Kukulovski and A Committee convened under section 40-45 of the Insolvency Practice Schedule

(Corporations) [2020] AATA 40 (6 January 2020)

Administrative Appeals Tribunal

ADMINISTRATIVE APPEALS TRIBUNAL )

) No: 2019/8307 TAXATION AND COMMERCIAL DIVISION )

Re: Trajan Kukulovski Applicant

And: A committee convened under section 40-45 of the Insolvency Practice Schedule

(Corporations) Respondent

DIRECTION

TRIBUNAL: Deputy President Bernard J McCabe

DATE OF CORRIGENDUM: 17 January 2020

PLACE: Melbourne

The Tribunal directs the Registrar, pursuant to subsection 43AA(1) of the Administrative Appeals Tribunal Act 1975, to alter the text of the decision in this application as follows:

1. paragraph 16 by deleting ‘would not allow him to continue using’ and inserting ‘may have issues with him continuing to use’ in its place, such that the paragraph reads:

16. Mr Kukulovski also explained in his statement that his firm trades under the name of a national practice. He says the national practice may have issues with him continuing to use their name if it got out that he was the subject of regulatory action. If the national firm withdrew from its association, his own firm would experience significant difficulty. With that concern in mind, Mr Kukulovski referred me to the reasons for decision of SM Taylor in Ristevski and Tax Practitioners Board [2019] AATA 5196. That otherwise unrelated case also dealt with concerns about a national practice withdrawing its support from a tax practitioner who got into trouble with the regulator. SM Taylor accepted disenfranchisement was certainly possible, and I have no reason to take a different view in this case.

.....................................[sgd].............................. Bernard J McCabe, Deputy President

Division: Taxation and Commercial Division

File Number(s): 2019/8307

Re: Trajan Kukulovski

APPLICANT

And A Committee convened under section 40-45 of the Insolvency

Practice Schedule (Corporations)

RESPONDENT

DECISION

Tribunal: Deputy President Bernard J McCabe

Date: 6 January 2020

Place: Melbourne

WHEREAS the applicant has applied for orders under ss 41(2) and 35 of the

Administrative Appeals Tribunal Act 1975 AND the Tribunal has made interim orders with

the consent of the respondent under s 41(2) of the AAT Act:

1. The application for a stay of the decision of the respondent to terminate the

applicant’s registration as a liquidator is refused. The interim stay made by the

Tribunal of the cancellation decision is discharged on 15 January 2020.

2. The application for a stay of the decision of the respondent to direct ASIC to

publish its report outlining the reasons for the decision is granted.

3. The application for confidentiality orders under section 35 is refused.

4. This decision is not to be published publicly until 15 January 2020.

...................................[sgd].....................................

Deputy President Bernard J McCabe

© Commonwealth of Australia 2019

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CATCHWORDS

PRACTICE AND PROCEDURE – STAY APPLICATION – application for stay of decision

to terminate registration as liquidator – whether stay necessary to preserve the efficacy of

the review proceedings – reduced ability to earn income – ability to pay for legal

representation – hardship already suffered from long investigation process – prospects of

success – cancellation an excessive outcome – effect on interested persons – family

obligations – difficulty finding other work – impact on relationship with national practice –

junior partner able to take over supervisory work – professional development undertaken

– public interest – operation of the regulatory system – no dishonesty or fraud – want of

competence or diligence still significant in a regulated profession – stay refused

PRACTICE AND PROCEDURE – STAY APPLICATION – application for stay of decision

to publish reasons for decision – where reasons of the committee may include

speculation – public interest not affected where the applicant is no longer able to practice

as a registered liquidator – publicity from publication of report may be hard to undo if

applicant successful on review – stay granted

PRACTICE AND PROCEDURE – CONFIDENTIALITY APPLICATION – public interest –

parties to be able to explain why applicant is unable to practice as a registered liquidator –

Tribunal proceedings to take place in public – where public may be deprived of knowledge

expected to be published in a regulated profession – confidentiality orders refused

LEGISLATION

Administrative Appeals Tribunal Act 1975 sections 35 and 41

Corporations Act 2001 Schedule 2 sections 45-40, 45-55

CASES

Australian Securities and Investments Commission v Administrative Appeals Tribunal

