Trading a company on a going concern basis can be challenging at the best of times, especially so when the core business operations require a security licence – and that licence is revoked as a result of the appointment.
We recently gave advice to voluntary administrators who were faced with just that predicament.
Because the business was concerned with the conduct of “Security Activities”, for the reasons that follow, our advice was to halt trading immediately.
Background
Our clients were appointed to a biometric security company, which developed and supplied biometric identification technology to various high security institutions. All of the operations of the company were “Security Activities” (more on this below).
Following the appointment of administrators, the company received a Notice of Revocation from the Commissioner of Police which had the effect of revoking the company’s Master Security Licence immediately.
Is the insolvent company carrying on Security Activities?
In New South Wales, “Security Activities”, include essentially any activity in relation to the provision of security services and equipment (other than basic household or retail automotive security items) and are regulated by the Security Industry Act 1997 (NSW) (SI Act) and the Security Industry Regulation 2016 (NSW) (SI Regulations).
The SI Act provides, among other things, that if a person or company carries on any type of “Security Activities” then they require a licence, specifically a Master Security Licence.
The SI Act also provides that the Commissioner must revoke a licence if “satisfied that, if the licensee were applying for a new licence, the application would be required by this Act to be refused” (s 26(1A) of the SIA). Further, Regulation 13(3)(a) of the SI Regulations provides that the Commissioner must refuse to grant an application for a master licence if the application is a corporation which has an administrator appointed to it. This is a mandatory ground for refusal and does not permit for any discretion to be applied.
Can you appeal a Notice of Revocation of Licence?
Whilst an administrative review of the Commissioner’s decision may be sought pursuant to s 53 of the Administrative Decisions Review Act 1997 (NSW) and s 29 of the SIA, there may be little utility in doing so.
The decision of Banerjee v Commissioner of Police [2018] NSWCA 283 is the sole source of judicial guidance and authority for the proposition that once administrators have been appointed, the Commissioner is obliged to revoke any security licences pursuant to the SIA and SIR and any review of that decision for this cause will generally be fruitless.
In Banerjee the administrators (Mr Banerjee and Mr Porter) argued that the operation of the SIA and SIR (being State legislation) resulting in the revocation of a master licence for a security company was inconsistent with the object of Part 5.3A of the Corporations Act (Commonwealth jurisdiction) and therefore the protections and moratoriums afforded under the Corporations Act 2001 (Cth) should prevail to the extent of any inconsistency pursuant to section 109 of the Constitution.
Relevantly, the Court found that:
- The revocation by the Commissioner was mandatory once the Commissioner was satisfied that the company had entered into administration (see at [20]) and an administrator would be a “Close Associate” for the purpose of the SIA; and
- There are no inconsistencies in the operation of part 5.3A of the Corporations Act and the combined application of the SIA and SIR for reasons including that:
- where, a company holding a master licence is transferred upon the company entering administration from its directors and management to administrators, the conditions under which the security licence was granted have changed in material respects (see at [31]);
- the security licence was not a form of property which could be disposed of by the company, or by the administrator selling the business or part thereof. Furthermore, the enforcement of the licensing provisions was by way of criminal penalty. The protection provided by s 440D of the Corporations Act expressly excludes protection against criminal proceedings (see at [36]); and
- the Corporations Act specifically provides by way of example at Part 7.6, that ASIC may suspend or cancel an AFSL upon the occurrence of an insolvency event and nothing in Part 5.3A of the Corporations Act would serve to prevent such cancellation from occurring (see at [38]).
The Court ultimately concluded at [39] (and also at [46]) that, in short, as a matter of interpretation of the Act, Pt 5.3A reveals no intention to confer on a company under administration, or the administrators of that company, any immunity from the operation of State law which was not to be found within the express terms of the Part. There was, therefore, no inconsistency between the State Security Industry Act and the SI Regulations and Part 5.3A of the Act, for the purposes of s 109 of the Constitution.
Practical Implications
Banerjee suggests that security licences will automatically be revoked upon the appointment of an administrator.
The continued provision of “Security Activities” (whether by the company directly or by providing persons who purport to carry on those services) without a valid security licence is a contravention of the SI Act which carries with it personal civil and criminal penalties.
If you are considering an appointment to a business which carries on any type of “Security Activities” you should ascertain whether the company is licensed under the SI Act, whether any exemptions under the SI Act apply to the company and give due consideration as to whether the Company can continue to trade following your appointment.
This article was written by Daniel Zabow, Partner and Courtney McDonald, Senior Associate in our Sydney office.
Publication Editor: Grant Whatley