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SUPREME COURT OF QUEENSLAND
CITATION: Re: Colin Gregory Ryan [2014] QSC 18

AUSTRALIAN SECURITIES AND INVESTMENTS
COMMISSION
(intervenor)

a. if there are less than 4 directors of CMI, not
including the applicant, for a period of 14 days
or more; or
b. should CMI make an offer of, or issue,
debentures to members of the public in order to
use the money obtained through such an issue
for investment purposes.
2. No order as to costs.
CATCHWORDS: CORPORATIONS – MANAGEMENT AND
ADMINISTRATION – DUTIES AND LIABILITIES OF
OFFICERS OF CORPORATION – DISQUALIFICATION
FROM MANAGEMENT OF CORPORATION – LEAVE
TO MANAGE OR ACT AS DIRECTOR – where applicant
was convicted under the Securities Act 1978 (New Zealand)
and automatically disqualified under section 206B of the
Corporations Act 2001 (Cth) from managing a corporation in
Australia for five years without leave of the Court – where
applicant held honest belief in the truth of the statements
subject to charges – where prior to the charges the applicant
successfully managed companies for over thirty years –
whether the applicant should be granted leave to manage a
company with four other directors and companies with the
applicant and his wife as directors.
Corporations Act 2001 (Cth), s 206B, s 206G
Securities Act 1978 (New Zealand), s 58
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ASIC v Healey & Ors (No 2) (2011) 196 FCR 430, [2011]
FCA 1003, followed
Duffy, Re: Westgate Ports Ltd (2010) 79 ACSR 267, [2010]
FCA 608, followed

intervenor
[1] PETER LYONS J: On 15 March 2013, the applicant was convicted on his pleas of
guilty of three offences under section 58 of the Securities Act 1978 (New Zealand).
The result of his convictions is that, under section 206B of the Corporations Act
2001 (Cth), he is automatically disqualified from managing a corporation in
Australia for a period of five years. He has, however, applied under section 206G
of that Act for leave to manage a corporation. The application is opposed by the
Australian Securities and Investment Commission.
[2] It is necessary to say something about the circumstances in which the offences were
committed. On 19 December 2006, the applicant became a director of a New
Zealand company Capital+Merchant Finance Limited, referred to as CMF. CMF is
a New Zealand public company. It had a board of five directors. Three were
executive directors and were resident in New Zealand. Two, including Mr Ryan,
were non-executive directors, and were resident in Australia. CMF was a finance
company. It funded its operation by investments made by members of the public,
those investments being made under registered prospectuses and investment
statements.
[3] On 20 December 2006, that is, the day after he became a director of CMF, the
applicant signed an amended prospectus. It contained untrue statements.
Consequently, he committed an offence under section 58(3) of the Securities Act.
In September 2007, the applicant signed another prospectus to be issued by CMF;
thus, he committed another offence under the same provision. Advertisements were
issued by CMF in September and November of 2007. They contained untrue
statements. As a result, the applicant was convicted of an offence under section
58(1) of the Securities Act. It was a defence to all three charges that the applicant
honestly believed the untrue statements to be true, and that he had reasonable
grounds for doing so.
[4] The sentencing judge accepted that the applicant had an honest belief in the truth of
the statements. However, the applicant did not have reasonable grounds for that
belief, and it was on that basis that he pleaded guilty and was convicted. His case
was that he relied on the three resident executive directors for the truth of the
statements the subject of the charges. However, the sentencing judge, while
accepting that the applicant had an honest belief in the truth of those statements,
held that his conduct amounted to gross negligence from about the middle of 2007.
[5] It was submitted for the applicant, and I accept, that the offences were not
committed for the applicant’s personal profit.
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[6] The untrue statements are described in much greater detail in the outlines of
argument and in the sentencing remarks. I do not propose to do more than attempt
to describe them broadly. They related to third (related) party loans; to the financial
management of CMF’s activities; and to the status of its loans and its assets.
