Australian Securities Commission v Solomon
[1996] FCA 28
•8 Feb 1996
CATCHWORDS
CORPORATIONS LAW - application by the Australian Securities Commission (ASC) for appointment of provisional liquidator - s461(h)(i) and (ii) Corporations Law - power of Court to appoint a liquidator under s472(2) - principles relating to appointment of provisional liquidator - valid and duly authorised winding up application - provisional liquidator to be appointed where reasonable prospect of winding up order - whether assets of corporation at risk - liquidator's duty to preserve status quo to ensure least possible harm to all concerned - degree of urgency - whether applicant establishes need - broad power - whether public interest in independent examination of accounts - whether corporation has carried on its affairs without due regard to legal requirements - effect of statements of fact and opinion in ASC Report under s461(h) - proof of statement in relevant report is prima facie evidence in the absence of challenge - denial of facts is not sufficient - whether real prospect of winding up order - whether substantial deficiency of assets - whether lack of control over assets - whether a conflict of interest - advantage of independent administration.
Corporations Law 1989, s461(h)(i) and (ii), s472
Australian Securities Commission Act 1989 Cth,
s16(1)(a), s13, s81, s82
Companies (NSW) Code
Securities Industry (NSW) Code
Re J N Taylor Holdings Ltd; Zempilas Re JN Taylor Holdings Ltd (1991) 9 ACLC 1
Re Carapark Industries Pty Ltd (in liq) (1967)
86 WN (Pt 1) (NSW) 165
Re Club Mediterranean Pty Limited (1975) 11 SASR 481
Tickle v Crest Insurance Company of Australia Limited (1984)
2 ACLC 493
Montgomery Windsor (NSW) Pty Limited v Ilopa Pty Limited (1984) 2 ACLC 224
Maxwell v Department of Trade and Industry (1974) 2 AllER 122
Re Armvent Ltd (1975) 3 AllER 441
In Re The Co-Operative Development Funds of Australia Ltd (1977) ACLC 29,269
AUSTRALIAN SECURITIES COMMISSION v
EMAD KAMEL SOLOMON, TRANSPHERE (SOUTH PACIFIC) PTY LIMITED, THE EDDIE SOLOMON EMPORIUM PTY LIMITED and HOT CAKES PTY LIMITED
No G3469 of 1994
Tamberlin J
Sydney
8 February 1996
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. G3469 OF 1994
GENERAL DIVISION )
BETWEEN: AUSTRALIAN SECURITIES
COMMISSION
Applicant
AND: EMAD KAMEL SOLOMON
First Respondent
TRANSPHERE (SOUTH PACIFIC)
PTY LIMITED
(ACN 061 127 928)
Second RespondentTHE EDDIE SOLOMON
EMPORIUM PTY LIMITED
(ACN 056 919 950)
Third RespondentHOT CAKES PTY LIMITED
(ACN 002 738 525)
Fourth Respondent
CORAM: TAMBERLIN J
PLACE: SYDNEY
DATED: 8 FEBRUARY 1996
MINUTE OF ORDERS
THE COURT ORDERS:
That until further order, Brian Raymond Silvia remain as receiver and manager of the assets of the First Respondent noted in paragraph 4 of the orders made in this matter on 2 March 1995.
That Brian Raymond Silvia of Ferrier Hodgson, Chartered Accountants of Level 17, 2 Market Street, Sydney, New South Wales be appointed as provisional liquidator of the Second, Third and Fourth Corporate Respondents;
(a)Transphere (South Pacific) Pty Limited
(ACN 061 127 928)
Suite 301, Level 3
32 York Street
SYDNEY NSW 2000
(b)The Eddie Solomon Emporium Pty Limited
(ACN 056 919 950)
Suite 301, Level 3
32 York Street
SYDNEY NSW 200
(c)Hot Cakes Pty Limited
(ACN 002 738 525)
Suite 301, Level 3
32 York Street
SYDNEY NSW 2000
That the provisional liquidator should retain or be given possession of all of the property of the Second, Third and Fourth Respondents.
