Australian Securities and Investments Commission v Australian Investors Forum Pty Ltd (No 3)

[2005] NSWSC 1198

Reported Decision: 56 ACSR 204

New South Wales

Supreme Court

CITATION:	ASIC v Australian Investors Forum Pty Ltd & Ors (No 3) [2005] NSWSC 1198
HEARING DATE(S):	8 November 2005
JUDGMENT DATE :	30 November 2005
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
DECISION:	Each officer disqualified for twenty-five years; compensation ordered.

CATCHWORDS:	CORPORATIONS – OFFICERS – BANNING ORDERS – COMPENSATION – Whether officers of corporations found to have committed numerous contraventions of Corporations Act should be disqualified from managing corporations – factors considered – whether contraveners should pay compensation for losses caused by contraventions.
LEGISLATION CITED:	Corporations Act 2001 (Cth) – s.79, s.180(1), s.181(1), s.182(1), s.206E(1), s.208(1), s.209(2), s.727(1), s.1317E, s.1317H
CASES CITED:	- ASIC v Adler (2002) 42 ACSR 80 - ASIC v Australian Investors Forum Pty Ltd & Ors (No 2) [2005] NSWSC 267 - Elliott v ASIC (2004) 205 ALR 594 - Forge v ASIC (2004) 52 ACSR 1 - Rich v ASIC (2004) 209 ALR 271
PARTIES:	Australian Securities & Investments Commission Plaintiff Dennis Ralph Anthony Second Defendant Martin Lloyd-Cocks Third Defendant Sacvere Pty Ltd Nineteenth Defendant Metrobank Pty Ltd Twenty-third 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
SOLICITORS:	Australian Securities & Investments Commission – Plaintiff In person – 2nd and 23rd Defendants In person – 3rd and 19th Defendants

LOWER COURT JURISDICTION:

Introduction

1    On 4 April 2005 I delivered a judgment in these proceedings in which I found that the Defendants, Mr Anthony and Mr Lloyd-Cocks, were guilty of numerous contraventions of the Corporations Act 2001 (Cth): Australian Securities & Investments Commission v Australian Investors Forum Pty Ltd & Ors (No 2) [2005] NSWSC 267 (“the Judgment”). In accordance with the principles discussed in Forge v ASIC (2004) 52 ACSR 1, I then adjourned the matter for further hearing on the question of what orders should be made as a consequence of the Judgment.

2    Unfortunately, the parties’ further submissions could not be heard until 8 November 2005. On that occasion, all parties filed further evidence and made extensive submissions, both oral and written.

3    The orders sought by ASIC fall into two categories:

– orders under CA s.206E(1)(a)(i) and (ii) disqualifying Mr Anthony and Mr Lloyd-Cocks from managing corporations (“Banning Orders”);

– orders under CA s.1317H for the payment of compensation in respect of certain transactions (“Compensation Orders”).

The factual foundation for Banning Orders

4    I will assume that the reader of these reasons has available the Judgment so that I need not repeat at length matters set out in it.

5 CA s.206E(1) relevantly 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:
…
(ii) has at least twice contravened this Act while they were an officer of a body corporate; or
…

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

6    I have found that Mr Anthony was an officer of AIF from December 2000 to 24 October 2001 and an officer of Techlogica, Money Mint, Casabanca and Finance Projects: Judgment paras 385, 439, 635. I have found that Mr Lloyd-Cocks was at all times a director, and therefore an officer, of AIF, Sage and AIF Strategic Management: Judgment paras 53, 54, 164, 294, 437 and 553.

7 For the purposes of s.206E(1)(a)(ii), I have found that Mr Anthony:

– as an officer of AIF contravened CA s.180(1), s.181(1) and s.182(1) in authorising payment of $300,000 by AIF to Webfeatures in March 2001: Judgment para 445;

– as an officer of AIF contravened CA s.180(1), s.181(1) and s.182(1) in procuring AIF to enter into the SCI Agreement and to pay $2.408M to Suisse Credit Pty Ltd: Judgment para 635;

– as an officer of Techlogica, Money Mint, Casabanca and Finance Projects, contravened CA s.180(1), s.181(1) and s.182(1) in procuring payments into and out of those companies of $500,000 for the purpose of discharging liabilities to Mr Bonvino in his own interests: Judgment para 500;

