Australian Securities and Investments Commission v Australian Investors Forum Pty Ltd (No 2)

[2005] NSWSC 267

Reported Decision: 53 ACSR 305
(2005) 23 ACLC 929

New South Wales

Supreme Court

CITATION:	ASIC v Australian Investors Forum Pty Ltd & Ors (No 2) [2005] NSWSC 267
HEARING DATE(S):	19 to 23 July, 27 to 30 July and 5 & 6 August, 2004
JUDGMENT DATE :	4 April 2005
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
DECISION:	Numerous contraventions of Corporations Act found proved - proceedings stood over for evidence and submissions as to consequential relief.

CATCHWORDS:	CORPORATIONS - DIRECTORS AND OFFICERS - DISCLOSURE REQUIREMENTS - Whether company had contravened s.727(1) Corporations Act by failing to make disclosures and failing to bring investors within exemption provided by s.208(10) Corporations Act - whether director knowingly involved in contravention. - SECURITIES DEALER'S LICENCE - CONDITIONS - Whether company breached conditions of licence - whether breach of licence constitutes a contravention of Corporations Act - whether director knowingly involved. - UNDISCHARGED BANKRUPT - MANAGEMENT - ANNULMENT - Whether evidence proved that an undischarged bankrupt had managed corporation - whether subsequent annulment of bankruptcy retrospectively expunged contravention. - DIRECTORS' STATUTORY DUTIES - Whether various transactions were dishonest and for improper purposes - whether director and officer contravened statutory duties to corporations.
LEGISLATION CITED:	- Australian Securities and Investments Commission Act 1989 (Repealed 15.07.2001) (Cth) - s.8 - Australian Securities and Investments Commission Act 2001 - s.19 - Bankruptcy Act 1966 (Cth) - s.153A - Companies (WA) Code - s.537 - Corporations Act 2001 (Cth) - Schedule 3, s.9, s.79, s.83, s.206A, s.206B, s.206E, s.208, s.209(2), s.228, s.229, s.700(2), s.700(3), s.703, s.706, s.708(2), s.708(10) s.727(1), s.1308, s.1311, s.1317DA, s.1317E, s.1317H, s.1324(10), s.1332, s.1401(2), s.1430(1), s.1431(1), s.1432(1) - Corporations Law (Repealed 15.07.2001) (Cth) - Chapter 1, Pt 1.2, Chapter 7, s.104, s.784, s.786(1), s.787, s.826(1), s.827 - Criminal Code Act 1995 (Cth) - Chapter 2, s.13.2(1)
CASES CITED:	- ASIC v Adler (2002) 41 ACSR 72 - ASIC v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561 - ASIC v Plymin (No 1) (2003) 46 ACSR 126 - ASIC v Whitlam (No 2) (2002) 42 ACSR 407 - Baysington Pty Ltd, Re; Gillon v National Companies and Securities Commission (1987) 12 ACLR 412 - Bond v Rozenes (1996) 67 FCR 122 - Briginshaw v Briginshaw (1938) 60 CLR 336 - Carabelas v Scott (2003) 177 FLR 334 - Corporate Affairs Commission (Vic) v Bracht [1989] VR 821 - Coyle, Re (1993) 42 FCR 72 - Director of Public Prosecutions v Ashley [1955] Crim LR 565 - Ferguson v Weaving [1951] 1 KB 814 - Forge v ASIC [2004] NSWCA 448 - Giorgianni v R (1985) 58 ALR 641 - Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483 - HIH Insurance Ltd, Re; ASIC v Adler (2002) 41 ACSR 72 - Miller v Miller (1995) 16 ACSR 73 - Ngurli Ltd v McCann (1953) 90 CLR 425 - Oates v Federal Commissioner of Taxation (1990) 27 FCR 289 - Pascoe Ltd (in liq) v Lucas (1998) 27 ACSR 737 - R v Mato [1999] NSWCCA 395 - Rich v ASIC (2004) 50 ACSR 242 - Richardson & Wrench (Holdings) Pty Ltd v Ligon No 174 Pty Ltd (1994) 123 ALR 681 - Salter v NCSC (1988) 13 ACLR 253 - Smallcombe v Olivier (1844) 13 M&W 77, 153 ER 32 - Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285 - Yorke v Lucas (1985) 158 CLR 661
PARTIES:	Australian Securities & Investments Commission - Plaintiff Australian Investors Forum Pty Ltd - First Defendant Dennis Ralph Anthony - Second Defendant Martin Lloyd-Cocks - Third Defendant Dominic Luvara - Fourth Defendant Peter Victor Topperwien - Fifth Defendant Bud Shaheen - Sixth Defendant Australian Capital Forum Pty Ltd - Seventh Defendant Medionics Pty Ltd - Eighth Defendant Sage Global Fund Ltd - Ninth Defendant Techlogica Pty Ltd - Tenth Defendant Suisse Credit Pty Ltd - Eleventh Defendant Swiss Pacific Inc - Twelfth Defendant Nominee Securities Pty Ltd - Thirteenth Defendant Finance Projects Pty Ltd - Fourteenth Defendant Money Mint Pty Ltd - Fifteenth Defendant Casabanca Pty Ltd - Sixteenth Defendant Business Franchises Pty Ltd - Seventeenth Defendant Webfeatures Pty Ltd - Eighteenth Defendant Sacvere Pty Ltd - Nineteenth Defendant Associated Asset Management - Twentieth Defendant IT Genius Pty Ltd - Twenty-first Defendant Moneytec Investment Management Ltd - Twenty-second Defendant Metrobank Pty Ltd - Twenty-third Defendant Australian Equity Forum Pty Ltd - Twenty-fourth Defendant Tax Law Accounting Pty Ltd - Twenty-fifth Defendant Tax Law Accounting Partnership Pty Ltd - Twenty-sixth Defendant Biotech Securities Ltd - Twenty-seventh Defendant Arbitrage Trading Pty Ltd - Twenty-eighth Defendant Whitton & Lombe - Twenty-ninth Defendant
FILE NUMBER(S):	SC 5164/01
COUNSEL:	D.R. Stack - Plaintiff D.R. Anthony (in person) - 2nd and 23rd Defendants M. Lloyd-Cocks (in person) - 3rd and 19th Defendants T. Tzovaras - 4th and 16th Defendants (excused on fifth day of hearing)
SOLICITORS:	Australian Securities & Investments Commission - Plaintiff In person - 2nd and 23rd Defendants In person - 3rd and 19th Defendants Tzovaras Legal - 4th and 16th Defendants (excused on fifth day of hearing)

LOWER COURT JURISDICTION:

5164/01 ASIC v Australian Investors Forum & Ors

[2005] NSWSC 267

~ Index- ~

1

Nature of the proceedings 1

Conduct of the proceedings 3

Applicable legislation 5

The standard of proof 5

Ratification 8

Dramatis personae 11

AIF 11

Mr Anthony 12

Mr Lloyd-Cocks 13

Mr Luvara 15

Mr Shaheen 16

Relevant corporations 17

Arbitrage Trading Pty Ltd 17

Associated Asset Management 17

Australian Capital Forum 17

Australian Equity Forum Pty Ltd 18

AIF Strategic Management Pty Ltd 18

Biotech Securities Ltd 18

Business Franchises Pty Ltd 18

Casabanca Pty Ltd 19

Finance Projects Pty Ltd 19

IT Genius Ltd 19

Medionics Pty Ltd 19

Metrobank Pty Ltd 20

Money Mint Pty Limited 20

Moneytec Investment Management Pty Ltd 20

Mortgage Circuit Pty Ltd 20

Nominee Securities Pty Ltd 21

Sacvere Pty Ltd 21

Sage Global Fund Ltd 21

Suisse Credit Pty Ltd 21

Suisse Credit Inc 22

Swiss Pacific Inc 22

Tax Law Accounting Partnership Pty Ltd 22

Tax Law Accounting Pty Ltd 22

Techlogica Pty Ltd 22

Webfeatures 22

CONTRAVENTION OF DISCLOSURE REQUIREMENTS

23

ASIC’s allegations 23

Mr Lloyd-Cocks’ Defence 24

What is an “offer of securities”? 25

What is “involvement” in a contravention of s.727(1)? 29

Background 32

Mr Lloyd-Cocks’ involvement in AIF’s pre-IPO 34

AIF’s contraventions and Mr Lloyd-Cocks’ involvement 39

Mr P.J. Devey 40

Mr B. Peterson 44

Mr B. Pryor 46

Mr T. Markotic 52

Mr M.P.R. Abell 58

Mr and Mrs D. Conrick 60

Mr P. La Rosa 62

Mr Mahon & Ms Hodda 64

Mr D. Casey

65

Summary 66

CONTRAVENTION OF CONDITIONS OF DEALER’S LICENCE

67

ASIC’s allegations 67

Whether contravention of licence conditions is contravention of the Act 68

The relevant facts 72

Whether AIF contravened licence conditions 76

Whether Mr Lloyd-Cocks involved in contraventions of licence conditions 78

MR ANTHONY’S PARTICIPATION IN MANAGEMENT

80

ASIC’s allegations 80

Mr Anthony’s Defence 82

What is “managing a corporation” within s.206A(1) CA` 82

Whether Mr Anthony’s bankruptcy was avoided ab initio 83

The perceptions of AIF employees 86

Mr Anthony’s dealings with third parties 93

Mr Anthony’s relationship with Messrs Lloyd-Cocks and Luvara 95

Swiss Pacific Inc. 97

Conclusion 102

THE ‘ROUND ROBIN PAYMENTS’

103

ASIC’s allegations 103

The Suisse Credit Inc Agreement 105

The payment to Webfeatures 114

Where the ‘round robin payments’ went 116

Whether contraventions of the Act 119

THE SAGE-TECHLOGICA TRANSACTION

122

ASIC’s allegations 122

The Defences 124

The test in s.210 CA 124

The transaction 126

Summary of the transaction 130

The real reason for the payment 132

Conclusions 135

Whether Sage and Techlogica related parties 136

Whether contravention of related party provisions 140

THE SAGE-AIF MANAGEMENT FEE

141

ASIC’s allegations 141

Defences 142

Whether Sage and AIF related parties 142

How the management fee was calculated 142

Conclusions 145

THE MEDIONICS-OPTUM TRANSACTION

146

ASIC’s allegations 146

The defences 147

The facts 149

Conclusions 152

THE AIF-BIOTECH TRANSACTION

153

ASIC’s allegations 153

The defences 154

The facts 155

Conclusion 157

THE MORTGAGE CIRCUIT-SWISS PACIFIC LOAN

158

ASIC’s allegations 158

The defences 158

Conclusion 158

THE AIF SHARE DILUTION

159

ASIC’s allegations 159

The defences 160

The facts 162

Conclusion 164

THE MEDIONICS SHARE DILUTION

165

ASIC’s allegations 165

Conclusion 166

THE TECHLOGICA SHARE DILUTION

166

ASIC’s allegations 166

Conclusion 167

THE ALLEGED BANKRUPTCY PAYMENTS

167

ASIC’s allegations 167

The facts 168

Conclusion 170

SUMMARY OF CONCLUSIONS

170

Mr Anthony 170

Mr Lloyd-Cocks 172

ORDERS 175

*************************************************************************************

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

PALMER J.

5164/01 ASIC v Australian Investors Forum Pty Ltd & Ors

JUDGMENT
4 April, 2005

INTRODUCTION

Nature of the Proceedings

1    These proceedings were commenced on 24 October 2001 when the Plaintiff (“ASIC”) filed an Originating Process against twenty-eight defendants seeking various declarations and orders under the Corporations Act 2001 (Cth) (“CA”). On the same day ASIC obtained various ex parte interlocutory orders including:


– orders restraining the First Defendant (“AIF”) and the Twenty-Second Defendant (“Moneytec”) from carrying on a securities business;

– orders restraining various corporate defendants from issuing shares;

– Mareva orders against all of the then twenty-eight defendants;

– orders prohibiting the following persons from leaving the jurisdiction, namely, the Second Defendant, Dennis Ralph Anthony (“Mr Anthony”), the Third Defendant, Martin Lloyd-Cocks (“Mr Lloyd-Cocks”), the Fourth Defendant, Dominic Luvara (“Mr Luvara”), the Fifth Defendant, Peter Victor Topperwien (“Mr Topperwien”), and the Sixth Defendant, Bud Shaheen (“Mr Shaheen”);

– orders restraining Mr Anthony from managing a corporation.

2    On 2 November 2001, ASIC procured the appointment of an interim receiver to AIF. On 5 August 2002, AIF was wound up by the Court and Mr A. McIntosh was appointed liquidator. 3    The following corporate defendants have since been wound up or deregistered:
– the Seventh Defendant, Australian Capital Forum Pty Ltd;
– the Eighth Defendant, Medionics Pty Ltd;
– the Eleventh Defendant, Suisse Credit Pty Ltd;
– the Thirteenth Defendant, Nominee Securities Pty Ltd;
– the Fourteenth Defendant, Finance Projects Pty Ltd;
– the Fifteenth Defendant, Money Mint Pty Ltd;
– the Sixteenth Defendant, Casabanca Pty Ltd;
– the Eighteenth Defendant, Webfeatures Pty Ltd;
– the Twenty-first Defendant, IT Genius Pty Ltd;
– the Twenty-fourth Defendant, Australian Equity Forum Pty Ltd;
– the Twenty-fifth Defendant, Tax Law Accounting Pty Ltd;
– the Twenty-sixth Defendant, Tax Law Accounting Partnership Pty Ltd.

