Australian Securities Commission v Corplan Nominees P/L

AUSTRALIAN SECURITIES COMMISSION v CORPLAN NOMINEES PTY. LTD., CYRIL JOHN
PEARSON, CAMERON JAMES PEARSON, CORPLAN MARKETING PTY. LTD., CORPLAN GROUP
HOLDINGS PTY. LTD., TFG MANAGEMENT LIMITED and PEARSON ASSOCIATES PTY. LTD.
No. QG3007 of 1994
FED No. 251/94
Number of pages - 18
Equity

COURT

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
DRUMMOND J

CATCHWORDS

Equity - application for Mareva injunction by ASC against corporate trustee of superannuation funds, related corporations and directors - seriously deficient record-keeping - substantial payments of trust moneys by one corporate respondent to other respondents in which individual respondents also directors - inadequate verification of justification of payments - breach of s. 232(2) and (6) Corporations Law - failure to comply with s. 289(1)(a) and (b)(i) Corporations Law - Mareva relief granted.

Corporations Law - ss. 232, 289, 1323, 1324
Occupational Superannuation Standards Act 1987 - s. 16

Beach Petroleum N.L. v Johnson (1992) 9 ACSR 404
Jackson v Sterling Industries Limited (1987) 162 CLR 612

HEARING

BRISBANE, 20-21 and 28-29 April 1994
#DATE 29:4:1994

Solicitors for the applicant: Australian Securities

Commission

Counsel for the first, second,
fifth, sixth and seventh
respondents: F.L. Harrison QC

Solicitors for the first, second,
fifth, sixth and seventh
respondents: John Nagel and Co.

Solicitors for the third and
fourth respondents: Barwicks

ORDER

UPON hearing Mr. Burnett of counsel for the applicant and UPON hearing solicitors for the first, second, fifth, sixth and seventh respondents THE COURT ORDERS THAT:
1. Pursuant to s. 1324(1) the Corporations Law, the second

respondent be restrained until the trial of the action or further order from taking part in the management of the first respondent except for the purpose of:

(a) appointing an additional director or directors of the first respondent; and/or

(b) acting as a director to resolve for the resignation of the first respondent as trustee of the Beneflex Retirement Plan ("the Plan") and appointment of a substitute trustee of the Plan which such substitute trustee will in any event be a trustee approved by the applicant or the Court.

2. Pursuant to section 1324(1) the Corporations Law each of

the first, second, fifth, sixth and seventh respondents deliver to the applicant's solicitors at Level 22, Commonwealth Bank Building, 240 Queen Street, Brisbane by 4.00 p.m. on Friday, 13 May, 1994 a detailed list, verified by affidavit, of all the property of each of those respondents whatever, the nature of the extent of interest therein, whether it is situated in Australia or overseas and whether the said interest is presently existing or has at any time within the last three years so existed and whether:

(a) it is owned by each of those respondents either individually or jointly; or

(b) it is owned by each of those respondents jointly with another party or parties; or

(c) it is held upon trust for other persons.

3. Until further order, that each of the first, second, fifth,

sixth and seventh respondents be restrained by themselves, their servants or agents or otherwise howsoever from disposing of or dealing with in any manner whatsoever any of their property (including any interest in property) save:

(a) (i) that the first respondent have access to any of its property which it requires to meet legal expenses in an amount or amounts that may be agreed in writing by the applicant and, in default of agreement, ordered by the Court, to prosecute action QG 20 of 1994 in this Court and/or to defend these proceedings.

(ii) that the first respondent be permitted access to any of its property as permitted by the Insurance and Superannuation Commission pursuant to the order made 22 February, 1994 in QG 20 of 1994.

(b) that the second respondent have access to any of his property which he requires:

(i) to meet those expenses and debts incurred by he and his wife being living expenses in a sum not exceeding $600.00 per week;

(ii) legal expenses in an amount or amounts as may be agreed by the applicant and/or the Court to defend these proceedings.

(c) that each of the fifth, sixth and seventh respondents have access to any of its property which it requires:

(i) to maintain and pursue in the ordinary course of its business of a professional trustee, investment adviser and trust fund administrator including to pay debts incurred in the ordinary course of its business and being up to a maximum of $10,000.00 per month and such additional sums as shall be agreed in writing by the applicant and, in default of agreement, as may be ordered by the Court.

(ii) to meet legal expenses in an amount or amounts as may be agreed in writing by the applicant and, in default of agreement, as may be ordered by the Court to defend these proceedings.

4. The applicant file and serve its statement of claim upon

each of the first, second, fifth, sixth and seventh respondents by 4.00 p.m. on Friday, 27 May, 1994.

5. Each of the first, second, fifth, sixth and seventh

respondents file and serve their respective defences by 4.00 p.m. on Friday, 24 June, 1994.

6. The applicant file and serve, any reply, if any, in respect

of any defence by 4.00 p.m. on Friday, 8 July, 1994.

7. The applicant provide to each of the first, second, fifth,

sixth and seventh respondents:

(a) a list of its documents

(b) a list of all those respondents' documents obtained by the applicant pursuant to search warrants by 4.00 p.m. on Friday, 27 May, 1994.

