The Unacceptable Face of Start-up Capitalism
Failure to afford continuous disclosure, civil penalty and issues with undertaking to court.
In a decision handed down on 16 February 2023, Lee J of the Federal Court of Australia in Australian Securities and Investments Commission v GetSwift Limited (Penalty Hearing)  FCA 100 imposed a $15m penalty against the respondent company (now in liquidation) for breaches of the continuous disclosure obligations under the Corporations Act 2001 (Cth) (s.674 et al), along with other beaches of the Australian Securities and Investments Commission Act 2001 (Cth). Former directors and General Counsel were disqualified and also fined. His Honour expressed himself colourfully when considering the operation of the respondent company and its failure to meet the continuous disclosure obligations. An issue also arose as to undertaking given to the Court by the company, and the company subsequently falling into liquidation. Sufficient is excerpted below to give the reader the gist of the liability and penalty cases respectively. Such civil penalty is substantial, but plainly apt on the findings made. One doubts any portion thereof will be paid.
A INTRODUCTION AND PREVIOUS FINDINGS
1 To adapt the famous remark of Ted Heath, GetSwift Limited (in liq) (GetSwift), and those primarily responsible for its wrongful conduct, could be described as representing the unacceptable face of start-up capitalism.
2 GetSwift was a public “early stage technology company” that generated operating losses in every year of its existence. Notwithstanding this, from an issue price of 20 cents in December 2016, within a year, its share price had risen to well over $4, prior to a trading halt announcement. It raised a total of $104,000,000 from investors in two placements. It became a market darling because it adopted an unlawful public-relations-driven approach to corporate disclosure instigated and driven by those wielding power within the company.
3 This eventually became apparent. Three days after the publication of an article in January 2018 in the Australian Financial Review entitled “GetSwift: Too Fast For its Own Good” (cogently explaining that GetSwift had failed to update the market about losing materially significant contracts), Get Swift Logistics Pty Ltd (Get Swift Logistics) (a wholly owned subsidiary) transferred $72,000,000 to a bank account held by GetSwift, Inc (another wholly owned subsidiary incorporated in the United States). On 22 August 2018, following the commencement of an investigation by the Australian Securities and Investments Commission (ASIC) in February 2018, Get Swift Logistics transferred an additional $8,500,000 to an offshore bank account held by GetSwift, Inc., bringing the total funds transferred to $80,500,000. These transactions were unexplained by any evidence before me.
4 More remarkably, well after the balloon had gone up, the share price had plummeted, a class action had been started, and at around the same time the evidence concluded in the liability phase of the ASIC regulatory case before me, GetSwift sought to re-domicile to Canada. GetSwift convinced another judge of this Court to allow it to do so, partly on the basis of an undertaking that GetSwift Technologies Limited (GetSwift Technologies) would not take any steps to wind up GetSwift and would indemnify GetSwift in relation to penalties imposed in this case or in relation to an adverse judgment in the class action. ASIC did not pre-emptively make an application to me to restrain the removal of GetSwift from Australia when the highly unusual course was proposed during the pendency of the regulatory proceeding (although it is fair to record it did oppose the scheme approval in the separate proceeding).
5 The undertaking was not worth the paper it was written on. GetSwift Technologies (as GetSwift’s only member) resolved in July 2022 to place GetSwift into voluntary liquidation. The absence of any likely return means the class action brought by shareholders (Webb v GetSwift Limited & Anor, NSD 580 of 2018) has now settled with no recovery by those who suffered loss by reason of GetSwift’s breaches. In approving settlement of the class action on 2 February 2023, Murphy J observed that GetSwift’s “own misconduct has now brought it to its knees” and that its actions represented a “scandalous episode of corporate misconduct”. One can only agree with his Honour’s observations.
6 What is the response of the people responsible for this dreadful state of affairs?
7 Mr Bane Hunter, the former executive chairman and chief executive officer, and principal instigator of the wrongdoing of GetSwift, has not returned to Australia to defend his position and did not appear at the penalty hearing. His lieutenant, Mr Joel Macdonald, after initially appearing at a case management hearing, has also not turned up to defend himself. He also signed the resolution winding up GetSwift.
8 After putting ASIC to proof in every aspect of its intricate case and requiring expenditure of vast public resources, neither Mr Hunter nor Mr Macdonald have shown the slightest degree of remorse or contrition, nor have they made any acknowledgement they behaved improperly. Additionally, ASIC has been unable to explore where all the money raised from investors went.
9 It is against this singular background that I am required to consider the civil penalty to be paid by the liquidated malefactor, Messrs Hunter and Macdonald and by Mr Brett Eagle (a solicitor who remains in Australia and who has, by contrast, engaged with the penalty case). I am also required to consider whether each of the individuals should be disqualified from managing corporations in the future and, if so, for how long. I have already said enough to make it obvious that this is an unusual civil penalty case, which has no ready analogue.