– as an officer of Techlogica, contravened CA s.208(1) by procuring the payment of $560,000 from Sage to Techlogica: Judgment para 635(iii);

– as an officer of AIF and of Medionics contravened CA s.180(1), s.181(1) and s.182(1) in approving payment of $303,000 by AIF to Medionics on 31 May 2001 and payment by Medionics to Optum of $500,000 on 1 June 2001: Judgment para 565;

– as an officer of AIF contravened CA s.180(1), s.181(1) and s.182(1) in procuring and approving the payment and transfer of shares to Biotech pursuant to an invoice for $425,000 dated 16 October 2001: Judgment para 581;

– as an officer of AIF contravened CA s.180(1), s.181(1) and s.182(1) in procuring an issue of 210,000,000 shares in AIF on 16 May 2001: Judgment para 612.

8 For the purposes of CA s.206E(1)(a)(ii) I have found that Mr Lloyd-Cocks:

– as an officer of AIF contravened CA s.727(1) on four occasions: Judgment paras 165, 214, 222, 231;

– as an officer of AIF contravened Clause 8 of AIF’s dealer’s licence and consequently the provisions of the Act, in relation to the NAB Trust Account: Judgment para 299;

– as an officer of AIF contravened CA s.180(1), s.181(1) and s.182(1) in authorising payment of $300,000 by AIF to Webfeatures in March 2001: Judgment para 445;

– as an officer of AIF contravened CA s.180(1), s.181(1) and s.182(1) in procuring AIF to enter into the SCI Agreement and pay $2.408M to Suisse Credit Pty Ltd: Judgment para 446;

– as an officer of Sage contravened CA s.180(1), s.181(1) and s.182(1) and s.208(1) in approving the payment of $560,000 from Sage to Techlogica: Judgment paras 498 and 499;

– as a director of Sage contravened CA s.208(1) in authorising payment of $250,000 from Sage to AIF in September 2001: Judgment para 542;

– as an officer of AIF Strategic Management and AIF, contravened CA s.180(1), s.181(1) and s.182(1) in approving the payment by AIF Strategic Management to Medionics on 29 May 2001 and in approving the payment by AIF of $303,000 to Medionics on 31 May 2001: Judgment para 565;

– as a director of AIF contravened CA s.180(1), s.181(1) and s.182(1) in procuring the payment and transfer of shares to Biotech pursuant to an invoice for $425,000 dated 16 October 2001: Judgment para 581;

– as a director of AIF contravened CA s.182(1) in procuring an issue of 210,000,000 shares in AIF on 16 May 2001: Judgment para 612.

The principles upon which the Court makes a banning order

9 CA s.206E(2) provides:

“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.”

10    The principles which the Courts apply in considering the imposition of banning orders have been comprehensively summarised by Santow J (as his Honour then was) in ASIC v Adler (2002) 42 ACSR 80 at para 56: see also Elliott v ASIC (2004) 205 ALR 594, at 630-631 and Rich v ASIC (2004) 209 ALR 271, at 287-289. For present purposes the principles may be distilled into the following propositions.

11    The purposes of a banning order are:

– to protect the public from use of corporate structures by those who are dishonest, incompetent or who are not diligent in discharging their duties as officers of a corporation;

– to promote transparency and accountability in the use of corporate structures;

– to deter those who may be contemplating the dishonest or careless use of corporate structures.

12    In determining whether a banning order should be imposed the Court takes into consideration:

– the character and seriousness of the contraventions of the Act and of other conduct of the defendant relevant to a consideration of whether a banning order should be imposed;

– the character of the defendant and whether his or her conduct was dishonest or merely incompetent or irresponsible;

– whether the defendant understands and accepts the consequences of his or her wrongful conduct and genuinely feels contrition;

– the likelihood of the defendant engaging in similar conduct in the future and the likely harm that may be caused to the public if he or she does;

– the personal hardship which a banning order will impose on the defendant.

13    In determining the duration of a banning order the Court imposes the longest periods (25 years or more) when:

– the contraventions of the Act and the defendant’s other relevant conduct which may be taken into account have caused large financial losses;

– the wrongful conduct of the defendant involves dishonesty or an intent to defraud;

– the defendant displays disregard for compliance with the law;

– the defendant has been guilty of similar conduct in the past;

– there is a high likelihood that the defendant will engage in similar conduct in the future in areas of activity in which the public is especially vulnerable, e.g. investment and financial management.

