Australian Securities and Investments Commission v Marco (No 6)
[2020] FCA 1781
•7 December 2020
FEDERAL COURT OF AUSTRALIA
Australian Securities and Investments Commission v Marco (No 6) [2020] FCA 1781
File number: WAD 481 of 2018 Judgment of: MCKERRACHER J Date of judgment: 7 December 2020 Date of publication of reasons: 11 December 2020 Catchwords: CORPORATIONS – managed investment scheme – winding up – whether scheme amounted to managed investment scheme required to be registered under s 601ED(1) of the Corporations Act 2001 (Cth) – where the personal defendant executed declarations of trust with investors and pooled funds in personal bank accounts – where personal defendant used funds to participate in ‘private placement programmes’ – where personal defendant transferred funds to the corporate defendant to purchase real property and vintage cars – whether the conduct of both defendants constituted the operation of a managed investment scheme – in circumstances where the personal defendant considered the corporate defendant to be an extension of his business dealings
CORPORATIONS – financial services business – whether the defendants carried on a financial services business – whether the defendants breached s 911A of the Corporations Act by not holding an Australian Financial Services License – whether the personal defendant was dealing in a financial product – whether the corporate defendants’ holding of property assets formed part of the financial services business
CORPORATIONS – final relief – winding up orders – contraventions of Ch 5C and Ch 7 of the Corporations Act – whether it is just and equitable that the scheme and the corporate defendant be wound up – whether receivers should be appointed on a final basis concurrently with liquidators – where receivers are necessary for identification and delivery up of scheme property
CORPORATIONS – final relief – declarations – whether there is sufficient evidence to support the declarations sought
CORPORATIONS – final relief – injunctions – where injunctions would expose the personal defendant to contempt of court for further contraventions – whether exposure to contempt of court for future contraventions is appropriate given the deliberateness and seriousness of the contraventions
CORPORATIONS – receivers – administrators – liquidators – where the corporate defendant is placed in voluntary administration by the personal defendant after the filing of the application for winding up – where the creditors of the corporate defendant resolve that it be wound up after the final hearing of the winding up application – where interim receivers were appointed to the whole scheme six months ago – whether the interim receivers should replace the voluntary administrators as liquidators of the corporate defendant – orders under s 467B of the Corporations Act – in circumstances where the appointment of a single insolvency practitioner to the whole scheme will save time and expense in the winding up
Legislation: Acts Interpretation Act 1901 (Cth) s 2C
Australian Securities and Investments Commission Act 2001 (Cth) ss 19, 30, 33, Pt 3, Div 1
Corporations Act 2001 (Cth) ss 9, 19, 20, 435A, 435C(2), 436A, 439A, 439C(b), 439C(c), 440A(1), 440A(2), 461(1)(k), 462(2)(e), 464, 467B, 601EB, 601ED, 601ED(2), 601ED(2A), 601ED(4), 601ED(5), 601ED(8), 601EE, 601EE(1), 601EE(2), 761A, 761C, 761E, 761E(2), 761E(4), 763A(1)(a), 763B, 763B(a)(i), 763B(a)(iii), 763B(b), 764A, 766A, 766A(1)(b), 766C(1), 911A, 911A(1), 911A(2), 1101B(1), 1101B(1)(a)(i), 1012E(2), 1311(1), 1317E(3), 1323, 1324, 1324(1)(a), 1324B, 1656, 1657, Ch 5C, Ch 7
Federal Court of Australia Act 1976 (Cth) s 21
Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth)
Cases cited: Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (2017) 254 FCR 68; [2017] FCAFC 113
Australian Competition and Consumer Commission v Renegade Gas Pty Ltd [2014] FCA 1135
Australian Competition and Consumer Commission v viagogo AG (No 3) [2020] FCA 1423
Australian Securities Commission v AS Nominees Ltd (1995) 62 FCR 504
Australian Securities and Investments Commission v Arafure Equities Pty Ltd (2005) 56 ACSR 429; [2005] QSC 376
Australian Securities and Investments Commission v Carey (No 3) [2006] 2006 FCA 433
Australian Securities and Investments Commission v Carey (No 5) [2006] FCA 864
Australian Securities and Investments Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778; [2001] WASC 27
Australian Securities and Investments Commission v Emu Brewery Mezzanine Ltd (2004) 187 FLR 270; [2004] WASC 241
Australian Securities and Investments Commission v Linchpin Capital Group Ltd (No 2) [2019] FCA 398
Australian Securities and Investments Commission v Marco [2019] FCA 466
Australian Securities and Investments Commission v Marco (No 3) [2020] FCA 719
Australian Securities and Investments Commission v Marco (No 4) [2020] FCA 881
Australian Securities and Investments Commission v Marco (No 5) [2020] FCA 1512
Australian Securities and Investments Commission v Mercorella (No 2) (2006) 230 ALR 598; [2006] FCA 763
Australian Securities and Investments Commission v Monarch FX Group Pty Ltd (2014) 103 ACSR 453; [2004] FCA 1387
Australian Securities and Investments Commission v Munro [2016] QSC 9
Australian Securities and Investments Commission v MyWealth Manager Financial Services Pty Ltd (No 3) [2020] FCA 1035
Australian Securities and Investments Commission v Ostrava Equities Pty Ltd [2016] FCA 1064
Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561; [2002] NSWSC 310
Australian Securities and Investments Commission v Sweeney [2001] NSWSC 114
Australian Securities and Investments Commission v Takaran Pty Ltd (2002) 170 FLR 388; [2002] NSWSC 834
Australian Securities and Investments Commission v Westpoint Corporation Pty Ltd (2006) 227 ALR 623; [2006] FCA 135
Australian Softwood Forests Pty Ltd v A-G (NSW) (Ex rel Corporate Affairs Commission) (1981) 148 CLR 121; [1981] HCA 49
Baxter Global Investments Pty Ltd v Marco [2020] NSWSC 1293
BMI Ltd v Federated Clerks Union of Australia (1983) 76 FLR 141
BMW Australia Ltd v Australian Competition and Consumer Commission [2004] FCAFC 167
Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34
Citrix Systems Inc v Tele Systems Learning Pty Ltd (in liq) (1988) 28 ACSR 529
Clowes v Commissioner of Taxation (Cth) (1954) 91 CLR 209; [1954] HCA 10
Corporate Affairs Commission (NSW) v Transphere Pty Ltd (1988) 15 NSWLR 596
Re Courtenay House Capital Trading Group Pty Ltd (in liq) [2020] NSWSC 780
Forster v Jododex (1972) 127 CLR 421; [1972] HCA 61
In the matter of Evcorp Grains Pty Ltd ACN 134 204 050 (No 2) [2014] NSWSC 155
In the matter of SPG Projects Pty ltd (in liq) [2020] NSWSC 34
Kirman v RWE Robinson and Sons Pty Ltd (in liq), in the matter of RWE Robinson and Sons Pty Ltd (in liq) [2019] FCA 372
Markopoulus v Marco [2020] WASC 79
Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53
Division: General Division Registry: Western Australia National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 141 Date of hearing: 28 and 29 October 2020 Counsel for the Plaintiff: Mr J Halley SC with Mr M Sherman Solicitor for the Plaintiff: Australian Securities and Investments Commission Counsel for the First Defendant: Ms JA Thornton Solicitor for the First Defendant: MGM O’Connor Lawyers Pty Ltd Counsel for the Voluntary Administrators of the Second Defendant: Mr P Edgar Solicitor for the Voluntary Administrators of the Second Defendant: Thynne + Macartney Counsel for the Interim Receivers (Excused after tendering affidavits): Mr A Chai Solicitors for the Interim Receivers (Excused after tendering affidavits): Ashurst ORDERS
WAD 481 of 2018 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Plaintiff
AND: CHRIS MARCO
First Defendant
AMS HOLDINGS (WA) PTY LTD (RECEIVERS APPOINTED) (ADMINISTRATORS APPOINTED) (ACN 164 700 485)
Second Defendant
AMS HOLDINGS (WA) PTY LTD (RECEIVERS APPOINTED) (ADMINISTRATORS APPOINTED) (ACN 164 700 485) AS TRUSTEE FOR AMS HOLDINGS TRUST
Third Defendant
CAMERON HUGH SHAW, RICHARD ALBARRAN and MARCUS JON WATTERS OF HALL CHADWICK
Interested Persons
ORDER MADE BY:
MCKERRACHER J
DATE OF ORDER:
7 DECEMBER 2020
THE COURT NOTES THAT:
A.For the purposes of these orders, ‘the Scheme’ means the managed investment scheme operated by the each of the defendants, whereby between 1 January 2014 and 31 October 2018:
(a)the first defendant obtained moneys from investors;
(b)the first defendant pooled the moneys in bank accounts, including the following accounts:
(i)Westpac Banking Corporation – BSB 036406, Account number 239817;
(ii)Westpac Banking Corporation – BSB 037131 Account number 684106;
(iii)Westpac Banking Corporation – BSB 037 131 Account number 693360;
(iv)Westpac Banking Corporation – BSB 037 165 Account number 857175; and
(v)Westpac Banking Corporation – BSB 736 053 Account number 654708;
(c)the first defendant represented and/or agreed with investors that the moneys were to be used as a proof of funds for investments and/or to fund investments;
(d)the first defendant represented and/or agreed with investors that in return for advancing funds, investors would receive a right to interest payments;
(e)the first defendant was to use the moneys as proof of funds for investments and/or to fund investments, with a view to generating a profit out of which interest payments were to be paid to investors;
(f)the first defendant transferred moneys to the second and/or third defendants with a view to purchasing real and/or personal property;
(g)the real and/or personal property of the second and/or third defendants purchased with the moneys that were transferred was to be available to meet liabilities to investors;
(h)the first defendant, second defendant and/or third defendant transferred, or expended moneys obtained from investors for private gain and/or for the private gain of related parties or associates; and
(i)the investors did not have day to day control over the use of the moneys.
THE COURT DECLARES THAT:
1.Each of the defendants, by investing client funds with the intention of generating a financial return, contravened the provisions of section 911A of the Corporations Act 2001 (Cth) (the Corporations Act) in that each carried on a financial services business without holding an Australian Financial Services Licence in the period between at least 1 January 2014 and 31 October 2018.
2.Each of the defendants operated the Scheme in contravention of section 601ED(5) of the Corporations Act, in circumstances where the Scheme was required to be registered under section 601EB of the Corporations Act in the period between at least 1 January 2014 and 31 October 2018.
THE COURT ORDERS THAT:
Receivership appointment orders
1.Pursuant to section 1101B(1) of the Corporations Act, Mr Robert Michael Kirman and Mr Robert Conry Brauer of McGrathNicol, Level 19, 2 The Esplanade, Perth, Western Australia, be appointed as joint and several receivers and managers (Receivers), without security, of all property (as defined in the Corporations Act), whether within or outside the State of Western Australia, of:
(a)the first defendant and second defendant;
(b)the third defendant immediately prior to the appointment of voluntary administrators to the third defendant; and
(c)the Scheme,
together, the Property.
