MML Management Limited (in liq)
[2002] VSC 330
•15 August 2002
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 8777 of 2001
| IN THE MATTER OF MML MANAGEMENT LIMITED (IN LIQUIDATION) | |
| and | |
| IN THE MATTER OF AN APPLICATION FOR DIRECTIONS BY DAVID JAMES LOFTHOUSE AS LIQUIDATOR OF MML MANAGEMENT LIMITED (IN LIQUIDATION) | |
| DAVID JAMES LOFTHOUSE AS LIQUIDATOR OF MML MANAGEMENT LIMITED (IN LIQUIDATION) | |
| Applicant | |
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JUDGE: | Hansen J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 16 & 17 July, 5 August 2002 | |
DATE OF JUDGMENT: | 15 August 2002 | |
CASE MAY BE CITED AS: | MML Management Ltd (In Liquidation) | |
MEDIUM NEUTRAL CITATION: | [2002] VSC 330 | |
CORPORATIONS – Manager of funds received from public for investment – Shares – Held in manager's name on behalf of investors– Unauthorised pledge as security for margin loan – Manager also pledges own shares – Unauthorised lending of margin loan funds – Securities partly realised – Liquidation – Rights of investors and manager to share in loan repayments – Principle to be applied – Method of valuing interests - Breach of fiduciary duty – Mixed fund – Remedy.
EQUITY - Breach of fiduciary duty – Funds mixed - Account of profits – Constructive trust – Allowance to defaulting trustee for contribution of own property.
APPEARANCES: | Counsel | Solicitors |
| For the applicant | Mr R M Garratt, QC and Mr S P Gardiner | Logie-Smith Lanyon |
| For Kathroban Pty Ltd, a creditor | Mr P M Bornstein | Irlicht & Broberg |
| Mr S H Bone and Ms T O'Neill, creditors, appeared in person | ||
HIS HONOUR:
This is an application by a liquidator for directions under s.511(1)(a) of the Corporations Act ("the Act"). The liquidator is David James Lofthouse. On 5 October 2000 he was appointed administrator of MML Management Ltd ("MML"). On 23 February 2001 at a meeting of creditors convened pursuant to s.439A of the Corporations Law, it was resolved that MML be wound up and, consequently, Mr Lofthouse became the liquidator of MML.
In the course of its business MML accepted funds from members of the public with which it invested in shares and made loans in Australia and overseas. MML also invested funds of its own. Unfortunately, MML’s books and records failed to distinguish between funds and investments which belonged to individuals and those which belonged to MML itself. Investments were usually made in MML's name rather than in the name of the investors. The liquidator was thus confronted with the problem of establishing the entities in which investments had been made, the investments which were held by or for any and which individual investors, and those which MML held in its own right. It was a large and complex task. By the end of last year the liquidator had developed a set of proposals as to the manner in which the assets identified as not beneficially held by MML should be treated. In the circumstances, he considered it appropriate to seek directions from the Court concerning the proposals. Accordingly, an originating process seeking directions was filed on 17 December 2001. The liquidator swore the principal affidavit in support of the originating process on 21 February 2002.
MML
The company was incorporated in 1987 as Mullens Management Ltd. In 1993 the name of the company was changed to MML. Over the years, directors came and went. They included Craig Jones and his wife Fiona Heather Jones, who were directors from 29 June and 3 December 1990 respectively until 16 February 2001, and Alan Robert Scott who was a director from 29 June 1990 to 1 December 1999.
Three persons were in office as directors in October 2000 when Mr Lofthouse was appointed administrator. They were Conaly Bedell appointed on 16 February 2000, Paul William Logan appointed on 17 May 2000 and Fiona Heather Churcher Jones appointed on 28 August 2000.
In the course of its business, MML accepted funds from members of the public to invest on their behalf in companies; acted as trustee and fund manager of a number of small self managed superannuation funds which invested funds received from contributories in a number of different investments; and, as an investor in its own right, used moneys which it had accumulated from its operations to acquire securities in, and lend money to, various Australian and overseas companies. At one time MML had acted as trustee of several funds conveniently referred to as the Mullins Funds, which invested funds received from the public, but this activity had ceased prior to the appointment of Mr Lofthouse as administrator.
The resolution of the present application does not require further explanation, let alone detail, of the various funds and trusts with which MML was involved, or the precise capacity in which MML acted (as investment adviser, fund manager or administrator or otherwise). Nor is it necessary to explore the extent to which the requirements of the law as to the provision of a prospectus were met. I note that a dealer's licence was obtained in 1994 in respect of which Scott was the key person. For the purposes of the present application it is sufficient to note that records indicate that MML invested funds received from approximately 175 individual investors, in various Australian and overseas entities. MML also invested funds of its own in such entities. MML also lent money. It seems that for a time, in 1995 and 1996, MML managed funds performed well. However, in 2000, MML became insolvent. It is not necessary, on the present application, to explore the reasons for MML's insolvency. It may be useful, however, to note the following.
In May 2000 Jones was barred from acting as a representative of a securities dealer or an investment adviser for two years. In September Scott resigned as MML's representative and in October he undertook to the Australian Securities and Investments Commission ("ASIC") not to be involved in the management of securities or attempt to be a representative or consultant of a securities dealer for 18 months from October 2000. No person could be found to replace Scott as MML's authorised representative for the purpose of the dealer's licence. As a result, the directors determined to appoint an administrator, and Mr Lofthouse was duly appointed. Following his appointment, Mr Lofthouse could not find a person who would become MML's authorised representative. That led to ASIC revoking MML's dealers licence on or about 18 October 2000, since which time MML has not traded.
The evidence
The liquidator's principal affidavit is very long. It runs to 353 paragraphs over 83 pages, with 28 attached schedules and a bundle of exhibits. The weight of the materials reflects the complexity of the task involved in ascertaining the particular entity in or to which the funds of particular investors had been placed or lent and, further, the extent of the holding or amount of the loan, and how that might be represented in assets now held by MML or in the name of an investor. In the affidavit, Mr Lofthouse gives a history of MML, and describes its manner of operating and the system of recording transactions of and concerning the application of investors' funds. Mr Lofthouse ascertained that subscriptions for the vast majority of the investments were made in MML's name. This was done whether or not the investments were obtained for and on behalf of MML or an individual investor. It is apparent that MML holds investments in its name on behalf of itself and its investors respectively, made loans (secured and unsecured) from its own funds, made unsecured loans with investors' funds, and held investments in the name of specific investors for and on behalf of such investors. Where an investment (in shares or loans) was made for and on behalf of more than one investor, the individual investors' funds were, in effect, pooled to make the investment.
Individual investors were often not aware of the way in which their funds were applied, whether initially or from time to time. Some investors left the investment decision to the discretion of MML. Some investors received a receipt from MML upon receipt of their funds for investment, but some did not and, of the latter, some did not expect to. These matters are consistent with the fact that the arrangements between MML and investors permitted the pooling of investments and MML participating as an investor with its clients.
The extent to which MML communicated with investors differed greatly. In many cases it seems that there was no communication. In some cases there is no known address for an investor. It is not that MML had no records; it had records relating to each individual investor, documents such as share certificates in the name of the company, holdings under the CHESS system, and documents evidencing loans to various entities. However, taking these and all other records and sources of information into account, and having pursued the enquiries that seemed open and appropriate, there were many instances of investments and loans in relation to which the actual beneficial ownership of assets of investors was unclear. In some instances, the number of shares held in a particular entity, as indicated by the records and statements of investors, and the records of MML, do not accord with the records of the entity. In others, the belief of investors as to the amount of their investment does not accord with MML's records.
Having examined the various available sources of information in respect of each entity in which funds of an investor or investors had been invested, by the purchase of shares or a loan, the liquidator categorised the range of situations he found. The categories are: those situations in which the investor, the investment (that is, the entity), and MML's records agreed; those situations in which the only matter preventing those sources of information from agreeing is the investors’ failure to respond to the liquidator’s inquiries; those situations in which the liquidator had been unable to confirm the investor holdings from the investment entity (in some instances because the investment did not exist or had ceased to exist); those situations in which MML records disagreed with the investment, not the investor; and those situations in which MML records disagreed with the investor.
The nature of the disagreement varied. There were cases where the investment identified by investors and MML did not exist. There were cases where MML had sold investments and reinvested the proceeds without advising the investor, which led to differences between the records of MML and the actual holding, and the records of the investor. In some cases, MML's records did not accord with the records of individual investors, and investors claim to own more shares than MML's records indicate. In some cases, the records accord but MML's identified holding is not sufficient to satisfy the investors' holdings. In some cases, it was difficult to reconcile the movement of money in and out of MML's accounts and this meant an inability to reconcile the accounts with some transactions.
In any event, the liquidator has grappled with the situation as he found it, and on the hearing before me his account of MML's business and records, and what he has found regarding relevant facts and matters, was not challenged. He was not cross-examined. I accept his evidence.