8. Each of the first, second, fifth, sixth and seventh

respondents file and serve an affidavit of documents by 4.00 p.m. on Monday, 25 July, 1994.

9. The application be mentioned for review at 9.15 a.m. on

Friday, 26 August, 1994.

10. All costs of and incidental to the application for

interlocutory relief are reserved.

11. Liberty to apply to all respondents including liberty to

the second respondent to apply for funds additional to those referred to in paragraph (b)(i) of order 3.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

DRUMMOND J The Australian Securities Commission ("ASC") seeks interlocutory orders under ss. 1323 and 1324 the Corporations Law in these terms: firstly, that each of the respondents deliver to the applicant's solicitors a comprehensive and detailed list verified by affidavit of all the property of the respondents, whatever the nature or the extent of interest therein, owned by the respondents either individually or jointly, or with another party or parties, or held upon trust for others. Secondly, until further order, the first, second, third, fourth, fifth, sixth and seventh respondents be restrained from disposing of or dealing with in any manner whatsoever any property, including any interest in property of the first respondent, save with the prior consent of the ASC or by court order. The next order sought is that until further order each of the respondents be prohibited from taking out of the jurisdiction any money without the prior consent of the ASC or the Court, and related orders. Finally, paragraph 2(c) of the application for interlocutory relief seeks an order that within 14 days of being notified by the Insurance and Superannuation Commission ("ISC") of the nomination of an alternative trustee for the Beneflex Retirement Plan, the first respondent retire as trustee of the Plan and appoint in its place the person so nominated.

The final relief sought by the application seeks orders that the second to seventh respondents return or repay to the trustees of the Beneflex Retirement Fund all moneys received from the first respondent as such trustee contrary to s. 232(2) or (6) the Corporations Law. Alternatively, an order is sought for the payment of damages to that trustee under s. 1324(10) the Corporations Law, i.e., damages occasioned by contraventions of the Corporations Law. Next, orders are sought prohibiting the second and third respondents from forever managing a corporation. Finally, an order in the same terms as that sought by paragraph 2(c) of the application for interlocutory relief is also sought by way of final relief.
The interlocutory order sought by paragraph 2(c) of the application, and also by way of final relief, is sought because the first respondent's major activity is as trustee of a number of superannuation funds, the largest of which is called the Beneflex Superannuation Plan. The Plan consists, among other things, of two superannuation funds, an approved deposit fund and a pooled superannuation fund, and caters for employer-sponsored superannuation for employers wishing to provide benefits for their employees, and personal superannuation for gainfully employed persons wishing to fund their own superannuation benefits.
The level of contribution is said by the second respondent to be established when the particular employer agrees to participate in the fund. Part of the weekly contribution goes towards administration and other costs, the cost of providing any optional death, and accident insurance cover. The remaining amount is credited to the member's account. The member's account continues to grow with investment earnings and any distribution of surplus moneys. Members may also elect to contribute to the fund. These contributions will attract the same rate of return as employer contributions.
As I understand the evidence, the first respondent does not generally itself act as the investment manager of the funds under its control. Investment decisions with respect to the funds are made, hopefully to produce investment returns, by life offices. The funds received by the first respondent in respect of the Beneflex Plan have, in part at least, been under the control in this respect of National Mutual Life, which has managed the moneys it receives from the first respondent in one or in a small number of bulk funds of its own. This has been done under an agreement between National Mutual Life and the first respondent.
The first respondent acts, firstly, as a recipient of contributions from employers and self-employed persons which it passes on to National Mutual and other life companies for investment, after deduction of the first respondent's own administration charges, and, secondly, as an administrator responsible for ensuring that accurate records are kept of each member's interests in the bulk funds under the investment control of National Mutual Life and the other life offices, including each member's interest in the investment returns made by National Mutual Life and the other life offices on those bulk funds.
Membership is made up in large part of employees of a large number of businesses, including restaurants, in the hospitality and tourism industries. Many of these employees are casuals in an area of industry within which workers are highly mobile between employers; they are also highly mobile between the hospitality and tourism industries and other areas of activity within the economy. It appears that the Plan has been in operation continuously since some time in the 1989 financial year. It also appears that the first respondent, as trustee of the Plan, has had control of substantial funds.
The moving force behind the first respondent, and the group comprising the first and fifth to seventh respondents, and other companies, is Mr. Cyril Pearson, the second respondent. He is a director of each of the first, fifth, sixth, and seventh respondents. The sixth respondent was originally called Fintax Limited. The second respondent was formerly also a director of the fourth respondent. The third respondent, his son, is a director of the first and fourth to seventh respondents.
The second respondent explained in his affidavit filed on Wednesday, 20 April, 1994 what he said was the attraction of the Beneflex Plan:

"Beneflex with its unique computerised operation enables it to efficiently and cost effectively administer a fund with a large number of members in a particularly job mobile work-force. Hence, its specific appeal to the hospitality and tourism area."