4    Prior to the commencement of the trial, settlement was reached with the following Defendants:


– the Seventeenth Defendant – on 1 November 2001, Business Franchises Pty Ltd consented to various orders which culminated in the payment of approximately $500,000 into Court. On 28 April 2003, following a settlement reached, the Liquidator of Casabanca and Sage applied to the Court for orders that approximately $400,000 be paid to Sage and $100,000 be paid to Casabanca, these orders were subsequently made by Justice Austin;

– the Sixth Defendant, Bud Shaheen – in 2002 Mr Shaheen consented to various orders disposing of the proceedings against him;

– the Ninth Defendant, Sage Global Fund Ltd (“Sage”) – which has agreed with the Commission to the making of a declaration that it contravened the “related party” provisions through the payments made by it to:

i) the First Defendant, AIF, of $250,000 on 28 September 2001; and

ii) the Tenth Defendant, Techlogica, of $560,000 on 28 September 2001;

– the Tenth Defendant, Techlogica Pty Ltd (“Techlogica”) which has agreed with the Commission to the making of a declaration that it contravened the “related party” provisions through its receipt of $560,000 from Sage on 28 September 2001 and to orders that it be wound up.

5    Shortly prior to, or shortly after, the commencement of the trial, Mr Luvara and the corporate Defendants associated with him and Mr Topperwien and the corporate Defendants associated with him, consented to the making of various orders against them. 6    As a result of these settlements, ASIC now seeks relief only against:


– Mr Anthony and a company associated with him, the Twenty-third Defendant (“Metrobank”);

– Mr Lloyd-Cocks and a company associated with him, the Nineteenth Defendant (“Sacvere”).

7    During the trial it was agreed by the parties that the matter would proceed in two stages. First, issues of contravention would be determined; second, if any contravention was established, the question of what orders should be made would be determined and the parties could adduce evidence on that issue: see Forge v ASIC [2004] NSWCA 448.


Conduct of the proceedings

8    At the trial, Mr Stack of Counsel appeared for ASIC and Messrs Anthony and Lloyd-Cocks appeared in person for themselves and Metrobank and Sacvere respectively. 9    Mr Anthony was admitted as a solicitor in 1996 but he says that he has never actively practised as a lawyer. Mr Lloyd-Cocks has no legal qualifications. 10    Because the Defendants were legally unrepresented a certain degree of flexibility in procedure in the trial was required. It became evident very early in the trial that a great deal of what Messrs Anthony and Lloyd-Cocks were saying from the Bar Table was really in the nature of evidence. It would have been impossibly inconvenient to require them to go into the witness box to give evidence every time they wished to say something from Bar Table which bore the character of evidence. It would have been equally unrealistic to expect that they would be able to confine everything that they said from Bar Table to submissions and everything that they said in the witness box to evidence. 11    Accordingly, I determined that the most convenient course was to require them to go into the witness box to be cross examined by Mr Stack but that I would regard what they said from the Bar Table which was in the nature of evidence as evidence. Mr Stack had no objection to this course. 12    Other aspects of procedure had to be modified to accommodate lack of representation of the Defendants and the sheer volume of the material being deployed. Because the competing versions of events and explanations put forward by ASIC and by Messrs Anthony and Lloyd-Cocks were, in many cases, quite clearly at odds and were adhered to, I did not see any point in a tedious and formulaic insistence on the rule in Browne v Dunn . 13    I have, however, noted a number of instances where ASIC’s failure to put to Messrs Anthony and Lloyd-Cocks specific allegations of impropriety has been significant.


Applicable legislation

14    Some of the contraventions alleged against the Defendants are said to have occurred prior to 15 July 2001, when the Corporations Act commenced; some of the contraventions are said to have occurred afterwards. Contraventions occurring prior to 15 July 2001 would be contraventions of the Corporations Law , now repealed; those occurring afterwards would be contraventions of the Corporations Act . 15    However, the Corporations Act is “taken to include” those provisions of the Corporations Law which the Defendants are alleged to have contravened: s.1401(2) CA. The parties have, therefore, proceeded on the basis that the applicable statutory provisions are as expressed in the Corporations Act .


Standard of proof

16 ASIC alleges that Messrs Anthony and Lloyd-Cocks have committed contraventions both of civil penalty provisions and non-civil penalty provisions of the Act. Contraventions of both types of provisions are relied upon as the ground for disqualification orders under s.206E CA. ASIC submits that the standard of proof required to establish a contravention of the Act for the purposes of a disqualification order is the civil standard, regardless of whether the contravention is of a civil penalty provision or a non-civil penalty provision. 17 There are a number of decisions which have considered the standard of proof required where a disqualification order sought under s.206C or s.206E CA has been founded upon an alleged contravention, or involvement in an alleged contravention, of a civil penalty provision as defined in Pt 9.4B CA. In such cases it has been held that the standard of proof required to found a declaration of contravention or involvement is the civil standard, not the criminal standard, although the character of the proceedings invokes “requirements for prosecutorial fairness and a standard of proof commensurate with the gravity of the allegations” : Re HIH Insurance Ltd; ASIC v Adler (2002) 41 ACSR 72, at para 1 per Santow J (as his Honour then was). The appropriate standard of proof in such cases is accepted as that stated in Briginshaw v Briginshaw (1938) 60 CLR 336, at 361-2: see e.g. ASIC v Plymin (No 1) (2003) 46 ACSR 126, para 357ff per Mandie J; ASIC v Whitlam (No 2) (2002) 42 ACSR 407, at para 118 per Gzell J. 18 The question arises whether these decisions are applicable to a disqualification order under s.206E founded upon a contravention of the Act which is a criminal offence. The prime example in the present case is the alleged contravention of the disclosure requirements of s.727(1), which is found in Chapter 6D CA. A contravention of the provisions of Chapter 6D is not a contravention of a “civil penalty provision” : s.1317DA, s.1317E. A contravention of s.727(1) is an offence against the Act, the penalty for which is two hundred penalty points or imprisonment for five years, or both: s.1311(1), (3) and Schedule 3. 19 Section 1308A CA provides:
“ Application of Criminal Code
Subject to this Act, Chapter 2 of the Criminal Code applies to all offences against this Act.”
20 Section 13.2(1) of the Criminal Code provides that the burden of proof in a prosecution must be discharged beyond reasonable doubt. 21 On the other hand, s.1332 CA provides:

“ Standard of proof
Where, in proceedings other than proceedings for an offence, it is necessary to establish, or for the Court to be satisfied, for any purpose relating to a matter arising under this Act, that:

(a) a person has contravened a provision of this Act;

(b) default has been made in complying with a provision of this Act;

(c) an act or omission was unlawful by virtue of a provision of this Act; or

(d) a person has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to a contravention, or a default in complying with, a provision of this Act;

it is sufficient if the matter referred to in paragraph (a), (b), (c) or (d) is established, or the Court is so satisfied, as the case may be, on the balance of probabilities.”
22    ASIC has not prosecuted any party “for an offence” , e.g. for a contravention of s.727(1), seeking the criminal punishments provided in the Corporations Act . ASIC’s application for a disqualification order under s.206E, not being a prosecution “for an offence” against the Corporations Act , is not itself a proceeding to which s.1308A CA applies but is a proceeding to which s.1332 CA applies. It follows that the necessary elements for a disqualification order under s.206E do not need to be proved to the criminal standard. 23 In the present case, a disqualification order sought, for example, under s.206E(1)(a)(ii) depends upon a finding that AIF has contravened s.727(1) – a contravention which is made an offence under the Act and to which the heavy criminal sanction of imprisonment is attached -– and upon a finding that a director or officer of AIF has also contravened that section by reason of his knowing involvement in the contravention. As the High Court has held in Rich v ASIC (2004) 50 ACSR 242, a disqualification order under s.206C or s.206E is in the nature of a penalty, so that the privilege against self-incrimination should be afforded to a person defending an application for such an order. The joint judgment in the High Court pointed out that a proceeding under s.206C or s.206E falls into a category which is difficult to classify as either “civil” or “criminal”: paras.29-32. McHugh J observed at para.47 that the contraventions of the Act which give rise to applications for disqualification orders are many and varied but the nature of those contraventions “is little different from those which attract the sanctions of the criminal law” . 24 It seems anomalous that a penalty may be imposed on a person under s.206E(1) for committing a criminal offence unde the CA, yet the offence must be proved to the civil, not the criminal, standard. Anomalous though that requirement may be, it is clearly enjoined by s.1332 CA. 25 In the present case, however, I must bear in mind that the alleged contraventions of the Act relied upon by ASIC in seeking disqualification orders against Messrs Anthony and Lloyd-Cocks are serious and that Messrs Anthony and Lloyd-Cocks would suffer serious consequences and disabilities in the conduct of their business careers if such orders were to be made. I am therefore of the opinion that I should require proof of all necessary elements founding a disqualification order under s.206E(1) to the Briginshaw standard, that is, I should not be satisfied by “inexact proofs, indefinite testimony or indirect inferences” .

Ratification

26    It is convenient to note at the outset that both Messrs Anthony and Lloyd-Cocks repeatedly referred in their submissions to the fact that all of the companies involved in these proceedings, with the exception of Sage Global Fund Limited, were proprietary companies or unlisted public companies the ultimate shareholders of which were the very persons against whom ASIC alleged wrongdoing in these proceedings. These shareholders, it was said, knew and approved of everything done with the property of the companies concerned. 27    Accordingly, Messrs Anthony and Lloyd-Cocks suggested – although not in these precise legal terms – that if the directors of any of the companies, including Messrs Anthony and Lloyd-Cocks, had done anything which would otherwise have contravened any of the provisions of the Corporations Act , those actions had been ratified by the shareholders of the relevant corporations so that no contraventions had been committed which could give rise to the imposition of civil penalty orders in favour of the companies concerned. 28    In short, Messrs Anthony and Lloyd-Cocks submitted that the directors of the corporations concerned, being also the ultimate shareholders of those corporations, were free to do whatever they wished with the property of the corporations. 29    I am unable to accept these submissions. Messrs Anthony and Lloyd-Cocks have not been charged by shareholders of any corporation with breach of common law duties nor with breach of any fiduciary duties as officers of the corporations concerned. The charges which have been brought against them are brought by ASIC and are exclusively founded upon contraventions of provisions of the Corporations Act . The remedies sought are disqualification orders under s.206E and compensation orders under s.1317H and s.1324(10) CA. 30 In Forge v ASIC (supra), McColl JA, with whom Handley and Santow JJA agreed, observed that there had been some difference of judicial opinion in Australia as to whether or not shareholders of a corporation could ratify a contravention by a director of a statutory duty: see Miller v Miller (1995) 16 ACSR 73, at 89 per Santow J (as his Honour then was); Carabelas v Scott (2003) 177 FLR 334; cf. Pascoe Ltd (in liq) v Lucas (1998) 27 ACSR 737, at 772 per Debelle J. 31 At para 381, McColl JA noted a submission of Counsel that the subject proceedings had been brought only to recover civil penalties for the benefit of the injured corporation. Her Honour continued:

“… That was only one of the purposes. Another important purpose of the proceedings was to ensure that officers of a company who contravene corporations legislation in the manner found by the primary judge are barred from having that opportunity again, not only in relation to the company of which they were an officer at the time of the transactions, but also in relation to other companies. In this sense civil penalty proceedings involve public rights. The shareholders cannot remove the declaration of contravention by ratifying the original acts. Once a declaration of contravention is made, the Court is entitled to act upon its finding to grant the relief ASIC seeks.

It is relevant in this context to note that s.1317JA of the Corporations Law empowered the Court to relieve a person from liability where it appeared that the person had or may have contravened a civil penalty provision. Relief was only available where, inter alia, the person had acted honestly. Section 1317JA supports the proposition that contraventions of the civil penalty provisions cannot be ratified by shareholders. The only relief available to escape liability is that for which the legislature provided.