I referred earlier to the fact that the present application was concerned with the identification of the investments held by MML that it acquired for investors with the investors' funds, as distinct from those of the funds or investments which are owned by MML and are therefore available for distribution to creditors. In relation to the former category, the liquidator has considered whether investors have a beneficial or proprietary right in respect of an investment, in which case there may be a transfer of such interest as reflects that right, or a mere personal right to be pursued by way of a proof of debt in the winding up. Of course, in ascertaining the beneficial or proprietary rights of investors, the principles of tracing apply. In cases where the amount of the shares or the debt to which investors in those shares or loan are entitled exceeds that held by MML for them, and the shortfall cannot be allocated to a particular investor or investors, the liquidator proposes to distribute the available shares or debt pro rata among the investors with an entitlement to that investment.
Having set out how he had proceeded, and the methodology he adopted, the liquidator then dealt with each investment in turn. He did this under the name of each entity in which an investment had been made, or to which money had been lent. In each case, he sets out the number of shares or the amount of the loan, and the number of investors. He sets out how the matter is reconciled between the investors and the proposed distribution is set out in an attached schedule. In cases where one or more of the investors' records, MML's records, or the records of the investment entity disagree, he also sets out the background to the investments. Overall, the liquidator proposes distributing assets to those beneficially entitled to them, as best in accordance with their legal right as can be achieved in the circumstances.
As might be expected, there are situations in which individual investors’ claims will not be satisfied. To the extent that an investor’s claim is not satisfied, as for instance where the investment no longer exists because it was disposed of and there is no right to any other property or a fund in lieu, the investor will stand as an unsecured creditor and, accordingly, may lodge a proof of debt. The liquidator will proceed with the winding up and call for proofs of debt after the matter of the non-beneficially held assets has been dealt with.
During the hearing counsel took me through the liquidator's principal affidavit, each investment in turn. That section of the affidavit was followed by a section headed "Trust Account". No issue now arises in relation to this account. The affidavit concluded with a reference to two individual investors, one of whom (Individual B) had claimed, as had some other investors, that MML had deducted excessive fees. The liquidator had not allowed their claims in his proposals. This is an example of a circumstance in which investors may choose to advance a claim by filing a proof of debt in the winding up.
The liquidator gave investors whose interests are affected by the proposals notice of the application with copies of the affidavit material in support. Thus, investors were aware of how the proposals would affect them. Counsel stated that the liquidator will inform investors of the result of this application and of future steps in the application and the liquidation generally.
Only one investor, Kathroban Pty Ltd ("Kathroban"), gave notice of its intention to appear at the hearing. Kathroban duly appeared by counsel. Prior to the hearing, three affidavits were filed on its behalf; two sworn by John Anthony Renowden on 18 April 2002 and 12 June 2002, and a third sworn by Paul William Logan on 18 April 2002. Mr Renowden is a director of Kathroban. Mr Logan was a director of MML. [1] In the end, because there was no essential difference on the facts between the parties and perhaps because of other reasons, Kathroban's counsel withdrew reliance on Mr Logan's affidavit. Accordingly, Mr Logan's affidavit is not part of the evidence.
[1]See [4].
As to the affidavits of Mr Renowden, counsel for Kathroban placed limited reliance upon them, saying of the first, that it had largely been superseded and consisted mainly of submissions, and of the second, that it essentially contained submissions and drew together certain facts. Nevertheless, while noting irrelevance and argumentative content, I have read those parts counsel referred to in his overview of the affidavits. But, as I have said, the facts were essentially contained in the liquidator's principal affidavit in support, and accepted as such, and he was not cross-examined.
Two other investors filed materials and appeared. Mr Stanley Howard Bone and his wife, Margaret, filed a statutory declaration made 23 March 2002. They also filed a written submission, and Mr Bone appeared at the hearing and addressed some submissions. The other investor who appeared was Ms Therese O'Neill, who filed an affidavit sworn on 16 June 2002. She also filed a written submission and addressed submissions. Both Mr Bone and Ms O'Neill said some things, in addressing me, that strictly should have been the subject of evidence, but counsel for the liquidator waived any requirement in that respect.
On the Court file there is an affidavit of Ms Felicity Anne Renowden, sworn on 17 June 2002, in which she stated that she had invested $1,200 with MML. She also sought a direction that the liquidator issue shares in Icemin New Zealand Ltd ("Icemin") to her on the basis that certain funds belonged to her. Her Icemin claim is referred to in the liquidator's affidavit.[2] In addition to not filing a notice of intention to appear, Ms Renowden did not appear at the hearing. I do not further consider her affidavit. In any event, as I mention below, the matter of Icemin is to be stood over for further consideration.
[2]At para 169.
The only other thing to note about the evidence is that the liquidator swore three further affidavits, primarily in response to the affidavits referred to. Because the Logan affidavit was not relied on, and having regard to the limited issues dealt with in, and the use of, the affidavits of the other parties, the liquidator's other affidavits[3] were either not relied on by counsel for the liquidator or it was virtually unnecessary to refer to them. In particular, as to the liquidator's substantial affidavit sworn 27 May 2002, counsel said, following the withdrawal of reliance on the Logan affidavit, that it need not be read.
[3]Sworn 6 March 2002, 27 May 2002 and 1 July 2002.
Jurisdiction
Counsel for the liquidators submitted that it was "just and beneficial" to exercise the Court's power under s 511(1)(a).[4] No other party suggested otherwise. It was plain that all parties desired such assistance in the resolution of the difficulties confronting them as the Court might properly be able to provide.
[4]See s 511(2). See also Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 679-680; Dean-Willcocks v Soluble Solution Hydroponics (1997) 15 ACLC 833 at 835; Re Ansett Australia Limited & Korda (2002) 40 ACSR 443 at 443-451.
The direction sought by the liquidator is that he may proceed to a final distribution of the assets held by MML which it does not hold beneficially by making distributions in accordance with the proposals in his affidavit. The only exception to this are the assets (loans and shares) in Icemin New Zealand Ltd. Consideration of that asset is to be stood over for further enquiry. As a matter of mechanics, the proposals are to be identified in a table attached to the order. The table will refer to particular schedules to the liquidator's affidavit which set out the investors' entitlements.
I am satisfied that it is appropriate to make the directions sought. It is plainly of advantage to the orderly and expeditious conduct of the liquidation to provide the directions. It is not mere advantage to the liquidator himself to ease him of burden in the conduct of the liquidation, it is much to the advantage of the many investors who have raised varying degrees of contention and expressed distress in the grievous situation in which many have been placed by the collapse of MML. The directions are sought in the context of there being claims of right by numerous interested persons, uncertainty as to persons being admissible investors and as to their claims, numerous issues of fact and of law, many attended by doubt and difficulty and in respect of which the liquidator has been, and to an extent continues to be, in disagreement with the investors. It is in this context that he brings to the Court a bundle of proposals designed to deal with the important aspect of identifying and distributing the assets to which investors, and not MML, are entitled. The proposals are the result of all of the unravelling and investigation that has taken place. As finally presented there is no issue as to the entitlement to some assets. I do not, however, consider that, regarding the matter now, with hindsight, it would be correct to deny directions in respect of any such matter. In that respect too I note the opinion of the liquidator that it is not possible to rationally apportion the costs, remuneration, and expenses of and incidental to investigating, getting in, and distributing the investments. Rather than exercising a lien for remuneration, costs and expenses incurred in the liquidation over any particular asset to which an investor is entitled, the liquidator regards it as more appropriate that his remuneration, costs and expenses of and incidental to investigating, getting in, safeguarding and distributing the non-beneficially held assets of MML, and the costs of the application, be paid in the first instance out of the trust account of MML, to the extent of that account, and otherwise be part of the costs and expenses of the winding up. If orders are made on that basis he would transfer particular investments free of any lien in his favour.
Areas of concern of Kathroban, Bone and O'Neill
In his affidavit sworn on behalf of Kathroban Mr Renowden raised issues concerning five matters and the trust account. These issues were reduced in the period prior to and during the hearing. Ultimately, Kathroban's submissions were confined to the matter of shares in FX Energy Inc (“FX”) and a margin loan, related matters which the liquidator dealt with under those headings in his principal affidavit. I deal with these issues below.
The other matters raised by Mr Renowden in his affidavits concern Icemin, the trust account, and investments in several companies. As Icemin is to be stood over, no submission was made concerning it. As no issue remained between the parties concerning the trust account, and Kathroban did not oppose the orders for costs sought by the liquidator, no submission was made concerning it. Nor was any submission pressed in respect of the other companies. It follows that it is only in respect of the matter of the FX shares and the margin loan that Kathroban left issues for determination.
Mr and Mrs Bone invested funds with MML. They received a letter from the liquidator which set out the investments indicated by MML's records. The investments were in five different entities and comprised a mixture of shares, loans and convertible notes. In this context, two issues arose. The first concerns Icemin which need not be mentioned further as it is to be stood over. The second concerns a hand written guarantee dated 30 November 1998 and signed by the former MML director Mr Jones. On the faith of the guarantee Mr and Mrs Bone ceased to demand repayment of their money. Mr and Mrs Bone submit that the guarantee should be regarded as having been given by MML and, hence, that they should be regarded as secured creditors of MML. The liquidator does not accept this contention. In their statutory declaration, Mr and Mrs Bone state that Mr Jones "made the guarantee on behalf of MML and he also wrote the guarantee out on an MML letterhead". It is correct that the guarantee is written on an MML letterhead, but it is important to note that the obligation is expressed in terms of a personal undertaking. It states, "I Craig Jones hereby guarantee the investments made by Margaret and Stan Bone into MML". It seems to me that, as regrettable as the circumstances are, the obligation was personal. The obligation was undertaken by Mr Jones and not MML. MML could have provided a security document, but the guarantee provided by Mr Jones did not constitute a security given by MML in respect of any asset. Even if it bound MML, the breach of it by MML could only sound in a claim for damages against MML. It would not give the Bones the status of secured creditors of MML or entitle them to a distribution of specific property of, or held by, MML.