(2009) 181 FCR 130; [2009] FCAFC 185

Kender and Australian Securities and Investments Commission [2018] AATA 4445

Ristevski and Tax Practitioners Board [2019] AATA 5196

Scott and Australian Investment and Securities Commission [2009] AATA 798

REASONS FOR DECISION

Deputy President Bernard J McCabe

6 January 2020

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1. Mr Trajan Kukulovski is a registered liquidator. At least he was a registered liquidator until

the respondent, a committee convened under s 40-45 of the Insolvency Practice Schedule

(Corporations) (the committee), decided to cancel his registration and direct ASIC to

publish the report of its decision to the world. The cancellation decision is dated 13

December 2019. Mr Kukulovski, the applicant, asked the Tribunal to review both

decisions. In the meantime, he has asked the Tribunal to stay the decisions pursuant to s

41(2) of the Administrative Appeals Tribunal Act 1975 (the AAT Act). He has also asked

for confidentiality orders pursuant to s 35(2) of the AAT Act that would keep the

reviewable decision and the associated report under wraps while the review proceeds.

2. These reasons for decision relate to the interlocutory orders. The decision follows an

urgent interlocutory hearing on 23 December 2019. The Australian Securities Investments

Commission (ASIC), which administers and executes the committee’s decision, agreed to

an interim stay over the Christmas period.

3. For reasons I will explain, I will not stay the decision to cancel the applicant ’s registration

as a liquidator nor make confidentiality orders sought by the applicant. I will stay the

decision to direct ASIC to publish the report of the committee’s reasons for the decision.

THE REVIEWABLE DECISION

4. ASIC became aware of evidence raising concerns about the performance of the applicant

as a registered liquidator. ASIC conducted (what the applicant described as) “an

extraordinarily lengthy investigation” which included compulsory examinations in 2014 and

2016. The concerns related to his period as the external administrator of a number of

named companies in the period 2009-2012. The concerns were mainly directed to his

competence and diligence. He was not accused of acting dishonestly or of obtaining a

profit – although the allegations with respect to competence and diligence were serious

enough. In 2019, ASIC referred the case to a committee convened under s 40-45 of the

Insolvency Practice Schedule (Corporations), which is found in Schedule 2 of the

Corporations Act 2001. The committee subsequently made a decision under s 40-55(1)(c)

to cancel the registration. It also decided ASIC should publish the report on the decision

so it was publicly available. Each of these decisions is technically a separate reviewable

decision; they are both under review in the course of the Tribunal proceedings.

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5. The fact there are two reviewable decisions under review has implications for the

interlocutory application. The applicant framed the interlocutory application as a request

for a stay order and for confidentiality orders. Given there are technically two reviewable

decisions, the substance of the applicant’s objective will be achieved if both decisions are

stayed. If the publication decision in particular is stayed, it is less clear whether there is

any point making confidentiality orders under s 35 of the AAT Act. I propose to deal with

the interlocutory application primarily on the basis that it is a request for a stay of both

reviewable decisions.

6. The committee’s reasons for decision included findings which were critical of the

applicant’s performance in various respects. Those findings were summarised in ASIC ’s

written submissions on the stay application. The reasons for decision also explained the

committee’s conclusion that the applicant was not a fit and proper person to be a

registered liquidator – either at the time of the identified failures, or more recently. The

committee found the applicant had not since developed the knowledge and skill required,

did not have current insight into his failures, and had not taken appropriate steps to

remedy what occurred.

THE POWER TO ORDER TO A STAY UNDER S 41(2) OF THE AAT ACT

7. The power in s 41(2) is given “for the purpose of securing the effectiveness of the hearing

and de of the application for review”. It may only be exercised if the Tribunal considers it

“desirable” to do so after “taking into account the interests of any persons who may be

affected by the review”.

8. The Tribunal’s usual approach to these applications is set out in the decision of Downes J

in Scott and Australian Securities and Investments Commission [2009] AATA 798. It has

been discussed more recently in case likes Kender and Australian Securities and

Investments Commission [2018] AATA 4445 which emphasise the importance of

identifying how a stay order is likely to meet the purpose referred to in s 41(2). Virtually all

of these authorities proceed on the assumption that the nature of the power being

exercised and the objectives of the regulatory scheme will shape and inform the exercise

of the discretion in s 41(2). I will generally follow that widely accepted approach in this

case; see the headings below.