Having regard to the primary judge’s conclusion that each of the appellants had failed to act honestly in relation to the transactions the Court could not have relieved them from their liability for the contraventions pursuant to s 1317JA. In my view this supports Santow J’s approach in Miller v Miller .”
32    Even if it could be proved that the shareholders of every corporation in respect of which a civil penalty order is sought in these proceedings had knowingly consented to the transaction alleged to give rise to a contravention of the Act, nevertheless the judgement of the Court of Appeal in Forge forecloses any argument that the contraventions have thereby been ratified. 33    The circumstances of this case show vividly why breaches of directors’ statutory duties to a corporation are not matters of concern only for the shareholders of the corporation, so that the shareholders themselves may absolve the directors from the consequences which the Corporations Act would otherwise provide. 34    AIF, though a proprietary company, received millions of dollars of the public’s money for investment – a very substantial proportion of which should have been held in trust but was not. AIF incurred liabilities to employees and to others who dealt with it. Its creditors are likely to recover very little from its liquidation. 35    The civil penalty provisions of the Corporations Act enable a company in the position of AIF to recover loss occasioned by the delinquencies of its officers, not just for the benefit of shareholders but also for the benefit of creditors. It is unthinkable that, in a case such as the present, those who, as officers of a corporation, contravened the Act should be entitled, as shareholders, to ratify their own wrongdoing and thereby deprive creditors of remedies which the legislation provides.
Dramatis personae

AIF
36    According to Mr Lloyd-Cocks, AIF was established as a result of discussions between himself and Mr Luvara. Mr Luvara wanted to start his own business using his experience in stockbroking and the connections with his clients. Mr Lloyd-Cocks had experience in the share trading software which he had been marketing. They decided to pool these resources. 37    AIF was registered on 18 May 1999. Mr Luvara was the sole director and Mr Lloyd-Cocks was the secretary. Mr Luvara and Mr Lloyd-Cocks were each issued 1,432,500 ordinary shares in the company, partially paid to one cent; i.e., each invested just under $14,500 in the company. A third shareholder, Diamond Wheels Pty Ltd, was issued with 135,000 ordinary shares, also paid to one cent. Mr Peter Topperwien was appointed a director on 28 June 2001. 38    The life of AIF was short and its rise and fall were swift. According to Mr Lloyd-Cocks, AIF commenced to carry on business from a serviced office in North Sydney. The company’s business grew rapidly. A little over a year later the company moved to a larger set of offices. On 11 July 2000, it obtained a Securities Dealer licence. Fifteen months later a receiver was appointed. 39    The business of AIF seems to have been founded on a share investment club concept. Some two hundred members of the “investment club” paid a fee of $2,500 per annum for the opportunity to participate in what AIF promoted as high profit opportunities for investments in Initial Public Offerings (“IPOs”) in smaller enterprises. AIF received approximately $1.8M from such investors for investment in a total of six IPOs, only two of which achieved listing on the ASX. 40    AIF also offered “corporate finance services” to companies which it identified as potentially suitable for IPOs. For these services AIF received fees and shares in the companies which were to be the subject of IPOs. 41    In addition, AIF sought and received approximately $2.1M from its “clients” for subscription to its own shares on the promise that AIF would achieve listing on the Stock Exchange. AIF never achieved listing. The shares subscribed for were never issued to the subscribers and the subscription monies, to put it neutrally, were used in AIF’s business activities. 42    Between the commencement of AIF’s business in May 1999 and its collapse in October 2001, the company received approximately $7.8M in “membership fees”, corporate finance fees or subscriptions for its own shares or shares in IPOs. Of that sum, a total of approximately $3.2M was paid to entities controlled by Mr Anthony, Mr Lloyd-Cocks and Mr Luvara. Included in this sum were amounts totalling $2.708M paid in April and May 2001 to a company controlled by Mr Anthony, Suisse Credit Pty Ltd, pursuant to a licence agreement between AIF and Suisse Credit Inc, a Panamanian company also controlled by Mr Anthony, whereby Suisse Credit Inc licensed to AIF so-called “unique financial services and products” . As the evidence hereafter discussed reveals, these services and products are, and always were, illusory and worthless. 43    According to the report of the receiver appointed to AIF made to the Court in December 2001, the value of AIF’s tangible assets as at the date of his appointment was less than $400,000,

Mr Anthony

44    Mr Anthony was born in 1949. According to his affidavit evidence he has been a financial adviser by profession for the past twenty years. In 1996 he was admitted as a solicitor and held a Practising Certificate until he went overseas in 1998. He says that he did not carry on practice as a solicitor but was employed by Moneytec, a company of which Mr Topperwien, also a solicitor, was a director. Moneytec held a securities dealer’s licence. 45    Mr Anthony says that he has “designed and developed various financial products” for Colonial Mutual and Friends Provident Life Office. He says that he was employed by Colonial Mutual for a year in 1985 and for two years by Friends Provident Life Office from 1986. He says that he had commenced as a financial planner in about 1982 through a company known as Monitor Money. Before that he says that he had been an economist and town planner. 46 Mr Anthony is presently resident in the Philippines. 47 At all material times, Mr Anthony controlled the Twelfth Defendant, Swiss Pacific Inc (“Swiss Pacific”), a company incorporated in the Philippines. He was a director and secretary of Moneytec from 19 September 1988 to 1 March 2000, a director of Metrobank from 17 November 1983 and a secretary of that company from 19 July 2000. At all material times he also controlled Suisse Credit Inc, a company incorporated in Panama, and Dive Asia Inc, a company incorporated in the Philippines. 48 Mr Anthony was made bankrupt by a sequestration order of the Federal Court of Australia on 4 February 1999. On 14 March 2002, the bankruptcy was annulled pursuant to s.153A(1) Bankruptcy Act 1966 (Cth) upon payment of the debts proved in the bankruptcy. ASIC alleges that the monies for payment of these debts were improperly procured by Mr Anthony from funds ultimately coming from AIF. I will return to this allegation in due course. 49 For reasons which I will give in the course of examining Mr Anthony’s evidence, I am, in general, unable to accept Mr Anthony as a witness of credit. I cannot accept anything he says unless it is corroborated by unimpeachable evidence or is inherently probable.

Mr Lloyd-Cocks

50 Mr Lloyd-Cocks was born in 1959. According to his evidence, in 1981 he obtained a degree in business administration from the Ku-ring-gai College of Advanced Education. He was employed as a currency dealer from 1983 until 1987 and was employed by Rivkin James Capel in the equities market as a junior trader until about 1988. He then carried on business in a small way through his own company, importing raw commodities. 51 That business was sold in about 1994 or 1995. Mr Lloyd-Cocks was then employed for two years in developing software to assist small investors in trading shares in the stock market. In 1997 he went to Hong Kong and he conducted his own business selling software products. The venture was, apparently, unsuccessful and he returned to Australia in 1998. In 1999, he and Mr Luvara established AIF. Mr Lloyd-Cocks was a secretary of AIF from the date of its incorporation on 18 May 1999. 52 ASIC records do not show Mr Lloyd-Cocks as having been appointed a director of AIF. Clearly, Mr Lloyd-Cocks, as the secretary of AIF, was an officer of the company for the purpose of the relief sought against him by ASIC in these proceedings. ASIC contends, however, that Mr Lloyd-Cocks was at all material times a director, as defined by s.9 CA, in that although not validly appointed as such he acted in the position of a director. 53 I am satisfied that Mr Lloyd-Cocks did, in fact, act in the position of a director of AIF. Indeed, he did not seriously dispute the allegation. Quite apart from the evidence given by other employees of AIF as to the control which Mr Lloyd-Cocks exercised, the affidavits of Mr Lloyd-Cocks make it quite clear that he and Mr Luvara regarded themselves, and were treated by AIF’s employees, as jointly in control of all aspects of AIF’s business. To take a few amongst very many examples, Mr Lloyd-Cocks circulated in April 2001 an “Advisor Manual” to employees of AIF under a covering letter signed by him over the description “Director” of AIF; on 3 September 2001 he signed as a co-director with Mr Luvara the accounts and financial report of AIF for the year ended 30 June 2001. 54 Mr Lloyd-Cocks was also:
a director and secretary of Australian Capital Forum from 16 February 2001;
a director of Sage from 8 August 2001;
a director and secretary of Sacvere from 14 April 2000;
a director and secretary of IT Genius from 23 November 1999;
a director of Biotech from 9 May 2001;
a director of Mortgage Circuit from 15 May 2001; and
a director of AIF Strategic Management from 23 December 1999, and secretary of that company from 18 September 2000.


Mr Luvara

55    There is little direct evidence about Mr Luvara’s background. The proceedings against him were compromised during the trial before he gave any evidence. Accordingly, the evidence about Mr Luvara’s background comes from other witnesses, principally from Mr Lloyd-Cocks. 56    Mr Luvara was born in 1962. Mr Lloyd-Cocks first met Mr Luvara in 1998. Mr Luvara was then working as an employee in retail stockbroking in a stockbroker’s office. Mr Anthony first met Mr Luvara in 1993 in the same context. By 1998, according to Mr Lloyd-Cocks, Mr Luvara had about ten years’ experience in stockbroking. The evidence does not suggest that Mr Luvara had been a principal of any stockbroking firm. 57    Mr Luvara was:
a director of AIF from 18 May 1999;
a director of Australian Capital Forum from 16 February 2001;
a director of Sage from 17 September 2001;
a director of Suisse Credit Pty Ltd from 19 June 2001;
a director of Casabanca from 28 May 2001;
a director and secretary of Associated Asset from 12 March 1997;
a director of IT Genius from 23 November 1999 to 16 March 2000 and from 1 August 2001;
a director and secretary of Biotech from 9 May 2001; and
a director of AIF Strategic Management from 23 December 1999.


Mr Shaheen

58    Mr Shaheen commenced employment with AIF in March 2000. He was then twenty-two years of age. Since leaving school in 1995 the only employment in which he had engaged had been physical work on his family’s orchard and some casual work as a clerk, on four or five occasions, with an income tax agency. Mr Shaheen’s job description when he went to work at AIF was “general office duties” . 59    In January 2001, Mr Shaheen was promoted to accounts clerk. His duties included preparing cheques, handling accounts receivable and accounts payable and computer support. 60    Between January and October 2001 (when AIF was placed in receivership), Mr Shaheen received instructions from Mr Anthony to arrange for the incorporation of over seventy companies, the names and shareholders of which were given to him by Mr Anthony. Mr Shaheen was instructed to arrange that he himself was to be the sole director and secretary for the substantial majority of these companies. Mr Anthony was, in many cases, a signatory to the bank account for these companies. In other cases, Messrs Lloyd-Cocks and Luvara were signatories. Mr Shaheen transferred money to and from the accounts for these companies and to and from AIF on the instructions of Mr Anthony, Mr Lloyd-Cocks and Mr Luvara. 61    Mr Anthony told Mr Shaheen that Mr Shaheen should be the sole director and secretary of the companies which he incorporated “for ease of administration” until the companies began to trade, at which time he would be replaced by other directors. However, many of the companies engaged in substantial financial transactions with AIF or related companies while Mr Shaheen was still sole director. In respect of those transactions Mr Shaheen always acted in accordance with Mr Anthony’s directions; he himself was not involved in the management of these companies’ affairs in any way. When Mr Anthony requested him to resign as a director of any company, he complied without question. He never had any financial interest in any of the companies and received no extra remuneration for his role as director. 62    Mr Shaheen’s credit was not challenged by Messrs Anthony and Lloyd-Cocks. His evidence was given carefully and it was inherently probable. I accept Mr Shaheen as a reliable witness.
Relevant corporations

Arbitrage Trading Pty Ltd (“Arbitrage”)
63    Arbitrage was incorporated on 22 January 1981. Mr Peter Topperwien was the sole director of Arbitrage from 22 January 1981 and a secretary from 1 September 1988. Arbitrage’s sole shareholder at relevant times was Mr Peter Topperwien.

Associated Asset Management Pty Ltd (“Associated Asset Management”)

64    Associated Asset Management was incorporated on 3 March 1997. Mr Luvara was the sole director, secretary and shareholder of Associated Asset Management from 12 March 1997 until 18 March 2002.

Australian Capital Forum Pty Limited (“ACF”)

65    ACF was incorporated on 23 January 2001 with Mr Shaheen appointed as sole director and company secretary until the 16 February 2001. In accordance with Mr Anthony’s directions, Mr Shaheen opened a bank account for ACF with Messrs Luvara and Lloyd-Cocks as signatories. Mr Lloyd-Cocks and Mr Luvara were appointed directors on 16 February 2001 in place of Mr Shaheen who resigned at Mr Anthony’s request. Mr Lloyd-Cocks was appointed company secretary on the same day.

Australian Equity Forum Pty Ltd (“AEF”)

66    AEF was incorporated on 19 January 2001. Mr Shaheen was appointed sole director and company secretary the same day. The company went into receivership on 2 November 2001 and a liquidator was appointed on 11 June 2002.

AIF Strategic Management Pty Ltd (“Strategic Management”)

67    Strategic Management was incorporated on 23 December 1999. Mr Lloyd-Cocks was appointed a director from 23 December 1999 until 15 February 2002 and was company secretary from 18 September 2000 until 15 December 2002. Mr Luvara was also appointed director on 23 December 1999 and ceased to hold the position on 15 December 2002. Mr de Zylva was appointed director and company secretary on 23 December 1999 and ceased to hold these positions on 18 September 2000. Strategic Management’s shares were held by Mr Lloyd-Cocks (425 shares), Mr de Zylva (150 shares) and Mr Luvara (425 shares).

Biotech Securities Ltd (“Biotech”)

68    Biotech was incorporated on 9 May 2001 with Messrs Lloyd-Cocks, Luvara and David McDonald as directors and Mr Luvara as secretary. The evidence does not show who were the shareholders. Mr Faroungas was appointed a director on 19 September 2001 in place of Mr McDonald, who resigned. Messrs Lloyd-Cocks and Luvara resigned as directors on 2 October 2001.