Much attention was focused in argument on the acquisition by the first respondent of computer equipment, including accounting software, said by the first and second respondents to be worth some hundreds of thousands of dollars. Mr. Pearson says that one lot of this equipment was acquired following a decision made in November 1991 "to facilitate the Beneflex administration". In his affidavit filed on Wednesday, 20 April last, he went on to claim:

"The computer equipment acquired at the close of year 1991/2, and the beginning of year 1992/3 effectively reduced the operating costs of the fund quite substantially as reference to the fund growth and charges as follows."

He sets out a table which indicates that administration costs per member have fallen from $36.65 in respect of the 2,400 members in the 1990/91 financial year to $24.79 in respect of the 7,555 members in the 1992/93 financial year.
Mr. Pearson's assertion that the first respondent is running an efficient and cost effective administration of the Beneflex Plan is very greatly overstated, on the evidence before me. Senior counsel for the respondents did not attempt to suggest that the quality of the accounting administration of the funds the first respondent receives, and otherwise is responsible for, as trustee of the Beneflex Plan, has in the past been of an acceptable standard. He says, however, that things have recently changed in that regard, as a result of decisions made by Mr. Pearson in January last. Mr. Pearson says:

"In 1993, during the audit of the Beneflex Retirement Fund it was brought to my attention as to the difficulties with a particular accounting package and the fact that for a period what I understand to have been inappropriate accounting standards was employed. I engaged a specialist accountant, Mr. Kevin Yarrow, to join Corplan in January, 1994 with the express job function to look at the general ledger and accounting records of the Beneflex Retirement Plan and he commenced a complete rekeying of the source data in accordance with accounting standards AAS25 and he implemented the appropriate changes to the way administration fees were paid and also group life."

He further says:

"In my belief any inappropriate Accounting Standard that was used has been corrected and the trustees have fully complied to requests of both the ISC and ASC and the Federal Court."

The reference to the Federal Court is a reference to orders which I made in proceedings QG 20 of 1994 between the first respondent and the Insurance and Superannuation Commission on 22 February last.
Mr. Yarrow, too, has something to say about what took place in January. He is a certified practising accountant and has been employed in that capacity by Fintax Group Holdings Pty. Ltd. since January 1994. That company is a member of the group controlled by Mr. Pearson. Mr. Yarrow continues:

"I was instructed by Cyril John Pearson, the principal Managing Director of Fintax Group Holdings, to put into place accounting procedures for the maintenance of the Beneflex Retirement Plan.

I prepared a sample superannuation fund set of accounts to reflect operating statement, statement of financial position, statement of cash flows ..."

He goes on to detail further activities he undertook and continues:

"Mr. Pearson agreed for me to reproduce the Beneflex Retirement Plan financial accounts for the years 1988/9, 1989/90, 1990/1, 1991/2, 1992/3."

Copies of those completed accounts are exhibited.
The evidence before me, not contested by Mr. Pearson or the other respondents, raises a clear case against the first, second, and third respondents that, at least until the appointment of Mr. Yarrow, there has been for a long period of time a serious on-going failure by the first respondent to comply with its duty under s. 289(1)(a) and (b)(i) the Corporations Law.
By way of example, the ASC points to the many substantial differences between the first respondent's statement of financial position as trustee of the Beneflex Plan for the year ending 30 June, 1993 included in the first respondent's accounts for that year as originally prepared, and the corresponding statement in the first respondent's accounts as redone by Mr. Yarrow earlier this year. The first statement was issued under the cover of a report signed by the directors of the first respondent on 4 January, 1994, who appear to be the second respondent, and Mr. Yarrow, rather than the second respondent and third respondent, as the ASC submitted, who then stated that those accounts gave a true and fair view of the state of affairs of the Plan for that year.
The ASC investigator, Mr. Egan, gives further examples that suggest a serious continuous failure by the first respondent to keep records that correctly record and explain its transactions. By way of example, I refer to the following. The first respondent's general ledger for the year ending 30 June, 1992 records in respect of what are therein termed administration fees, payments totalling $516,551.80. But this is adjusted in the ledger on 30 June, 1993 by being reduced by $401,771.12, leaving a balance of $114,780.63; the decrease is accounted for by increasing the balance of the "Life Office Investments" account. It is not, however, this final ledger figure of $114,780.63 that appears in the first respondent's final accounts. The figure appearing there for administration costs is an increased figure of $171,125.09. Not all the first respondent's cheque butts in respect of the first respondent's bank account out of which the $516,551.80 was paid were obtained by Mr. Egan. But the cheque butts available to him record payments totalling $140,700.00 to what appears to be the fourth to seventh respondents, even though the final figure allocated to administration expenses is $114,780.63 in the general ledger for the year. There is no suggestion that any of these respondents were entitled to receive payment from the first respondent other than for administration services and, in the case of the sixth respondent, for computer equipment also.
Secondly, examination of the general ledger for the year ending 30 June, 1993 shows payments recorded in respect of administration costs that total $484,881.44. On 30 June, 1993 this was adjusted down to a closing balance in this account of $187,277.79, largely by increasing the plant and equipment account by $287,278.65. On this occasion, the ledger final balance figure is that appearing in the final accounts as expenditure on administration costs. The first respondent's cheque butts available to Mr. Egan record payments totalling $180,500.00 to the fourth to seventh respondents out of the $484,881.44 recorded in the general ledger.