Ms O'Neill raised a range of matters in her affidavit. She paid her savings of $285,000 to MML to be invested as agreed with MML's director, Craig Jones. Almost all of her money had been invested contrary to her instructions and the liquidator had advised her that most of the money was now lost. An MML report stated that her money had been invested in shares in FX and Palau Investments Pty Ltd. I refer to these matters below. She was of the view that MML charged fees based on excessively high valuations of the fund. She foreshadowed taking action against certain directors of MML. To secure the payment of any damages she might recover from such persons, she sought an order that without further order the liquidator not disburse to them, or to the interests they control, any moneys or other assets to which they might otherwise be entitled in the winding up. In her submissions she extended the terms of the proposed order to any person who was a director of MML and any person, company or trust associated with such person. The liquidator opposed such an order, but his counsel said that he would give a stipulated period of notice before making any distribution to the persons concerned, and he later submitted a proposed form of order providing for such notice.
Finally, Ms O'Neill sought an order that the liquidator forthwith transfer to her 15,916 shares in Progen Industries. The liquidator also opposed this order. I refer to the issue later in dealing with the matter of Progen.
ASIC
ASIC was informed of the application, and between 15 and 17 July 2002, correspondence passed between it and the liquidator's solicitors. The correspondence was tendered as a bundle. ASIC stated that it neither consented to nor opposed the application for directions, that it would not appear, and requested that certain matters be brought to the attention of the Court. The correspondence concerned those matters. I have regard to the matters raised.
The Proposals
I now turn to the proposals and refer to each in turn according to their order in the liquidator's affidavit.
On Track Transport Pty Ltd – AES Logistics
According to MML's records, there were loans totalling $322,294.00 involving 23 investors, and 50,000 shares involving five investors. In addition, MML is noted as having a loan investment in its own right of $61,142.34. The liquidator states that one or more of the records of the investors, MML or On Track disagree. He further states, in relation to the share investment, that investigations reveal no prospect of a return from the investment. He then refers to having convened a meeting of investors in this investment, and sets out a “Background to the Investment”, followed by a section entitled “Reconciliation Issues”, in which he refers to issues raised in relation to the asset and his proposal for dealing with the asset. Subject to variations particular to a specific investment, this format is adopted for the discussion of each investment.
In this case, two lender investors disputed MML's records. One claimed that a sum was due to him, not from a loan to On Track, but personally, by Mr Logan or MML. The second dispute concerns $15,000, which an investor claimed is due to it, the investor contending that it had redeemed its loan and received $10,000 of a total loan of $25,000. The MML records indicate a $15,000 loss on the investment. The liquidator considers that the investor does not have any further entitlement to payment in respect of the investment. The liquidator therefore proposes to assign the rights and interest that MML has in the loans, to the investors identified in Schedule 2 to his affidavit. That schedule was compiled by reference to, and accords with, the interests of the respective investors as recorded in MML's records. It does not include the claim for $15,000.
As to the shares, the liquidator was not confronted with contention. Accordingly, he proposes to transfer the shares to the five investors identified in Schedule 1 to his affidavit.[5] That schedule was compiled by reference to, and accords with, the holdings of the respective investors as recorded in MML's records.
[5]All subsequent references to such a schedule refer to a schedule to the liquidator's affidavit.
ASIC raised two points concerning this investment. First, according to ASIC's records On Track had issued only five shares, of which MML held four (although that was unclear). Without explanation of the discrepancy, let alone satisfaction that 50,000 shares were issued, the liquidator could not transfer more than the 4 or 5 shares known by ASIC to have been issued to MML. Secondly, On Track was deregistered on 18 February 2002, at which time, On Track ceased to exist and its property vested in ASIC. ASIC expressed the view that, as the company did not exist, there were no shares to transfer. Accordingly, the proposal was inappropriate.
The liquidator takes the following position on these points. The discrepancy in the number of shares means no more than that ASIC's records differ from those of On Track (and MML). In fact, 50,000 shares might have been issued. More fundamentally, all that the liquidator is proposing to do is transfer or assign to persons whom he has ascertained to be entitled to them, the number of shares held in On Track according to MML's records. He does not pretend that On Track, or the shares, exist. By the instrument of transfer he will do no more than assign such right and interest to shares as he believes MML holds for the investor. He can practically do no more to distribute property to persons he believes entitled to it. The transferees are advised of the situation. They have notice of these matters. It will thereafter be for an individual transferee or transferees, who may seek to have their transfer registered, to move for re-registration of the company, and clarify the actual number of shares issued by On Track.
The circumstances may be unusual, but the direction sought is only that the liquidator be at liberty to proceed as he proposes. The Court is not ordering a transfer, let alone registration, and it is not making any declaration as to the effect of the transfer. The number of shares to be transferred is the number appearing in MML's records. The transfer or assignment can only carry such right or interest as the liquidator of MML may be able to convey. It is not necessary to analyse the nature of that right or interest. Nor is it necessary to consider whether, if the circumstances ever arise of a transferee seeking actual registration of the transfer, or of a proceeding being commenced to enforce registration, the liquidator would be required to lend his name.
In my view, the proposal is appropriate.
Amrad Corporation Limited
In this case, all records agree with one another. MML is the registered holder of 1,160 shares in Amrad. There are no reconciliation issues. The records of MML show that two investors are entitled to the shares. It is proposed to transfer the shares to those investors in accordance with their holdings as recorded in MML's records and as appears in Schedule 3.
If this investment stood alone, it might not be appropriate to give directions and none might have been sought. Counsel for the liquidator submitted that it was appropriate to give directions in this and the other like cases. I agree in the circumstances of the case. The proposals brought forward are a bundle of matters produced at the end of a lengthy investigation in a complex liquidation in which contention continues and may arise in the future. I also regard as appropriate the overall approach to his remuneration, costs and expenses that the liquidator seeks, rather than seeking to isolate the remuneration, costs and expenses relating to matters where there is no dispute.[6] In all the circumstances, I consider it just and beneficial to give directions in this matter.
[6]See [26].
Australian International Carbon
According to MML's needs there is an investment of 87,500 shares in MML's name involving two investors. One of the investors disputes the amount disclosed in MML's records as its investment. The investor claims to be entitled to 12,500 more shares than are shown as its investment. Investigation has revealed that the disputed shares had been sold by MML and the funds applied partly in payment of fees to it and partly to an investment in Tailored Plastics Pty Ltd. Further, under an agreement with the investor, MML was entitled to apply funds in payment of its fees. In these circumstances the liquidator proposes to transfer the 87,500 shares to the two investors identified in Schedule 4. The division proposed between the two investors accords with MML's records. The liquidator has not made any allowance for the 12,500 shares claimed by one of the investors. That investor is aware of the proposed distribution but has not made any objection to the proposal in this application.
Carter Research and Development
MML's records disclose an investment of 310,361 shares in Carter, registered in MML's name, involving 11 investors. MML is also noted as having an investment in its own right of 9,500 shares.
ASIC states that according to its records Carter has issued only 182,600 shares. ASIC is concerned that the discrepancy between the number of shares on issue and those claimed to be held is not explained. I considered the same issue in the On Track matter. For the reasons stated in that discussion I do not consider the fact of the discrepancy between the records of ASIC and MML to be a reason to refuse the direction sought in relation to this proposal.
The liquidator proposes to transfer the 310,361 shares to the 11 investors identified, and in the proportion stated, in Schedule 5. Those proportions accord with MML's records. In arriving at this proposal the liquidator has considered the case of four investors who disagreed with MML's records. The disagreement is that additional shares in Carter should have been, but were not, issued to MML or the four investors in satisfaction of interest on money lent through MML to a company associated with a director of Carter. The liquidator has determined not to make an allowance for this claim by transferring to the four investors more of the Carter shares than MML's records identify as their interest. To the extent the four consider that a loss has been suffered for which MML is accountable by reason of not having received shares in Carter, they may pursue their alleged entitlement by way of a proof of debt in the winding up. None of the investors contested the proposed distribution before me.
Covenant Environmental Technologies Inc
This is a United States company. The liquidator believes that there is a prospect of a return. MML's records record the investment as 4,672,066 five cent shares involving 28 investors, and convertible notes representing $660,210.19 involving 62 investors. MML is also noted as having an investment in its own right in shares and convertible notes.
The liquidator has had difficulty in obtaining information from Covenant. He has been informed that the company has effected a reverse 20 for 1 share split and changed its name to Neurochemical Research Corporation, Inc ("NCRH"). Covenant has advised that MML holds 163,550 shares in NCRH and no convertible notes. Allowing for the share split there should have been 233,603 shares. The liquidator has not been able to reconcile the discrepancy in the number of shares issued. Among the possible explanations is that MML sold some of the shares without properly recording, or accounting for, the transaction. As counsel for the liquidator said, the explanation for the discrepancy may lie in MML having committed a breach of duty.