14    The Court imposes commensurately shorter periods of disqualification accordingly as the above factors are moderated or absent so that the case falls into a less serious category and the need for protection of the public is satisfied by a lesser term of prohibition.

15 It is clear from the terms of CA s.206E(2) that in considering the penalty, the Court is not restricted to a consideration of the contraventions of the Act of which the defendant has been found guilty in the proceedings so as to be made liable to a banning order under s.206E(1). As the primary object of s.206E is the protection of the public, the defendant’s fitness to manage the affairs of a corporation is in issue, so that the ambit of enquiry is as broad as may be: the Court may have regard to the defendant’s conduct not only in relation to the management of the corporation of which he was an officer at the time of the contraventions in issue in the proceedings but it may have regard to the defendant’s conduct in relation to the management, business or property of “any corporation”.

16    However, in accordance with the principles of procedural fairness, any alleged conduct of the defendant upon which ASIC seeks to rely in support of a banning order would have to be properly particularised and proved to the Court’s satisfaction, after a proper opportunity has been given to the defendant to contest the allegations by further evidence and submissions. That is one of the reasons that, after liability to disqualification is found, there should be a separate hearing on penalty.

The Defendants’ submissions

17    ASIC submits that the contraventions of Messrs Anthony and Lloyd-Cocks fall into the category of cases warranting the longest term of prohibition. It relies on findings made in the Judgment.

18    Both Mr Anthony and Mr Lloyd-Cocks seem to oppose the making of any Banning Order or, at least, they suggest that theirs is not a case within the worst category of cases so as to require any substantial period of prohibition.

19    Despite some lip service paid to contrition made by Mr Anthony and some acknowledgement by Mr Lloyd-Cocks that “mistakes have been made”, the fundamental position of Messrs Anthony and Lloyd-Cocks is that the misfortunes of AIF and its creditors are due entirely to the actions of ASIC in intervening in the affairs of the AIF Group. They insist that AIF and its associated companies were highly profitable and successful and that no investors would have suffered loss but for the manner in which ASIC interfered.

20    Some idea of the tenor of the Defendants’ submissions can be gleaned from Mr Lloyd-Cocks’ written submissions. In his oral submissions, Mr Anthony repeated the substance of Mr Lloyd-Cocks’ written submissions – indeed, if anything, with added emphasis and eloquence.

21    Mr Lloyd-Cocks said:

“3. Up until ASIC’s intervention I had implemented an innovative business model that delivered spectacular returns to the AIF Group of companies. I also assisted in the development of corporate trading opportunities structured to deliver further profits to the AIF Group investors.

4. All losses could have been avoided if ASIC had approached AIF management with their concerns prior to taking any action and allowed for a sensible commercial solution.

5. The AIF Group had more than enough funds to meet any investor refunds or inter-company restructuring requirements ASIC thought appropriate.
…
10. AIF was on target to make in excess of $2,000,000 profit for financial year 2001/2002 and list on the Australian Stock Exchange at a value of between $15,000,000 and $20,000,000 through Optum Group prior to the intervention of ASIC.”

22    These projections as to AIF’s listing on the Stock Exchange and its profitability are without any foundation whatsoever. The accounts of AIF, which were never audited, would never have survived the scrutiny necessary to obtain Stock Exchange listing. For example, the auditor who was asked to prepare an Independent Expert’s Report into AIF as a necessary precursor to its back-door listing rightly refused to ascribe any value to the SCI Agreement for which AIF had paid some $2.408M: Judgment para 412. The valuable “business concepts” or “products” to which AIF was “entitled” under the SCI Agreement and which Mr Anthony and Mr Lloyd-Cocks repeatedly said would prove of immense value were, in truth, utterly illusory: Judgment para 409-410.

23    It is unnecessary to recount and to rebut again the claims made by Mr Anthony and Mr Lloyd-Cocks that companies such as Medionics and Techlogica had substantial businesses with every prospect of producing rich returns. The claims are of no substance: Judgment paras 555-556.

24    Mr Lloyd-Cocks explained his own actions thus:

“35. The mistakes that were made they were done honestly in the best interests of all participants.

36. At no time was I ever looking to benefit personally from any transaction. If there was a benefit to me as a shareholder in the AIF Group of companies it was a benefit that was shared by all shareholders and all companies.

