Australian Securities and Investments Commission v Rowena Nominees Pty Ltd - [2003] WASC 106

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION -v- ROWENA NOMINEES PTY LTD [2003] WASC 106

CORAM: PULLIN J

HEARD: 6 JUNE 2003

DELIVERED : 6 JUNE 2003

FILE NO/S: COR 131 of 1999

MATTER :Section 461 of the Corporations Law of Western Australia
and
ROWENA NOMINEES PTY LTD

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Applicant
AND
ROWENA NOMINEES PTY LTD (ACN 008 818 273)
Respondent

Catchwords:

Winding up - Liquidator - Directions under s 479(3) of the Corporations Act 2001 - Whether the liquidator justified in making demand and commencing proceedings to recover money loaned to growers

Legislation:

Corporations Act 2001, s 479(3)

Result:

Directions given to liquidator

Category: B

Representation:

Counsel:

Applicant: No appearance
Respondent: Mr J Lin

Solicitors:

Applicant: No appearance
Respondent: Jackson McDonald

Case(s) referred to in judgment(s):

13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq) (1999) 30 ACSR 377
Bastion v Gideon Investments Pty Ltd (in liq) (No 2) (2000) 35 ACSR 466
Re Ansett Australia Ltd (2001) 39 ACSR 355
Re Crest Realty Pty Ltd (No 2) (in liq) [1977] 1 NSWLR 664
Re G B Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674
Re Indopal Pty Ltd (1987) 12 ACLR 54
Re Magic Aust Pty Ltd (in liq) (1992) 7 ACSR 742
Re Mark Anthony Conlan [2001] WASC 230
Re Murphy & Allen; Re BPTC (in liq) (1996) 19 ACSR 569
Re Oakleigh Acquisitions Pty Ltd (in liq); Ex Parte Mark Anthony Conlan (as liquidator of Oakleigh Acquisitions Pty Ltd) & Ors [2003] WASC 75
Yunghanns v Candoora No 19 Pty Ltd [2000] VSC 300

Case(s) also cited:

Nil

PULLIN J: This is an ex parte application made by notice of motion by Mark Anthony Conlan, who is the liquidator of Rowena Nominees Pty Ltd ("Rowena"). The application is for directions under s 479(3) of the Corporations Act 2001. Mr Conlan is a court appointed liquidator.
The application was originally made in CIV 2076 of 1999. In other proceedings I have commented on the undesirability of using that action as the vehicle for applications which do not relate to the subject matter of the initiating process in that action. See Re Oakleigh Acquisitions Pty Ltd (in liq); Ex Parte Mark Anthony Conlan (as liquidator of Oakleigh Acquisitions Pty Ltd) & Ors [2003] WASC 75 at par 40‑45. If the liquidator of Rowena wishes to seek directions under s 479(3) of the Corporations Act 2001, then new proceedings should be by notice of motion in these proceedings (the winding up proceedings). In this case, after I raised questions about the appropriateness of the application being brought in CIV 2076 of 1999, the liquidator filed a notice of motion in these proceedings seeking the directions under s 479(3). I propose dismissing the application in CIV 2076 of 1999.
The circumstances leading to the application for directions are as follows.
Rowena traded as a mortgage broker under the name of Graeme Grubb Finance Broker. Graeme Grubb was a director of Rowena. Rowena maintained a trust account and received and paid into that account, moneys which it held on trust for many people as a result of Rowena's mortgage broking activity.
In 1998, Rowena became involved in two projects. The first was the Karri Oak Vineyard Project. The land on which this project was to be carried out was owned by Sandgate Corporation Pty Ltd and the manager was Karri Oak Ltd.
The second was the Ord River Sandalwood Project. The land was owned by the Ord River Land Corporation Pty Ltd and the manager was Ord River Sandalwood Corporation Ltd. The names indicate the nature of the projects.
Persons who were interested in participating in these projects were called growers. Growers were required to pay moneys if they were to participate. Growers could raise their own funds or borrow them. Rowena was to arrange the funds for growers who wished to borrow.
Several hundred growers applied for loans and were granted loans by Rowena. Rowena, by this method, arranged the loan of several million dollars.
I have been provided with an example of one of the standard loan agreements. Under the loan agreement, the "lender" agreed to advance funds to the grower. Another clause recorded the grower's agreement to repay the loan on demand, which demand could be made in the circumstances specified.
The agreement identified the grower. The "lender" was not identified. The agreement was executed by Rowena "as attorney" for the lender. Thus, Rowena purported to act for an undisclosed principal. In fact, no principal lenders can be identified.
I now need to mention what happened when the advances were made to the growers. In this regard, I refer to pars 14.35, 14.36 and 14.38 of the report of the Royal Commission into the Finance Broking Industry, which reads in relation to the Karri Oak Vineyard Project:
"14.35In the absence of funds to meet the minimum subscription, a fundamental condition of the project failed, and it should have been aborted there and then. The reason it was not abandoned is that Grubb, the St George Bank, the trustee and some of the directors of Karri Oak Ltd participated in a round robin exercise. Because Grubb had not, by the critical date, rounded up in the Rowena Nominees trust account sufficient client loan funds ready to be advanced to those growers who applied for loans, the bank had to cooperate in this paper shuffling exercise by meeting cheques drawn by Grubb for sums in excess of the amounts in his bank accounts. This the Bank did. The round robin process created the misleading impression that the minimum subscription requirement had been fulfilled, that real funds had been paid to the management company, and that the project could legitimately proceed. The participants in the round robin process, whether deliberately or otherwise, obscured the true position – the lack of bona fide funds available as at 30 June 1998 to make loans to growers. In the transactions about to be described cheques went in a circle. No external funds were involved. By these commercially artificial transactions, the project was enabled to proceed.
14.36Grubb drew a cheque in favour of Charters Securities. It was drawn on the Rowena Nominees account. Charters Securities drew two cheques on its trust account relative to the Karri Oak project. One was for $3,585,000 in favour of Karri Oak Ltd and the other was for $180,000 in favour of Sandgate Corporation. And Karri Oak Ltd drew a cheque payable to the Graeme Grubb Finance Brokers Trust Account in the sum of $3,650,000.
…
14.38Had real funds been made available by Grubb, there would have been no need for the round robin to have occurred. In that event, the directors of Karri Oak, having received the subscription monies, would have had capital with which to work. They would have deposited such subscription monies with a conventional and secure deposit‑taking institution, or made some other secure and conventional investment with them. Instead they lent the money to Grubb, unsecured. The detail follows."
Similar events occurred in relation to the Ord River Project. The effect of these round robin transactions is yet to be determined. It is the subject of litigation between St George Bank and Rowena. I was informed by counsel, however, that by these transactions the growers were credited with having paid the moneys to earn the interest in the projects, and that they are still participating in them.
It is not at all clear who provided the funds to Rowena in order to make the advance to the growers. It seems that some moneys came from the trust account. The trust account was in credit to the extent of approximately $200,000 on the day that the transaction took place. Insofar as that money was used, it was used without authority and therefore used in breach of trust by Rowena. The rest of the money may have been advanced by Rowena itself.
In my view, as between Rowena and the growers, it does not matter where Rowena obtained the money from in order to make the advance.