2.To the extent that it has not already occurred, each of the first defendant, the second defendant and the third defendant are to immediately give over possession of all their property (as defined in the Corporations Act), whether within or outside the State of Western Australia, together with all books and records relating to that property, to the Receivers.
3.The Receivers have the following powers:
(a)the power to do all things necessary or convenient to be done, in Australia and elsewhere, for or in connection with, or as incidental to the attainment of the objectives for which the Receivers are appointed including, without limitation, for the identification, preservation and securing of all of the Property for the benefit of creditors;
(b)the powers under section 1101B(8) of the Corporations Act;
(c)the powers set out in section 420 of the Corporations Act provided that wherever in that section the word ‘corporation’ appears, it shall be taken to refer to the first defendant, the second defendant, the third defendant and the Scheme; and
(d)the power to require, by request in writing, the first defendant and any employee, agent, banker, solicitor, stockbroker, accountant, consultant or other professionally qualified person who has provided services or advice to the first defendant, the second defendant or the third defendant to provide such reasonable assistance (including access to any documents, books or records to which the first defendant has a right of access or control) to the Receivers as may be required from time to time.
4.Upon being called upon to do so, the Receivers must deliver up that part of the Property that is property of the Scheme to the liquidators appointed under order 14 below.
Receivership remuneration and indemnity orders
5.The Receivers shall be entitled to reasonable remuneration properly incurred in the performance of their duties arising in connection with their appointment and in the exercise of their powers as may be approved by the Court on the application of the Receivers, together with all costs, expenses and disbursements.
6.The Receivers’ remuneration is to be calculated on the basis of time reasonably spent by the Receivers and any partner or employee of the firm to which the Receivers are attached, at the standard rates of the Receivers’ firm from time to time for work of that nature.
7.The Receivers’ remuneration, costs, expenses and disbursements are to be paid from the Property.
8.The Receivers be indemnified from the Property against any claim, liability, proceedings, cost, charge or expense however arising and whether past, present or future, fixed or ascertained, actual or contingent, known (actually or contingently) or unknown which they may incur or be subject to as a result of or in connection with their appointment.
9.The above orders are not to affect the rights of any prior encumbrances over the Property, including the rights of any secured creditor.
10.For the avoidance of doubt, the entitlement of the Receivers to be paid or indemnified from the Property under orders 7 and 8 is not restricted or in any way limited by whether they are acting as receivers of property of the first defendant, the second defendant, the third defendant or the Scheme and they are entitled to treat the Property as a single combined pool of property for those purposes.
Termination of Interim Receivership
11.Immediately upon order 1 taking effect, the appointment of Mr Kirman and Mr Brauer as ‘Individual Receivers’ and as ‘Corporate Receivers’ pursuant to section 1101B(5) of the Corporations Act under orders 2 and 7 of the orders made on 27 May 2020 (the Interim Receivers) be terminated.
Windup up orders
12.Pursuant to section 601EE(2) of the Corporations Act, the Scheme be wound up.
13.Pursuant to sections 467B, 459B and 461(1)(k) of the Corporations Act, AMS Holdings (WA) Pty Ltd (ACN 164 700 485) be wound up.
14.If and to the extent required, pursuant to section 532 of the Corporations Act, leave be granted for Mr Kirman and Mr Brauer be appointed as joint and several liquidators (the Liquidators) of:
(a)the Scheme; and
(b)AMS Holdings (WA) Pty Ltd (ACN 164 700 485).
15.Upon the appointment of the Liquidators in accordance with order 14 above, the appointment of Cameron Shaw, Richard Albarran and Marcus Watters of Hall Chadwick as liquidators of the Second Defendant be terminated.
16.The asset preservation orders made on 1 November 2018 be vacated on the later of the appointment of the Liquidators pursuant to order 14 and the appointment of Receivers pursuant to order 1.
17.Pursuant to section 601EE(2) of the Corporations Act, and subject to any further orders of the Court:
(a)the winding up of the Scheme be conducted as if the Scheme were a ‘company’ or ‘corporation’ for the purposes of the Corporations Act and the provisions of Parts 5.4B, 5.6, 5.7B and 5.9 of the Corporations Act and Schedule 2 to the Corporations Act (Insolvency Practice Schedule (Corporations)) applied to the winding up (with such modifications as are reasonably necessary in the circumstances);
(b)the Liquidators of the Scheme have power to do, in Australia and elsewhere, all things necessary or convenient to be done for or in connection with the winding up of the Scheme, or incidental to the attainment of the winding up of the Scheme, including the functions and powers set out in Chapter 5 of the Corporations Act (as applicable) as if each reference there to a ‘company’ or ‘corporation’ was a reference to the Scheme (with such modifications as are reasonably necessary in the circumstances); and
(c)without limiting the above, the Liquidators of the Scheme shall have the power to investigate or cause to be investigated any deficiency in the Scheme and to exercise the powers under Part 5.9 Division 1 of the Corporations Act as if the Scheme were a ‘corporation’ being wound up.
Liquidation remuneration and indemnity orders
18.The Liquidators shall be entitled to reasonable remuneration properly incurred in the performance of their duties arising in connection with their appointment and in the exercise of their powers as may be approved by the Court on the application of the Liquidators, together with all costs, expenses and disbursements.
19.The Liquidators’ remuneration is to be calculated on the basis of time reasonably spent by the Liquidators and any partner or employee of the firm to which the Liquidators are attached, at the standard rates of the Liquidators’ firm from time to time for work of that nature.
20.The Liquidators’ remuneration, costs, expenses and disbursements are to be paid out of the assets of the Scheme.
21.The Liquidators be indemnified from the assets of the Scheme (including the Property) against any claim, liability, proceedings, cost, charge or expense however arising and whether past, present or future, fixed or ascertained, actual or contingent, known (actually or contingently) or unknown which they may incur or be subject to as a result of or in connection with their appointment.
22.The above orders are not to affect the rights of any prior encumbrances over the assets of the Scheme, including the rights of any secured creditor.
23.For the avoidance of doubt, the entitlement of the Liquidators to be paid or indemnified from the assets of the Scheme under orders 19 and 20 is not restricted or in any way limited by whether they are acting as liquidators of the Scheme or AMS Holdings (WA) Pty Ltd (ACN 164 700 485) and they are entitled to treat the assets of the Scheme as a single combined pool of assets for those purposes.
Injunctive relief
24.Pursuant to section 1324 of the Corporations Act, the first defendant be permanently restrained from:
(a)carrying on a financial services business in Australia without holding an Australian financial services licence covering the provision of the financial services; and
(b)operating an unregistered managed investment scheme in contravention of section 601ED(5) of the Corporations Act.
Costs
25.The defendants pay the plaintiff’s costs of the proceedings, including the costs of the plaintiff’s interlocutory application filed on 12 December 2019 and ruled on in Australian Securities and Investments Commission v Marco (No 3) [2020] FCA 719, as taxed or agreed.
Miscellaneous
26.The Receivers and/or Liquidators and other parties have liberty to apply on short notice, including as to termination of the Receivers appointed under order 1 above.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
TABLE OF CONTENTS
OVERVIEW
[1]
BACKGROUND
[6]
THE EVIDENCE
[15]
ASIC’s evidence
[15]
The Interim Receivers’ evidence
[21]
Voluntary Administrators’ evidence
[36]
AN UNREGISTERED MANAGED INVESTMENT SCHEME
[58]
FINANCIAL SERVICES BUSINESS WITHOUT AN AFSL – S 911A
[84]
RELIEF
[104]
The defendants’ submissions on relief
[104]
Declaratory and injunctive relief
[117]
Winding up of the scheme and appointment of liquidators and receivers
[124]
CONCLUSION
[141]
MCKERRACHER J:
OVERVIEW
By an amended originating process filed on 28 May 2020 (the Application), the plaintiff (ASIC) seeks certain orders against the first defendant (Mr Marco) and the second and third defendants (AMS) to address asserted contraventions of:
(a)section 601ED(5) of the Corporations Act 2001 (Cth), which prohibits a person from operating a managed investment scheme that s 601ED(1) requires to be registered under s 601EB unless the scheme is so registered; and
(b)section 911A of the Corporations Act, which requires a person who carries on a financial services business to hold an Australian Financial Services Licence (AFSL) covering the provision of the financial services.
Ultimately after many hearings, the liability issues were not seriously in dispute. The main debate on this hearing was in relation to the appropriate relief.
It is clear that one or more of the defendants have contravened each of s 601ED and s 911A of the Corporations Act.
ASIC initially contended that the Court should grant the relief sought in prayers 17 to 32 of the Application, which broadly consists of:
(a)declaratory relief in respect of the contraventions outlined above (at [1]) pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth);
(b)orders for the appointment of receivers or trustees to the property of the defendants on a final basis pursuant to s 1101B(1) of the Corporations Act;
(c)orders providing for the winding up of the unregistered managed investment scheme operated by the defendants and the appointment of liquidators pursuant to ss 601EE and 461(1)(k) of the Corporations Act;
(d)an order pursuant to s 1324 of the Corporations Act providing for refunds to be made to investors;
(e)final injunctions against Mr Marco pursuant to s 1324 of the Corporations Act restraining conduct in contravention of the provisions above (at [1]); and
(f)publication orders pursuant to s 1324B of the Corporations Act.
There has been considerable debate (mostly but not exclusively from the defendants) as to the appropriate relief. Some concessions have been made by ASIC and the relief at [4(d)] is no longer pursued.
BACKGROUND
On 29 October 2018, ASIC commenced proceedings against the defendants and sought interim relief including asset preservation and disclosure orders. The Court made orders against the defendants pursuant to s 1323 of the Corporations Act on 1 November 2018, and ASIC’s investigations into the affairs of the defendants continued for the next 12 months.
On 12 December 2019, ASIC filed an interlocutory process seeking an order for the appointment of interim receivers over the property of the defendants and leave to file an amended originating process in the form of the Application.
On 27 May 2020, I made orders appointing Mr Robert Michael Kirman and Mr Robert Conry Brauer of McGrathNicol as Interim Receivers and granting ASIC leave to file the Application. I also ordered the Interim Receivers to provide a report to the Court that addressed a number of issues, including the identification of the assets and liabilities of the defendants, an opinion as to the solvency of the defendants, the likely return to creditors (including investors) in the event that any scheme operated by the defendants were to be wound up, and any other information necessary to enable the financial position of the defendants to be assessed. My reasons were published as Australian Securities and Investments Commission v Marco (No 3)[2020] FCA 719.
On 24 July 2020, the Interim Receivers filed an affidavit of Mr Brauer annexing a substantial and concerning report addressing the matters that were the subject of the 27 May 2020 orders (the Interim Receivers’ Report). That affidavit is currently before the Court.
On 7 August 2020, orders were made by consent to facilitate the provision of the Interim Receivers’ Report to the defendants’ investors. Those orders also established a timetable for the hearing of this Application for final relief.
