The Australian Securities and Investments Commission (ASIC) and the Serious Financial Crime Taskforce (SFCT) — part of the Australian Taxation Office (ATO) — have pressed 72 criminal charges against the directors and legal advisers of Members Alliance and Benchmark Group.
The firm operated property investment vehicles on the Gold Coast offering financial advice to retail investors. Gatekeepers are increasingly being pursued alongside the directors they have been advising when they cross the line.
Background to offences
On September 10, 2021, ASIC charged four directors with insolvent trading, breach of directors’ duties and fraud. The regulator also charged the lawyer who advised the group with 18 counts of aiding, abetting and counselling in the commission of an offence. Many of the charges arise from the fact that the directors had placed 18 group companies into liquidation in July 2016, leaving debts of A$26 million owing to the ATO.
Scrutiny of these events led to the investigation of other offences. The directors and their lawyer appeared at Brisbane Magistrates Court without entering a plea, and the matter has been listed for a mention hearing on November 26. The case highlights the risks for gatekeepers such as lawyers, accountants and bankers when providing advice.
Richard Marlborough, Colin MacVicar and David Domingo were directors of companies in the Members Alliance Group. Liam Young was a director of five Benchmark Group companies set up following the collapse of the Members Alliance Group in 2016. John Ramsden, managing partner of Ramsden lawyers, Gold Coast, acted as a solicitor for the Members Alliance Group and its directors.
On November 21, 2017, ASIC obtained orders appointing Michael McCann of Grant Thornton as provisional liquidator to five companies in the Benchmark Private Wealth Group. At that time, ASIC was concerned about the number of transactions entered into on behalf of companies that were part of the Members Alliance Group. McCann also — by consent — replaced Jason Bettles and Raj Khatri, of Worrells, as administrators to the other companies.
In an affidavit before the Supreme Court, in placing the companies into liquidation, McCann advised that the earliest records obtained for the SFCT as at July 2015 suggested that “the company was insolvent with recurring losses, was balance sheet insolvent, and did not have any ability to discharge its debt”.
McCann made a statutory report to ASIC raising concerns about how the Members Alliance Group had incurred a A$26 million debt to the ATO.
On the September 10, 2021 ASIC and the SFCT brought 72 criminal charges against the former directors of the Members Alliance and Benchmark Groups and against Ramsden, alleging that the property investment vehicles on the Gold Coast were operating illegally. Marlborough has been charged with 21 counts of insolvent trading, 10 counts of dishonestly using his position as a director, one count of fraud and one count of disposing of property after becoming bankrupt. MacVicar has been charged with similar offences, but only 13 counts of insolvent trading. Young has been charged with four counts of trading while insolvent and five counts of dishonestly using his position as a director. Domingo has been charged with seven counts of insolvent trading.
Ramsden has been charged with aiding and abetting the group’s directors and faces eight counts of aiding and abetting, counselling or procuring the commission of an offence in contravention of the Corporations Act 2001.
Serious Financial Crime Taskforce
The SFCT investigates cyber crime as it affects the tax and superannuation systems, offshore tax evasion, illegal phoenix activity and more recently crime against the Commonwealth Coronavirus Response Package, which provided millions of dollars of stimuli to small and large entities. ASIC has increasingly focused on phoenix activity and breach of directors’ duties and criminal insolvent trading.
The last high-profile case in Australia to prosecute for breach of directors’ duties, fraud and criminal insolvent trading arose at the Kleenmaid Group in 2012, following the 2008 financial crisis. Kleenmaid had consolidated debts of approximately A$96 million from its group companies, A$26 million of which was owed to customers who had paid deposits for white goods not yet delivered. Three directors were charged with criminal insolvent trading and fraud in February 2012. Two directors were sentenced in 2017, and another is awaiting a retrial pending an appeal this year.
In 2017, Bradley Young, after a trial and appeal, received a seven-year sentence and Gary Armstrong, who pleaded guilty, received a sentence of five years and six months. Andrew Young was convicted by a jury in 2020 and appealed his decision; in 2021 the Court of Appeal found that the trial judge had erred in failing to refer the question of whether Young was fit enough to be tried to the jury to decide. A new trial has been ordered for next year. The Kleenmaid accountant who gave advice and was involved in false accounting was given Crown immunity.
Complex white collar crime cases can continue for many years without resolution if the defendants have deep pockets; the legal system can be slowed down by constant adjournments and requests for discovery, and during that time enforcement staff move on and resources can be reduced. It is more than 10 years since the third director in the Kleenmaid trial was first charged — he has yet another jury trial ahead of him in 2022. It is imperative that courts keep to firm deadlines.
Pursuit of gatekeepers
The Members Alliance and Benchmark Group case shows that enforcement agencies are increasingly considering who may have provided advice to directors. It seems likely that, in future, authorities will widen the scope of investigations to assess whether professionals such as lawyers, accountants and bankers can be charged alongside company directors for any advice or “counselling” given.
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This article first appeared on Thomson Reuters Regulatory Intelligence.