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9. The fact the applicant is also asking the Tribunal to stay the publication of the cancellation

decision invites consideration of cases that discuss the importance of open justice in the

Tribunal – most obviously the decision of the Full Federal Court in Australian Securities

and Investments Commission v Administrative Appeals Tribunal (2009) 181 FCR 130;

[2009] FCAFC 185. The reasoning of Downes and Jagot JJ in that case confirmed the

Tribunal should be cautious about making confidentiality orders under s 35 – or, I would

interpolate, before making a stay order that achieves confidentiality – in cases where the

public might be deprived of information it would otherwise expect to receive about

administrative action being taken against a service provider under the regulatory regime.

Prospects of success in the substantive application

10. Mr White appeared on behalf of the applicant at the interlocutory hearing. He also

provided written submissions. Mr White said the applicant had good prospects of success

at the final hearing. He referred to concerns about the length of the delay in taking the

regulatory action and several other concerns about due process. He argued the applicant

had already sustained significant reputational damage as a consequence of the way ASIC

and the decision-maker conducted themselves throughout the investigation. That damage

should be taken into account when determining the appropriate outcome, I was told. Mr

White also said the cancellation decision was likely excessive in circumstances where the

applicant was not accused of dishonesty or a want of integrity.

11. It is difficult to know what to make of all this. The applicant did not have long to prepare for

the interlocutory hearing and most of the factual claims were made, perhaps inevitably,

from the (virtual) bar table. I must allow for the hurried nature of the application in my

consideration. It seems most of the arguments were directed to the severity of the

outcome from the applicant’s point of view – as if to suggest the correct or preferable

decision may include regulatory action falling short of cancellation.

12. ASIC, acting as the executive for the committee, argued the applicant has limited

prospects of success.

13. It is unclear at this stage whether the applicant has any real prospect of heading off

regulatory action altogether. It has some prospect of achieving a more favourable

outcome, but I make that observation in the knowledge that reasonable people can

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sometimes take a different view of what is an appropriate regulatory response. I am not in

a position to predict what the Tribunal will do in this case.

14. I cannot at this point conclude the applicant has a strong case, but I do not want to

dismiss its prospects altogether – particularly given the hurried nature of the application

for interlocutory orders.

Interests of persons who may be affected by the review

15. The applicant will obviously be affected by the outcome of the review. Mr Kukulovski

provided an affidavit in which he discussed those consequences in general terms. If the

reviewable decisions are affirmed, he will lose his livelihood as a registered liquidator –

although it is accepted he is still able to work for a registered liquidator, so his skills still

have economic value. The applicant said it was unlikely that a registered liquidator would

employ him in such an event, and he is in at a stage in his career where it would be

difficult to work for anybody else. In the short term, if the decisions are not stayed, he will

likely suffer financial loss that will impact on him and his family. He has a de facto partner

who is pregnant, [redacted]. She needs his support although I was also told she is an

experienced professional. Mr Kukulovski is also currently providing some financial support

to his former partner. He says his capacity for providing all of that assistance and support

will be diminished if he is unable to work.

16. Mr Kukulovski also explained in his statement that his firm trades under the name of a

national practice. He says the national practice would not allow him to continue using their

name if it got out that he was the subject of regulatory action. If the national firm withdrew

from its association, his own firm would experience significant difficulty. With that concern

in mind, Mr Kukulovski referred me to the reasons for decision of SM Taylor in Ristevski

and Tax Practitioners Board [2019] AATA 5196. That otherwise unrelated case also dealt

with concerns about a national practice withdrawing its support from a tax practitioner who

got into trouble with the regulator. SM Taylor accepted disenfranchisement was certainly

possible, and I have no reason to take a different view in this case.

17. The applicant [redacted] also complained about significant reputational damage that has

already occurred as a consequence of the way ASIC and the respondent conducted the

investigation. It is not clear how much additional damage might be done in the short term if

the stay of the cancellation decision were not granted. For the most part, the submissions

on this point counted for more in relation to the possibility of staying the publication

decision.