In any event, what is left is a pool of shares. The liquidator proposes to transfer the shares presently registered in MML's name to the 28 investors identified in Schedule 6. The shares have been allocated amongst the investors on a pro-rata basis, in accordance with their entitlements as identified in MML's records.
The liquidator makes no proposal in relation to the convertible notes having regard to Covenant’s assertion that no such notes existed. Again, the possible explanation for this situation is that MML never made the investment or, having made it, subsequently disposed of the notes without properly recording or accounting for the transaction.
The investors who contend that they are entitled to convertible notes in Covenant, or to further shares, will be able to submit a proof of debt in the liquidation of MML in respect of such alleged interests.
No investor contested the liquidators decisions before me.
Evolution Adrenalin
This investment involves the relatively modest amount of $20,785 which MML's records indicate were loans involving five investors. The investors agree with those records. The liquidator has been unable to locate any documentation to substantiate the loans, aside from the information in MML's records, or any confirmation from Evolution Adrenalin as to the status of the loans. Further, he has been informed by Mr Logan that there is no likelihood of recovering the loan amounts. He proposes to assign the rights and interest of MML in the loans to the five investors in accordance with their respective interests stated in Schedule 7. It is to be noted that MML is also recorded as having an investment in its own right of $1,785.
Exprofuels
This is another investment in a United States company. According to MML's records the investment is 4,000 shares in MML's name, involving no investor. The investment was made through a United States broker which has forwarded statements confirming the holding. The very limited information available to the liquidator has not indicated that any individual investor has an interest in the investment. Further, the liquidator's enquiries indicate no likelihood of recovering the investment. As MML appears to be the only investor in this matter, the liquidator make no proposal in relation to the shares.
Fraser Range Granite NL/Fraser Range Holdings Limited
As ASIC has pointed out, these are two distinct entities. ASIC's records indicate that Fraser Range Granite has five issued shares all of which are held by Fraser Range Holdings, a publicly listed company.
MML's records show an investment in MML's name of 571,690 shares involving 21 investors. It is accepted that the investment is in Fraser Range Holdings. But that company records MML's holding as 566,790 shares. That is a discrepancy of 4,900 shares.
Two investors have disagreed with MML's records. One investor had finalised a transfer of 4,900 shares on 11 October 2000. That explained the discrepancy of 4,900 shares. The other investor claimed an interest in a holding of 20,000 shares. On investigating the claim the liquidator found the 20,000 shares had been sold in 1998 and the proceeds forwarded to the investor. MML's records had continued to show the investor as entitled to the 20,000 shares.
The liquidator proposes to transfer the 566,790 shares to the investors identified in Schedule 8. The schedule was compiled in accordance with MML's records but not including the two investors referred to above. Neither of those investors, or any others, have disputed this treatment.
Greens Foods Limited
In this case all records and sources agree with one another. The liquidator proposes to transfer the shares, options and convertible preference shares to the three investors involved according to their entitlement as specified in Schedule 9.
Harbinger Mining Pty Ltd
This is an investment of 500 shares registered in MML's name involving one investor. ASIC advises that Harbinger was deregistered on 26 June 2001, and that the last annual return of the company recorded that MML held 5,670 shares. ASIC raised the same points concerning deregistration and discrepancy in share numbers as it did in the case of On Track. The discrepancy in shareholding differs in that in Harbinger's case ASIC's records indicate a greater number of shares than MML's records. Otherwise, the issues are the same and I will not repeat the discussion in the On Track matter.
MML's investor file indicates that the investor had the shares transferred to its name, and that the investor was asked to notify Harbinger of its correct address. The liquidator has not received a reply from the investor, or from Harbinger which, I note, was deregistered subsequent to the liquidator’s appointment. Hence, the liquidator does not know whether the investor notified Harbinger of its address, and has not been able to confirm the investor’s holding or disposition, nor Harbinger's position.
In the circumstances, the liquidator proposes to transfer to the investor such right or interest as may remain in MML as the registered holder. There is no objection to that course.
Highlands Pacific Limited
This company is incorrectly referred to in the liquidator's affidavit as Highlander Pacific Limited, a non-existent company.
The investment is of 7,411 shares held by one investor. All records and sources agree with one another as to the number of shares and their beneficial ownership. The liquidator proposes to transfer the shares, held in MML's name, to the investor identified in Schedule 11.
Icemin
As mentioned earlier, the consideration of this matter is to stand over to a later date.
Interchem (N.A.) Industries Inc
This investment is constituted by loans in the sum of $67,725.78 held by nine investors. MML is also identified as an investor in its own right in relation to a sum of money.
The liquidator has been informed by Mr Logan that there is no likelihood of recovery. The liquidator wrote to the investors but five did not reply. He convened a meeting of the investors but none attended. He has been unable to locate any documentation to independently substantiate the loans (aside from MML’s records) or confirmation from Interchem of the status of the investment. In the circumstances, the liquidator proposes to assign the rights and interest that MML has in the apparent loans to the nine investors identified in Schedule 13, which schedule also identifies the amount of each investor’s loan. No objection has been made to this proposal.
Kage Group Pty Ltd
Kage is subject to a deed of company arrangement. The investment recorded in MML's records relates to loans to Kage in the sum of $98,925.72 held by seven investors. MML is also an investor in relation to a sum of money. The investors agree with MML's records. The Deed administrators have advised that they will admit proofs of debt for the relevant loans. A dividend is expected to be paid.
The liquidator proposes to assign the rights and interest of MML in the loans to the investors, and for the respective loan amounts, identified in Schedule 14. There is no opposition to this course. The investors will then be able to obtain payment of any dividend in respect of their entitlement from the administrators or to otherwise pursue their rights in respect of the loans.
La Telco International Inc
This investment is of a holding of 640 shares in MML's name for three investors. The shares were bought through a United States broker who has confirmed the holding of 640 shares. MML is also identified as an investor in its own right in relation to 227 shares.
One of the investors has disputed the number of shares recorded in MML's records as held on its behalf. The number recorded is 186 with a disclosed value of $1,395. The investor claims an interest in 4,500 shares based on an initial investment of $1,395. The investor claims to have documentary evidence supporting his claim but has not produced it. The liquidator has been unable to determine whether the investor's claim is soundly based and, if it is, the cause of the discrepancy in the holding. He considers it appropriate in the circumstances to transfer the shares in La Telco to the investors identified in Schedule 15, according to their entitlement as recorded in MML's records.
Margin Loan
In January 2000 MML obtained a margin loan through a United States lender George K Baum and Company. MML provided 87,227 shares in FX as security for the loan.[7] The amount lent to MML was US$336,000. The liquidator has not been able to locate any document evidencing the terms of the loan agreement in MML's records, nor obtain a copy of any such document from Baum. However the FX shares were provided as security on 19 January 2000, and as this constituted the initial security for the loan it is reasonable to infer that the agreement was made on or about that date.
[7]There may initially have been a greater number of FX shares; see the liquidator's affidavit sworn 27 May 2002, paras 4 and 15.
MML on-lent the loan funds as follows:
(a)US$236,000 to Nations Business repayable under two promissory notes for US$122,000 and US$114,000. Nations Business is in default of its obligations under the loan terms, but in the absence of an acceleration clause the liquidator must await payment under the notes which fall due in January and March 2003 respectively.
(b)$304.92 to Tailored Plastics Pty Ltd and $38,000 to Kage Group Pty Ltd. These amounts remain outstanding. The liquidator has not been able to obtain details of the loan terms.
(c)$150,000 to Sensational Foods Pty Ltd and $37,344.49 to Icemin. These amounts have been repaid.
It is common ground that on 23 June 2000 MML provided Baum with further security for the margin loan. The security was 200,000 shares in Progen Industries Limited (“Progen”). Also in June, and counsel accepted that the relevant date was 23 June 2000, MML provided further security of 45,000 shares in Zaxis International Inc (“Zaxis”).
It may be presumed that the additional security was provided in response to a request from Baum, most likely because the FX shares had fallen in value.
The Progen and Zaxis shares, and the FX shares, were registered in the name of MML. But the beneficial ownership of the shares varied. According to MML's records, all the FX shares were held by MML on behalf of investors, the Progen shares were held by MML in its own right, and Zaxis shares were held both on behalf of investors and separately by MML in its own right.
On the basis of his investigations, including information obtained from investors, the liquidator states that MML was not authorised by the relevant investors to pledge the FX and Zaxis shares. He states that the investors were not aware that their shares were to be used as security for the margin loan. I accept that the investors’ shares were pledged without their knowledge or permission. The argument before me proceeded on the basis of the common understanding that MML had pledged the shares without the investors’ authority to do so and, relevantly, in breach of its fiduciary duty to the investors.
Further, the on-loans made by MML were neither secured nor authorised by the investors.
The regrettable but foreseeable happened. The liquidator states that as a result of the default by Nations Business, and the decline in value of shares in the United States, margin calls were made by Baum and its successor in title, First Union Securities. Consequently, the United States lender sold all but 45,000 of the FX shares and all of the pledged Progen and Zaxis shares in reduction of the margin loan. Counsel did not concentrate on the dates of sale of the shares, or the sale price, presumably regarding that information as not critical for the purpose of their submissions.
