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16-175MR ASIC bans former director and in-house counsel of Provident Capital
ASIC has banned Mr Malcolm Philip Bersten of Turramurra, NSW, from managing corporations and providing financial services for five years. The ban follows an ASIC investigation which found Mr Bersten breached his duties as a director and failed to comply with financial services laws.
Mr Bersten was an executive director and in-house legal counsel of Provident Capital from 2 July 2007 to 28 January 2012. ASIC suspended Provident Capital's Australian financial services licence on 15 October 2012.
ASIC’s investigation found Mr Bersten:
- failed to exercise due care and diligence in the management and reporting of the largest loan made by Provident Capital through its Fixed Term Investment Portfolio;
- allowed Provident Capital to make inadequate and misleading statements to ASIC and Australian Executor Trustees Limited, the trustee of Provident Capital's debenture holders (AETL);
- allowed Provident Capital to issue a Debenture Prospectus in December 2010 to raise funds from the public and to issue three Information Booklets (in January, March and April 2012 respectively) to ASIC, AETL and Provident Capital's investors which contained inadequate and misleading statements; and
- allowed Provident Capital to make a loan to a related company without obtaining adequate security and to buy a debt of $775,000 when he was aware the related company was unlikely to be able to repay the loan.
ASIC has determined that Mr Bersten's lack of attention and failure to act contributed to Provident Capital's financial difficulties and eventual failure.
ASIC Commissioner John Price said, 'ASIC's actions against Mr Bersten and the former directors of Provident Capital should send a clear message that directors must exercise care and diligence in the management of company assets and the manner in which they are applied.
'Directors must also ensure that representations made by the company to the public as well as the company's accounts themselves are correct and a reflection of the true position of the company.
'ASIC will take action by protecting the public against those who fail to act in accordance with their obligations', said Mr Price.
Mr Bersten has been granted permission to manage the trustee of his family trust and self managed superannuation fund (Caldabra Investments Pty Ltd ACN 003 958 423), as well as his incorporated legal practice (Bersten Legal Pty Ltd ACN 098 743 483).
Mr Bersten has made an application to the Administrative Appeals Tribunal (AAT) for a review of ASIC's decision.
ASIC's investigation is continuing.
The five year period for which Mr Bersten was banned from managing corporations is the maximum period of disqualification that ASIC can impose under section 206F of the Corporations Act.
On 20 February 2015, ASIC also banned the former managing director of Provident Capital, Mr Michael Roger O'Sullivan of Sydney, from managing corporations for five years and from providing financial services for seven years (refer: 15-033MR). Mr O'Sullivan sought a review of ASIC's decisions in the Commonwealth AAT. The hearing of that review concluded on 17 November 2015 and a decision by the deputy president is pending.
On 1 July 2015, ASIC banned former non-executive director of Provident Capital, Mr John Patrick Sweeney of Sydney, from providing financial services for two years (refer: 15-173MR). ASIC found Mr Sweeney failed to comply with financial services laws. Mr Sweeney has also sought a review of ASIC's decision in the AAT.
On 28 July 2015, ASIC banned former non-executive director of Provident Capital, Mr Trevor John Seymour, from managing corporations for three years and providing financial services for three years (refer: 15-199MR). ASIC found Mr Seymour breached hid suties as a director and failed to comply with financial services laws. Mr Seymour has also sought a review of ASIC's decision in the AAT.
The liquidators of Provident Capital (McGrathNicol) assisted ASIC's actions by preparing a detailed report on their investigation into Provident Capital. ASIC funded the liquidators' investigation and report via the Assetless Administration Fund.
Provident Capital issued debentures to retail investors through their Fixed Term Investment Portfolio and advanced the debenture funds to third party borrowers, including property developers, on a first mortgage basis.
Provident Capital also operated a mortgage fund under a wholesale facility with Bendigo and Adelaide Bank and two managed investment schemes.
On 29 June 2012, on an application by the AETL, the Court ordered that receivers be appointed to Provident. ASIC appeared as a ‘friend of the court’ in these proceedings.
When Provident Capital went into liquidation on 24 October 2012, over 3,000 Provident debenture holders were owed approximately $130 million.
As at 30 September 2015, Provident’s receivers (PPB Advisory) have estimated that the likely return to debenture holders will be 16 cents in the dollar.
There are currently two class actions against AETL in relation to the collapse of Provident Capital. These proceedings are being conducted in the NSW Supreme Court and were commenced by Meridian Lawyers and Slater & Gordon on behalf of debenture-holders.
Editor's note 1:
ASIC has settled the proceedings brought by Mr Bersten in the AAT for a review of ASIC's decision dated 19 April 2016.
The AAT has amended ASIC's decision by varying Mr Bersten's period of disqualification from managing corporations pursuant to s206F of the Corporations Act 2001 from five years to four years (to expire on 31 May 2020) and varying the period of Mr Bersten's banning from providing financial services pursuant to s920A of the Corporations Act 2001 from five years to three years and nine months (to expire on 29 February 2020).