The Australian Prudential Regulation Authority (APRA) today announced that it has disqualified six former directors of Sydney-based Firezone Protection Services Pty Ltd (the ‘Corporate Trustee’) from being or acting as a trustee, investment manager or custodian of a superannuation entity, or as a responsible officer of a body corporate that is a trustee, investment manager or custodian of a superannuation entity.
Those disqualified are:
- Thomas John Brown;
- George Burnside Long;
- Paul James Provan;
- Allan Kenneth Silsby;
- Malcolm John Spinks; and
- Emmanuel Henry Ungaro.
APRA concluded that the directors of the Corporate Trustee had failed to act honestly, and exercise their duties and powers in the best interest of the beneficiaries of the Firezone Protection Services Superannuation Fund (the ‘Fund’).
The Fund had 15 members and assets of $1 million, most of which was a single, unencumbered property. The property was held through a unit trust and all of the units in the trust were held by the Fund. The Corporate Trustee was also the trustee of the unit trust. The majority of Fund members were the current directors and their spouses, while others were former directors of Firezone Protection Services.
In February 2002, the Corporate Trustee refinanced an overdraft facility to inject finance into their business interests. The overdraft was secured by guarantees and indemnities provided by the Corporate Trustee and its directors.
A first mortgage was also taken over the Fund’s property to secure the overdraft loan. Therefore, the purpose of the mortgage was to secure a loan to provide working capital for the Corporate Trustee in its capacity as a trading company, which is in contravention of the Superannuation Industry (Supervision) Act 1993 (the ‘SIS Act’).
During 2005, the Corporate Trustee obtained a loan from the Fund in the amount of $64,000, which was incorrectly reported as the payment of member benefits. This loan was not repaid and resulted in an equivalent loss to the Fund. The Corporate Trustee, in its capacity as a trading entity, encountered financial difficulty in late 2005 and sold the Fund’s property to meet its trading liabilities. As a part of the sale, the lender required that the mortgage be paid out so it could recover its loan funds of $359,300. This resulted in the Fund losing the equivalent amount of money.
The Corporate Trustee subsequently went into liquidation as a result of its trading entity activities in April 2006.
In making the disqualifications, APRA found that:
- the Corporate Trustee had improperly obtained financial assistance from the Fund, and had consequently caused the Fund to breach the sole purpose test set out at section 62(1) of the SIS Act. The transaction was not in the best interest of the beneficiaries as the Trustee caused a loss to the Fund in that amount;
- the directors contravened section 65(1) of the SIS Act, which prohibits a trustee of a regulated superannuation fund from giving financial assistance using the resources of the fund to a member of the fund; and
- the transactions signified that the directors had failed to exercise, in relation to all matters affecting the Fund, the same degree of care, skill and diligence as an ordinary prudent person would exercise in dealing with property of another for whom the person felt morally bound to provide. Consequently the directors had breached the relevant covenant set out paragraph 52(2)(b) of the SIS Act.
In July 2006 APRA removed the Corporate Trustee from the Fund and appointed an Acting Trustee to effect the wind‑up of the Fund. The disqualifications of the directors are listed on the Disqualification Register on APRA's website. Click here for more details.
The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry. APRA is funded largely by the industries that it supervises. It was established on 1 July 1998. APRA currently supervises institutions holding approximately $2.5 trillion in assets for 20 million Australian depositors, policyholders and superannuation fund members.