As a result of the sales, the margin loan has been repaid. At the end of March 2002 there was a positive balance in the margin loan account of US$68.77.
As a result of not having obtained any written agreement evidencing the terms of the margin loan, the liquidator was not aware of the exact terms of the agreement. He believed, however, that the pledged securities were liable to be sold by Baum as it deemed fit, to reduce the loan to an appropriate level, without reference to MML. The existence of such terms seems probable, particularly having regard to the nature of the security. The existence of such terms would also accord with what occurred in this case. Further, there was no evidence to the contrary.
At this point it is appropriate to refer to the investments in FX, Zaxis, Progen and Nations Business and to conclude on the issues concerning those investments and the loans.
(a) FX Energy Inc
According to MML's records this investment was 98,670 shares held by 24 investors. As stated, the shares were registered in MML's name. Apart from four investors who have not confirmed the status of their holdings, all investors agree with MML's records. MML is not recorded as holding any shares in its own right.
Overall, however, none of the shares were allocated to any particular investor. They were held as to one overall pool of 98,670 shares. Hence, the liquidator cannot identify the interest of any of the investors as lying only in the Alpine shares, or the Baum shares, or partly in one and partly in the other.
When the liquidator was appointed, the FX shares were held in two United States broking houses, namely Baum as to the pledged 87,227, and Alpine Securities Corporation as to 11,443. The latter shares are still held by Alpine.
The liquidator stated that as at 31 December 2001, after realisation, the number of FX shares held by First Union Securities was 45,000. That continues to be the case.
The liquidator has proposed a manner of distribution appropriate to cater for the situation of the insufficient number of shares. There are two parts to the proposal. First, to transfer the 11,443 shares to the 24 investors identified in Schedule 16 in proportion to their holdings as recorded in MML's records. No issue was raised concerning this. It is clearly appropriate.
The liquidator proposes to deal with the 45,000 FX shares still held by First Union Securities in the same way that he proposes to deal with the net benefit from the on-loans made by MML out of the margin loan funds. I refer below to the proposal. There are disputed issues.
(b) Zaxis International Inc
According to MML's records this investment involved 752,667 shares and 182,087 warrants held (in MML's name) by 62 investors. MML was also an investor in relation to 7,877 shares and 6,905 warrants. Prior to the appointment of the liquidator the warrants had been permitted to expire, as the exercise price had been well in excess of the share price.
Prior to the appointment of Mr Lofthouse as administrator MML had sold some Zaxis shares, not notified investors of the sales, and allocated the proceeds of the sale amongst certain investors, which some investors considered unfair. Those proceeds were held in the MML account. It was common ground that it is not possible to trace these funds in any of MML's bank accounts. In some cases investors’ requests for the sale of the shares had not been satisfied. Allowing for these sales, and the loss of the 45,000 pledged shares, MML presently holds 707,667 shares, and the investors claim entitlement to 752,667 shares.
The liquidator proposes transferring the 707,667 shares to the investors identified in Schedule 17 in proportion to their holdings in MML's records. There is no dispute as to this manner of distribution. It is appropriate.
I refer below to the manner in which the liquidator proposes to deal with the loss of the pledged shares.
(c) Progen Industries Limited
According to MML's records there was an investment of 745,257 shares held by 105 investors, and MML held 200,000 shares in its own right. It was MML's own 200,000 shares which were pledged, and sold.
Progen records MML as holding 741,130 shares, which produces a discrepancy of 4,127 shares. The explanation for the discrepancy is that one investor received both a transfer of 4,127 shares into its name and the proceeds of sale of 4,127 shares which MML apparently sold on its behalf. It thus appears that the investor has received its entitlement twice. The liquidator has attempted to locate and recover the shares or the proceeds but with no success.
The liquidator proposes to transfer the balance of the Progen shares (741,130) to the investors identified in Schedule 18. They are the investors entitled thereto in accordance with MML's records but excluding the investor who received the 4,127 shares.
I mentioned earlier[8] that Ms O'Neill sought an order that the liquidator transfer to her 15,916 shares in Progen. Under Schedule 18 the liquidator is proposing to transfer to her 15,560 shares in Progen. That is 356 shares less than she requires. Ms O'Neill bases her claim on the following facts to which she deposed in her affidavit. She was not cross-examined and the liquidator did not dispute her evidence. I accept her evidence. On 4 July 2000 she met with Mr Logan and Ms Jones at MML's premises and requested that MML transfer to her the shares in Progen to which she was entitled. They agreed and an instrument of transfer of 15,916 Progen shares from MML to her was prepared and signed by both parties and dated 4 July 2000. On 3 August 2000 she received a letter from MML which enclosed a notice of assessment of duty on the transfer issued by the Office of State Revenue, Queensland. The letter stated that the assessment notice was “for the transfer of your Progen shares” and that “[i]t should be paid directly with the assessment notice to the Office of State Revenue”. The letter further stated that on “receiving your payment” the Office of State Revenue would return the transfer to MML to forward to the share registry to re-allocate the shares to Ms O’Neill. On 14 August 2000, as directed by MML, Ms O'Neill duly paid the duty of $86.50. In September 2000 she was informed by Progen that no shares were yet registered in her name. On contacting MML she was advised that the transfer was complete. Thus assured, she took no further action.
[8]At [31]
At the time that Mr Lofthouse was appointed administrator the transfer had not been registered, nor was the transfer registered subsequently. Ms O'Neill claims that she is entitled to the shares, and that the liquidator should be directed accordingly.
The liquidator takes the following position. These events occurred before his appointment. If MML had sent on the share certificate and transfer, and the transfer had been registered, Ms O'Neill would have received her full entitlement of Progen shares. But that did not happen and the liquidator is concerned that he treat investors equally in the context of the circumstances that prevailed at the time he was appointed administrator.
I was informed by counsel for the liquidator that due to an insufficiency in the number of Progen shares there is to be a pro-rata scaling back of investors’ entitlements. He stated that the scaling back should apply rateably among all of the investors including Ms O’Neill. On that approach Ms O'Neill's entitlement has been scaled back from 15,916 to 15,560. In his affidavit sworn 1 July 2002 the liquidator referred to Ms O’Neill’s affidavit but made no comment on it except to say that he had made a proposal in respect of the Progen shares which he believed to be in the best interests of, and fair to, all investors and creditors of MML.
It was submitted by counsel for the liquidator that misfortune had fallen generally on the investors, and it would unfairly – as between investors – exacerbate that misfortune if Ms O’Neill was to receive a further 316 shares and thereby cause the other investors’ entitlements to be scaled back.
As I understood it, the liquidator’s approach may be summarised as follows. All of the Progen investors had a beneficial entitlement to a proportion of the Progen shares, the actual proportion reflecting the amount of their investment. The appointment of the administrator did not operate to alter the entitlement of any investor. Hence, although Ms O'Neill continued to be entitled to 15,916 shares, the failure of MML to take the steps necessary to effect the transfer of those shares to her did not reduce her entitlement. What has reduced her entitlement is that for one reason or another there has been a reduction in the total number of shares in the Progen pool with the consequence that all investors’ entitlements must be scaled back. That will achieve a distribution as close as may be possible to the legal entitlement of all investors.
Nor did the liquidator offer Ms O’Neill comfort on the matter of the stamp duty which she expended at the request of MML to progress the transaction. It is a small sum, but MML induced Ms O’Neill to pay it, and she did pay it, in reliance on the representation that MML would then take the step necessary to effect a transfer of title to the shares to her. It is evident, and it was not suggested otherwise, that the transfer was returned from the Office of State Revenue to MML, but MML neglected to send it on for registration. Of course, if this neglect had not occurred, and the transfer had been registered, Ms O’Neill would have received all of her shares and no issue of scaling back would arise.
Counsel for the liquidator submitted that the only remedy available to Ms O’Neill in these circumstances is a claim for damages for the loss she sustained as a result of not obtaining title to the shares, or reimbursement of the stamp duty plus interest. Either claim ought to be made by submitting a proof of debt in the winding up. The claim, be it for damages or reimbursement of the duty, would not give rise to a claim in respect of any property held by MML. Rather, Ms O’Neill would rank as an unsecured creditor in the winding up.
In my view, this is a correct analysis of the situation. What has happened here is that MML, as a fiduciary, made a representation to Ms O’Neill on which she was entitled to rely, and did rely, in paying the duty. The duty having been paid, MML failed to act as it represented it would, and Ms O’Neill did not receive the shares. Ms O’Neill is now to be left without the 316 shares and has lost the amount paid in duty. Moreover, neither MML nor the liquidator has taken any step to alleviate the loss by seeking to aid Ms O’Neill in any application for a refund of the duty or recouping her the loss. The attitude of the liquidator has been to treat the matter as Ms O’Neill’s problem alone. Nevertheless, such rights as Ms O’Neill may have against MML are personal and not such as to found a proprietary claim. Being personal, Ms O’Neill must pursue such claim as she may make by proof of debt in the winding up.
With the exception of the issues raised by Ms O'Neill, there is no contest as to the manner in which the liquidator proposes to distribute the Progen shares.
