Coulter is accused of failing to act with skill, care, diligence and in the best interests of superannuation members after IOOF compensated beneficiaries from their own reserve funds for up to $6.1 million in losses resulting from administrative and other errors.

The CFO is one of five IOOF executives in the firing line after the Australian Prudential Regulatory Authority filed disqualification proceedings in December 2018, along with former managing director Chris Kelaher, former chairman George Venardos, company secretary Paul Vine and general counsel Gary Riordan. The action also seeks an order that IOOF entities Questor Financial Services Pty Ltd and IOOF Investment Management Ltd breached the Superannuation Industry (Supervision) Act.

At a contraventions hearing in the Federal Court. APRA has argued that Coulter, in his role as CFO, ought to have made further enquiries into management’s proposal to pay compensation from the reserve fund, including seeking independent legal advice and exploring the possibility of making claims against third parties.

During the hearing Tuesday, Coulter’s barrister, David Studdy SC, described APRA’s allegation as “extraordinary”, saying that Coulter had appropriately followed IOOF’s breach policy and the compensation decision was out of his hands.

“The suggestion that Mr Coulter should personally have taken particular action at this time should not be accepted. It is contrary to how public companies operate and it is naïve in the extreme,” Studdy said.

“It is absolutely embarrassing that such a submission should be made in light of all of the people and responsibilities in this company. It’s contrary to the policies of IOOF and it ignores the role of legal and compliance within the organisation.

“We say it is an absolutely desperate submission to try and elevate my client’s role and responsibility and try to inveigle him in a liability which just does not exist.”

APRA commenced proceedings without proper analysis

Studdy also slammed APRA for its “scandalous” accusation that Coulter had made decisions about the compensation plan based on what he thought would “get past the regulator”, rather than on a proper consideration of members’ best interests.

He told the court there was no basis for any negative findings against Coulter, criticising APRA for exceeding its originally pleaded case in an “impermissible attempt to include Coulter in conduct far beyond what was alleged against him”.

“Proceedings should never have been brought against [Coulter] and this is the most egregious example of a regulator charging off and commencing proceedings without properly analysing the facts and the relevant laws,” Studdy said.

Respondents haven’t properly grappled with case against them, APRA says

Coulter’s arguments echoed the other respondents, including IOOF’s criticism that the regulator’s case was “overly simplistic… artificial and theoretical”. Kelaher told the court during the hearing last week that APRA’s pleadings were inadequate and lacked detail, describing the regulator’s approach to compliance as “Stalinist“.

APRA was given the chance to respond to the respondents’ criticisms on Tuesday and counsel Robert Dick SC defended their pleadings as having “squarely addressed the issues”.

“We do take the criticisms seriously, but we just say it’s either a combination of not properly grappling with our pleading or seeking to preclude us now from developing legal propositions that flow from the particulars that we’ve given,” Dick said.

“There must be a point at which we have pleaded the case, we’ve given particulars and we haven’t had a request for further particulars, that we can’t be shut out from developing in closing submissions the legal consequences… yet that is the gravity of their complaint.”

APRA’s approach to use of reserve fund doesn’t “sound very sensible”, judge says

Dick rejected Kelaher’s submission from earlier in the week that IOOF had not compensated beneficiaries with their own money. Kelaher had argued that the reserve fund was trust money but not members’ money, because it built up over time from rounding errors, tax returns and other “bits and bobs” that were not able to be allocated to any particular member.

But Dick said the fact that the reserve fund was trust money necessarily meant it was members’ money, because it was “in their interests ultimately that those funds were preserved for their benefit”.

“If there are alternative sources of funds to compensate them for their losses then compliance by the trustees… means that they ought to consider those alternative sources,” Dick said.

But Justice Jagot said she couldn’t understand Dick’s point, asking where the “dividing line was drawn”, given APRA had accepted that funds could be drawn from the reserves in certain circumstances.

“What do you have to do? Do you have to go through and tick a number of boxes, such as ‘have I thought about suing [a third party] – no’,” Justice Jagot queried.

Dick said that was “a very important start”, but Justice Jagot said that such an approach didn’t “sound like a very sensible thing to do”.

“We think it is sensible,” Dick replied quickly before moving on to his next submission.

Penalties hearing to be set down pending contraventions decision

APRA will wrap up its closing submissions in the contraventions hearing on Wednesday, with a subsequent disqualifications and penalties hearing to be scheduled pending the outcome.

IOOF is also facing a shareholder class action brought by Quinn Emanuel, funded by Regency Group and a potential shareholder class action brought by Shine Lawyers, which has been investigating the firm for a year and won its bid for a preliminary discovery order by the Federal Court. Investor Claim Partner will fund the proposed proceedings by Shine.

Both Kelaher and Venardos stepped down from their positions as managing director and chairperson on December 10 last year to focus on the APRA case. Coulter, Vine and Riordan remain in their positions but have no management responsibilities over the two IOOF trustee entities.

APRA was represented by Robert Dick SC, instructed by Gadens. Kelaher was represented by Robert Newlinds SC, instructed by Arnold Bloch Leibler. Vine, Riordan, IOOF Investment Management and Questor Financial Services were represented by Noel Hutley SC and Nicholas Owens SC, instructed by King & Wood Mallesons. Venardos was represented by Tony Bannon SC, instructed by Jones Day. Coulter was represented by David Studdy SC, instructed by Watson Mangioni Lawyers.

The case is Australian Prudential Regulation Authority v Christopher Francis Kelaher & Ors.