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18. Mr Kukulovski said a number of his employees would be affected if he could not continue

as a registered liquidator. The applicant said the creditors and other stakeholders in the

entities to which he holds an appointment would be disadvantaged if he were not able to

continue in practice. They would be forced to deal with someone new who took over the

entities in question. The applicant said his business partner would also be affected. His

partner is a registered liquidator holding appointments to a number of different entities. If

the firm contracted, his wealth and perhaps his practice would be diminished.

19. The obvious way to address most of those difficulties would be to appoint the applicant ’s

partner to take over the external administration of the entities the applicant was forced to

vacate. ASIC says that would be an acceptable outcome as far as it is concerned. The

applicant’s firm could continue to trade; the interests of the employees, creditors and

others could be protected; and even the applicant himself could continue to be engaged in

the work. But the applicant said that course was not appropriate. The applicant assumes

the national partnership would negotiate directly with his partner in that event and strike a

new arrangement with him, leaving the applicant high and dry. It is not clear whether that

is likely. It may be more likely if the publication decision is not stayed, but that is

speculation.

The public interest

20. The public is presumed to have an interest in a well-regulated insolvency profession.

Insolvency practitioners occupy a unique position in our commercial world. They are

expected to clean up messes created by others. They are given wide latitude in doing so,

and generally earn good money. But as any creditor or displaced officer can attest,

complaints about the behaviour of external administrators are difficult to press even as

any mistakes can occasion extraordinary cost. Accountability is a challenge, and the

consequences of unsatisfactory behaviour are potentially more far reaching than those of,

say, a tax practitioner like the one considered in Ristevski. It follows the regulatory regime

emphasises the importance of expert and ethical behaviour: see s 1-1 of the Insolvency

Practice Schedule (Corporations).

21. It is true the applicant has not been accused of dishonesty or other intentional bad

behaviour. That suggests the risk of imminent harm to members of the public might be

lower, but it is not a complete answer to ASIC’s opposition to a stay. The applicant was

found to have failed to supervise his staff correctly, and to have been less than competent

and diligent. This want of expertise goes to the heart of the regulatory concerns. In the

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context of an external administration, a liquidator is a relatively powerful individual. A want

of competence and diligence is no small thing, even in the absence of dishonesty. A lot of

damage can be done comparatively quickly by an honest-but-incompetent liquidator.

22. I was told the applicant had undergone extensive professional education and he has

developed insight into his practice and conduct. I was also reminded the events in

question occurred some time ago and there is no serious question about his recent

performance that would suggest a danger to the public.

23. While I acknowledge the events in question mostly occurred a long time ago, I am

concerned Mr Kukulovski may not be monitored sufficiently closely to detect unsatisfactory

performance in the relatively short term. ASIC cannot be expected to expend extra

resources in direct supervision; that is not the way the regulatory system works. In that

sense, the public interest militates against staying the cancellation decision. It certainly

militates against staying the decision to publish if the cancellation decision were enjoined.

If I were minded to stay the decision to cancel, it seems to me the public interest weighs

very heavily in favour of allowing the report of the cancellation to be published so the

public might be properly informed in any dealings with Mr Kukulovski.

Consequences for the regulator

24. I am not satisfied the decision-maker – or ASIC, for that matter – would be adversely

impacted if the cancellation decision were stayed provided it was not also prevented from

communicating news of what happened to the wider public. The Tribunal’s review is part of

a continuum of decision-making. The fact the Tribunal has taken up a review and ordered

a stay does not, without more, reflect on the quality or credibility of the primary decision-

maker or the decision under review. There is no shame for a regulator in letting it be

known that a reviewable decision is subject to a stay order pending review. But there

might be an impact on the efficacy and credibility of the decision-making process if an

applicant were able to buy time to continue in its trade or calling without news of the

regulatory action (including the stay) being made known. There is a more remote

possibility that the regulator’s efficacy might still be compromised if the cancellation

decision was not stayed but news of that decision was suppressed while the cancellation

decision was reviewed.

Would the review be rendered nugatory if a stay were not granted?