Business Franchises Pty Ltd (“Business Franchises”)

69    Business Franchises was incorporated on 14 January 1992. Mr Anthony Bonvino, appointed on 10 May 1993, and Ms Maria Bonvino, appointed on 30 June 1994, are Business Franchises’ current directors. Business Franchises had a number of previous directors. Mr Anthony was appointed director on 14 January 1992 and ceased to hold the office on 30 June 1994. Business Franchises’ current shareholders are Ms Joyce Ethel Ralph (1 share), Mr Anthony (100 shares), and Ms Bonvino (51,490 shares). Previously, Memken Pty Ltd held 51,300 shares, Swiss Pacific Pty Ltd held 190 shares, Money Mint held 500,000 shares and Mr Ian Jones held 1 share.

Casabanca Pty Ltd (“Casabanca”)

70    Casabanca was incorporated on 16 February 2001 with Mr Shaheen as sole director and secretary. Mr Luvara was appointed director on 28 May 2001. A receiver was appointed on 2 November 2001.

Finance Projects Pty Ltd (“Finance Projects”)

71    Finance Projects was incorporated on 6 February 2001 with Mr Shaheen as sole director and company secretary. A receiver was appointed on 2 November 2001 and a liquidator appointed on 21 June 2002.

IT Genius Ltd (“IT Genius”)

72    IT Genius was incorporated on 18 November 1999. Mr Luvara and Mr David Haylock were appointed directors on 1 August 2001 and Mr Lloyd-Cocks was appointed to the position on 23 November 1999. IT Genius has had eight previous Directors. Relevantly, Mr Shaheen was appointed as a director on 12 June 2001 and ceased to hold office on 1 August 2001. Mr Luvara was appointed director on 23 November 1999 and ceased to hold office on 16 March 2000. A receiver was appointed on 2 November 2001 and a Liquidator appointed on 8 July 2002. IT Genius’ shareholders are Mr Lloyd-Cocks (13,000,000 shares), Mr Luvara (13,000,000 shares) and Ms Lyn Price (13,000,000 shares).

Medionics Pty Ltd (“Medionics”)

73    Medionics was incorporated on 22 March 2001 on the instructions of Mr Anthony with Mr Shaheen as sole director. Mr Topperwien was appointed director on 13 July 2001.

Metrobank Pty Ltd (“Metrobank”)

74    Metrobank was incorporated on 17 November 1983. Mr Anthony was appointed as a director on 17 November 1983 and as company secretary on 19 July 1990. Metrobank has had five previous directors. Relevantly, Mr Topperwien was appointed director on 25 November 1997 and ceased to hold the position on 5 March 1999. He also held the position of company secretary from 25 November 1997. A receiver was appointed on 2 November 2001. Metrobank’s shares were held by Ms Ralph (1 share), Mr Anthony (40 shares) and one other.

Money Mint Pty Limited (“Money Mint”)

75    Money Mint was incorporated on 23 January 2001 at Mr Anthony’s direction. Mr Shaheen was the sole director and company secretary from that date until 20 June 2001 when, at Mr Anthony’s direction, he appointed Mr Alexander Walker as director and company secretary and then resigned. Mr Anthony also directed Mr Shaheen to open a bank account for the company with himself and Mr Lloyd-Cocks as signatories. A receiver was appointed on 2 November 2001. Swiss Pacific was the sole shareholder.

Moneytec Investment Management Pty Ltd (“Moneytec”)

76    Moneytec was incorporated on 14 July 1988. Mr Peter Topperwien has been a director since 23 September 1993 and company secretary since 26 November 2002. Moneytec has had eight previous directors. Relevantly, Mr Anthony was appointed director and company secretary on 19 September 1988 and held these positions until March 2000.

Mortgage Circuit Pty Ltd (“Mortgage Circuit”)

77    Mortgage Circuit was incorporated on 1 February 2001 with Mr Peter Topperwien and one Maria Carda as directors. Mr Lloyd-Cocks and Ms B. Ford were appointed as directors on 15 May 2001 in place of Ms Carda. The shareholders were Moneytec, AIF and Path Properties Pty Ltd.

Nominee Securities Pty Ltd (“Nominee Securities”)

78    Nominee Securities was incorporated on 8 March 2001 with Mr Shaheen as sole director until 14 June 2002. A receiver was appointed on 2 November 2001 and a Liquidator appointed on 11 June 2002.

Sacvere Pty Ltd (“Sacvere”)

79    Sacvere was incorporated on 14 March 2000. Mr Lloyd-Cocks was appointed sole Director and company secretary on 14 April 2000. Mr Lloyd-Cocks was the sole shareholder.

Sage Global Fund Ltd (“Sage”)

80    Sage, now known as Praetorian Capital Limited, was incorporated on 10 April 2000. Sage has had eight previous directors. Relevantly, Mr Lloyd Cocks was appointed as a director on 8 August 2001, Mr Luvara was appointed as a director on 17 September 2001 and Mr Peter Topperwien was appointed director on 17 September 2001. Mr Eddie Lee and Mr Dennis Faroungas were appointed secretaries on 17 September 2001.

Suisse Credit Pty Ltd (“Suisse Credit P/L”)

81    Suisse Credit P/L was incorporated on 29 March 2001 on Mr Anthony’s instructions, with Mr Shaheen as sole director and company secretary. Mr Luvara was appointed director and company secretary on 19 June 2001 in substitution for Mr Shaheen. A receiver was appointed on 2 November 2001 and a liquidator appointed on 8 July 2002. The evidence does not show who the shareholders were but Mr Anthony conceded in cross examination that the company was controlled by Swiss Pacific Inc.

Suisse Credit Inc (“Suisse Credit Inc”)

82    Suisse Credit Inc was incorporated in Panama on 10 April 2001. Its directors were nominees of Mr Anthony and the company was controlled entirely by him. Further particulars of the company are set out in paragraphs 404 and 405.

Swiss Pacific Inc (“Swiss Pacific”)

83    Swiss Pacific was incorporated in the Philippines. It was controlled entirely by Mr Anthony. Further particulars of the company and of the use to which it was put by Mr Anthony in his dealings with AIF are given in paragraphs 372 to 382.

Tax Law Accounting Partnership Pty Ltd (“Tax Law Accounting Partnership”)
84    Tax Law Accounting Partnership was incorporated on 19 January 2001 on Mr Anthony’s instructions, with Mr Shaheen as director and company secretary.

Tax Law Accounting Pty Ltd (“Tax Law Accounting”)

85    Tax Law Accounting was incorporated on 19 January 2001 on Mr Anthony’s instructions, with Mr Shaheen as sole director and company secretary. A receiver was appointed on 2 November 2001. A liquidator was appointed on 11 June 2002.

Techlogica Pty Ltd (“Techlogica”)

86    Techlogica was incorporated on 8 June 2001 on Mr Anthony’s instructions, with Mr Shaheen as sole director and company secretary.

Webfeatures Pty Ltd (“Webfeatures”)

87    Webfeatures was incorporated on 6 February 2001 on Mr Anthony’s instructions, with Mr Shaheen as sole director and company secretary.
CONTRAVENTION OF DISCLOSURE REQUIREMENTS

ASIC’s allegations

88 ASIC seeks a disqualification order against Mr Lloyd-Cocks under s.206E CA by reason of Mr Lloyd-Cocks’ alleged role as a director or officer of AIF on occasions when AIF is alleged to have contravened the disclosure requirements of s.727(1) CA.

89 Section 206E provides:

“ Court power of disqualification – repeated contraventions of Act
(1) On application by ASIC, the Court may disqualify a person from managing corporations for the period that the Court considers appropriate if:

(a) the person:

(i) has at least twice been an officer of a body corporate that has contravened this Act while they were an officer of the body corporate and each time the person has failed to take reasonable steps to prevent the contravention; or

(ii) has at least twice contravened this Act while they were an officer of a body corporate; or

(iii) has been an officer of a body corporate and has done something that would have contravened subsection 180(1) or section 181 if the body corporate had been a corporation; and

(b) the Court is satisfied that the disqualification is justified.

(2) In determining whether the disqualification is justified, the Court may have regard to:

(a) the person's conduct in relation to the management, business or property of any corporation; and

(b) any other matters that the Court considers appropriate.”
90 ASIC alleges that between about March and October 2001 AIF, in breach of s.727(1) CA, invited people to subscribe for shares and share options in itself on the promise that AIF would be listed on the Australian Stock Exchange (“ASX”) in about October 2001 (“the AIF pre-IPO”). The invitations elicited subscriptions totalling just over $2.166 million. 91 Section 727(1) CA provides:
“ Offer of securities needs lodged disclosure document
(1) A person must not make an offer of securities, or distribute an application form for an offer of securities, that needs disclosure to investors under Part 6D.2 unless a disclosure document for the offer has been lodged with ASIC.”
92 It is not disputed that no disclosure document was lodged by AIF with ASIC or provided to persons who subscribed for shares in AIF. ASIC alleges that AIF contravened s.727(1) and that Mr Lloyd-Cocks was involved in that contravention, within the meaning of s.79 CA, so that Mr Lloyd-Cocks himself contravened the Corporations Act for the purposes of s.206E(1)(a)(ii). Alternatively, ASIC says that Mr Lloyd-Cocks failed to take reasonable steps to prevent contraventions, within the meaning and for the purposes of s.206E(1)(a)(i). If either case is proved, ASIC says, a disqualification order under s.206E is warranted.


Mr Lloyd-Cocks’ Defence

93 Mr Lloyd-Cocks says that AIF was not required to lodge a disclosure statement with respect to the invitation to subscribe for shares and options in AIF. He relies on s.706 CA and s.708(10) CA, which are in the following terms. Section 706 provides:
“An offer of securities for issue needs disclosure to investors under this Part unless section 708 says otherwise.”

Section 708(10) relevantly provides:

“An offer of a body's securities does not need disclosure to investors under this Part if:

(a) the offer is made through a financial services licensee; and

(b) the licensee is satisfied on reasonable grounds that the person to whom the offer is made has previous experience in investing in securities that allows them to assess:

(i) the merits of the offer; and

(ii) the value of the securities; and

(iii) the risks involved in accepting the offer; and

(iv) their own information needs; and

(v) the adequacy of the information given by the person making the offer; and

(c) the licensee gives the person before, or at the time when, the offer is made a written statement of the licensee's reasons for being satisfied as to those matters; and

(d) the person to whom the offer is made signs a written acknowledgment before, or at the time when, the offer is made that the licensee has not given the person a disclosure document under this Part in relation to the offer.”
94    Mr Lloyd-Cocks says that the requirements of s.708(10) were satisfied in the case of every offer of securities in the AIF pre-IPO. In the alternative, he says that if they were not satisfied, he was not involved in any contravention because it was Mr Luvara alone who was responsible for the process of listing AIF on the ASX and further, in any event, he relied upon others within AIF to ensure that the requirements of s.708(10) were met, as he was entitled to do.


What is an “offer of securities”?

95 Section 727(1) applies to the making of “an offer of securities” or the distribution of “an application form for an offer of securities” . Whether and when an application form is distributed is a fact readily ascertainable. When any other “offer” is made may not be so clear. The time at which an “offer” is made is important because if the exception to s.727(1) provided by s.708(10) is to apply, a statement under s.708(10)(c) and a written acknowledgement under (d) must be given “before, or at the time when, the offer is made” . Observing the procedures required by subparagraphs (c) and (d) after an offer is made, even if before the offer is accepted, is too late. 96    The term “offer of securities” is given no core definition in the Corporations Act . Sections 700(2) and (3) provide:

“ Offers and invitations both covered
(2) For the purposes of this Chapter:

(a) offering securities for issue includes inviting applications for the issue of the securities; and

(b) offering securities for sale includes inviting offers to purchase the securities.

Person offering securities
(3) For the purposes of this Chapter, the person who offers securities is the person who has the capacity, or who agrees, to issue or transfer the securities if the offer is accepted.”

These subsections merely say what is included in the phrase “an offer of securities” , which suggests that the meaning of that phrase is not limited to the inclusions specified. The meaning of “an offer of securities” must be ascertained from its ordinary usage in the context of the legislation and its purpose.

97 Section 700(2) makes it clear that the distinction between “offer” and “invitation to treat” which is drawn in the classical theory of contract formation is not to be slavishly applied in determining whether an offer requiring disclosure under Chapter 6D has been made. Not every casual or imprecise intimation that securities may be acquired would constitute an offer within the disclosure provisions and yet it could not be the case that the disclosure provisions are not attracted until the moment when the potential investor is confronted with an application form or with some other document containing all of the terms of a contract, so that mere assent is capable of bringing a binding contract into existence. Many investors would have made up their minds about whether to take up securities well before they are confronted either with the application form or with some document containing all of the terms of a contract. 98 It seems to me that in determining at what point of time an offer has been made for the purposes of s.727(1) and s.708(10) CA one has to apply a degree of pragmatism and common sense. The information conveyed to a potential investor need not contain all of the terms of a contract of subscription or transfer but the information must be sufficient to identify the essential terms of the proposed investment and must convey that the investor may act on that information if desired. 99 The circumstances in which particular offers of securities are made for the purposes of s.727(1) and s.708(10) will vary infinitely but the indicia of the making of such an offer will generally include:


i) identification of the company in which the securities are offered;

ii) what is the general nature of the securities offered;

iii) the price for which the securities may be acquired;

iv) the suggestion that the securities are available for acquisition by the person to whom the information is conveyed;

v) the suggestion that the securities may be acquired now, or at some specified future time, by the requisite payment.

