Australian Securities & Investments Commission; In the matter of Richstar Enterprises Pty Ltd ACN 099 071 968 v Carey (No 22)

[2008] FCA 392

FEDERAL COURT OF AUSTRALIA

Australian Securities & Investments Commission; In the matter of Richstar Enterprises Pty Ltd ACN 099 071 968 v Carey (No 22) [2008] FCA 392

CORPORATIONS -  asset preservation orders under s 1323 Corporations Act 2001 (Cth) undertaking proffered in lieu of orders – weekly allowance for rent, school fees, child support and living expenses – amount of allowance – not inconsistent with protection of assets – weekly allowance continued at existing rate

Corporations Act 2001 (Cth) s 1323

Australian Securities & Investments Commission; In the matter of Richstar Enterprises Pty Ltd v Carey (No 21) [2008] FCA 381 cited

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v NORMAN PHILLIP CAREY, GRAEME JOHN RUNDLE, CEDRIC RICHARD PALMER BECK, JOHN NORMAN DIXON, RICHSTAR ENTERPRISES PTY LTD (ACN 099 071 968), WESTPOINT REALTY PTY LTD (IN LIQUIDATION) (ACN 050 218 954), BOWESCO PTY LTD (ACN 008 915 357), REDCHIME PTY LTD (ACN 117 947 805), KEYPOINT DEVELOPMENTS PTY LTD (ACN 115 507 232), SILKCHIME PTY LTD (ACN 066 849 429) and HEALTHCARE PROPERTIES PTY LTD (ACN 075 401 955)

WAD 83 OF 2006

FRENCH J
26 MARCH 2008
PERTH

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD 83 OF 2006

IN THE MATTER OF
RICHSTAR ENTERPRISES PTY LTD (ACN 099 071 968)
WESTPOINT REALTY PTY LTD (ACN 050 218 954)
BOWESCO PTY LTD (ACN  008 915 357)
REDCHIME PTY LTD (ACN  117 947 805)
KEYPOINT DEVELOPMENTS PTY LTD (ACN  115 507 232)

BETWEEN:

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Plaintiff

AND:

NORMAN PHILLIP CAREY
First Defendant

GRAEME JOHN RUNDLE
Second Defendant

CEDRIC RICHARD PALMER BECK
Third Defendant

JOHN NORMAN DIXON
Fourth Defendant

RICHSTAR ENTERPRISES PTY LTD (ACN 099 071 968)
Fifth Defendant

WESTPOINT REALTY PTY LTD (IN LIQUIDATION) (ACN 050 218 954)
Sixth Defendant

BOWESCO PTY LTD (ACN 008 915 357)
Seventh Defendant

REDCHIME PTY LTD (ACN 117 947 805)
Eighth Defendant

KEYPOINT DEVELOPMENTS PTY LTD (ACN 115 507 232)
Ninth Defendant

SILKCHIME PTY LTD (ACN 066 849 429)
Tenth Defendant

HEALTHCARE PROPERTIES PTY LTD (ACN 075 401 955)
 Twelfth Defendant

JUDGE:

FRENCH J

DATE OF ORDER:

26 MARCH 2008

WHERE MADE:

PERTH

THE COURT ORDERS THAT:

1.The maximum weekly allowance fixed in respect of paragraph 7 of the undertaking proffered by the first defendant be continued at $4,000 per week until the expiry of the undertaking on 30 June 2008.

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

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD 83 OF 2006

IN THE MATTER OF
RICHSTAR ENTERPRISES PTY LTD (ACN 099 071 968)
WESTPOINT REALTY PTY LTD (ACN 050 218 954)
BOWESCO PTY LTD (ACN  008 915 357)
REDCHIME PTY LTD (ACN  117 947 805)
KEYPOINT DEVELOPMENTS PTY LTD (ACN  115 507 232)

BETWEEN:

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Plaintiff

AND:

NORMAN PHILLIP CAREY
First Defendant

GRAEME JOHN RUNDLE
Second Defendant

CEDRIC RICHARD PALMER BECK
Third Defendant

JOHN NORMAN DIXON
Fourth Defendant

RICHSTAR ENTERPRISES PTY LTD (ACN 099 071 968)
Fifth Defendant

WESTPOINT REALTY PTY LTD (IN LIQUIDATION) (ACN 050 218 954)
Sixth Defendant

BOWESCO PTY LTD (ACN 008 915 357)
Seventh Defendant

REDCHIME PTY LTD (ACN 117 947 805)
Eighth Defendant

KEYPOINT DEVELOPMENTS PTY LTD (ACN 115 507 232)
Ninth Defendant

SILKCHIME PTY LTD (ACN 066 849 429)
Tenth Defendant

HEALTHCARE PROPERTIES PTY LTD (ACN 075 401 955)
Twelfth Defendant

JUDGE:	FRENCH J
DATE:	26 MARCH 2008
PLACE:	PERTH

REASONS FOR JUDGMENT ON AUTHORISED LIVING ALLOWANCE

1. On 12 March 2008 the Court accepted an undertaking given by the first defendant, Norman Carey, along with undertakings by the second defendant, Mr Rundle, the fifth defendant, Richstar Enterprises Pty Ltd (Richstar), the ninth defendant, Keypoint Developments Pty Ltd (Keypoint) and the tenth defendant, Silkchime Pty Ltd (Silkchime). The undertakings which had substantially the same effect as an extension of protective orders under s 1323 of the Corporations Act 2001 (Cth) (the Act) in respect of the assets of the various defendants, are in effect until 30 June 2008. At that time the undertakings will expire and these proceedings will effectively be at an end. The ex tempore reasons for judgment in relation to the acceptance of the undertakings have been published as: Australian Securities & Investments Commission; In the matter of Richstar Enterprises Pty Ltd v Carey (No 21) [2008] FCA 381.

2. In addition to accepting the undertakings proffered by Mr Carey the Court made certain substantive orders.  One of those orders was in the following terms:

   The weekly allowance for ordinary living expenses fixed in respect of paragraph 7 of the undertaking proffered by the First Defendant be fixed at $4000 per week until 26 March, and thereafter at such rate as is fixed by the Court after consideration of affidavit evidence in relation to the appropriate rate, to be provided along with written submissions by 19 March 2008.

3. Paragraph 7 of Mr Carey’s undertaking was in the following terms:

   I am also permitted to withdraw from My Accounts and, pay, ordinary living expenses of a weekly allowance as fixed by the Court from time to time. 

4. Mr Carey filed an affidavit on 20 March 2008.  No responding affidavit has been filed by the Australian Securities and Investments Commission (ASIC) which indicated at the hearing on 12 March 2008 that it did not intend to make any submissions on the continuation of the expenses allowance.  There was therefore no contradictor on the question. 

5. In his affidavit, Mr Carey said that his living allowance has been set at $4,000 per week since the proceedings commenced.  In a report of 12 February 2008 the Court appointed supervisor, Mr McMaster, said:

   This amount ($4,000) was determined commercially after a protracted legal and negotiation process at significant cost to the Receivership.  We are not aware of any material adjustments that would require an alteration to this amount.

6. Mr Carey exhibited to his affidavit a letter sent to Mr McMaster’s solicitors containing an annexure setting out his living expenses.  The letter annexed a further 140 pages with invoices and receipts verifying the payments in accordance with Mr McMaster’s request. 

7. Mr Carey said that since the review to which his letter referred, which was undertaken in April/May 2007, his living expenses have increased.  He referred in particular to the following:

   (a)Rental increase to $900 per week.  He exhibited to his affidavit a residential property lease dated 12 September 2007 for a term of six months at $850 per week.  It appears from the lease that he is renting the premises through a company, Earlmist Pty Ltd.  He signed the lease on behalf of the company. 

   Also exhibited was a fax from real estate agents sent on 18 January 2008.  It indicated that the owner had agreed to a new lease with a rent increase of $50 per week.

   (b)The school fees payable by Mr Carey for his children pursuant to Family Court orders have increased to $576.77 per week.  He exhibited supporting invoices to his affidavit.  

   (c)Maintenance and child support payable pursuant to court orders was increased to $710.23 per week.  Mr Carey exhibited to his affidavit a letter dated 16 June 2007 from the Child Support Agency indicating the relevant increase.    

8. The schedule of living expenses which Mr Carey sent to the receiver’s solicitors in April 2007 showed expenses in excess of $4,000 per week.  The major items were rent, school fees and levies, maintenance and child support.  Food and household provisions and gym and personal trainer costs were each budgeted at $250 per week.  The actual expenditure on food and household provisions was $598.20 and on gym and trainer was $173.08. 

9. Mr Carey argued in his affidavit that if he were to make up all of the actual expense incurred on a weekly basis as at April 2007, which totalled $4,683.09, together with the increases that have occurred since then, he would need to expend $5,062.  He said he does not spend that much as he does not have access to that amount.  He saves on holidays, entertainment and hobbies, food and household provisions, car hire and an item described in his schedule as ‘Other Necessary Commitments/Extra Curricular Activities’.  He says he tries to attend the gym to keep healthy and deal with the stress which he is under.  He said he has found it increasingly difficult to live within the $4,000 allowance with the widely reported increase in the cost of living.

10. Mr Carey says that if his living allowance were reduced from $4,000 per week the impact upon him and his family would be catastrophic.  It would likely mean that he would have to do one or more of the following:

    1.give up his home with the attendant costs of moving;

    2.take his children from their present schools although that would be the last cost that he would reduce;

    3.seek a significant variation of existing Family Court orders;

    He also said that one of the possible consequences would be that he would be unable to meet other bills for such things as food and utilities as they fell due.  

