Decisions
GEORGE STEPHEN SLIGHTHAM, et. al. [Decision]
|
BCSECCOM #:
2001 BCSECCOM 59
|
Document Type:
Decision
|
|
Published Date:
2001-01-11
|
Effective Date:
2001-01-11
|
|
Details:
|
|
2001 BCSECCOM 59
COR#01/015
IN THE MATTER OF THE SECURITIES ACT
R.S.B.C. 1996, c. 418
AND
IN THE MATTER OF GEORGE STEPHEN SLIGHTHAM, PETER OLIVER
TRANTER, MACKENZIE ILES WATSON, LESLIE ROBERT REDFORD AND
MERVIN ERNEST WEBB
AND
IN THE MATTER OF BEAUCHAMPS EXPLORATION INC. AND BEAUFIELD
CONSOLIDATED RESOURCES INC.
PANEL
Joyce C. Maykut, Q.C., Vice Chair
Adrienne R. Salvail-Lopez, Commissioner
DATE OF HEARING
December 18, 2000
DATE OF DECISION
January 11, 2001
APPEARING FOR COMMISSION STAFF
Mark L. Skwarok
APPEARING FOR MACKENZIE ILES WATSON
Ken S. Westlake
DECISION OF THE COMMISSION
INTRODUCTION
[para 1]
We released our decision in this matter on July 29, 1996: In the Matter of George Stephen Slightham, Peter Oliver Tranter, Mackenzie Iles Watson, Leslie Robert Redford and Mervin Ernest Webb and In the Matter of Beauchamps Exploration Inc. and Beaufield Consolidated Resources Inc. [1996] 30 B.C.S.C. Weekly Summary 38.
[para 2]
In our decision, we made findings and issued orders against all of the respondents except Mervin Ernest Webb, against whom Commission staff did not proceed, and George Stephen Slightham. Slightham had signed an Agreed Statement of Facts and Undertaking and had consented to the issuance of orders against him prior to the start of the hearing. The orders against Mackenzie Iles Watson were set out at page 85 of our decision as follows:
“1. under section 144(1)(c) of the Securities Act [S.B.C. 1985, c. 83] that the exemptions described in sections 30 to 32.1, 55, 58, 80 and 81 do not apply to Watson for a period of 10 years from the date of [the] decision;
2. under section 144(1)(d) of the Act that Watson resign any position he holds as a director or officer of an issuer and is prohibited from becoming or acting as a director or officer of any issuer until
a) he has successfully completed a course of study satisfactory to the Executive Director concerning the duties and responsibilities of directors and officers; and
b) a period of 10 years has elapsed from the date of [the] decision;
3. under section 144.1 of the Act that Watson pay an administrative penalty of $5,000, on or before October 1, 1996; and
4. under section 154.2 of the Act that Watson pay prescribed fees or charges for the costs of or related to the hearing incurred by the Commission and the Executive Director, the amount to be determined following further submissions from the parties.”
[para 3]
Watson appealed our decision to the British Columbia Court of Appeal. In a decision issued on October 22, 1999, the Court of Appeal set aside the orders against Watson and remitted the question of his penalty to the Commission: Mackenzie Iles Watson v. British Columbia Securities Commission, (1999) 131 B.C.A.C. 30; 1999 BCCA 625.
[para 4]
On December 18, 2000, the Commission received evidence from Watson and heard submissions from Watson and Commission staff respecting the orders that should be issued against Watson in this matter. Our decision today should be read in conjunction with our decision of July 29, 1996.
SUBMISSIONS
[para 5]
We found in our decision of July 29, 1996, that Watson, Peter Oliver Tranter and Leslie Robert Redford had contravened the Company Act, R.S.B.C 1979, c. 59 and, in the case of Watson and Tranter, the Securities Act, S.B.C. 1985, c. 83. These contraventions had occurred while the three were directors of Beauchamps Exploration Inc. and Beaufield Consolidated Resources Inc., two companies listed on the Vancouver Stock Exchange (now the Canadian Venture Exchange).
[para 6]
The findings relating to the Company Act contraventions were set out at pages 65 to 80 of our decision. They were summarized at page 79 as follows:
“[during] the period when Tranter, Watson and Redford were directors, Beauchamps and Beaufield were managed with almost total disregard for the regulatory requirements of the Exchange, the Securities Act and the Company Act and in a manner that was rife with conflict of interest. In Beauchamps, the directors: permitted a myriad of related party transactions that were not in Beauchamps’ best interests and failed to ensure that Beauchamps complied with the regulatory obligations that flowed from them; failed to ensure that Beauchamps received adequate consideration for its shares and permitted Beauchamps to give financial assistance for the purchase of its shares; and permitted Beauchamps to issue financial statements that misrepresented its affairs. In Beaufield, the directors: permitted related party transactions that were not in Beaufield’s best interests and failed to ensure that Beaufield complied with the regulatory obligations that flowed from them; failed to ensure that Beaufield received adequate consideration for its shares and permitted Beaufield to give financial assistance for the purchase of its shares; and permitted Beaufield to issue financial statements that misrepresented its affairs. Therefore, we find that Tranter, Watson and Redford failed to act in good faith and in the best interests of Beauchamps and Beaufield, and that they failed to exercise the care, diligence and skill of a reasonably prudent person, contrary to section 142 of the Company Act [now section 118 of the Company Act, R.S.B.C. 1996, c. 62].”