37. My responsibilities to create value for the Group included all shareholders. Any decisions I made to create value was made with the entire Group in mind.

38. I conducted business in the best way I thought would benefit the Group with the advice and assistance at all times from qualified people.”

25    Mr Anthony said in his written submissions:

“f) In respect of the transactions described as a Round Robins to restructure the balance sheet of AIF and establish a separate Finance Company in the group the defendant did not endeavour to remove funds from the AIF group of companies, and no funds went offshore – contrary to the allegations made by the plaintiff initially.

g) The defendant did not at the time believe either of the above was unlawful as the company was a ‘private’ company. However as the judgment holds this is a breach of the Act the defendant accepts the ruling and apologises for his mistake.

h) The other breaches concerning movement of funds within the AIF group of companies and transfer of shares within the group of companies occurred largely through an unorthodox approach to trying to develop particular businesses which at the time the Defendant did not consider were to the detriment of any shareholder or investor. Attempts were made to underpin values and bring in revenues and assets to the AIF group. However as the Court has ruled against the Defendant in respect of these transactions the Defendant does not with to reargue or contest any of the Court’s decisions. Furthermore the Defendant apologises for his mistakes and lack of appreciation of the manner in which the various transactions should have occurred and for the failure to obtain shareholder approvals first.”

26    Mr Anthony produced two character references from people who described him in extremely fulsome terms as a person of the utmost honesty and ability. The references did not indicate that the referees had read the Judgment. I give them no weight.

ASIC’s “intervention”

27    A reading of the Judgment will make it clear that there is no substance in the criticisms which Messrs Anthony and Lloyd-Cocks make of the way in which ASIC has “intervened” – to use their word – in the affairs of AIF and its associated companies. These proceedings were entirely justified in the light of the contraventions of the Corporations Act which have been established.

28    If ASIC had not sought and obtained the ex parte and interlocutory relief which it did, I have no doubt that AIF and its directors would have continued to solicit money from the public for what was a fundamentally dishonest enterprise. The investing public would have suffered even greater losses than have already been occasioned. In my view, in acting as it did in these proceedings, ASIC has done nothing more than discharge its duties in the protection of the public interest in a proper and timely manner.

Conclusions as to Banning Orders – Mr Anthony

29    I have regard to the following conduct of Mr Anthony, which has been established in these proceedings.

30    First, Mr Anthony used Mr Shaheen as a puppet director of companies within the AIF Group in a calculated and dishonest attempt to disguise the fact that he himself was managing those companies while disqualified as an undischarged bankrupt: Judgment paras 58-61.

31    Second, Mr Anthony used Swiss Pacific and its joint venture agreement with AIF in an attempt to disguise the fact that Mr Anthony himself was managing the affairs of AIF while disqualified as an undischarged bankrupt. The use of Swiss Pacific in that way was dishonest: Judgment para 382.

32    Third, Mr Anthony’s evidence concerning his relationship with Swiss Pacific and its directors was false in every particular: Judgment paras 372-381. Mr Anthony was deliberately endeavouring to mislead the Court in a serious way.

33    Fourth, Mr Anthony devised the SCI Agreement as a means of channelling $2.708M out of AIF. The Agreement was a bare-faced fraud of the most egregious character. Even on the face of the document the agreement was obviously worthless yet Mr Anthony persisted in this Court in asserting that it conferred highly valuable rights on AIF.

34    Fifth, the Sage-Techlogica Transaction, involving the payment of $560,000 from the funds of Sage, a public company, was procured by Mr Anthony so that he could obtain $500,000 for the repayment of a debt in his own personal interest. The transaction was nothing more than a cynical plundering of funds of the investing public simply because they were within Mr Anthony’s reach and he wanted them: Judgment paras 483, 498.

35    Sixth, similarly, the Sage-AIF Management Fee of $250,000, the payment of $563,000 pursuant to the Medionics-Optum Transaction, and the $425,000 consideration for the AIF-Biotech Transaction, were all procured by Mr Anthony simply because he wanted funds for whatever purpose, and could hardly be bothered giving more than the merest pretext of a commercial justification for the payments.

36    Seventh, corporate structures were freely incorporated and used at the instigation of Mr Anthony as a means of shuffling around funds for his own purposes and disguising the fact that he was involved in managing AIF’s affairs: see the Round Robin Payments, Judgment paras 424-436, paras 58-61, paras 372-382, and para 406.