Mr. Yantsch is a qualified accountant. He says he has been employed by Fintax Group Holdings Pty. Ltd. since December 1992 and works in its accounting practice which attends to the accounting for the Beneflex Plan. Mr. Yantsch offered an explanation for the sort of end of year adjustments to the general ledger administration fees account that I have referred to. He says:

"The practice which was adopted was that (other than for obvious payments such as stationery or electricity) all payments were coded either to administration fees (admin fees) or group life payments (which were obviously identifiable as they were payable to life companies). Cyril John Pearson would make a reconciliation at the end of each financial year with the computer system print out which summarised group life payments, administration charges, rollovers, members payouts and employer contributions. As far as I am aware this is the practice which had been adopted for all of the years prior to my being employed."

Mr. Pearson says of this matter:

"I have always had a system where the most variable outlays ie administration, group life and Life Office Investment would be bulked into these three codings and then journal adjustments were made having reference to the Beneflex database computations prepared by David Gray."

He further explained how the first respondent did things, so far as keeping proper records of its financial activities is concerned, when he gave evidence at his private examination by the ASC conducted under the ASC law in February last. He then said, in relation to the records that were kept of payments made by the first respondent for the computer equipment it bought from the sixth respondent in mid 1992, to which I have already referred:

"So that during the course of the year you were not in a position to say at any given time that a certain amount had been expended on administration fees and a certain amount on computer and a certain amount on group life, that was not determined until 30 June?---No. No. We - we had a running figure - I mean, it wasn't a prudent trustee decision to take the whole $640,000 out in one figure out of a superannuation fund."

I interpolate that that was the figure which had been previously discussed in the examination as the total of what was to be paid by the first respondent to others of the respondents for computer equipment.

"So you had a running figure?---So we had a figure in our own minds what that was, yes.

But you cannot show us how you can determine which of those payments were, in fact, for the computer?---No. I believe at the time when we were doing that we were correct. I have since, you know, after all this time - I have since sought advice from my accountants and solicitors who had indicated that it is an authorised trustee investment to buy computers. We then basically adjusted that at the end of the year.

Right. So you kept a running total in your head of those fees that you were contributing - that wold contribute - administration fees?---Oh, yes. We've always known and we've always been conscious of the fact we haven't been charging the full amount of our administration fees. And when some cheques were signed as administration fees you kept a running total in your head as to those payments that would eventually be assigned to purchase of a computer?---Yes."

He dealt with the same matter in his second affidavit:

"The codings to administration included the acquisition of computer equipment. The only accurate way of adjusting the value of the computer equipment to the payments paid periodically was to have account at the end of 30 June 1992 to the independent valuations of the computer and to the historical cost of the equipment sold from Pearson Associates Pty. Ltd. and Corplan Group Holdings Pty. Ltd. at 30 June 1992."

What Mr. Pearson calls the system which he has always operated, at least until very recently, is obviously deficient having regard to the first respondent's obligations under s. 289(1)(a) the Corporations Law. There seems simply to have been no attempt over the years by Mr. Pearson to put in place procedures for the proper recording and identification of disbursements made throughout each year by the first respondent to the other corporate respondents and which Mr. Pearson in his private examination in February last claimed were made for a variety of reasons, including payment of administration services rendered to the first respondent. The extent of Mr. Pearson's default as a director of the first respondent in this respect is further highlighted by what Mr. Yarrow says took place between he and Mr. Pearson earlier this year:

"I recommended to Mr. Pearson that a calculation of administration fees be determined by Mr. David Gray each month and paid in accordance with that amount and an appropriate minute and invoices be produced to provide the source calculations and an Administration Agreement be finalised."

None of this was apparently done over the years that Mr. Pearson's system, as he calls it, was in operation.
I have earlier referred to what Mr. Pearson and Mr. Yarrow say about the activities of the latter since January 1994 in putting the first respondent's accounts for the 1989 to 1993 years into order. It seems doubtful that Mr. Yarrow's work has even now produced accounts that meet the requirements of s. 289 the Corporations Law, at least for 1992. Mr. Pearson says:

"The balance sheet and profit and loss accounts for the trustee for 1992 ... cannot be reconciled with the general ledger for 1992 ... because all the original source codings, for example bulking to administration group life and life office investments were entered on the Paxus accounting package subsequent to the changeover from Paxus to Solution 6 accounting package. A large number of client files were unrecoverable to produce a general ledger printout, hence sale price was commensurate with the market valuation."

This doubt would seem to extend to earlier years and also to 1993. Mr. Yantsch says:

"The general ledger of the Beneflex Retirement Plan on the Paxus Accounting Package has been (along with a large number of other client files) unable to be recovered from the archive disk to which they were transferred once the Paxus system was no longer being utilised."