100 It does not matter for the purposes of paragraph (iv) above that the offeree is required to perform some other condition, such as joining an investment club, before being entitled to take up the offer. What is important is that the ability to accept the offer is put into the hands of the offeree. 101 However, if it is apparent from the terms of the communication that the securities may be acquired only by a certain category of person, e.g. existing shareholders of a corporation, then providing the information to a person who does not meet that qualification does not, without more, constitute an offer prohibited by s.727(1). Merely to inform a person that securities may be acquired, but not by that person, is not to make an offer of securities to that person. It is nothing more than providing that person with information. 102 The indicia of an offer of securities to which I have referred above need not appear in the one document or oral communication. Some pieces of information may be given later than others. A potential investor might receive several pieces of information from different persons within, or on behalf of, the offeror corporation. So, for example, the investor may be informed on one occasion by Ms A: “X Co will be listed on the ASX some time this year, if you’re interested”. An offer for the purposes of s.708(10) will not have been made at this stage; all that is being conveyed is general information. 103 Later, the investor might be told by Mr B: “X Co will be issuing shares and options. I’ll let you have more details shortly.” Again, no more than information is being conveyed at this stage. 104 Later, the investor might be told by Ms C: “The subscription price for those shares will be 20¢ each and 5¢ each for the options.” Likewise, no more than information is conveyed at this stage. 105 Finally, the investor might be told by Mr D: “Those shares and options Ms C told you about are now being issued. Subscriptions open next week. Let me know how many you want and I’ll put you down for them. You’ll have to send me a cheque within seven days.” At this stage, all of the information previously given will have crystallised to result in an offer to the investor for the purposes of s.727(1) and s.708(10). 106 There will be some cases in which the offeror attempts, by the use of wording in a document, to make an offer of securities in terms which leave room for argument that, in law, it is not an offer of securities within the reach of the Act. However, no one can contract out of the requirements of Chapter 6D: s.703 CA. To convey all of the indicia of an offer of securities while stating “This is not an offer of securities” is as effective as hanging a sign on an elephant saying “Despite appearances, this is really a duck”. 107 Again, it may be the case that an offer is made stating on its face that it is open for acceptance only by a certain category of persons, e.g. those who satisfy the requirements of s.708(10), yet there may be evidence upon which it may be concluded that the offeror never intended to enforce that qualification but, rather, was prepared to accept investment from anyone with the ability to pay. In such a case, the offer is, despite its wording, an immediate offer of securities within the provisions of s.727(1).


What is “involvement” in a contravention of s.727(1)?

108 Section 206E(1)(a)(ii) enables a disqualification order to be made if the person “has twice contravened this Act while they were an officer of a body corporate” . The section does not expressly extend to the case in which an officer has been “involved in a contravention” of the Act. 109    There is a distinction between “contravention” and being “involved in a contravention” of the Act, as was pointed out by Davies AJ in ASIC v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561, at para 48ff. Being “involved in a contravention” is defined by s.79 of the Act as follows:

“ Involvement in contraventions
A person is involved in a contravention if, and only if, the person:

(a) has aided, abetted, counselled or procured the contravention; or

(b) has induced, whether by threats or promises or otherwise, the contravention; or

(c) has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or

(d) has conspired with others to effect the contravention.”

As Davies AJ pointed out at paragraph 50: “s.79 does not provide that the person who is comprehended by its provisions is to be treated as a person who contravened the Act” .

110    However, s.83 of the Act provides:
“ Officers, and other persons, in default
A reference, in relation to a contravention, to an officer of a body corporate, or to a person, who is in default is a reference to an officer of the body (including a person who later ceases to be such an officer), or to a person, as the case may be, who is involved in the contravention.”
111 Clearly, the reference in s.206E(1)(a)(ii) to an officer of a body corporate who has contravened the Act extends, under s.83, to an officer who is involved in a contravention, within the meaning of s.79. 112 In ASIC v Adler (supra) at para 209, Santow J (as he then was) summarised the authorities as to the meaning of being “involved” in a contravention as requiring that the person know of the actual events, though only the essential ones, which constitute the contravention. Knowledge may be inferred from the fact that the person is exposed to the obvious, but that is not to say that constructive knowledge of any of the essential facts is sufficient. Actual knowledge is always required although, as Burchett J pointed out in Richardson & Wrench (Holdings) Pty Ltd v Ligon No 174 Pty Ltd (1994) 123 ALR 681, at 693-4, a person’s actual knowledge may have been reduced to a minimum by the person’s wilful act in choosing to be informed only of the barest essentials in order to avoid being implicated in some wrongdoing. These propositions were approved by the Court of Appeal in Forge v ASIC (supra) at para 202 (per McColl JA, Handley and Santow JJA agreeing). 113 The question then arises: at what point of time must a person have knowledge of the essential facts constituting a contravention? More particularly for the purposes of this case, can a person be “involved” in a contravention if he acquires knowledge of one or more of the essential facts constituting the contravention after the contravention has already occurred? 114 Where an offer of securities is not exempted from compliance with the disclosure requirement of Pt 6D.2 CA, contravention of s.727(1) occurs at the time that the offer of securities is made. In my opinion, involvement of a person in such a contravention requires that such involvement must occur prior to, or in the course of commission, of the contravention. The fact that a person comes to know of the essential facts constituting the contravention only after the contravention has occurred and is complete does not constitute involvement within the meaning of s.79 CA. 115 This conclusion flows from the definition of “involvement” in s.79. Paragraph (a) refers to “aiding, abetting, counselling or procuring” a contravention – terms which are well understood in the common law. The words “aiding” and “abetting” do not have separate meanings. They are synonymous and are used to describe the action of a person who is present at the time of the commission of an offence and takes some part therein – often called “a principal in the second degree” . Likewise, “counsel and procure” are synonymous terms and describe the actions of a person who, although not present at the commission of the offence, is an accessory before the fact. Acquiring knowledge of an offence after its commission and failing to take the appropriate action is not “aiding, abetting, counselling or procuring” in the common law: Ferguson v Weaving [1951] 1 KB 814, at 818-819 per Lord Goddard CJ; Giorgianni v R (1985) 58 ALR 641, at 646 per Gibbs CJ; R v Mato [1999] NSWCCA 395. 116 The words “aiding, abetting, counselling or procuring” have the same meaning in s.79 CA as they have in the common law: cf. Yorke v Lucas (1985) 158 CLR 661, at 668. 117 The words of the other paragraphs of s.79 add nothing to paragraph (a) – indeed, they seem to be no more than a re-statement of the common law definitions of aiding, abetting, counselling and procuring. Section 79(b) refers to inducing a contravention: clearly, this means encouraging or bringing about the commission of a contravention before it occurs, i.e., being an accessory before the fact. Section 79(c) refers to being concerned in, or party to the contravention, i.e. being engaged in some way in the acts which result in the contravention, as they occur, either as a principal in the first degree or a principal in the second degree. Section 79(d) refers to conspiring to effect the contravention, i.e., agreeing with another to do something to bring about the contravention as an accessory before the fact. 118 None of the paragraphs in s.79 permit of a construction which encompasses within “involvement” doing something after the contravention has already been committed and is complete, even if what is later done is to conceal, ratify or knowingly derive benefit from the contravention.

Background

119    ASIC has tendered records of AIF which show the names of persons who invested in what has been termed the “AIF pre-IPO” (i.e. “pre-Initial Public Offering”). The records also show that the amounts raised from the AIF pre-IPO total $2,166,724. 120    Mr Lloyd-Cocks agreed that no shares or options in AIF were ever issued to the pre-IPO investors and that AIF was never listed on the ASX. He also conceded that the pre-IPO subscription monies were expended by AIF in “investments” of AIF, even though no shares in AIF, let alone shares listed on the ASX, had been issued to the investors. The nature of the “investments” is discussed in detail later in the sections dealing with specific transactions into which AIF entered. 121    Mr Lloyd-Cocks gave evidence that, in deciding that the pre-IPO subscription monies be allocated to investments, he believed it did not really matter whether the pre-IPO investors received shares in AIF which were listed on the ASX; he believed that it was “significant that they got shares” . 122    Mr Lloyd-Cocks said that although the pre-IPO investors never received any shares at all in any company nevertheless AIF did issue shares “to reflect the AIF shareholding” of those investors. He said that the shares were issued by AIF to Nominee Securities Pty Ltd (“Nominee Securities”), a company controlled by Mr Anthony, Mr Lloyd-Cocks and Mr Luvara through Mr Shaheen: see “The AIF Share Dilution”, infra. 123    Mr Lloyd-Cocks said that AIF had received advice from two reputable firms of solicitors that, having received the pre-IPO subscription monies, it was proper for AIF to issue the relevant shares, not to the pre-IPO investors themselves, but to another company, i.e. Nominee Securities. He produced no written advice to this effect. When pressed, Mr Lloyd-Cocks identified only one solicitor who was said to have given this advice. Further, he conceded that he did not speak to that solicitor but he said that he was led to believe in discussions with Mr Luvara and Mr Appleby, another employee of AIF, that such a transaction was “permissible given that AIF was looking at restructuring significantly before listing” . 124 I find it inherently improbable that any solicitor could have given advice to the effect that money received by AIF as subscriptions for shares to be listed on the ASX could properly be dealt with by AIF in any way at all, for its own benefit, prior to the issue and listing of the shares, unless there was a clear and express agreement between AIF and the investors to that effect. There was no such agreement. Likewise, I find it inherently improbable that any solicitor could have given advice that, absent an express agreement, the rights and entitlements of the pre-IPO investors could be satisfied by the issue of shares, not to the investors themselves, but to a company in which those investors had no interest. Again, there was no such agreement. 125 Mr Luvara has not given evidence because the proceedings against him were compromised. Mr Appleby gave evidence on affidavit and the transcript of his examination under s.19 of the Australian Securities and Investments Commission Act 2001 (Cth) ( “ASIC Act ”) was admitted. He was cross examined by Mr Lloyd-Cocks. Mr Appleby said nothing in any of his evidence about giving advice to Mr Lloyd-Cocks as to the disposition of money received from pre-IPO subscribers. If such advice was indeed given to Mr Lloyd-Cocks by Mr Appleby or Mr Luvara, unsupported by a legal opinion in writing, it is difficult to understand how any honest and competent director, let alone a person said to be experienced in the equities market and stock exchange dealings as Mr Lloyd-Cocks claims to be, could have accepted it and acted upon it. 126    Mr Lloyd-Cocks was prepared to attribute a glaringly erroneous legal opinion to two firms of solicitors; he then retreated to an assertion that he was “led to believe” by Mr Luvara and Mr Appleby that dealing with the subscription monies in the way which he proposed was proper. There was no evidence to support either of these assertions and I regard both of them as inherently improbable. The fact that Mr Lloyd-Cocks was prepared to make such assertions reflects adversely on his credit.


Mr Lloyd-Cocks’ involvement in AIF’s pre-IPO

127 In support of the submissions that Mr Lloyd-Cocks had actual knowledge of the material factual ingredients of AIF’s proved contraventions of s.727(1), ASIC points to the following background facts and circumstances. 128 A letter dated 12 March 2001 from Mr Lloyd-Cocks to Messrs Ebsworth & Ebsworth shows that Mr Lloyd-Cocks had had at least two discussions with Mr L. Crepaldi of that firm about listing AIF and the procedures for raising money from investors. In the course of that letter Mr Lloyd-Cocks said:

“Obviously we understand that these types of investments should only be directed towards sophisticated investors, or those investors that are experienced.

With this in mind we currently have clients complete a comprehensive data sheet aimed to determine the appropriateness of these kinds of investments against their financial position.

We also suggest that clients have a financial plan done to better tune the dollar amount that should go into these investments.

What we are now looking at doing is really fine tune our paperwork to take into consideration the changing views ASIC now have on fundraising – who can participate, what kind of experience do they need, the certification by a qualified accountant to determine income and assets, dealer statements certifying sufficient experience, Section 708, section 710 etc.

You may be familiar with what we are currently using:
This offer is restricted to those investors under section 708 of the Corporations Law, who either qualify as a Sophisticated Investor under section 708(10) of the Corporations Law, or can provide a statement from a licensed dealer under section 708(10), certifying that the dealer (through whom the offer would be made) is satisfied that the investor has sufficient experience in investing in securities to allow them to assess the merits, value and risks associated with, and the level of disclosure required for, the investment.

This is only a temporary measure that needs supporting documents from accountants, dealers etc.

Once we have a suitable document and put in place our processes we can then address ASIC policy statement PS158 regarding the advertising and publicity for offers of securities. It is important that when we have opportunities that these clients can participate in we offer it to them within the new guidelines.

