The Administrative Appeals Tribunal (AAT) has affirmed ASIC’s decision to ban a funds management director on the basis that she was not competent and adequately trained to perform her duties.

Funds management director ban affirmed on competence grounds

The Administrative Appeals Tribunal (AAT) has affirmed ASIC’s decision to ban a funds management director on the basis that she was not competent and adequately trained to perform her duties.

Background

The AAT’s decision needs to be considered in a broader context than just a mere banning order.  That broader context is the demise of a funds management business operated by ISG Financial Services Limited (ISG).

The funds business

ISG is the responsible entity of two registered managed investment schemes, the ISG Real Estate Equity Fund and the ISG Private Access Fund (Schemes).

According to the Australian Securities and Investment Commission (ASIC), since 2019 the Schemes had received approximately $145 million from retail and wholesale investors.

In July 2022, ASIC suspended ISG’s Australian financial services licence (AFS licence) because ISG had failed to meet statutory audit and financial reporting lodgement obligations for itself and the Schemes, and did not have the required professional indemnity insurance coverage in place. ASIC revoked that suspension in February 2023 when those breaches had been rectified.

However, only a few months after the suspension had been revoked by ASIC, it commenced a broader investigation into the affairs of ISG.  Ultimately, in September 2024, the Queensland Supreme Court ordered the Schemes to be wound up.

Hawcroft and the initial ban

Maree Narelle Hawcroft (Hawcroft), was first appointed a director of ISG in 2019.  She was also a director of another licensee in the ISG group.

Hawcroft has no formal qualifications, but in addition to her director role held roles with ISG including chief financial officer and chief operating officer.

Prior to working for ISG, Hawcroft worked in receptionist and executive assistant roles.  She had never been appointed as a director of any company before her appointment to ISG.  In various disclosures, ISG referred to Hawcroft’s experience as ‘10 years corporate experience working with several high profile organisations.‘ ASIC asserted that these statements were misleading and deceptive.

After ISG had had its AFS licence suspended, ISG applied to ASIC to vary its AFS licence because a key person named on the licence had resigned.

As part of the application, ASIC required that each director of ISG, including Hawcroft, complete a declaration called a ‘Statement of Personal Information’ (SOPI).  A SOPI is a standard form declaration containing 17 questions about a person’s experience and is used by ASIC to help determine if a person is ‘fit and proper’ to perform the functions of an officer of an AFS licensee.

In her SOPI, Hawcroft declared that within the last 10 years she had not been engaged in the management of a company that:

  • carried on a business for which a licence is required by law;
  • had been the subject of any investigations or proceedings by a regulatory body; and
  • had a Corporations Act licence revoked or suspended.

But these statements were patently false because at the time she signed the SOPI, Hawcroft was a director of ISG whose AFS licence was suspended.

After ASIC identified the errors in the SOPI, Hawcroft confirmed to ASIC that those questions should have been answered in the positive. Hawcroft stated that the SOPI had been pre-filled by her lawyers, that she had questioned one of the pre-filled responses with a law clerk at ISG’s law firm and that ultimately the error was inadvertent.

ASIC found that in providing incorrect information in the SOPI, Hawcroft had demonstrated a lack of diligence, professionalism and poor judgement (but had not acted dishonestly) and banned her from controlling an entity that carries on a financial services business and performing any functions involved in the carrying on of a financial services business for one year.

Hawcroft appealed ASIC’s decision.

Key Issues

Fit and Proper Person Test: ASIC’s primary contention was that Hawcroft was not a fit and proper person to manage a financial services business due to inaccuracies in her SOPI.

Competency and Training: However, in addition to the fit and proper person test, ASIC raised an additional argument during the hearing, questioning Hawcroft’s competency and training to provide financial services under paragraph 920A(1)(da) of the Corporations Act 2001(Cth).

Hawcroft’s defence: Hawcroft maintained that the incorrect answers in her SOPI were due to human error and resulted from reliance (in part) on advice from a law clerk. She asserted that she had no intention of misleading ASIC and had promptly acted to rectify the mistakes once they were discovered. She argued she was otherwise competent to act as the director of a funds management business.

Decision

The AAT affirmed ASIC’s decision, concluding that the banning order was appropriate. The AAT held that Hawcroft was not a fit and proper person to:

  • control, whether alone or in concert with one or more other entities, an entity that carries on a financial services business; and
  • perform any function involved in carrying on a financial services business (including as an officer, manager, employee, contractor or in some other capacity).

Although the AAT found no evidence of dishonesty on Hawcroft’s part, it determined that she did not meet the requisite diligence and professionalism needed for someone in her role. Her failure to correctly verify her SOPI and her continued deflection of her own overriding accountability for the errors in the SOPI onto her legal team contributed to this conclusion.

The AAT also said that the statements made about her in disclosures by ISG that she had ‘10 years corporate experience working with several high profile organisations‘ were misleading and deceptive because that experience was gained in support roles that were of no or little value to her role as a director of an AFS licensee. During cross examination, for example, Hawcroft could not answer what her duties were as an officer of the responsible entity of a managed investment scheme and could not adequately explain the base level financial requirements required to be held by a responsible entity.

Additionally, the AAT considered the issue of Hawcroft’s competency as relevant to determining her fitness under the ‘fit and proper person’ standard.

Comment

The AAT has the power to affirm, vary or substitute a banning order made by ASIC. It can take into account evidence that was not put to the ASIC delegate and it can make decisions on new grounds.

For applicants, this makes the decision to appeal a banning order a fraught one.

In this case the AAT affirmed the banning decision, but on new grounds: competency.  Without doubt this is a worse result for the applicant than the initial decision to ban.

The decision also highlights the diligence that needs to be applied to what might be considered by some as ‘throw away’ lines in marketing material about a person’s experience. In financial services disclosure, there is no such thing as ‘throw away lines’.

For more information, email cmee@cnmlegal.com.au or call 07 3211 4010.

 

This article is produced as general information in summary and should not be relied upon as a substitute for detailed legal advice or as a basis for formulating business or other decisions. CNM Legal asserts copyright over the contents of this document.