursuant to order made on 7 March 2005. Mr Nahed was a director of each of those companies when the winding up order was made, and, accordingly, when each of those companies "failed". 119 Because the relevant failures of the companies were under s 206D(2)(1)(a), the relevant inquiry is whether the manner in which the corporation was managed was wholly or partly responsible for its being wound up in insolvency. There were two contributing causes: the value of the assets of the ProCorp group and its cash flow were insufficient to cover its liabilities and outgoings, and it was deprived of its ability to trade by the Mareva orders, which were attributable to its illegal fund-raising. The engagement in illegal fundraising was an aspect of the management of the companies. The application of loan moneys in payments other than to the particular ProCorp Project was an aspect of management. The incurring of liabilities in excess of available assets and the resort to borrowing at very high interest rates under the ProCorp Scheme was an aspect of management. All these contributed to the ultimate insolvency, winding up and failure. Accordingly, the manner in which the corporations were managed was at least partly responsible for their being wound up in insolvency, and thus for their failure. Mr Nahed is therefore liable to be disqualified pursuant to s 206D, if the Court is satisfied that disqualification is justified. 120 As to whether disqualification is justified, I will hear counsel. However, prima facie a highly relevant consideration would be Mr Nahed's role in the ProCorp Group. Reference has already been made to the circumstance that he was a builder, and so far as can be ascertained contributed building expertise, while others were responsible for the financial management of the Group. While his role became more extensive from 27 November 2003, it can be said that by then the Group was already doomed. 121 The statement of claim also claims a disqualification pursuant to s 206E. While Mr Nahed is plainly eligible for consideration under s 206E, insofar as he has on multiple occasions been an officer of a body corporate that has contravened the Act while he was an officer, my conclusions as to the allegations of breach of his director's duties would be relevant to any consideration of whether he failed to take reasonable steps to prevent the relevant contraventions. Conclusions as to Mr Nahed: 122 By making each of the offers that resulted in a ProCorp Loan, ProCorp contravened s 727(1), on at least on 94 occasions. 123 Each publication of an advertisement, information memorandum or brochure was a contravention by ProCorp of s 734(2), or, insofar as any s 708(1) exemption might have been available, of s 734(1). 124 I am not comfortably satisfied that Mr Nahed himself made, or published a statement which referred to, an offer of securities. The accessorial liability provisions of s 79 are not available in respect of ss 727 and 734. However, Mr Nahed was a director of ProCorp, a body corporate that has on multiple occasions contravened Corporations Act, ss 727 and 734, while he was an officer, for the purposes of s 206E(1)(a)(i). 125 ProCorp carried on a financial services business in Australia without holding an Australian Financial Services Licence, in contravention of Corporations Act, s 911A. Mr Nahed was not himself in the business of providing a financial service, and did not personally contravene s 911A. Nor did he provide a financial service on behalf of ProCorp, so as to contravene s 911B. The accessorial liability provisions of s 79 are not available in respect of s 911A (or s 911B). 126 In connection with the October 2003 and Post-order Loans, each of Bankstown, Drummoyne, Great Northern, Liverpool and Northern Sight, by issuing loan agreements, and thereby issued and thus dealt in financial products, thereby carrying on a financial services business, in contravention of s 911A. The evidence does not establish that Mr Nahed was, during this period, himself carrying on a financial services business. Although the relevant financial product was "issued" when Mr Nahed affixed his signature to the relevant loan agreement, Mr Nahed did not issue the debentures on behalf of the companies; rather he was the organ by which the companies themselves issued the debentures. The accessorial liability provisions of s 79 are not available in respect of ss 911A or 911B. Mr Nahed is therefore not shown to have committed any contravention of s 911A or s 911B. 127 However, as a director of ProCorp during the period during the period November 2001 to July 2003, Mr Nahed was an officer of a body corporate that contravened the Corporations Act while he was an officer, for the purposes of s 206E(1)(a)(i). And also as a director of each of Bankstown, Drummoyne, Great Northern, Liverpool and Northern Sight during the period of the October and Post-order loans, Mr Nahed was an officer of bodies corporate that contravened the Corporations Act while he was an officer, for the purposes of s 206E(1)(a)(i). 128 ProCorp issued advertisements, the promotional brochure, the Information Memorandum and the Offer document in trade or commerce, and in relation to a financial product and/or financial services, namely the issue of debentures constituted by the resultant loan agreements. Each of them was, in one or more respects, misleading or deceptive or likely to mislead or deceive. ProCorp thereby engaged in conduct in contravention of ASIC Act, s 12DA(1) and/or Corporations Act, s 1041H(1). However, Mr Nahed has not been shown to have been knowingly concerned in any of those contraventions. 129 Further, by presenting the loan agreements to potential investors after 15 October 2003, the relevant companies engaged in conduct in trade or commerce, and in relation to a financial products and/or financial services, which was misleading or deceptive or likely to mislead or deceive, in contravention of ASIC Act, s 12DA(1) and/or Corporations Act, s 1041H(1). Had they known the true facts, those investors who subscribed after 15 October would not have done so. However, Mr Nahed has not been shown to have been knowingly concerned in any of those contraventions. 130 Mr Nahed was a director of each of ProCorp, Bankstown, Great Northern, Liverpool, Mansions, Miranda, Gosford, Northern Sight, Zepher, Drummoyne and Homebush when they were wound up in insolvency, and accordingly when each of those companies "failed". The manner in which those companies were managed was at least partly responsible for their being wound up in insolvency, and thus for their failure. Mr Nahed is therefore liable to be disqualified pursuant to s 206D, if the Court is satisfied that disqualification is justified. THE CONSENT ORDERS 131 As between ASIC and the other remaining defendants, the parties have agreed on statements of facts which have been tendered, and proposed consent orders to be made. As some of these pertain to the Central Development Scheme, it is pertinent, before addressing the approach which I have taken to the proposed consent orders, first to summarise the features of that scheme. The Central Development Scheme: 132 The Central Development Scheme also concerned the raising of funds for the purchase and development of real estate. It was similar to the ProCorp Scheme and, through Mr Maxwell's involvement, "copied" the ProCorp Scheme. It involved a property at Waitara, upon which 39 units were to be constructed ("the Waitara Project"), and a property at Maroubra, upon which 18 units were to be constructed ("the Maroubra Project"). The Central Development Group created separate companies to carry out each of those projects, being The Wake (Waitara) Pty Ltd, for the Waitara Project, and Maroubra Properties Pty Ltd, for the Maroubra Project. 133 In addition to traditional funding through lending institutions, the Central Development Group solicited investments from the public, through the placement of advertisements and by approaching potential investors. Again, potential investors were provided with promotional material (prepared, in part, by Mr Maxwell and, in part, by the Central Development Group), which was calculated to entice them to invest. The form of the investment was a Loan Agreement, pursuant to which the investor agreed to lend money to the particular company carrying on the particular CDG Project. Interest was payable on the loan, generally at 30% to 40% per annum. 134 As a consequence of these fundraising activities, approximately 30 investors entered into loan agreements with Central Development Group companies, pursuant to which they lent a total of $3.045 million for the Central Development projects. The investors have for all practical purposes lost their capital. Thus in the Central Development Scheme, investors lost in total about $3.29 million. 135 After (and despite) the orders of 15 October 2003, two investors entered into loan agreements with Maroubra Properties Pty Ltd for a total of $245,000, and payments were authorised and made from the proceeds to purposes not associated with the Maroubra project to a value of $235,640. The approach to consent orders: 136 When asked to make orders to give effect to an agreement between the parties in situations such as this, although the Court takes into account the agreement between the parties, it is not constrained by the parties' agreement and must exercise its own discretion as to penalty. Barrett J articulated the Court's approach in ASIC v Elm Financial Services Pty Ltd & Ors (2005) 55 ACSR 411; [2005] NSWSC 1020, in a manner which I respectfully adopt, as follows:- 9 The parties have, in each case, agreed the duration of the disqualification. That, however, does not absolve the court of its duty to consider the appropriateness of the penalty in the light of the agreed facts and the surrounding circumstances. This is made clear by the decisions of the Full Federal Court in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 and, more recently, Minister for Industry Tourism and Resources v Mobil Oil Australia Pty Ltd [2004] ATPR 41-993 (and see, in the present statutory context, Australian Securities and Investments Commission v Vizard (2005) 54 ACSR 395). In the Mobil Oil case (at [51]) the following propositions were seen as emerging from the reasoning in NW Frozen Foods : "(i) It is the responsibility of the Court to determine the appropriate penalty to be imposed under s 76 of the TP Act in respect of a contravention of the TP Act. (ii) Determining the quantum of a penalty is not an exact science. Within a permissible range, the courts have acknowledged that a particular figure cannot necessarily be said to be more appropriate than another. (iii) There is a public interest in promoting settlement of litigation, particularly where it is likely to be lengthy. Accordingly, when the regulator and contravenor have reached agreement, they may present to the Court a statement of facts and opinions as to the effect of those facts, together with joint submissions as to the appropriate penalty to be imposed. (iv) The view of the regulator, as a specialist body, is a relevant, but not determinative consideration on the question of penalty. In particular, the views of the regulator on matters within its expertise (such as the ACCC's views as to the deterrent effect of a proposed penalty in a given market) will usually be given greater weight than its views on more "subjective" matters. (v) In determining whether the proposed penalty is appropriate, the Court examines all the circumstances of the case. Where the parties have put forward an agreed statement of facts, the Court may act on that statement if it is appropriate to do so. (vi) Where the parties have jointly proposed a penalty, it will not be useful to investigate whether the Court would have arrived at that precise figure in the absence of agreement. The question is whether that figure is, in the Court's view, appropriate in the circumstances of the case. In answering that question, the Court will not reject the agreed figure simply because it would have been disposed to select some other figure. It will be appropriate if within the permissible range." 10 There has been some criticism of this approach as involving "platitudes": see per Weinberg J in Australian Prudential Regulation Authority v Derstepanian [2005] FCA 1121. And in Vizard (above), the court imposed a higher penalty than that agreed by the partiers and sought by the regulator. 11 It is clear that the court is in no way constrained by the parties' agreement and that, having made the declaration of contravention, it must exercise its discretion as to penalty. … 137 This approach is adopted to ensure that the public interest in the imposition of an appropriate sanction is served. As Barrett J mentioned, in the past this has on occasion seen a court insist on a more severe sanction than that to which the parties had agreed. But, especially in a case such as the present where many of the defendants have not been legally represented, it is equally important to ensure that an excessive sanction is not imposed. 138 In this case the position is complicated, to some extent, by the circumstance that, having read the evidence in the case of Mr Nahed, my appreciation of the underlying facts is far more extensive than what is comprised in the statements of agreed facts. For present purposes, I am inclined to accept the agreed facts insofar as they are "primary" facts, and where they are conclusions on issues on which evidence has not otherwise been tendered. I bear in mind that the agreement has dispensed with the need strictly to prove the allegations of fact upon which ASIC's case depends. I also bear in mind the considerable public interest in encouraging parties such as these to reach agreement, as it results in a substantial saving of resources and time for the Court, for ASIC and for the defendants. [In this particular case, it saved about 13 days of court time, which saving enabled three other fixtures, which would otherwise have been not reached, to be heard]. 