I am looking to have our documents and procedures very tight. Leave it up to you.”
129 A file note of Mr Crepaldi dated 26 March 2001 shows that he had a lengthy conference on that day with Mr Lloyd-Cocks in which Mr Crepaldi gave careful and accurate advice about the requirements of s.708 and about what should be done by AIF to ensure that those requirements were fulfilled. This advice was given in amplification of the advice contained in a letter which had been sent by Ebsworth & Ebsworth to Mr Lloyd-Cocks earlier the same day. 130 At first in his cross examination Mr Lloyd-Cocks was at pains to stress that he had little experience in the fund-raising provisions of the Corporations Law (as it then was) and that others in AIF had consulted Ebsworth & Ebsworth as to compliance with s.708(10). He said that he simply implemented what Mr Luvara and Mr Appleby told him Ebsworths had advised. When pressed, Mr Lloyd-Cocks began to concede more and more personal involvement with Ebsworths in obtaining and implementing advice about compliance with s.708(10). 131    Eventually Mr Lloyd-Cocks conceded that by March 2001 he was familiar with the requirements of s.708(10) and the relevant policy statements issued by ASIC. Finally, he conceded (T628) that once the decision was made to list AIF and raise money through a pre-IPO “I was tasked … to make sure the paperwork was as required” . 132    Mr Lloyd-Cocks’ evidence on this topic was characterised by evasion and generality. He was concerned to attribute to himself as little responsibility as possible for AIF’s compliance with s.708(10). However, when confronted with documentation clearly to the contrary, he conceded his responsibilities, fleetingly, before attempting further evasion in generality. 133    In his affidavit of 29 January 2003 at para.50, Mr Lloyd-Cocks said that Mr Appleby had “the sole responsibility of overseeing Compliance and briefed AIF management in relation to raising funds under s.708(10) of the Corporations Act and arranged for the appropriate documentation to be prepared via lawyers Ebsworth & Ebsworth” . This evidence was false. 134    Mr Lloyd-Cocks also swore in his affidavit of 29 January 2003 at para 87 that “AIF members, who had paid yearly membership fees, were the only investors offered the [AIF pre-IPO] opportunity” . As the evidence analysed below shows, this statement was false. 135 However, the fact that I do not accept Mr Lloyd-Cocks as a truthful witness cannot in itself warrant an inference that he was knowingly involved in AIF’s proved contraventions of s.727(1): there must be reliable evidence positively leading to that conclusion. 136 Mr Joshua Yeo, an employee of AIF, gave the following unchallenged evidence concerning Mr Lloyd-Cocks’ role in fund-raising for the AIF pre-IPO and in securing compliance with s.708(10). 137 Mr Yeo was nineteen years of age when he was employed by AIF in an administrative position in about May 2001. He had no qualifications or any meaningful experience in the financial market. In about August 2001 he was appointed as a “Equities Adviser”, reporting to Mr Lloyd-Cocks and Mr Luvara. He was paid a salary and a commission on whatever transactions he arranged for clients. Part of his job was to promote investments which AIF was offering. 138 Mr Lloyd-Cocks gave Mr Yeo a two-page flyer about the AIF pre-IPO containing an offer of shares in AIF at 0.16¢ each. Mr Lloyd-Cocks told him that the offer was restricted to experienced investors, that Mr Yeo’s role was to promote the offer to investors, and that it would be a matter for the directors’ discretion whether the investors were eligible. 139 Mr Yeo provided his clients with documents concerning the pre-IPO, including a statutory declaration, a share application form, an Acceptance Offer, a s.708 Questionnaire, a client data sheet and a Discretionary Management Agreement. Some of these documents were signed after the client had placed funds for investment in the AIF pre-IPO. Mr Lloyd-Cocks said to him: “I’ll review the paperwork and decide which people get shares” . 140    Mr Bradley Goodsell, an accountant who worked in AIF’s office, gave unchallenged evidence concerning Mr Lloyd-Cocks’ role in fund-raising for the AIF pre-IPO and in compliance with s.708(10). 141    According to Mr Goodsell, Ebsworth & Ebsworth drew up a questionnaire for investors to satisfy the requirements of s.708(10) and prepared other documents ancillary to the AIF pre-IPO. Mr Lloyd-Cox gave those documents to Mr Goodsell and said: “Make sure you send them out to all the pre-IPO investors” . Mr Goodsell then obtained a list of people who had, in fact, already invested in the AIF pre-IPO and he sent them the documents. Mr Goodsell said that he understood the purpose of sending the material to the investors was to give the impression that AIF had considered whether people who invested in the AIF pre-IPO were “sophisticated investors” within the scope of s.708(10) but this was to be done after the investments had actually been made in case AIF was later questioned as to whether it had followed the investments procedures in s.708. 142 Mr Goodsell’s evidence as to the sending out of material for the purpose of compliance with s.708(10) after the investor had already invested in the AIF pre-IPO is consistent with the evidence of Mr Pryor and Mr La Rosa, to which I will come shortly. I accept Mr Goodsell’s evidence. 143 The foregoing evidence satisfies me comfortably that at all material times from the time that AIF began to solicit investments in the AIF pre-IPO in March 2001 Mr Lloyd-Cocks was ultimately responsible for ensuring compliance with s.708(10) procedures. I am satisfied that Mr Lloyd-Cocks knew, as at late September 2001, that the requirements of s.708(10) had not been complied with in respect of a number of people who had already invested in the AIF pre-IPO. He therefore instructed Mr Goodsell to send out letters dated 27 September such as were received by Mr Pryor and Mr La Rosa. However, as I have discussed above, knowledge of the facts of a contravention acquired after the contravention has occurred does not constitute involvement in the contravention. 144 In the light of Mr Lloyd-Cocks’ knowledge of the background and relevant context, it will be necessary to ascertain his knowledge of the essential facts of those contraventions of s.727(1) by AIF which have been proved in this case. The essential factual ingredients of a contravention of s.727(1) relevant for the purposes of the present case are:


i) an issue of shares in AIF is being offered by AIF to potential investors;

ii) no disclosure statement in respect of the issue has been lodged with ASIC;

iii) the offer is made through a financial services licensee (here, AIF);

iv) before or at the time the offer to a particular potential investor is made, AIF has not given to the offeree a statement of reasons pursuant to s.708(10)(c);

v) before or at the time of the offer the offeree has not signed an acknowledgement pursuant to s.708(10)(d).

It does not have to be proved that Mr Lloyd-Cocks knew the name of each potential investor to whom a contravening offer was to be made. It is sufficient that Mr Lloyd-Cocks knew that the offers were to be made to a class of investors which included the particular investor to whom the contravening offer was made.

145 There cannot be the slightest doubt that Mr Lloyd-Cocks had actual knowledge of facts (i), (ii) and (iii) as at the time AIF made an offer to each person in respect of whom ASIC alleges a contravention of s.727(1). The essential question is whether, in respect of the contraventions proved, the evidence shows to the requisite standard on the balance of probabilities that Mr Lloyd-Cocks had actual knowledge of facts (iv) and (v) prior to, or at the time of, this occurrence.


AIF’s contraventions and Mr Lloyd-Cocks’ involvement

146    ASIC tendered the evidence of nine pre-IPO investors, who deposed to their experience as investors generally and as to the times at which they received documentation said to comply with the requirements of s.708(10). All invested substantial sums in the AIF pre-IPO. They never actually received any shares in AIF and none has recovered anything from the investment. 147    These investors were cross examined by Mr Anthony and Mr Lloyd-Cocks but their evidence was not shaken in its essentials. I have no hesitation in accepting them as truthful witnesses who were endeavouring to give their evidence carefully.

Mr P.J. Devey

148    Mr Peter J. Devey is an occupational hygienist. In January 2000 he received an unsolicited leaflet from AIF promoting IPO investment opportunities. Mr Devey contacted AIF and later became a member of its “Share Traders Investment Club” . 149 During 2000, Mr Devey invested through AIF in an IPO for a company called Terra Planet.com. In December 2000, Mr Devey received a letter signed by Mr Lloyd-Cocks dated 13 December 2000, with which was enclosed a flyer entitled “Pre Float Seed Exempt Offer Opportunity”. The flyer did not suggest that the shares in AIF were then available for subscription; it merely advised that AIF intended to float by means of a back-door listing and gave information about the listing date and proposed quotation price. Because this document did not suggest that Mr Devey could then, or at some specified time, apply for AIF shares at a certain price I do not think that it qualifies as an offer of securities for the purposes of s.727(1): see paragraphs 95-107 above. 150 However, in January or February 2001 Mr Devey received a number of telephone calls from a Mr Ford on behalf of AIF. Mr Ford made it clear that Mr Devey could now subscribe for the shares in AIF’s pre-IPO and that the offer was recommended by Mr Anthony. 151 On 1 March 2001 AIF sent an e-mail to Mr Devey offering subscription in the AIF per-IPO at 30¢ per share if the subscription monies were received by 4:00pm on 5 March, and at 50¢ per share if the subscription monies were received after that time. The e-mail stated that the expected listing price of the shares would be $1. There was added a qualification that the offer was restricted to those “who either qualify as a Sophisticated Investor under s.708(8) of the Corporation Law or can provide a statement from a licensed dealer under s.708(10), certifying that the dealer (through whom the offer would be made) is satisfied that the investor has sufficient experience in investing in securities to allow them to assess the merits, value and risks associated with, and the level of disclosure required for, the investment” . 152    The e-mail, coupled with the information previously given to Mr Devey by AIF, clearly constituted an offer of securities but it was expressed to be conditional upon compliance with s.708(10). However, it is obvious from the fact that Mr Lloyd-Cocks was still receiving advice from Ebsworth & Ebsworth in late March 2001 as to what was necessary to comply with s.708(10) (see paras 128 to 130) that on 1 March 2001 there was no procedure yet in place within AIF to ensure compliance with s.708(10), as Mr Lloyd-Cocks must have known. The statement in the 1 March e-mail suggesting that the pre-IPO offer was restricted to those in respect of whom some other licensed dealer would provide the requisite documentation was meaningless because it was AIF itself which was, in that very document, making the offer to Mr Devey. There was no other licensed dealer involved in the offer, as Mr Lloyd-Cocks must have known. The only licensed dealer which could have complied with the requirements of s.708(10) at the time of making the offer was AIF itself but it was not in a position to do so until April 2001 at the earliest. Yet the offer of 1 March to Mr Devey urged him to accept by 5 March. In truth, therefore, the offer made to Mr Devey by the e-mail of 1 March 2001 was never intended to be conditional on fulfilment of the requirements of s.708(10). 153    On 5 March 2001, Mr Devey sent a facsimile to AIF authorising it to deduct $30,000 from an account in his name established by AIF with Macquarie Bank, into which Mr Devey had transferred funds. The facsimile stated:
“Please consider this an application for participation in the pre-IPO AIF share float at 0.30¢ per share.”
154    On 13 March 2001, Mr Devey completed and signed an application form to subscribe in the name of his company for 100,000 shares in the pre-IPO. On 15 March 2001, $30,000 was deducted from Mr Devey’s Macquarie bank account by AIF in accordance with the authority in his facsimile sent on 5 March 2001. 155    By letter dated 27 March 2001, signed by Mr Lloyd-Cocks, AIF thanked Mr Devey for participating in the AIF pre-IPO. The letter stated, inter alia:

“To facilitate your buying and selling of these shares Nominee Securities Pty Ltd has been established to hold the shares as your nominee. We will shortly be sending out additional documentation relating to this section 708 of Corporations Law . Complete and return the Questionnaire which will rank you for further Pre IPO offers. Also complete and return the Acceptance of Offer letter and Statutory Declaration.

Should you require additional allocations please confirm with me directly, as the price for the new shares at $0.50 is soon to close. We expect to be offering shares at $0.65 in the next funding cycle through April and May.” [Emphasis added.]
156 Mr Devey signed and returned the forms enclosed with Mr Lloyd-Cocks’ letter but he did not retain copies. Whatever the documents were, they have not been tendered in evidence. 157 It is undisputed that AIF did not give to Mr Devey or his company a statement of reasons in accordance with s.708(10)(c) at any time prior to the application by Mr Devey’s company on 13 March 2001 for shares in the IPO or prior to the deduction on 15 March of $30,000 from his account for the subscription monies. If Mr Devey did sign an acknowledgement as required by s.708(10)(d) it could not have been before 27 March 2001. By that time, clearly, AIF had already made two pre-IPO offers to Mr Devey: in the 1 March 2001 e-mail and by providing him with an application form on or before 13 March 2001. 158 Mr Devey could well have been classified as an experienced investor for the purposes of s.708(10)(b). But satisfaction of the requirement in paragraph (b) does not dispense with the necessity to comply with the requirements of paragraphs (c) and (d). All requirements of subsection (10) must be satisfied before s.706 and s.727(1) become inapplicable. 159 I am satisfied that in making offers of investment in the AIF pre-IPO to Mr Devey and his company on 1 March 2001 and on 13 March 2001, AIF did not satisfy the requirements of s.708(10)(d) and (c). Accordingly, AIF contravened s.727(1) CA. 160 I turn now to whether it has been proved that Mr Lloyd-Cocks was involved in this contravention within the meaning of s.79 CA. 161 As I have noted above, it is clear beyond doubt that when an offer of securities was made to Mr Devey by the e-mail of 1 March 2001 AIF had no documentation or procedure in place for complying with s.708(10). This is expressly admitted by Mr Lloyd-Cocks in his letter to Ebsworth & Ebsworth dated 12 March 2001 in which Mr Lloyd-Cocks refers to the “condition” as to compliance with s.708(10) which AIF was then using and which appeared in the e-mail of 1 March 2001 to Mr Devey. Mr Lloyd-Cocks says of this condition:

ASIC’s allegations

582 On 7 June 2001 Mortgage Circuit paid $200,000 to Sage in consideration for the issue of 400,000 shares in Sage to Swiss Pacific. The evidence does not show how Mortgage Circuit acquired the subscription monies. 583 ASIC alleges that the payment by Mortgage Circuit was not made for a proper purpose and that Mr Lloyd-Cocks as a director of Mortgage Circuit authorised or permitted the payment, whereby he contravened s.180(1), s.181(1) and s.182(1) CA.


