The Australian Securities and Investments Commission (ASIC) commenced civil penalty proceedings against Dixon Advisory director Paul Ryan in the Federal Court in August 2023, with hearings on the matter held in June 2024.
The judgment was delivered on Wednesday morning, with Justice O’Callaghan dismissing ASIC’s case and ordering that it pay Ryan’s costs.
ASIC alleged that Ryan breached his duties as a director by his involvement in decisions ASIC alleges were to the advantage of Dixon Advisory’s holding company, E&P Operations, and by failing to properly consider the interests of Dixon Advisory’s creditors. He was also a director of E&P Operations.
ASIC deputy chair Sarah Court said at the time: “Directors have responsibilities under the law to act in the best interests of their company, and this includes considering the interests of creditors when the company is facing insolvency.
“The creditors included thousands of financial advice clients who had invested in the US Masters Residential Property Fund and financial products operated by entities related to Dixon Advisory. These creditors suffered significant losses.”
ASIC’s allegations against Ryan included that he was involved in:
- Amending the constitution of Dixon Advisory on 22 December 2021 to expressly authorise its directors to act in the interest of E&P Operations.
- Executing a deed of acknowledgement of debt (Deed) on 24 December 2021 between Dixon Advisory and E&P Operations to the advantage of E&P Operations and to the detriment of Dixon Advisory.
The corporate regulator further alleged that at the time the Deed was entered:
- E&P Operations owed Dixon Advisory over $19 million.
- Dixon Advisory was approaching insolvency and therefore its directors were obligated to consider the interests of creditors.
- The deed imposed conditions which adversely affected Dixon Advisory’s right to recover this $19 million debt.
Both Dixon Advisory and E&P Operations were wholly owned subsidiaries of E&P Financial Group Limited.
In delivering his judgment, Justice O’Callaghan agreed that from at least July 2021, Dixon Advisory was “facing a real and not remote, risk of insolvency and that risk increased throughout the period to January 2022”.
However, on all other matters, Justice O’Callaghan declined to find in favour of ASIC, including that $19 million in assets of Dixon Advisory & Superannuation Services (DASS) was impaired, for the benefit of EPO, and with no quid pro quo in favour of DASS.
“As I understand it, in the context of generally accepted accounting principles, the word ’impaired’ means, or can mean, that the value of an asset has decreased. ASIC did not seek any finding by reference to any accounting standard. In the absence of any evidence from ASIC about it, and in circumstances where the relevance of the finding about ’impairment’ to the issues in this case was never explained, I need not say anything further about the point,” he said in the judgment.
“Further, ASIC’s written closing made no mention of the ’and with no quid pro quo in favour of DASS’ sought to be added to the finding.”
Relating to ASIC’s claim that Ryan did not consider the interests of DASS’ creditors, or alternatively, give due consideration to the interests of DASS’ creditors, the judge dismissed the claim as reading “more like a submission than a proposed finding of fact”.
On a number of points, Justice O’Callaghan also dismissed the regulator’s concerns that Ryan’s evidence should be treated “cautiously”, saying there was “no sufficient basis to disbelieve Mr Ryan’s sworn evidence”.
“If it matters, I also find that Mr Ryan, as he in substance deposed, relied on [former E&P Financial CEO and managing director Peter Anderson’s] experience and expertise in relation to how to deal with corporate insolvency and the information that he provided to Mr Ryan on his plans to deal with the various claims against DASS,” Justice O’Callaghan said.
“I similarly find that Mr Ryan relied on the corporate insolvency and restructuring expertise of McGrathNicol, as he deposed, ’to provide [him] with guidance as to how to proceed towards a potential voluntary administration of DASS’.
“That is, for reasons I have already explained, sufficient to dispose of the proceeding and to dismiss it. As I have said, ASIC conducted the proceeding on the basis that if it could not persuade me on the decisional issues, it would fail, as it has. It follows that ASIC has not made out its case that Mr Ryan, in his capacity as a director of DASS, contravened ss 180, 181(1)(a) or 182 as alleged.”
Responding to the judgment, Sarah Court said: “We took this case because directors have responsibilities under the law to act in the best interests of their company, and this includes considering the interests of creditors when the company is facing insolvency.
“ASIC remains committed to taking enforcement action where appropriate and expects directors to meet their governance obligations, including where they serve on the boards of multiple companies in a corporate group.”
ASIC said it is considering the judgment.
Is there a minimum education standard for ASIC employees? I feel that needs to be looked at as this just smacks of unprofessionalism.
Maybe a bridging course in ethics would help, and a exam to gain entry into work for ASIC could also be in order.
Id be happy to run the exam for ASIC , $3,000 a pop and we can do it via proctor u
To summarise, ASIC did nothing about Dixon’s for years after being warned by several whistleblowers. Now they take one of the directors to court for failing to act in the best interest of their clients, not through selling them poor products, but because they didn’t structure the Trust Deed correctly.
End result is most advisers have to pay the Dixon’s clients millions through the CSLR, E&P get to retain a large percentage of the clients, and advisers will now need to pay former Dixon executive’s legal costs.
Great work ASIC.
Another bungled case from the Keystone cops? For which advisers will have to pay.
ASIC can’t even nail a Dixon’s Director after everything that has happened !!!!
So Paul Ryan was simply following guidance from the corporate restructuring expertise of McGrathNicol.
Have ASIC gone after the wrong target here?
Yes definitely the wrong target. The real offenders are Alan Dixon and David Evans. Hopefully all will be exposed by the Senate inquiry into Wealth Mgt Companies.
Imagine if ASIC was to take action against the banks. You could play a laugh track in court.
“It follows that ASIC has not made out its case that Mr Ryan, in his capacity as a director of DASS, contravened ss 180, 181(1)(a) or 182 as alleged.”
Here comes the judge! There goes the judge! There goes ASIC, cap in hand, dragging its tail between its legs.
Another failed litigation event against the big end the town.
I could pass this off as just another government waste of taxpayer funds.
Only one problem: I am the litigation funder and I get absolutely no say in what ASIC plans to do with my ASIC levy.There needs to be independent auditing of exactly what ASIC is doing with the ASIC levy funds.
Fat chance of that
Can we add a levy to ASIC to pay for the costs associated with failed attempts. Nah just slug the advisers even more. What a joke.
Every time ASIC fails a case (and that seems to be the majority), the findings refer to them being unprepared or not filing the correct paperwork or making appropriate claims. It never seems to be about a technicality in the law. Smacks of incompetence.
This is unbelievably frustrating as an adviser who is a huge believer in professionalising our industry. Perhaps the regulator needs to be prefessionalised also!
How much were the court costs that adviser now need to fund? Not only the CSLR but with the cherry on top of ASIC bumbling court fees.
Good old ASIC. Take our levies and waste them in underprepared court proceedings. No wonder ASIC is being restructured. Meanwhile we keep funding DIXON through CSLR and our ASIC Levies.
How about the regulator becoming a regulator??
So the Judge said ASIC are stupid in the case they presented? Seems to me so.
And / Or is Illegal Phoenix activity legal in the Judges eyes ?
Did ASIC even have a go at Dodgy Dixon’s directors for the Phoenixing of 39 Advisers and 3,000 clients to E&P for zero $ ???
This wasn’t the case put before him.
Congrats to all the advisers paying multiple levies to help ASICs persuit in incompetence.
What a debacle. Well done ASIC – more funds needed to cover the costs of this screw up perhaps?