Australian Securities and Investments Commission v Stuart Karim Ariff [2009] NSWSC 829 (18 August 2009)

Last Updated: 20 August 2009

NEW SOUTH WALES SUPREME COURT

CITATION:
Australian Securities and Investments Commission v Stuart Karim Ariff [2009] NSWSC 829


JURISDICTION:


FILE NUMBER(S):
3788 of 2008

HEARING DATE(S):
18 August 2009


EX TEMPORE DATE:
18 August 2009

PARTIES:
Australian Securities and Investments Commission (Plaintiff)
Stuart Karim Ariff (Defendant)

JUDGMENT OF:
Bergin CJ in Eq

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
D Stack (Plaintiff)
P Wright (Defendant)


SOLICITORS:
Kim Turner/ASIC (Plaintiff)
Brown Wright Stein (Defendant)


CATCHWORDS:
[LIQUIDATORS] - supervision by the Court - inquiry pursuant to s 536 of Corporations Act 2001 - consent orders

LEGISLATION CITED:
Corporations Act 2001 (Cth)


CASES CITED:
Australian Securities and Investments Commission v Edge [(2007) [2007] VSC 170; 211 FLR 137
Australian Securities and Investments Commission v Elm Financial Services Pty Ltd & Ors [2005] NSWSC 1020; (2005) 55 ACSR 411
Wambo Coal Pty Ltd v Ariff (2007) 63 ACSR 429

TEXTS CITED:


DECISION:
Liquidator prohibited from holding office for life - ordered to pay compensation



JUDGMENT:

- 13 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION


BERGIN CJ IN EQ

18 AUGUST 2009

3788 OF 2008 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v STUART KARIM ARIFF

JUDGMENT

1 These proceedings are brought by the plaintiff, Australian Securities and Investments Commission (ASIC), against the defendant, Stuart Karim Ariff. The application is made under a variety of sections of the Corporations Act 2001 (Cth) (the Act) but for present purposes focus has been centred on s 536 which provides relevantly as follows:

536 Supervision of liquidators

(1A) In this section:

liquidator includes a provisional liquidator.

(1) Where:

(a) it appears to the Court or to ASIC that a liquidator has not faithfully performed or is not faithfully performing his or her duties or has not observed or is not observing:

(i) a requirement of the Court; or

(ii) a requirement of this Act, of the regulations or of the rules; or

(b) a complaint is made to the Court or to ASIC by any person with respect to the conduct of a liquidator in connection with the performance of his or her duties;

the Court or ASIC, as the case may be, may inquire into the matter and, where the Court or ASIC so inquires, the Court may take such action as it thinks fit.

2 The plaintiff filed in court today a Second Further Amended Originating Process in which it sets out the defaults made by the defendant in his capacity as liquidator, administrator or administrator of a deed of company arrangement in relation to a number of companies.

3 The proceedings were commenced in 2008 as a result of investigations into the conduct of the defendant commenced by ASIC in 2007. The matter has been case managed and was listed for hearing before me commencing today for a period of some six weeks. In the weeks leading up to the hearing, the defendant appeared firstly without representation but subsequently instructed his present solicitor, Mr Wright, who appears today.

4 At the previous directions hearings in relation to the matter, the parties indicated that the defendant wished, with the benefit of his legal representative, to discuss a way forward in respect of the allegations made against him. Today, the parties have proffered a proposed Consent Order.

5 The plaintiff has tendered a large volume of affidavit material and exhibits to which no objection has been taken. The defendant has sworn an affidavit dated today and has given very short evidence. The plaintiff did not wish to cross-examine the defendant.

6 The defendant was born on 3 September 1963. He worked at Ernst and Whinney in Sydney from 1986 to 1989; at Pannell Kerr Forster from 1989 to 1990; at Star Dean-Willcocks in Sydney from 1991 to 1998, as both a manager and later as a director; and then at Star Dean-Willcocks Crosbie, as it became known, from 1998 to 2003, during which time he was in charge of the Newcastle office.