The defences

584    Mr Lloyd-Cocks says that the payment of $200,000 by Mortgage Circuit to Sage was by way of a loan to Swiss Pacific to enable it to subscribe for shares in Sage’s listing on the ASX. He says that the loan to Swiss Pacific was approved by Mr Topperwien, as a director of Mortgage Circuit, and was secured by the deposit of the share certificate for the Sage shares with Mr Topperwien on behalf of Mortgage Circuit.


Conclusion

585    There is no evidence which contradicts the assertion by Mr Lloyd-Cocks that the payment by Mortgage Circuit of $200,000 to Sage was pursuant to a loan to Swiss Pacific. The loan was said to be interest-free and the time for payment had not been stipulated. There is no evidence upon which I could conclude that the Sage share certificate was not deposited with Mr Topperwien as security for the loan. 586    ASIC does not allege that the money which Mortgage Circuit used to lend to Swiss Pacific came from AIF. The source of the money is unidentified: it could have come from Mr Topperwien or his interests and it could have been lent to Swiss Pacific with Mr Topperwien’s consent as director of Mortgage Circuit. 587    An interest-free loan, secured and repayable on demand, from one company to another is not, without more, necessarily improvident or improper. However, nothing more than these facts are proved in evidence concerning this transaction. 588    On such sparse facts as have been proved, I cannot find that Mr Lloyd-Cocks has contravened the Corporations Act in relation to the loan, as alleged by ASIC.


THE AIF SHARE DILUTION

ASIC’s allegations

589    Immediately prior to 16 May 2001 the issued share capital of AIF was three million shares held as to 47.75% by Mr Luvara, 47.75% by Mr Lloyd-Cocks and 4.5% by Diamond Wheels Pty Ltd. 590    On 16 May 2001, AIF issued a further 230,000,000 shares, 210,000,000 shares being issued for $0.0001 per share fully paid (i.e. for a total consideration of $21,000) and 20,000,000 shares being issued for $1.00 per share partly paid to $0.001 per share (i.e. for a total consideration of $20,000). 591    210,000,000 shares fully paid to $0.0001 each were issued as follows:


– Swiss Pacific (controlled by Mr Anthony) – 60,000,000 shares representing 25.75% of the new issued share capital;

– Sacvere (controlled by Mr Lloyd-Cocks) – 25,000,000 shares representing 10.73% of the new issued share capital;

– Associated Asset Management (controlled by Mr Luvara) – 25,000,000 shares representing 10.73% of the new issued share capital;

– Metrobank (controlled by Mr Anthony) – 10,000,000 shares representing 4.29% of the new issued share capital;

– Suisse Credit P/L (controlled by Mr Anthony) – 90,000,000 shares representing 38.63% of the new issued share capital;

592 20,000,000 shares of $1.00 each, partly paid to $0.001, were issued to Nominee Securities. 593 ASIC alleges that the issue of shares in AIF on 16 May 2001 was not made in the interests of AIF but was made for the improper purpose of securing control of AIF to Messrs Anthony, Lloyd-Cocks and Luvara after AIF was listed on the ASX. ASIC alleges that Messrs Anthony and Lloyd-Cocks, as officers of AIF, authorised or permitted the new issue and that they thereby contravened s.180(1), s.181(1) and s.182(1) CA.


The defences

594    Mr Anthony says (written submissions pp.37-38) that:


– no shares in AIF had been issued to outside investors prior to 16 May 2001 so that no shareholding of investors was diluted by the new issue;

– AIF issued the new shares to be used as “currency” to enable new investment acquisitions for AIF, so that the new issue was in AIF’s best interests;

– the newly issued shares were to be used to acquire the vehicle by which AIF was to be listed, Farnell & Thomas Pty Ltd, and after the successful acquisition of that company AIF would “wind back the shares in AIF three to one so that the total number of shares after the successful takeover would be reduced to 77,000,000” : written submissions p.38. I take Mr Anthony to mean that the shares would be consolidated on the basis he suggests.

595    Mr Anthony made a virtue of the admission that the purpose of the issue was to ensure that control of AIF remained with himself and Messrs Lloyd-Cocks and Luvara. At p.38 written submissions he said:
“It was appropriate that the shares be issued prior to the takeover activities to ensure directors of AIF retained control of the company in order to guarantee the successful backdoor listing. Dominic and Martin were concerned that they did not want a repeat performance of what they experienced with GPHealth – a company which AIF established and funded – and of which they lost the right to take it to market (GPHealth still has not listed – whereas AIF were able to list SAGE in a matter of a few months).”
596    Further, Mr Anthony said:
“Swiss Pacific had performed services under the terms of its agreement with AIF and was entitled to 30% of the issued share capital of AIF as something which it had earned. Swiss Pacific held its shares to facilitate acquisition of Optum and the $1million convertible note – which was to be returned to the company for free. Through a series of complex restructuring of Optum and transfer of Telepathy into Optum Medical Dr Ho could be satisfied and he had indicated that he would do the deal subject to a formal takeover proposal being put forward for the board of Optum.”
597    Mr Lloyd-Cocks submitted (written submissions pp.48-50) that:


– 90,000,000 AIF shares were issued in exchange for 100,000,000 shares in FSG, giving AIF control of FSG: p.48;

– “60,000,000 shares were to be used to purchase a $1M debt the CEO of Optum Group, Dr Albert Ho, had with Optum Group as part of the restructuring of the Optum business prior to the back-door listing of AIF into Optum” : p.49;

– 25,000,000 were issued to each of his company (Sacvere) and Mr Luvara’s company (Associated Asset Management) “to maintain a similar percentage ownership of the group prior to the issue” : p.48;

– “10,000,000 shares were issued to Metrobank as payment for fees involving work done and to be done on FSG, Farnell & Thomas and the Optum back-door listing” : p.49;

– “20,000,000 shares were issued to Nominee Securities on behalf of AIF shareholders in the lead-up to the back-door listing of AIF through Optum Group” : p.49;

– “the issue of shares is a common tool used in building companies towards listing on the Stock Exchange. The issue of shares is used as currency to attract business without the requirement of cash” : p.49;

– “the issue of shares to Sacvere, Associated Asset Management, Suisse Pacific Inc (sic – probably Swiss Pacific Inc) and Suisse Credit Inc (sic – probably Suisse Credit P/L) was to maintain control of the group vitally important to protecting all existing shareholders towards listing” : p.50.



The facts

598    AIF’s internal records show that as at 16 May 2001 AIF had received $645,249 from investors in AIF’s pre-IPO. The number of AIF shares “allocated” to such investors at that time, as disclosed in AIF’s internal records, was 2.101 million at an average price of $0.31 per share. On 8 May 2001, Mr Anthony gave instructions to Mr Goodsell to arrange the issue of 230,000,000 shares, as has been described. 599    It must have been clear to Messrs Anthony, Lloyd-Cocks and Luvara by 8 May 2001 that if shares in AIF were actually issued to the investors in the AIF pre-IPO according to the allocations shown in AIF’s records, they themselves would lose control of the company. I conclude that the primary reason for making the allocation of 210,000,000 of the 230,000,000 shares issued on 16 May 2001 was the retention of control of AIF in the hands of Messrs Anthony, Lloyd-Cocks and Luvara in the event that shares in AIF had to be issued to outside parties who had invested in it. My reasons for the conclusion are two-fold. First, because retention of control was expressly admitted by Messrs Anthony and Lloyd-Cocks as their intention; second, because I reject the other reasons given for the issue. I now turn to those other issues. 600    The shares were not issued as “currency” to acquire other companies or interests for AIF. This reason may have carried some weight if AIF shares had been issued directly to a party in consideration for the acquisition of some investment from that party. However, the shares were issued to companies controlled by Messrs Anthony, Lloyd-Cocks and Luvara in return for a comparatively small sum of money. 601    In particular, the submission by Mr Lloyd-Cocks that 90,000,000 of the AIF shares were issued in exchange for 100,000,000 FSG shares is patently wrong. The 90,000,000 AIF shares were issued to Suisse Credit P/L, a company controlled by Mr Anthony, more than a month before Mr Anthony began negotiations in June 2001 with FSG for the acquisition of that company. When control of FSG was acquired, it was acquired by Suisse Credit P/L, by means of an issue to that company of FSG shares in exchange for a transfer by Suisse Credit P/L to FSG of AIF shares owned by Suisse Credit P/L. There is no documentary evidence demonstrating that Suisse Credit P/L held the FSG shares on trust for, or otherwise for the benefit of, AIF. 602    How acquisition of Farnell & Thomas Ltd was to be achieved by issuing 210,000,000 shares to companies controlled by Messrs Anthony, Lloyd-Cocks and Luvara was never explained. 603    Whatever Mr Lloyd-Cocks meant in his statement that 60,000,000 AIF shares were to be used to purchase a $1M debt that Dr Ho “had with Optum” – and it is impossible to know what this meant – there is no evidence that a transaction fitting this description was agreed and documented as at 16 May 2001. Indeed, the evidence suggests that negotiations between AIF and Optum for the acquisition of TRACESS commenced in about June 2001, after the share issue had taken place on 16 May. There is no evidence to suggest that Mr Anthony and Dr Ho had had detailed discussions about a back-door listing of AIF through Optum prior to 16 May 2001. Documents, such as file notes of the solicitors acting for AIF on the back-door listing and a draft memorandum explaining the back-door listing prepared by Mr Lee, show that the back-door listing using the vehicle of Farnell & Thomas, not Optum, was still being actively pursued as late as October 2001. 604    As to the 10,000,000 shares issued to Metrobank, there is no evidence of an agreement in writing, or otherwise, between Metrobank and AIF for the performance of any work by Metrobank. 605    Mr Anthony’s point that a consolidation of AIF shares was intended on the basis of one consolidated share for three former shares has no substance. Consolidation would still result in the same proportionate shareholding amongst the company’s shareholders. 606    I am prepared to accept that the 20,000,000 shares issued to Nominee Securities were intended, by some means or other, to be issued to investors in AIF’s pre-IPO and other investors in AIF, if the company ever achieved listing.


Conclusion

607    I find that the purpose of the issue of 210,000,000 fully paid shares in AIF on 16 August was to preserve control of AIF in the hands of Messrs Anthony, Lloyd-Cocks and Luvara in the event that AIF achieved ASX listing. 608    Another possible purpose of the issue was to place AIF shares in the hands of companies controlled by Messrs Anthony, Lloyd-Cocks and Luvara so that they could be dealt with by those companies ultimately for the benefit of AIF’s controllers. This motive is suggested by the manner in which AIF shares were used by Suisse Credit P/L to acquire the shares of FSG in circumstances in which there was no direct or documented benefit to AIF. If this was, indeed, an additional purpose of the issue, it too was improper and impermissible. 609    I do not need to find whether the second possible purpose was also a purpose of the issue. I am satisfied that retention of control was the predominant purpose of the issue. 610    It is well established that it is an improper exercise of the powers of directors to cause the company to issue shares predominantly for the purpose of ensuring that the incumbent directors remain in control: Ngurli Ltd v McCann (1953) 90 CLR 425, at 440; Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483; Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285, at 289ff. 611 There can be no question on the evidence that the issue of 210,000,000 AIF shares was procured by both Mr Anthony and Mr Lloyd-Cocks. The issue was made without any advice from legal or accounting advisers as to its propriety. It was not made in good faith and for a proper purpose; no reasonable person could have believed that it was. 612 I find that Mr Anthony, as an officer of AIF, and Mr Lloyd-Cocks as a director, each procured the issue of 210,000,000 shares in AIF on 16 May 2001:


– in contravention of his duties of care and diligence under s.180(1) CA;

– in contravention of his duties of good faith under s.181(1) CA;

– in contravention of his duty under s.182(1) CA not to gain an advantage for himself or someone else.



THE MEDIONICS SHARE DILUTION

ASIC’s allegations

613 On 13 June 2001 Medionics issued 48.12 million shares, 920,000 of which were issued at 50¢ per share to AIF Strategic Management as trustee of the AIF Strategic Trust and to Optum, and 47.2 million of which were issued at $0.0001 per share to companies controlled by Messrs Anthony and Topperwien. 614 ASIC alleges in its submissions, but not in its pleading, that there was no proper purpose for the issue of these shares. The Further Amended Statement of Claim simply pleads the fact of the issue and alleges that Mr Anthony, by authorising, permitting or otherwise allowing the issue, contravened s.180(1), s.181(1) and s.182(1) CA. 615 Mr Anthony denies that he committed any contravention of the Act.