139 That said, and adopting that approach, I consider that some of the orders proposed are inappropriate and I will not make them. Certain others I am prepared to make, but only because they are the subject of agreement and in my view do not operate to the prejudice of the defendants. In one case I consider that an additional restraint is necessary; in two others I consider that the disqualifications are too severe. I will first make some general observations about the proposed orders. The injunction against misleading and deceptive conduct: 140 In the case of each defendant, there is proposed an order that, pursuant to Corporations Act, s 1324 and ASIC Act, s 12GD, the relevant defendant be permanently restrained from engaging in conduct in relation to financial services which is misleading and deceptive or which is likely to mislead to deceive, in contravention of Corporations Act, s 1041H and ASIC Act, s 12DA. 141 In my opinion it is inappropriate to grant an injunction in those terms. Such an order has the effect of converting a civil liability for contravention of the statutory prohibition into a quasi-criminal one, in respect not only of those particular activities of the defendant which gave rise to the relevant breach, but in respect of all its activities, so that if in another area of its operations it engaged in misleading and deceptive conduct in relation to financial services, even inadvertently, it would commit a contempt of court [see Heydon, Trade Practices Law, [18.910]]. In the context of Trade Practices Act, s 52, orders prohibiting a respondent from engaging in "any conduct that in misleading or deceptive or which is likely to mislead or deceive" are not favoured, and the preferable course is to frame injunctions in terms of what the respondent has done or threatened to do [World Series Cricket Pty Ltd v Parish (1977) 16 ALR 181, 204-205]. The injunction should be expressed in terms which indicate the restrained conduct in a way which enables the defendant to know what as a matter of fact is expected [Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1; BMW Australia Limited v ACCC (2004) 207 ALR 452; ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248]. The terms of an injunction should be specific, so that the person subject to it can understand clearly what conduct will amount to a breach of it and what conduct can legitimately be pursued [ACCC v Frances [2004] FCA 487]. In this case, although the proposed injunction is limited to conduct "in relation to financial services", that still leaves open a very wide range of conduct, so that a contravention of the injunction could be inadvertent, and quite unrelated to the contravening conduct established in this case. 142 I have not overlooked Corporations Act, s 1324(6), which provides that the court can grant an injunction whether or not it appears that the respondent intends to engage again or continue to engage in the relevant conduct or has previously engaged in such conduct, nor s 1324(3) which provides that the court may grant an injunction by consent of all parties whether or not it is satisfied that a party has engaged, is engaging or is proposing to engage in contravening conduct. My view that such an injunction is much too wide and inappropriate depends not on the matters that those subsections address, but on the circumstance that it will effectively attach quasi-criminal consequences to what may be inadvertent and unspecific conduct. 143 In my view, other orders proposed – including the disqualifications – provide ample protection of the public interest in respect of the potential future conduct of the defendants. I will not grant this proposed injunction. The Declarations of Contravention of Pecuniary Penalty Provisions 144 As against all the remaining defendants except Coakleys, declarations of contravention pursuant to s 1317E are proposed; in the case of Mr Maxwell and Mr Malcolm Fortune, consequential pecuniary penalty orders are also proposed. The civil penalty provisions said to have been contravened are s 180, s 181 and (in the case of Mr Maxwell) s 182. Broadly, the breaches of duty relied upon involve failures to prevent the relevant corporations from contravening other provisions of the Act (which other provisions are not civil penalty provisions). Above, I have explained that in my view it is not the role of the directors' duties provisions to make officers liable for breaches by corporations of provisions that do not themselves provide for accessorial civil liability. However, I have acknowledged that a director or other officer may breach his or her duties by allowing the corporation to contravene provisions of the Corporations Act, if such contravention is likely to result in jeopardy to the interests of the corporation. 145 I have decided that I should generally act on the agreement of the parties that there have been breaches of those duties, mindful of the circumstance that not all the evidence which would have been adduced on a contested hearing is before me, and that the agreed position is likely to include aspects of compromise. However, in four cases (Mr Bennett, Mr Kolios, Mr Skaf and Mr Jammal) I do not accept that the agreed facts sustain a breach of the duty of good faith (s 181), although they do of the duty of care and diligence (s 180). 146 The declarations of contravention proposed take the form of treating as a single contravention of s 180, and as another contravention of s 181, the relevant course of conduct of the defendants as directors of the relevant Group over the whole period of the operation of the schemes. Generally speaking, this is doubly inappropriate. 147 First, the directors' duties provisions do not create liability for, in general terms, being a negligent director; a contravention involves a particular act or default in respect of a particular corporation [Byrne v Baker [1964] VR 443; Vrisakis], and there should be a separate declaration of contravention in respect of each such act or default. In this case, however, the parties have been content to treat the whole course of conduct as constituting a single contravention. I am satisfied that it does not in the circumstances operate to the prejudice of the defendants to treat as one contravention what may have been multiple contraventions. 148 Secondly, the same conduct should be treated as constituting one contravention only, and not separate contraventions of ss 180 and 181. Corporations Act, ss 180, 181 and 182 are intended to give statutory recognition to the general law duties of company directors, and to make available additional sanctions for their breach, but not to create a regime of multiple jeopardy. The same conduct may constitute a breach of the duty to act in good faith as well as of the duty of care and diligence. At general law, what mattered was that the conduct was in breach of a director's duties; and although the same conduct might have been characterised as a breach of more than one of those duties, it constituted only a single breach. Bearing in mind that at least ss 181 and 182 have criminal as well as civil sanctions, and on well-established principles, the same conduct should be penalised only once. I have addressed this by consolidating the proposed declarations of contravention of the different sections into one declaration of contravention. The S 79 and other declarations 149 Each set of Short Minutes includes numerous other proposed declarations, to the effect that there have been contraventions - by the ProCorp companies and the Central Development companies as the case may be - of various provisions (not being civil penalty provisions) of the Corporations Act – particularly the fundraising provisions, and the misleading and deceptive conduct provisions – while the relevant defendant was an officer. To that extent, they are intended to lay the groundwork for disqualification under s 206E, and essentially do no more than record agreed facts. While I note and take them into account as agreed facts, making them as declarations is not essential to the operative relief to be granted against the relevant defendant, and serves no particular utility. Moreover, they culminate in a proposed declaration that the relevant defendant was "involved", within the meaning of Corporations Act, s 79, in those contraventions. As I have explained, in my view, s 79 does not apply to such contraventions (being contraventions of provisions which are not civil penalty provisions and do not make provision for accessorial civil liability) and it is not appropriate that such a declaration be made. The banning orders 150 Banning orders, varying from two years to life, are proposed against each of the remaining defendants. In ASIC v Adler (2002) 42 ACSR 80; [2002] NSWSC 483, Santow J (as his Honour then was) explained the function and application of disqualification orders. In short, s 206C authorises disqualification where a declaration has been made of contravention of a civil penalty provisions, and the court is satisfied that the disqualification is justified taking into account the matters in subs (2). A disqualification order can also be made under s 206E, where a person has at least twice been an officer of a body corporate that has contravened the Act, or such person has at least twice contravened the Act while an officer, provided that the court is satisfied that disqualification is justified, having regard to the same matters as apply in relation to s 206C. Those matters are (a) the person's conduct in relation to the management, business or property of any corporation; and (b) any other matters that the Court considers appropriate. Santow J identified the guiding principles and relevant factors which can be derived from the cases as follows [I have omitted his Honour's extensive references to the authorities]:- [56] The cases on disqualification gave orders ranging from life disqualification to 3 years. The propositions that may be derived from these cases include: (i) Disqualification orders are designed to protect the public from the harmful use of the corporate structure or from use that is contrary to proper commercial standards. (ii) The banning order is designed to protect the public by seeking to safeguard the public interest in the transparency and accountability of companies and in the suitability of directors to hold office. (iii) Protection of the public also envisages protection of individuals that deal with companies, including consumers, creditors, shareholders and investors. (iv) The banning order is protective against present and future misuse of the corporate structure. (v) The order has a motive of personal deterrence, though it is not punitive. (vi) The objects of general deterrence are also sought to be achieved. (vii) In assessing the fitness of an individual to manage a company, it is necessary that they have an understanding of the proper role of the company director and the duty of due diligence that is owed to the company. (viii) Longer periods of disqualification are reserved for cases where contraventions have been of a serious nature such as those involving dishonesty. (ix) In assessing an appropriate length of prohibition, consideration has been given to the degree of seriousness of the contraventions, the propensity that the defendant may engage in similar conduct in the future and the likely harm that may be caused to the public. (x) It is necessary to balance the personal hardship to the defendant against the public interest and the need for protection of the public from any repeat of the conduct. (xi) A mitigating factor in considering a period of disqualification is the likelihood of the defendant reforming. (xii) The eight criteria to govern the exercise of the court's powers of disqualification set out in Commissioner for Corporate Affairs (WA) v Ekamper (1987) 12 ACLR 519 have been influential. It was held that in making such an order it is necessary to assess: • character of the offenders; • nature of the breaches; • structure of the companies and the nature of their business; • interests of shareholders, creditors and employees; • risks to others from the continuation of offenders as company directors; • honesty and competence of offenders; • hardship to offenders and their personal and commercial interests; and • offenders' appreciation that future breaches could result in future proceedings. (xiii) Factors which lead to the imposition of the longest periods of disqualification (that is disqualifications of 25 years or more) were: • large financial losses; • high propensity that defendants may engage in similar activities or conduct; • activities undertaken in fields in which there was potential to do great financial damage such as in management and financial consultancy; • lack of contrition or remorse; • disregard for law and compliance with corporate regulations; • dishonesty and intent to defraud; • previous convictions and contraventions for similar activities. (xiv) In cases in which the period of disqualification ranged from 7–12 years, the factors evident and which lead to the conclusion that these cases were serious though not "worst cases", included: • serious incompetence and irresponsibility; • substantial loss; • defendants had engaged in deliberate courses of conduct to enrich themselves at others' expense, but with lesser degrees of dishonesty; • continued, knowing and wilful contraventions of the law and disregard for legal obligations; • lack of contrition or acceptance of responsibility, but as against that, the prospect that the individual may reform; (xv) The factors leading to the shortest disqualifications, that is disqualifications for up to 3 years were: • although the defendants had personally gained from the conduct, they had endeavoured to repay or partially repay the amounts misappropriated; • the defendants had no immediate or discernible future intention to hold a position as manager of a company; • in Donovan's case, the respondent had expressed remorse and contrition, acted on advice of professionals and had not contested the proceedings. 151 In considering the proposed banning orders, I have endeavoured to apply those principles and to have regard to those factors. The first defendant, Mr Maxwell 152 ASIC and Mr Maxwell have recorded in a Statement of Agreed Facts (PX03) those facts upon which they ask the court to make orders to which they have agreed. 153 Mr Maxwell has twice been made bankrupt, first on 14 November 1986 (from which he was discharged on 15 November 1989), and secondly on 13 December 1999 (from which he was not discharged until 14 December 2002). On 13 July 1999, he pleaded guilty to and was convicted on ten counts of contravening Crimes Act 1900 (NSW), s 178BA (obtain financial benefit by deception), for which he was on 6 December 1999 sentenced to ten concurrent fixed terms of imprisonment for a period of twelve months to be served by periodic detention. Although not mentioned in PX03, he also at the same time pleaded guilty to and was convicted on twelve counts of offering securities without a prospectus in contravention of Corporations Law, s 1018(1) (the predecessor of Corporations Act, s 727), which prohibited offering securities without a registered prospectus, for which he was placed on a $1000 good behaviour bond for three years. Neither Mr Maxwell nor his company BEST has ever held an Australian Financial Services Licence. 154 Mr Maxwell and BEST were retained to solicit lenders to provide seed capital for the ProCorp projects, for a commission of 10% of the moneys advanced. Between about November 2001 and November 2003 he solicited persons to lend money to ProCorp, Oceanwalk and the ProCorp companies and seed capital for the ProCorp projects. He placed advertisements for ProCorp in the Sydney Morning Herald and the Parramatta Sun. He sent to potential investors the ProCorp information memorandum, the ProCorp offer document, and promotional brochures, which were intended to influence potential investors to lend moneys to the ProCorp group for the ProCorp projects. He had conversations with potential investors in which he made recommendations to influence them to lend money to the ProCorp group and invited them to do so. He provided to prospective investors a proposed loan agreement. 155 After and despite the orders of 15 October 2003, Mr Maxwell continued to solicit persons to lend money to Bankstown (for the Five Dock project), to Drummoyne (for the Drummoyne project), to Great Northern (for the Newport project), to Liverpool (for the Liverpool project), and to Northern Site (for the Ettalong project). 156 Of the ProCorp group loans, Mr Maxwell was responsible for raising a total of $8,122,500, and was paid commission of $812,250. 157 Mr Maxwell admits that he knew, believed and was otherwise aware that the loans were entered into with investors who did not satisfy the requirements of s 708(10), and that the loans were in contravention of the fundraising provisions of the Corporations Act. He also knew, believed and was otherwise aware that the post-October 2003 loans were in contravention of the 15 October orders. 