7 In 2003, the defendant commenced his own practice, practising in the style Stuart Ariff Insolvency Administrators and it appears that his services may be provided through a company, S Ariff Nominees (No 2) Pty Ltd, although there is no detail of that arrangement in evidence.

8 The defendant has admitted a series of facts relating to each of the companies. The conduct which the defendant has admitted is contained in annexure A to the Short Minutes of Order.

9 The CarLovers group of companies operated the business of car washing. The defendant was appointed as administrator of those companies on 10 July 2003, and as Deed Administrator on 5 December 2003. The conduct admitted by the defendant includes, but obviously is not limited to, the defendant charging the CarLovers companies for overseas travel for himself and his family members, including travel expenses, accommodation charges and the like over a period 2003 through to 2007. It appears from the admitted facts that those expenses had absolutely nothing to do with the business of the CarLovers companies. The admitted facts also includes admissions of conduct by the defendant by which he paid his family members large amounts of the companies’ money claimed to be for services to the companies but which had nothing to do with the CarLovers companies.

10 Compounding this conduct is the defendant's inability to produce any documents relating to the amounts identified in the annexure the subject of the admitted facts. The administration of the CarLovers company was concluded on 1 November 2007 by an order of the Court.

11 The next company, Sid Fogg & Sons Pty Ltd, and a company Visidet Pty Ltd, were companies providing bus services. The defendant was appointed as administrator of those companies on 22 December 2005 and as Deed Administrator on 27 February 2006. That administration was concluded on 18 April 2008.

12 The facts admitted to by the defendant in respect of those two companies include the lodgment of false accounts in respect of the period February 2008 to April 2008 and a myriad of failures to properly establish and administer the Deed Fund; making unauthorised payments to himself and charging the company Sid Fogg & Sons Pty Ltd over $100,000 in disbursements during the period 2 August 2007 to 18 March 2008 for GST liabilities, notwithstanding that he had not paid them and in fact did not do so until the deed was effectuated on 18 April 2008.

13 There are a number of smaller companies, one previously known as Sermacs Pty Ltd and another, MDC Entertainment Pty Ltd, the latter of which operated a Melbourne nightclub. The defendant was appointed as administrator of Sermacs on 2 May 2006 and as liquidator of that company on 29 May 2006. He was appointed as administrator of MDC on 17 May 2007. That ended on 23 May 2007. The defendant has admitted that he improperly caused Sermacs to pay $10,866 to a corporation for work performed by that company for MDC and he failed to lodge any accounts with ASIC for the winding up of Sermacs prior to 2 March 2009, despite the winding up commencing on 29 May 2006.

14 Another small company Zelous Creations Pty Ltd, a boat trim business, is also the subject of an admitted fact, that is, that the defendant accepted appointment as administrator of that company in circumstances where he knew or ought to have known that his appointment was improper, invalid and/or ineffective. He was appointed as administrator on 20 December 2004 and as Deed Administrator on 11 February 2005, which came to an end on 16 March 2007.

15 The company Austen Entertainment Limited is also the subject of admitted facts. It operated a publishing business. The defendant was appointed as administrator on 9 May 2005, as Deed Administrator on 17 August 2005 and as liquidator on 6 June 2008. The defendant has admitted to failing to call meetings, improperly receiving payments of $93,550 and allowing companies to remain in control of assets inappropriately.

16 The next company the subject of the admissions is P & J Smith Engineering Pty Ltd, a metal fabrication company. The defendant has admitted improperly paying himself $29,600 in respect of that company and he has admitted failing to pay any dividend to Westpac Banking Corporation when he should have done so. The defendant was appointed as administrator on 29 March 2007 and as Deed Administrator on 23 May 2007, which came to a conclusion on 27 April 2009.

