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17-463MR Court orders penalty against former managing director of Banksia Securities Limited
The Federal Court of Australia today ordered that Patrick John Godfrey, the former managing director of Banksia Securities Limited (In Liquidation) (Receivers and Managers Appointed) (Banksia), pay a pecuniary penalty of $25,000 and be disqualified from managing corporations for a period of five years.
The Court was satisfied on an agreed statement of facts between ASIC and Mr Godfrey, and declared, that Mr Godfrey contravened section 344(1) of the Corporations Act, in that:
- Banksia’s financial reports for the financial years ending 30 June 2011 and 30 June 2012, and its half-year financial report for the half year ending 31 December 2011, did not comply with the relevant accounting standards, nor did they give a true and fair view of the financial position and performance of Banksia given the amount disclosed for the provision of bad and doubtful debts was inadequate.
- Mr Godfrey failed to have or obtain a sufficient understanding of the requirements of the relevant accounting standard, AASB 139 Financial Instruments: Recognition and Measurement (AASB 139) for the recognition and assessment of the impairment of mortgage investments made by Banksia.
- Mr Godfrey's recommendations as to the appropriate amount of provision for bad and doubtful debts resulted in Banksia’s financial reports failing to give a true and fair view of Banksia’s financial position.
- Mr Godfrey failed to take all reasonable steps to secure compliance by Banksia with AASB 139.
In imposing the disqualification order (which is not to commence until 1 February 2018 at 4:30pm) and the penalty, Justice Moshinsky found the penalty and disqualification order that ASIC and Mr Godfrey had jointly submitted were appropriate and should be made.
ASIC Commissioner John Price said, ‘The importance of ensuring that the financial accounts of a company are reported in accordance with the law by complying with the correct accounting standards is essential to provide assurance and market confidence. Mr Godfrey fell short of the standards required of him in this case.’
Banksia was a Kyabram-based unlisted public company involved in raising money from the public by issuing debentures and lending the funds raised to borrowers for property investment and development purposes. As at October 2012, Banksia had raised approximately $663 million from 15,622 investors.
On 25 October 2012, Tony McGrath, Joseph Hayes, Matthew Caddy and Robert Kirman of McGrathNicol were appointed as receivers and managers to Banksia by The Trust Company (Nominees) Limited, the trustee for debenture holders.
On 11 June 2014, ASIC accepted an enforceable undertaking from Mr Warren John Sinnott, the former auditor of Banksia, under which he is prevented from practising as a registered auditor until 10 June 2019 (refer: 14-127MR).
On 24 June 2014, John Lindholm and Peter McCluskey of Ferrier Hodgson were appointed as Official Liquidators to Banksia by an order of the Supreme Court of Victoria.
On 23 June 2017, ASIC commenced civil penalty proceedings in the Federal Court against Mr Godfrey (refer: 17-205MR ).