158 Mr Maxwell admits that the ProCorp advertisements, the ProCorp memorandum, the ProCorp information memorandum and the ProCorp offer document were misleading or deceptive or likely to mislead or deceive in several respects, and were made in trade and commerce and in relation to a financial product and a financial service. He also admits that in making the post-October representations he, in trade and commerce in relation to a financial product and a financial service, made representations that were misleading or deceptive or likely to mislead or deceive. 159 Mr Maxwell also admits that from the moneys raised after October 2003, he authorised payments other than for costs of or incidental to the relevant projects. 160 Mr Maxwell played an equivalent role in the Central Development Scheme, in respect of the Waitara and Maroubra properties, for which he solicited persons to lend money, placed advertisements in newspapers, distributed promotional documentation intended to influence potential investors to lend money, had conversations with potential investors in which he made recommendations intended to influence them to lend money and invited them to do so, and continued to do so after the orders of 15 October 2003. Mr Maxwell was responsible for securing all of the Central Development Group loans, and was paid commissions totalling $280,500. 161 Again, Mr Maxwell admits that he knew that the Central Development Group loans, including the post 15 October loans, were entered into in contravention of the fundraising provisions of the Corporations Act, and, as to the post 15 October loans, in contravention of the orders. He also admits that by preparing, issuing, publishing and distributing advertisements and promotional material, including after 15 October 2003, he made representations, in trade and commerce and in relation to a financial produce and a financial service, which were misleading or deceptive or likely to mislead or deceive in various respects. 162 By virtue of his second bankruptcy Mr Maxwell was, pursuant to Corporations Act, s 206B(3), prohibited from managing corporations until 14 December 2002; and by reason of his conviction and imprisonment, he was pursuant to s 206B(1) and (2) prohibited from managing corporations until 6 December 2005. Mr Maxwell admits that his role in relation to the ProCorp projects and the Central Development projects was such that he fell within the definition of an "officer" of Oceanwalk, ProCorp and the ProCorp companies, and Central Development, Wake and Maroubra. 163 Each of Oceanwalk, ProCorp, Alliance, Gosford, Miranda, the ProCorp companies and the Central Development companies failed between 2003 and 2004, and the manner in which they were managed was wholly or partly responsible for their failure. The debts which those companies were unable to pay as and when they fell due included capital and interest owed to 102 persons who had entered into the ProCorp Group loans and the ProCorp loans in respect of loans totalling $9,795,000; the capital and interest owed to 16 persons who had entered into the Bankstown, Drummoyne, Great Northern, Liverpool and Northern Site loans, in respect of loans totalling $1,030,000; the capital and interest owed to 30 persons who had entered into the Central Development Group loans and the Wake loans in respect of loans totalling $3,045,000; and the capital and interest owed to two persons who had entered into the post-order Central Development loans, in respect of loans totalling $245,000. 164 Mr Maxwell has admitted that his conduct in respect of ProCorp, Bankstown, Drummoyne, Great Northern, Liverpool, Northern Site, Central Development, Wake and Maroubra justifies the making of a disqualification order against him. 165 The substantive operative orders proposed in respect of Mr Maxwell are: · A declaration of contravention, pursuant to s 1317E, of Corporations Act, s 180 in respect of the ProCorp Group (par 15) and the Central Development Group (par 16), s 181 in respect of the ProCorp Group (par 17) and the Central Development Group (par 18), and 182 in respect of the ProCorp Group (par 19) and the Central Development Group (par 20); · An injunction, pursuant to Corporations Act, s 1324(1), permanently restraining him from offering securities without a current disclosure document, in contravention of Corporations Act, s 727 (par 23); · An injunction, pursuant to s 1324(1), permanently restraining him from advertising or publishing statements that directly or indirectly refer to an offer or intended offer of securities, in contravention of s 734 (par 24); · An injunction, pursuant to s 1324 and ASIC Act, s 12GD, permanently restraining him from engaging in conduct in relation to financial services which is misleading or deceptive or likely to mislead or deceive in contravention of Corporations Act, s 1041H and ASIC Act, s 12DA (par 25); · An order, pursuant to Corporations Act, ss 206C(1), 206D(1) and 206E(1), disqualifying him from managing corporations permanently (par 26); · An order, pursuant to Corporations Act, s 1317H(1), that he pay compensation of $936,500 to the liquidator of the companies involved in the post-order non-project payments (par 27); · An order, pursuant to s 1317G(1), that he pay a pecuniary penalty of $110,000 (par 28); · An order that he pay the plaintiff's costs agreed in the sum of $55,500 (par 29). 166 As to the s 1317E declarations of contravention, it follows, from acceptance of Mr Maxwell's concession that he was relevantly an officer of the ProCorp companies and the Central Development companies, that the duties imposed by ss 180, 181 and 182 attached to him in that capacity. In distinction from, for example, Mr Nahed, Mr Maxwell was instrumental and central to the contravening conduct. He knew that the ProCorp Group loans (including the ProCorp loans), and the Central Development loans, were in contravention of the fundraising provisions of the Corporations Act. Given his role, and having regard to his concessions in PX03, I am satisfied that in connection with his promotion of the ProCorp Scheme and the Central Development Scheme, Mr Maxwell's conduct, given its intentional character, can be seen as a failure to exercise his powers and discharge his duties in good faith in the best interests of the relevant corporation (in contravention of s 181), and a use of his position to gain an advantage (commission payments) for himself (in contravention of s 182), as well as a failure to use adequate care (in contravention of s 180). Accordingly, having regard to the consents of the parties, I am prepared to make declarations of contravention, pursuant to s 1317E, of Corporations Act, ss 180(1), 181(1) and 182(1), in respect of his conduct as an officer of each of the ProCorp Group and the Central Development Group. 167 I am satisfied, particularly having regard to s 1324(3) and (6), that it is appropriate to grant the injunctions in pars 23 and 24 of the Short Minutes. For the reasons given above, I will not make the order referred to in par 25. 168 So far as the disqualification order is concerned, having regard to Mr Maxwell's admission that his role placed him within the definition of an "officer", and my conclusions that he has contravened a civil penalty provision, namely Corporations Act, ss 180, 181 and 182, s 206C is available. Taking into account not only Mr Maxwell's concession that disqualification is justified and his agreement to a permanent disqualification, but also his admission that he knew that he was engaging in illegal fundraising, and that he had been convicted in criminal proceedings for similar conduct, and for obtaining a financial benefit by deception, in the past, I am satisfied that Mr Maxwell is not a fit and proper person to have the management of a corporation, and that permanent disqualification is justified. 169 As s 206D authorises a disqualification only for up to 20 years it could not support the proposed order for permanent disqualification and accordingly I need not resolve whether it too is available. However, I am also satisfied that Mr Maxwell has, at least twice, been an officer of a body corporate that has contravened the Act while he was an officer and has failed to take reasonable steps to prevent the contravention, and accordingly that the disqualification may be supported also by s 206E. 170 A compensation order pursuant to Corporations Act, s 1317H(1), in respect of the moneys paid after 15 October 2003 for purposes other than the costs of the relevant projects, amounting to $936,500. Such an order can be made if Mr Maxwell has contravened a civil penalty provision, and the damage resulted from that contravention. I am satisfied that the authorisation by Mr Maxwell of the post-order non-project payments was a breach of his duty as an officer of the ProCorp companies and of the Central Development Companies, and that by those funds being paid away from those companies to third parties, the companies suffered loss. I am therefore prepared to make an order to the effect of that proposed in paragraph 27, but I will allocate the amount payable between each of the five corporations concerned, according to the amounts respectively paid from each of them. 171 A pecuniary penalty of $110,000 is proposed. Such an order may be made if a declaration of contravention has been made under s 1317E, and the contravention is of a corporation/scheme civil penalty provision, and the contravention materially prejudices the interests of the corporation or its members, or materially prejudices the corporation's ability to pay its creditors, or is serious. I am satisfied that (a) his promotion of each of the ProCorp Scheme and the Central Development Scheme otherwise than in good faith in the best interests of the relevant corporation, (b) his improper use of his position to gain an advantage for himself by receiving commission payments, and (c) his authorisation of the post-order non-project payments, satisfies those requirements, and I am prepared to impose the agreed pecuniary penalty. In my view such penalties should be allocated to the declared contraventions, and having regard mainly to the amounts involved, I would allocate $80,000 to the contravention in respect of the ProCorp Group, and $30,000 to that in respect of the Central Development Group. 172 Although the remedy primarily pursued by ASIC in these proceedings has been disqualification under s 206C, s 206D and/or s 206E, the vice in the conduct of Mr Maxwell was not so much in the management of corporations, but in his fundraising activities and his provision of "financial services". While s 921A might have afforded an appropriate remedy, the procedural preconditions for its invocation have not been satisfied. However, another remedy is provided by s 1101B, which provides that the court may make such order or orders as it thinks fit if, on the application of ASIC, it appears to the court that a person has contravened a provision of Chapter 7 or any other law relating to dealing in financial products or providing financial services (but only if the court is satisfied that the order would not unfairly prejudice any person). Section 1101B(4) provides some non-exclusive examples of orders that the court may make under subsection (1), including an order restraining a person from carrying on a business, or doing an act or classes of acts, in relation to financial products or financial services, if the person has persistently contravened, or is continuing to contravene a provision or provisions of Chapter 7 or of any other law relating to dealing in financial products or providing financial services. 173 I am satisfied that Mr Maxwell has persistently contravened provisions of Chapter 7 and/or of other laws relating to dealing in financial products or providing financial services. In my view, an order should be made restraining him from carrying on or being engaged in any financial services business, or providing a financial service, within the meaning of Corporations Act, Part 7. 174 As against Mr Maxwell, I will make orders in accordance with Schedule A to this judgment. The Eighth Defendant, Mr Malcolm Fortune 175 The statement of facts agreed between ASIC and Mr Fortune is PX04. 176 Relevantly, Mr Fortune was a bankrupt from 26 May 1997 until 27 May 2000. He was a director of Oceanwalk from 14 November 2000 until it was deregistered on 22 May 2005, and was a director when it went into liquidation on 3 March 2004. Mr Fortune held the position of Chief Executive Officer of Oceanwalk, General Project Advisor and Chief Executive Officer of each of ProCorp, Bankstown, Drummoyne, Great Northern, Homebush, Liverpool, Mansions, Miranda, Gosford, Zepher and Northern Sight; controlled or was involved in the management of each of those companies; and controlled or was involved in the management of the ProCorp projects. 177 Mr Fortune knew that Mr Maxwell and Coakleys were soliciting persons to lend money to ProCorp and the ProCorp companies for the ProCorp projects, and supervised, controlled, managed and otherwise participated in those solicitations. He knew and understood the general nature of the obligations and limitations imposed on fundraising by the Corporations Act, and that the making of the solicitations would contravene those provisions unless the exemption afforded by s 708(10) applied. Mr Fortune knew, expected and believed that the ProCorp promotional documentation was intended to influence potential investors to lend money to ProCorp and the ProCorp companies for the ProCorp projects. Mr Fortune signed the majority of the ProCorp loan agreements on behalf of the guarantor Oceanwalk. He knew that the investors did not satisfy the requirements of s 708(10), and that the ProCorp Group loans and ProCorp loans were entered into in contravention of the fundraising provisions of the Corporations Act. He encouraged Coakleys to provide "statements of reasons" for 63 lenders, knowing that Coakleys had not met those investors and that they did not satisfy the necessary criteria for a proper statement of reasons. Of the ProCorp Group loans, Mr Fortune (and Oceanwalk) was responsible for raising $1,605,000 from 18 investors. 178 Mr Fortune concedes that his conduct in respect of Oceanwalk, ProCorp, Gosford and the ProCorp companies justifies the making of a disqualification order against him. He also concedes that the manner in which each of Oceanwalk, ProCorp, Gosford, Miranda and the ProCorp companies was managed was wholly or partly responsible for their failure. 179 The substantive orders proposed against Mr Fortune are: · Declarations pursuant to s 1317E of contravention of ss 180 and 181; · An injunction pursuant to Corporations Act, s 1324, permanently restraining him from conducting a financial services business in contravention of s 911A (par 14); · An injunction pursuant to s 1324 permanently restraining him from providing financial services in contravention of s 911B (par 15); · An injunction pursuant to s 1324 permanently restraining him from offering securities without a current disclosure document in contravention of s 727 (par 16); · An injunction pursuant to s 1324 permanently restraining him from advertising or publishing a statement that directly or indirectly refers to an offer or intended offer of securities in contravention of s 734 (par 17); · An injunction pursuant to s 1324 and s 12GD permanently restraining him from engaging in conduct in relation to financial services which is misleading and deceptive or likely to mislead or deceive (par 18); · Disqualification for twelve years (par 19); · A pecuniary penalty pursuant to s 1317G of $200,000 (par 20); · Costs of $50,000 (par 21). 