Australian Securities Commission v As Nominees Ltd
[1995] FCA 811
•1 Sep 1995
CATCHWORDS
CORPORATIONS - Companies - corporate trustees - receivers and managers - interim motion for the appointment of a receiver and manager - evidence in principal application near completion - appearance of prejudgment - holding orders in lieu.
TRUSTS AND TRUSTEES - Trustee Company - interim motion for the appointment of a receiver and manager under the Corporations Law - holding orders - best protection for trust property - interests of investor-beneficiaries.
.Corporations Law s1323(1)
.Corporations Law s1323(3)
.Beach Petroleum N L v Johnson (1992) 9 ACSR 404 applied
.Corporate Affairs Commission (South Australia) v Lone Star Exploration N L No2 (1988) 14 ACLR 499 applied
.Corporate Affairs Commission (NSW) v Walker (1987) 11 ACLR 884 applied
.Corporate Affairs Commission (NSW) v Lombard Nash International Pty Ltd (No 3) 1987 5 ACLC 1020 applied
AUSTRALIAN SECURITIES COMMISSION v AS NOMINEES LIMITED and OTHERS
No ACT AG 3295 of 1995
No ACT AG 3002 of 1995
FINN J
CANBERRA
1 SEPTEMBER 1995
IN THE FEDERAL COURT OF AUSTRALIA )
)
AUSTRALIAN CAPITAL TERRITORY ))No. ACT AG 3295 of 1995 DISTRICT REGISTRY ) No. ACT AG 3002 of 1995
)
GENERAL DIVISION )BETWEEN: AUSTRALIAN SECURITIES COMMISSION
Applicant
AND: AS NOMINEES LIMITED and OTHERS
Respondents
COURT: FINN J.
PLACE: CANBERRA
DATE: 1 SEPTEMBER 1995
MINUTES OF ORDERS
Motion dismissed.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules
IN THE FEDERAL COURT OF AUSTRALIA )
)
AUSTRALIAN CAPITAL TERRITORY ))No. ACT AG 3295 of 1995 DISTRICT REGISTRY ) No. ACT AG 3002 of 1995
)
GENERAL DIVISION )BETWEEN: AUSTRALIAN SECURITIES COMMISSION
Applicant
AND: AS NOMINEES LIMITED and OTHERS
Respondents
COURT: FINN J.
PLACE: CANBERRA
DATE: 1 SEPTEMBER 1995
REASONS FOR JUDGMENT
Given the need for a speedy determination of this particular matter, I will deliver oral reasons for judgment and I will limit, as far as possible, reference to the now voluminous evidence relating to this matter. The documentary evidence alone runs into thousands of pages. The primary facts of the particular transactions in question between the parties are, in any event, the subject of almost complete agreement between them.
The motion before me is for an interim order for the appointment of a receiver and manager of the property of the first, second and third respondents under the Corporations Law,
s1323(3) (the "motion") - an application seeking such an appointment under s1323(1) having been filed on 16 June 1995 -(the "principal application"). The latter provision, insofar as is relevant for present purposes is in the terms that, and I quote:Where:
(a)an investigation is being carried out under the ASC Law or this Law in relation to an act or omission by a person, being an act or omission that constitutes or may constitute a contravention of this Law;
...
and the Court considers it necessary or desirable to do so for the purpose of protecting the interests of a person (in this section called an "aggrieved person") to whom the person referred to in paragraph (a) ... (in this section called the "relevant person"), is liable, or may be or become liable, to pay money, whether in respect of a debt, by way of damages or compensation or otherwise, or to account for securities, futures contracts or other property, the Court may, on application by the Commission ... make one or more of the following orders:
...
(h)an order appointing:
...
(ii)if the relevant person is a body corporate - a receiver or receiver and manager, having such powers as the Court orders, of the property or of part of the property of that person.
Again relevantly for the purposes of the present application, s1323(2A) provides that, and I quote:
A reference in paragraph 1(g) or (h) to property of a person includes to property that the person holds otherwise in a sole beneficial owner, for example:
(a)as trustee for, as nominee for, or otherwise on behalf of or on account of, another person; or
(b)in a fiduciary capacity.