[para 7]
The findings relating to the Securities Act contraventions were set out at pages 80 and 81 of the decision. That part of our decision concluded as follows:
“Watson was a director of Beaufield from February 13, 1987 to September 2, 1994. In February 1987, he filed an insider report indicating that he owned 15,000 shares of Beaufield and, in October 1992, he filed an insider report indicating that he owned 50,000 shares of Beaufield. Beaufield’s Information Circular of December 15, 1993, indicated that Watson owned 20,000 shares of Beaufield, in October 1992 was granted an option to purchase 115,000 shares and in June 1993 exercised that option. Watson did not file insider reports respecting these changes until August 1994, in response to a request from Commission staff. At that time, he also filed additional reports respecting other trades in Beauchamps’ shares. We find that Watson contravened section 70(4) of the Securities Act [now section 87(4) of the Securities Act, R.S.B.C. 1996, c. 418] by failing to file insider reports disclosing changes in his ownership of Beaufield securities within the time period set out in that section. Again, these failures to file occurred during periods of undisclosed material changes in Beauchamps’ affairs.”
[para 8]
Later, at page 84 of our decision, we summarized Watson’s conduct with respect to both Beauchamps and Beaufield:
“Watson was a director of Beauchamps from May 1991 to March 1993, through much of the period under review. He consented to the June 1, 1992 resolution ratifying past loans and approving future loans to Beaufield, a resolution contrary to Beauchamps’ best interests. Watson was on the board on October 31, 1992, the date of the financial statements which showed that the directors had written off the $118,050 then owing from Slightham because of its questionable recoverability. He was still a director at the time Beauchamps issued its January 31, 1993 financial statements, which showed as an asset $127,632 owing from Slightham. He gave Slightham carte blanche to set his own management fees. He took no steps to set up systems to ensure that Beauchamps was meeting the disclosure and approval obligations established by the Securities Act and the Exchange. He permitted Beauchamps to issue financial statements misrepresenting the consideration received for share issuances and the Slightham loans. He made no attempt to set up systems with regard to Beauchamps’ issuance of shares and preparation of financial statements, which enabled Beauchamps to issue shares for insufficient consideration and to give Slightham financial assistance to purchase shares, in contravention of the Company Act.
Watson was a director of Beaufield from February 1987 to September 1994. He was on Beaufield’s audit committee from at least 1990 to 1994. He signed all of Beaufield’s financial statements from the November 30, 1990 financial statements to those for the year ended August 31, 1991. He failed to set up systems to ensure that Beaufield was meeting the disclosure and approval obligations established by the Securities Act and the Exchange. He failed to prevent Slightham from paying himself exorbitant management fees. He permitted Beaufield to issue, and actually signed a number of, financial statements misrepresenting the consideration received for share issuances. He made no attempt to set up systems with regard to Beaufield’s issuance of shares and preparation of financial statements, despite the fact that he was on the audit committee and signed a number of the financial statements during this period. This enabled Beaufield to issue shares for insufficient consideration and to give Slightham financial assistance to purchase shares, in contravention of the Company Act.”
[para 9]
Commission staff argues that, while Slightham was primarily responsible for managing the day to day activities of both companies, Watson, as a director, must bear responsibility for the manner in which the companies were managed. By acting as a nominee for Slightham, Watson permitted the companies to be managed without regard to regulatory requirements. He also permitted Slightham to effectively use the companies’ treasuries as his own personal bank accounts.
[para 10]
In short, Commission staff submit that Watson completely disregarded his duties as a director of both Beauchamps and Beaufield, as well as his duty under the Securities Act to file insider reports. Given the seriousness of Watson’s conduct, Commission staff argue that we should remove Watson from participation in the market and from involvement with issuers for not less than ten years from July 29, 1996, the date of our decision, and should impose an administrative penalty of not less than $10,000.
[para 11]
In response, Watson put before us his curriculum vitae and 27 letters of reference from colleagues in the mineral exploration and financial services industries. They indicate that Watson is a highly regarded geologist and corporate director who has developed a number of new mineral deposits over his career and received several awards from his professional peers. The letters characterize Watson as a man of honesty, integrity and trustworthiness. Watson also advised that, during the period of his involvement with Beauchamps and Beaufield, his wife was undergoing serious medical problems.
[para 12]
Watson submits that he was an “absentee” director who was duped by Slightham, who “cooked” the books and kept Watson in the dark concerning the companies’ affairs. He argues as well that he did not realize that “people like [himself] who are geologists and not business people” face the same responsibilities as other directors when they join the boards of companies.
[para 13]
Watson also submits that, though he failed to file insider reports, there is no evidence that he traded improperly or acted for financial gain.
[para 14]
Watson advised that even after the July 29, 1996 orders were set aside, he voluntarily continued to comply with their terms. However, he argues that, as he is now 66 years old, any further orders restricting his involvement with issuers will effectively prohibit him for the rest of his life from working with small mining companies, as the reality of such work involves his being on the boards of those companies.