180 The civil penalty provisions that Mr Fortune is said to have contravened are ss 180 and 181. In his case, I am prepared to accept that, given the extent of his admitted knowledge and understanding of the non-compliant nature of the fundraising, his dominant role in the company, and the consequent potential exposure of the company to liability, his conduct was intentional and with knowledge that it placed the corporations in jeopardy, so as to amount to a breach of his duty of good faith, as well as his duty of care and diligence. 181 I am satisfied, having regard also to s 1324(3), that it is appropriate to grant the injunctions in pars 14, 15, 16 and 17. For reasons previously explained I will not grant the injunction referred to in par 18. I am satisfied that in Mr Fortune's case, disqualification is available under s 206C, 206D and 206E, and that having regard to his role, a period of twelve years is not inappropriate. 182 Mr Fortune's role in the ProCorp Scheme was a major one. I am also satisfied, for the purposes of s 1317G(1), that his breach of duty materially prejudiced the interests of the relevant corporations. 183 As against Mr Fortune, I will make the orders in Schedule B. The Twenty-Third Defendant Troy Fortune 184 The statement of facts agreed between ASIC and Mr Troy Fortune is PX06. 185 Troy Fortune became a shareholder and director of the ProCorp companies at the request of his father Malcolm Fortune, who was bankrupt at the time. He admits that he controlled or was involved in the management of the ProCorp companies and the ProCorp projects, and was responsible under the direction of Malcolm Fortune for the day-to-day business operations of Oceanwalk and the ProCorp companies. His father was the driving force and the final decision-maker in respect of Oceanwalk, ProCorp and the ProCorp companies. He was not directly involved in the decision to engage Mr Maxwell, nor in the decision to engage Coakley Associates. Following the commencement of these proceedings, on or about 27 November 2003, he signed resignations from Mansions, Liverpool, Homebush, Drummoyne, Bankstown and Great Northern and ceased to act as such, although the resignations were not lodged with ASIC. He remained a director of ProCorp until it was deregistered on 8 April 2005. 186 He knew of the ProCorp solicitations and their purpose, and supervised, controlled, managed and otherwise participated in them. He knew and understood the general nature of the obligations and limitations imposed on fundraising by the Corporations Act, and that the solicitations would contravene those provisions unless the s 708(10) exemption were available. He knew that Mr Maxwell, Coakley Associates, Oceanwalk, ProCorp and the ProCorp companies sent promotional documentation to potential investors, intended to influence them to lend money for the ProCorp projects. He knew that Mr Maxwell, Coakleys, Oceanwalk and the ProCorp companies, made recommendations and expressed opinions to potential investors intended to influence them to lend money, and invited them to do so. He signed most of the ProCorp loan agreements on behalf of ProCorp, and controlled the bank accounts into which the investment proceeds were deposited, from which they were spent on building, managing and developing the projects. He knew that the investors were not such as would satisfy the requirements of s 708(10), and that the loans were entered into in contravention of the fundraising provisions of the Corporations Act. He knew that the statements of reasons executed by Coakleys could not properly have been given. He concedes that his conduct in respect of the companies of which he was a director justifies the making of a disqualification order against him. 187 The substantive orders proposed against Troy Fortune are: · Declarations pursuant to s 1317E of contravention of ss 180 and 181; · An injunction pursuant to Corporations Act, s 1324, permanently restraining him from conducting a financial services business in contravention of s 911A (par 12); · An injunction pursuant to s 1324 permanently restraining him from providing financial services in contravention of s 911B (par 13); · An injunction pursuant to s 1324 permanently restraining him from offering securities without a current disclosure document in contravention of s 727 (par 14); · An injunction pursuant to s 1324 permanently restraining him from advertising or publishing statements that directly or indirectly refer to an offer or intended offer of securities in contravention of s 734 (par 15); · An injunction pursuant to s 1324 and s 12GD permanently restraining him from engaging in conduct in relation to financial services which is misleading and deceptive or likely to mislead or deceive (par 16); · Disqualification for seven years. 188 Declarations are proposed pursuant to s 1317E of contraventions of s 180(1) and s 181(1). In the case of Mr Troy Fortune, I am prepared to accept that - by reason of his knowledge (1) of the status of the investors and their inability to satisfy s 708(10), (2) that the loans were entered into in contravention of the fundraising provisions of the Corporations Act, and (3) that the statements of reasons executed by Coakleys could not properly have been given - that his conduct fell short not only of his obligations of care and diligence but also of his obligation of good faith, because it involved participation in conduct which he must have known could expose the corporations to jeopardy. 189 I am satisfied, having regard also to s 1324(3), that it is appropriate to make the orders referred to in paragraphs 12, 13, 14 and 15. For reasons already explained I will not make the order in paragraph 16. 190 As to the disqualification, it follows that I am satisfied that s 206C is available. I also am satisfied that while he was a director, companies of which he was a director committed numerous contraventions of the Act, so that s 206E is available. I am satisfied that disqualification for seven years is not inappropriate. 191 In respect of Mr Troy Fortune, I will make the orders in Schedule C. The Twenty-Fourth Defendant, Mr Bennett 192 The statement of facts agreed between ASIC and Mr Bennett is PX05. 193 Mr Bennett is 58 years of age. He is a self-employed public accountant. He was made bankrupt on 31 January 2005. 194 Mr Bennett was a certified practicing accountant and the accountant for the companies in the ProCorp Group. He was a director of ProCorp until it was deregistered on 8 April 2005. He was a director of Alliance until it was deregistered on 8 April 2005. He was a director of Liverpool until not later than 27 November 2003. He was a director of Mansions until 27 November 2003. He was a director of Gosford until it was deregistered on 25 March 2005. 195 Mr Bennett was not aware of the terms of any agreement between Oceanwalk and Mr Maxwell, nor of the terms of Coakleys' retainer (though he was informed by Malcolm Fortune that Mr Coakley was a licensed securities dealer). He knew of the ProCorp solicitations and their purpose, and understood the general nature of the obligations and limitations imposed on fundraising by the Corporations Act, and that the solicitations would contravene them unless the s 708(10) exemptions were available. 196 Mr Bennett was unaware that advertisements were placed in any publication until informed by an ASIC officer in July 2003 when he took steps to prevent publication of any further advertisements. He knew that promotional documentation was sent to potential investors, which was intended to influence them to lend moneys for the ProCorp projects. He knew that Mr Maxwell, Coakleys, Oceanwalk, ProCorp and the Fortunes made recommendations and expressed opinions to potential investors intended to influence them to lend money, and invited them to do so. He knew that they provided proposed loan agreements containing an invitation to lend money to potential investors. He believed that as a director he was required to supervise and manage the loans, and concedes that he should have been aware that the loans were entered into with investors who did not meet the requirements of s 708(10). He was unaware of Mr Maxwell's involvement, but accepts that as a director he ought to have been aware of it. 197 He concedes that he breached his duties as a director by failing to take proper steps to ensure that the fundraising complied with the Corporations Act and permitting the loans to be made in circumstances where they would not comply, in failing to take proper steps to ensure that representations contained in certain of the promotional documentation were not misleading and deceptive and in otherwise permitting the issue of that documentation in circumstances where he knew or ought to have known that they included representations that were misleading or deceptive. He also admits that the failure of ProCorp and the ProCorp companies was wholly or party attributable to the manner in which they were managed. 198 The substantive operative orders proposed in the short minutes between ASIC and Mr Bennett are: · Declarations pursuant to s 1317E of contravention of ss 180 and 181; · An injunction pursuant to Corporations Act, s 1324, permanently restraining him from conducting a financial services business in contravention of s 911A (par 11); · An injunction pursuant to s 1324 permanently restraining him from providing financial services in contravention of s 911B (par 12); · An injunction pursuant to s 1324 permanently restraining him from offering securities without a current disclosure document in contravention of s 727 (par 13); · An injunction pursuant to s 1324 permanently restraining him from advertising or publishing statements that directly or indirectly refer to an offer or intended offer of securities in contravention of s 734 (par 14); · An injunction pursuant to s 1324 and s 12GD permanently restraining him from engaging in conduct in relation to financial services which is misleading and deceptive or likely to mislead or deceive (par 15); · Disqualification for five years (par 16). · Costs in the sum of $2,000 (par 17). 199 Declarations are proposed pursuant to s 1317E of contraventions of s 180(1) and s 181(1). While I am prepared to accept that insofar as he failed to ensure that the fundraising complied with the Corporations Act and failed adequately to supervise Mr Maxwell, his conduct fell short of his obligations of care and diligence, the agreed facts do not show Mr Bennett to have had the same appreciation that the fundraising was non-compliant as the Fortunes had. On the admitted facts, his conduct involved a want of care, but not a want of good faith. I am not prepared to make a declaration of contravention of s 181(1), but I will of s 180(1). 200 I am satisfied, having regard also to s 1324(3), that it is appropriate to make the orders referred to in paragraphs 11, 12, 13, and 14. For reasons already explained I will not make the order in paragraph 15. 201 As to the disqualification, it follows that I am satisfied that s 206C is available. I am also satisfied that while Mr Bennett was a director of relevant corporations, those corporations committed numerous contraventions of the Corporations Act and that he failed to take reasonable steps to prevent the contraventions; accordingly, s 206E is also available. I observe that he alone offered an expression of contrition and recognition of his shortcomings, which I believe was realistic and sincere. I am satisfied that disqualification for a period of five years is not inappropriate. 202 In respect of Mr Bennett, I will make the orders in Schedule D. The Ninth and Twenty-Seventh Defendants, Coakleys 203 The statement of facts agreed between ASIC and Coakleys is PX07. 204 Coakleys' involvement relates only to the ProCorp Scheme. Mr Coakley was born in 1943. He carried on business as a certified practising accountant from his home in Enmore, through a company, Coakley Associates Pty Ltd. Coakley Associates held a Dealers Licence under the Corporations Law, and Mr Coakley was the "responsible person" nominated on that licence. ASIC had, pursuant to Corporations Law, s 786, imposed a number of conditions on Coakleys' licence, including a condition that it take all steps to ensure compliance with all relevant provisions of a Securities Law. While the effect of the transitional provisions was that the holders of such licences had approximately 2 years to transition to an Australian Financial Services licence pursuant to Part 7.6 of the Corporations Act, he did not hold an Australian Financial Services licence. However, on legal advice he believed that he was entitled to act as if he did. 205 Between about 2001 and 2002, Coakleys began to advise and assist the operators of the ProCorp Scheme. As a result of observations of two previous Oceanwalk projects he believed that Oceanwalk was sound and responsible. Mr Coakley participated in a number of meetings with Mr Malcolm Fortune and the solicitor, Mr Burnett, and occasionally Mr Nahed, Troy Fortune and Mr Bennett, at which advice was given as to the legal requirements for fundraising. Coakleys were involved in the preparation and the issue of the ProCorp Information Memorandum and the ProCorp Offer Document. Moreover, although Coakleys introduced only a very few investors, they issued Statements of Reasons in respect of investors who they did not introduce. These Statements were intended to invoke the exemption afforded by Corporations Act, s 708(10). By issuing them, Coakleys represented that they had met the investors; that they had investigated their financial circumstances and objectives; that they were satisfied on reasonable grounds that those investors had previous experience with securities which allowed them to assess the merits of the offer, the value of the securities, the risks involved in accepting the offer, their own information needs, and the adequacy of the information given by the person making the offer; and that they had given those investors - before, or at the time when they entered into the ProCorp Loans - a written statement of reasons for being satisfied as to those. 206 In fact, except for the handful of investors who had been introduced by them, Coakleys had not met the investors; had not investigated their financial circumstances; had no or no reasonable basis for being satisfied that the investors had previous experience with securities that would allow them to assess the merits of the offer, the value of the securities, the risks involved in accepting the offer, their own information needs, and the adequacy of the information given by the person making the offer; and had not given the investors a written statement of their reasons for being satisfied as to those matters in the preceding subparagraph. 207 This constituted a contravention of the misleading and deceptive conduct provisions of ASIC Act, s 12DA(1), and Corporations Act, s 1041H(1); also of the conditions attached to the license issued to Coakleys - which, by the operation of Corporations Law, s 104, constituted a contravention of Corporations Law, s 786 [see ASIC v Australian Investors Forum (2005) 53 ACSR 305, [265]]; and of the obligation imposed on Coakleys by Corporations Law, s 851, that they only make a recommendation about securities if they have a reasonable basis for doing so. 208 However, Mr Coakley considered that the investors who he did not see were receiving additional (not replacement) securities, and (apparently on legal advice) that in those circumstances compliance with (former) s 851 was not required. Coakleys ceased to issue offer letters to investors in October 2002, because Mr Fortune did not adhere to the agreed procedures for referral of proposed investors. Although entitled to 5% commission on the investors introduced by them, which would have amounted to $72,975, Coakleys claimed and received no commission. 