That the powers conferred on the provisional liquidator appointed under subsection 472(2) of the Corporations Law shall be all of the powers stated in Order 71 Rule 51(1) and (2) and s52(1) of the Federal Court Rules.
That in addition to the powers pursuant to Order 71 Rule 51 above, the provisional liquidator shall have the power:
(a)To call for the proof of debt formally or informally and dealing with such information in accordance with Regulations 5.6.47, 5.6.48, 5.6.49, 5.6.50, 5.6.54, 5.6.55, 5.6.56, 5.6.57 of Part 5.6 of the Corporations Regulations.
(b)To determine the present day value of the investment made by each investor with the Second, Third and Fourth Corporate Respondents on the assumption that the investment has been properly made.
Liberty to any party to restore the matter to the corporations list on three (3) days notice.
NOTE: Settlement and entry of orders is dealt with in accordance with Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. G3469 of 1994
GENERAL DIVISION )
BETWEEN: AUSTRALIAN SECURITIES
COMMISSION
Applicant
AND: EMAD KAMEL SOLOMON
First Respondent
TRANSPHERE (SOUTH PACIFIC)
PTY LIMITED
(ACN 061 127 928)
Second RespondentTHE EDDIE SOLOMON
EMPORIUM PTY LIMITED
(ACN 056 919 950)
Third RespondentHOT CAKES PTY LIMITED
(ACN 002 738 525)
Fourth Respondent
CORAM: TAMBERLIN J
PLACE: SYDNEY
DATED: 8 FEBRUARY 1996
REASONS FOR JUDGMENT
TAMBERLIN J:
By Amended Notice of Motion dated 19 December 1995, the applicant, the Australian Securities Commission, ("ASC"), applied to the Court for an order that the second, third and fourth respondents ("the corporate respondents"), be wound up pursuant to s461(h)(i) and (ii) of the Corporations Law 1989 ("the Law").
The ASC also sought orders that the application be returnable instanter; that a provisional liquidator be appointed to the corporate respondents; that the provisional liquidator should have possession of all of the property of the corporate respondents and that certain powers and functions be conferred on the provisional liquidator.
The orders presently sought are those which relate to the appointment, powers and functions of the provisional liquidator to each of the corporate respondents.
Statutory Provisions
Section 461(h) of the Law provides:
"461The Court may order the winding up of a company if:
...
(h) the Commission has stated in a report prepared under Division 1 of Part 3 of the ASC Law that, in its opinion:
(i) the company cannot pay its debts and should be wound up; or
(ii) it is in the interests of the public, of the members, or of the creditors, that the company should be wound up;" (Emphasis added)
The power of the Court to appoint an official liquidator provisionally is set out in s472 of the Law which reads:
"472(2)The Court may appoint an official liquidator provisionally at any time after the filing of a winding up application and before the making of a winding up order ....
(3)A liquidator appointed provisionally has or may exercise such functions and powers:
(a)as are conferred on him or her by this Law or by the rules of the Court that appointed him or her; or
(b)as the Court specifies in the order appointing him or her."
The report relied on by the ASC for the purposes of s461(h) is an Interim Report of the ASC which related to an investigation into the affairs of each of the respondents prepared pursuant to s16(1)(a) of the Australian Securities Commission Act 1989 ("ASC Law"), signed by the Chairman of the Commission on 14 December 1995 which is exhibit A in this proceeding.
The introduction and background to that report indicate that the ASC commenced an investigation under s13 of the ASC Law into the affairs of each of the respondents after written complaint was received on 9 January 1994, which indicated that the first respondent ("Mr Solomon"), had sought and procured various persons to invest moneys with the respondents. The report was prepared on the basis that the Commission had formed an opinion that serious contraventions of the Corporations Law had been committed.
The investigation was approved on 8 March 1994, pursuant to s13(1) of the ASC Law. There were three extensions approved, raising matters related to suspected contraventions of the Companies (NSW) Code and the Securities Industry (NSW) Code and the in addition to suspected contraventions of the Law.