In summary form, ASIC alleges that each of the defendants operated a Scheme whereby investors would execute a Declaration of Trust with Mr Marco by which he guaranteed very attractive returns on maturity of the investment. Mr Marco is said to have represented that his ability to generate high returns was due to his access to, and participation in, overseas ‘Private Placement Programmes’. In addition, the evidence to date has revealed that investor funds were used to purchase real estate and vintage cars by both Mr Marco and AMS, as well as in numerous related party transactions: Marco (No 3) (at [36]-[71]). At the time of delivering Marco (No 3), the evidence suggest that the result of these activities was that as many as 132 investors were owed at least $240 million: Marco (No 3) (at [113]). Since then, significant work has been undertaken by the Interim Receivers, and recently the Voluntary Administrators of AMS. While the precise figures have varied across the different analyses, they all confirm a significant shortfall in the hundreds of millions of dollars now owing to investors.
Due to the nature of the defendants’ submissions on the appropriate form of final relief, it is necessary to briefly address the position with respect to AMS. Mr Marco and his son, Mr Damon Marco are the Directors of AMS and Mr Marco is the sole shareholder. By a Trust Deed executed in July 2013, AMS became the trustee of the AMS Holdings Trust. It is in its capacity as trustee of the AMS Trust that AMS is also named as third defendant. The specified beneficiaries of the AMS Trust are Mr Marco and his wife. Mr Marco is also the appointor of the AMS Trust. On 24 September 2020, the Directors resolved to place AMS into voluntary administration. By operation of cl 16 of the Trust Deed, AMS ceased to be the trustee of the AMS Trust on the day it entered administration. As appointor, Mr Marco does not appear to have named a new trustee. As will be seen, much of the dispute about the final relief concerns AMS’ role in the contraventions that have been established essentially unopposed against Mr Marco. The interaction between ASIC’s Application and the administration of AMS has also raised additional issues.
At an adjourned second creditors meeting on 26 November 2020, AMS’ creditors resolved that AMS should be wound up, despite the recommendation of the Voluntary Administrators that a further amended Deed of Company Arrangement (DOCA) propounded by Mr Marco be approved. A significant contention for ASIC on the Application is that the Scheme and AMS be wound up and the Interim Receivers appointed as the liquidators. Upon the appointment of the Voluntary Administrators as Voluntary Liquidators of AMS only, ASIC filed an interlocutory application to the effect that, if successful in achieving the relief sought in the Application, that the Interim Receivers replace the Voluntary Liquidators as Court-Appointed Liquidators of AMS. In light of this, and further concerns on the part of ASIC that unnecessary expense would be incurred in the voluntary liquidation of AMS, I informed the parties that I would pronounce orders on the Application on 7 December 2020 and publish these reasons in due course. For convenience, and given the timing of events, the Voluntary Liquidators are referred to in these reasons primarily by their previous appointment as the Voluntary Administrators.
On 3 December 2020, a further application was filed by the defendants seeking variations to the asset preservation orders to permit payments by Mr Marco of significant sums for various legal fees and vehicle repairs. Over the course of the litigation, it has become a routine practice for variations to the asset preservation orders to be made by consent. It is clear that ASIC opposes this particular variation. In light of my decision to pronounce orders on ASIC’s Application on 7 December 2020 which terminate the asset preservation orders, it is unnecessary to deal with the substance of the dispute. The questions as to the appropriateness of expenses incurred by the defendants is now a matter for the liquidators of the Scheme.
THE EVIDENCE
ASIC’s evidence
In support of its Application, ASIC relies upon evidence provided by ASIC officers, four sample investors who contributed funds to Mr Marco, and forensic accounting experts employed by KPMG. It also tenders a number of business records. Certain objections were taken and resolved by consent, with ASIC making a number of concessions.
ASIC relies upon the affidavit evidence of three of its officers:
(a)the affidavit of Ms Whee-Jong Michelle Lim (a senior lawyer employed by ASIC who was the project manager of the civil aspect of ASIC’s investigation) dated 24 August 2020 (the Lim Affidavit). Ms Lim’s evidence addresses investigations and enquiries undertaken by ASIC and the provenance of documents upon which ASIC relies, many of which are the subject of summaries provided in the Gomm Affidavit and Howman-Giles Report (referred to below);
(b)the affidavit of Mr Richard Warren Gomm (a senior investigator employed by ASIC) dated 25 August 2020 (the Gomm Affidavit). Mr Gomm summarises the contents of voluminous documents obtained by ASIC, particularly bank statements. The summary addresses payments and receipts into and out of bank accounts associated with Mr Marco and AMS. Mr Gomm’s evidence also addresses in detail the process that he undertook in order to prepare his summary; and
(c)the affidavit of Ms Kylie Lorraine Lethorn (an Analyst employed by ASIC) dated 21 August 2020. Ms Lethorn gives evidence regarding the preparation of a document titled ‘List of investors for KPMG’. That document was among the materials briefed to KPMG.
Additionally, ASIC reads the affidavits of four investor witnesses who give evidence about the circumstances in which they came to invest money with Mr Marco and the steps that were taken in order to formalise the investment. They are:
(a)the affidavit of Mr Ross Edward Martin (a 69 year old self-employed homeopath who invested funds with Mr Marco) dated 15 August 2020 (the Martin Affidavit);
(b)the affidavit of Mrs Lorraine Morrison (a 65 year old check-out operator and former teacher who invested funds with Mr Marco together with her husband Peter) dated 17 August 2020 (the Lorraine Morrison Affidavit);
(c)the affidavit of Mr Peter John Morrison (a 67 year old compliance officer with the City of Bunbury who invested funds with Mr Marco together with his wife Lorraine) dated 15 October 2020 (the Peter Morrison Affidavit); and
(d)the affidavit of Mr Michele Raffaele de Marte (a 53-year-old café and restaurant owner who invested funds with Mr Marco) dated 21 August 2020 (the de Marte Affidavit).
Those lay witnesses were not cross-examined once various objections were resolved.
ASIC also relies upon evidence provided by independent forensic accounting experts employed by KPMG. In particular, it read and relied upon:
(a)an affidavit of Mr Luke Howman-Giles (a partner in the forensic division of KPMG) dated 24 August 2020. Mr Howman-Giles annexes an expert report (the Howman-Giles Report), which addresses a series of questions regarding the number of investors who provided funds to Mr Marco, how much money was contributed by investors individually and as a group, how much money was received by each investor, how much money is still owed to each investor, and how much money was paid to and from bank accounts associated with related parties. Mr Howman-Giles also prepared tables for a number of calendar years, and a particular period from 11 April 2017 to 10 April 2018, which identify investors, the amounts they invested, the dates they contributed funds, the interest rate that applied to the investment, the term of the investment and whether the investor contributed money to Mr Marco directly or on behalf of a third party; and
(b)the affidavit of Mr Shaun Milligan (a former associate director in the forensic division of KPMG) dated 22 October 2020. Mr Milligan gives evidence about the conduct of certain data entry activities which informed the preparation of the Howman-Giles Report.
As is evident from the Lim Affidavit, many of the documents exhibited were obtained from the business records of Mr Marco or third-party financial institutions in response to compulsory notices issued pursuant to ss 19, 30 and 33 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). The material gives a proper basis for the Gomm Affidavit and Howman-Giles Report.
The Interim Receivers’ evidence
Various investors have contacted the Interim Receivers as a result of which they confirm the correctness of the substance of the Howman-Giles Report which concluded that there are 311 investors. The Interim Receivers did not undertake a complete reconciliation of all amounts which would be carried out by a court-appointed liquidator before any amount was formally admitted as a debt or until any distribution methodology was determined.
The Interim Receivers also otherwise confirm the conclusions in their Report as addressed in Australian Securities and Investments Commission v Marco (No 5) [2020] FCA 1512 where I said (at [8]):
On 24 July 2020, the Interim Receivers provided their report to the Court pursuant to the orders made on 27 May 2020 (the Interim Receivers’ Report). The Interim Receivers’ Report is annexed to the 2 October Lim Affidavit. Among other matters, the Interim Receivers’ Report made the following salient observations:
(a)‘Mr Marco has consistently stated in the Proceedings and in his dealings with the receivers that, in his view, he and AMS are in effect one and the same and should be viewed collectively as a representation of his business dealings. Mr Marco admits that all of AMS’ assets were purchased from investor funds provided to him’;
(b)‘with the exception of a $0.6 million business loan from Westpac (secured against a property located on McDonald Street West, West Osborne Park, Western Australia), all of AMS’ funding was via an undocumented, related party loan of investor monies from Mr Marco’;
(c)‘Mr Marco has informed the Receivers that there has been comingling of personal, investor and AMS funds in the bank accounts and that reconstructing separate accounts is unlikely to be possible’;
(d)‘The Receivers have not identified any evidence to suggest that AMS traded in its own capacity … Mr Marco has also stated that AMS undertook no activities in its own right’;
(e)there were ‘limited records that have been maintained by Mr Marco to delineate between personal, investor or business funds’;
(f)the Interim Receivers’ view of the estimated realisable value of Mr Marco and AMS’ net asset and liability position on a consolidated basis showed a high case scenario of a shortfall of $221,667,012 and a low case scenario of a shortfall of $362,605,964;
(g)in the Interim Receivers’ view, investors were owed between $254.5 million (on Mr Marco’s records) and $381.9 million (if an approximation of additional interest accrued was included up to the date of their appointment);
(h)the Interim Receivers’ analysis of the estimated realisable value of AMS’ assets included $237,400 in loans and $12,667,273 in property; and
(j)the Interim Receivers’ analysis of the sources and uses of funds disclosed that ‘$18.4 million has been used to purchase, renovate or maintain property either directly by Mr Marco or indirectly by advancing funds to AMS or related parties’.
Since providing the redacted copy of the Interim Receivers’ Report to investors, various investors have contacted the Interim Receivers as a result of which there have been meetings and discussions. They were not identified by name but collectively represent approximately 49% of the total claims by investors and represent both small and large investors.
A number of common themes and concerns emerged from the separate meetings and discussions with these investors. The major matters which those investors who have contacted the Interim Receivers have raised are:
(a)whether and which of the assets and property identified in the Interim Receivers’ Report will be available to meet the claims of investors;
(b)whether there are any other assets or property available to meet the claims of investors which are not identified in the Interim Receivers’ Report (because they have not been located by the limited investigations conducted by the Interim Receivers to date);
(c)whether any assets or property held in the names of parties related to or associated with the defendants which may have been originally acquired with investor funds are available to meet the claims of investors;
(d)whether all available assets and property can be ‘wrapped’ or ‘pooled’ for the benefit of all investors, irrespective of whether they are presently held in the names of any one of the defendants;
(e)the speed and timing of any distributions to investors;
(f)the diversity of interests and views amongst the investors given that some are ‘Mum and Dad’ type investors who have potentially lost the majority of their retirement assets while others are more sophisticated investors who are financially less dependent on their potentially lost investments. It has been suggested that the former may prefer to receive distributions at the earliest opportunity, while the latter may prefer (or have a greater appetite) to wait to receive any distributions if that means an alternative, appropriate (and currently unidentified) plan to maximise investors’ distributions can be developed in some way;
(g)how trust law principles apply and how the respective rights and entitlements of investors will be recognised and dealt with in any distribution. In particular:
(i)Do all investors rank pari passu or will another approach to distribution be adopted such as that taken in Re Courtenay House Capital Trading Group Pty Ltd (in liq) [2020] NSWSC 780?