209 The substantive orders proposed against Coakleys are: · An injunction pursuant to s 1324, permanently restraining Mr Coakley and Coakley Associates from publishing statements referring to offers of securities in contravention of s 734 (par 9); · An injunction pursuant to s 1324 permanently restraining Mr Coakley and Coakley Associates from offering securities without a current disclosure document in contravention of s 727 (par 10); · An injunction pursuant to s 1324 and s 12G permanently restraining them from engaging in conduct in relation to financial services which is misleading or deceptive or likely to mislead or deceive (par 11); · Disqualification, pursuant to s 206E, for two years. 210 I am satisfied, having regard also to s 1324(3), that it is appropriate to make the orders referred to in paragraphs 9 and 10. For reasons already explained, I will not make the order in paragraph 11. 211 The disqualification is based solely on s 206E. I am satisfied on the agreed and admitted facts that while Mr Coakley was a director of Coakley Associates it committed numerous breaches of s 727(1), s 734(1), s 1041H(1), s 786 and (former) s 851, and that Mr Coakley did not take reasonable steps to prevent those contraventions. 212 The role of the financial services licensee in connection with s 708(10) is an important one, intended to be protective of potential investors. Mr Coakley's conduct in executing statements of reasons without seeing the investors concerned merits strong disapproval. However, he believed that those were cases of investors receiving additional securities and that strict or even substantial compliance with s 708(10) was not required in those circumstances. The provisions he contravened are not civil penalty provisions. His shortcomings were more as a financial advisor than as a manager of corporations. Thus I accept that he is not shown to be unfit in the long term to manage corporations, and that the two year period of disqualification is not inappropriate. 213 As against Coakleys, I will make the orders in Schedule E. The twentieth defendant, Mr Kolios 214 The statement of agreed facts between ASIC and Mr Kolios is PX09. 215 Mr Kolios was born in 1973. He has a Bachelor of Business Finance and ten years experience in mortgage broking and finance. He had no experience in property development. 216 On 7 July 1999, Mr Kolios was convicted in respect of ten counts of obtaining money by deception, and following an appeal was sentenced to 300 hours of community service. He was made bankrupt on 24 December 2004. At all material times he was a director of and shareholder in Central Development, Wake and Maroubra. 217 In or about mid to late 2002, Mr Kolios – with Mr Skaf and Mr Jammal – decided to establish Central Development, to acquire and develop suitable sites. 218 Mr Kolios was aware that there were provisions in the Corporations legislation that regulated the raising of funds, and concedes that he took no step to inform himself of the precise nature of those obligations, made no adequate inquiry to ascertain whether the Central Development Scheme complied with them, and should have been aware that the scheme contravened them. 219 Mr Kolios was served with the Asset Preservation Orders of 15 October 2003 on 16 October 2003, and read and understood their terms. On 4 November 2003 he gave a personal undertaking to the court that until further order he would not manage any corporation. On 10 November 2003, with Mr Skaf and Mr Jammal, he opened a St George bank account in the name of Maroubra, for the purpose of receiving moneys which they expected to receive. After 15 October 2003 Mr Maxwell, on behalf of Maroubra, solicited loans and obtained two loans. Mr Kolios was aware of those solicitations and the resultant loans, and that the moneys were paid into the St George account, and he signed cheques authorising payments from the St George account. 220 Mr Kolios concedes that he breached his duties as a director, by failing to take proper steps to ensure that the Central Development Scheme's fundraising complied with the requirements of the Corporations Act, failing to take any or proper steps to ascertain and consider the Central Development advertising and promotional documentation and to ensure that it was not misleading and deceptive, failing to take any or sufficient steps to ascertain and consider the Maroubra loan agreements, to ensure that representations contained in them were not misleading and deceptive, and authorising expenditure of moneys obtained by Maroubra pursuant to them. 221 The substantive orders proposed against Mr Kolios are: · Declarations pursuant to s 1317E of contravention of ss 180 and 181; · An injunction pursuant to Corporations Act, s 1324, permanently restraining him from conducting a financial services business in contravention of s 911A (par 15); · An injunction pursuant to s 1324 permanently restraining him from offering securities without a current disclosure document in contravention of s 727 (par 16); · An injunction pursuant to s 1324 permanently restraining him from advertising or publishing a statement that directly or indirectly refers to an offer or intended offer of securities in contravention of s 734 (par 17); · An injunction pursuant to s 1324 and s 12GD permanently restraining him from engaging in conduct in relation to financial services which is misleading and deceptive or likely to mislead or deceive (par 18); · Disqualification for eight years (par 19). 222 The civil penalty provisions that Mr Kolios is said to have contravened are ss 180 and 181. I accept that, given his role in the company, and the consequent potential exposure of the company to liability, his failure to take sufficient steps to ensure that the fundraising was compliant, and his failure sufficiently to supervise Mr Maxwell, constituted a breach of his duty of care and diligence. However, the agreed facts do not support a breach of the duty of good faith according to the Marchesi v Barnes test; they show a failure to take steps that he ought to have taken, but not deliberate conduct known to be not in the interests of the company. 223 I am satisfied, having regard also to s 1324(3), that it is appropriate to grant the injunctions in pars 14, 15, 16 and 17. For reasons previously explained, I will not grant the injunction referred to in par 18. 224 I am satisfied that while he was an officer of the Central Development companies, the Central Development companies committed numerous contraventions of Corporations Act, s 727, s 734, s 911A, and s 1041H (and of ASIC Act, s 12DA). I am satisfied that disqualification is available under s 206C, 206D and 206E, and that having regard to his record and his role, a period of eight years is not inappropriate. 225 As against Mr Kolios, I will make the orders in Schedule F. The Twenty-Fifth Defendant, Mr Jammal 226 The statement of agreed facts between ASIC and Mr Jammal is exhibit PX10. 227 Mr Jammal is 46 years of age. He has been a structural engineer for 25 years. He was made bankrupt on 11 May 2005. 228 At all material times, Mr Jammal was a director of and shareholder in Central Development, Wake and Maroubra. When he was introduced to Mr Kolios and Mr Skaf in about 2002, he had about five years experience in property development. As between Mr Skaf, Mr Kolios and Mr Jammal, it was agreed that Mr Jammal would focus on the engineering and construction side of the projects, while Mr Skaf and Mr Kolios would focus on arranging finance. He worked from a home/office and visited the offices of Central Development three or five times a week, when his construction expertise was needed or when he was needed in meetings with external parties. 229 Mr Jammal concedes that he breached his director's duties by failing to take proper steps to ensure that the fundraising complied with the fundraising provisions of the Corporations Act, failing to ensure that the representations in the advertisements and promotional documentation were not misleading, and authorising and permitting the expenditure of the moneys obtained after 15 October 2003 pursuant to the Maroubra loan agreement. 230 Mr Jammal says that he contributed $286,000 to the venture as the deposit on the Maroubra property and has not been repaid. He also says that he made further payments totalling about $280,000 on behalf of Central Development, which has not been repaid. 231 The substantive orders proposed against Mr Jammal are: · Declarations pursuant to s 1317E of contravention of ss 180 and 181; · An injunction pursuant to Corporations Act, s 1324, permanently restraining him from conducting a financial services business in contravention of s 911A (par 13); · An injunction pursuant to s 1324 permanently restraining him from offering securities without a current disclosure document in contravention of s 727 (par 14); · An injunction pursuant to s 1324 permanently restraining him from advertising or publishing a statement that directly or indirectly refers to an offer or intended offer of securities in contravention of s 734 (par 15); · An injunction pursuant to s 1324 and s 12GD permanently restraining him from engaging in conduct in relation to financial services which is misleading and deceptive or likely to mislead or deceive (par 16); · Disqualification for eight years (par 17). 232 The civil penalty provisions that Mr Jammal is said to have contravened are ss 180 and 181. Fundraising was the responsibility of Mr Kolios (and Mr Skaf), and not of Mr Jammal. While I am prepared to accept that he breached his director's obligations of care and diligence by failing to take proper steps to ensure that the fundraising complied with the fundraising provisions of the Corporations Act, failing to ensure that the representations in the advertisements and promotional documentation were not misleading, and permitting the expenditure of the moneys obtained pursuant to the Maroubra loan agreement, his conduct has not been shown on the agreed facts to have the same disregard for compliance as that of Mr Kolios, or the Fortunes, and having regard to the scope of his responsibilities as a director, while his conduct is shown to have involved a want of care, it is not shown to have involved a want of good faith. 233 I am satisfied, having regard also to s 1324(3), that it is appropriate to grant the injunctions in pars 13, 14 and 15. For reasons previously explained, I will not grant the injunction referred to in par 16. 234 I am satisfied that while Mr Jammal was an officer of the Central Development companies, those companies committed numerous contraventions of Corporations Act, s 727, s 734, s 911A, and s 1041H (and of ASIC Act, s 12DA), and that disqualification is available under s 206C, 206D and 206E. However, on the agreed facts, I am unable to accept that Mr Jammal and Mr Kolios merit equivalent treatment. Mr Kolios has a prior record of fraudulent conduct; Mr Jammal does not. Fundraising was the province of Mr Kolios (and Mr Skaf), but not of Mr Jammal. Mr Jammal (and not Mr Kolios and Mr Skaf, so far as the evidence shows) has himself suffered significant financial loss. I do not think a disqualification for longer than three years is justified. 235 As against Mr Jammal, I will make the orders in Schedule G. The Twenty-Sixth Defendant, Mr Skaf 236 The statement of agreed facts between ASIC and Mr Skaf is exhibit PX08. 237 Mr Skaf was born in 1974, and was about 28 years of age at the time of his first alleged contravention. He left school in 1988 after completing year 10 and the School Certificate, and was a panel beater, initially as an apprentice until he obtained his trade certificate in 1994. In 2001 he was injured in an accident that prevented him from working as a panel beater. 238 Mr Skaf was invited by Mr Kolios to join him in the Central Development Group. He had no qualifications in accountancy or finance or the building trades, but received practical experience as a retail finance consultant working with Mr Kolios. At all material times he was a director of and shareholder in each of Central Development, Waker and Maroubra. He says that he saw his role as a director to help out as and when required and that he did not have any particular designated responsibility, and although he was involved in fundraising, Mr Kolios had the main carriage of raising finance. He was present at a meeting between Mr Kolios, Mr Maxwell, Mr Jammal and Mr Burnett, but did not pay attention to the legal advice, leaving it to Mr Kolios and Mr Maxwell to liaise with Mr Burnett on legal issues. 239 Mr Skaf concedes that he breached his director's duties by failing to take proper steps to ensure that the fundraising complied with the fundraising provisions of the Corporations Act, failing to ensure that the representations in the advertisements and promotional documentation were not misleading, and failing to ensure that loans were not solicited after the 15 October 2003 orders, or to ascertain the restrictions which applied to their use. 240 The substantive orders proposed against Mr Skaf are: · Declarations pursuant to s 1317E of contravention of ss 180 and 181; · An injunction pursuant to Corporations Act, s 1324, permanently restraining him from conducting a financial services business in contravention of s 911A (par 13); · An injunction pursuant to s 1324 permanently restraining him from offering securities without a current disclosure document in contravention of s 727 (par 14); · An injunction pursuant to s 1324 permanently restraining him from advertising or publishing a statement that directly or indirectly refers to an offer or intended offer of securities in contravention of s 734 (par 15); · An injunction pursuant to s 1324 and s 12GD permanently restraining him from engaging in conduct in relation to financial services which is misleading and deceptive or likely to mislead or deceive (par 16); · Disqualification for eight years (par 17). 241 The civil penalty provisions that Mr Skaf is said to have contravened are ss 180 and 181. I accept that, given his role in the company, and the consequent potential exposure of the company to liability, his failure to take sufficient steps to ensure that the fundraising was compliant, to ensure that the representations in the advertisements and promotional documentation were not misleading, and to ensure that loans were not solicited after the 15 October 2003 orders, or to ascertain the restrictions which applied to their use, constituted a breach of his duty of care and diligence. However, the agreed facts do not support a breach of the duty of good faith according to the Marchesi v Barnes test; they show a failure to take steps that he ought to have taken, but not deliberate conduct known to be not in the interests of the company. 242 I am satisfied, having regard also to s 1324(3), that it is appropriate to grant the injunctions in pars 13, 14 and 15. For reasons previously explained, I will not grant the injunction referred to in par 16. 