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GWM Lawyers and Conveyancers

Welcome to the July edition of this Law Update Newsletter, informing friends and clients of GWM Lawyers and Conveyancers of changes in the law that might impact on their personal or business lives.

In this newsletter...

• Upcoming Legal Seminar
• Company Fraud by Director/Sole Shareholder
• Press Releases for July 2003

Upcoming Legal Seminar

An afternoon of expert advice on Insolvency will be held on the 29th of July 2003 in Port Macquarie.

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Company fraud by director/sole shareholder

MacLeod v The Queen 2003 HCA 24.

The High Court of Australia in the recent decision of MacLeod "considered the question of whether Director and sole shareholder of a company can be convicted of fraudulently using the company's property".

In basic terms, the issues before the court were as follows:

1. The Appellant, MacLeod, was the sole beneficial shareholder of the company.
2. MacLeod was the sole Director.
3. The company sought investment funds from the public generally advising that those funds would be held in Trust for the purposes of film production.
4. Only a proportion of the monies invested was in fact used for film production.
5. The bulk of the monies received by the company was used for the personal benefit of MacLeod the shareholder/director.
6. Despite the fact that the funds had been specifically called for for the purposes of investment in film production projects, the Appellant contended that he could not have misapplied the funds of the company, because at the time he had the consent of the company to use the funds of the company in the manner that he saw fit.

The Facts

MacLeod as Managing Director of a company advertised via his company for investors in film production. It was purported in the course of the advertising that the investments were to be held in trust on behalf of the investors to be used for the purposes of a particular film. Of the funds raised some $718,000 was used in film production, however more than $2,000,000 was applied for the Appellant's own personal use. The Appellant was charged under section 173 of the Crimes Act NSW, that is "as a director, he fraudulently applied funds for his own use or for use other than the company's".

The Appellant argued that it could not be said that he had used the funds either for his own use or for a use other than the company's when he himself was the company, and therefore had the capacity to direct the company as to the usage that the monies were put to. The Crown quite rightly relied on the allegation that the whole commercial process was a sham. Furthermore, the Crown relied upon documentation prepared by the company which indicated that the company owed an obligation to others as to the funds gathered, where those funds were invested, and in the ways that the funds could be applied.

The facts in general terms point to an act of significant dishonesty on the part of the Appellant by applying the funds for his own personal use.

MacLeod's appeal was dismissed. The Court found that he acted fraudulently. The court found that the company could not become a party to a sham of this magnitude. The court found that "the self interested consent of the shareholder, given in furtherance of a crime committed against a company, cannot be said to represent the consent of the company".

Bob Gillroy

Email: bob.gillroy@gwmlaw.com.au

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