The nature and extent of the failure by the first respondent and those associated with its control, viz., the second and third respondents, to meet its obligations under s. 289 the Corporations Law throw doubt also on the point Mr. Pearson repeatedly makes in justification, particularly of his decision to have the first respondent buy the computer equipment from the sixth respondent to which I will later refer in more detail, viz., that this has enabled the first respondent to significantly reduce its administration charges to fund members. It throws doubt, too, on the value that Mr. Pearson seeks to get from the fact that the fund accounts were audited each year and an unqualified audit certificate issued.
Little reflection is needed to appreciate that a trustee like the first respondent, who has responsibility for and control of large amounts of superannuation moneys, must have in place efficient accounting controls. Essentially, the first respondent receives relatively small individual payments from a large number of employers in the hospitality and tourism industries by way of superannuation contributions intended to benefit an even larger number of employees. The ISC official, Mr. Hannan, says that there are now about 350 employers contributing to the Plan, in respect of about 7,500 employees.
The attractiveness of the Beneflex Plan to employers is that they are relieved of onerous administrative duties that would be involved in running their own employer superannuation schemes by being able to leave all that to the first respondent. As for the employee beneficiaries, many of them are unlikely to be vigilant in monitoring the way the funds in which they are interested are administered by the first respondent. This is so, firstly, because many are, no doubt, young persons who will not be able to obtain access for many years to the moneys that accumulate in the fund for their benefit and, secondly, because the amounts paid in, on behalf of each individual employee from time to time, are likely to be very small and, for that reason too, not of great concern to the individual employees.
If a trustee administering a superannuation operation like that of the first respondent does not have in place efficient accounting controls, there is an obvious potential for employee beneficiaries to suffer large losses overall, even if no dishonesty is involved on the part of anyone responsible for receiving contributions and investment proceeds and for dealing with those receipts in a proper way. The potential for losses due to dishonesty is equally clear.
The first respondent's past failure to keep proper records is, in my view, sufficient by itself to warrant some form of interlocutory intervention in the respondent's activities of the kind that the ASC is seeking, notwithstanding the fact that any past losses occasioned by the first respondent's deficient accounting procedures are in theory recoverable from the first respondent and those associated with it, including the second respondent.
But there are other matters that, when added to the first respondent's history of deficient accounting and the nature of its operations which I have described, in my view plainly require some form of intervention now. It is to those matters that I turn.
The difference between the opening and closing balances for the year ending 30 June, 1992 in the general ledger account called Life Office Investments of $613,452.64 and $978,880.00 is due largely to the end of year adjustment I have referred to reducing the administration fees account by $401,771.12 and increasing the Life Office Investment account balance by the same amount. But there is a further end of year adjustment to the Life Office Investment account balance transferring, in effect, $95,986.00 from that account to the Plant and Equipment account, resulting in an end of year balance in that account in the general ledger of that same figure. The only reference in the first respondent's accounts for the 1991/2 financial year as originally prepared, to plant and equipment, is in the statement of cash flows which contains the entry, "Payment for property, plant and equipment $173,468.43". This same figure is ascribed in Mr. Yarrow's redone accounts for 1992 to the closing value of the first respondent's plant and equipment.
Mr. Egan of the ASC says that the asset register of the sixth respondent for the financial year ending 30 June, 1992 indicates that the sixth respondent itself acquired for $120,303.48 on 30 June, 1992 the computer which it disposed of on the same day to the first respondent for $173,468.43, thereby making a profit of $53,164.95. Mr. Pearson agrees that the computer equipment was purchased by the first respondent from the sixth respondent in the 1992 year for this figure of $173,468.43 pursuant to a decision made by the first respondent in November 1991. He admits that the sixth respondent bought and then sold this computer equipment to the first respondent on the same day at the profit I have mentioned.
Mr. Pearson's explanation for why he considers that it was proper for the first respondent to commit its trust funds in a way that profited another company with which Mr. Pearson is associated, but without the approval of the trust beneficiaries, is as follows:

"The computer equipment was owned by other related companies namely Corplan Group Holdings Pty. Ltd. and Pearson Associates Pty. Ltd. I had a fiduciary responsibility as a Director of all these associated companies to obtain the best price for the computer. The price was fixed by an independent valuation, and Fintax Limited (the sixth respondent) accounted in its books for the taxable profit on the sale of the computer."

And further:

"Prior to the sale of the computer system by Fintax Limited (the sixth respondent) to Corplan Nominees Pty. Ltd. (the first respondent), an independent valuation of the equipment was obtained and the equipment was purchased having regard to its original purchase price by Fintax Limited (the sixth respondent), and Corplan Group Holdings Pty. Ltd., Pearson Associates Pty. Ltd."