243 I am satisfied that while Mr Skaf was an officer of the Central Development companies, those companies committed numerous contraventions of Corporations Act, s 727, s 734, s 911A, and s 1041H (and of ASIC Act, s 12DA), and that disqualification is available under s 206C, 206D and 206E. However, on the agreed facts I am unable to accept that Mr Skaf and Mr Kolios merit equivalent treatment. Mr Kolios has a prior record of fraudulent conduct; Mr Skaf does not. While fundraising was principally the responsibility of Mr Kolios, Mr Skaf was involved in it. Given that role, I think Mr Skaf is more culpable than Mr Jammal, but less so than Mr Kolios. I am unable to see that Mr Skaf is deserving of the same outcome as Mr Kolios. I do not think that disqualification for longer than five years is appropriate. 244 As against Mr Skaf, I will make the orders in Schedule H. SCHEDULE A - the First Defendant, Donald Richard Maxwell As against the First Defendant, Donald Richard Maxwell, the Court notes the matters recorded in paragraphs 1 to 13 inclusive and 21 and 22 of the document entitled "Short Minutes of Orders between the Plaintiff and the First Defendant" signed by the solicitor for the Plaintiff and by the First Defendant, initialled by me this day and placed with the papers, and:- 1 DECLARES, pursuant to Corporations Act, section 1317E(1), that the First Defendant Donald Richard Maxwell, in contravention of Corporations Act, section 180(1), 181(1) and 182(1), as an officer of the Fourth Defendant ProCorp Investments Pty Ltd, and the ProCorp Companies (as defined in paragraph 73 of the Fourth Amended Statement of Claim), in the period November 2001 to July 2003, failed to exercise his powers and discharge his duties with the requisite degree of care and diligence, or in good faith in the best interests of those corporations and for a proper purpose, and improperly used his position to gain an advantage for himself and detriment to ProCorp and the ProCorp Companies, by: a failing to take any or any proper steps to ensure that the fundraising undertaken through the ProCorp Loans, as defined in paragraph 109 of the Fourth Amended Statement of Claim, complied with the fundraising provisions of the Corporations Act ; b otherwise permitting the ProCorp Loans, as defined in paragraph 109 of the Fourth Amended Statement of Claim, to be made in circumstances where those loans would not comply with the fundraising provisions of the Corporations Act ; c failing to take any or any proper steps to ensure that the representations contained in the following documents were not misleading and deceptive: i. the ProCorp Advertisements, as defined in paragraph 82 of the Fourth Amended Statement of Claim, ii. the ProCorp Information Memorandum, as defined in paragraph 84 of the Fourth Amended Statement of Claim, iii. the ProCorp Offer Document, as defined in paragraph 84 of the Fourth Amended Statement of Claim, and iv. the ProCorp Memorandum, as defined in paragraph 84 of the Fourth Amended Statement of Claim; d otherwise permitting the issue of the following document to approximately 81 members of the Australian public, in circumstances where he knew or ought to have known that the contents of those documents included representations which were misleading and deceptive: i. the ProCorp Information Memorandum, as defined in paragraph 84 of the Fourth Amended Statement of Claim, ii. the ProCorp Offer Document, as defined in paragraph 84 of the Fourth Amended Statement of Claim, and iii. the ProCorp Memorandum, as defined in paragraph 84 of the Fourth Amended Statement of Claim; e otherwise permitting the publication of the ProCorp Advertisements, as defined in paragraph 82 of the Fourth Amended Statement of Claim, to the Australian public at large, in circumstances where he knew or ought to have known that the contents of those documents included representations which were misleading and deceptive; f otherwise permitting the issue of the: i. Bankstown Loan Agreements, as defined in paragraph 111 of the Fourth Amended Statement of Claim, ii. Drummoyne Loan Agreements, as defined in paragraph 112 of the Fourth Amended Statement of Claim, iii. Great Northern Loan Agreements, as defined in paragraph 113 of the Fourth Amended Statement of Claim, iv. Liverpool Loan Agreements, as defined in paragraph 114 of the Fourth Amended Statement of Claim, and v. Northern Sight Loan Agreements, as defined in paragraph 115 of the Fourth Amended Statement of Claim, to approximately 14 members of the Australian public, in circumstances where he knew or ought to have known that the contents of that document included representations which were misleading and deceptive; g authorising the post-order non-project payments by: i. Bankstown Project Two Pty Limited, in the sum of $214,402, ii. Drummoyne Constructions Pty Limited, in the sum of $132,868, iii. Great Northern Constructions Pty Limited, in the sum of $72,532, iv. Liverpool Projects Pty Limited, in the sum of $169,058, and v. Northern Sight Pty Limited, in the sum of $112,000; and h receiving commission payments from: i. Oceanwalk Projects Pty Limited, ProCorp Investments Pty Limited and the ProCorp Companies, in the amount of $812,250, as set out in paragraph 117 of the Fourth Amended Statement of Claim, ii. Bankstown Project Two Pty Limited in the amount of $35,000, as set out in paragraph 160 of the Fourth Amended Statement of Claim, iii. Drummoyne Constructions Pty Limited in the amount of $15,000, as set out in paragraph 168 of the Fourth Amended Statement of Claim, iv. Great Northern Constructions Pty Limited in the amount of $10,000, as set out in paragraph 176 of the Fourth Amended Statement of Claim, v. Liverpool Projects Limited in the amount of $27,000, as set out in paragraph 184 of the Fourth Amended Statement of Claim, and vi. Northern Sight Pty Limited in the amount of $12,000, as set out in paragraph 192 of the Fourth Amended Statement of Claim. 2 DECLARES, pursuant to Corporations Act, section 1317E(1), that the First Defendant Donald Richard Maxwell, in contravention of Corporations Act, section 180(1), 181(1) and 182(1), as an officer of Central Development Group Pty Limited, and the Central Development Companies (as defined in paragraph 210 of the Fourth Amended Statement of Claim), in the period November 2001 to July 2003, failed to exercise his powers and discharge his duties with the requisite degree of care and diligence, or in good faith in the best interests of those corporations and for a proper purpose, and improperly used his position to gain an advantage for himself and detriment to Central Development Group Pty Limited, and the Central Development Companies, by: a failing to take any or any proper steps to ensure that the fundraising undertaken through the Central Development Group Loans, as defined in paragraph 228 of the Fourth Amended Statement of Claim, complied with the fundraising provisions of the Corporations Act ; b otherwise permitting the Central Development Group Loans, as defined in paragraph 228 of the Fourth Amended Statement of Claim, to be made in circumstances where those loans would not comply with the fundraising provisions of the Corporations Act ; c failing to take any or any proper steps to ensure that the representations contained in the following documents were not misleading and deceptive: i. the Central Development Advertisements, as defined in paragraph 221 of the Fourth Amended Statement of Claim, ii. the Central Development Letter, as defined in paragraph 222 of the Fourth Amended Statement of Claim, iii. the Wake Brochure, as defined in paragraph 222 of the Fourth Amended Statement of Claim, iv. the Central Development Memorandum, as defined in paragraph 222 of the Fourth Amended Statement of Claim, and v. the Central Development Information Memorandum, as defined in paragraph 222 of the Fourth Amended Statement of Claim; d otherwise permitting the issue of the following document to approximately 30 Members of the Australian public, in circumstances where he knew or ought to have known that the contents of those documents included representations which were misleading and deceptive: i. the Central Development Letter, as defined in paragraph 222 of the Fourth Amended Statement of Claim, ii. the Wake Brochure, as defined in paragraph 222 of the Fourth Amended Statement of Claim, iii. the Central Development Memorandum, as defined in paragraph 222 of the Fourth Amended Statement of Claim, and iv. the Central Development Information Memorandum, as defined in paragraph 222 of the Fourth Amended Statement of Claim; e otherwise permitting the publication of the Central Development Advertisements, as defined in paragraph 221 of the Fourth Amended Statement of Claim, to the Australian public at large, in circumstances where he knew or ought to have known that the contents of those documents included representations which were misleading and deceptive; f otherwise permitting the issue of the Post Order Central Development Loan Agreements, as defined in paragraph 227 of the Fourth Amended Statement of Claim, to approximately 2 Members of the Australian public, in circumstances where he knew or ought to have known that the contents of those documents included representations which were misleading and deceptive; g authorising the post-order non-project payments by Maroubra Properties Pty Limited, in the sum of $235,640; and h receiving commission payments: i. from Central Development Group Pty Limited and the Central Development Companies, in the amount of $280,500, as set out in paragraph 232 of the Fourth Amended Statement of Claim, and ii. from the Post Order Central Development Group Loans, in the amount of $24,500, as set out in paragraph 266 of the Fourth Amended Statement of Claim. 3 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the First Defendant Donald Richard Maxwell, by himself, his servants, agents and employees is permanently restrained from offering securities without a current disclosure document, in contravention of Corporations Act, section 727 (as amended from time to time). 4 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the First Defendant Donald Richard Maxwell, by himself, his servants, agents and employees is permanently restrained from advertising or publishing a statement that directly or indirectly refers to an offer or an intended offer of securities, in contravention of Corporations Act, section 734 (as amended from time to time). 5 BY CONSENT ORDERS, pursuant to Corporations Act, sections 206C(1) and/or 206E(1), that the First Defendant Donald Richard Maxwell is disqualified from managing corporations permanently from the date of these orders. 6 BY CONSENT ORDERS, pursuant to Corporations Act, section 1317H(1), that the First Defendant Donald Richard Maxwell pay the sums specified below to the liquidators of the respective companies involved in the post-order non-project payments, namely:- a Bankstown Project Two Pty Limited, the sum of $214,402; b Drummoyne Constructions Pty Limited, the sum of $132,868; c Great Northern Constructions Pty Limited, the sum of $72,532; d Liverpool Projects Pty Limited, the sum of $169,058; e Northern Sight Pty Limited, the sum of $112,000; f Maroubra Properties Pty Limited, the sum of $235,640. 7 BY CONSENT ORDERS, pursuant to Corporations Act, section 1317G(1), that the First Defendant Donald Richard Maxwell pay pecuniary penalties, within 21 days of the date of these orders, of: a $80,000 in respect of the contravention referred to in Order 1 above; and b $30,000 in respect of the contravention referred to in Order 2 above. 8 ORDERS, pursuant to Corporations Act, s 1101B(1), that the First Defendant Donald Richard Maxwell be permanently restrained from carrying on or being engaged in any financial services business, or providing a financial service, within the meaning of Corporations Act, Part 7. 9 BY CONSENT ORDERS that the First Defendant Donald Richard Maxwell, pay the Plaintiff's agreed costs of $55,500 within 21 days of the date of these orders. 10 BY CONSENT ORDERS that all other orders relating to the First Defendant Donald Richard Maxwell predating the Orders set out herein be set aside, dissolved and discharged. 11 BY CONSENT ORDERS that, as between the First Defendant Donald Richard Maxwell and the Plaintiff, the Proceedings be otherwise dismissed. SCHEDULE B - the Eighth Defendant, Mr Malcolm Fortune As against the Eighth Defendant, Malcolm Fortune, the Court notes the matters recorded in paragraphs 1 to 6 inclusive and 8, 9, 10 and 13 of the document entitled "Consent Orders between the Australian Securities and Investments Commission and Malcolm Fortune the Eighth Defendant" signed by the solicitor for Plaintiff and by the Eighth Defendant, initialled by me this day and placed with the papers, and:- 1 DECLARES, pursuant to Corporations Act, section 1317E(1), that the Eighth Defendant Malcolm Fortune, in contravention of Corporations Act, section 180(1) and 181(1), in the period November 2001 to July 2003, failed to exercise his powers and discharge his duties as an officer of the Third Defendant Oceanwalk Projects Pty Ltd, the Fourth Defendant ProCorp Investments Pty Ltd, and the ProCorp Companies (as defined in paragraph 73 of the Fourth Amended Statement of Claim) with the requisite degree of care and diligence, or in good faith in the best interests of those corporations and for a proper purpose, by: a failing to take any or any proper steps to ensure that the fundraising undertaken through the ProCorp Loans, as defined in paragraph 109 of the Fourth Amended Statement of Claim, complied with the fundraising provisions of the Corporations Act ; b otherwise permitting the ProCorp Loans, as defined in paragraph 109 of the Fourth Amended Statement of Claim, to be made in circumstances where he knew, believed and expected that investments made via those loans would not comply with the fundraising provisions of the Corporations Act ; c failing to take any or any proper step to supervise, control and manage the conduct of Donald Richard Maxwell, the First defendant, carried out on behalf of Oceanwalk Projects Pty Ltd, ProCorp Investments Pty Ltd and the ProCorp Companies; d failing to take any or any proper step to ensure that the representations contained in the following documents were not misleading and deceptive: (i) the ProCorp Advertisements, as defined in paragraph 82 of the Fourth Amended Statement of Claim; (ii) the ProCorp Information Memorandum, as defined in paragraph 84 of the Fourth Amended Statement of Claim; (iii) the ProCorp Offer Document, as defined in paragraph 84 of the Fourth Amended Statement of Claim; and (iv) the ProCorp Memorandum, as defined in paragraph 84 of the Fourth Amended Statement of Claim. e otherwise permitting the issue of the following documents to approximately 81 members of the Australian public, in circumstances where he knew or ought to have known that the contents of those documents included representations which were misleading and deceptive: i. the ProCorp Information Memorandum, as defined in paragraph 84 of the Fourth Amended Statement of Claim; ii. the ProCorp Offer Document, as defined in paragraph 84 of the Fourth Amended Statement of Claim; and iii. the ProCorp Memorandum, as defined in paragraph 84 of the Fourth Amended Statement of Claim. 2 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Eighth Defendant Malcolm Fortune, by himself, his servants, agents and employees is permanently restrained from conducting a financial services business, in contravention of Corporations Act, section 911A (as amended from time to time). 