Most Read Contributor in Australia, September 2016
By Michael Linehan, David Walker and Phillip
Last week, the Administrative Appeals Tribunal
(AAT) overturned a banning order imposed by ASIC
on Mr Lance Rosenberg, a director of Tricom Equities Limited
(Tricom), from providing any financial services
for a period of 4 years. While the decision may be open to review,
some interesting comments were made.
The conduct giving cause to the banning order related to actions
of Mr Rosenberg in relation to securities that Tricom, as a lender
and held by it as security for loans, had on-lent to Opes Prime.
Opes Prime had administrators appointed on 27 March 2008. Having
on-lent securities to Opes Prime, and being concerned about
Tricom's ability to recover those securities, Mr Rosenberg
spent a number of days on and after 27 March 2008 obtaining advice
from corporate advisers and insolvency specialists about the best
way to recover them. A number of alternatives were considered and
Mr Rosenberg facilitated an off market transaction known as a
"special crossing" between two related Tricom entities in
relation to 12 particular parcels of securities in an attempt to
seek to generate a contractual right for their recovery (a
"special crossing" is a transaction between two parties
off market at a price agreed between the parties).
During the days prior to putting in place the special crossing,
Mr Rosenberg was in constant communication with the ASX about the
position. Having put in place this special crossing, Mr Rosenberg
negotiated with lenders and was then able, before the obligation to
settle the crossing was due, to finance the acquisition of those
securities and to cancel the special crossing.
ASIC alleged that, in breach of the Corporations Act, the
entering into of the off market special crossing transaction:
created a false or misleading appearance of active trading;
was likely to mislead or deceive the market.
The AAT considered a range of expert evidence and, in
particular, the ASX Listing Rules (Rules), to the
extent that they relate to off market transactions such as special
crossings, and the information that is available to investors about
these sorts of transactions.
The AAT took the view that the special crossings, being
"off market" transactions, were transactions specific to
the ASX and provided for under the Rules. To the extent that the
transactions were reported to ASX as "special crossings",
which by definition are transacted off market at a special
crossings price that may bear no relation to the market price for a
security, the market is on notice of this fact and, accordingly,
there is no false market.
The AAT came to the conclusion that the evidence provided by
ASIC did not make out that the relevant sections of the
Corporations Act were contravened. In addition to the question of
evidence about the particular contraventions, the context of making
of the banning order was considered.
The AAT considered the fact that banning orders are
discretionary and not required to be imposed by ASIC. Further, the
purpose of a banning order is primarily to protect the public and
to act as a deterrent to the person concerned and other market
participants as to other potential breaches of the law. The AAT
found that, having regard to the exceptional circumstances in which
Mr Rosenberg found himself, the order was excessive.
The case should provide some comfort to directors that while an
ASIC delegate may consider that action taken under extreme time
pressure at a difficult time is in breach of the law, the AAT may
take a view which considers a broader set of circumstances, in
particular the various options available to a director, including
those availble to Mr Rosenberg to seek recovery of the securities
and the fact that an off market transaction of this nature was
unlikely to prejudice the investing public.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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