This independent valuation, which might serve to make the transaction a little less objectionable, is not produced. The person who made it is not identified by Mr. Pearson. There is no explanation for its absence. There is no evidence, other than Mr. Pearson's unsupported assertion that it ever existed, although in view of what he says in paragraph 10 of his second affidavit, it might be thought that employees of one or other of the respondents, including Mr. Yarrow, should have seen it and made use of it. No one makes any mention of it. On Wednesday, 20 April, I was told that the ASC had seized the respondents' documents some time ago and the respondents did not have access to them. But the hearing was adjourned from Wednesday, 20 April to Thursday, 21 April to enable Mr. Pearson to inspect the ASC's holdings of the respondents' documents so he could produce any documents supportive of his assertions with respect to the purchase by the first respondent of this and other computer equipment from the sixth respondent. Nothing, however, was produced on Thursday by Mr. Pearson, although in his affidavit sworn and read that day he referred to such valuations.
Mr. Pearson did produce what he called a valuation by a Mr. Cairns of Computer Parts, which Mr. Pearson says he requested, and which he said:

"Covers the computer equipment and any associated application software used by Corplan Nominees Pty Limited, and in particular in Beneflex operation. (sic)"

Most of this so called valuation comprised a corporate profile of Computer Parts and of Mr. Cairns. Mr. Cairns makes no attempt to identify the hardware or the licensed software belonging to the first respondent, which he is said to have valued. His exercise, so far as it is of any relevance to the matter before me, is limited to this lone statement:

"The value of your current operating system and software licences is $107,950."

He does not identify in any detail the equipment he refers to here. It is, moreover, Mr. Cairns' opinion as at February 1994, 20 months after the acquisition of the equipment I have referred to by the first respondent. And this valuation was apparently sought by Mr. Pearson only after he must have been aware of Mr. Glynn's involvement in conducting the ASC investigation into the first respondent's activities, and after the first respondent commenced the action against the ISC, in an endeavour to restrain publication of certain material critical of the first respondent's activities as trustee of the Beneflex Plan, including its decision that the Beneflex Plan did not conform to the requirement of the Occupational Superannuation Standards Act 1987 for the 1992 year.
I have already referred to the end of year adjustment to the first respondent's general ledger, which reduced the final balance of the administration fees account by $287,278.65, and increased the end of year balance of the plant and equipment account by the same amount. Computer equipment additional to that which Mr. Pearson acknowledges was purchased by the first respondent from the sixth respondent on 30 June, 1992 for $173,468.43 in the 1992/3 financial year. Mr. Pearson exhibits a minute dated 1 July, 1992 recording a decision by the first respondent to buy this additional equipment from the sixth respondent for $464,127.89. The first respondent's schedule of assets records the acquisition of computer equipment on 1 July, 1992 in that amount. In March 1991 the sixth respondent leased from AGC computer equipment which AGC bought at a price of $230,000.00. This equipment included the Wang Computer System number UJ0687. This leased equipment was repossessed by AGC on 27 July, 1992. It was common ground at the hearing before me the equipment repossessed is part of the equipment the first respondent bought only three weeks or so before from the sixth respondent on either 30 June or 1 July, 1992. Mr. Hills, the AGC account manager, says that the sixth respondent defaulted on lease payments in January 1992, that on 27 July, 1992, the property the subject of the lease agreement was repossessed and that on 12 January, 1993 the property the subject of the lease was auctioned by Alex Overett, auctioneers. At auction $1,500.00 was realised from the sale of the property and the purchaser at the auction was David Grey Consulting.
Mr. Pearson now says of this matter:

"These leases with AGC covered $182,230 of equipment, as well as the VS100 referred to in Mr. Hill's affidavit and the AGC repossession of equipment worth $235,985 on 27 July

1992. Thus AGC repossessed $53,155 worth of equipment that it did not have valid title to. This has been the subject of legal action by Corplan Group Holdings Proprietary Limited, the owner of that equipment, against AGC. Mr. Hill says that the sixth respondent defaulted on lease payments in January 1992. I dispute that date and say further AGC repossessed on 27 July 1992 after agreement was reached in relation to the default which AGC subsequently refused to honour their agreement and subsequently repossessed the equipment."

Mr. Pearson continues:

"AGC were approached on several occasions with an offer on the equipment and refused to negotiate. On 12 January 1993 the VS100 Property referred to in Mr. Hill's affidavit was auctioned by Alex Overett Pty. Ltd. Auctioneers. At the auction $1500 was realised on the sale on the VS100. He says that the purchaser of the equipment was David Gray Consulting. This is incorrect, I purchased the property after failing to negotiate any commercially realistic agreement with AGC. Mr. David Gray accompanied me to the auction and simply signed for the computer delivery slip to Alex Overett Auctions.

Further equipment was repurchased through bank cheques to the AGC on offers made by my interstate affiliations as AGC would not negotiate with Fintax Limited (the sixth respondent) or Corplan Group Holdings Pty. Ltd. or Pearson Associates Pty. Ltd."

The Wang system is back in the respondent's possession. When Mr. Pearson was privately examined by the ASC in February last, before the ASC appears to have been aware of the repossession of the computer equipment by AGC, this is what Mr. Pearson said about the matter:

"Mr. Pearson, at the time that the computers were purportedly transferred from Fintax Limited to the fund - that is - I think the notional date was 1 July '92?---Yes. --- did Fintax hold full title to all of the computer equipment that was transferred?---Yes. To my knowledge it did.

...