3 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Eighth Defendant Malcolm Fortune, by himself, his servants, agents and employees is permanently restrained from providing financial services, in contravention of Corporations Act, section 911B (as amended from time to time). 4 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Eighth Defendant Malcolm Fortune, by himself, his servants, agents and employees is permanently restrained from offering securities without a current disclosure document, in contravention of Corporations Act, section 727 (as amended from time to time). 5 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Eighth Defendant Malcolm Fortune, by himself, his servants, agents and employees is permanently restrained from advertising or publishing a statement that directly or indirectly refers to an offer or an intended offer of securities, in contravention of Corporations Act, section 734 (as amended from time to time). 6 BY CONSENT ORDERS, pursuant to Corporations Act, sections 206C(1), 206D(1) and/or 206E(1), that the Eighth Defendant Malcolm Fortune is disqualified from managing corporations for twelve years from the date of these orders. 7 BY CONSENT ORDERS, pursuant to Corporations Act, section 1317G(1), that the Eighth Defendant Malcolm Fortune pay a pecuniary penalty, within 21 days of the date of these orders, of $200,000 in respect f the contravention referred to in Order 1. 8 BY CONSENT ORDERS that the Eighth Defendant Malcolm Fortune, pay the Plaintiff's agreed costs of $50,000 within 21 days of the date of these orders. 9 BY CONSENT ORDERS that all other orders relating to the Eighth Defendant Malcolm Fortune predating the Orders set out herein be set aside, dissolved and discharged. 10 BY CONSENT ORDERS that, as between the Eighth Defendant Malcolm Fortune and the Plaintiff, the Proceedings be otherwise dismissed. SCHEDULE C - the Twenty-third Defendant, Mr Troy Fortune As against the Twenty-third Defendant, Troy Fortune, the Court notes the matters recorded in paragraphs 1 to 7 inclusive and 11 of the document entitled "Short Minutes of Order between the Plaintiff and the Twenty-third Defendant" signed by the solicitor for Plaintiff and by the Twenty-third Defendant, initialled by me this day and placed with the papers, and:- 1 DECLARES, pursuant to Corporations Act, section 1317E(1), that the Twenty-third Defendant Troy Fortune, in contravention of Corporations Act, section 180(1) and 181(1), in the period November 2001 to July 2003, failed to exercise his powers and discharge his duties as an officer of the Third Defendant Oceanwalk Projects Pty Ltd, the Fourth Defendant ProCorp Investments Pty Ltd, and the ProCorp Companies (as defined in paragraph 73 of the Fourth Amended Statement of Claim) with the requisite degree of care and diligence, or in good faith in the best interests of those corporations and for a proper purpose, by: a failing to take any or any proper steps to ensure that the fundraising undertaken through the ProCorp Loans, as defined in paragraph 109 of the Fourth Amended Statement of Claim, complied with the fundraising provisions of the Corporations Act ; b otherwise permitting the ProCorp Loans, as defined in paragraph 109 of the Fourth Amended Statement of Claim, to be made in circumstances where he knew, believed and expected that investments made via those loans would not comply with the fundraising provisions of the Corporations Act ; c failing to take any or any proper step to supervise, control and manage the conduct of Donald Richard Maxwell, the First defendant, carried out on behalf of Oceanwalk Projects Pty Ltd, ProCorp Investments Pty Ltd and the ProCorp Companies, in respect of the ProCorp Projects as defined in paragraph 71 of the Fourth Amended Statement of Claim; d failing to take any or any proper step to ensure that the representations contained in the following documents were not misleading and deceptive: (i) the ProCorp Advertisements, as defined in paragraph 82 of the Fourth Amended Statement of Claim; (ii) the ProCorp Information Memorandum, as defined in paragraph 84 of the Fourth Amended Statement of Claim; (iii) the ProCorp Offer Document, as defined in paragraph 84 of the Fourth Amended Statement of Claim; and (iv) the ProCorp Memorandum, as defined in paragraph 84 of the Fourth Amended Statement of Claim. e otherwise permitting the issue of the following documents to approximately 81 members of the Australian public, in circumstances where he knew or ought to have known that the contents of those documents included representations which were misleading and deceptive: i. the ProCorp Information Memorandum, as defined in paragraph 84 of the Fourth Amended Statement of Claim, ii. the ProCorp Offer Document, as defined in paragraph 84 of the Fourth Amended Statement of Claim, and iii. the ProCorp Memorandum, as defined in paragraph 84 of the Fourth Amended Statement of Claim; f otherwise permitting the publication of the ProCorp Advertisements, as defined in paragraph 82 of the Fourth Amended Statement of Claim, to the Australian public at large, in circumstances where he knew or ought to have known that the contents of those documents included representations which were misleading and deceptive. 2 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Twenty-third Defendant Troy Fortune, by himself, his servants, agents and employees is permanently restrained from conducting a financial services business, in contravention of Corporations Act, section 911A (as amended from time to time). 3 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Twenty-third Defendant Troy Fortune, by himself, his servants, agents and employees is permanently restrained from providing financial services, in contravention of Corporations Act, section 911B (as amended from time to time). 4 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Twenty-third Defendant Troy Fortune, by himself, his servants, agents and employees is permanently restrained from offering securities without a current disclosure document, in contravention of Corporations Act, section 727 (as amended from time to time). 5 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Twenty-third Defendant Troy Fortune, by himself, his servants, agents and employees is permanently restrained from advertising or publishing a statement that directly or indirectly refers to an offer or an intended offer of securities, in contravention of Corporations Act, section 734 (as amended from time to time). 6 BY CONSENT ORDERS, pursuant to Corporations Act, sections 206C(1) and/or 206E(1), that the Twenty-third Defendant Troy Fortune is disqualified from managing corporations for seven years from the date of these orders. 7 BY CONSENT MAKES NO ORDER as to costs, to the intent that each party bear its own costs. 8 BY CONSENT ORDERS that all other orders relating to the Twenty-third Defendant Troy Fortune predating the Orders set out herein be set aside, dissolved and discharged. 9 BY CONSENT ORDERS that, as between the Twenty-third Defendant Troy Fortune and the Plaintiff, the Proceedings be otherwise dismissed. SCHEDULE D - The Twenty-Fourth Defendant, Mr Bennett As against the Twenty-fourth Defendant, Jon William Bennett, the Court notes the matters recorded in paragraphs 1 to 6 inclusive and 10 of the document entitled "Short Minutes of Order between the Plaintiff and the Twenty-fourth Defendant" signed by the solicitor for Plaintiff and by the Twenty-fourth Defendant, initialled by me this day and placed with the papers, and:- 1 DECLARES, pursuant to Corporations Act, section 1317E(1), that the Twenty-fourth Defendant Jon William Bennett, in contravention of Corporations Act, section 180(1), in the period November 2001 to July 2003, failed to exercise his powers and discharge his duties as an officer of the Third Defendant Oceanwalk Projects Pty Ltd, the Fourth Defendant ProCorp Investments Pty Ltd, and the ProCorp Companies (as defined in paragraph 73 of the Fourth Amended Statement of Claim) with the requisite degree of care and diligence, by: a failing to take proper steps to ensure that the fundraising undertaken through the ProCorp Loans, as defined in paragraph 109 of the Fourth Amended Statement of Claim, complied with the fundraising provisions of the Corporations Act ; b otherwise permitting the ProCorp Loans, as defined in paragraph 109 of the Fourth Amended Statement of Claim, to be made in circumstances where those loans would not comply with the fundraising provisions of the Corporations Act ; c failing to take proper steps to supervise, control and manage the conduct of Donald Richard Maxwell, the First Defendant, carried out on behalf of ProCorp Investments Pty Ltd and the ProCorp Companies (in particular Alliance Property Pty Limited, Liverpool Projects Limited, Mansions on Mann Limited and ProCorp Investments (Gosford) Pty Limited), in respect of the ProCorp Projects, as defined in paragraph 71 of the Fourth Amended Statement of Claim; d failing to take proper steps to ensure that the representations contained in the following documents were not misleading and deceptive: i. the ProCorp Information Memorandum, as defined in paragraph 84 of the Fourth Amended Statement of Claim; ii. the ProCorp Offer Document, as defined in paragraph 84 of the Fourth Amended Statement of Claim; and iii. the ProCorp Memorandum, as defined in paragraph 84 of the Fourth Amended Statement of Claim. e otherwise permitting the issue of the following documents to approximately 81 members of the Australian public, in circumstances where he knew or ought to have known that the contents of those documents included representations which were misleading and deceptive: i. the ProCorp Information Memorandum, as defined in paragraph 84 of the Fourth Amended Statement of Claim; ii. the ProCorp Offer Document, as defined in paragraph 84 of the Fourth Amended Statement of Claim; and iii. the ProCorp Memorandum, as defined in paragraph 84 of the Fourth Amended Statement of Claim. 2 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Twenty-fourth Defendant Jon William Bennett, by himself, his servants, agents and employees is permanently restrained from conducting a financial services business, in contravention of Corporations Act, section 911A (as amended from time to time). 3 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Twenty-fourth Defendant Jon William Bennett, by himself, his servants, agents and employees is permanently restrained from providing financial services, in contravention of Corporations Act, section 911B (as amended from time to time). 4 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Twenty-fourth Defendant Jon William Bennett, by himself, his servants, agents and employees is permanently restrained from offering securities without a current disclosure document, in contravention of Corporations Act, section 727 (as amended from time to time). 5 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Twenty-fourth Defendant Jon William Bennett, by himself, his servants, agents and employees is permanently restrained from advertising or publishing a statement that directly or indirectly refers to an offer or an intended offer of securities, in contravention of Corporations Act, section 734 (as amended from time to time). 6 BY CONSENT ORDERS, pursuant to Corporations Act, sections 206C(1) and/or 206E(1), that the Twenty-fourth Defendant Jon William Bennett is disqualified from managing corporations for five years from the date of these orders. 7 BY CONSENT ORDERS that the Twenty-fourth Defendant Jon William Bennett, pay the Plaintiff's agreed costs of $2,000 within 21 days of the date of these orders. 8 BY CONSENT ORDERS that all other orders relating to the Twenty-fourth Defendant Jon William Bennett predating the Orders set out herein be set aside, dissolved and discharged. 9 BY CONSENT ORDERS that, as between the Twenty-fourth Defendant Jon William Bennett and the Plaintiff, the Proceedings be otherwise dismissed. SCHEDULE E - The Ninth and Twenty-Seventh Defendants, Coakleys As against the Ninth Defendant Coakley Associates Pty Limited and the Twenty-seventh Defendant Lloyd Antony Coakley, the Court notes the matters recorded in paragraphs 1 to 5 inclusive, 7 and 8 of the document entitled "Consent Orders between the Plaintiff and the Ninth and Twenty Seventh Defendants" signed by the solicitor for Plaintiff and by the solicitor for the Ninth and Twenty Seventh Defendants, initialled by me this day and placed with the papers, and:- 1 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Ninth Defendant Coakley Associates Pty Limited and the Twenty-seventh Defendant Lloyd Antony Coakley, by themselves, their servants, agents and employees is permanently restrained from offering securities without a current disclosure document, in contravention of Corporations Act, section 727 (as amended from time to time). 2 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Ninth Defendant Coakley Associates Pty Limited and the Twenty-seventh Defendant Lloyd Antony Coakley, by themselves, their servants, agents and employees is permanently restrained from advertising or publishing a statement that directly or indirectly refers to an offer or an intended offer of securities, in contravention of Corporations Act, section 734 (as amended from time to time). 3 BY CONSENT ORDERS, pursuant to Corporations Act, section 206E(1), that the Twenty-seventh Defendant Lloyd Antony Coakley is disqualified from managing corporations for two years from the date of these orders. 4 BY CONSENT ORDERS that all other orders relating to the Ninth Defendant Coakley Associates Pty Limited and/or the Twenty-seventh Defendant Lloyd Antony Coakley, predating the Orders set out herein be set aside, dissolved and discharged. 5 BY CONSENT ORDERS that, as between the Ninth Defendant Coakley Associates Pty Limited and the Twenty-seventh Defendant Lloyd Antony Coakley, and the Plaintiff, the Proceedings be otherwise dismissed. 