(ii)Will investors who have already been paid amounts equivalent to all (or substantially all) of their initial capital investment (and so are really claiming promised returns on capital) be treated the same as investors who have not yet been paid any amounts to cover their initial capital investments, both in the context of voting and for the purposes of entitlements to distributions?
(h)investors wish to be kept regularly informed and involved in any major decisions that affect their potential distributions;
(i)avoiding or reducing unnecessary costs that do not benefit the investors; and
(j)the ability to pursue recovery actions, but in consultation with investors given concerns about costs and timing.
A number of these themes and concerns were raised at the first meeting of creditors of AMS convened by the Voluntary Administrators and held on 7 October 2020. The Interim Receivers were represented at the meeting and addressed a number of these matters.
During various meetings and telephone discussions with various investors (and often their lawyers), the view has been expressed by the Interim Receivers that if a liquidator were appointed, a committee of creditors would probably be formed.
The appointment of Voluntary Administrators to AMS resulted in the Interim Receivers receiving a significant number of queries from investors.
The appointment of the Voluntary Administrators to AMS has also significantly increased the level of activity and involvement required by the Interim Receivers. At the time the Interim Receivers’ Report was submitted, the Interim Receivers had not anticipated that such a level of activity and involvement would be required.
The Interim Receivers have had to deal with and attend to a number of other matters since late July 2020. These matters have primarily related to monitoring the defendants’ property portfolio to ensure that rent continued to be received and that arrears were brought up to date, liaising with debtors regarding outstanding balances, attending to insurance matters and securing moveable assets such as the motor vehicles identified in the Interim Receivers’ Report, attending to matters arising from certain investor proceedings against the defendants (discussed further below), and dealing with issues in respect of expenses incurred by AMS including which of those would be met from the permitted weekly allowance of $2,750, and which would be met by the Interim Receivers. Prior to the appointment of the Voluntary Administrators, the Interim Receivers were concerned that not all funds from the permitted weekly allowance had been applied to expenses as required. Following the appointment of the Voluntary Administrators, the Interim Receivers informed Mr Marco that it was not appropriate for him to continue to incur or meet such expenses and that expenses would be managed by the Interim Receivers.
At the time of the appointment of the Interim Receivers, there were two sets of proceedings on foot involving claims by separate investors against one or more of the defendants. The Interim Receivers have had to attend to various matters arising from these two proceedings.
The first proceeding involved an appeal by the defendants against the decision of Tottle J in the Supreme Court of Western Australia in Markopoulus v Marco [2020] WASC 79 to the Court of Appeal of the Supreme Court of Western Australia in proceedings CACV 39 of 2020. The Interim Receivers have had to deal with the solicitors for the defendants, MGM O’Connor Lawyers Pty Ltd, about whether the appeal proceedings ought to be continued and whether and how they would be funded. On 13 August 2020, Mr Marco (as appellant) discontinued the appeal. On 31 August 2020, on the application of the plaintiffs in the primary proceedings, Tottle J made orders requiring Mr Marco to, amongst other things, provide an account of monies provided by the plaintiffs to him.
The second proceeding involved proceedings in the Supreme Court of New South Wales against each of the defendants. The Interim Receivers have had to deal with MGM about whether these proceedings ought to be defended and whether and how they would be funded. The proceedings went to trial in September 2020. The defendants did not appear at the trial. On 22 September 2020, the judgment of Henry J in those proceedings was delivered: Baxter Global Investments Pty Ltd v Marco [2020] NSWSC 1293. The plaintiffs in Baxter have since applied for orders for the payment of the judgment sum out of Mr Marco’s bank accounts and for a charging order against those accounts. The Interim Receivers have sought and been granted leave to file submissions opposing those orders. They have done so.
Shortly after the submission of the Interim Receivers’ Report, MGM informed the Interim Receivers that all future contact with Mr Marco and Ms Marissen (Mr Marco’s executive assistant) was to be made through them and not to those individuals directly. Therefore, since late July 2020, the Interim Receivers have had limited direct contact with Mr Marco, although they have not had any pressing need to do so.
The Interim Receivers have granted their consent, and indicated their ability to carry out the relief sought by ASIC should ASIC’s orders be granted, including being appointed liquidators of the Scheme and AMS.
Mr Brauer also opines as follows:
42.Having acted as Interim Receivers and undertaken the matters outlined in the [Interim Receivers’] Report and this affidavit, Mr Kirman and I consider that we have detailed knowledge of the defendants’ affairs, the alleged scheme and business conducted by them, and their property. We also consider that we have a good knowledge of the investor group and their main concerns and issues.
43.Given the intermingled nature of the affairs of the defendants, as described in more detail in the [Interim Receivers’] Report, I consider that it would be necessary and efficient (if not essential) that in any winding up of the scheme, the same appointees are able to deal with all property, assets and affairs that relate to the alleged scheme.
Voluntary Administrators’ evidence
In an affidavit dated 27 October 2020, Mr Shaw of the Voluntary Administrators details the events of the administration of AMS. From their appointment on 24 September 2020, the Voluntary Administrators performed their statutory tasks in relation to AMS including conducting investigations into the affairs of the company. They carried out the following tasks:
(a)obtained the books and records of AMS;
(b)reviewed the books and records and investigated the financial position of AMS;
(c)completed searches of various statutory registers including the Personal Property Securities Register, ASIC company searches, director searches and director bankruptcy searches;
(d)reviewed the Interim Receivers’ Report;
(e)reviewed the Howman-Giles Report;
(f)spot check audited the Howman-Giles Report;
(g)issued correspondence to all of the major banks to identify any pre-appointment bank accounts held in the name of AMS and requested bank statements from the same;
(h)issued correspondence to all of the major utility providers advising of their appointment and requested details of any accounts held in AMS’ name;
(i)issued correspondence to the Office of State Revenue to identify any amounts outstanding in relation to land tax and payroll tax;
(j)completed motor vehicle registration searches in the name of AMS;
(k)liaised with the Directors and Interim Receivers in respect of AMS’ affairs;
(l)convened and held an initial meeting of creditors on 7 October 2020;
(m)liaised with creditors and investors in the lead up to the initial meeting and reviewed their claims;
(n)reviewed all available details regarding any of AMS’ assets;
(o)held meetings with Mr Marco as director of AMS;
(p)obtained appraisals on AMS’ and the Directors’ physical assets;
(q)investigated investments in financial instruments made by Mr Marco and reviewed the potential for recoveries from the same;
(r)investigated market rental rates for properties leased to related parties;
(s)conducted a preliminary assessment of the Directors’ personal asset and liability positions;
(t)reviewed court applications and court orders with respect to Mr Marco and AMS;
(u)attended to the application for leave to proceed with legal proceedings made by ASIC: see Marco (No 5);
(v)held meetings and telephone discussions with ASIC regarding the leave to proceed application;
(w)reviewed AMS’ records for potential voidable transactions and other transactions that may require investigation based on the nature of AMS’ business assets;
(x)undertook a solvency analysis and established a preliminary estimated date of insolvency for AMS;
(y)conducted investigations into officer offences and insolvent trading;
(z)reviewed AMS’ financial statements;
(aa)conducted preliminary investigations into the Directors’ and related parties’ financial positions; and
(bb)conducted land title searches in the name of AMS, the Directors and related parties.
The Voluntary Administrators have issued formal requests for books and records of AMS to the following persons or entities:
(a)Mr Marco;
(b)Mr Damon Marco;
(c)the Interim Receivers:
(d)MGM;
(e)G Coyle & Associates:
(f)Metaxas Legal;
(g)Clairs Keeley Lawyers:
(h)US Department of Justice;
(i)Madans & Wheaton; and
(j)Kerman and Co.
Additional parties to which formal requests for books and records of AMS were sent to are as follows:
(a)Acapulco Trade & Investment;
(b)Andrew Purser;
(c)Anthony Kirkland-Jones;
(d)Armeli and Molony Lawyers;
(e)Beverley Marco;
(f)Cameron Luck;
(g)CFTX Hedge Fund;
(h)Chrysalis Capital Management;
(i)Deloitte;
(j)Dharja Kapoor;
(k)Ed Pollak;
(l)Eppner Consulting;
(m)Fairway Investments Ltd & Broadway Fair;
(n)HSBC Holdings;
(o)Ian Graydon;
(p)Kevin Lewis;
(q)Kirk Widener;
(r)Lorena Harvey - Rob Barclay;
(s)Lotusten Asset Management;
(t)MAS Real Estate;
(u)NAB;
(v)Norris Dominique;
(w)Patricia Markopoulous;
(x)Phoebe Ang & Kevin Lewis;
(y)Rainer Lampe;
(z)Rem Capital Florida;
(aa)Rem Capital Management;
(bb)Sergio Herrandiz Gil;
(cc)Stadden Forbes Wealth Management;
(dd)Stellar Group;
(ee)Steven Zielinski;
(ff)Talitha Marco;
(gg)Tony Tarky;
(hh)Westpac; and
(ii)Williams and Hughes Law.
The administration has moved very swiftly, including almost daily meetings with Mr Marco, and with investors and their solicitors. Many opinions and queries have been raised with the Voluntary Administrators.
On 25 September 2020, the Voluntary Administrators received two letters from ASIC regarding, among other things, the Voluntary Administrators’ appointment and what involvement the Voluntary Administrators intended to take in these proceedings.
Extensive discussions with ASIC and a number of investors ensued on many topics regarding, inter alia:
(a)the role of the Voluntary Administrators as compared to the Interim Receivers;
(b)the statutory objectives and benefits of a voluntary administration, including the ability for stakeholders to participate in meetings and decision making, and if they wished to propose a DOCA;
(c)the fact that Mr Marco as a Director had communicated his intention to propose a DOCA;
(d)concerns from investors that the costs of running tandem processes (ie. the voluntary administration process and ASIC’s winding up application) could result in a worse return for creditors and investors, especially given extensive preservation orders were already in place;
(e)questions whether Mr Marco might try to use the voluntary administration process to shield himself and his family from personal claims from the investors;
(f)questions from investors whether they would have a say in how AMS (and more broadly the Scheme the subject of these proceedings) could be efficiently wound up and the likelihood of Director cooperation to identify and realise more assets, more efficiently.
(g)questions from investors whether the voluntary administration process, or a DOCA if approved, would hinder ASIC’s ability to investigate or prosecute its claims against Mr Marco generally; and
(h)the position that the Voluntary Administrators would take on ASIC’s Application.
Much of this evidence does not need to be recorded in detail as the position taken by the Voluntary Administrators was one of neutrality and providing assistance to the Court. No other submissions were made. For present purposes it is sufficient to record that the result of the investigations of the Voluntary Administrators are contained in the separate reports as follows:
(a)The Initial Report to Creditors dated 29 September 2020 which:
(i)included the Declaration of Independence, Relevant Relationships and Indemnities (DIRRI);
(ii)advised of the Voluntary Administrators’ appointment on 24 September 2020; and
(iii)gave notice that a first meeting of the creditors of AMS was scheduled to be held on 7 October 2020;
(b)the Major Report to Creditors dated 18 October 2020 which was produced in advance of the second meeting of creditors on 26 October 2020 and contains detailed analysis and opinions as to the affairs of AMS; and
(c)the Supplementary Report to Creditors dated 18 November 2020 which was produced in advance of the reconvened second creditors meeting on 26 November 2020 to inform creditors of further developments in the weeks since the adjournment of the 26 October 2020 meeting.