10 My mercifully unreported liability judgment in this matter (Australian Securities and Investments Commission v GetSwift Limited (Liability Hearing)  FCA 1384 (Liability Judgment)) was 2,618 paragraphs long. As I then explained, its size was the result of the case advanced by the ASIC being vast in scope, involving the need to wade doggedly through a prodigious documentary case and make innumerable findings. These reasons assume familiarity with the findings relevant to each of the contraveners, and adopt the definition of terms in the Liability Judgment.
G PENALTY AGAINST GETSWIFT
79 The final penalty figure reached is the result of a synthesis arrived at after considering a large number of contraventions. As such, in the end, it is necessary to stand back and ensure that the total figure reflects the totality of wrongdoing: Garuda (at  per Perram J). I am amply satisfied that the offending conduct, and the steps taken (and not taken) by the company in the wake of that conduct, justify a total penalty of $15,000,000. This figure (approximately 68% of the total available maximum of $22,000,000) may seem conservative to some, particularly in the light of the statutory maximum and the penalties ordered against offenders in a number of cases helpfully summarised by ASIC in oral and written submissions: see, for example, ASIC v Rio Tinto (No 2) (75% of statutory maximum for one contravention of s 674(2)); Australian Securities and Investments Commission v Sino Australia Oil and Gas Ltd (in liq)  FCA 1488; (2016) 118 ACSR 43 (80% of statutory maximum in respect of one contravention of s 674(2)). Of course, the appropriate range for penalty should not be assessed by reference to the maximum potential penalty alone, not least where the contraventions relied upon may be considered to amount to an ongoing course of conduct: ACCC v Yazaki (at 291 , 296  per Allsop CJ, Middleton and Robertson JJ). I simply refer to these (to a limited extent) roughly comparable cases to demonstrate why the figure arrived at seems to me to be appropriate in all the circumstances. The contraventions were serious, serial and at the heart of GetSwift’s culture.
L GETSWIFT’S VOLUNTARY LIQUIDATION
155 In closing, I will say something further of GetSwift’s entry into voluntary liquidation despite the undertakings given to this Court.
156 Following reflection, I have determined that it is a matter for the Judge in the separate proceeding (and who received and acted upon the undertaking) to determine what, if anything, should happen next, including whether the matter should be referred to the Principal Registrar of the Court for contempt proceedings to be instigated. In any event, given my findings as to the conduct of the persons concerned, it would be inappropriate for me to hear any such proceeding.
157 It became apparent that at the time of appointment, the liquidators were not aware of the undertaking given to the Court. But the liquidators did become aware of the undertaking on 8 August 2022. The Court was not informed of any breach of the undertaking until ASIC filed its submissions on penalty and other relief. Although I express no conclusion, this silence causes me some pause. Without the benefit of detailed submissions, I am not presently convinced it was appropriate for this information not to have been communicated to the Court to further the interests of the proper administration of the company. The solicitor for the liquidators (who was given leave to appear) informed me that “there was really nothing that the liquidators could do to reverse what had happened” (T44.35–36) and, implicitly, that the liquidators did not consider they had any legal obligation to disclose to the Court the fact that the foundation of their appointment was based upon a resolution passed in defiance of a solemn promise made to this Court, potentially punishable by contempt. This may all be correct, but, in the absence of argument, it is, at least to my mind, intuitively surprising.
158 The Court has supervisory jurisdiction over external administrators and external administrations pursuant to the Insolvency Practice Schedule (Corporations), being Schedule 2 of the Corporations Act (IPS), which has effect pursuant to s 600K of the Corporations Act. The purpose of ss 90-10, 90-15 and 90-20 of the IPS is to “serve the public interest by advancing and promoting the regulation, supervision, discipline and correction of liquidators in the interests of honest and efficient administration of the estates of companies subject to the winding up” (Djordjevich v Rohrt  VSC 178 (at  per Delany J); see also Hall v Poolman  NSWCA 64;(2009) 75 NSWLR 99(at 121–122 – per Spigelman CJ, Hodgson JA and Austin J)). Section 90-5 provides that the Court may, on its own initiative during proceedings before the Court, inquire into the external administration of a company. For the purposes of such an inquiry, the Court may require a person who is or has at any time been the external administrator of the company to give information; or provide a report; or produce a document to the Court in relation to the external administration of the company.
159 Despite having power to do so, I do not think it is appropriate for me to investigate this issue further in this proceeding. It is linked to what appears to me to be a clear breach of the undertaking and, if it is thought appropriate to enquire further into the circumstances of the Court only finding out about it at the heel of the hunt, that further issue can be addressed in the context of any broader examination of what happened by another Judge and following procedural fairness being provided to all concerned.