Australian Securities and Investments Commission v Koala
[2002] NSWSC 451
•20 May 2002
Reported Decision:
41 ACSR 628
New South Wales
Supreme Court
CITATION: ASIC v KOALA [2002] NSWSC 451 CURRENT JURISDICTION: Equity Division
Corporations ListFILE NUMBER(S): SC 1461/01 HEARING DATE(S): 20/05/02 JUDGMENT DATE: 20 May 2002 PARTIES :
Australian Securities and Investments Commission - Plaintiff
Koala Quality Produce Limited - First Defendant
Australian Rural Group Limited - Second Defendant
Koala Hydroponics Limited - Third DefendantJUDGMENT OF: Barrett J
COUNSEL : Ms E.A. Collins - Plaintiff
Mr S.J. Burchett - First and Third DefendantsSOLICITORS: Jan Redfern - Solicitor for ASIC - Plaintiff
Whitfields - First and Third Defendants
Mr Alan Jessup - Second DefendantCATCHWORDS: CORPORATIONS - unregistered managed investment scheme - order for winding up - need for orders to define framework for winding up LEGISLATION CITED: Corporations Act 2001 (Cth)
Management Investments Act 1998 (Cth)CASES CITED: Australian Securities and Investments Commission v ABC Fund Managers (No 2) [2001] VSC 383
Australian Securities and Investments Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778
Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd [2002] NSWSC 310DECISION: Winding up ordered
IN THE SUPREME COURT REVISED
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST
BARRETT J
MONDAY 20 MAY 2002
1461/01 - AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v KOALA QUALITY PRODUCE LTD & ORS
JUDGMENT
1 By its further amended originating process, ASIC claims principally an order pursuant to s.601EE of the Corporations Act 2001 (Cth) that an unregistered managed investment scheme be wound up.
2 The scheme in question was established in 1997 pursuant to an investment deed and management agreement according to the standard model for a unit trust under the prescribed interest provisions then in force, with the second defendant, Australian Rural Group Limited, as trustee and the first defendant, Koala Quality Produce Limited, as management company. The requirements of the Corporations Law in force at that time were complied with so as to enable interests in the scheme to be marketed through a prospectus as prescribed interests. With the advent of the Management Investments Act 1998 (Cth), the scheme became subject to a requirement for registration under Part 5C.1 of the Corporations Law as amended by that Act.
3 In circumstances which are related in the evidence, an extension of time for this registration was obtained from ASIC, but, on any view of matters, that extension of time has come to an end. It came to an end, at the latest, on 31 October 2000 and may have ended earlier upon non compliance with certain conditions of ASIC's exemption of 30 June 2000. At all events, an attempt to challenge ASIC's decision in refusing further extension by proceedings in the Administrative Appeals Tribunal was unsuccessful. As a result, there is no longer any ground on which it can be said that an extended time is available or that there has been no failure to comply with the registration requirement in Part 5C.1. In those circumstances, s.601EE empowers the court to order that the scheme be wound up, assuming that it can be said that some person currently “operates” the scheme.
4 The evidence and, in particular, the events detailed in the chronology which has been handed up show that, while there has not been a great deal of activity in recent times, particularly insofar as the core function of growing produce is concerned, nevertheless the trustee and the manager continue to have contact with investors and to regard themselves as playing an ongoing role in relation to investors. That is, to my mind, sufficient to mean that the scheme is being “operated” in the broadest sense, even though its specific horticultural or agricultural activity is in abeyance.
5 Section 601EE, in terms, empowers the court to order that a scheme be wound up where it is operated in contravention of the prohibition in s.601ED(5), being the prohibition upon operation of a scheme requiring registration where the necessary registration is not in place. Although s.601EE is not mandatory, it is difficult to imagine circumstances in which the court would not proceed to wind up a scheme which was operating otherwise than in accordance with the legislation, given that registration and the protections it involves are deemed by the law to be necessary in the interests of investors. Without registration and the regime it entails, necessary controls are lacking, with the result that investors are exposed to a situation in which their funds are not protected in the way the legislation intends them to be protected. This gives rise to serious public interest considerations which justify measures to put an end to the scheme: see generally the observations of Owen J in Australian Securities and Investments Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778 subsequently approved and applied in Australian Securities and Investments Commission v ABC Fund Managers Ltd (No 2) [2001] VSC 383 and Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd [2002] NSWSC 310. Speaking for myself, I cannot at the moment think of circumstances in which the court might think it appropriate to decline to order winding up of an unregistered scheme under s.601EE, except perhaps where satisfactory remedial measures of some kind were virtually complete.
6 This is a case in which the s.601EE jurisdiction should be exercised in a way which places the winding up of the scheme in the hands of a registered liquidator. This is, of course, in contradistinction to the method of winding up provided for by Part 5C.9 of the Corporations Act, which deals with the winding up of a registered scheme by the responsible entity. There is no scope for that kind of winding up here, because there is neither a registered scheme nor a responsible entity.
7 Under s.601EE, the court has a broad discretion as to the orders it may make. The orders sought in the further amended originating process include orders giving the appointed liquidator the powers contained in s.477 of the Act, with that section notionally applied to the scheme as if it were a company, together with certain other orders as to powers. Those orders are appropriate.
8 There remains lacking, however, any general framework according to which the winding up is to occur. By analogy with Part 5C.9, that gap is appropriately filled by reference to the terms of the investment deed of 29 August 1997 and its accompanying management agreement. Those documents contemplate termination of the scheme under the direction and control of the trustee and the management company. It is appropriate that the liquidator should proceed according to Clause 13 of the investment deed in effecting the winding up ordered by the court.
9 I now make order 1 in the further amended originating process, being an order pursuant to s.601EE that the scheme be wound up, and order 2 which appoints Mr Hedge of PriceWaterhouseCoopers as liquidator of the scheme for the purpose of winding up the scheme. I also make orders 3, 4, 5 and 6. I further order that the liquidator shall proceed to wind up the scheme in the manner provided for in the investment deed of 29 August 1997 with respect to termination of the scheme and that, for that purpose, the liquidator shall have all the powers expressed to be conferred on the trustee and the manager by provisions of that deed with respect to or relevant to a termination of the scheme under the provisions of the deed.
[Counsel addressed on costs.]
10 I will adjourn the question of costs for mention at 9.30 am on Wednesday this week before me. I direct that notice be given to the second defendant (which has filed a submitting appearance except as to costs) that its potential liability to costs, along with that of the first defendant, will be argued at that time and that it should be here. ASIC will give that notice.
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