17 The next company, Singleton Earthmoving Pty Ltd, is, as the name suggests, an earthmoving company. The admissions made by the defendant in respect of this company are a little more complex. He admits, amongst other things, lodging false accounts with the plaintiff and failing to lodge accounts with the plaintiff for a period from December 2004 to June 2005.

18 The defendant sought to defend an action brought by a third party who alleged it had paid moneys to Singleton Earthmoving when it should have, or intended to, have the moneys paid to the former principal of that company, Mr Wood. The defendant gave evidence before White J in this Court in proceedings identified as Wambo Coal Pty Ltd v Ariff (2007) 63 ACSR 429. The structure of the admissions made by the defendant is such that he admits that White J made findings of misconduct and dishonesty against him and admits paragraphs 51 to 54 in White J’s judgment, which includes findings of a most serious kind in relation to Mr Ariff's conduct in that case, in respect of the Singleton Earthmoving company.

19 The next company is Independent Powder Coating Pty Ltd, a company conducting a business of powder coating in Newcastle and later in Dungog. The defendant was appointed as administrator on 13 February 2006 and as liquidator on 9 May 2006. The admitted facts include an improper communication with the Insolvency Practitioners Association of Australia in which the defendant admits he improperly advised that association that he had received an offer for the purchase of the business of the company. He admitted that he charged the company nearly $6,000 for expenses incurred as a result of an improper authorisation of his employees to enter private premises and to seize assets on that land when he knew or ought to have known that the land was privately owned and that the ownership of the assets was in dispute. The defendant also admits to failing to pay superannuation to employees and PAYG tax to the Australian Taxation Office.

20 The next companies are Bulla Tip & Quarry Pty Ltd and Bulla Tip & Quarry Operations Pty Ltd, operating a tip. The defendant was appointed as administrator on 13 December 2006 and as Deed Administrator on 4 April 2007. He was removed on 13 December 2007. The admitted conduct by the defendant includes acceptance of the appointment as administrator of those companies where he knew or ought to have known, as he admits, that his appointment was improper, invalid and/or ineffective.

21 He admits that he issued a circular to creditors in which he represented that State Securities Pty Ltd had advanced an amount of $800,000 to the Bulla companies under a loan agreement, when no such payment had been made. He admits that he paid $400,000 to State Securities Pty Ltd on 12 January 2007, when he knew that State Securities had not paid that amount to the Bulla companies and he admits that he expected that State Securities would use the money to buy out a $400,000 debenture held by St George Bank Ltd over a company of which the defendant was Deed Administrator, known as the Armidale YCW Rugby League Football Club Ltd. He admits to having paid himself remuneration which had not been approved by the creditors in the amount of $55,573. He admits that he knew that the creditors had only approved $200,000 by way of remuneration rather than $255,573. There are other admissions in respect of these companies relating to improper payments for consulting fees, failures to collect amounts that should have been collected and an improper failure to accept an offer from a company to purchase land.

22 That brings me to the last company, HR Cook Investments Pty Ltd. That was a family company which owned and held property for the benefit of the Cook family. The defendant was appointed as the voluntary liquidator on 9 June 2006 as a result of the demise of the principal of the company. He ceased as voluntary liquidator on 29 March 2009. He used the company's money to pay legal fees for totally unrelated services. Lawyers who provided their services in a variety of unrelated retainers were paid by the defendant using the moneys of HR Cook Investments Pty Ltd. He even paid a judgment amount to a firm of solicitors arising from the proceedings before White J to which I have referred. The amounts of money that he paid to the legal firms for the provision of their services, to companies unrelated to the HR Cook Investments Pty Ltd, amounted to hundreds of thousands of dollars.

23 The defendant has provided evidence in support of the application for consent orders. His evidence is that when he commenced his practice in 2003 in Newcastle he only had one employee. That practice grew rapidly to approximately 25 members of staff, including 16 professional staff. As soon as he started his own practice it appears that he was approached by CarLovers and accepted the appointment as administrator, almost immediately after the practice began.

