NextGen Financial Group has been ordered by the Federal Court to pay an SMSF trustee $270,000 over an unpaid AFCA determination regarding inappropriate financial advice.
In August 2016, WJ & V Drakoulis Super Pty Ltd (as trustee for the WJ & V Drakoulis Super Fund) received personal advice to establish an SMSF to purchase a residential investment property. However, there was a delay in settlement of the investment property.
In the interim, the $175,000 that had been put aside for the property purchase was invested into Fund I for a one-year term, which meant the property purchase was unable to be completed.
The trustee then complained to the Australian Financial Complaints Authority (AFCA) that they received inappropriate advice to invest in Fund I.
In November 2022, AFCA determined NextGen should pay $261,394.90 compensation and provide a transfer of its units in Fund I.
“The complainant has 30 days to accept the determination. If the complainant accepts the determination, the financial firm must pay $261,394.90 compensation to the complainant as trustee of the SMSF with interest as set out in Section 2.1 below within 28 days of that acceptance,” the AFCA determination read.
However, NextGen failed to respond to the AFCA determination or dispute the debt and the case progressed to court.
In the Federal Court, NextGen argued the debt was not due and payable as an AFCA determination does “not have the effect of creating a debt enforceable by the way of statutory demand”. It referred to QSuper Board v AFCA (2020) which had discussed whether a determination made by AFCA involved an exercise of judicial power.
Justice O’Callaghan ruled against this on 12 July, stating: “Here, the amount claimed in the statutory demand is the amount of the determination plus interest. It is clearly a liquidated sum in money presently due, owing and payable. It has been owing and payable since the expiration of 28 days from the defendant’s acceptance of the determination – that is 28 days after 24 November 2022.
“The notion implicit in the plaintiff’s submission that an amount cannot be relevantly presently due, owing and payable, absent some sort of judicial imprimatur, is untenable.
“The plaintiff has never sought to dispute the debt. Indeed, as I have already said, it did not even respond to the complaint made to AFCA. When pressed today as to any basis upon which it might be said the debt was disputed, counsel for the plaintiff could only say that he had no instructions about whether the plaintiff intended to challenge the existence of the debt. (Given the effluxion of time, and the fact that the plaintiff did not participate at AFCA, it is difficult to imagine what challenge could now be mounted to the determination, but I leave that to one side).
“For those reasons, the application to set aside the statutory demand is refused. The plaintiff should pay the defendant’s costs of the application, including all reserved costs, on a full indemnity basis, except insofar as they are of unreasonable amount and have been unreasonably incurred, because the application was untenable and should not have been brought.”
NextGen must now pay $270,523.67 to the defendant.
At this point they’re really putting their two fingers up at ASIC.