All three respondent companies are part of what I can conveniently call a group of companies which had its origins in the 1970s, the group being the creature of the fourth respondent in the principal application. It is unnecessary to describe the details of the almost byzantine corporate relationships of the present group, other than to say that:
(i)the fourth respondent is a permeating presence, direct or indirect, in the shareholding of the group;
(ii)that for practical purposes, the first and second respondents had the same three directors, at least until 20 June 1995 when the fourth respondent removed these directors from the board of the second respondent and replaced them with himself, his wife and a third person; and
(iii)that the third respondent - the directors of which are the respondent and the fourth respondent and his wife - acted as managers of the trust to which I will refer, and of which the first and second respondents were trustees for at least some considerable part of (and on one contention, possibly the entirety of) the period
which is under review in the principal application.
The first respondent ("ASN") is the trustee of numerous, separate superannuation trusts with tens of millions of gross assets. Certain of the funds so placed with ASN have been pooled together in one or more of three pooled superannuation funds (these are referred to as "SIP1","SIP2" and "SIP3"). ASN is trustee of the SIPs. For present purposes I need only refer to SIP1. When an individual investor enters into a client superannuation plan with ASN then, unless the investor has stated an investment preference, the funds are added to SIP1. The manner in which funds have been used over time from this and the other two pools provide the core, but not the totality, of the applicant's allegations in the principal application.
The second respondent ("Ample") likewise acts as a trustee of a series of separate trusts known as the Ample Trusts. These can be described somewhat inaccurately as trusts for single or dedicated investments. These trusts take the form of unit trusts, with ASN as trustee of SIP1 being the exclusive or else predominant unit holder in those individual trusts.
A considerable number of transactions have been examined by the applicant in its investigation. Recurrent or significant allegations arising from those examinations and said to be reflected in the evidence before me are:
(i)grossly inadequate keeping of company records relating to the trusts and to their administration by the two companies;
(ii)improvident and on occasion reckless investments, particularly by Ample;
(iii)conflicts of interest or else partiality in trustee decision-making, be this in loans or investments, particularly where Windsor interests are involved;
(iv)the conduct of the affairs of ASN and Ample as if they were a single entity with little if any regard being had to the separate interests of the trusts held by the two trustees;
(v)the pooling of the moneys of both companies and all of the SIPs and Ample trusts in a single bank account;
(vi)the failure to take adequate security or timely security where trust funds were lent;
(vii)representing transactions and their effects in the accounts of the trusts when there was no proper legal foundation for so representing those
transactions in the form and with the effects represented; and
(viii)artificially contriving profits, either for the purpose of inflating management and trust fees or else for creating the appearance of successful investment by the trusts.
There is no doubt that there is evidence before me which "could be accepted as credible and reliable, and, if accepted, [would provide] a basis upon which [monetary claims by the investor beneficiaries for serious breaches of trust and of fiduciary duty] could succeed" against all three respondents to this motion: Beach Petroleum NL v Johnson (1992) 9 ACSR 404 at 406. For reasons I will give below, there is, however, no need for me in this matter to particularise that evidence.
There also seems no doubt that for the purposes of s1323(1), the preconditions prescribed in subsection 1(a) are sufficiently met for present purposes in relation to the first and second respondents and probably the third respondent, with investigations being carried out into acts or omissions that may constitute a contravention of the Corporations Law s289.
The well accepted purpose of the remedies provided in s1323, is to protect the interests of persons who might have claims against corporations and their managers (whether or not these claims flow from a breach of the Corporations Law itself: Corporate Affairs Commission (South Australia) v Lone Star Exploration NL No 2 (1988) 14 ACLR 499 at 503). It achieves this by keeping secure the assets of the person, corporate or natural, against whom the relevant claims may lie: Corporate Affairs Commission (NSW) v Walker (1987) 11 ACLR 884 at 888; and Corporate Affairs Commission (NSW) v Lombard Nash International Pty Ltd (No 3) (1987) 5 ACLC 1020 at 1022.