On 16 October 2020, the solicitors for Mr Marco provided written details of a proposed DOCA. At the date of the hearing, Mr Marco’s DOCA proposal (including a subsequent amendment discussed further below) was the only DOCA proposal that had been received by the Voluntary Administrators.
At the hearing, counsel for the Voluntary Administrators indicated the possibility that an investor-led DOCA may be proposed at the second creditors meeting. Indeed, Mr Shaw deposed in his affidavit that the prospect of an investor-led DOCA, as well as general creditor sentiment, formed the basis for his recommendation that the second meeting should be adjourned to 26 November 2020. As has subsequently been revealed by a further affidavit of Ms Lim filed in support of ASIC’s recent interlocutory process referred to above (at [13]), the Voluntary Administrators completed the Supplementary Report to Creditors. The Supplementary Report to Creditors included a timeline of the various DOCA proposals put forward which is reproduced below. Significantly, no investor-led DOCA proposal has been proposed:
Date Event/Action 14 October 2020 · Original DOCA proposal received from Mr Marco (“the Original DOCA”) 18 October 2020 · Major Report to Creditors is dispatched 22 October 2020 · Initial Meeting of the [committee of inspection] was held and
o Members noted the DOCA proposal in its current form is unsatisfactory
23 October 2020 · Revised DOCA proposal received from Mr Marco (“the First Revised DOCA”) 26 October 2020 · Second meeting of creditors was held and adjourned for the following reasons:
o To provide the Administrators opportunity to analyse the First Revised DOCA;
o To provide an opportunity for an alternate DOCA to be put forward; and
o To consider the merits of any DOCA proposal put forward
6 November 2020 · Second Meeting of the Committee of Inspection was held
o Committee Members noted the First Revised DOCA proposal was unsatisfactory
18 November 2020 · Revised DOCA received from Mr Marco (“the Second Revised DOCA’’), which considered input from investors.
As the above timeline indicates, Mr Marco has put forward three DOCA proposals in the administration of AMS:
(a)the Original DOCA dated 14 October 2020 on which the Voluntary Administrators provide their recommendation in the Major Report to Creditors;
(b)the First Revised DOCA dated 23 October 2020 which was communicated to creditors in a circular of the same date which included an observation that the creditors may wish to adjourn the second creditors meeting (which they did); and
(c)the Second Revised DOCA dated 18 November 2020 on which the Voluntary Administrators provided their recommendation in the Supplementary Report to Creditors ahead of the reconvened second creditors meeting on 26 November 2020.
It should be noted that each iteration of Mr Marco’s DOCA proposals included a set of conditions precedent requiring:
(a)ASIC’s Application being unsuccessful or the Court otherwise enabling the DOCA to be effectuated according to its terms;
(b)the asset preservation orders to be lifted to allow deed administrators to deal with relevant property; and
(c)AMS being reinstated as trustee of the AMS Trust.
On the Voluntary Administrators’ analysis in the Major Report to Creditors, based on the terms of the Original DOCA, creditors were estimated to receive a slightly greater return compared to an immediate winding up for the following reasons:
(a)the Original DOCA scenario allowed for less litigation costs required to pursue alleged loan accounts as they were to be excluded;
(b)the Original DOCA allowed for a lower amount of professional fees due to a shorter anticipated time frame to realise the assets than proceeding to liquidation;
(c)the Original DOCA provided greater certainty for creditors i.e. identifying the assets that are available for realisation;
(d)a liquidation would require the liquidators to conduct extensive investigations at additional cost and would likely result in protracted litigation which would likely reduce any returns to creditors; and
(e)the DOCA was likely to bring the return to creditors forward as it reduces the risk of the Directors:
(i)contesting the current Application;
(ii)appealing any adverse judgement; and
(iii)opposing all subsidiary litigation in respect to the collection of other assets (e.g. loans and bequeathed property).
The Voluntary Administrators identified the following issues with the Original DOCA proposal:
(a)the Original DOCA contemplated use of AMS, the AMS Trust and some personal assets of Mr Marco for future trading of investments, of which the Voluntary Administrators were not supportive due to the:
(i)inability to confirm the parties to the contract prior to submitting for due diligence and illustrating proof of funds;
(ii)uncertainty in respect of the nature of the investment and underlying instruments subject to the trade; and
(iii)uncertainty on the requirements to perform such trading, including proper licensing;
(b)the proposal failed to include a number of personal assets that may become available in a liquidation scenario;
(c)the proposal failed to include eight debtors (mostly related parties) that would be available in a liquidation scenario; and
(d)liquidators would be able to pursue Mr Damon Marco for insolvent trading and voidable transactions in a liquidation scenario.
Based on the above analysis, the Voluntary Administrators formed the opinion that they could not recommend the Original DOCA and that, failing alternative or improved DOCA proposals, it was in the creditors’ interests for AMS to be wound up.
Echoing these views, on 21 October 2020, the Interim Receivers sent a circular to investors regarding Mr Marco’s Original DOCA proposal, expressing their opinion as creditors of AMS that they would not vote in favour of the Original DOCA proposal, that the creditors should vote for an adjournment of the second meeting of creditors, and commenting on the difference in estimated realisations between the Major Report and the Interim Receivers’ Report.
At the meeting of the Committee of Inspection on 22 October 2020, numerous concerns were aired about the Original DOCA and the prospect of an investor-led DOCA was foreshadowed with the proviso that more time was needed. For these reasons, the Voluntary Administrators recommended, and the creditors resolved, to adjourn the second meeting to 26 November 2020.
The only new proposal brought forward was Mr Marco’s Second Revised DOCA. It is included in the Supplementary Report to Creditors which also includes a series of background statements to the Second Revised DOCA which relevantly noted that:
5.An objective of the DOCA is to bring in all reasonably recoverable money and assets that were purchased with money given to [Mr] Marco and given to [AMS], including all money and assets put by [Mr] Marco and [AMS] into trusts and to [related parties], which can be identified to produce the best net return to creditors … to form a consolidated pool of funds for distribution in a consistent manner…
…
7.It is critical to the DOCA’s success, and the advantage of a DOCA over a winding up, that the DOCA must include a mechanism for engaging with the [related parties] and for getting in money (or assets purchased with it / traceable proceeds) that may still be reasonably available without requiring protracted and expensive litigation.
The terms of the Second Revised DOCA are then set out in full (where ‘Recipients’ refers to related parties):
Deed Administrators & proponent 1. Richard Albarran, Cameron Shaw and Marcus Watters would be the Deed Administrators.
2. This DOCA proposal is made by Chris Marco and supersedes previous proposals made by him.
Deed Administrators’ Powers 3. Powers of the Deed Administrator are as set out in Schedule 8A (2) of the Corporations Regulations 2001 (Cth), with the following limitation:
Except with the approval of the Court, of the committee of inspection (COI), or of a resolution of the creditors, the Deed Administrators must not compromise a debt if the amount claimed is more than $100,000
COI 4. A COI will be formed and should be engaged to assist the Deed Administrators, including when considering terms of settlement of recoveries against Mr Marco and the Recipients to consider other options before incurring substantial legal and other costs.
5. [8A-11(a)] The COI must have at least 3 members and there is no upper limit on the maximum number of members in the COI.
6. [8A-11(b)] The creditors and investors in the Scheme must appoint the members in a meeting of creditors. Mr Marco as the sole shareholder of the Company is taken to have resolved to abide that appointment.
7. Insolvency Practice Rule 80-5(2) applies to the COI as if references to a creditor are references to a creditor or an investor in the Scheme.
8. [80-5(3)] A COI meeting should be held within 4 weeks of the commencement of the DOCA.
9. [80-5(3)] At any given COI meeting a date range is to be agreed upon by the COI members and the Deed Administrators as to when the next COI meeting is to be held.
10. [80-5(6)] The COI may act by a majority of its members present at a meeting, but must not act unless a majority of its members are present.
11. [80-5(7)] If a member of the COI is a body corporate, the member may be represented at meetings of the COI by an individual authorised in writing by the member for the purposes of this DOCA term.
12. Insolvency Practice Rule 80-10 applies to the COI as if references to a creditor are references to a creditor or an investor in the Scheme.
13. Other terms governing how the COI works are as set out in Schedule 8A(11)(d), (e) and (f).
14. A member of the COI must not directly or indirectly derive any profit or advantage from the external administration of the Company unless creditors resolve to allow it or a court grants leave to derive the profit or advantage
Conditions of the DOCA to continue 15. ASIC’s application to wind up the Company / Scheme is unsuccessful or other Court orders are made confirming/ enabling the DOCA to be formed and effectuated according to its terms as approved by resolution upon the second meeting for the Company.
16. The Asset Preservation Orders are revised to enable the Deed Administrators to deal with assets, or lifted.
17. Court approval for the Company to remain or be reinstated as Trustee of the AMS Holdings Trust, or orders with similar effect to enable the Deed Administrators to deal with the Trust’s assets.
18. Thereafter, the DOCA terms being satisfied including the promises for Mr Marco to cooperate and for Mr Marco and Recipients to contribute assets to the Deed Fund without requiring litigation and without delay.
Who is in control of the Company during the DOCA 19. The suspension of the powers of the directors remain in place until the end of the DOCA. Once the DOCA is effectuated, the Company will be wound up (as taken to have resolved for a voluntary winding up).
20. If an alternative director/s and/or if appointor of the Trust are able to be found, and those replacements are acceptable to the COI, then the replacements are to be appointed to those roles and Chris Marco and Damon Marco are to resign or otherwise be removed from those roles.
New Liabilities 21. To be met by the Company as and when due by the Company Trust & Personal Assets included in the Deed Fund (to be realised by the Deed Administrators) 22. Company Properties A, B. C, D, E, F, G, H, I, J and K as detailed in Section 5.8.1 and any other real property identified by the Deed Administrators;
23. Mr Marco’s personal Property Interest D as detailed in Section 5.9.3 and any other real property identified in Mr Marco’s name by the Deed Administrators excluding Mr Marco’s interest in Property Interest B and Property Interest C.
24. The Deed Administrators must engage licensed real estate agent(s) to sell the above properties for the best possible price within a reasonable period, and will keep the COI informed of progress and developments.
25. Subject to any priority claim or set-off right by the bank/ registered mortgagee, all monies in the five (5) Westpac bank accounts in Mr Marco’s name excluding the funds held in a bank account held jointly by Mr Marco and Beverley Marco.