37    Eighth, Mr Anthony continued to assert throughout the trial and throughout his submissions on penalty that all that he did was in AIF’s best interest. However, as a result of the Round Robin Payments, AIF lost $2.708M: $1.4M in book debts owing by Mr Lloyd-Cocks and Mr Luvara which had artificially been made to evaporate, and about $1.308M which went into the directors’ pockets: Judgment para 436.

38    Ninth, through the Sage-Techlogica Transaction, Mr Anthony was prepared dishonestly to take $500,000 from the funds of Sage, which had been invested by the public, to use for his own private purposes.

39    Tenth, large losses to the investing public have resulted from the dishonest management of AIF by Mr Anthony.

40    Eleventh, none of the conduct of Mr Anthony to which I have had regard was merely negligent or irresponsible or due to lack of knowledge and experience. Mr Anthony is an intelligent man professing experience in financial planning and investment. His conduct was calculated, dishonest, motivated by self interest, and heedless of the high risk of loss to members of the public who invested with AIF and Sage.

41    Having regard to:

– Mr Anthony’s conduct in the management of AIF and its associated companies, as I have described in the Judgment;

– the lack of any recognition on Mr Anthony’s part that any of that conduct was dishonest;

– the false evidence given by Mr Anthony on many occasions in the proceedings;

– Mr Anthony’s baseless assertion that what he did was in the interests of AIF, its investors and creditors;

– Mr Anthony’s baseless and repeated assertions that it was ASIC’s unwarranted interference alone which caused the losses which AIF’s investors and creditors have suffered;

– Mr Anthony’s lack of any remorse for the loss and damage to investors caused by his conduct in the management of AIF;

– Mr Anthony’s complete disregard of the law and of the standards of conduct required of corporate officers by regulatory provision,

I have come to the conclusion that, unless a Banning Order is made, Mr Anthony will continue to engage in dishonest commercial conduct in an area in which the public is most vulnerable, namely, investment and financial management.

42    In my opinion, Mr Anthony should never be permitted to occupy a position of responsibility or trust in advising others in financial matters or in managing their financial affairs. He should never be allowed to use corporate structures or to participate in the management of corporations: the risk to the public is too great.

43    I take into account that Mr Anthony is now about fifty-six years old. He says that he is not in good health and that his only work experience has been in financial planning and management. He says that he would find it impossible to find work in any other area.

44    Apart from his age, I would not accept unquestioningly anything that Mr Anthony says about himself unless it were satisfactorily corroborated. What Mr Anthony says about himself is not corroborated.

45    However, even if Mr Anthony’s circumstances are as he describes them, they do not counter-balance in the slightest degree the dangers which he poses to the investing public if he were to be permitted to continue having any role in the management of corporations.

46 I conclude that Mr Anthony’s case falls into the worst category of conduct and that the objects of CA s.206E of protection to the public and deterrence to other contraveners of the Corporations Act would not be served except by imposing on him a disqualification period of twenty-five years from the date of this judgment.

Conclusions as to Banning Orders – Mr Lloyd-Cocks

47    I take into consideration the following circumstances relating to Mr Lloyd-Cocks.

48    First, Mr Lloyd-Cocks has shown himself to be capable of deliberate misappropriation of the public’s money. He determined that Mr Markotic’s “investment” of $250,000 in the Money Mint franchises – if such an illusion could be called an investment – should be “rolled over” into AIF’s pre-IPO, despite Mr Markotic’s strong and unequivocal refusal to do so: Judgment paras 203-213.

49 Second, Mr Lloyd-Cocks’ participation in AIF’s breaches of the disclosure requirements of CA s.727 shows that he regarded compliance with the Corporations Act as a mere matter of filling in pieces of paper, which could be made to appear compliant with the law by subsequent doctoring: Judgment paras 130-132, 139-143.

50    Third, Mr Lloyd-Cocks’ evidence was characterised by sweeping and unfounded statements which, if he ever paused to consider them – which I doubt – he would have known to be untrue: e.g. Judgment paras 123-126, 133-134.

51    Fourth, Mr Lloyd-Cocks was prepared to solicit funds from the public for investment in AIF’s pre-IPO by making statements as to the imminence of its listing on the ASX which were without any reasonable foundation: Judgment paras 201, 202.

