Australian Securities Commission v Aust-Home Investments Ltd

[1992] FCA 169

IN THE FEDERAL COURT OF AUSTRALIA	) )
QUEENSLAND DISTRICT REGISTRY	) )
GENERAL DIVISION	1
B E T W E E N :

AUSTRALIAN SECURITIES COMMISSION

Applicant

A N D :

AUST-HOME INVESTMENTS LTD AND OTHERS

COURT :	NORTHROP J
PLACE :	BRISBANE  RECEIVED
DATE :	18 MARCH 1992  7 APR 1992

FEDERAL COURT OF

PRINCIPAL

REGISTRY

EX TEMPORE REASONS FOR JUDGMENT

In this matter the applicant, the Australian Securities Commission, is seeking orders under a number of provisions of the securities legislation and in particular under sections 1323 and 1324 of the Corporations Law. The application was issued on 16 March, and the first directions hearing was on 17 March.

By the application the applicant is seeking interim orders of a kind provided for in sections 1323(3), and 1324(4) of the Law. It is obvious that the time allowed for service on the respondents was very short, but a large number of them were in fact served on the 16th. The application itself lists	groups of individuals and the total number of respondents in	37 respondents, but a number of those respondents comprise
substance is much closer to 50, than to 40. The respondents come into groups or classes, the first 23 respondents are corporations, and the 24th respondent is a corporation with a provisional liquidator appointed, namely Austhome Rural Properties Proprietary Limited and Mr Smith of counsel appeared for the liquidator and is supporting the interim orders being sought. The second group comprise natural persons who have played an active part in the affairs of the corporations. Some have become involved in what have been described as the joint ventures with the corporations in relation to allowing their names to be used as the owner of land upon which buildings have been erected for the purposes of possible use or sale, but the exact purpose is not clear.
When the matter was called on for hearing Mr Bell who, from the material before me, I am satisfied was the controlling mind behind the corporations, appeared and was granted leave to appear for most of the corporations for the limited purpose of the application for the interim orders. At
the same time the Court made it clear that because of the short time the Court would not insist on the formalities of
appearances being entered but exercised its powers under the Federal Court Rules to allow Mr Bell to appear for those companies.
Two of the companies: Barona Investments Proprietary Limited and Barona Holdings Proprietary Limited originally were represented, on the same basis, by a Mrs Bell-Bradbury who is not a solicitor, but this morning Mr Forde of counsel appeared for those two companies. Mr O'Donnell of counsel appeared for two other companies: Goldcorp Proprietary Limited and Hemglas Proprietary Limited, and also Styleline Constructions Proprietary Limited and a Mr Dodds who was the 26th respondent and was one of the joint venturers in that he was the owner of a unit at Burleigh Heads, but otherwise, as claimed, not involved directly in any of the activities of the company. This morning, Mr O'Regan of Queen's Counsel announced his appearance also for the 13th and 14th respondents - that is Goldcorp Proprietary Limited and Hemglas Proprietary Limited and also for Mr Dodds. There was no appearance for Australian Mineworkers Investment Proprietary Limited. Mr Bradford appeared for Christian Support Investments Limited and was granted leave to appear.
As far as the natural persons were concerned, a number did appear. I do not propose to say who they were. Mr Hyland, solicitor, appeared for Graham David Mather. A number
of individuals appeared in person.
Having regard to the way in which the application was served and the shortness of time, the Court announced it would proceed on the basis of treating this as an ex parte application for interim orders but at the same time allowing those who had announced appearances and were present the opportunity to make submissions and, if need be, to file affidavits.
The power to make the orders sought in the application are dependent upon the existence of certaln conditions and for present purposes it is sufficient to say that 1323(1) of the Corporations Law provides:

"1323(1) 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;
(b)	a prosecution has been begun against a person for a contravention of this Law; or
(c)	a civil proceeding has been begun against a person under 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), (b) or (c), as the case may be, (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 or by an aggrieved person, make one or more of the following orders:"

There are then set out a large number of orders and the relevant one for present purposes is:

"(h) an order appointing:

(i) if the relevant person is a natural person - a receiver or trustee, having such powers as the Court orders, of the property or of part of the property of that person; or

(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;

Sub-section 3 provides:

"(3) Where an application is made to the Court for an order under sub-section (l), the Court may, if in the opinion of the Court it is desirable to do so, before considering the application, grant an interim order, being an order of the kind applied for that is expressed to have effect pending the determination of the application."

