Michael.1
Insolvency and related law and policy, and more

Michael Murray is an Australian author and commentator on corporate and personal insolvency law and related issues, in Australia and internationally. He has a strong law and policy background, is independent of any connections, and his views are his own. He gives no legal advice. 

Unconscionable and immoral corporate conduct – nothing personal

In imposing a $153 million penalty on a company already in liquidation, for its “deliberate and protracted unconscionable conduct of a highly predatory nature“, a Judge expressed particular regret that the company’s former CEO, “Mr Amjad Khanche [is] not able to be made the subject of any liability or other adverse findings against him in person, or any related penalty”. 

In another recent matter, a Judge imposed a penalty of $125 million on Volkswagen, for ‘deliberate and dishonest deception’ of the government and consumers, rejecting a much lower penalty agreed between the company and the regulator. 

Then there is Lorna Jane (Pty Ltd).

Companies are inanimate entities, without a soul,[1] but invariably owned and operated by someone, whether with or without a soul in any particular case is not for me to say.

Australian Institute of Professional Education (in liquidation) – $153 million 

The Australian Institute of Professional Education Pty Ltd (in liq) (AIPE) engaged in unconscionable conduct, rorting a government education support scheme – the Vocational Education and Training Fee Higher Education Loan Program – over a long period.  The Program was designed to help disadvantaged members of the community acquire vocational skills. The Federal Court imposed compensation orders totaling $147 million and penalties of $153 million.

That needs explanation because AIPE is in liquidation, and the law does not allow the recovery of that $153m penalty from its remaining assets, and while the compensation orders of $147m can in theory be recouped, there are not enough remaining assets left to do so.

Justice Bromwich in fact expressed

“regret that AIPE is in now in liquidation so that, at best, a small proportion of that amount is going to be paid”.

He went on to express a “further regret”,

“that no individual associated with AIPE’s conduct is being made accountable. This latter regret in particular extends to AIPE’s former Chief Executive Officer, Mr Amjad Khanche, who is not a party to the proceeding and is therefore not able to be made the subject of any liability or other adverse findings against him in person, or any related penalty. That is so despite his conduct forming an important part of basis for AIPE’s liability, as detailed at some length in [an earlier judgment – ACCC v Australian Institute of Professional Education Pty Ltd (in liq) (No 3) [2019] FCA 1982]. Australian Competition and Consumer Commission v Australian Institute of Professional Education Pty Ltd (in liq) (No 3) [2019] FCA 1982 (26 November 2019) (austlii.edu.au)

The very high compensation and penalties were imposed in the context of the “huge profitability of AIPE’s operations [and] that a high level of immorality stood behind the deliberate and protracted unconscionable conduct of a highly predatory nature” – against vulnerable consumers, with economic instability, low levels of education, and limited literacy, numeracy and computer skills. AIPE’s sales and marketing techniques involved conduct that was ‘callous and deliberately targeted’; undue incentives were created by the use of commission-remunerated agents.

Addressing what is probably an anticipated response from many, as to how government money was so wrongly accessed to start with, the Judge said

“there will always be government schemes in which the need to provide assistance, sometimes with a measure of urgency, may outweigh the ability or time to implement sufficient systemic protections. The arguable laxness of a government scheme it not a reason to reduce the penalties to be imposed on those who predate upon it. To do that is tantamount to victim blaming. If anything, that tends to heighten the need for general deterrence”. 

A cost of doing business?

And penalties cannot be merely a cost of doing business, as seen by some, as a calculated risk for nefarious conduct.  Any penalty should be more than a mere disgorging of profit, otherwise it may be thought to be worth the risk given the difficulties in detection and successful litigation.

Volkswagen – $125 million

That issue of penalties not being so low as to be seen simply a cost of doing business came up on a matter at the other end of the spectrum, as to size and profit, again not mentioning anyone’s soul, when Volkswagen was penalised $125 million by the Federal Court.  This was imposed for conduct over almost five years between January 2011 and October 2015 in engaging in the

‘deliberate and dishonest deception of the Australian government and Australian consumers, about the exhaust emissions of certain Volkswagen-branded motor vehicles which were imported into Australia for sale’: [2021] FCAFC 49.

The ACCC and Volkswagen had in fact agreed on a penalty of $75m, which would have been the highest penalty under the Australian Consumer Law, and they presented orders to the Federal Court to be made by consent for that amount. But the Judge disagreed and imposed $125 million.  Volkswagen’s appeal was unsuccessful, and its High Court special leave application was dismissed on 12 November 2021.[2]

Lorna Jane Pty Ltd

Then there is Lorna Jane Pty Ltd

Australian Competition and Consumer Commission v Lorna Jane Pty Ltd [2021] FCA 852 (23 July 2021) (austlii.edu.au)

 

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[1] Various.

[2] Volkswagen Aktiengesellschaft v Australian Competition and Consumer Commission [2021] FCAFC 49 (9 April 2021) (austlii.edu.au).  Volkswagen Aktiengesellschaft v Australian Competition and Consumer Commission [2021] HCATrans 194 (12 November 2021) (austlii.edu.au)

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