The month of April 2005 will not be forgotten for corporate Australia for the imprisonment of Mr Rodney Adler and Mr Ray Williams for a period of up to four and a half years. The question we have to ask is, whether in relation to these sentences this is sufficient for the crimes that have been committed (and pleaded guilty to) and how does it stack up against other criminal sentencing for similar crimes.
The Royal Commission into the collapse of HIH Insurance by Justice Owen handed down its Final Report two years ago. There were 61 policy recommendations and a large number of referrals to regulatory agencies, including the Australian Securities and Investments Commission (ASIC) and to the Australian Prudential Regulatory Authority (APRA).
So far there have been lots of actions which have directly flowed from the HIH Insurance collapse. In regulatory theory (based on the work of Professor John Braithwaite, ANU) there is a pyramid of enforcement, which has a broad educational base and goes through administrative actions and civil actions to the final tip of criminal jail sentencing. The HIH events has proved for both APRA and ASIC to produce many outcomes across the range of enforcement strategies within the regulatory pyramid.
These include the APRA disqualifications of individuals dealing with HIH, such as Roger Colomb (FAI reinsurance manager); Terry Cassidy (MD of HIH); Fred Lo (company secreatry of HIH); Charles Abbott (director of HIH) and Geoffrey Trahair (actuary to HIH). On top of these APRA actions have been the criminal charges against Terry Cassidy (MD of HIH); Tim Mainprize (FAI officer); Daniel Wilkie (FAI officer); Stephen Burroughs (FAI officer); Ray Williams (Chair of HIH); William Howard (Executive of HIH) and Brad Cooper (a business associate of HIH).
There have been civil penalty cases based on specific contraventions of the Corporations Act and pleas of guilty to the criminal charges.
The terms of the Letters Patent appointing Justice Owen on 29 August 2001 (one month after HIH Insurance was placed in liquidated and three months after the company had gone into provisional liquidation) specifically noted that co-operation was required with an on-going investigation by the Australian Securities and Investments Commission (ASIC) into contraventions of the Corporations Act. Probably the most high profile case was the decision in Re HIH Insurance; ASIC v Adler, Williams & Fodera (2002) 42 ACSR 80. This was one of many cases which involved both procedural issues and substantive issues relating to a series of transactions which involved $10 million of HIH Insurance money, which through a number of companies controlled by Mr Adler resulted in being invested in other companies including HIH Insurance. Justice Santow (and also upheld on appeal) held that the chairperson of HIH Insurance, its chief financial officer, a non-executive director and his personal company (Adler Corporation) had contravened 185 provisions of the Corporations Act. Mr Adler was personally liable for 101 contraventions and his private company, for a further 84 contraventions. Mr Williams had contravened seven breaches and Mr Fodera was only responsible for five.
The court examined in great detail this round-robin $10 million transaction and the contraventions found went to the heart of the officers’ duties in the Corporations Act. They dealt with the duty to act with reasonable care and diligence in respect of the office they held (ie as a non-executive director, as a chairperson or chief financial officer) in the corporation’s circumstances (pending insolvency). A contravention of s 180(1) is similar to the tort of negligence with the possibility of a compensation order for damages caused to the company, but also as a civil penalty provision. All the officers were found to have contravened this law. But Mr Adler had also acted without good faith (s 181) and misused corporate information (s 183). Both Mr Williams and Mr Adler were found to have misused their positions to gain a personal advantage or to cause detriment to the company, in contravention of s 182.
In consequence, HIH Insurance (in liquidation) was able to claim an order of approximately $8 million against both Mr Adler and Mr Williams for the losses sustained by their breach of officers’ duties. The declaration required by s 1317J as a civil penalty by ASIC meant that Mr Adler was disqualified from taking part in the management of the company for 20 years and Mr Williams for 10 years. Finally, a pecuniary penalty (like a fine paid to the Commonwealth Government) was imposed of $900,000 against Mr Adler and his private company; $250,000 for Mr Williams and $5000 for Mr Fodera.
Professor Michael Adams is the Perpetual Trustees Australia chair of financial services law and professor of corporate law at the University of Technology Sydney’s Faculty of Law
Next month: Professor Adams on criminal HIH cases, double jeopardy and corporate crime research
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