[7] CMF failed, going into receivership on 23 November 2007. At that time it owed
approximately $167 million to 7000 secured debenture holder investors. When
some of the other directors were the subject of proceedings in New Zealand, it was
not expected that the debenture holders would receive any return. Nothing has been
referred to before me to suggest a more favourable outcome for them.
[8] The sentencing notes for Mr Ryan’s sentence record that between 20 December
2006 and 9 December 2007, approximately $56.8 million was invested or reinvested
under the amended prospectus the subject of the first charge against him. With
accrued interest as at 23 November 2007, the debenture holders were owed amounts
totalling in excess of $72 million. From 10 September 2007 to the date of
receivership, approximately $32.5 million was invested or reinvested. The amount
owing to investors in respect of these investments, including interest, totalled some
$33.1 million by the date of the receivership. It seems to me likely that these
amounts should be regarded as cumulative, that is, that a total of about $89 million
was invested pursuant to the two prospectuses.
[9] The false advertisements included one advertisement prior to Mr Ryan’s becoming a
director. It was said that during the period those advertisements were before the
public, in excess of $23.4 million was invested. It may well be that this amount
overlaps entirely with the amounts invested pursuant to the prospectuses. It is
unnecessary, however, to reach a firm conclusion about this.
[10] It is apparent that the failure of CMF resulted in very large losses to investors in
New Zealand and that the order of magnitude of those losses can be identified by
reference to the amounts I have just mentioned. It was submitted, and I accept, that
the material does not demonstrate that all of the amounts invested were invested in
direct reliance on the untrue statements. Nevertheless, it seems to me the fact that
investments were made pursuant, in particular, to the two prospectuses containing
the untrue statements, is a matter of considerable significance in the present
application.
[11] Pursuant to the convictions mentioned earlier, the applicant was sentenced to a
period of seven months home detention and was required to serve 300 hours of
community service. In addition, he offered to pay reparation of $100,000 and,
accordingly, an order to that effect was made on his sentence.
[12] Further circumstances of the offending are detailed in the submissions for the
parties, particularly those for the Commission. I do not propose to rehearse all of
the circumstances here. I will, however, say something about what were referred to
as the Ultratone transactions, as they were the subject of particular emphasis in the
Commission’s oral submissions.
[13] From about 2004, Ultratone was financed entirely through loans from CMF. Some
of the directors of CMF were also directors of Ultratone. Ultratone owned 80 per
cent of the shares of an Australian finance company referred to as CFAL. Over
time Ultratone borrowed some $9.7 million from CMF. Of that, some $5.5 million
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was lent to CFAL. Between 2005 and 2007 the loans from Ultratone to CFAL were
converted to redeemable preference shares in CFAL.
[14] The Commission submitted that the conversion was on terms which were
disadvantageous to Ultratone. Mr Ryan’s evidence was that at the time he believed
the conversions to be advantageous to Ultratone because the asset backing for the
shares gave them a value which substantially exceeded CFAL debts to Ultratone. In
the end, however, it would seem that they were not advantageous to Ultratone.
[15] Ultratone’s liabilities exceeded its assets as from 31 March 2005. The applicant was
not a director of Ultratone, nor was he said to be involved in its management. He
was, however, a director of CFAL from January 2005, including six occasions on
which loans were converted to redeemable preference shares to be held by
Ultratone. At one point it appeared to be suggested that the applicant knew some of
the statements to which the charges relate were untrue, in particular by reason of his
involvement with CFAL and CMF. Subsequently, it was submitted that these
transactions demonstrated the degree to which his negligence was gross.
[16] In view of the finding of the sentencing judge that the applicant held an honest
belief in the truth of the statements the subject of the charges, I am not prepared to
find that the applicant actually knew any of the statements to which the charges
related to be untrue. I also note that the applicant was not cross-examined to
suggest this.
[17] This application is made under section 206G of the Corporations Act. Some
principles and a number of relevant considerations have been identified in earlier
court decisions, in particular in Duffy, Re: Westgate Ports Ltd (2010) 79 ACSR
267, a decision of Gordon J. After a review of the cases, a number of principles and
relevant factors were summarised by her Honour. One was that the legislative
policy is one of protecting the public, not one of punishing the offender.