26. Mr Marco must transfer all shares held in any company (whether publicly listed or private), all units or other interest in any trust, and all other interests in property or security, as directed by the Deed Administrators from time to time for realisation and contribution of net proceeds into the Deed Fund, including (without limitation) in respect of the following:
(a) All interests in Fairway
(b) CFXT Hedge Fund
(c) The loans to Andrew Purser and security related to that loan
(d) Recovery of deposit paid to Patricia Markopoulus (French Street)
(e) Choses in action (if any exist) against Ian Graydon
(f) Choses in action (if any exist) against Steve Zielinski
(g) Choses in action (if any exist) against Steve Bogar
27. The following vehicles:
(a) Ford Falcon XY GTHO Phase III (1971)
(b) Chrysler Charger VH E49 (1972)
(c) Holden Monaro GTS HQ Coupe (1971)
(d) Holden Torana Liftback LX SS A9X (1977)
(e) Holden Torana “Bathurst” LJ GTR XU-1 (1972)
(f) Holden HSV GTSR W1 (2017)
(g) Holden HSV GTSR Maloo Ute (2017)
(h) Chrysler Jeep Trackhawk (2018)
(i) Mercedes GLC 220D wagon (2016), unless it is dealt with in the Conference with Talitha Marco
(j) Any other vehicle identified by the Deed Administrators as owned by Mr Marco excluding the Datsun 260z Coupe (1975).
28. Damon Marco must also transfer all shares held in companies as directed by the Deed Administrators from time to time for realisation and contribution of net proceeds into the Deed Fund.
29. All [Private Placement Programme] investments/ proceeds however returned.
30. To the extent monies from the Scheme or Scheme Assets are still held by the Recipients (being Chris Marco, Damon Marco, Talitha Marco, Gaye Marco, Ian Graydon, Steve Zielinski, Steve Bogar and Linda Marissen) have not been dissipated and are reasonably recoverable and saleable for a net return to the Deed Fund, the Recipients must account for that and repay money to the Deed Fund on terms agreed with the Deed Administrators (as detailed in the process below).
Claims against the Recipients 31. The process for the Deed Administrators to negotiate and, if possible, reach settlements with the Recipients for commercial recovery to the Deed Fund is as follows:
(b) Within 2 months of the DOCA’s commencement, each of the Recipients must meet with the Deed Administrators for a mediation or settlement conference (the Conference), and participate faithfully to settle all potential claims to Scheme Assets on commercial terms.
(c) Mr Marco must use his best endeavours and cooperate with the Deed Administrators to procure each of the Recipients’ attendance. In doing so, Mr Marco makes clear that he cannot force a Recipient to a Conference, but the intention/ expectation is to achieve this.
(d) Each attendee can be legally represented if they wish.
(e) No less than 7 days prior to the Conference, the Recipient must complete and deliver to the Deed Administrators a Statement of Financial Position (SOFP) showing all assets, income and liabilities of that person. This is to enable the Deed Administrators to make commercial decisions upon the Conference as to the likelihood of net recovery and the benefits of a settlement.
(f) The Deed Administrators will, if directed by the COI for any Recipient, confer with the COI regarding offers made by Recipients and the Deed Administrators’ recommendation about any settlement before it is finalised . However, the Deed Administrators are not bound by the opinion of any COI member.
(g) If the Deed Administrators reach a settlement with a Recipient, then the terms must be formalised in a standard form settlement deed including, without limitation, an express term that the settlement is based on the truth and accuracy of the SOFP and, if the SOFP is incomplete or wrong in a material respect, then that will be a breach of the DOCA and paragraph 40 of this DOCA proposal will apply. Otherwise, the settlements will be final and include mutual releases after full performance by the Recipients.
(h) If a Recipient fails to attend a Conference, or if a settlement is not achieved, or if a deed of settlement with a Recipient is formed but then terminated by the Deed Administrators due to the Recipient’s breach, then the Deed Administrators can take such action against the Recipient the Deed Administrators deem appropriate, including suing any Recipient, after conferring with the COI. If despite Mr Marco’s endeavours, a Recipient refuses to participate in a Conference, then that will be a breach of the DOCA that could justify termination of the DOCA if elected by the Deed Administrators, having conferred with the COI, or if voted by the creditors.
(i) To avoid doubt, the Conference with Talitha Marco and any settlement must include the Mercedes GLC 22D Wagon held by her if that vehicle is still retained by her, unless the COI agree otherwise.
Chris Marco’s and Company assets that are excluded from forming assets available for realisation 32. Chris Marco’s entitlement to monies held in Chris & Beverley Marco’s joint account (estimated balance $13,219);
33. Chris Marco’s interests in Property Interest B;
34. Chris Marco’s interests in Property Interest C ;
35. The 1970 Datsun 260z Coupe (1975).
Monitoring and ongoing conditions 36. The properties at … [Property Interest B and C] are not to be sold until dealt with either by Court Order, a Personal Insolvency Agreement or a Trustee in Bankruptcy.
37. The Datsun 260z is not to be sold until dealt with either by Court Order, a Personal Insolvency Agreement or a Trustee in Bankruptcy, with a security registrable on the PPSR to be granted to the Deed Administrators for the purposes of preserving the vehicle (as opposed to sale) until such time as the vehicle is dealt with in this manner.
38. Mr Marco must sign a personal undertaking not to deal with the above property inconsistently with the above paragraphs (in addition to freezing/ preservation orders already in place in any event).
39. If a Trustee in Bankruptcy or PIA Trustee is appointed, the Deed Administrators will work together with them to the extent reasonable and consistent with the objects of this DOCA to achieve a timely realization of assets, always with any question of law able to be resolved by application to the Court.
Consequence of non-compliance 40. If:
- The Company or Mr Marco is unable to comply with any fundamental provisions of the DOCA; or
- The Deed Administrators form the view that the Company or Mr Marco is unlikely to be able to comply with the terms of the DOCA; or
- If there is other breach of a material term, such as the requirements for the Recipients,
then the Deed Administrators are entitled to convene a COI meeting or a meeting of the Company’s creditors to consider whether to:
(a) Vary the DOCA; or
(b) Terminate the DOCA (with or without a creditors’ resolution); or
(c) Enforce the terms of the DOCA.
41. If the DOCA is terminated, then the creditors who voted in favour of the DOCA will be taken to have consented to the Deed Administrators being appointed as Liquidators to wind up the Scheme.
42. Any settlements reached with Recipients before the termination is intended to remain binding and enforceable according to their terms.
43. If the DOCA is terminated, the Scheme will otherwise be wound up and action will be taken against any Recipient or other person as deemed appropriate by the Liquidators.
Claims subject to DOCA and making claims 44. The following be entitled to prove in the DOCA:
(a) Creditors proving for debts incurred by the Company on or before 24 September 2020; and
(b) Investors in the Scheme.
45. The Deed Administrators are to seek the Court’s order on the methodology of how investor claims should be adjudicated upon/ quantified for distributions from the Deed Fund. This application will be brought promptly and the Deed Administrators will confer with the COI about making an interim distribution as quickly as reasonably possible after Court confirmation of the formula.
Secured Creditor Conditions 46. The DOCA does not:
(a) Release the debts of secured creditors (other than to the extent of any shortfall in their security).
(b) Restrict rights of secured creditor to realise or otherwise deal with their security except to the extent the secured creditor voted in favour of the DOCA or released its security.
Distribution of Deed Fund 47. The Deed Administrators must apply the Deed Fund as and to achieve the steps described in this DOCA proposal and in the order of priority specified in Sections 556, 560 or 561 of the Act as if the Company, Trust and Scheme assets and creditors (including investors with standing as creditors as determined by the Court) were assets and creditors as defined in Section 9, Chapter 5 and relevant Regulations of the Act. Nature and duration of moratorium 48. There is to be a complete bar on claims against the Company, the Trust and the Scheme while the DOCA is operational (excluding secured claims as detailed above). Extent of release by creditors 49. Completion of the DOCA according to its terms results in full and final satisfaction of all claims against the Company, the Trust and the Scheme (excluding secured creditors as detailed above).
50. For the avoidance of doubt, the DOCA does not release creditors’ / investors claims (if any) against Chris Marco personally or any parties other than the Company, the Trust and the Scheme. Claims against Mr Marco personally may be dealt with by a Trustee in Bankruptcy or a PIA Trustee. That is - proving under the DOCA will not itself prevent lodging a proof of debt in any Bankruptcy or PIA process.
51. Effectuation of this DOCA will mean that the Deed Administrators will not pursue the directors for legal claims, and the Deed Administrators acknowledge that they will not be able to pursue any voidable and/or insolvent transactions, including preference claims and other recovery actions against creditors.
Court Orders 52. Court orders will include amending existing freezing orders (to enable property to be dealt with by the Deed Administrators) and to enable dealing with trust property and the terms of the DOCA described herein to achieve the objectives described herein.
53. The Administrators’ legal costs of obtaining Court approval will be paid from Scheme money and must not exceed $45,000 (plus GST) unless otherwise approved by the COI, creditors or the Court.
54. Contribution of real property by the Company is subject to a Court order approving and empowering the Deed Administrators to deal with the Trust assets (as part of the Scheme Assets)
55. Contribution of Mr Marco’s assets and choses in action into the Deed Fund is subject to a Court order approving and empowering the Deed Administrators to deal with Mr Marco’s assets (as part of the Scheme Assets).
Ongoing cooperation by Mr Marco 56. Mr Marco is required to sign documents and do such things as reasonably required by the Deed Administrators from time, to time to effectuate timely sale of the assets being contributed into the Deed Fund.
57. In addition to any other term of this DOCA proposal, Mr Marco promises to sign such documents and to do such things as reasonably required by the Deed Administrators from time to time to effectuate the terms and transactions contemplated by the DOCA.
58. For all Scheme assets and any asset or money not specifically listed in the DOCA proposal that derives from money contributed to the Scheme, including any product described by Mr Marco as Private Placement Programs, Mr Marco promises to provide all reasonable assistance, to sign such documents and to do such things as reasonably required by the Deed Administrators from time to time to investigate and recover money to the Deed Fund in a timely manner.
59. Legal fees incurred by Mr Marco’s lawyers in order to comply with the terms of the DOCA or in his defence of litigation and any claim for reasonable living expenses are to be paid out of the Deed Fund as:
(a) Ordered by the Court; or
(b) Agreed by the COI.
Paragraph (a) acknowledges the orders already in place in the ASIC proceedings for payment of Mr Marco’s reasonable legal costs which will continue and living expenses, and that further orders may be sought from/ made by the Court.
Other 60. The DOCA obligations will be deemed to be satisfied when all amounts required to be paid have been paid and the DOCA obligations of all parties complied with to the satisfaction of the Deed Administrators, having conferred with the COI. Once all DOCA obligations are satisfied and the Deed Administrators have distributed the Deed Fund the Deed Administrators will effectuate the Deed. The Company will then be taken to have resolved to be voluntarily wound up by the Deed Administrators as liquidators. The Company will not continue under the operation of the directors.
61. The Deed Administrators are able to remit unclaimed monies to ASIC under Section 544 of the Act as if the reference to a liquidator was to them.