Right. And at that time did the fund itself acquire full legal title to all of that computer equipment?---Yes, it did.

Or was that equipment still subject to some lease commitment from AGC?---No. The equipment at the end of 30 June 1992 was fully owned, and at the end of '93 it was also fully owned. Now, there was a period in between when it was finally paid out from AGC.

Sometime between the financial year ending '92 ending '93 it was paid out?---I believe so, yes."

It is difficult to put any construction on his statements here other than that he was being deliberately untruthful on oath. When Mr. Pearson was again examined by the ASC in March, after the ASC had obtained the lease documents from AGC, this is what he said, after acknowledging that the Wang computer system recorded in the sixth respondent's books at 1 July, 1992 at a value of $232,000 was the same system transferred to the first respondent at that time, and after he had been shown the AGC lease:

"Can you tell me, Mr. Pearson, if this property was subsequently repossessed?---Yes, it was. Do you know the date of repossession?---No - no. I would have to - I'd have to look that up. Beg your pardon?---I would have to look that up. And how do you know it was repossessed?---Well, they - they came into Silverton Place and went through the front door and - and they took the equipment.

Took possession of the equipment?---Mm. All right. I have been advised by AGC that their property was repossessed on 27 July 1992. Would you agree with that?---Oh, I can't agree. I don't have the figures with me.

...

Would it have been on or about that date, around that time, July '92?---Yes, perhaps it was some time in that area. And that is very shortly after it appeared in the accounts of Beneflex Superannuation Fund?---Mm. 26 days. Right. Were you aware that there were ongoing problems with meeting the lease liability?---Yes. And how long had those problems been going on for?---Well, they'd been going on for quite some time because we - we had entered into an agreement with a company to pay certain sums to us, and they ceased to do that, and we subsequently issued a writ against them and that litigation is continuing.

And what company is that?---Tyndall Life. Right. So for a period of time, anyway, Fintax was unable to meet its obligations in terms of the lease agreement?---I don't think that's correct. We basically entered into arrangements with AGC and we paid quite substantial payments, and then they did a 180 degree shift and came and collected the equipment."