On 2 March 1995 consent orders were made by O'Loughlin J of this Court appointing Mr Brian Silvia as receiver and manager of certain assets of the respondents.
Statutory Provisions
Section 13 of the ASC Law provides:
"13(1)The Commission may make such investigation as it thinks expedient ... where it has reason to suspect that there may have been committed:
(a) a contravention of a national scheme law; or
(b) a contravention of a law of the Commonwealth or of a State or Territory, being a contravention that:
(i) concerns the management or affairs of a body corporate; or
(ii) involves fraud or dishonesty and relates to a body corporate, securities or futures contract."
Section 16 provides:
"16(1) Where, in the course of an investigation under this Division, the Commission forms the opinion that:
(a) a serious contravention of a law of the Commonwealth or a State or Territory has been committed;
(b) to prepare an interim report about the investigation would enable or assist the protection, preservation or prompt recovery of property; or
(c) ....
it shall prepare an interim report that relates to the investigation...." (Emphasis added)
Section 81 provides:
"81. ...where a copy of a report under Division 1 or a corresponding law of another jurisdiction purports to be certified by the Commission as a true copy of such a report, the copy is admissible in a proceeding (other than a criminal proceeding) as prima facie evidence of:
(a) The Commission's report of its opinion for the purposes of paragraph 461(h) or subparagraph 583(c)(iii) of the Corporations Law of this jurisdiction; and (b) any facts or matters that the report states the Commission to have found to exist." (Emphasis added)
Section 82 applies where a party to a proceeding tenders a copy of the report as evidence against the other party. There are exceptions. For present purposes these provisions are not relevant.
The Commission's Interim Findings and Conclusions are as follows:
"10. COMMISSION'S INTERIM FINDINGS
10.1Mr Solomon compiled a mailing list of persons based upon the details of persons who ordered his book and used the said mailing list to disseminate promotional material to persons inviting them or making available to them or offering to them, an interest in a money making venture or scheme.
10.2The interest which Mr Solomon invited, made available or offered amounted to a prescribed interest as defined in the Corporations Law. Mr Solomon's conduct in inviting, making available or offering the said interest was conduct in breach of s.1064 and 1065 of the Corporations Law.
10.3The unsecured loans made by Mr Solomon to his companies comprised of money directly solicited from investors and obtained in breach of s1064 and 1065 of the Corporations Law. The unsecured loans have not been properly and/or adequately documented in the books and records of Emporium, Transphere and Hot Cakes.
10.4A small proportion of the investors' funds was used by Mr Solomon to purchase two home units in Castlereagh Street, Sydney in the name of Hot Cakes. The purchase price involved a deposit and vendor finance from Meriton Apartments Pty Limited (ACN 000 644 888) ("Meriton"). In around January 1995, Hot Cakes failed to meet its repayments and two Writs for re-possession against Hot Cakes were issued by the Supreme Court of New South Wales on 30 June 1995.
......
10.5The balance of monies invested with Mr Solomon by his clients were substantially intermingled with Mr Solomon's own resources and with the resources of the companies. Emporium, Transphere and Hot Cakes are constructive trustees for the investors' moneys consequently, the debts owed by the Solomon companies are debts owed directly to the individual investors.
10.6In relation to the present proceedings, the ASC has received enquires and/or complaints from Mr Solomon and from the following seven (7) investors:-
Barry Carlson
Mr & Mrs. Bert Gibbs
Sharn Hunkin
Peter Logan
Barry Scott
Graham Clarence Spargo
10.7Between 18 November 1994 to 7 June 1995, Mr Solomon forwarded letters to his investors which contained misleading and incorrect information.
......
Similar letters have been sent by Mr Solomon to some of the other complainants listed above .... few of the investors made demand for the return of their capital from Mr Solomon and/or his companies.