24 The defendant's evidence included the following:

...This was a very large matter that required a lot of resources which I now realise I did not have adequate systems in place to deal with. In hindsight, my eagerness to expand SAIA quickly by taking on such large administrations meant that I did not oversee or supervise the matters as closely as I should have and I have not conducted myself in a proper manner. I have made many mistakes, errors and omissions while principal of SAIA. Ultimately, I know that I was responsible for the external administrations and for the actions of my staff and consultants. I was the person who ultimately made decisions in relation to those administrations and no blame should be attributed to any of my staff. As a result of the investigations, complaints and media coverage the business of SAIA is all but over. SAIA is on the verge of insolvency.

25 The defendant's evidence also included the following:

I acknowledge that I have not conducted myself at all times in a proper manner. I admit fault and do not shy away from facing the responsibilities of my actions. I acknowledge I should have done things better and that I have brought discredit to myself, my family and my profession. I was involved in external administrations in which, in hindsight, I was not equipped to deal with, should not have been involved in at all, or made many poor and inappropriate decisions. I did not think through the consequences of what I did. I apologise to the creditors and officers of each of the companies that I was the external administrator. I very much regret my actions or inactions have caused any loss, damage, stress or suffering. I apologise to my family, particularly my wife, and my friends for any embarrassment and shame that I have caused. I apologise to my current and former staff of SAIA. I hope that they learn from my mistakes. I wish them all the very best for the future and thank them for their support over the years. I also apologise to the profession at large for any disrepute that I have caused. I also hope that others do not make the same mistakes that I have. I now realise that many of my errors could have been prevented and that I should have sought help from other people.

26 The defendant also referred to his previously unblemished record and character and said that he has never been the subject of any litigation, conviction, claim, penalty, fine or traffic infringement other than whilst he has been principal of his practice. He has been involved with the Institute of Chartered Accountants as a committee member of the Newcastle regional branch and by supporting and participating in various workshop events in the regional areas. He has also attended both formal and informal discussion groups within Certified Practising Accountants Australia.

27 The defendant accepts and wishes me to prohibit him for life from holding the office of official liquidator, registered liquidator, liquidator, provisional liquidator, voluntary administrator, administrator of a deed of company arrangement or controller. He also wishes the Court to make an order that he pay compensation to the companies in the amounts outlined in annexure C of the Short Minutes of Order.

28 These are orders that he seeks consequent upon the Court making the declarations that he seeks: that he has not faithfully performed his duties as a liquidator; that he has managed the business, property or affairs of companies in voluntary administration and/or subject to a deed of company arrangement in a way that has been prejudicial to the interests of their creditors and members; and that he has, as an administrator and/or as administrator of deeds of company arrangement, done acts and made omissions that were prejudicial to the interests of the creditors and members of those companies.

29 He consents to a declaration that he is unfit to hold the office of official liquidator, registered liquidator, liquidator, provisional liquidator, voluntary administrator, administrator of a deed of company arrangement or controller.

30 The powers of the Court under section 536 of the Act are very broad: Australian Securities and Investments Commission v Edge [2007] VSC 170; (2007) 211 FLR 137. When parties apply for consent declarations it is incumbent on the Court to ensure that that there is material upon which such declarations should be made: Australian Securities and Investments Commission v Elm Financial Services Pty Ltd & Ors [2005] NSWSC 1020; (2005) 55 ACSR 411.

31 In this instance the Court has been greatly assisted by the approach adopted by the defendant in admitting the facts contained in the Annexures to the Short Minutes of Order. I should recognise that in making these admissions the defendant has saved the plaintiff regulator, and the public, the costs of pursuing a six-week hearing with perhaps appellate processes and the like. In agreeing to be banned for life at this stage, the defendant has saved the regulator and in that way the public, a great deal of time, effort and money.