Senior counsel for the respondent described the nature of the agreement between the first respondent and the sixth respondent with respect to the former's acquisition of the computer equipment that was held by the sixth respondent under lease from AGC in this way: what they are selling is the interest in the computer. When the vendor knows that there is a lease to AGC the purchaser knows that it is on lease from AGC. Neither of them is in any way purporting to deprive AGC of its rights under the lease. What we have is an agreement to purchase the equipment under which a person has an obligation to make title. Here, in fact, title, no doubt, if it is contemplated, would be made on the conclusion of the lease. But that is counsel's suggestion only. There is no evidence that that was, in truth, what was agreed between the first respondent and the sixth respondent with respect to the computer equipment that was repossessed soon after the sixth respondent purported to sell it to the first respondent. No documentation evidencing the transaction was produced or even referred to by Mr. Pearson. His evidence to the ASC contradicts counsel's suggestion.
The evidence before me enables the ASC to make out a strong arguable case here that Mr. Pearson, as the director of the first respondent, in effective control of that respondent, committed it to a binding obligation, to be met out of trust funds, to buy equipment said to be essential to the first respondent's efficient operations as trustee; that he knew the equipment was under lease to the sixth respondent and he also knew that the sixth respondent was in arrears in paying the rentals due to the lessor. The equipment was repossessed almost immediately by the owner. It is difficult if not impossible to identify just how much the first respondent in fact paid out of its trust funds in respect of this acquisition, although it is clear from Mr. Pearson's evidence that some such payments were made by the first respondent. This all points to dishonest conduct by Mr. Pearson to the detriment of the first respondent and its trust beneficiaries. The sixth respondent had no legally enforceable claim against AGC to acquire title to the equipment, something that Mr. Pearson appears to have well known. The acquisition of the computer was said by Mr. Pearson to be essential to the first respondent's efficient operations, although it appears that a Fintax company rather than the first respondent continued to supply the first respondent with accounting services, even after the first respondent acquired the computer equipment from the sixth respondent. The equipment appears to have been used to provide the first respondent with accounting services up to repossession, and again after it was purchased in circumstances, as explained by Mr. Pearson, which suggest that a subterfuge was perpetrated on AGC to ensure the first respondent would retrieve the equipment.
There is a strong arguable case that the decision by the first respondent to buy this equipment in the circumstances I have outlined involved a breach of trust by the first respondent in which at least the second respondent and the sixth respondent were also involved. When it is seen that this transaction took place against the background of inadequate record-keeping by the first respondent, for which the second respondent appears to have major responsibility, a need for interlocutory intervention of a kind provided for by ss. 1323 and 1324 the Corporations Law is demonstrated.
For the reasons already canvassed, I think the ASC has shown a strong arguable case of serious breaches by the first respondent, involving the second respondent, of s. 289 the Corporations Law, and also of the second respondent's duties under s. 232(2) the Corporations Law, sufficient to require the second respondent's removal from control of the first respondent until the trial of the action. I am influenced in coming to this view by the nature of the first respondent's business as trustee of the Beneflex Plan to which I have already referred. I am of this view, notwithstanding the orders made on 22 February 1994 in action QG 20 of 1994. No considerations were pointed to in argument which might justify a refusal of interlocutory relief, if I were satisfied that an arguable case was made out.
I also think that the ASC has made out a strong arguable case that the second respondent's breaches of s. 232(2) the Corporations Law and his and the first respondent's breaches of trust have caused loss to the beneficiaries of the Beneflex Plan. The applicant can make out the following case: I have described in detail the second respondent's long-standing attitude to how the trustee company he controlled should go about keeping records of its activities and the potential that created for losses to the trust beneficiaries in circumstances in which the first respondent might never be called to account for those losses by any of the beneficiaries. This attitude only changed on the eve of the ISC taking action that would disrupt the inflow of funds to the first respondent. It must have the result that it will be difficult to reconstruct accurately the first respondent's activities, notwithstanding Mr. Yarrow's recent work. I have also referred to Mr. Pearson's part in the sale by the sixth respondent of the computer equipment to the first respondents, a transaction that benefited the sixth respondent at the expense of the beneficiaries whose interests the first respondent and second respondent, as its director, were duty bound to protect. I have mentioned Mr. Pearson's lack of candour in his examination by the ASC with respect to this transaction, and in what he claims about it being supported by a contemporaneous, independent valuation. In my view, the combination of the opportunity that the first respondent's seriously deficient record-keeping gave the second respondent to misappropriate trust funds, the evidence from the first respondent's cheque books of substantial payments of trust moneys by the first respondent to the other corporate respondents in all of which, save the fourth respondent, the second respondent, is a director and shareholder, the background of serious, inadequate verification of the justification for such payments, and the second respondent's own improper conduct with respect to the computer transaction and his lack of candour, is sufficient to entitle the ASC to Mareva-type relief against the second respondent.
The requirements for such relief, as set out in Jackson v Sterling Industries Limited (1987) 162 CLR 612 and Beach Petroleum N.L. v Johnson (1992) 9 ACSR 404 at 405, are satisfied.
For these same reasons, I also think that the ASC has an arguable case for Mareva-type relief against the fifth, sixth, and seventh respondents, as well as the first respondent. Part, at least, of the payments which, on the evidence of Mr. Egan, were made by the first respondent to the fifth, sixth and seventh respondents in 1992 and the 1993 years may have been made by the first respondent in breach of trust of which the fifth, sixth and seventh respondents had sufficient notice, due to the second respondent's role as a common director and shareholder, to make them liable to repay such benefits to the beneficiaries of the Beneflex Plan.
As to the fourth respondent, Mr. Pearson is neither a director nor shareholder of it. It is the third respondent who is in both such situations. The ASC did not pursue in argument its claim against the third respondent because, at the start of the hearing, I was given a draft of the interlocutory orders to which the third and fourth respondent are prepared to consent. I will make those orders by consent.
I will hear argument as to the form of Mareva relief that should be ordered against the corporate respondents which will need to take into account, particularly in relation to the first respondent, the fact that it carries on business other than as trustee of the Beneflex Plan.
The reasons for the orders sought in paragraph 2(c) of the application are explained in the two affidavits of Mr. Hannan, the ISC regional director. The ISC has already taken action, which is almost certain to ensure that employers will not make any contributions to the Beneflex Fund after 25 February, pending the outcome of the review pursuant to s. 16 the Occupational Superannuation Standards Act 1987 that is under way at the first respondent's behest, as to whether the ISC's decision of 15 February 1994 that the Beneflex Fund does not satisfy the requirements of that Act and Regulations for the 1992 and 1993 years, should stand. I made orders in action QG 20 of 1994 that are designed to prevent any further disbursement of trust funds by the first respondent and to protect any contributions to the Beneflex Fund received by the first respondent from 22 February, 1994.
The relief here claimed is, as the form of the application itself acknowledges, final relief. I think it inappropriate against the background of the orders made in QG 20 of 1994 and the orders I have indicated that I will make in this matter to grant such final relief at this stage. I also observe that if I were to make the order sought for the purpose of reassuring the ISC in taking the action Mr. Hannan refers to in his affidavits, that would be likely to lead directly to the review that the first respondent has on foot before the Insurance and Superannuation Commissioner being made nugatory. I think it is in principle wrong to lend the Court's aid to a person involved in a dispute with another, which that person is in the course of resolving in the manner prescribed by an Act of Parliament, for the purpose of defeating that other's entitlement.
The orders I propose will, I think, give beneficiaries of the Beneflex Fund reasonable protection against further loss and reasonable prospects, so far as they can now exist, of recovering past losses from the first respondent, and second respondent, and other respondents.
Since the applicant did not seek an interlocutory order excluding the second respondent from the management of the first respondent, I will also give the parties an opportunity to make submissions as to whether such an order can or should be made.

29 APRIL, 1994
63. I have today been informed that the first respondent's only business now comprises its activities as trustee of the Beneflex Plan. I will therefore make the following orders.

[1994] FCA 251

29 APRIL 1994