These letters also indicate that Mr Solomon and the companies do not have sufficient assets at present to meet the amount owing by way of capital and interest/income to the investors. Mr Solomon concedes that in excess of $1 million is owing and that at least 65% of that amount is not matched by assets at present.
10.8Investments made by Mr Solomon or by any of the companies are unable to generate sufficient regular income to pay investors their agreed returns. In particular, interest has not been paid as due to at least a number of
the investors. It has been the case that Mr Solomon has paid returns to investors by using the funds of other investors. If a demand had been made on the company by the investors for return of the capital amount, Emporium, Transphere and Hot Cakes would not have been able to meet the demand.
10.9Mr Solomon was a de-facto director of the Emporium and a director of Transphere and Hot Cakes. Transphere, Emporium and Hot Cakes had failed to keep books and records as required by sections 289 and 591 of the Corporations Law.
11.CONCLUSION
Transphere, Emporium and Hot Cakes are Unable to Pay their Debts and should be Wound Up
11.1In the opinion of the Commission Transphere, Emporium and Hot Cakes cannot pay their debts and have been unable to do so at least since 2 March 1995 and should be wound up on the basis that the companies are insolvent.
The Commission has also formed this view on the basis that the overall parlous condition of the three companies and the fact of the intermingling of funds, it is in the interest of the public, or the members, or the creditors, that each company should be wound-up.
11.2The Commission bases its winding up request on all the material in the report and in particular the following points in arriving at its opinion that the companies are insolvent:-
(i)The Receiver's report dated 13 June 1995 which is annexed "W" hereto.
(ii)The evidence of Mr Solomon set out in the transcript of his examination which is annexed "N" hereto.
(iii) The banking records produced
to the Commission by the companies in answer to statutory notices and referred to in paragraphs 4.1 to 4.3 above.
11.3Brian Raymond Silvia and his staff are familiar with the affairs of the three Solomon companies. It is recommended by the Commission that he be appointed as Provisional Liquidator of Transphere, Emporium and Hot Cakes.
11.4The Commission believes that there is sufficient evidence to refer the matter to the Director of Public Prosecution for possible criminal charges in respect of a contravention of section 1064 of the Corporations Law to be laid against Mr Solomon."
Matters Relied on by the ASC
The matters on which the ASC relies to support the application for the appointment of a provisional liquidator are as follows.
Mr Solomon received in excess of $1.459 million from investors during 1992-1994. He has repaid about $383,000 leaving in excess of $1.076 million outstanding, to which must be added interest. Mr Solomon kept few records in relation to the amounts received by him from investors and these were kept in the form of loose cards. They were inadequate. Mr Solomon obtained money, in many cases, by sending an invitation to persons whose names appeared on a mailing list which had been compiled from details of the purchasers of a book which he had
published, entitled "The Money Encyclopaedia". This is described in advertising material as a paperback of more than 450 pages "packed with confidential information known only to the exclusive minority". It was marketed under the banner "How To Get Rich in Today's Economy". The advertising material went on to say that more than 100,000 copies had been sold. It appears to have been marketed through the third Respondent, The Eddie Solomon Emporium Pty Limited, which also appears to have marketed the Bible on cassette, Export/Import correspondence courses, "The Eddie Solomon Report, How To Get Rich in Mail Order", "How To Survive a Financial Crisis" by the late Peter Clyne; and a work entitled "The New World Order".
It appears that Mr Solomon lent in the order of $1.05 million of the moneys received to the three corporate respondents.
The records kept in relation to each of the three corporate respondents were inadequate. There were some bank deposit statements. No proper records were kept as to the application of the invested funds or as to intercompany transfers of such funds or as to other expenditure. No satisfactory explanation has been advanced by Mr Solomon as to how much each corporate respondent owes him and how much each company owes to the other corporate respondents as a result of the intermingling of investors' funds.
