Management: AUS Court defines regulators powers of disqualification

On 26 February 2007 Mr Culley was disqualified by ASIC in relation to his involvement in the affairs of four failed companies; Oriental Experience Pty Ltd, Construction Resources Pty Ltd, B.M.C Special Projects Pty Ltd and B M Culley & Associates Pty Ltd. Mr Culley was found to have failed in his duties as a director by allowing the companies to accrue significant statutory debts and to trade while insolvent. Mr Culley appealed the disqualification at the Administrative Appeals Tribunal (AAT) which affirmed ASIC’s decision in July 2008. Mr Culley subsequently appealed the AAT’s decision to the Federal Court which was dismissed. A further appeal by Mr Culley to the Full Court of the Federal Court was dismissed yesterday with the effect of upholding ASIC’s decision to disqualify Mr Culley from managing corporations for two years.Yesterday’s decision of the Full Court is significant as it explains the time in which ASIC can exercise its power to disqualify directors under section 206F of the Corporations Act. The decision clarifies an earlier decision of the Federal Court that ASIC was required to exercise its disqualification power within a ‘reasonable time’.

The Full Court found that the language and structure of section 206F of the Corporations Act (the Act) does not imply a requirement for ASIC to exercise its power of disqualification within any shorter period than the seven years immediately before the giving of the show cause notice under section 206F(1)(b) the Act.

In another recent decision, the Federal Court of Australia dismissed an appeal by Mr Anthony James Scott against an ASIC decision to disqualify him from managing corporations for a period of one-and-a-half years. Mr Scott was ordered to pay ASIC’s costs of the appeal and remains disqualified from managing corporations until 10 February 2011.

Section 206F of the Act allows

ASIC to disqualify a person from managing corporations for up to five years if, within a seven-year period, the person was an officer of two or more companies, and those companies were wound up and a liquidator provides a report to ASIC that the company is unable to repay its debts.

- ASIC