Whether an offence "involves dishonesty" or not in the automatic disqualification of company directors

The Victorian Court of Appeal has unanimously confirmed when an offence "involves dishonesty" for the purposes of directors being automatically disqualified from managing corporations.

Background

Mr Baxter has been convicted of various offences including causing injury intentionally, contravening a family violence intervention order, contravening a bail condition and committing an indictable offence while on bail (Baxter Offences).

Section 206B(1)(b)(ii) of the Corporations Act automatically disqualifies directors from managing corporations if convicted of an offence that "involves dishonesty" and is punishable by imprisonment for at least three months. At trial, it was argued that the Baxter Offences satisfied this threshold (particularly the breach of bail conditions).

The word "dishonesty" is defined in the Corporations Act to mean "dishonest according to the standards of ordinary people".

An intermediate construction

In considering section 206B(1)(b)(ii), the Court dissected three possible constructions:

1. a narrow construction assessing only the offence, not the circumstances of the particular offending, requiring dishonesty to be an element of the offence;
2. an intermediate construction assessing only the offence, not the circumstances of the particular offending, requiring dishonesty to be inherent within the offence (not strictly a distinct element of it); and
3. a broad construction assessing the circumstances of the particular offending, as well as whether that offending involved dishonesty.

The Court rejected both the narrow and a broad construction preferring the "intermediate construction". The Court considered such a construction to align with the purpose, text and context of section 206B(1)(b)(ii).

The Court cited prior authority, holding that the purpose of the provision is to "protect the public and to prevent the corporate structure from being used to the financial detriment". The Court upheld the provision as a "safeguard" against corporations being used in a manner "which is contrary to proper commercial standards".

In considering the provision, the Court rejected a simple focus on the words "involves dishonesty", stating this approach to be too narrow. The whole of section 206B(1)(b)(ii) had to be considered. When considering the entire language, the Court came to the view that the text directed identification of an offence as a matter of law, rather than the particular offending.

When considering the context of section 206B(1)(b)(ii), the Court provided a breakdown of the surrounding provision. The Court categorised the automatic disqualification offences as:

1. offences closely connected with the management of the corporation;
2. offences against the Corporations Act itself, punishable by imprisonment for more than 12 months;
3. offences that "involve dishonesty", punishable by imprisonment for at least 3 months; and
4. offences against a foreign law that are punishable by imprisonment for more than 12 months.

In doing so, the Court considered categories (2) and (4) to be a simple question of whether the offences occurred and whether the time period of imprisonment is reached. For category (1), consideration of the particular offending to consider whether it affected the corporation's business, or was capable of affecting its financial position, is required.

However, category (3), the issue in this case, was best construed in between these two positions in the Court's view.

Conclusion of the Court of Appeal

The impact of this judgment is to treat section 206B(1)(b)(ii) as capturing offences in which dishonesty is inherent or an element of the offence (such as conspiracy to defraud). All that is necessary for this test is to consider the relevant law (whether that be a legislative provision or rule of common law). No further inquiry into the circumstances of the particular offending is necessary.

Application in this case

In applying the above to the Baxter Offences, the Court found that the Baxter Offences did not inherently involve dishonesty and thus automatic disqualification under section 206B(1)(b)(ii) could not apply.

In particular, it was argued that breach of the bail conditions was inherently dishonest as it amounted to a repudiation of Mr Baxter's recognisance to a court in circumstances where he had undertaken to act in a prescribed manner.

The Court rejected this argument, stating that by the standards of an ordinary person, the offence of breaching a condition of bail is not "dishonest".