[18] I accept that the legislative policy which leads to disqualification of a person from
acting in the management of a company, and the constraints imposed by the need to
apply for leave, are intended to provide protection to members of the public from
the risk of inappropriate or improper management of a corporation.
[19] To say that the policy is not one of punishing the offender may perhaps be regarded
as literally true in respect of a provision which permits the grant of leave to manage
a company. However, in respect of the Court’s power under other provisions to
disqualify a person from doing so, relevant considerations have been said to include
retribution and deterrence; see Rich v ASIC (2004) 220 CLR 129 at [52], per
McHugh J; see also ASIC v Healey & Ors (No 2) (2011) 196 FCR 430 at [107]. It
seems to me to be difficult to divorce considerations of retribution and deterrence
from punishment. In Healey, Middleton J held that a disqualification had a punitive
aspect; see [109]. I agree. It seems to me to find that where a statutory provision
imposes an automatic disqualification as a consequence of the commission of an
offence, there is a punitive aspect to the disqualification. It follows that a grant of
leave under section 206G involves some abatement of the punishment imposed by
the Act, a matter I take into account in deciding the present application. Likewise, I
note Gordon J’s reference to the deterrent aspect, presumably of a disqualification,
as relevant to the exercise of the discretion to grant leave. I consider that to be
relevant in the present case.
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[20] Of the other factors and principles referred to in Westgate Ports (at pages 271-272),
it seems to me that, in the present case, of particular importance is the question of
risk to the public, including shareholders, employees and creditors. However, the
other considerations which are identified there are also relevant and I shall refer to
them a little later.
[21] In the course of submissions I was referred to considerations relevant to the
question whether the power to impose a disqualification should be exercised and, if
so, for how long. A number of considerations have been stated at some length by
Santow J in ASIC v Adler (2002) 42 ACSR 80 at [56]. Some modification of those
principles may be appropriate after the decision in Rich, and a helpful summary, it
seems to me, of the present position appears in ASIC v Healey & Ors (No 2) at
[111]. In my view, such considerations are ordinarily relevant to an application of
the present kind, although they are less directly relevant than those identified in
Westgate Ports.
[22] The applicant placed weight on the fact that, had the conduct which resulted in his
convictions in New Zealand occurred in Australia, that conduct would have been
proscribed by section 180 of the Corporations Act, with the result that it would have
been subject to a civil penalty and that the Court would have had a discretion to
impose a disqualification under section 206C.
[23] The submissions referred to cases which had some similarity to the present one,
where substantial periods of disqualifications were imposed. I should say that there
are not insignificant differences between those cases and the present case.
[24] The Commission contended that the applicant’s conduct, if it occurred in Australia,
notwithstanding section 180 of the Corporations Act, could have resulted in the
applicant’s prosecution for criminal offences, which, if successful, would have
resulted in his disqualification from acting in the management of a corporation.
Reference was made to sections 1041E and 1309(2) of the Corporations Act. With
respect to the former, for the applicant it was submitted that the principal offender
would be the company, although there was a prospect of a charge against the
applicant as an accessory. With respect to the latter, it was submitted that it was not
directed towards conduct, and in particular statements and the like, aimed at the
public generally, but to persons and entities in particular capacity and was not
appropriate for the conduct which resulted in the charges in New Zealand.
[25] Although not of particular significance in the case, that submission appears to be
correct. Beyond that, the Commission fairly pointed out that it was unknown
whether, had the conduct occurred in Australia, the applicant would have been
charged under either or both of these provisions, nor could it be said whether or not
a prosecution would have been successful.
[26] It seems to me that the fact that the provision in the Corporations Act which appears
closest to section 58 of the Securities Act would result in a civil penalty with a risk
of an order for disqualification is of some relevance. Its significance, however, as a
factor supporting the application, appears not to be particularly great. I do not
consider the matters raised by the Commission further reduce its significance in any
real sense; but that does not convert it into a factor of great significance in the
application.