No reconstruction of accounts has been produced by Mr Solomon to date. It was indicated to investors, in about June 1994, that moneys were to go into Sydney taxis. In fact this was never done. It was also stated that moneys would go into the Australian share market, but only an amount of about $15,000 was so used. It was also indicated that moneys would go into the Hong Kong share market, but this did not occur. There were indications that the funds were intended for tourist oriented real estate. However, only two apartments were purchased and these have been repossessed by the financiers.
By September 1994 there were virtually no assets representing investors' funds remaining, other than some stock and equipment debtors, and the two apartments. Substantial amounts advanced, it appears, were consumed by costs incurred in Mr Solomon's personal publishing businesses and in relation to private expenditure associated with production and advertising of "The Money Encyclopaedia", a lingerie business, and the costs of educational courses.
It appears, from a comprehensive chart prepared by the Commission, that Mr Solomon moved money between the corporate respondents and used substantial amounts of investors' money as he saw fit from time to time (Annexure K to the Interim Report, Exhibit B in these proceedings). Mr Solomon informed investors that there was a private trust fund with a separate legal entity. It appears that this was not so.
As at 2 March 1995, the corporate respondents according to Mr Silvia, the receiver and manager, in a report of 13 June 1995 annexed to the Interim Report, showed a deficiency in the order of $824,000. Mr Silvia estimated the total value of the assets remaining to be realised, as at 2 March 1995, as $156,000. It is not clear whether this estimate is accurate.
It is claimed that there is one other potential asset which is alleged to be a new book which, when launched overseas, Mr Solomon anticipates could bring in substantial funds. It is not clear whether the entitlement to these funds resides in Mr Solomon or in one or more of the corporate respondents.
The present creditors include Meriton Apartments, which it is said are owed $12,478. Other investors, it is said, are owed in excess of $1.05 million excluding interest.
On the hearing of the present application there was no cross-examination on the affidavits filed on behalf by the ASC nor was any application made to cross-examine in relation to the Interim Report. (cf the ASC Law, s82(3)).
Respondents' Submissions
The application for appointment of a provisional liquidator was opposed on the basis of general assertions which alleged that it would be unjust and unfair to make an order appointing a provisional liquidator and that it is not in the interests of the public, nor of the creditors that the company should be wound up and that the corporate respondents would be able, in view of the proposed marketing and sales of the new book, to trade out of their difficulties. Reliance was placed on affidavits by two substantial creditors, Mr Hunkin and Mr Spargo. A further matter advanced by Mr Solomon in his affidavit material, was that investors had been paid interest until a receiver was appointed, in respect of certain aspects, and as a result he effectively could not generate funds to properly carry on the businesses. The receiver and manager was appointed pursuant to a consent order. It is alleged that Mr Solomon has also been afflicted with health problems in relation to his vision which substantially impedes him in the running of the businesses. He further contends that he was deprived of his passport and therefore could not travel overseas and actively promote his publications.
In addition, Mr Solomon relies on resolutions passed at a meeting of creditors held on 9 December 1994, at which he says over 75% of the creditors either voted in person or by proxy. The principal resolutions were to the effect that Mr Solomon should continue to operate the various business enterprises to enable him to continue paying interest and make withdrawals in accordance with the loan agreements and that Mr Solomon should travel to the United States to launch his publications. In my opinion, little weight can be given to the resolutions passed at that meeting. The meeting took place over 13 months ago. The meeting was not supervised by the Court. There were a number of apparent irregularities relating to that meeting. Thirteen of the proxies relied on by the respondent are unsigned. Moreover, resolutions to the effect that the creditors be paid over five years and interest be calculated at the rate offered by banks for term deposits, that the real estate and cash in banks be liquidated, and that the proceeds be distributed to lenders on a pro-rata basis, were not referred to in the notice of meeting, nor in the proxy forms. Twenty of the creditors did not vote. The resolutions have not been ratified or confirmed since that date. In the interim, a substantial number of important intervening circumstances have arisen such as the publication of the report of the receiver and manager of 13 June 1995 and the Interim Report of the ASC of 14 December 1995 referred to earlier. Furthermore, the respondents have not made any substantial repayments of moneys lent.