(d) Nations Business
This investment is by way of the loans referred to above. They are recorded in MML's records in the sum of AUD $320,634.23. MML is the only investor. Although the liquidator is not aware of any issue regarding the amount lent, he has been unable to confirm the sum. However he raises no issue concerning it.
The loans were made from the funds derived from the margin loan. So also were the loans to Tailored Plastics and Kage Group. The loan funds were obtained as a result of the unauthorised pledging of investor shares in FX. The on-lending was also unauthorised. The question which arises is whether those investors have any right to share in any funds recovered under the loans. I now turn to the answer to that question.
(e) Conclusion
The liquidator submits that the appropriate relief for the FX and Zaxis investors is an account of profits in the context of a constructive trust. It was submitted that tracing was not the applicable remedy in the circumstances. The appropriate relief in equity is that the funds recovered from the loans made with the proceeds of the margin loan be held on trust for investors in FX, Zaxis and Progen in certain percentages, calculated by reference to the historic value of the shares recorded in MML's records. That would best reflect the proportion of investors’ contributions in the amount recovered. Progen should be included as MML had pledged those shares in support of the loan, and lost them. If an appropriate allowance was not made in favour of Progen, the FX and Zaxis investors would unjustly benefit from the addition of the Progen shares, which contributed to the saving of the balance of the FX shares and to the fruits of the on-loans.
The historic costs were $6.65 per FX share, $1.94 per Progen share, and $0.76 per Zaxis share, which, when multiplied by the number of shares, produces a total of $1,002,259.55. Taking account of the actual number of shares, that figure produces the following percentages: 57.88% for FX, 38.71% for Progen and 3.41% for Zaxis.
Counsel for Kathroban did not raise in contention any point of principle to which the liquidator's counsel had referred in their submissions, including their written submission dated 12 July 2002. He said that the issue was the same whether the case involved tracing or a constructive trust. It did not matter on which of those bases the case was decided. He said, and counsel for the liquidator agreed, that the issues presented concerned the application of established principle rather than the ascertainment of the applicable principle.
With that approach, Kathroban's counsel raised two points of contention which, if accepted, would improve the return to Kathroban as an FX investor. The first issue is whether the contribution of the Progen shares should be excluded from participation in amounts received in repayment of the MML loans. He conceded that the Zaxis shares should be included, as it could not be said whether the Zaxis shares pledged were held for investors, or by MML in its own right, or partly both. In making this concession, counsel abandoned a contention which Kathroban had made earlier in the proceeding.[9] The contention had been based on the premise that all of the Zaxis shares pledged were held by MML in its own right. As a matter of fact, the premise was unsustainable and was correctly abandoned, in my view.
[9]See the affidavits of Mr Renowden and Kathroban's written submission dated 12 July 2002.
The second contention of Kathroban is whether the basis of valuation should be the market value of the shares at the time of pledging, rather than their historic cost. As appears by the figures below, this would be of particular benefit to FX investors. Kathroban is a substantial FX investor. Thus, Kathroban's interest is to increase the return to FX investors and thereby to itself. When counsel was addressing this submission it transpired that there was a lack of evidence as to the market value of the FX, Progen and Zaxis shares at relevant times submitted to be relevant. Counsel provided me with the information subsequently, and I have marked the material as Exhibit B. I refer to this information below.
In arguing the first point, counsel for Kathroban relied on a passage in The Law of Restitution.[10] Counsel for the liquidator had already taken me to this work.[11] The passage relied on by Kathroban's counsel appears in the third set of equitable rules of tracing into a mixed fund. It reads:
"(3) A trustee mixes his own money with trust money; he withdraws money from the mixed fund, dissipates some of it and then deposits more money into the mixed fund. Subsequent deposits of the fiduciary into the mixed fund are not presumed to be impressed with the trusts in favour of the beneficiary. Consequently, if the trustee is insolvent, that part of the mixed fund, equal to the amount paid in, will normally pass to the trustee's general creditors. The beneficiary will be entitled to additions to the mixed fund only if he can prove that thereby the trustee intended to make restitution to the trust. It follows that the trust is entitled only to the lowest intermediate balance of the mixed fund."
[10]Goff and Jones, The Law of Restitution, Sweet & Maxwell, 5th ed (1998), pp 107-108.
[11]Commencing at 103, under the heading "Identifying assets in equity". He also referred, inter alia, to Brady v Stapleton (1952) 88 CLR 322 at 336-339 per Dixon CJ and Fullagar J; Glover, Commercial Equity: Fiduciary Relationships, Butterworths (1995), paras 6.38-6.46; Reinhardt, “The Availability of Tracing to the Insolvency Administrator – Is the Remedy Adequate?”, Insolvency Law Journal (4) 74.
Kathroban's counsel relied on that part which refers to the intention of the trustee to make restitution to the trust. He submitted that I should find, as a fact, that MML provided the Progen shares with the intention of making partial restitution for the initial breach of duty in pledging the FX shares without authority. He submitted that the "direction was plainly given to preserve the investment, which is to say to meet the margin call, and principally what was used was the Progen shares". He submitted that a direction "was plainly given that if further margin calls were made … Progen shares were to be dealt with first".
The difficulty with the submission is that the finding sought is to be inferred on the balance of probabilities, having regard to all relevant circumstances. The case is bereft of evidence from any of the persons who were directors of MML when the Progen and Zaxis shares were pledged as additional security. Kathroban had every opportunity to seek an affidavit from the directors which dealt with this point and which established the relevant intention. As it happened, the only affidavit of a director that was filed was the affidavit of Mr Logan, and counsel withdrew reliance upon it. It seems somewhat remarkable that Kathroban should file an affidavit by a director, whom one must suppose could have given evidence on the critical point, abandon reliance on the affidavit in the course of the hearing, then submit that a finding on the point should be made in its favour, based on an inference founded on the balance of probabilities. The reality is that the abandonment of the Logan affidavit saved Mr Logan from such cross-examination as might have occurred, and which might have exposed the submission as groundless. I have regard to these matters in considering the submission.
Counsel contended that the following facts were sufficient to found the inference that MML intended, by its directors, to make restitution to the trust by pledging the Progen and Zaxis shares. First, MML provided its own shares. Then, the Progen shares were the first shares sold when it was necessary to meet margin calls.
Counsel further submitted that I could infer from those facts that Progen shares were sold "at the direction of MML". There was no evidence of any such direction. The submission rests entirely on inference, and the inference is to be drawn in a context in which there is no evidence from the directors of MML or the lender.
The principle sought to be invoked places the onus on the beneficiary to establish that the trustee intended to make restitution to the trust. Kathroban has failed to do this. In addition to a lack of evidence from those in a position to give it, there is no cogent basis on which to draw the inference and thereby satisfy the onus. There are several reasons why this is so. The first is the unexplained absence of evidence from the directors. Secondly, the trust was not restored by the contribution of the Progen and Zaxis shares. They were merely provided as additional security to bolster the existing security of the FX shares. Restitution would have resulted in the release of the FX shares or otherwise led to them being spared from realisation, but that was not the case. Further, the unauthorised contribution of the Zaxis shares is contrary to restitution having been intended as, to an extent, they were shares held for investors. The contribution of the Zaxis shares compounded the breach. Thirdly, it was, as in my view it is properly to be regarded, a matter for Baum and, in turn, First Union Securities, as the holder of the security, to determine in what order and when to realise the security. The absence of evidence includes an absence of evidence from these entities. It is speculation as to why the Progen shares were sold first. It is as likely that market considerations led to Progen being sold first, as MML requesting that they be sold first. But, even if it be assumed that MML had made such a direction, it does not follow – particularly having regard to the continuing breaches of trust – that it was given for the purpose of MML making restitution to the trust.
For these reasons I reject the submission. Kathroban has not established that MML intended to make restitution to the trust. That being so, the situation is, in accordance with the principle of tracing relied on by Kathroban, that:
"[T]hat part of the mixed fund, equal to the amount paid in, will … pass to the trustee's general creditors."
Thus, the principle relied upon does not apply to prevent MML's unsecured creditors from participating in any recoveries from the MML loans.
I referred earlier to the fact that the liquidator's counsel submitted that the correct approach to resolution of the case was by way of an account of profits and a constructive trust. On that basis, the FX and Zaxis investors have a proprietary right to the benefit of the loans made by MML with the margin loan funds. In recognising such entitlement, equity should, it is submitted, make an allowance for MML's contribution of its Progen and Zaxis shares to support the margin loan. (I note that it is only in relation to the Progen shares that the liquidator proposes that MML, and its unsecured creditors, receive a benefit.) Not only were MML's shares sold by the lender to meet financial obligations under the margin loan, but the sales served to preserve the FX shares that remain. In these circumstances, it is just and would avoid any element of a windfall gain to the FX and Zaxis investors, to recognise MML's contribution to the benefit of the on-loans in the manner proposed by the liquidator.[12]
[12]See Warman International Ltd v Dwyer (1995) 182 CLR 544 at 557-559; Cope, Constructive Trusts, Law Book Co (1992), pp 284-294.
It seems to me to be clear that it accords with good conscience and is just and equitable that allowance be made in favour of MML for the contribution of its Progen shares. I accept the submissions of the liquidator's counsel in this regard.