In the Voluntary Administrators’ opinion, the advantages of the Second Revised DOCA include that it:
(a)contains a mechanism that allows for a mediation or settlement conference with the recipients of funds or assets. This should in turn allow for the efficient recovery or settlement of any traceable assets or claims and thus avoid protracted and expensive litigation;
(b)is likely to engender greater assistance from investment providers and Mr Marco in the realisation of investment assets;
(c)allows for the possible appointment of a trustee to Mr Marco that would co-exist together and would not undermine the DOCA;
(d)allows for significant input and engagement from any committee of inspection;
(e)means there is likely to be less legal proceedings and consequently likely lower professional fees;
(f) is structured to avoid excessive legal costs and delays allowing a quicker anticipated return to creditors;
(g)provides for a greater estimated return to creditors than liquidation;
(h)whilst the proposal fails to include some of Mr Marco’s personal assets and Beverley Marco’s personal assets that ASIC have applied to be incorporated in the winding up of the Scheme, the DOCA provides for preservation of Mr Marco’s assets until they are dealt with by a trustee in bankruptcy, or a trustee under a personal insolvency agreement, or a court; and
(i)the DOCA does not preclude ASIC from undertaking further investigations into the actions of the Directors and pursuing any claim that may therefore arise, which may include those breaches identified at Section 8.1 of the Report.
In circumstances where ASIC seeks final relief by way of:
(a)the winding up of the Scheme and AMS; and
(b)the appointment of Individual Receivers and the Corporate Receivers under s 1101B(1) of the Corporations Act;
Mr Marco says it is not appropriate for the s 1323 asset preservation orders to remain in place. He says they should be vacated.
Mr Marco opposes any orders that the defendants pay ASIC’s costs of these proceedings. He seeks an order that all reserved costs be vacated and each party bear their own costs.
Declaratory and injunctive relief
In relation to the matters to be noted by the Court, Mr Marco makes the point that the time for operation of the Scheme should be specified because some investors started as early as 2005 and, secondly, makes the point that there is no evidence that AMS operated the Scheme. On the second point, I have found to the contrary, such that I think the notation is correct.
I agree with Mr Marco’s submission in relation to the timing, which should be specified. The appropriate timing having regard to the findings made above is that relevant conduct at the appropriate scale occurred in the period from at least 1 January 2014 until 31 October 2018, such that those dates should be inserted after the word ‘whereby’ in the second line of what it is that the Court is noting. A similar reference to those dates should be inserted at the end of declaration 1 and declaration 2, that is, ‘in the period between at least 1 January 2014 and 31 October 2018’.
As to the injunctive relief, although the defendants submit that in light of the declarations, it should not be granted as it would simply be repetitive and would expose contraveners to risks of contempt of court, in my view, this is an appropriate case for the grant of an injunction. I note the approach taken by Burley J in Australian Competition and Consumer Commission v viagogo AG (No 3) [2020] FCA 1423, where his Honour considered that injunctive relief was appropriate having regard to the deliberateness of the conduct of the respondent in that case, including that senior management was aware of the conduct and did not correct it (at [138]). In this regard, the investor updates forwarded by Mr Marco indicate a lack of willingness to recognise the reality of the financial circumstances and the contraventions which have been established with clarity for some time.
The Court has power under s 21 of the Federal Court Act to grant declaratory relief. As observed in Australian Securities and Investments Commission v Sweeney [2001] NSWSC 114 (at [30]), it is beyond contest that a superior court of record has plenary jurisdiction to make a declaratory order concerning contravention of the Corporations Act (citing Australian Softwood per Gibbs CJ (at 125 and Corporate Affairs Commission (NSW) v Transphere Pty Ltd (1988) 15 NSWLR 596 per Young J at 209). In circumstances where contraventions have been established and declarations would have utility, including by identifying contravening conduct and recording the Court’s disapproval of that contravening conduct, the Court ought to grant declaratory relief: Australian Securities and Investments Commission v Ostrava Equities Pty Ltd [2016] FCA 1064 per Davies J (at [51]).
The Court also has power under s 1324 of the Corporations Act to grant injunctive relief on the application of ASIC. That power is enlivened where a person has engaged in conduct that constitutes a contravention of the Corporations Act and may be exercised if, in the opinion of the Court, it is desirable to do so: see s 1324(1)(a). In the present case, because the relief ASIC seeks is framed by reference to the restraint of future contraventions of the Corporations Act, rather than in terms which prohibit the carrying on of a financial services business or managed investment scheme per se, considerations of the kind outlined in [53] of Ostrava Equities and similar cases are inapplicable.
In circumstances where a contravention has been identified, it is appropriate for the Court to restrain the defendants from committing future contraventions of a similar kind. That is especially so in circumstances where there is evidence before the Court to suggest that the defendants may continue to engage in the impugned conduct if such orders are not made. There is evidence to this effect in the Lim Affidavit at [42] and exhibited in ‘Folder N – Mr Stephen Tangney – Notice P00216850 documents’.
The declaratory and injunctive relief sought by ASIC will be granted.
Winding up of the scheme and appointment of liquidators and receivers
Orders are sought by ASIC in accordance with s 1101B(1)(a)(i) of the Corporations Act in relation to the appointment of Scheme Receivers on a final basis and s 601EE(1) and s 461(1)(k) in relation to its application for orders that the unregistered managed investment Scheme and AMS in both its capacities be wound up (respectively). In particular:
(a)s 601EE(1) provides that if a person operates a managed investment scheme in contravention of s 601ED(5) ASIC may apply to have the scheme wound up and s 601EE(2) provides that the Court may make any orders it considers appropriate for the winding up of the scheme;
(b)s 461(1)(k) provides that the Court may order the winding up of a company if the Court is of opinion that it is just and equitable that AMS be wound up; and
(c)s 1101B(1)(a)(i) provides that the Court may make such order or orders as it thinks fit if on the application of ASIC, it appears to the Court that a person has contravened a provision of Ch 7.
Further considerations must also now be factored into the analysis by virtue of the appointment of the Voluntary Administrators as Voluntary Liquidators of AMS by special resolution at the resumed second creditors meeting on 26 November 2020. In its recent application in response to those events, ASIC relies on s 467B of the Corporations Act for an order that the Interim Receivers be appointed as the Court-Appointed Liquidators, such that the appointment of the Voluntary Liquidators is terminated. Section 467B provides as follows:
467BCourt may order winding up of company that is being wound up voluntarily
The Court may make an order under section 233, 459A, 459B or 461 even if the company is already being wound up voluntarily.
Although s 467B is not a source of power to order a winding up, it confirms the Court’s power to order a winding up even if the company is already being wound up voluntarily: In the matter of SPG Projects Pty Ltd (in liq) [2020] NSWSC 34 per Gleeson J (at [6]), citing Citrix Systems Inc v Tele Systems Learning Pty Ltd (in liq) (1988) 28 ACSR 529 per Moore J (at 535). The practical effect of such an order is that the court-appointed liquidator supersedes the voluntary liquidator: In the matter of Evcorp Grains Pty Ltd ACN 134 204 050 (No 2) [2014] NSWSC 155 per Brereton J (at [5]).
Turning to the winding up of AMS on the ‘just and equitable ground’ under s 461(k) (and s 467B), s 462(2)(e) and s 464 of the Corporations Act make clear that ASIC has standing to seek such an order if it is investigating, or has investigated, under Pt 3, Div 1 of the ASIC Act matters being, or connected with the affairs of a company. It is well established that ASIC may apply for the winding up of a company on the ‘just and equitable ground’ on the basis of public interest considerations: see, for example, Australian Securities Commission v AS Nominees Ltd (1995) 62 FCR 504 per Finn J (at 530G-531G). In the present case, Pegasus provides a compelling analogy. In Pegasus, Davies AJ granted a winding up on application by ASIC, having referred (at [91]) to observations of Owen J in Australian Securities and Investments Commission v Chase Capital Management Pty Ltd [2001] WASC 27 (at [75]) to the effect that ‘[t]he public interest justifies intervention where, among other things, it is required for investor protection and where there has been regular or repeated breaches of the law’.
I am satisfied that the evidence clearly establishes that similar considerations are equally applicable in the present proceedings such that both the Scheme and AMS ought be wound up. The authorities on orders under s 467B disclose the requirement for a ‘good reason’ to justify the replacement of the voluntary liquidator: Evcorp Grains (at [9]-[10]). In this case, the good reasons are obvious and numerous. At present, the Voluntary Liquidators are appointed to AMS alone in circumstances where Mr Marco is the only significant creditor of the company in the ordinary sense. The claims of investors to the assets of AMS in a winding up are contingent at best. What is important in circumstances where there is an interconnection and overlap and mixed assets, is that there be a single insolvency controller appointed to liquidate the assets as a whole, including the personal assets covered by the Scheme to ensure that it is done in a just and equitable manner and to minimise unnecessary cost. That, for example, was the approach taken by Siopis J in Australian Securities and Investments Commission v Westpoint Corporation Pty Ltd [2006] FCA 135, where his Honour said (at [19]-[21] and [32]-[36]):
19 Senior Counsel for ASIC, made submissions in support of the appointment of Mr Herbert and Mr Read as liquidators. He submitted that the company is part of a group comprising a large number of companies and Mr Herbert and Mr Read were already in control of Westpoint Management Pty Ltd ‑ another of the companies in the group. He submitted that a factor which should be taken into account in considering whether to appoint Mr Read and Mr Herbert, is that the affairs of Westpoint Management Pty Ltd and the company are substantially intertwined, and that the on‑going investigations would be assisted if there was one set of liquidators in respect of both companies. Further, he submitted that the appointment of the same persons as liquidators to the companies in a group of companies would be more efficient and would reduce the costs of the administration. It was in the interests of creditors, generally, if expenses were reduced.
20 Senior counsel also submitted that there was no real conflict between the roles which Mr Herbert and Mr Read might have to perform as liquidators of the company and as provisional liquidators of Westpoint Management Pty Ltd. He submitted that the authorities are to the effect that it is desirable that where companies in a group go into liquidation, to the extent that it is possible to do so without there being a real conflict of interest, one liquidator should be appointed to the companies in liquidation. Mr Colvin SC relied upon the following observations of Lehane J in the case of Re Chilia Properties Pty Ltd, (admin apptd) (1997) 154 ALR 179 at 180 (‘Chilia’):
‘…it is well established that in the absence of any real, as opposed to theoretical, conflict of interest it is generally desirable that the external administration of a group of companies should be placed in the hands of one administrator.’
21 Mr Colvin SC further submitted that, where there were dealings within a group of companies between companies that were under the effective control of the same persons, in assessing real conflict, a distinction should be drawn between dealings which affected the interests of external creditors and other external interests, and those which did not. Mr Colvin SC also submitted that it is well accepted that the courts would appoint a single liquidator to a group of companies, notwithstanding that there might be some possible theoretical conflict, on the basis that if a real conflict emerged during the course of the administration, that the liquidator could then make alternative arrangements as to how to deal with the real conflict. The fact that there might be a theoretical conflict should not be an inhibition on the appointment of a single liquidator.
…
32 First, I agree that the observations made by Lehane J in Chilia, referred to above, state the principles to be applied in this case. The principles are also reflected in the following observations by Hoffmann J (as he then was) in Re Arrows Ltd [1992] BCC 121, which were cited with approval by Warren J in Sisu Capital:
‘…It is by no means uncommon in the case of the insolvency of a substantial group of companies for cross‑claims and conflicts of interest to arise between companies within the group. That does not usually deflect the court from appointing a single firm of insolvency practitioners in the first instance to deal with the whole insolvency of the group, leaving the question of potential conflict of interests to be dealt with if and when it arises.’