Conclusion

616    ASIC’s pleading does not allege any fact which would support the conclusion of contravention by Mr Anthony of the Act. Its written and oral submissions are likewise devoid of particularity. Obviously, it is not sufficient for ASIC merely to say in its submissions – as it does – that the Medionics issue was not made for a proper purpose. ASIC must positively plead and prove what the purpose of the issue was and that such purpose was improper. This ASIC has not undertaken to do. Mr Stack did not put to Mr Anthony in cross examination any motive or purpose for permitting the Medionics issue and Mr Anthony volunteered no purpose in his written submissions. 617    In short, the Medionics share dilution allegation received scarcely any attention at all at the trial. I cannot find that the allegations have been proved.


THE TECHLOGICA SHARE DILUTION

ASIC’s allegations

618    ASIC’s Further Amended Statement of Claim alleges that:


– on 2 October 2001 Techlogica issued 25,199,900 fully paid “Founder” shares to Swiss Pacific;

– by authorising, permitting or otherwise allowing the Techlogica issue, Mr Anthony contravened s.180(1), s.181(1) and s.182(1) CA.

619    ASIC’s written submissions merely contain the allegation that there was “no proper purpose” for the Techlogica issue. 620    Mr Anthony denies any wrongdoing.


Conclusion

621    Even more starkly than in the allegation concerning the Medionics share dilution, ASIC’s pleading concerning the Techlogica share dilution does not allege any fact upon which it could be concluded that Mr Anthony contravened the Act as alleged. Neither has ASIC undertaken to prove what was the purpose of the issue. 622    For the reasons I have given in relation to the allegation concerning the Medionics share dilution, I cannot find that the allegation concerning the Techlogica share dilution has been proved.


THE ALLEGED BANKRUPTCY PAYMENTS

ASIC’s allegations

623    Moneytec received the following payments:


– from AIF, a total of $63,634.68 between 17 January and 20 March 2001;

– from AIF Strategic Management, $22,000 on 2 April 2001.

624 On 28 June 2001 Moneytec paid $120,155 to Mr Anthony’s bankruptcy trustee towards satisfaction of Mr Anthony’s bankruptcy debts. 625 ASIC alleges that the payments to Moneytec by AIF and AIF Strategic Management were made for an improper purpose, namely, to place Moneytec in funds in order to discharge Mr Anthony’s bankruptcy debts. 626 Messrs Anthony and Lloyd-Cocks say that Moneytec received the payments from AIF and AIF Strategic Management as fees for services rendered. 627 ASIC alleges that Mr Anthony, as an officer of AIF, authorised and procured the payments by AIF to Moneytec whereby he contravened s.180(1), s.181(1) and s.182(1) CA. It alleges that Mr Lloyd-Cocks, as a director of AIF Strategic Management, authorised or permitted the payment by that company to Moneytec, whereby he contravened s.180(1), s.181(1) and s.182(1) CA.


The facts

628    Mr Anthony did not dispute that Moneytec received about $64,000 from AIF between January and March 2001: T448. Mr Anthony’s explanation for the payments was that he was working for Swiss Pacific and was providing financial planning services to AIF on behalf of Swiss Pacific pursuant to the Joint Venture Agreement between AIF and Swiss Pacific dated 12 December 2000 as Swiss Pacific did not hold a securities dealer’s licence he believed that the fees for the financial services had to be paid to a “financial services compliant company in Australia that had a business in Australia” and “there was an arrangement between Swiss Pacific and Moneytec that Moneytec would receive the fees that resulted from the financial planning” : T448. 629    The allegation that money of AIF had been used improperly to discharge Mr Anthony from bankruptcy was only very briefly developed in the evidence during the hearing and I have not been assisted by ASIC’s submissions in this regard. It seems that the issue is whether or not ASIC has proved on the balance of probabilities that the payment to Moneytec did not represent fees payable to Mr Anthony or at his direction for services performed by him pursuant to the agreement between Swiss Pacific and AIF dated 12 December 2000. It does not matter in this regard that I consider Swiss Pacific to be nothing more than Mr Anthony under another name. If services were provided by Mr Anthony, under whatever name, then prima facie he was entitled to some remuneration from AIF. 630    Although, as a general rule, I do not believe anything that Mr Anthony says, yet it is clear that he did perform services for AIF from December 2000 onwards. No invoices or claims for remuneration addressed by Swiss Pacific to AIF pursuant to the 12 December 2000 Joint Venture Agreement have been produced. However, I do not think that it is inherently improbable that Mr Anthony was entitled to some remuneration for work done during the period from January to March 2001 and that he may have directed that remuneration to be paid to Moneytec. 631    There is no evidence that Mr Anthony alone was responsible for procuring the payment by AIF to Moneytec. 632    It was not put to Mr Anthony that the payments by AIF to Moneytec between January and March 2001 were for the purpose of enabling payments by Moneytec in June 2001 to Mr Anthony’s bankruptcy trustee. The timing of the relevant payments does not, in itself, point in this direction. 633    On 16 March 2001 Moneytec issued an invoice to AIF Strategic Management for $22,000. The invoice is signed by Mr Anthony and directed to Mr Luvara. It sets out separately sixteen items of work said to have been performed by Mr Anthony for AIF Strategic Management. The work relates to a dispute between AIF Strategic Management and unitholders of the AIF Strategic Trust, represented by Mr de Zylva.

Conclusion

634    The evidence in support of ASIC’s allegation that this payment was improper is extremely sparse. The timing of the payment to Moneytec and the payment by Moneytec to Mr Anthony’s trustee does not, in itself, indicate that the purpose of the payment was as ASIC alleges. I am unable to find that the work charged in the Moneytec invoice was not done or that the fees charged were manifestly unreasonable. Accordingly, I cannot hold that these allegations against Mr Anthony and Mr Lloyd-Cocks have been proved.


SUMMARY OF CONCLUSIONS

Mr Anthony

635    For the reasons given in the judgment I hold that Mr Anthony has committed the following contraventions of the Corporations Act :


i) Mr Anthony contravened s.206A(1) CA in that, from December 2000 to 24 October 2001, while an undischarged bankrupt, he managed the following corporations within the meaning and for the purposes of s.206A(1):
AIF
Finance Projects
Money Mint
Medicoman
Webfeatures
Australian Equity Forum
Suisse Credit P/L
Techlogica
IT Genius
Nine contraventions of the Act by Mr Anthony are found proved under this heading.

ii) In authorising the payment by AIF of $300,000 to Webfeatures in March 2001 and the payment of $2.408M to Suisse Credit P/L in April and May 2001 Mr Anthony, as an officer of AIF, breached his duties of diligence and good faith to AIF, in contravention of s.180(1), s.181(1) and s.182(1) CA.

Six contraventions of the Act by Mr Anthony are found proved under this heading.

iii) In procuring the payment by Sage to Techlogica of $560,000 on 28 September 2001, the consequent payments by Techlogica to Finance Projects, Money Mint and Casabanca and the payments by those companies to Business Franchises, Mr Anthony, as an officer of Techlogica, Finance Project, Money Mint and Casabanca, breached his duties of diligence and good faith to each of those companies, in contravention of s.180(1), s.181(1) and s.182(1) CA.

Twelve contraventions of the Act by Mr Anthony are found proved under this heading.

iv) In that the payment of $560,000 by Sage to Techlogica was also a contravention by Sage of s.208(1) CA, Mr Anthony was party to and was knowingly involved in that contravention within the meaning of s.79 CA whereby, in accordance with s.209(2) and for the purposes of s.206E, Mr Anthony himself has contravened s.208(1) CA.

One contravention of the Act by Mr Anthony is found proved under this heading.

v) In that the payment of $250,000 by Sage to AIF in September 2001 was a contravention by Sage of s.208(1) CA, Mr Anthony was knowingly involved in that contravention within the meaning of s.79 CA whereby, in accordance with s.209(2) and for the purposes of s.206E, he himself has contravened s.208(1) CA.

One contravention of the Act by Mr Anthony is found proved under this heading.

vi) In approving the payment by AIF to Medionics of $303,000 on 31 May 2001 and the payment by Medionics to Optum of $563,000 on 1 June 2001 Mr Anthony, as an officer of AIF and Medionics, breached his duties of diligence and good faith to those companies, in contravention of s.180(1), s.181(1) and s.182(1) CA.

Six contraventions of the Act by Mr Anthony are found proved under this heading.

vii) In procuring and approving payment by AIF of an invoice dated 16 October 2001 from Biotech in an amount of $425,000 Mr Anthony, as an officer of AIF, breached his duties of diligence and good faith to that company, in contravention of s.180(1), s.181(1) and s.182(1) CA.

Three contraventions of the Act by Mr Anthony are found proved under this heading.

viii) In procuring AIF to issue 210,000,000 shares on 16 May 2001 Mr Anthony, as an officer of AIF, breached his duties of diligence and good faith to that company, in contravention of s.180(1), s.181(1) and s.182(1) CA.

Three contraventions of the Act by Mr Anthony are found proved under this heading.

636    In total, forty-one contraventions of the Act by Mr Anthony have been found proved. In several cases, a number of contraventions arise out of the same circumstances.


Mr Lloyd-Cocks

637    For the reasons given in the judgment I hold that Mr Lloyd-Cocks has committed the following contraventions of the Corporations Act :


i) In that AIF contravened s.727(1) CA in respect of offers of securities made to Messrs Devey, Markotic, Abell and to Mrs Conrick, Mr Lloyd-Cocks, as a director of AIF, was knowingly involved in those contraventions within the meaning of s.79 CA whereby, in accordance with s.83 and for the purposes of s.206E, he himself has contravened s.727(1) CA.

Four contraventions of the Act by Mr Lloyd-Cocks are found proved under this heading.

ii) In that AIF contravened Condition 8 of its dealer’s licence in holding clients’ money on trust in its NAB Trust Account and thereby contravened the Act itself, Mr Lloyd-Cocks was knowingly involved in that contravention within the meaning of s.79 CA, whereby in accordance with s.83 and for the purposes of s.206E he himself has contravened the Act.

One contravention of the Act by Mr Lloyd-Cocks is found proved under this heading.

iii) In authorising the payment by AIF of $300,000 to Webfeatures in March 2001 and the payment of $2.408M to Suisse Credit P/L in April and May 2001, Mr Lloyd-Cocks, as a director of AIF, breached his duties of diligence and good faith to AIF in contravention of s.180(1), s.181(1) and s.182(1) CA.

Six contraventions of the Act by Mr Lloyd-Cocks are found proved under this heading.

iv) In procuring the payment by Sage to Techlogica of $560,000 on 28 September 2001 Mr Lloyd-Cocks, as a director of Sage, breached his duties of diligence and good faith to that company, in contravention of s.180(1), s.181(1) and s.182(1) CA.

Three contraventions of the Act by Mr Lloyd-Cocks are found proved under this heading.

v) In that the payment of $560,000 by Sage to Techlogica was also a contravention by Sage of s.208(1) CA, Mr Lloyd-Cocks was party to and was knowingly involved in that contravention within the meaning of s.79 CA whereby, in accordance with s.209(2) and for the purposes of s.206E, he himself has contravened s.208(1) CA.

One contravention of the Act by Mr Lloyd-Cocks is found proved under this heading.

vi) In that the payment of $250,000 by Sage to AIF in September 2001 was a contravention by Sage of s.208(1) CA, Mr Lloyd-Cocks, as a director of Sage, was knowingly involved in that contravention within the meaning of s.79 CA whereby, in accordance with s.209(2) and for the purposes of s.206E, he himself has contravened s.208(1) CA.

One contravention of the Act by Mr Lloyd-Cocks is found proved under this heading.

vii) In approving the payment by AIF Strategic Management of $260,000 to Medionics on 29 May 2001 and in approving the payment by AIF of $303,000 to Medionics on 1 June 2001, Mr Lloyd-Cocks as a director of AIF Strategic Management and AIF breached his duties of diligence and good faith to both companies, in contravention of s.180(1), s.181(1) and s.182(1) CA.

Six contraventions of the Act by Mr Lloyd-Cocks are found proved under this heading.

viii) In procuring and approving payment by AIF of an invoice dated 16 October 2001 from Biotech in an amount of $425,000 Mr Lloyd-Cocks, as a director of AIF, breached his duties of diligence and good faith to that company, in contravention of s.180(1), s.181(1) and s.182(1) CA.

Three contraventions of the Act by Mr Lloyd-Cocks are found proved under this heading.

ix) In procuring AIF to issue 210,000,000 shares on 16 May 2001 Mr Lloyd-Cocks, as a director of AIF, breached his duties of diligence and good faith to that company, in contravention of s.180(1), s.181(1) and s.182(1) CA.

Three contraventions of the Act by Mr Lloyd-Cocks are found proved under this heading.

638    In total, twenty-eight contraventions of the Act by Mr Lloyd-Cocks have been found proved. In several cases a number of contraventions arise out of the same circumstances.

ORDERS

639    I stand the proceedings over to a date to be fixed for the hearing of evidence and submissions as to the relief sought by ASIC in its Further Amended Statement of Claim. I will decide all questions of costs at the conclusion of the proceedings.
– oOo –