GRD v. BJD - (04 Dec 2018)

Court is empowered to grant leave to a disqualified person to manage a corporation

Company

By originating process lodged 17 September 2018 the plaintiff seeks leave of the court under s 206G of the Corporations Act, 2001 to be a director of a corporation. At present, he is an un-discharged bankrupt. In support of his application the Plaintiff has sworn two affidavits, the first dated 17 September 2018 and the second dated 20 November 2018. The Defendant is the former wife of the Plaintiff. She opposes the application.

A person who becomes bankrupt is, under Section 206B(3) of the Corporations Act, disqualified from managing a corporation. Under Section 206A(2) when a person is disqualified from managing a corporation he or she automatically ceased to be a director. Section 206G gives the power to the court to grant leave to a disqualified person to manage a corporation.

The Plaintiff and the Defendant have been separated since March 2015 and were granted a divorce order on 16 July 2016. The Plaintiff says, and again the defendant does not dispute, that the defendant has never been involved in the management or control of either Aquarisk or Semohour. In his second affidavit, the Plaintiff says that he and the Defendant have reached an in principle agreement in the Family Court which would allow the Defendant to 'roll out' of the Fund. At present the Fund is not compliant with the Superannuation Industry (Supervision) Act, 1993 because under Section 17A of that Act each member of the Fund must be a director of the trustee. Unless the Plaintiff is authorised to act as a director, the position will not change, when the Defendant departs the Fund.

In his first affidavit, the Plaintiff sets out the circumstances in which he became bankrupt. It is not necessary for me to detail the evidence. A business which he was conducting was adversely affected by competition and failed. The plaintiff was a guarantor of the debts of the business. When the guarantee was called up, he was unable to meet the liabilities and was forced into bankruptcy. In her affidavit, the Defendant calls into question both the business acumen of the Plaintiff and his honesty. She alleges that, certain decisions in relation to the business were taken without her knowledge and to her detriment. The Plaintiff was solely responsible for managing a business which failed and led directly to his bankruptcy.

On an application such as this, the Plaintiff bears the onus of establishing that the prohibition should not apply. The policy of the legislation is to protect the public and to deter offending. The policy is not punitive.

Order sought by the Plaintiff ought be made. Semohour has a very limited role and there is no prospect of it being a trading corporation. Once a financial settlement is reached in the Family Court proceedings between the Plaintiff and the Defendant, the Plaintiff will be the sole beneficiary of the Fund and the Defendant will not be at risk were there to be any mismanagement of the corporation on the part of the Plaintiff. Furthermore, the conditions imposed by ASIC would offer protection to any persons who might be affected by the Plaintiff being involved in the management of the corporation.

Tags : BANKRUPT ACT AS DIRECTOR APPLICATION