52    Fifth, Mr Lloyd-Cocks’ participation in AIF’s breach of its dealer’s licence conditions in relation to the NAB trust account must have been conscious and deliberate: Judgment para 298.

53    Sixth, the Round Robin Payments were directly for the benefit of Mr Lloyd-Cocks in that they resulted in a substantial debt owing by him to AIF being made to disappear from AIF’s balance sheet. The device by which this dishonest scheme was implemented was the SCI Agreement. Mr Lloyd-Cocks was as fully involved as Mr Anthony in the fraud on AIF involved in this scheme: Judgment paras 397-414.

54    Seventh, Mr Lloyd-Cocks was prepared to commit $560,000 of the funds of Sage, a public company, to a “transaction” with Techlogica which, on its face, was so manifestly improvident that no honest director of a public company could have contemplated it for a moment: Judgment paras 478-482. In truth, however, Mr Lloyd-Cocks was simply prepared to let Mr Anthony help himself to $500,000 of the money which the public had invested in Sage: Judgment paras 483-499.

55    Eighth, Mr Lloyd-Cocks freely used corporate structures as a means of transferring funds in the Round Robin Payments.

56    Ninth, Mr Lloyd-Cocks, even when confronted with all of the findings against him made in the Judgment, refused to admit any dishonesty or impropriety on his part in the management of AIF and its associated companies. All that he would concede was that “mistakes had been made”. He did not even seem to concede that it was he who had made the “mistakes”.

57    Mr Lloyd-Cocks protested passionately to the Court in the course of his submissions that all would have been well with AIF and its investors but for the wrongful intervention of ASIC. Mr Lloyd-Cocks convinced me that he actually believed this assertion and that, despite the findings in the Judgment, he remains completely unconscious of any wrongdoing on his part. In my opinion, Mr Lloyd-Cocks poses a grave risk to the public if he is ever permitted to occupy any position of responsibility or trust in advising others in financial matters or in managing their financial affairs. He should never be allowed to use corporate structures or to participate in the management of corporations. As in the case of Mr Anthony, the danger to the investing public is too great.

58 I conclude that Mr Lloyd-Cocks’ case falls into the worst category of conduct. Bearing in mind the objects of CA s.206E(1) to which I have referred, I intend to impose a disqualification period on Mr Lloyd-Cocks of twenty-five years commencing from the date of this judgment.

Compensation Orders – AIF

59    ASIC seeks Compensation Orders under CA s.1317H on behalf of AIF against Messrs Anthony and Lloyd-Cocks. Section 1317H(1) provides:

“Compensation for damage suffered

A Court may order a person to compensate a corporation or registered scheme for damage suffered by the corporation or scheme if:

(a) the person has contravened a corporation/scheme civil penalty provision in relation to the corporation or scheme; and

The order must specify the amount of the compensation.”

60    The first transaction in respect of which ASIC seeks declarations of contravention and Compensation Orders is the Round Robin Payment: Judgment paras 386-446.

61    I have found that, in devising the scheme whereby AIF entered into the SCI Agreement and paid $2.408M to Suisse Credit Pty Ltd, both Messrs Anthony and Lloyd-Cocks, as officers of AIF, breached their duties of care and diligence to AIF, in contravention of CA s.180(1), s.181(1) and s.182(1): Judgment para 446. These are civil penalty provisions: CA s.1317E(1). I will make declarations of contravention accordingly, pursuant to s.1317E(2).

62    Mr Macintosh, the liquidator of AIF, has given evidence that Suisse Credit Pty Ltd is in liquidation and that there is no prospect that any monies can be recovered from it for the benefit of AIF. I accept that evidence.

63    However, I do not think that ASIC, when seeking a Compensation Order under s.1317H(1) against a delinquent officer of a corporation, can prove loss resulting from a relevant transaction only by demonstrating that the corporation has no prospect of recovering that loss from a third party. All that ASIC must show is that, as a result of the delinquent officer acting in contravention of the Act, the corporation suffered loss by the transaction.

64    If the corporation has been able to recoup some part of the loss by action against a third party, a Compensation Order subsequently made under s.1317H(1) will relate only to the shortfall in recoupment. But the corporation is not obliged to endeavour to mitigate its loss from the transaction by proceeding against third parties before looking to the delinquent officer whose contravention of the Act occasioned the loss. The corporation, and ASIC on its behalf, are entitled to look first to the delinquent officer to make good the loss. Obviously, if the corporation proceeds against the delinquent officer and a third party, there cannot be double recovery.

