Monday 12 February 2007 – LAWFUEL – Legal News Network – The Australian Securities and Investments Commission (ASIC) has succeeded in its appeal in the Federal Court of Australia against the former directors of Australian Managed Funds Limited (AMF), the Responsible Entity for the Knightsbridge Finance Mortgage Scheme (formerly known as the Clifton Partners Finance Mortgage Scheme). On 7 February 2007, the Federal Court made orders disqualifying Mr Peter Cornelius Beekink from managing corporations for a period of 12 months. Further, Mr Beekink was fined $40,000 while Messrs Gregory Phillip Gaunt and Hersch Solomon Majteles were each fined $20,000. This decision follows civil penalty proceedings commenced by ASIC in 2003 where it sought significant pecuniary penalties against each defendant, as well as an order disqualifying Mr Beekink from the management of companies for a specified period.
ASIC sought the civil penalty orders for the defendants’ failure to discharge the duty imposed on them by section 601FD(1)(f)(iv) of the Corporations Act to ensure that the Responsible Entity complied with the scheme’s compliance plan. The proceedings was one of the first commenced against officeholders of a Responsible Entity under the Act. At first instance, the Federal Court found the defendants breached the Act by failing to take reasonable steps to: • read a second part prospectus issued by AMF; and • ensure that the prospectus was not false or misleading. The prospectus was issued to raise funds for the construction of the Blackrock Caravan Park in South Hedland, Western Australia. The Court fined Mr Beekink $25,000 and Messrs Gaunt and Majteles $10,000 each, but declined to make an order disqualifying Mr Beekink from managing companies. ASIC appealed this decision and sought an increase in the pecuniary penalties against each defendant, as well as a disqualification order against Mr Beekink, given the seriousness of the contraventions and the need for general deterrence. ASIC’s Executive Director of Enforcement, Ms Jan Redfern, said the decision sent a strong message that the community would not tolerate officeholders of a Responsible Entity who failed to meet their responsibilities. ‘The directors of a Responsible Entity have a duty to ensure the information provided to investors is true and correct, and to take all reasonable steps to ensure that the Responsible Entity complies with the scheme’s compliance plan. ASIC welcomes the court’s view that the
seriousness of the breaches warranted a disqualification order against Mr Beekink and an increase in the pecuniary penalties for all three directors’, she said. Background AMF was the Responsible Entity for the scheme. AMF entered into an agreement with Clifton Partners Finance Pty Ltd (Clifton Partners) whereby Clifton Partners would be responsible for managing the scheme on a day-to-day basis. Although Messrs Beekink, Majteles and Gaunt were directors of AMF, Mr Beekink had assumed (with the acquiescence of Messrs Majteles and Gaunt) the responsibility of making decisions about the day-to-day management of the AMF including overseeing the operations of Clifton Partners and issuing prospectuses. Mr Beekink authorised Mr William Frederick Harmer, a director, senior executive, finance broker and authorised representative of Clifton Partners, to sign prospectuses on behalf of AMF without first referring the prospectus to AMF’s directors for their detailed review.
This was despite the fact that the scheme’s compliance plan required each prospectus to be the subject of a due diligence procedure whereby material statements and all financial data were to be the subject of review by AMF’s directors. Between 1 February and 3 March 2000, a second part prospectus was issued by Mr Harmer which sought to raise funds for the completion of the Blackrock Caravan Park. The directors of AMF did not read the prospectus or subject the prospectus to due diligence before it was issued.
That prospectus included the following statements: • at 31 January 2000, $2.2 million had been raised and a further $320,000, proposed to be raised under the prospectus, would enable the borrowers to complete the project, and • work was nearing the final stages and the caravan park should be open by the end of February 2000. Contrary to these statements, construction of the caravan park was in fact not nearing the final stages. There was also evidence that approximately $1,600,000, and not $300,000, was required at the time that the prospectus was issued. The Full Federal Court commented that by wrongfully authorising Mr Harmer to sign the prospectus Mr Beekink had undermined entirely the protection contemplated by his own compliance plan. At the relevant time, Messrs Beekink, Gaunt and Majteles were all partners of the law firm Phillips Fox. They are now partners of Perth law firm Lavan Legal.
In 2006, the defendants agreed to repay the capital losses suffered by investors in the Blackrock Caravan Park project. This amount totalled $207,040, of which one half was paid by Mr Beekink and the remaining half paid by Phillips Fox on behalf of Messrs Gaunt and Majteles. In October 2004, Mr Harmer, formerly of Mt Claremont in Western Australia, was sentenced to two years in prison after being found guilty of making materially misleading statements in the prospectus. On appeal, the sentence was reduced to 12 months. For further information contact: Jan Redfern Executive Director, Enforcement Telephone: 02 9911 2191 Mobile: 0411 119 210 Emma Forehan ASIC Media Unit Telephone: 03 9280 3354 Mobile: 0409 702 310