33 I accept the arguments advanced by Mr Colvin SC and Mr Thomson that in the situation where there is no obvious and real conflict but there is a possibility of a theoretical conflict, a court should not thereby be inhibited from appointing a single set of liquidators when that would advance the efficiency of the liquidation, and result in fewer fees being charged in respect of the liquidation.
34 I am not satisfied that on the evidence that is before me that there is any real conflict in the sense that that concept is recognised in the cases. There is no evidence the appointment of Mr Herbert and Mr Read to the position of liquidators of the company would adversely affect the interests of external creditors or other external interests. The evidence of Mr Francis as to the inter‑relationship between Westpoint Management Pty Ltd and the company does not demonstrate any such prejudice.
35 I am also confident that in the event that any real conflict does emerge that the liquidators will approach the Court and seek directions in relation to how to deal with that conflict, as is foreshadowed in the authorities.
36 Second, as to the question of the extent of work that has already been done, I accept that the administrators have done some good work in relation to the investigation of the affairs of the company as is evidenced by the draft report to creditors of 13 February 2006, exhibited to the affidavit of Mr Francis. However, as is recognised in that document itself, the amount of work which will be required to be done in the conduct of a liquidation of this size and of this complexity would be substantially more than has already been done. Therefore, the fact that there has been some work done in investigating the affairs of the company, does not, in my view, operate as a decisive factor in favour of appointing the administrators as liquidators.
(see also Australian Securities and Investments Commission v Mercorella (No 2) [2006] FCA 763).
Relevant also, particularly to the creditors will be the fact that the Voluntary Administrators incurred costs in excess of $500,000 during the administration and have a potential cost estimate as high as $1.5 million for the winding up of AMS, as deposed by Mr Shaw. This highlights the importance of the insolvency proceeding as efficiently as possible. The Interim Receivers have been in place since May 2020, as distinct from the Voluntary Administrators who were appointed at Mr Marco’s request in late September 2020. There is no doubt that it is more efficient for a single insolvency practitioner to be appointed across all the potential assets forming part of the Scheme. It is conventional to appoint ASIC’s nominee and particularly so in this case where a substantial amount of work has already been carried out by the Interim Receivers. Further, there has clearly been duplication in the work of the Interim Receivers and the Voluntary Administrators to date which has given rise to unnecessary costs. Certainly, the Interim Receivers have an advanced understanding of the affairs of AMS and the Scheme, which is a relevant consideration for their appointment: see Australian Securities and Investments Commission v Linchpin Capital Group Ltd (No 2) [2019] FCA 398 per Derrington J (at [4]) and, of course, Siopis J in Westpoint.
There is no doubt that this case calls out for the same insolvency practitioners to be appointed to all of the relevant constituent elements of the Scheme. For Mr Marco, it was contended that there was concern that because the Interim Receivers were appointed by ASIC, they might not be independent. While it is true that the Interim Receivers were appointed on ASIC’s application, they were actually appointed by the Court as independent Interim Receivers for the purpose of preparing a Report for the benefit of the Court. There is no reason at all to consider they have not discharged their obligations to date objectively in accordance with their professional obligations. At the same time, the Voluntary Administrators were appointed on the application of Mr Marco, a director of AMS. To the extent that there could be any potential perceived concern it might more readily look to be in the case of that appointment, although I hasten to add there is no reason to consider that there is any concern on the face of either appointment. There is no doubt that each has independent obligations and responsibilities and there is no doubt that there is an absence of evidence that either is relevantly compromised in any way. But any concern about the independence of the Interim Receivers is without foundation: see Westpoint (at [38]).
As to Mr Marco’s concerns about the interaction between Court-Appointed Liquidators, Scheme Receivers and the existing asset preservation orders, ASIC’s current form of relief adequately provides for their consistent operation. It is entirely appropriate in the interim period for sufficient provision to be made to enable the party the subject of the asset preservation orders to continue to pay legal expenses and to continue to draw amounts to meet normal living expenses. Such provision for personal expenses is a fundamental component of the regime under s 1323 of the Corporations Act for circumstances where the Court has not determined the final merits of a particular dispute. Ultimately though, the reality is that Mr Marco has personally guaranteed each of the Declarations of Trust. Unless the declarations can be set aside, the inevitable result will be bankruptcy and the protection afforded under the Bankruptcy Act 1966 (Cth). That also, of course, will give Mr Marco protection in the event that he cannot meet certain specified debts. It would appear inevitable that the guarantees will be drawn upon, given the very substantial deficit in funds available for investors. In terms then of the ongoing interrelationship between the Scheme Receivers and the Court-Appointed Liquidators, the position is clear that the Scheme Receivers will deliver up that part of the property, that is the property of the Scheme to the liquidators and that the asset preservation orders will lapse upon the later appointment of the Scheme Receivers and Court-Appointed Liquidators.
As to the appointment of the Scheme Receivers, which Mr Marco opposes particularly in relation to his personal assets, it is entirely appropriate and conventional where there will be no asset preservation orders on an ongoing basis. Receivers and liquidators can be concurrently appointed in appropriate circumstances : see, for example, Kirman v RWE Robinson and Sons Pty Ltd (in liq), in the matter of RWE Robinson and Sons Pty Ltd (in liq) [2019] FCA 372. Here, the role of the Scheme Receivers is to secure, identify and deliver up all Scheme property to the Court-Appointed Liquidators. While there is merit in Mr Marco’s contention that ASIC’s relief does not provide for a termination of the receivership and it is unclear what their ongoing role will be after delivery up of the Scheme property, the practical reality is that both appointments will be carried out by the same insolvency practitioners (the current Interim Receivers). It is not the case that the concurrent appointments will occasion unnecessary duplication or cost, rather it is a prudent approach to ensuring that the appointed insolvency practitioner is sufficiently empowered to do what is necessary to bring the Scheme to an end and return available funds to investors. This being said, Mr Marco will have liberty to apply on any matter at short notice, and specifically in relation to the ongoing appointment of the Scheme Receivers (or specifically their capacity as Individual Receivers).
I accept ASIC’s submission that orders 10 and 23 are appropriate for the purpose of protecting what otherwise might be rather a sterile argument about whether or not the liquidators were able to look to particular assets or not for the purpose of their remuneration on the basis that they might be assets of the Scheme or assets of AMS, given the manner in which AMS was operating and its involvement in the Scheme.
As it has been established that the defendants have contravened s 601ED(5) and s 911A of the Corporations Act, it is appropriate to exercise the discretion conferred under each of the provisions above to make orders for the appointment of receivers to the defendants on a final basis and for the winding up of both the unregistered managed investment scheme and AMS. Many of the factors which weigh in favour of the exercise of each of those discretions have been traversed previously, for example in Marco (No 3) (at [108]-[127]).
It is appropriate to make orders for the orderly cessation of the Scheme and the winding up of AMS because of the:
(a)persistence and seriousness of the contraventions at issue;
(b)evident shortfall in investor funds;
(c)absence of any reasonably foreseeable prospect of a significant return to investors;
(d)evidence of related party and personal expenditure from investor funds; and
(e)deficiencies in record keeping as to investor entitlements.
Orders are sought pursuant to s 1324B of the Corporations Act for the publication of a newspaper notice in a form to be approved by the Court. The power in s 1324B is enlivened in circumstances where the Court is satisfied that a person has engaged in conduct constituting a contravention of, relevantly, Ch 5C (which encompasses s 601ED(5)). ASIC has prepared a draft notice and provided a copy to the defendants and the Interim Receivers.
In relation to the publication orders, I am not satisfied that they are desirable. It will add further cost and further reduce the funds available to creditors. The proceedings have had ample publicity.
As to costs, the defendants contended that because ASIC narrowed the scope of its relief, the defendants should be entitled to costs or some reduction in costs. I cannot accept that submission. Mr Marco has put ASIC to proof on every aspect of this proceeding until the very last moment. There have been no relevant admissions and even in the context of submissions concerning the orders to be made, it was contended that there was no proof of contraventions by AMS in either of its capacities. It is clear that ASIC has gone to extraordinary lengths to examine and bring before the Court the very complex and unsatisfactory affairs that have been involved in this financial exercise. ASIC has been required to lead all evidence necessary to prove its case. It is true that it has made concessions in relation to the relief, but I do not think these are such that warrant a reduction in the costs that it should be awarded. These concessions have clearly been on issues subsidiary to the primary relief of winding up which ASIC has pressed for since May 2020.
It is necessary to say something about the costs of the Interim Receivers. Ms Thornton for the defendants made the submission, correctly, that against ASIC’s opposition, I made orders that ASIC be responsible for certain costs of the Interim Receivers for the reasons given in Marco (No 4) (at [12]-[33]). Senior counsel for ASIC made the point that ASIC had not paid costs to the Interim Receivers beyond the cost of preparation of the Interim Receivers’ Report. Although the Interim Receivers have been paid for the costs of preparation of their Report, which was certainly a substantial task, the Interim Receivers have done additional work on the basis that they have no present entitlement from ASIC and if they wish to agitate that matter, they will have to raise it with the Court, as matters currently stand. Senior counsel for ASIC made clear that the Interim Receivers were prepared to continue to act in circumstances where ASIC had made no commitment to meet their costs beyond the preparation of the Interim Receivers’ Report. Additionally, the Interim Receivers were represented at the hearing, with their counsel electing to read their evidence and then be excused. Clearly they have had (and will continue to have) the opportunity to be heard on the issue. Notwithstanding this, I note that ASIC has sought orders which would protect the Interim Receivers beyond simply the preparation of the Interim Receivers’ Report. Although I had concerns initially about the costs of appointing receivers detracting from the availability of funds for creditors, now that the matter has reached this stage of finality, in my view, it is appropriate to make the conventional orders as reflected by order 7. That does not mean, however, that I have ruled on whether ASIC be entitled to recover, on the assessment of its costs, the disbursements incurred in paying the Interim Receivers for preparation of the their Report. That is a matter which should be separately addressed in light of my firm view that those costs should not be borne by creditors.
Finally, I note ASIC’s observation that while the relief which has been sought is partly for the benefit of investors, partly for the protection of other members of the community, and partly as a way of precluding ongoing activity of this nature by the defendants, those investing with Mr Marco or at least some of them, must surely have known that promises made were too good to be true. The expectation of receiving extremely high interest returns from investments, when those returns were far beyond those normally available is not something to be completely overlooked. To some extent, some investors at least should surely have realised that such promises were too good to be true and took unnecessary risks. That said, Mr Marco’s unlawful conduct and attitude to financial affairs have apparently caused financial loss and no doubt related hardship to investors on a scale rarely seen.
CONCLUSION
Relief largely in the form sought by ASIC with some modification following the defence submissions and subsequent applications will be granted.
I certify that the preceding one hundred and forty-one (141) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McKerracher. Associate:
Dated: 11 December 2020
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