65    Messrs Anthony and Lloyd-Cocks submitted that no Compensation Order should be made in respect of payment by AIF to Suisse Credit Pty Ltd because no loss arising from the transaction had been suffered by AIF as at the date of ASIC’s intervention – which I take to mean ASIC’s ex parte application for asset freezing orders and other relief on 24 October 2001. They say that any loss which arose from the transaction was occasioned by ASIC’s wrongful intervention in AIF’s affairs. They make the same submission in respect of each of the Compensation Orders now sought by ASIC consequent upon the findings in the Judgment.

66    For the reasons which I have already given, there is no substance in these submissions.

67    I am satisfied by reason of the contraventions of the Corporations Act to which I have referred, being civil penalty provisions, AIF has suffered loss as a result of the payment to Suisse Credit Pty Ltd in an amount of $2.408M. I will make a Compensation Order under s.1317H(1) against Messrs Anthony and Lloyd-Cocks, jointly and severally, for that amount.

68    ASIC seeks declarations of contravention and Compensation Orders in respect of the payment of $300,000 by AIF to Webfeatures. I have found that in authorising that payment both Messrs Anthony and Lloyd-Cocks, as officers of AIF, contravened CA s.180(1), s.181(1) and s.182(1).

69    Mr Macintosh says, and I accept, that Webfeatures is in liquidation and that no money has been recovered from it in respect of this transaction. I am satisfied that by reason of the contraventions to which I have referred, AIF has suffered loss in the amount of $300,000. I will make declarations of contravention and Compensation Orders against Messrs Anthony and Lloyd-Cocks jointly and severally, in accordance with this finding.

70    ASIC seeks declarations of contravention and Compensation Orders in respect of the payment by AIF to Medionics of $303,000. I have found that in approving that payment, Messrs Anthony and Lloyd-Cocks, as officers of AIF, contravened CA s.180(1), s.181(1) and s.182(1): Judgment para 565.

71    Mr Macintosh says, and I accept, that no recovery of this money has been obtained from Medionics and that there is no prospect of recovering it.

72    I am satisfied that by reason of the contraventions to which I have referred, AIF has suffered loss in the amount of $303,000. I will make declarations of contravention and Compensation Orders against Messrs Anthony and Lloyd-Cocks jointly and severally, in accordance with this finding.

73    ASIC seeks declarations of contravention and Compensation Orders in respect of the payment or transfer of monies and the transfer of property worth $425,000 by AIF to Biotech pursuant to an invoice dated 16 October 2001.

74    On 17 October 2001, AIF transferred to Biotech 500,000 shares in Sage for a consideration of $275,000. There is no evidence of the remainder of the Biotech invoice, i.e. $150,000, having been paid: Judgment paras 566, 567, 573 and 574.

75    I have found that in approving the transfer by AIF to Biotech of the Sage shares, Messrs Anthony and Lloyd-Cocks contravened CA s.180(1), s.181(1) and s.182(1): Judgment para 581.

76    Mr Macintosh says of this transaction:

“I refer to paragraphs 566 to 581 of the Judgment in relation to the payment of $425,000 by AIF in respect of an invoice issued by Biotech Securities Ltd and say that:

a) The transaction was to the detriment of AIF to the extent of $425,000

b) No funds have been recovered in respect of this transaction and

c) In my opinion there is no prospect of recovering funds in respect of the transaction.”

77    Mr Macintosh does not particularise how a loss of $425,000 is calculated except inferentially by reference to the face value of the transaction.

78    I am prepared to infer that the Sage shares transferred by AIF to Biotech had a value of $275,000 as at the date of the transfer. Sage was then a listed company and it is a safe inference that Messrs Anthony and Lloyd-Cocks, who instigated the transaction for the benefit of Biotech, would not have transferred the Sage shares to Biotech at an under-value.

79    However, as I have noted, there is no evidence that the balance of the Biotech invoice, namely $150,000, was paid by AIF. Accordingly, the only loss which I am able to find AIF has suffered by this transaction is the loss of the Sage shares valued at $275,000.

80    I am satisfied that by reason of the contraventions of the Act by Messrs Anthony and Lloyd-Cocks to which I have referred, AIF has suffered loss in the amount of $275,000. I will make declarations of contravention and Compensation Orders against Messrs Anthony and Lloyd-Cocks jointly and severally, in accordance with this finding.

