In Australian Securities and Investments Commission v Rich [2009] NSWSC 1229 Judge Austin decided that ASIC had failed to prove its case against One.Tel director and joint chief executive Jodee Rich and One.Tel’s finance director Mark Silbermann.
ASIC brought civil penalty proceedings for breach of the statutory duty of care of company directors and officers. The proceedings were initially brought by ASIC against four defendants, arising out of the collapse in May 2001 of a large Australian listed company, One.Tel Ltd and its local subsidiaries, and the collapse or on-sale of overseas subsidiaries.
The actions against two of the defendants, joint managing director Bradley Keeling and non-executive Chair John Greaves were previously settled.
ASIC alleged that the defendants did not disclose the true financial position of the company to the board, and that they knew or should have known the true position.
The focus of the argument was on whether ASIC had proved its case as to the true financial position in the January- April 2001 period.
In his conclusion Judge Austin said
“The question for determination is not the larger issue of how it happened that a rising corporate group supported by two well-resourced investors came to fail, in spectacular circumstances. The court has not been asked to determine, at large, who was to blame for the disaster, as amongst the defendants, other executives, non-executive directors, major shareholders and advisers. The proceedings are not a Royal Commission. Notwithstanding the huge amount of effort that has been devoted to these proceedings by the parties and their advisers, and by the court, many questions about the failure of One.Tel are left unanswered….
One of the unanswered questions is whether One.Tel would have survived if, in May 2001, PBL/CPH and News had maintained their support for the company and implemented their plan to underwrite a deeply discounted rights issue to raise $132 million. The tendered evidence has led me to reject ASIC’s figures as to the financial circumstances of One.Tel at the end of February, March and April 2001and to prefer the figures set out in Chs 11, 13 and 15 respectively. If those figures are right, a fundraising of $132 million accompanied by continuing support by the major shareholders would probably have been enough to address the company’s cash requirement until November 2001, by which time, according to the business plans, the company’s businesses would have been generating more healthy Group cash flow. The withdrawal of that support, and the abandonment of the rights issue, may well have ensured that the company could not survive.”
The judgment is 3,105 pages long. The table of contents alone is 62 pages.
A costs hearing has been set for November 27. Judge Austin has already indicated that ASIC should pay the defendants’ costs on a party and party basis.
ASIC is considering whether to appeal.
UPDATE 17 December 2009: ASIC appeals One.Tel decision
UPDATE 26 February 2010: ASIC decides NOT to appeal