Similar provisions are contained in s.1324 of the Corporations Law in relation to injunctions and in particular I refer to sub-section 1 and sub-section 4 which provide:

"1324(1) Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute:

(a) a contravention of this Law;

(b) attempting to contravene this Law;

(c)	aiding, abetting, counselling or procuring a person to contravene this Law;
(d)	inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravene this Law;
(e)	being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a

person of this Law; or

(f) conspiring with others to contravene this Law;

the Court may, on the application of the Commission, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first-mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing.

(4) Where in the opinion of the Court it is desirable to do so, the Court may grant an interim injunction pending determination of an application under sub-section (l).''

In this case an investigation is being carried out under the ASC Law. The investigation is being conducted by the Commission and commenced on 24 April 1991. It has been going for quite some time and it is obvious that already there has been a large amount of material obtained by the Commission as a result of its investigations. There has been a very large amount of material put before the Court by way of affidavits and exhibits to affidavits, and I will not go through those but they are the affidavits of Mr Behan, now two affidavits by Mr Behan, an affidavit by Mr Smith, Mr Jones, Miss Chapman, Mr Chapman, Mr Lang, Miss Stewart, Miss Carew, Mr Reghanznai, Mr Cullen, Mr East and Mr Wilde. On the basis that this is an application for interim orders, I accept the material in those affidavits.

The investigation, essentially, is into the activities of a number of companies which pursuant to a scheme sought contributions from members of the public wh~ch was designed to enable those members of the public, mainly those making PAYE