81    Mr Luvara has consented to an order that he pay $230,000 to AIF as compensation for his contravention of the Act in participating in the AIF-Biotech transaction. To date, he has paid only $56,000. AIF cannot recover double compensation for the loss. Messrs Anthony and Lloyd-Cocks will be liable under the Compensation Order which I will make against them for any shortfall after taking into account what is received from Mr Luvara.

Compensation Orders – AIF Strategic Management

82    ASIC seeks declarations of contravention and Compensation Orders in respect of the payment by AIF Strategic Management, as trustee of the AIF Strategic Management Trust, of $263,000 on 29 May 2001.

83    I have made no finding that Mr Anthony was an officer of AIF Strategic Management. Although I have found that Mr Anthony contravened CA s.180(1), s.181(1) and s.182(1) by approving payment by Medionics to Optum, in a connected transaction, I cannot say that Mr Anthony’s contraventions in relation to payment by Medionics to Optum resulted in loss to AIF.

84    I have found that Mr Lloyd-Cocks was an officer of AIF Strategic Management and that, in approving the payment to Medionics he contravened CA s.180(1), s.181(1) and s.182(1): Judgment para 565.

85    Mr de Zylva, the present trustee of the AIF Strategic Management Trust, has given evidence, which I accept, that the present loss to the trust, after taking into account the repayment by Mr Luvara, is $216,000 plus interest.

86    The loss occasioned by Mr Lloyd-Cocks’ contravention was suffered by AIF Strategic Management, although in its capacity as trustee of the AIF Strategic Management Trust. The transaction was effected by AIF Strategic Management in breach of trust, being an improvident investment. The company thereby incurred a liability to restore the trust fund. If AIF Strategic Management recovers compensation for the loss, it must account for that receipt to the present trustee of the Trust.

87    I am satisfied that by reason of the contraventions of Mr Lloyd-Cocks to which I have referred, AIF Strategic Management has suffered loss in amount of $216,000 plus interest as calculated in paragraph 7 of Mr de Zylva’s affidavit. I will make declarations of contravention and Compensation Orders against Mr Lloyd-Cocks in accordance with this finding.

Compensation Orders - Sage

88    ASIC seeks declarations of contravention and Compensation Orders in respect of the payment of $560,000 by Sage to Techlogica on 28 September 2001.

89    I have found that, in making that payment, Sage contravened the provisions of s.208(1): Judgment para 517. I have found that both Mr Lloyd-Cocks and Mr Anthony were involved in the contravention by Sage of s.208(1), within the meaning of s.79, whereby they themselves have contravened s.208(1), by virtue of s.209(2): Judgment paras 518-521. A contravention of s.209(2) is a contravention of a civil penalty provision: s.1317E(1)(b). Messrs Anthony and Lloyd-Cocks are therefore liable to a compensation order under s.1317H(1).

90    I am satisfied that by reason of the contraventions of s.209(2) by Messrs Anthony and Lloyd-Cocks, Sage has suffered loss in the amount of $560,000. Of this amount, Sage has recovered $421,614.06 from Mr Bonvino’s company, leaving a shortfall of $138,385.94, plus interest as calculated in paragraph 5 of the affidavit of Mr Cotterell.

91    I will make declarations of contravention and Compensation Orders against Messrs Anthony and Lloyd-Cocks jointly and severally in accordance with this finding.

92    ASIC seeks declarations of contravention and Compensation Orders in respect of the payment by Sage of $250,000 to AIF on 28 September 2001.

93    I have found that in making this payment, Sage contravened CA s.208. I have found that both Mr Anthony and Mr Lloyd-Cocks were involved in that contravention within the meaning of s.79 whereby they themselves have contravened s.208(1), by virtue of s.209(2): Judgment paras 541-542. I am satisfied that Sage suffered a loss of $250,000 by reason of the contraventions of Messrs Anthony and Lloyd-Cocks of s.209(2).

94    I will make declarations of contravention and Compensation Orders against Messrs Anthony and Lloyd-Cocks jointly and severally, in accordance with this finding.

Orders

95    I will stand these proceedings over for a short time to enable ASIC to bring in Short Minutes of Order embodying the declarations and orders which I have foreshadowed in these reasons for judgment. I will then hear argument as to costs.

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