Insofar as Rowena used trust moneys to make the payment, it must, as trustee, take action to recover the moneys lost to the beneficiaries. Insofar as trust moneys were paid over in return for a promise to repay, the chose in action is an asset which would belong to the beneficiaries of the trust account.
The liquidator must do all things necessary for winding up the affairs of Rowena, and therefore he must take steps to identify assets of the company and to ascertain whether particular assets are beneficially owned by the company or others. See Re G B Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 688; 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq) (1999) 30 ACSR 377; Re Crest Realty Pty Ltd (No 2) (in liq) [1977] 1 NSWLR 664; Re Indopal Pty Ltd (1987) 12 ACLR 54 at 58. In my opinion, in the winding up, in the absence of some conflict making it inappropriate to do so, the liquidator (rather that a court appointed receiver or new trustee) should cause Rowena to recover trust assets. See the discussion in Re G B Nathan (supra) at 688 and Bastion v Gideon Investments Pty Ltd (in liq) (No 2) (2000) 35 ACSR 466 at [62] to [63]. If a real conflict arises, then a court appointed receiver or new trustee could be appointed, but the case for doing so must be a strong one: Yunghanns v Candoora No 19 Pty Ltd [2000] VSC 300 and Bastion's case (supra) at [64].
Insofar as Rowena is recovering money from growers on behalf of beneficiaries of Rowena's trust account, it may not be possible to identify the beneficiaries who can claim the money, and in due course the liquidator may have to approach the court to seek orders or directions about how the proceeds will be divided up among all of the beneficiaries. Insofar as the money recovered is Rowena's property, it will be dealt with in the liquidation in the usual way.
The directions which the liquidator seeks in its application are as follows:
1.A declaration that the liquidator would be justified in causing Rowena Nominees Pty Ltd (receiver and manager appointed) (supervisor appointed) (in liquidation) ("Rowena") to issue demands for the repayment of and to institute proceedings to recover funds advanced by Rowena as loans to the people listed in Schedule A ("the growers").
2.An order that Rowena is authorised to give a discharge of debt to the extent that any grower makes any payment to Rowena.
3.An order that the monies paid by the growers to Rowena or otherwise recovered by Rowena from the growers be held on trust pending further order.
4.An order that a copy of this order be served upon each of the growers by posting a copy by prepaid ordinary mail addressed to the respective growers at the addresses last known to the liquidator.
5.An order that there be liberty for the liquidator to apply for an order in relation to the costs of this application and the costs of recovering amounts from the growers
6.There be liberty to apply, generally.
Directions are sought under s 479(3) because some persons have purported to withdraw Rowena's authority to act as agent, even though the liquidator considers that it is impossible to identify any lender in relation to any loan transaction. The liquidator wishes to cause Rowena to pursue recovery action, but seeks protective directions under s 479(3).
An application for directions under s 479(3) of the Corporations Act 2001 is an administrative non‑adversary proceeding: Re Murphy & Allen; Re BPTC (in liq) (1996) 19 ACSR 569 at 570. Directions given under s 479(3) will protect the liquidator against subsequent allegations of breach of duty if the liquidator has made full disclosure of the facts, but no binding determination of substantive issues can be made under this provision. See Re G B Nathan (supra); Re Magic Aust Pty Ltd (in liq) (1992) 7 ACSR 742; the authorities cited by Goldberg J in Re Ansett Australia Ltd (2001) 39 ACSR 355 at [47]; and Re Murphy & Allen (supra) at 570. As a result, nothing that I have said about the background circumstances, and no directions I give, will have any binding effect in relation to proceedings between Rowena and the growers, and nor will it resolve any legal issues which may exist between Rowena and lenders (who might be identified). For example, nothing I have said would resolve any issue which might arise about Rowena's authority to take action on behalf of lenders.
Nonetheless, the liquidator of Rowena does seek the protection of directions from the Court, and I am prepared to give the following directions.
1.That the liquidator of the respondent would be justified in causing the respondent ("Rowena") to issue demands for the repayment of, and to institute proceedings to recover, funds advanced by Rowena as loans to the people listed in Schedule A ("the growers").
2.That the liquidator is authorised to sign on behalf of Rowena any discharge of debt which Rowena may give to any grower.
3.A direction that the monies paid by the growers to Rowena or otherwise recovered by Rowena from the growers be held on trust pending further order.
4.An order that there be liberty for the liquidator to apply for an order in relation to the costs of this application and the costs of recovering amounts from the growers.
I have not made a direction as sought in par 2 of Rowena's application, because whether Rowena is authorised to give a discharge of debt or not, is a matter of substance which could not be determined on a directions hearing under s 479(3); but I am prepared to give the direction which appears in par 2 above because the effect it has is limited to protecting the liquidator from any allegation of breach of duty. The direction will not resolve any issue (if it arises) as to whether or not Rowena, in fact or law, is authorised to give a discharge of debt. In par 4, I have granted liberty to apply for an order in relation to the costs of this application and the costs of recovering amounts from the growers. Any such application should be deferred until my reasons for decision are handed down in relation to the liquidator's application in relation to costs and remuneration generally, which application I have heard and which will be the subject of a separate set of reasons for decision. In relation to questions of costs in relation to the recovery actions, I note that observations were made about this subject by Owen J in Re Mark Anthony Conlan [2001] WASC 230 at [44] and [45].