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[27] I turn then to the matters raised in Westgate Ports. I have already referred to the
importance of protection of the public. I note, consistent with the submissions made
by the Commission, that the applicant bears the onus of establishing that leave
should be granted. I also note, consistent with matters I referred to earlier, the
deterrent aspect of a disqualification.
[28] The Commission’s submissions placed weight on the approach taken in Westgate
Ports to hardship. It was there said that that was not a persuasive ground for the
grant of leave. I did not understand the application to be based to any significant
extent on hardship, although it was submitted that the applicant’s age, 67, was
relevant. I understood the relevance of that submission to be that he has less time
available to him in which he might be an effective director than would a person who
was considerably younger, and in that sense the disqualification was more
significant to him than it would be to a younger person. While a relevant
consideration, that does not seem to me to be a matter of particular weight in the
present case.
[29] I have already referred to the nature of the offence. Plainly, it was associated with
very significant losses to the public. I have also previously referred to the nature of
the applicant’s involvement. I have mentioned that he was a non-executive director,
and one of the authorities I was referred to would suggest that the culpability of a
non-executive director in such a case might be treated as less significant than that of
an executive director. While I accept that, particularly in view of the findings of the
sentencing judge that the applicant was grossly negligent from about the middle of
2007, it does not, in my view, diminish the seriousness of the conduct which
resulted in the applicant’s convictions.
[30] The applicant’s general character, including prior to and in the period since the
commission of the offences, is relevant. I shall here mention something of his
personal background. He was, from 1972 to 1987, the managing partner of Arthur
Andersen, a well-regarded accounting firm. From 1983 to 2011, he was a director
of, and chairman of the Board of, the Royal Children’s Hospital. From 1996 to 1999
he was a director of, and for some of the time deputy chairman of, the Port of
Brisbane. From 1998 to 2009 he was a director and chairman of Brisbane Airport
Corporation Limited.
[31] From 2000 to 2004 he was a director of RP Data Limited, a prominent public
company. From 2000 to 2013 he was a director of Softlink International Limited.
Until 2011 he was the chairman of the Queensland Children’s Medical Research
Institute. In 2004 he was awarded the Order of Australia for services to children.
The sentencing notes from the sentencing court in New Zealand add that he
established the Royal Children’s Hospital Foundation which raised over $180
million in funds for medical research and specialist equipment and services.
[32] There are references which were provided for the sentence relating to the applicant’s
character. It was not suggested that they were no longer reliable, nor was objection
taken to their tender. They come from a number of people who are of considerable
prominence, at least in the Brisbane, and indeed Queensland, communities. They
were described in the submissions on behalf of the applicant as “outstanding”. It
seems to me they could be described as glowing, indeed, at times, to the point of
incandescence. They all attest to the applicant’s integrity, diligence and skill, in the
management of corporations. I note in particular, from the reference from
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Ms Nosworthy, her statement that the applicant is an extremely committed,
hardworking and diligent director, who was highly ethical, and that he has
significant technical competence and experience. She wrote also that he had always
shown good judgment, maturity, balance and a strong awareness of risk.
[33] Mr Bowes, who was group company secretary and head of Governance, Risk,
Compliance and Legal Services in the Brisbane Airport Corporate Group of
companies from 1987 to 2010, said of the applicant that his experience, knowledge
and application of professional non-executive directorship and leadership was
exemplary, and exhibited those tenets of good governance, due diligence,
accountability, transparency, stewardship and integrity that are the hallmarks of a
contemporary company director.
[34] The application focuses on the applicant’s desire to be involved in the management
of CMI Limited. The applicant was a former director of that company and,
ultimately, its executive chairman. He ceased to be a director with his convictions.
His application is supported by an affidavit of Mr Danny Herceg, a practising
solicitor and the current chairman of the Board of CMI. He, too, gives evidence of
the applicant’s capacity and honesty and speaks of his special in-depth knowledge of
the business of CMI by reason of his lengthy association with that company. He
supported the application on the basis that the applicant would make a significant
contribution to the board if permitted to serve on it, in particular because of his very
deep knowledge of its businesses.