There is no substance in the suggestion made on behalf of Mr Solomon that the respondents have been deprived of income as a result of the lodgment of Mr Solomon's passport in the custody of the Court. It was open to Mr Solomon, at any time, to apply to the Court for release of the passport, to enable him to carry out promotional activities. In fact, he did not make an application for release until December 1995. That application was not opposed.
It is noteworthy that although Mr Solomon asserts that the s16 Report is a "self-serving document" and is "not on oath" and that "numerous parts of it are subject to dispute", no attempt has been made to challenge in cross-examination the substance of the report.
Provisional Liquidator - Principles
The relevant principles relating to the appointment of a provisional liquidator which require consideration include the following:
(a)The Court should only appoint a provisional liquidator where it is satisfied that there is a valid and duly authorised winding up application and that there is a reasonable prospect that a winding up order will be made. See Debelle J in Re J N Taylor Holdings Ltd; Zempilas Re J N Taylor Holdings Ltd (1991) 9 ACLC 1 at 12-13.
(b)The fact that the assets of the corporation may be at risk is a relevant consideration.
(c)The provisional liquidator's primary duty is to preserve the status quo to ensure the least possible harm to all concerned and to enable the Court to decide, after a further examination, whether the company should be wound up: Re Carapark Industries Pty Ltd (in liq) (1967) 86 WN (Pt 1) (NSW) 165 at 171.
(d)The Court should consider the degree of urgency, the need established by the applicant creditor and the balance of convenience: Re Club Mediterranean Pty Limited (1975) 11 SASR 481 at 484 per Bright J. The power is a broad one and circumstances will vary greatly. Commercial affairs are infinitely complex and various and it is inappropriate to limit the power by restricting its exercise to fixed categories or classes of circumstances or fact.
(e)It may be appropriate to appoint a provisional liquidator in the public interest where there is a need for an independent examination of the state of accounts of the corporation by someone other than the directors. Tickle v Crest Insurance Company of Australia Limited (1984) 2 ACLC 493.
(f)Where the affairs of the company have been carried on casually and without due regard to legal requirements so as to leave the Court with no confidence that the company's affairs would be properly conducted with due regard for the interests of shareholders, it may be appropriate to appoint a provisional liquidator. See Montgomery Windsor (NSW) Pty Limited v Ilopa Pty Limited (1984) 2 ACLC 224.
Section 461(h)
Where the ground relied on in seeking an order to wind up is s461(h) of the Law, the ground is prima facie made out on the proof of a statement in the relevant report, of the relevant opinions. This does not mean that the report or the opinion cannot be impugned in an appropriate case. The statement of opinion is not beyond challenge. The court has an overall general discretion. The courts have expressed differing views as to what is required to be established in order to successfully challenge such a report or opinion. Some courts have taken the view that the public interest demands that if an opinion is expressed and is given honestly and fairly then the report cannot be challenged in courts of law. Cf Maxwell v Department of Trade and Industry (1974) 2 AllER 122. It is clear that the court does not sit on appeal from the ASC, as to the determination of factual matters or conclusions of the ASC. Cf Maxwell at 129 per Denning MR. However, where the conclusions of a report are challenged and evidence is given, to the effect that the report is manifestly wrong, a court may be reluctant to rely, in the exercise of its discretion, on such a report without further investigation and further evidence. Cf Re Armvent Ltd (1975) 3 AllER 441 at 445.