That leaves the issue of the value to be ascribed to the respective shares. As argued, the issue here is whether, as the liquidator contends, the value should be the historic cost stated in MML's records, or market value at the time of pledging the securities, as Kathroban contends. The information as to market value that was provided subsequent to the hearing contained the historic share price already deposed to by the liquidator, and the market price of the shares at 19 January 2000 (establishment of the loan) and 23 June 2000 (application of the Progen and Zaxis shares) and a calculation of the contributions represented by those values. In addition, I received a set of proposed orders from Kathroban and the liquidator. A further short hearing was had to consider any matter arising from those documents, and for me to obtain clarification on certain matters.
The share prices are:
Historical cost
$
At 19.1.2000
$
At 23.6.2000
$
FX 6.65 11.68 8.81 Progen 1.94 4.52 2.47 Zaxis .76 1.55 1.48 The historical cost produces the overall value and percentages referred to at [109]. Then, using the figures provided, the following values and percentages of contribution are obtained:
(a) The share price at date of application as security
Date Value
$% of total % of total
excluding ProgenFX 19.1.2000 1,019,007 64.53 93.87 Progen 23.6.2000 493,620 31.26 Zaxis 23.6.2000 66,488 4.21 6.13 1,579,115 (b) The share price at 19.1.2000
Price
$Value
$% of total % of total
excluding ProgenFX 11.68 1,019,007 51.12 93.58 Progen 4.52 904,432 45.37 Zaxis 1.55 69,867 3.51 6.42 1,993,306 (c) The share price at 23.6.2000
Price
$Value
$% of total % of total
excluding ProgenFX 8.81 768,875 57.85 92.04 Progen 2.47 493,620 37.14 Zaxis 1.48 66,488 5.00 7.96 1,328,983
As I have said, counsel for the liquidator submitted that the appropriate value was the historic cost as stated in MML's records. Kathroban took a contrary position. Its position is seen through FX. Its preferred position is that Progen not be entitled to participate in any recovery of the margin loan asset, and that the FX and Zaxis shares be valued at the date when they were provided as security. That would produce the percentage entitlements of 93.87% and 6.13% shown in (a) above. That is the most favourable position for the FX investors, and thus Kathroban, of all the suggested approaches to valuation, and it is the second-worst for Zaxis investors.
Of course, I have decided that Progen should participate in any recovery of the loans made from the margin loan funds. On that basis, the percentages are varied as Progen accounts for 31.26%. But the approach still produces the most favourable result for FX investors. Not surprisingly, that is Kathroban's next preferred position. Failing that, the next preferred position of Kathroban, assuming Progen participates, is the historic cost. This is the liquidator's proposal.
Kathroban did not submit that the calculations and values in (b) and (c) above should be adopted.
I should add that it is common ground that whatever basis is chosen, there is to be included for distribution the sum of $50,000, being the final payment by Sensational Foods Pty Ltd of its loan from MML.
Having noted the contentions I now refer to the way in which the submissions were developed. Counsel for the liquidator, with particular reference to statements in the joint judgment of the High Court in Warman International Ltd v Dwyer[13] and the House of Lords in The Lord Provost, Magistrates, and Town Council of Edinburgh v The Lord Advocate[14] submitted that the fair and just result in the circumstances is to apportion the proceeds of the margin loan among the interests of all whose shares were lost in the proportions of the capital they contributed to MML.
[13](1995) 182 CLR 544 at 557-560, 561-562 and 567.
[14](1879) 4 AC 823 at 835, 838-839 and 841.
In Warman the High Court was concerned with the question whether, in ordering an account of profits, an "errant fiduciary" should be allowed "a proportion of profits or … an allowance in respect of skill, expertise and other expenses". This was "a matter of judgment which will depend on the facts of the given case".[15] That case concerned an employee who, in breach of his fiduciary duty, had diverted a business opportunity to a company in which he was a shareholder. It was held that the former employer was entitled to an account of the net profits before tax of the new company in its first two years of operation. An issue was whether it was appropriate to make an allowance in favour of the defendants having regard to their efforts in producing the profits. In discussing the basis for an account of profits the High Court said that[16]:
"[T]he basis upon which an account of profits should be taken is often extremely difficult to determine in practice. It is so in the present case. Indeed, what is required in the present case is essentially what Lord Wilberforce described as a 'judicial estimation of the available indications'."
It was held that the amount recovered should include an allowance for the expenses, skill, expertise, effort and resources contributed by the defendants to earning the profits.
[15](1995) 182 CLR 544 at 562.
[16]Ibid., 567.
Counsel placed particular reliance on the decision in Edinburgh as indicating the appropriate approach to the resolution of this case. In that case, the governors of a hospital had mixed trust and general funds over a long period of time. The trust money had been placed in the governors’ control in 1700. It was administered as if it were, and was mixed with, general funds of the hospital, no distinction being drawn between the accounts. In 1744 and 1753 the governors lent mixed trust and other moneys to the City of Edinburgh and sustained a substantial loss. But the hospital sustained a substantial gain on the investment of other funds in land in 1734. The difficulty presented was how and as at what time was the value of the trust fund to be measured vis-à-vis the other funds, and an allowance to be calculated to recover the loss to the trust fund. As the Lord President stated in the Court of Sessions: [17]
"How are we to ascertain what sum now in the hands of those trustees will adequately and fairly represent the capital of the Alexander Fund?"
[17](1879) 4 AC 823 at 832.
The Court of Sessions decided that the relative or comparative value of the trust and other funds of the hospital was to be taken as in 1700, being the year in which the governors may be assumed to have received the trust money. As the jointly administered, and mixed funds, had greatly increased in value between 1700 and the litigation in the 1870s, the trust fund must be entitled to participate in that prosperity.
In the House of Lords, Lord Blackburn said that: [18]
"No other way was suggested at the bar in which the fund, having been inextricably mixed up, could be apportioned, except that of taking the proportion which the two funds bore to each other, and dividing the mixed fund in that proportion; and I cannot myself see any other way."
[18]Ibid., 833.
Lord Blackburn considered the solution "perfectly consistent with justice and good sense, and not inconsistent with any technical rule of law".[19] Lord Hatherley saw an analogy with a partnership in the way in which the trust and other funds had been mixed, and considered the resolution of the Court of Sessions to be that commonly applied to partnerships.[20] What had been allowed here was a "just and proper" allowance for the use of the trust fund, which was analogous to the case where a former partner's capital had been used by continuing partners to earn profit. He concluded by noting, as a relevant factor, that trust moneys had been applied "in ease of the other funds to some extent". [21] That, as counsel for the liquidator said here, was the situation with the Progen and Zaxis (in part owned by MML) shares, which had been lost in saving approximately half of the FX shares.
[19]Ibid., 835.
[20]Ibid., 838.
[21]Ibid., 841.
Counsel for the liquidator relied on the approach to ascertaining value in Edinburgh as supporting the adoption of the historic cost in MML's records. In Edinburgh the year in which the trust fund was received was taken as the time for ascertaining the base value. No other more sophisticated calculation was adopted, perhaps with variations at different times, such as when the capital fell in in 1744 and 1753, or some other identifiable act occurred. It is not that the solution adopted was perfect but it seemed the most just and sensible way of dealing with the problem in the context of the particular circumstances.
In urging adoption of the historic cost basis of valuing the interest, counsel further pointed out that if the breach had been remedied, or the margin loan repaid, the investors and MML respectively entitled to the FX, Progen and Zaxis shares would have had them free of the charge. They would not have lost the capital invested, which was the historic cost. That is what was placed at risk.
Counsel submitted further, adopting the words of Lord Blackburn in Edinburgh, that the market value approach advocated by Kathroban made the matter "depend entirely on an accident, [which] is not a satisfactory result”.[22] It is entirely an accident as to the day on which the shares were pledged and as to the market value of the shares at that time, as compared to the day before or after or some other time thereabouts. And the general state of the market might have significantly differed on 19 January and 23 June 2000. Further, there was no evidence of intention to sell investors' shares at any particular time. The shares were sitting as investments in MML's books. Historic value would avoid any risk of unjustly enriching one group of investors as against another group or groups. Of course, since then the parties have submitted evidence of the market value of the shares at particular times, as noted above. This information shows that at 19 June 2000 the market value of FX shares had increased from the historic cost by approximately 75%, and that at 23 June 2000 the market value of Progen and Zaxis shares had increased from the historic cost by approximately 27% and 95% respectively. It is seen that as at 19 January 2000 the market value of Progen and Zaxis shares was higher.
[22]Ibid., 835.
In his submissions Kathroban's counsel submitted that the Edinburgh case was distinguishable from the present. The analogy of a partnership was not apt here as it could not be said that there was a partnership between the investors, and in Edinburgh the mixing of funds was not for any personal advantage and the need to keep them separate had been overlooked. But counsel for the liquidator had not suggested that the facts of the two cases were the same. The Edinburgh case was referred to as an example of how, in a particular situation of inextricably mixed funds, equity resolved the issue of valuation of the contributing funds. Both cases involve the problem of equity ascertaining a just and fair method of valuation in the context of mixed funds. It is axiomatic that equity determines each case on its own facts.