[35] The applicant’s application is also supported by an affidavit from Ms Sharon
Williams, a director and chief financial officer of CMI. She confirms that the
charges against the applicant and the fact that, as a result, he could no longer
continue as a director of the company, were made known to the public in February
and March of 2013. She, too, speaks highly of the applicant, considering him to be
a highly ethical and honest man and a very effective director and managing director
of CMI. She speaks of his detailed knowledge of its business and his significant
commercial acumen.
[36] The applicant himself deposed, without objection, to the fact that he had the support
of the board of CMI for his application. I am prepared so to find. I am also
prepared to find that, save for the matters which gave rise to the convictions, the
applicant has been a highly skilled and effective company director for many years,
with considerable commercial acumen, who has diligently discharged his duties in
relation to company management.
[37] The offending conduct appears to be significantly out of character. It is troubling
that it extended over a period of time, although the period of gross negligence is
shorter than the total period of offending. There is little by way of direct evidence
about the applicant’s conduct subsequent to these convictions, but there is no
suggestion of any offending or other conduct which might weigh against the
granting of leave. I shall return to the question of risk shortly.
[38] It is apparent from the sentencing notes that the applicant acknowledged his
wrongdoing early and was willing to provide cooperation to the authorities in New
Zealand in respect of their investigations and prosecutions. The sentencing notes
suggest that his cooperation may have played a role in the decision by other
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directors to plead guilty to offences relating to the events which occurred there in
2006 and 2007.
[39] It will be apparent from what I have said previously that the applicant’s general
character is good, that he has never before offended, and that he has been, on the
whole, a very valuable member of the community, making significant contributions
to it. Those matters, together with, no doubt, the impact of the sentences imposed
on him in New Zealand, make it unlikely that he would offend in the future.
[40] The matters referred to in Westgate Ports refer to the structure of the companies.
That, it seems to me, is a reference to a circumstance relevant in some cases where
there is a small company and all the other shareholders are aware of the
circumstances leading to a disqualification and support the grant of leave. It does
not follow that the application would be refused in the case of a public company
where there are a large number of shareholders and their attitude is not directly
known.
[41] The next matter referred to in that case is the degree of control which the applicant
would be able to exercise and the level of supervision. The applicant would, if
appointed as a director, be one of at least five directors and, accordingly, would not
have sole control of the company. Nevertheless, it is a position of some
considerable significance and would result in his being influential in the company’s
operations. There is no suggestion of supervision as such. Given the applicant’s
background, I do not consider that to be of particular significance.
[42] Likewise, Westgate Ports refers to the presence or absence of a specific proposal to
take part in the management of a specified corporation or corporations and whether
what is proposed accords with proper commercial standards. The Commission
places weight on the absence of a specific proposal to take part in the management
of a specified corporation. The application is primarily an application for leave
generally to manage corporations. However, in the alternative, leave is sought to
act in the management of CMI and any company of which the applicant and his
wife are the only members. I have already intimated that I do not intend to grant
leave generally to manage corporations and that I am not particularly disposed to
grant leave to manage companies of which only the applicant and his wife are
members. The result, therefore, will be that there would be a relatively limited
circumstance in which the applicant can take part in the management of a
corporation. I also intend to impose conditions which seem to me to be appropriate
and which, in principle, are not opposed by the applicant.
[43] I have, to this point, not dealt specifically with risk which might be associated with
any grant of leave. CMI is not a finance company and does not solicit investment
by way of deposit with it of funds which it would, in turn, reinvest. It has two
divisions, an electrical division and what is referred to as the TJM product division.