The question before me is whether it is "desirable" to appoint an interim receiver and manager in the particular circumstances of this case: cf Corporations Law s1323(3). This matter has caused me some concern. On balance, however, I am unwilling to make the appointment sought.
This motion by no means provides my first acquaintance with these parties or with the principal application. That application and a separate one seeking the winding up of the first three respondents on the ground that it is just and equitable to do so - on which see Corporations Law s461(k) and s462(2) - has been the subject of, to date, over ten days hearing before me. I will return to this. Prior to that it came before me on 12 July 1995 when I refused to entertain the appointment of an interim receiver and on 8 August 1995 when I agreed to hear the two principal applications on 14 August 1995. The principal applications are ones which require speedy resolution.
The principal application was initiated in Sydney on 16 June 1995. When it first came on before Sackville J on 21 June 1995 orders were made which included the giving of undertakings by the respondents, the general purposes of which were (i) to preclude dealings with trust property or assets; (ii) to create a separate bank account both for funds received by ASN and Ample and for contributions or subscriptions to any trust - and subscriptions to any trust received by any of the respondents from any trust beneficiary; and (iii) to allow limited, specified disbursements of moneys to be made. These undertakings, while not altering the holding and management arrangements of the trusts, were designed to limit dealings with the various trust properties and assets. The orders embodying these undertakings were varied first by Einfeld J in Sydney on 30 June 1995, in a relatively minor way and, as a result of agreement between, but not with the consent of, both parties, by me on 12 July 1995 in a more significant manner. The object of those orders as varied was to secure the position of the beneficiaries of the trusts up to the trial of the matter. I will refer to the orders as the "holding orders".
It has not been suggested to me that there has been non-compliance with the undertakings, although a submission has been made touching this, to which I will return. The undertakings that provided the basis for maintaining the status quo from 12 July 1995 until the present motion which was bought on on 30 August 1995, the day before the hearing of the two principal applications was to be adjourned for over three weeks.
I should now indicate that the matter was set down for hearing for four days. It became apparent to me from the outset that this was a quite unrealistic estimate of its possible duration. After 10 days of hearing, I have heard the applicant's evidence, and the major part of the respondent's. At the moment it is suggested only one of the three remaining witnesses will require significant cross-examination. I have, in other words, heard the major part of the evidence relied upon in the principal application for s1323 relief. While counsel obviously have not made their submissions to me, the respective nature of the cases they are putting is very readily discernible. This state of affairs obviously gives an air of unreality to any attempt on my part to apply the usual approaches suggested in the cases as to what is necessary to be made out to justify the granting of interim relief. I simply have a far greater appreciation of the substance of the matter than is characteristically the case in applications for interim relief.
Nonetheless, if I thought that, consistent with the purpose of s1323, the circumstances were such as to make it desirable presently to give such relief I would, of course, do so. I remain unconvinced, on the basis of the now very detailed evidence put before me, that I should do so.
As a result of the time spent to date on the hearing of the principal applications, I have obviously a somewhat developed appreciation of the strength or otherwise of the allegations levelled by the applicant at the various respondents and of the strength or otherwise of its claim for relief in each of the principal applications. That appreciation would not of itself justify granting the interim relief sought, even if it suggested a high probability of success in either or both of the applications. A s1323 order would only be desirable, in my view, at the quite unusual stage at which this motion is being brought if I was of the view that the "drastic remedy" of appointing a receiver and manager was an appropriate step to take in the circumstances to safeguard the interests both of the beneficiaries of the trusts held by the first and second respondents and of new investors. I would note here that while there are claims made of serious and sustained breaches of duty and breaches of trust by the respondents, there is no allegation made of actual or apprehended fraud. While not a necessary claim for the purposes of s1323, its absence in the present circumstances is a factor of which I can and should take account.
Given the holding orders that have been in place to date, given that they are open to alteration to accommodate concerns which may have arisen since they were first made, and given that there is no evidence of non-compliance with them, it is quite appropriate for me to balance the efficacy of those orders (with such variations as may be appropriate) in securing the interests of the investor-beneficiaries against such apprehended collateral effects that the appointment of a receiver and manager may have on these proceedings, on the respondents, and on the investor-beneficiaries.I should make this additional observation about compliance with the holding orders. The applicant has submitted that while there may not be evidence of non-compliance, there is no real basis for assessing whether or not there has been compliance. Given the role that these orders have assumed in the principal proceedings, it is obviously of importance that there be no possible question at all in relation to compliance. For this reason, as I will later indicate, I will invite submissions as to appropriate variations to the holding orders to put the matter beyond doubt and beyond apprehension.