DECISION
[para 15]
In our decision of July 29, 1996, we reviewed the law respecting the duty of care of directors and concluded at page 70 as follows:
“In summary, though there may be a dearth of case law in Canada on the issue of the duty of care of directors, there is sufficient law from which we can derive certain basic principles. Those principles certainly take us beyond the standards established for English directors in Re City Equitable Fire Ins. Co. They impose on directors a duty to put in place adequate systems for the management of the company, which would include the flow of information that is necessary to the directors and upon which they will base their decisions. Should that information generate concerns or otherwise put the directors on inquiry, they must take the necessary steps to resolve those concerns or initiate the appropriate inquiry. In short, the directors, all the directors, have a duty to ensure that the affairs and business of the company are being properly managed.
It is particularly critical for our capital markets that these principles be followed by directors of reporting issuers. Shareholders of widely held public companies have little knowledge of, or access to information concerning, the manner in which those companies are actually run. These shareholders rely on the directors to ensure that the company is properly managed. There is no room on the board of a reporting issuer in British Columbia for “pleasant, if incompetent, amateurs”.
The Company Act duties faced by Tranter, Watson and Redford can be summarized as follows. As directors, Tranter, Watson and Redford were required to either manage, or supervise the management of, the affairs and business of Beauchamps and Beaufield. Though it may have been appropriate for them to leave the day to day activities in Slightham’s hands, they were still responsible for supervising his management of the two companies. In doing so, they were required to act honestly and in good faith and in the best interests of the companies, and to exercise the care, diligence and skill of a reasonably prudent person. In order to meet these duties, they were obliged to put in place adequate systems for management of the companies, including the flow of necessary information to the directors, to make their decisions on an informed basis, and to take the necessary steps to resolve any concerns or suspicions that came to their notice. Moreover, they could not be relieved of these duties by the circumstances of their appointments.”
[para 16]
We concluded our review of the manner in which Tranter, Watson and Redford had carried out their duties at page 81 of our decision:
“. . . Beauchamps and Beaufield were managed with almost total disregard for the regulatory requirements of the Exchange, the Securities Act and the Company Act, and in a manner that was rife with conflict of interest. Tranter, Watson and Redford, as directors, not only permitted the two companies to be managed in this way, but also allowed Slightham, the president of the two companies, to effectively use the companies’ treasuries as his own personal bank accounts.”
[para 17]
We do not accept Watson’s submission that he should not have been expected to discover the myriad of problems in both Beauchamps and Beaufield. As we noted in our decision, Watson was obliged to inform himself of his responsibilities as a director and to ensure that he received the information necessary to carry out those responsibilities. In our findings, we clearly identified the responsibilities Watson faced as a director of Beauchamps and Beaufield, the actions he should have taken to satisfy those responsibilities and the many warning signs that should have put him, and the other directors, on notice that there were very serious problems with the management of the two companies.
[para 18]
We recognize that there is no evidence that Watson traded improperly. We do note, however, that he failed to file insider reports respecting his trades in Beaufield shares during periods of undisclosed material changes in Beaufield’s affairs. These material changes, by definition, would have been expected to have had a significant effect, in this case negative, on the market price of the Beaufield shares had they been disclosed as required under the Securities Act. We also note that it was Watson, and the other Beaufield directors, who failed to ensure that the company’s disclosure requirements were met. Watson’s conduct in this regard clearly had a detrimental effect on the integrity of our markets.
[para 19]
However, we also recognize that Watson has been an active, successful and highly regarded participant in the Canadian junior mining industry for over 30 years. There is no evidence before us that he acted dishonestly or for personal gain, or that he has had regulatory problems in the past.
[para 20]
We accept that Watson was taken in by Slightham during a period while Watson was preoccupied with his wife’s serious health problems. We also accept that Watson may not have fully appreciated the serious and comprehensive nature of the duties he faced as a director of Beauchamps and Beaufield. However, we are of the view that he, and others in his position, should now understand that all directors, even “people like Mr. Watson who are geologists and not business people”, face the same duty of care and bear the same responsibility for ensuring that the affairs and business of the companies on whose boards they sit are being properly managed.
[para 21]
Watson has not acted as an officer or director of any company since we issued our decision on July 29, 1996. Provided that he takes steps to more fully educate himself about the duties and responsibilities of corporate directors, we are satisfied that further restricting his involvement with companies is not necessary to protect the public interest. Therefore, we order:
1. under section 161(1)(d)(ii) of the Securities Act, R.S.B.C. 1996, c. 418 (the “Act”) that Watson is prohibited from becoming or acting as a director or officer of any issuer until he successfully completes a course of study satisfactory to the Executive Director concerning the duties and responsibilities of directors and officers; and
2. under section 162 of the Act that Watson pay an administrative penalty of $5000.
Dated January 11, 2001.
[para 22]
FOR THE COMMISSION
Joyce C. Maykut, Q.C., Vice Chair
Adrienne R. Salvail-Lopez, Commissioner