Tribunal upholds decision to refuse limited AFSL

Up until 30 June 2016, the applicant had previously provided financial services under the accountants’ licensing exemption which allowed accountants to provide financial product advice on SMSFs and superannuation in certain circumstances.

A delegate of ASIC refused the application on 9 November 2017.

One of the reasons for the refusal was ASIC’s concern that the applicant would not meet the requirement in s 913B(1)(b) of the Corporations Act.

Section s 913B(1)(b) of the Corporations Act states that ASIC should only grant an AFSL if it has no reason to believe that the applicant is likely to contravene the obligations that apply under section 912A if the licence is granted.

ASIC had concerns about the applicant’s performance and duties as a registered liquidator and voluntary administrator. The corporate regulator had concerns about his conduct in four main areas.

The accountant’s relationship with his appointer or referrer ASIC felt may have influenced his conduct in external administrations, giving rise to concerns that he failed to act independently, free of actual, apparent or potential conflicts of interest or with the appropriate degree of care and diligence required of a registered liquidator. ASIC observed this conduct in five external administrations.

A second area of concern was that the applicant had accepted appointments in external administrations in circumstances where, due to a prior or an existing appointment to a related entity, he was in a position of actual or potential conflict of interest.

ASIC was also concerned that Mr McDermott had failed to lodge with ASIC a report of suspected offences by officers or former officers of companies to which he was appointed, either in a timely manner or at all.

The corporate regulator also identified failures to properly inform creditors of the basis for remuneration he was claiming and drew down without properly informed creditor approval or court approval.

ASIC had initiated proceedings against the accountant in court a few months before he had lodged his application for an AFSL. While the court accepted that his conduct was not dishonest, it found that he had failed to carry out and adequately perform his duties as a liquidator and administrator.

He was prohibited from accepting new appointments for a three-year period, with the exception of the voluntary wind-up of proprietary companies.

The counsel acting on behalf of the applicant submitted that the relevant test is whether the applicant is likely to contravene the obligations as a licensee rather than whether he will do so.

He referred to a previous judgment regarding the expression “reason to believe”. He submitted that s 913B(1)(b) requires the decision-maker to form a belief, based on reasonable grounds, as to the likelihood or probability of an applicant contravening the obligations under s 912A of the Corporations Act.

They submitted that the words “no reason to believe” are to be read as limiting rather than empowering the decision-maker’s powers under s 913B.

The counsel for ASIC, on the other hand, argued that s 913B(1)(b) requires that ASIC is positively satisfied that it has “no reason to believe” that the applicant is likely to contravene relevant obligations.

He referred to a passage from senior member Redfern in Re One RE Services Limited and Australian Securities and Investments Commission [46] (One RE) and relied on the proposition put at [70] that s 913B(1)(b) has the practical effect of shifting an onus to an applicant for an AFSL to establish, to ASIC’s reasonable satisfaction, that it will comply with the obligations under s 912A.

In his conclusion, the judge stated licensing provisions in chapter 7 of the Corporations Act are directed to providing a balance between fostering an innovative, efficient and viable financial services industry and ensuring that consumers of those services are properly protected.

The judge noted that the applicant’s previous conduct revealed multiple failures to comply with requirements under the act, the regulations and applicable professional standards.

“The applicant admitted that his conduct constituted serious failure by him faithfully to perform his duties or observe the requirements of the Corporations Act, the regulations or the rules. His serious failure extended across multiple appointments as liquidator,” he stated.

“[His] conduct indicated a systematic failure of systems and procedures and, at its highest, a lack of understanding of, and in some instances, a disregard for the duties and responsibilities of a liquidator.”

Given his systematic failures in relation to his other professional roles, the judge was not satisfied that there was no reason to believe that Mr McDermott was likely to contravene the obligations that would apply under s 912A if an AFSL were to be granted.

“Therefore, he has not satisfied s 913B(1)(b) of the Corporations Act and an AFSL must not be granted to him,” the judge stated.