11. Mr Carey says he has ongoing remuneration from Richstar, Proactive Westpoint Realty (Proactive) and Keyworld Investments Pty Ltd (Keyworld) which provide net income under contracts with him in excess of $4,000 per week per annum. He draws the current living allowance in that amount with the surplus accumulating in a bank account with the Home Building Society. Proactive and Keyworld are not entities within the s 1323 regime and so no issue of asset preservation arises with respect to them.

12. Mr Carey says that Richstar currently has $2,168,886 cash at bank.  He believes it is able to meet all of its obligations including his remuneration from return on those moneys without any risk of diminishing its underlying assets.

13. In the submissions made on behalf of Mr Carey his counsel argued that the asset preservation regime which has been imposed pursuant to s 1323 of the Act and which is to be continued until 30 June 2008 pursuant to the undertaking, requires a balancing of his private needs with the public interest purpose of the provision.

14. It was submitted that the asset preservation regime constitutes a substantial imposition on his basic rights.  It is a restriction not to be imposed without good  cause and only to the least extent consistent with the purposes of the law.  This, it was submitted, is particularly true where the restrictions have been in place for an extended period and without the benefit of final positive findings of wrong doing. 

15. It was submitted that the question of the amount of the allowance turns to a large extent on the propriety and reasonableness of what is being sought.  Mr Carey’s counsel argues that housing is a fundamental need and unless the rent being paid were extravagant the Court would not normally force a person out of their home.  Almost a quarter of Mr Carey’s living expenses go on a rental property which he has occupied before and during these proceedings.  They pointed to the short time left during which the restrictions will be in place pursuant to his undertaking and the cost of moving to cheaper premises within that time. 

16. The Family Court orders and Child Support Agency payments mean that more than 30% of the proposed allowance is applicable to pre-existing obligations arising from statute and Family Court orders.  Mr Carey’s actual ‘living’ portion of the allowance would amount to about $1,800 per week.  The other part is effectively committed without any real discretion.  It was submitted that it is not unreasonable nor does it offend any public policy that a person in his position have that amount to live on.

17. It was suggested that one way of dealing with the issue would be to separate his actual living expenses from his rent and money payable under court orders on the basis that one is legally mandated and the other is a compulsory payment, so reducing the living amount required to $1,800 to $2,000 per week. 

18. As I said in the reasons for judgment delivered on 12 March 2008, it is necessary to bear in mind the nature and purpose of orders under s 1323. They are not punitive. They are intended to protect, for a time, the interests of potential claimants against the assets and thereby the public interest. They are necessarily of a temporary character. They are temporary because, notwithstanding that they are made in the public interest, they involve a significant interference with the property rights of the parties affected by them. The Court, acting under s 1323, must therefore keep in mind the need to maintain an appropriate balance between those legitimate and competing interests in circumstances in which the evidence before the Court is necessarily incomplete.

19. It is not the function of the Court to punish Mr Carey because there may be a case that he has contravened the Act or because he may be held responsible for losses suffered by investors. Punitive or compensatory orders can only be made in proceedings in which positive findings are made adverse to him which give rise to liabilities in respect of which the Court may make dispositive orders. While the Court can appreciate the anger and distress of many investors who lost money through the Westpoint Group it is not part of its lawful function to reflect that anger or distress in orders of an interim character made under s 1323 of the Act.

20. In my opinion the only question which is relevant here, is whether the allowance that Mr Carey is authorised to receive under the s 1323 orders is at such a level that it would tend significantly to undermine the purpose of protecting the affected assets for the balance of the period for which the restrictions are in place. I do not consider that it is at such a level.

21. While it may be possible to go through the various expenses claimed by Mr Carey and to trim or reduce some items in the exercise of a judgment of what seems reasonable, this would largely be a cosmetic exercise with no real impact on the practical operation of the undertaking so far as it relates to the protection of assets.  In coming to that conclusion I bear in mind that the allowance has been in place for a considerable period of time, that it was negotiated with the receivers and that there is only a short period of time remaining for the operation of the restrictions.  I have regard also to the absence of any submissions from ASIC which would suggest that the protective purpose of the undertakings between now and 30 June 2008 would be compromised by the continuance of the expenses and living allowance which has been in effect for about two years. 

22. In the circumstances therefore, I propose to permit the continuation of the allowance at the rate that has been in place since the proceedings commenced.

I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French.

Associate:

Dated:  26 March 2008

Counsel for the First Defendant:

Solicitors for the First Defendant:

Mr M de Kerloy

Mony de Kerloy

Date of Submissions:	20 March 2008
Date of Judgment:	26 March 2008