whereby they would be able to claim deductions for tax	payments under the tax law, to put themselves in a position
purposes and in so doing reduce the amount of their tax liability. This was done by a method whereby the persons involved in the scheme would borrow money from a company to pay for shares in companies, pay interest on the money so borrowed, the interest being approximately of the same amount as the deductions of tax, and the interest so paid would be then used for the purposes of paying off the interest on the money borrowed to pay for the shares. In the meantime the companies would invest the money for various purposes so as to give the gains to the taxpayer of a capital nature. The
participants could claim the interest payable as a tax
deduction on the principle of negative gearing.
There is a very interesting description of how the scheme was to work in an affidavit by Mr Bell filed this morning. The details are set out in more detail in the affidavits in support of the application. The basic structure as put by Mr Bell, is as follows: A finance company was sponsored, to lend to the members, moneys to purchase shares in a public entity; borrower required to pay interest 12 months in advance, most electing to do so on 30 June. This public entity, in turn, would invest in private companies, acquiring assets or conducting business. The public entity would share in results, proportionate to its input. Investments would include shares in the finance company, to provide its equity to borrow bank or institutional funds. The return to
borrowed funds, and the equity participation in the finance shareholders would be greatly enhanced by the profit made on
company was an attractive high-yield investment, to the benefit of investors, even if also being a borrower of the company. The earnings on shares purchased, derived from the overall investments participated in, was calculated to be not less than 50 per cent of the interest on the loan in the first year, increasing steadily beyond this point. And on the basis of this projection, a budget facility was established to assist members wishing to pay yearly interest, assisted by investment income and initial tax savings.
It must be remembered that, at the moment, I am dealing with an application for interim orders. The Court is not able to express any final or concluded view on questions of fact. It is not able to form any view, where there is a conflict, what is to be accepted. But there is ample evidence to support the view, which I form, of a tentative nature, that although the scheme might have sounded all right, there were grave defects in the way it was carried out. The worst aspect of it was that the companies concerned, which were as I said before, under the control of Mr Bell, whether for practical purposes, even though he was not a director, under s.60 of the Law he is to be treated as a director, was that there were no proper accounts kept of what was received and what was done. There were changing of the persons who were said to be directors of the companies; the changing in the registration, as it were, as to who would be the owners of the various
changing. assets of the companies and the companies themselves kept
You have this continuing changing of the relationship between the companies. It is impossible, at this stage, to work out just what the true position is.
In all the circumstances, I have formed the view that this is a case where it is desirable that there should be interim orders made under s.1323(3) and s.1324(4) of the Companies Law, in the form of the broad outline sought in the application to maintain the existing position to enable the Commission to continue its inquiries and to protect the interests of the aggrieved persons. The main purpose of this is to protect the interests of those persons who may have lost money, or may be in danger of losing money, as a result of the activities of these companies, as well as, at the same time, protecting the public who may otherwise be persuaded to enter into the scheme, in a way whereby they could lose their money as well. I propose to do this even though some of the persons who appeared opposed the making of the orders even though they are members of the scheme.
I propose to make orders in a form which I shall indicate. I should also indicate that any doubts I might have had, as a result of the case put by the applicant, were removed because of the way in which Mr Bell presented his case and the material supplied by him, whlch to my mind,
accounting methods made at all in relation to these companies, illustrated completely the fact that there has been no
no proper records kept, and again, that this is a case where, for present purposes, there is sufficient to justify the Court forming the view that it is desirable that the interim orders should be made.
There are a number of special circumstances applicable to some of the respondents. First of all, as far as the 13th and 14th respondents are concerned, Goldcorp Proprietary Limited and Hemglas Proprietary Limited, and also Mr Dodds, it was put that the companies, themselves, are trading corporations and Hemglas, particularly, is a company which is involved in a number of commercial transactions which could be very adversely affected if the orders were made as claimed by the applicant. Those companies are prepared to give undertakings in a form that, for a specified period, they will not dispose of, or otherwise deal, with any of their respective assets, other than in the ordinary course of business. This undertaking is not acceptable to counsel for the applicants, on the grounds that these two companies have been very much bound up with the main participating companies in the scheme which has been described; that they are also connected with Styleline Constructions Proprietary Limited, another company which has been very much involved with the whole of the arrangement, and that there could well be liabilities attaching to those companies, as a result of those activities, and which, in all the circumstances, should be subject to the
other respondents. Having regard to the material in the same restraining orders as those sought in relation to the
affidavits of the solicitor for those two companies, I do propose to accept the undertaking in relation to those two companies, and to exclude them from the orders made.
A similar claim was made in relation to Styleline Constructions Proprietary Limited but, in my opinion, Styleline is that much closer to the whole of the dealings of the companies. It is a construction company, building houses and units, money for which is provided by the companies, the subject of the orders to be made. In my opinion, even though there may be some problem associated with the carrying on of that business, this is a case where it is to be assumed that any receiver manager appointed will enable those businesses to be continued. I do not propose to accept the undertaking given, on behalf of Styleline.
Mr Dodds is the other person for whom a special order was sought. In support of his position, the material discloses that he is one of those persons who has been involved in the joint venture activities. His main activity is that of a farmer, and he also was a person who allowed his name to be used for the purposes of having moneys from the scheme invested in his activities as a joint venturer. Mr Dodds agreed to make his name available to the group of companies controlled by Mr Bell for the purchase of a property known as Unit 17, Vantage Point, Burleigh Heads. To this extent he
became a joint venturer, as it is said, with the group. That is his main association with the companies. It is said that
at the same time the applicant contends that this device was used so that money could be borrowed under the name of Mr Dodds and with his reputation. He was, also, a director of Central Queensland Properties, which was one of the other companies actively engaged in the scheme. Mr Hill was a co- director, and although Mr Dodds did not participate in the affairs of that company, he at least allowed his name to be used as that of a director. In all the circumstances, this is a case where I am not satisfied that I should exclude Mr Dodds from the other orders because of the fact that although he himself may not be to blame to any great extent there is a possibility of him being a person against whom action may be brought at a later stage, and his name was in fact used for purposes associated with the whole of the scheme itself. So I will not allow the special undertaking to be given by him as sought by counsel.
There is also a special request made by Mr O'Donnell for Styleline which I have already ruled upon. Also Mr Hyland for the 29th respondent, Mr Mather. M r Mather was involved in these matters in a very small way. His activity really was that of an employee in another area. He was a technical officer employed by Telecom but to a large extent he came within the same category as Mr Dodds. He is one of the joint venturers. He has allowed his name to be used, and although he also is a person who has participated in the scheme, for
similar reasons as apply to Mr Dodds, I will not exclude him from the general orders to be made. I should also indicate
that in this case there was a special request made that I should make special orders in relation to him, but having regard to all the circumstances, I do not propose to do so.
Finally, Mr Forde for the 7th and 8th respondents made submission to the effect that the private home of the people controlling Berona Investments Proprietary Limited and Berona Holdings Proprietary Limited, should be excluded from the orders because of the fact that they live in the house; it has been owned by them for a long time and there is no income coming from it. But because of the activities of Mr Bell, in my opinion, this is a case where there should be no special order in relation to them.
The order I propose to make is for a short period only, for 14 days, and in the meantime it may well be that following discussion there may be agreement reached as between the Commission and the other persons as to what can be done about these various people. I should indicate that this is a case where the Law provides that the Court shall not require an undertaking as to damages to be given by the Commission.
I certify that this and the preceding twelve (12) pages are a true copy herein of the Reasons for Judgment of his Honour, Mr Justice Northrop delivered ex tempore on 18 March 1992 as
revised from transcript. v
Associate: /m <
Date :  1 April 1992