In Kukulovski and A Committee convened under section 40-45 of the Insolvency Practice Schedule (Corporations) [2020] AATA 40, the Administrative Appeals Tribunal applied Australia’s new insolvency practitioner discipline regime to review the cancellation of a liquidator’s registration.
Background
Mr Kukulovski was a registered liquidator, who in 2014 and 2016 was the subject of ‘an extraordinarily lengthy investigation’ by ASIC. The investigation ensued after ASIC was made aware of concerns relating to Mr Kukulovski’s competence and diligence as an external administrator between 2009 and 2012.
In January 2019, ASIC gave Mr Kukulovski a show cause notice seeking a written explanation detailing why his liquidator registration should continue. ASIC was not satisfied with Mr Kukulovski’s response and convened a Committee in May 2019, pursuant to section 40-45 of the Insolvency Practice Schedule (Corporations).
In December 2019, the disciplinary Committee relied on section 40-55(1)(c) to cancel Mr Kukulovski’s registration. It also determined that ASIC should publish the Committee’s report of its decision.
Mr Kukulovski subsequently appealed to the AAT for review of the Committee’s decisions. Further, he sought that in the interim, implementation of the decisions be stayed pursuant to section 41(2) and for confidentiality orders under section 35(2).
Power to order a stay section 41(2)
In considering Mr Kukulovski’s application, the Tribunal noted a stay may only be granted if the Tribunal deems it ‘desirable’ to do so after “taking into account the interests of any persons who may be affected by the review.” The Tribunal also applied the approach outlined in Scott and ASIC [2009] AATA 798 which emphasises the importance of identifying how a stay order is likely to meet the purpose referred to in section 41(2).
In considering the interests of those affected by the review, the Tribunal accepted that Mr Kukulovski would be impacted, after he submitted he would suffer loss of livelihood and reputational damage. Namely, Mr Kukulovski cited Ristevski and TPB [2019] AATA 5196, asserting that he traded under the name of a national practice and would likely be unable to continue doing so if news spread that he was the subject of regulatory action. As such, he submitted that the loss of livelihood would impact his care for his pregnant partner, and his ongoing support of his former partner. However, the court concluded that he would be able to continue work as a registered liquidator and that his skill set therefore retained economic value.
Further, Mr Kukulovski asserted that he had suffered reputational damage as a result of the way in which ASIC and the Committee had conducted the investigation, and that he would continue to do so.
The Tribunal asserted that many of Mr Kukolovski’s difficulties would be remedied if his business partner took over the external administration of the entities Mr Kukulovski was forced to vacate. ASIC agreed this would be an acceptable outcome, however Mr Kukulovski disagreed.
In considering ASIC’s interests, the Tribunal noted it would not be adversely impacted if the cancellation decision were stayed, provided it was not also prevented from communicating news of what happened to the wider public. However, it was accepted that staying the decision may have some impact on ASIC’s perceived credibility and efficacy.
Public Interest
The Tribunal noted that as Mr Kukulovski was seeking a stay of the publication of the cancellation decision, it was important to consider cases which discussed open justice. In doing so, the court cited ASIC v AAT [2009] FCAFC 185 which provides that a Tribunal should be cautious about making confidentiality orders under section 35 in cases where the public might be deprived of information it would otherwise expect to receive about administrative action being taken.
Accordingly, the Tribunal noted that whilst Mr Kukulovski was not accused of dishonesty or intentional bad behaviour, that was not a complete answer to ASIC’s opposition to a stay. Rather, Mr Kukulovski’s incompetence had the potential to cause significant damage.
Mr Kukulovski submitted that he had since undergone extensive professional education and developed insight into his practice and conduct. Further, he contended that as the event occurred some time ago and there had since been no serious question about his performance, there was nothing to suggest he was a risk to the public.
Despite accepting that the events were not recent, the AAT expressed concern that Mr Kukulovski would not be sufficiently monitored to detect unsatisfactory performance, as ASIC could not be expected to spend extra resources doing so. As such, the AAT held that public interest militated against staying the cancellation decision, and that if the decision to cancel was stayed, public interest weighed in favour of allowing publication of the report.
Conclusion
The AAT ultimately refused to stay the Committee’s cancellation decision on public interest grounds, but did stay the Committee’s decision that ASIC publish the disciplinary Committee’s report. Despite this, ASIC was not prevented from stating that it had taken regulatory action against Mr Kukulovski and that the Committee’s decision was the subject of an AAT review.
