The decision by the Australian Prudential Regulation Authority (APRA) to disqualify Jurgen (John) Preuss, from being a trustee, investment manager or custodian, or a responsible officer of a body corporate that is a trustee, investment manager or custodian of a superannuation entity, has been upheld by the Administrative Appeals Tribunal (AAT).

The AAT agreed with APRA that Mr Preuss had failed in his fiduciary duty to the superannuation funds members.

APRA’s Deputy Chairman, Mr Ross Jones, said that the AAT upheld APRA’s view that there is a personal duty upon directors of a trustee company to understand the relevant legislation and the requirements of managing a fund.

“Protection of superannuation funds is essential to ensuring that fund members feel confident that their benefits are properly managed and protected”, Mr Jones said.

The AAT also agreed that APRA was not obliged to accept an undertaking from Mr Preuss to act only as the trustee of his own self-managed superannuation fund. The AAT noted that there is a substantial taxpayer interest in the operation of super funds, and even a self-managed fund could not be considered an entirely private matter.

Background

Mr Preuss was one of two directors of Broadway Fiduciary Pty Ltd, the trustee of the Australian Independent Superannuation Fund (AISF), which had approximately 200 members. Mr Preuss was also a director of Fairfax Holdings Pty Ltd which acted as the investment management advisor for AISF.

In June 2000, Mr Lindsay Dods, the co-director of the Broadway Fiduciary Pty Ltd confessed to police that he had stolen about $400,000 of AISF’s $900,000 assets over a period of years. He was convicted of criminal offences and sentenced to a term of imprisonment.

In August 2000, APRA replaced Broadway Fiduciary Pty Ltd with an acting trustee which has since wound up the fund.

In December 2002 APRA made a decision to disqualify Mr Preuss from being a trustee, investment manager or custodian of a regulated superannuation fund on the basis that he was not a fit and proper person.

This decision was confirmed after an APRA internal review.

Mr Preuss then made an application to the AAT for a review of APRA’s decision.

On 5 August 2005 the AAT upheld APRA’s finding that the structure of the AISF and its relationship with Broadway Fiduciary Pty Ltd and Fairfax was fundamentally flawed; that Mr Preuss failed to put in place internal management arrangements and failed to be sufficiently involved in Broadway’s performance of its role as trustee, so that the potential for fraud occurring and not being identified at the earliest possible time, was magnified.

The AAT found that Mr Preuss failed to acknowledge the extent to which, as a director of a trustee company of a superannuation fund, there was a personal duty upon him to understand not only the legislative requirements governing the operation of the fund but to also understand the practical requirements of setting up and running the fund in a prudent way.

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 $2.0 trillion in assets for 20 million Australian depositors, policyholders and superannuation fund members.