The electrical division apparently specialises in the manufacture of specialty
electrical cables and related matters. The TJM product division specialises in
designing, manufacturing, wholesaling and retailing vehicle accessories for 4WD,
SUV and trade markets. These businesses are quite different from the business of
CMF. It is difficult to identify a risk of loss in CMI of the kind which occurred in
CMF’s case
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[44] Beyond that, it was submitted on behalf of the applicant that CMI is a company of
which he has deep personal knowledge, supported by the evidence to which I have
previously referred and which I accept. The risk that the applicant might offend
because of his unquestioning and uninformed reliance on others is significantly less
were he to act in the management of CMI. The offending in CMF was associated
with fraudulent conduct by three of the directors other than the applicant. There is
no suggestion that any of the directors of CMI are not of good character and do not
discharge their duties as directors conscientiously. I have also mentioned the likely
impact of the convictions and sentences on the applicant. It, therefore, seems to me
that the risk of his again committing offences such as those committed in New
Zealand is low and the risk of any associated loss is also significantly lower than if
the circumstances are analogous to those in which the offending was committed.
[45] While the offending demonstrates that there is inevitably some risk of a repetition,
the fact that it is significantly out of character with the applicant’s conduct over
many years, as appears from the evidence which I have referred to about his
character and his conduct in relation to the management of corporations on other
occasions, leaves me with the view that that risk is not at a level to be a significant
bar to granting leave.
[46] The Commission’s submissions, not surprisingly, refer to the serious nature of the
offending, to the fact that it involved gross negligence, to the substantial losses
associated with the failure of CMF and the matters I have referred to relating to
investments with CMF in 2006 and 2007. These are important considerations, but it
seems to me they are to be weighed in the context of the other matters to which I
have referred.
[47] Weight was also placed on what was said to be the short time since the applicant
was released from home detention. However, by the time any leave becomes
operative, there will have been a 12 month period during which the disqualification
operated in full; and the order I am proposing to make would leave the
disqualification generally operative in the future. Whether any further leave should
be granted would be a matter to be considered afresh at the time of any future
application, based not only on the matters that have been raised before me but on
events which will occur in the future. As suggested in the course of submissions, I
consider that the sentence imposed, the period of disqualification already served,
and the fact that limited, conditional leave would be granted, are sufficient for the
upholding of proper standards of commercial morality
[48] It was submitted that no need has been shown for a grant of leave. That is, as I
understood it, a submission that it was not necessary for CMI to conduct its
businesses successfully that the applicant be granted leave, nor is it shown to be
necessary for the proper conduct of the companies where the applicant and his wife
are the only members.
[49] Need, of course, would provide strong support for the application. Its absence is not
determinative. It seems to me that what the applicant has shown, from the evidence
that has been advanced, is that it would be of benefit to CMI if the applicant were
able to take part in its management, a benefit which is recognised by its current
Board. That benefit, it seems to me, is a factor which works in favour of the
application, although it would not be of such a significance as to warrant a grant of
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leave if, for example, there was a substantial risk that members of the public would
suffer losses if leave were granted.
[50] Weight was also placed on the fact that the disqualification was made automatic for
a period of five years by the legislature. It appeared to be submitted that one should
not lightly dilute the effect of the legislation. Because a discretion is granted,
however, there is always a prospect, as a result of what has been adopted by the
legislature, that the prima facie position resulting from the disqualification will be
altered by a grant of leave. It seems to me that while I should recognise that
legislature has taken what I have described as a blanket approach for all offences to
which section 206B applies of imposing a disqualification of five years, I should
also recognise that that relates to a range of offending and that, regardless of how
significant the offending is, the legislature has made provision for the modification
of the operation of section 206B.
[51] I have mentioned previously the seriousness of the offending; but I have also noted
the absence of actual dishonesty on the part of the applicant and the absence of any
suggestion of personal gain. I should also say that it seems to me that some
limitations should be imposed on any grant of leave.
[52] Weighing up all of the considerations, it seems to me that there should be a limited
grant of leave. It should permit the applicant to participate in the management of
CMI. However it should do so subject to some conditions. One is that, at least
generally, there should usually be at least four other directors of CMI. Another one
is that it should not engage in business which is similar to that which was conducted
by CMF. The precise formulation of those conditions is a matter about which I will
invite some further submissions. Accordingly, I propose to grant the application,
consistent with what I have said in my reasons.
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