One clear object of the principal application is to secure the removal of the first three respondents from the positions of trustee and/or manager of the various trusts of which ASN and Ample are trustee. Insofar as ASN and Securities are concerned, that object may be able to be achieved partially by the present motion. Under the trust deeds which constitute SIP1 and SIP3, ASN has covenanted that, and I quote:
Subject to the law applying to Trustees, that it will retire from the trust hereby created ... (i) if a Receiver shall be appointed of the undertaking of the Trustee or of any part thereof.
A like provision exists in relation to the manager (Securities) appointed under the same trust deeds. No such provisions exist in the Ample Trust and the provisions in SIP3's trust deed is of purely discretionary character.
During submissions on this motion by the applicant it was suggested that once appointed the receiver and manager would likewise be able to consider taking steps (for example, looking at the discontinuance of litigation being pursued by Ample in the Supreme Court of Victoria) which could have a direct and possibly decisive bearing upon the future of matters which are the subject of dispute between the parties to the two principal applications.
There would, if a receiver were appointed, be a very real question of how that person's power should be limited to prevent actions which could destabilise, or alter the character of the matters in contention in the principal applications.
More significantly, though, is the concern I have about the effect of such an appointment on a secured loan transaction that Ample entered into with Vania Pty Ltd (the loan facility was for $6.3 million) as part of the acquisition of $7 million of units in the Fawkner Centre Trust, whose sole asset was a commercial building in Melbourne. That loan, the servicing of which was, and is, sustained largely by funds from SIP1, is one of the major subjects of complaint by the applicant.
For present purposes, I note that the effect of the Vania loan agreement is to make the appointment of a receiver to Ample a default event, with Vania, in consequence, having the right then to dispose of the units the Ample trust holds in the Fawkner Centre trust.
The applicant has invited me, first, to disregard the apparent significance of this by pointing to the fact that several default events have already occurred without action on Vania's part; and, secondly, to see some possible virtue in action by Vania as it would allow the receiver to raise the issue of the validity of the original investment and loan agreement on what, for shorthand purposes, I will describe as a Barnes v Addy claim.
Given the radical effect on corporate management of the appointment of a receiver, I feel unable to share the sanguine attitude expressed by the applicant as to the likely significance to Vania of such an appointment here. Equally, the prospect of a receiver being embroiled in litigation in relation to a transaction which is at the core of the proceedings in the principal application is distinctly troubling.
I do not have evidence which would satisfy me that, if the Fawkner units were sold by Vania, this would not have significant adverse effects directly upon the Ample trust and indirectly on SIP1.
Balancing the various considerations to which I have adverted, the appropriate course in my view is one which would maintain and possibly strengthen the protection that can be given to investor-beneficiaries under the present regime of orders.
In saying this I should add that if, as I have concluded, the interests of the investors can appropriately be safeguarded without the appointment of a receiver, the respondent should, at the present stage in the proceedings on the principal applications, be permitted to pursue their defences to judgment whatever the outcome may be, rather than endure what will in the very particular circumstances obtaining here appear to be, if not in form, then at least in some of its possible effects, a pre-judgment of the applications.
While I refuse the motion, the need has been foreshadowed, both by me in these reasons and in submissions, for changes to be made to the existing holding orders. I will invite submissions to be made on such changes.
I certify that this and the preceding 13 pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn.
Associate
Dated: 10 October 1995
Counsel for the applicant : R S McColl S.C. and C M Erskine
Solicitors for the applicant : Jonathon Caddick, of Australian Securities Commission
Counsel for the respondent : S L Walmsley
Solicitors for the respondent : Sutherland Tiirikainen as Agents for Bush, Burke and CompanyDate of hearing : 30 August 1995
Date of judgment : 1 September 1995
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