6 BY CONSENT MAKES NO ORDER as to costs, to the intent that as between the Ninth Defendant Coakley Associates Pty Limited, the Twenty-seventh Defendant Lloyd Antony Coakley, and the Plaintiff, each party bear its own costs. SCHEDULE F - the Twentieth defendant, Mr Kolios As against the Twentieth Defendant, Jim Kolios, the Court notes the matters recorded in paragraphs 1 to 8 inclusive, and 10, 13 and 14 of the document entitled "Short Minutes of Orders between the Plaintiff and the Twentieth Defendant" signed by the solicitor for Plaintiff and by the solicitor for the Twentieth Defendant, initialled by me this day and placed with the papers, and:- 1 DECLARES, pursuant to Corporations Act, section 1317E(1), that the Twentieth Defendant Jim Kolios, in contravention of Corporations Act, section 180(1) and 181(1), in the period November 2001 to July 2003, he failed to exercise his powers and discharge his duties as an officer of Central Development Group Pty Limited, and the Central Development Companies (as defined in paragraph 210 of the Fourth Amended Statement of Claim) with the requisite degree of care and diligence, or in good faith in the best interests of those corporations and for a proper purpose, by: a failing to take proper steps to ensure that the fundraising undertaken through the Central Development Group Loans, as defined in paragraph 228 of the Fourth Amended Statement of Claim, complied with the fundraising provisions of the Corporations Act ; b otherwise permitting the Central Development Group Loans, as defined in paragraph 228 of the Fourth Amended Statement of Claim, to be made in circumstances where those loans would not comply with the fundraising provisions of the Corporations Act ; c failing to take proper steps to supervise, control and manage the conduct of Donald Richard Maxwell, the First Defendant, carried out on behalf of Central Development Group Pty Ltd, The Wake (Waitara) Pty Limited, and Maroubra Pty Limited, in respect of the Central Development Projects, as defined in paragraph 209 of the Fourth Amended Statement of Claim; d failing to take any or any proper steps to ensure that the representations contained in the following documents were not misleading and deceptive: i. the Central Development Advertisements, as defined in paragraph 221 of the Fourth Amended Statement of Claim; ii. the Central Development Letter, as defined in paragraph 222 of the Fourth Amended Statement of Claim; iii. the Central Development Memorandum, as defined in paragraph 222 of the Fourth Amended Statement of Claim; iv. the Central Development Information Memorandum, as defined in paragraph 222 of the Fourth Amended Statement of Claim; v. the Wake Brochure, as defined in paragraph 222 of the Fourth Amended Statement of Claim; and vi. the Post Order Central Development Loan Agreements, as defined in paragraph 227 of the Fourth Amended Statement of Claim. e otherwise permitting the issue of the following documents to approximately 28 members of the Australian public, in circumstances where he knew or ought to have known that the contents of those documents included representations which were misleading and deceptive: i. the Central Development Letter, as defined in paragraph 222 of the Fourth Amended Statement of Claim; ii. the Central Development Memorandum, as defined in paragraph 222 of the Fourth Amended Statement of Claim; iii. the Central Development Information Memorandum, as defined in paragraph 222 of the Fourth Amended Statement of Claim; and iv. the Wake Brochure, as defined in paragraph 222 of the Fourth Amended Statement of Claim. f otherwise permitting the publication of the Central Development Advertisements, as defined in paragraph 221 of the Fourth Amended Statement of Claim, to the Australian public at large, in circumstances where he knew or ought to have known that the contents of those documents included representations which were misleading and deceptive. g otherwise permitting the issue of the Post Order Central Development Loan Agreements, as defined in paragraph 227 of the Fourth Amended Statement of Claim, to approximately 2 Members of the Australian public, in circumstances where he knew or ought to have known that the contents of that document included representations which were misleading and deceptive. 2 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Twentieth Defendant Jim Kolios, by himself, his servants, agents and employees is permanently restrained from conducting a financial services business, in contravention of Corporations Act, section 911A (as amended from time to time). 3 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Twentieth Defendant Jim Kolios, by himself, his servants, agents and employees is permanently restrained from offering securities without a current disclosure document, in contravention of Corporations Act, section 727 (as amended from time to time). 4 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Twentieth Defendant Jim Kolios, by himself, his servants, agents and employees is permanently restrained from advertising or publishing a statement that directly or indirectly refers to an offer or an intended offer of securities, in contravention of Corporations Act, section 734 (as amended from time to time). 5 BY CONSENT ORDERS, pursuant to Corporations Act, sections 206C(1), 206D(1) and/or 206E(1), that the Twentieth Defendant Jim Kolios is disqualified from managing corporations for eight years from the date of these orders. 6 BY CONSENT MAKES NO ORDER as to costs, to the intent that as between the Twentieth Defendant Jim Kolios, and the Plaintiff, each party bear its own costs. 7 BY CONSENT ORDERS that all other orders relating to the Twentieth Defendant Jim Kolios predating the Orders set out herein be set aside, dissolved and discharged. 8 BY CONSENT ORDERS that, as between the Twentieth Defendant Jim Kolios and the Plaintiff, the Proceedings be otherwise dismissed. SCHEDULE G - The Twenty-Fifth Defendant, Mr Jaul Jammal As against the Twenty-fifth Defendant, Jaul Jammal, the Court notes the matters recorded in paragraphs 1 to 8 inclusive and 12 of the document entitled "Short Minutes of Orders between the Plaintiff and the Twenty-fifth Defendant" signed by the solicitor for Plaintiff and by the Twenty-fifth Defendant, initialled by me this day and placed with the papers, and:- 1 DECLARES, pursuant to Corporations Act, section 1317E(1), that the Twenty-fifth Defendant Jaul Jammal, in contravention of Corporations Act, section 180(1), in the period November 2001 to July 2003, he failed to exercise his powers and discharge his duties as an officer of Central Development Group Pty Limited, and the Central Development Companies (as defined in paragraph 210 of the Fourth Amended Statement of Claim) with the requisite degree of care and diligence, by: a failing to take proper steps to ensure that the fundraising undertaken through the Central Development Group Loans, as defined in paragraph 228 of the Fourth Amended Statement of Claim, complied with the fundraising provisions of the Corporations Act ; b otherwise permitting the Central Development Group Loans, as defined in paragraph 228 of the Fourth Amended Statement of Claim, to be made in circumstances where those loans would not comply with the fundraising provisions of the Corporations Act ; c failing to take proper steps to supervise, control and manage the conduct of Donald Richard Maxwell, the First Defendant, carried out on behalf of Central Development Group Pty Ltd, The Wake (Waitara) Pty Limited, and Maroubra Pty Limited, in respect of the Central Development Projects, as defined in paragraph 209 of the Fourth Amended Statement of Claim; d failing to take proper steps to ensure that the representations contained in the following documents were not misleading and deceptive: i. the Central Development Advertisements, as defined in paragraph 221 of the Fourth Amended Statement of Claim; ii. the Central Development Letter, as defined in paragraph 222 of the Fourth Amended Statement of Claim; iii. the Central Development Memorandum, as defined in paragraph 222 of the Fourth Amended Statement of Claim; iv. the Central Development Information Memorandum, as defined in paragraph 222 of the Fourth Amended Statement of Claim; v. the Wake Brochure, as defined in paragraph 222 of the Fourth Amended Statement of Claim; and vi. the Post Order Central Development Loan Agreements, as defined in paragraph 227 of the Fourth Amended Statement of Claim. e otherwise permitting the issue of the following documents to approximately 28 members of the Australian public, in circumstances where he knew or ought to have known that the contents of those documents included representations which were misleading and deceptive: i. the Central Development Letter, as defined in paragraph 222 of the Fourth Amended Statement of Claim; ii. the Central Development Memorandum, as defined in paragraph 222 of the Fourth Amended Statement of Claim; iii. the Central Development Information Memorandum, as defined in paragraph 222 of the Fourth Amended Statement of Claim; and iv. the Wake Brochure, as defined in paragraph 222 of the Fourth Amended Statement of Claim. f otherwise permitting the publication of the Central Development Advertisements, as defined in paragraph 221 of the Fourth Amended Statement of Claim, to the Australian public at large, in circumstances where he knew or ought to have known that the contents of those documents included representations which were misleading and deceptive. g otherwise permitting the issue of the Post Order Central Development Loan Agreements, as defined in paragraph 227 of the Fourth Amended Statement of Claim, to approximately 2 Members of the Australian public, in circumstances where he knew or ought to have known that the contents of that document included representations which were misleading and deceptive. 2 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Twenty-fifth Defendant Jaul Jammal, by himself, his servants, agents and employees is permanently restrained from conducting a financial services business, in contravention of Corporations Act, section 911A (as amended from time to time). 3 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Twenty-fifth Defendant Jaul Jammal, by himself, his servants, agents and employees is permanently restrained from offering securities without a current disclosure document, in contravention of Corporations Act, section 727 (as amended from time to time). 4 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Twenty-fifth Defendant Jaul Jammal, by himself, his servants, agents and employees is permanently restrained from advertising or publishing a statement that directly or indirectly refers to an offer or an intended offer of securities, in contravention of Corporations Act, section 734 (as amended from time to time). 5 BY CONSENT ORDERS, pursuant to Corporations Act, sections 206C(1), 206D(1) and/or 206E(1), that the Twenty-fifth Defendant Jaul Jammal is disqualified from managing corporations for three years from the date of these orders. 6 BY CONSENT MAKES NO ORDER as to costs, to the intent that as between the Twenty-fifth Defendant Jaul Jammal, and the Plaintiff, each party bear its own costs. 7 BY CONSENT ORDERS that, as between the Twenty-fifth Defendant Jaul Jammal and the Plaintiff, the Proceedings be otherwise dismissed. SCHEDULE H - The Twenty-sixth Defendant, Mr Roy Skaf As against the Twenty-sixth Defendant, Roy Skaf, the Court notes the matters recorded in paragraphs 1 to 8 inclusive and 12 of the document entitled "Short Minutes of Orders between the Plaintiff and the Twenty-sixth Defendant" signed by the solicitor for Plaintiff and by the Twenty-sixth Defendant, initialled by me this day and placed with the papers, and:- 1 DECLARES, pursuant to Corporations Act, section 1317E(1), that the Twenty-sixth Defendant Roy Skaf, in contravention of Corporations Act, section 180(1) in the period November 2001 to July 2003, he failed to exercise his powers and discharge his duties as an officer of Central Development Group Pty Limited, and the Central Development Companies (as defined in paragraph 210 of the Fourth Amended Statement of Claim) with the requisite degree of care and diligence, by: a failing to take proper steps to ensure that the fundraising undertaken through the Central Development Group Loans, as defined in paragraph 228 of the Fourth Amended Statement of Claim, complied with the fundraising provisions of the Corporations Act ; b otherwise permitting the Central Development Group Loans, as defined in paragraph 228 of the Fourth Amended Statement of Claim, to be made in circumstances where those loans would not comply with the fundraising provisions of the Corporations Act ; c failing to take proper steps to supervise, control and manage the conduct of Donald Richard Maxwell, the First Defendant, carried out on behalf of Central Development Group Pty Ltd, The Wake (Waitara) Pty Limited, and Maroubra Pty Limited, in respect of the Central Development Projects, as defined in paragraph 209 of the Fourth Amended Statement of Claim; d failing to take proper steps to ensure that the representations contained in the following documents were not misleading and deceptive: i. the Central Development Advertisements, as defined in paragraph 221 of the Fourth Amended Statement of Claim; ii. the Central Development Letter, as defined in paragraph 222 of the Fourth Amended Statement of Claim; iii. the Central Development Memorandum, as defined in paragraph 222 of the Fourth Amended Statement of Claim; iv. the Central Development Information Memorandum, as defined in paragraph 222 of the Fourth Amended Statement of Claim; v. the Wake Brochure, as defined in paragraph 222 of the Fourth Amended Statement of Claim; and vi. the Post Order Central Development Loan Agreements, as defined in paragraph 227 of the Fourth Amended Statement of Claim. e otherwise permitting the issue of the following documents to approximately 28 members of the Australian public, in circumstances where he knew or ought to have known that the contents of those documents included representations which were misleading and deceptive: i. the Central Development Letter, as defined in paragraph 222 of the Fourth Amended Statement of Claim; ii. the Central Development Memorandum, as defined in paragraph 222 of the Fourth Amended Statement of Claim; iii. the Central Development Information Memorandum, as defined in paragraph 222 of the Fourth Amended Statement of Claim; and iv. the Wake Brochure, as defined in paragraph 222 of the Fourth Amended Statement of Claim. f otherwise permitting the publication of the Central Development Advertisements, as defined in paragraph 221 of the Fourth Amended Statement of Claim, to the Australian public at large, in circumstances where he knew or ought to have known that the contents of those documents included representations which were misleading and deceptive. g otherwise permitting the issue of the Post Order Central Development Loan Agreements, as defined in paragraph 227 of the Fourth Amended Statement of Claim, to approximately 2 Members of the Australian public, in circumstances where he knew or ought to have known that the contents of that document included representations which were misleading and deceptive. 2 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Twenty-sixth Defendant Roy Skaf, by himself, his servants, agents and employees is permanently restrained from conducting a financial services business, in contravention of Corporations Act, section 911A (as amended from time to time). 3 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Twenty-sixth Defendant Roy Skaf, by himself, his servants, agents and employees is permanently restrained from offering securities without a current disclosure document, in contravention of Corporations Act, section 727 (as amended from time to time). 4 BY CONSENT ORDERS, pursuant to Corporations Act, section 1324(1), that the Twenty-sixth Defendant Roy Skaf, by himself, his servants, agents and employees is permanently restrained from advertising or publishing a statement that directly or indirectly refers to an offer or an intended offer of securities, in contravention of Corporations Act, section 734 (as amended from time to time). 5 BY CONSENT ORDERS, pursuant to Corporations Act, sections 206C(1), s 206D(1) and/or 206E(1), that the Twenty-sixth Defendant Roy Skaf is disqualified from managing corporations for five years from the date of these orders. 6 BY CONSENT MAKES NO ORDER as to costs, to the intent that as between the Twenty-sixth Defendant Roy Skaf, and the Plaintiff, each party shall bear its own costs. 7 BY CONSENT ORDERS that all other orders relating to the Twenty-sixth Defendant Roy Skaf predating the Orders set out herein be set aside, dissolved and discharged. 8 BY CONSENT ORDERS that, as between the Twenty-sixth Defendant Roy Skaf and the Plaintiff, the Proceedings be otherwise dismissed. ********** 18/10/2006 - Corrections - Paragraph(s) Paragraph 213 Schedule "F" altered to Schedule "E".Paragraph 121 the words "does not claim" replaced by the words "also claims". 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.