In circumstances where a report is made by a person or body acting in a statutory fact-finding capacity and it is unchallenged, then the court is prima facie entitled to act on it. Mere denial or assertion as to facts or matters by those resisting the application is not sufficient. As Templeman J said in Re Armvent Ltd at 446:
"... In my judgment that is not the sort of challenge which means anything. Challenge in this sense means challenge by somebody with knowledge of the facts coming along and saying the inspectors' report is wrong, and being willing to put forward an affidavit and to be cross-examined and to be judged in the witness box on the evidence which he puts forward in contradiction of the inspectors' report. I do not mean that everything the inspectors say is deemed to be true and that the person who comes along must challenge and give evidence on oath effectively destroying everything; but he must challenge the material parts of the report. ... It seems to me even if the report of the inspectors is challenged nevertheless it ought to be treated as prima facie evidence and that it ought to be left to a judge in any case having read the report and having seen the witnesses to make up his own mind whether it is just and equitable to wind up the company. The whole machinery of the inspectors' report was evolved in order to enable the Secretary of State to present a winding-up petition where the Secretary of State considers the public interest so demands."
See also In Re The Co-Operative Development Funds of Australia Ltd (1977) ACLC 29, 269 at 29,271 per Mitchell J (SA Supreme Court).
Conclusions
In this proceeding, the evidence leads to the conclusion that it is essential that a provisional liquidator be appointed to each of the three corporate respondents immediately. The relevant considerations are as follows:
(a)It is apparent from the Interim Report and the other material furnished to me that there is a real prospect that winding up orders will be made at the hearing of the winding up application in the absence of any substantial evidence to the contrary.
(b)There is on any view at present, a substantial deficiency of assets against liabilities which has not been contested. This is not a case of marginal insolvency.
(c)There is a demonstrated lack of control over the assets of the corporations arising from the intermingling of moneys between the corporate respondents. For practical purposes they have been administered as if comprising a single undertaking operated to suit the whims or purposes of Mr Solomon without due regard to their individual best interests.
(d)No proper records have been kept of the moneys lent to or distributed between the corporate respondents which were received from investments made with Mr Solomon. For example, it appears that investment moneys procured to be invested in taxis and share markets have been diverted to publishing ventures of Mr Solomon and his personal enterprises.
(e)Mr Solomon is the controlling mind and will of the corporate respondents and faces a conflict of interest. He is a debtor to the investors and liable to them in respect of moneys advanced and at the same time he is a creditor of the corporate respondents as result of the on-lending to the corporate respondents. They have no doubt received the funds with notice that they were placed by the investors with Mr Solomon for investment in nominated ventures. Mr Solomon proposes to engage in further commercial activities through the corporate respondents and to obtain further credit.
(f)It is essential, in these circumstances, that an independent person is appointed who can ensure that any remaining funds are not further diverted by Mr Solomon for other ventures or intermingled with additional moneys. An independent person would be in a position to realise the assets, determine the claims and administer the remaining funds evenly as between the investors free from any personal or pecuniary interest in the outcome.
(g)There is cogent evidence that moneys may have been obtained illegally by offering prescribed interests in contravention of the Corporations Law. The corporate respondents were no doubt on notice of such illegality.
(h)The report of the receiver and manager of 13 June 1995 supports the conclusion that the corporate respondents should not remain under the control of Mr Solomon.
I should add that the views and facts contained in the report of the receiver and manager and of the Commission in the Interim Report were updated in evidence filed on behalf of the ASC. This evidence confirms both the necessity and appropriateness of the orders sought.
An assertion was made that the nominated provisional liquidator, Mr Brian Silvia should not be appointed. However, no evidence was furnished to support this assertion. Nor was any case made out of any conflict of interest between the roles of Mr Brian Raymond Silvia as receiver and manager of the corporate respondents and his role as provisional liquidator, such as would disqualify him from appointment.
Accordingly, I appoint Mr Brian Silvia as provisional liquidator of each of the three corporate respondents and invest him with powers and functions in accordance with the Short Minutes of Order handed up in Court on 31 January 1996.
I certify that this and
the preceding twenty (20)
pages are a true copy of the
Reasons for Judgment herein of
his Honour Justice Tamberlin.
Associate:
Date: 8 February 1996
Counsel for Applicant: Mr J Gleeson
Solicitor for Applicant: Australian Securities Commission
Counsel for Respondents: Ms V Hartstein
Date of Hearing: 31 January 1996
Date Judgment Delivered: 8 February 1996
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