25. This consideration points to a jurisdictional fact – namely, that the stay can only be

PAGE 9 OF 11

granted for the purpose of securing the efficacy of the hearing and review. The applicant

says if he lost his livelihood as a registered liquidator, he may not have the wherewithal to

fund a proper review. I was not provided with any additional evidence beyond that

assertion. I have no difficulty with the common-sense proposition that a person deprived of

the means of earning a living will generally have more difficulty paying his or her lawyers

to progress the review before the Tribunal. However, it is unclear whether the applicant

has no means at his disposal to pay his lawyers, and of course lawyers are not necessary

in the Tribunal in any event. (An applicant may have an easier time making a case if he or

she is competently represented, and it is generally easier for the Tribunal and the

respondent to carry out their functions when they deal with experienced lawyers, but it is

not essential.) The impact on the applicant may also be less significant if his partner – who

is also a registered liquidator holding appointments of his own – were to take over the

appointments while the applicant remained involved in the practice, albeit not as a

registered liquidator.

26. The applicant also said he has already experienced significant personal and professional

hardship as a consequence of publicity associated with the long running investigation. It is

not clear how much additional damage will be done at this juncture if the cancellation

decisions were not stayed – some, presumably, but it is not clear how much. The

implementation of the publication decision is likely to have a greater impact than the

cancellation decision on its own. I accept the effect of the bad publicity might be hard to

undo even if the applicant were successful in the review.

CONCLUSION

27. While I take the applicant’s point that the investigation has taken some time to conclude

and that the events in question happened some time ago, I am satisfied the public interest

in particular weighs against staying the cancellation decision. I reach that conclusion in the

knowledge that the applicant’s partner may yet be able to take over his appointments and

minimise the cost and inconvenience to all concerned, including the applicant. That would

be an elegant solution. But I would reach that view even if the partner ’s appointment were

not an option.

28. To maximise the chances of reaching a negotiated outcome in relation to the partner ’s

appointment, I would continue the interim stay of the cancellation decision for 7 days from

the date of these reasons (or such further time as ASIC may agree in writing).

29. The question of whether to stay the report of the decision under review is more difficult. I

am conscious that, as a general proposition, proceedings should be conducted in public.

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The Tribunal should be slow to withhold information about regulatory action if members of

the public would rightly complain at a later date about being denied access to information

that was relevant to their own assessment of risk. That is less of a concern where the

applicant is precluded from dealing with members of the public because the cancellation

decision is not stayed.

30. I am also concerned about some of the questions which have been raised about the

speculation contained in the report. It is difficult to know whether there is any substance to

those concerns in the absence of a proper review.

31. Having said that, I am conscious ASIC, the decision-maker and (potentially) the

applicant’s partner (if he takes up the appointments in place of the applicant) will be

placed in an awkward position if they are unable to explain why the applicant is suddenly

ceasing work as a registered liquidator.

32. In all the circumstances, I am inclined to order a stay of the decision to publish the report

incorporating the reasons for decision pending the outcome of the review, or until earlier

order. ASIC (and the applicant) shall not be prevented from stating that the committee has

taken regulatory action against the applicant, and that the committee’s decision is the

subject of a Tribunal review. They may also state the applicant is not permitted to practice

as a registered liquidator while that review proceeds. Of course, ASIC is free to conduct its

own review of the text of the reasons for decision and suggest any redactions if it wishes

the Tribunal to reconsider the stay decision at a future point in the proceedings. I would

entertain an application to lift the stay if it became apparent that the stay was putting ASIC

in an awkward position in its communications with the public.

33. I will not make any further confidentiality orders at this stage because it is unclear whether

they are necessary in light of my decision. The applicant is free to make a fresh

application for orders if he thinks that is necessary.

34. I will not publish these reasons for decision until the cancellation decision comes into

effect in accordance with these orders. The applicant may, if he wishes, make a further

application in writing if he wishes these reasons for decision to be anonymised pursuant to

s 35 of the AAT Act prior to publication.

I certify that the preceding 35 (thirty -five) paragraphs are a

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true copy of the reasons for the decision herein of Deputy President Bernard J McCabe

....................................[sgd]....................................

Associate

Dated: 6 January 2020

Date(s) of hearing: 23 December 2019

Date final submissions received: 23 December 2019

Counsel for the Applicant: Mr L White

Solicitors for the Applicant: Mr A Dogan, ERA Legal

Counsel for the Respondent: Dr Philip Bender

Solicitors for the Respondent: Ms G Wong, ASIC