32 However, the defendant did not seem to me to recognise in his affidavit the gravamen of his conduct when he said that he was at fault. As a result of that Mr Wright, his solicitor, called him to give evidence directly related to the facts contained in the Short Minutes of Order and the Second Further Amended Originating Process.

33 I am satisfied that the defendant has admitted all of the facts contained in the Annexures to the Short Minutes of Order and I am satisfied that in those circumstances it is appropriate to make the declarations and orders sought in those Short Minutes of Order.

34 I should say, however, that it is very difficult to understand that the payments, for instance in relation to the defendant's overseas travel with his family, could in any way be described as an “error”. The conduct the subject of the admitted facts is conduct that is quite appalling. A liquidator is an officer of the Court. That is why the Court has power to supervise liquidators. The community expects the highest standard of conduct from liquidators. For whatever reason, which remains unexplained I am afraid, the defendant has, sadly, failed the community and the Court. But, as I say, he has seen at least partially, subject to what I have just said, the error of his ways and has admitted that he is unfit to be a liquidator.

35 I have asked Mr Wright to obtain instructions in relation to the defendant's future conduct. I should also say that the affidavit contains material relating to the stresses that have been imposed not only on the defendant by reason of these proceedings, but also the effect that it has had on his wife. That stress and strain is recognised but unfortunately it was brought upon by himself.

36 Mr Wright has indicated that his client has not really given thought to what he will do in the future, but it is understood that he is presently still practising as an accountant. I have indicated my concern that the accounting bodies, as opposed to the bodies that regulate liquidators, should also be advised of the orders to which the defendant has agreed. I would regard it as appropriate and I intend to make an order that a copy of the Short Minutes of Order and the Annexures be served on the various accounting bodies that regulate the accounting profession.

37 By consent: I make the order in paragraph 1 of the Short Minutes of Order initialled by me and dated today. I make the declarations in paragraphs 2, 3 and 6 of those Short Minutes. I make the orders in paragraphs 4, 5, 7 and 8 of those Short Minutes of Order. Those declarations and orders are as follows:

1. Upon the Defendant’s admissions, finds that each of the allegations summarised in the annexure marked “Annexure A” is proved.

2. Declares that in respect of each of the companies listed in the annexure marked “Annexure B”, the Defendant, relevantly:

(a) has not faithfully performed his duties as a liquidator;

(b) has managed the business, property or affairs of companies in voluntary administration and/or subject to a deed of company arrangement in a way that was prejudicial to the interests of their creditors and members;

(c) has, as administrator and/or as administrator of deeds of company arrangement, done acts and made omissions that were prejudicial to the interests of the creditors and members of those companies;

3. Declare that the defendant is unfit to hold the office of official liquidator, registered liquidator, liquidator, provisional liquidator, voluntary administrator, administrator of a deed of company arrangement or controller.

4. Orders that the Defendant pay compensation in the various amounts set out in the annexure marked “Annexure C” to the various companies identified in that annexure.

5. Orders that the Defendant is prohibited for life from holding the office of official liquidator, registered liquidator, liquidator, provisional liquidator, voluntary administrator, administrator of a deed of company arrangement or controller.

6. Declares that the Plaintiff is entitled to forthwith cancel the registration of the Defendant under sections 1282 and 1283 of the Corporations Act as an Official Liquidator and Registered Liquidator.

7. Orders that in respect of each of the companies identified in the annexure marked “Annexure D”, the Defendant is removed as liquidator or administrator of the deed of company arrangement, as the case may be, and that in his place, each of the persons identified in that annexure are relevantly appointed as liquidator or administrator of the deed of company arrangement.

8. Orders the Defendant to pay the Plaintiff’s costs of and incidental to these Proceedings.

38 I order that the plaintiff provide copies of these orders to the National Institute of Accountants, the Institute of Chartered Accountants Australia, and CPA Australia.

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LAST UPDATED:
19 August 2009