Concentrating then on the facts of the present case, counsel for Kathroban advanced the following reasons as warranting reliance on the market value. The first point was that when the FX shares were pledged on 19 January 2000 it must have been on the basis of their then market value, as the historic cost value would not have provided enough security. Given that the shares were then dealt with on the basis of their market value that approach should continue to be taken to maintain consistency.
It may be accepted that the historic cost of the FX shares was less than the amount of the loan. There is some supposition and speculation in the submission, however, as there is no evidence of any relevant term of the loan agreement or requirement of the lender as to the level of the security required to be provided. All that one might have is a possible inference arising from the amount of the loan and the market value of the FX shares, that security to the value of those shares was required. Yet the value of the FX shares would seem to have been well more than the amount of the loan, and perhaps that militates against the inference. There may have been other factors such as the ready saleability of the FX shares or that at the time they were convenient to use. Nevertheless, avoiding speculation, it is reasonable to infer that the market value of the FX shares was a relevant factor in choosing them as the security.
Then, counsel submitted, the importance of market value was emphasised when the Progen and Zaxis shares were provided as additional security. The further security was required because the FX shares had fallen in value and, hence, no longer provided sufficient security.
The second point was that the historic cost was a mere accident, to use the language of Lord Blackburn. That is to say, it was an accident as to when the shares happened to have been purchased by MML and as to what may have happened to the price in the meantime.
The third point was that the investors had not lost the mere historic cost but the opportunity to call for and sell their entitlement during the time that they were pledged. Ms O'Neill was an example of a person who called for a transfer of Progen shares. It should be noted that there was no evidence of persons who actually wished to sell subsequent to the pledging of the shares. And there was no evidence that if MML had been requested to do so, it would not have provided substitute security to enable an investor to gain title and effect such a sale.
Then counsel pointed out that there was no evidence as to when MML had acquired the shares or as to the actual calculation of the historic cost. They might all have been acquired at about the same time or not far apart, but those facts were not developed before me. On this point it is to be noted that MML's business activities did not cover a great period of years. Relatively speaking, it was only a few years.
The submission of Kathroban's counsel treats the respective shares – but Kathroban regards the matter through the eye of FX – as lost when they were pledged as security. It is true that while they remained pledged MML could not deal with them and individual investors could not have obtained a transfer of their entitlement and sold the shares thus derived. The pledge resulted in a fetter on the ability to deal with the shares. But the interest in the shares remained subject to the rights possessed by the pledgee, in particular to realise the security. If the shares had been released as security, because the loan was repaid or substitute security was provided or for some other reason, the shares would cease to have been subject to the fetter. But that did not happen. What happened is that on various dates and at various prices the shares (with the exception of 45,000 FX shares) were sold as mentioned earlier. Upon such sales occurring MML lost its interest in the shares sold. No party submitted that the date of sale of the shares should be adopted as the date on which to value the shares. Doubtless, it was considered by all that such date was in the nature of an "accident" in the sense referred to by Lord Blackburn. But if that date was an accident why, one might ask, is the date of pledging any less an "accident" or any more compelling as the appropriate date for the purpose of achieving a just and fair resolution of the issue?
As no party suggested that the actual date of sale was the appropriate date, I was not taken to evidence of the price of the shares when sold. If the price was less than the price when the shares were pledged, it is understandable why Kathroban urged the adoption of the market price at the date of pledging. But if Kathroban's submission as to the loss of the opportunity to deal with the shares is a sound argument, why not pick a higher price (if there was one) between the date of pledging and the ultimate sale? Would that not just as well be the measure of the value of the lost opportunity, on Kathroban's argument? I was not taken to evidence of the range of market prices over the period.
In my view, the just and fair resolution of the issue is that proposed by the liquidator, to adopt the historic cost of the shares in MML's records. That is what the investors invested, that is the capital lost. To adopt the market value as at the date on which the shares were pledged, but not actually "lost", would be to rest resolution of the parties' rights on a mere fortuity or accident.
Mosaic Oil NL
This investment concerns 429,444 shares held in MML's name for 17 investors. Mosaic has confirmed the holding. With one exception, all of the investors agree with MML's record of their respective entitlement to the shares. The liquidator proposes to transfer the shares to the investors in accordance with the entitlement appearing in MML's records and as identified in Schedule 19.
The exception referred to is an investor whose affairs are administered by State Trustees. When he was advised of State Trustees' involvement, the liquidator was also advised that various members of the investor's family asserted that other members of the family may have invested funds of that investor with MML but that they were registered in their own name. The liquidator was requested not to distribute any investments of the investor and other named related parties pending investigation by State Trustees. The liquidator has not been advised if the investigation is complete. In my view it is appropriate for the liquidator to proceed as he proposes. In the case of that particular investor, the liquidator will have to deal with State Trustees who will doubtless direct it as to the appropriate transferee. That may be State Trustees, depending on the stage reached in its investigations.
Nautronix Limited
In this case – concerning 1,550 shares held in MML's name involving one investor – all relevant records and sources agree and the liquidator proposes to transfer the shares to that investor who is identified in Schedule 20.
Normandy Mining Limited
No proposal is made here as the relevant shares were transferred to the one investor concerned prior to the liquidator being appointed. The case of these shares arises in the present context only because at the time that the liquidator was appointed MML's records continued to record the shares as held in MML's name. The liquidator accepts that the transaction occurred. He has ascertained that subsequent to his appointment the investor was provided with a new share certificate. The liquidator is satisfied that MML has no interest in the shares.
Omni Resources Inc
This is another case in which all records and sources agree as to the entitlement of three investors to 37,000 shares in MML's name. The liquidator proposes to transfer the shares accordingly as identified in Schedule 21.
Palau Investments
This is an investment of 524,224 shares in MML's name for 73 investors. MML's records also identify it as an investor in its own right in relation to 35,266 shares.
The liquidator's investigations were unable to locate a company by the name of Palau. ASIC has pointed out that there is a registered entity called Palau Investments Pty Ltd but it is clear that that is not related to the activities of MML. Hence, Palau is no more than a name.
All but 13 of the investors had responded to the liquidator; all responses agreed with MML's records. However, for the reasons outlined by the liquidator he has been unable to confirm the investment. Certainly no funds are held by MML in respect of the investment. It appears to the liquidator that any funds provided have been spent on travel, leases and other expenses in relation to a development that was abandoned. He has concluded that in the circumstances it is appropriate to treat the purported investment as a complete loss and that there is no investment capable of transfer to any person. He makes no other proposal. There is no dispute as to this approach.
Palladian Resources L.C.
No directions are sought in relation to this matter. It concerns an investment, according to MML's records, by way of loans in the sum of $209,013.37 to Palladian by MML in its own right. The directors of MML have informed the liquidator that there is no likelihood of recovery. As MML is the only investor, and no issue arises as to beneficial ownership by an individual investor, no proposal is made.
Pirelli Cables Australia Limited
This matter concerns one investor. The investor and MML's records agree that the 7,480 shares in Pirelli formerly held by MML were held for that investor. The shares were compulsorily acquired in January 2001 and the liquidator holds the proceeds which he proposes to pay to the investor who is identified in Schedule 23. There is no contention as to this proposal.
Rhonda Mining Corporation
During the hearing it was ascertained that this is a Canadian company incorporated in Alberta. It is referred to in the liquidator's affidavit simply as Rhonada Mining, as at that point the liquidator had not ascertained whether it was an Australian or overseas entity, or its proper name.
According to MML's records the investment was 16,590 shares held in MML's name for eight investors. MML was also an investor in its own right for 3,770 shares. Six investors have informed the liquidator that they agreed with MML's records; two have not replied.
The liquidator proposes that the 16,590 shares be transferred to the investors, and in the proportions, identified in Schedule 23. I note that the schedule appears to identify nine investors, rather than eight, but I do not suggest that anything turns on that discrepancy. The liquidator states that the schedule is based on the respective interests of investors stated in MML's records and no dispute is raised.
Sensational Foods Pty Ltd
According to MML's records this investment was of 1,072,830 shares held in MML's name for 72 investors. MML is also identified as an investor in its own right in relation to 145,705 shares.
Three investors have claimed to be entitled to certain shares. According to MML's records these shares were transferred to the investors in 2000, prior to Mr Lofthouse being appointed administrator.
ASIC raised an apparent discrepancy in the number of shares. The explanation is this. The records of ASIC and MML agree that the total number of shares held by MML is 1,072,830. They are A and B class shares. In ASIC's records MML is recorded as holding, beneficially, a total of 145,652 A and B class shares, and, not beneficially, 927,178 B class shares. MML's records do not distinguish between the A and B class shares. On this basis, there seemed to ASIC to be a discrepancy between the number of 1,072,830 shares which the MML records state are held for investors, and the number of 927,178 B class shares which ASIC's records state are not held beneficially by MML.
But there is no discrepancy, as 927,125 shares held non-beneficially is sufficient to satisfy the total entitlement of investors, after excluding the three investors referred to above. That leaves a surplus of 53 of the apparently non-beneficially held shares. If these 53 shares are added to the 145,652 beneficially held shares, the number 145,705 is produced which equates to the number of shares recorded in MML's records as being held by MML in its own right. This explains the discrepancy which seemed to ASIC to arise on its records.
The liquidator proposes to transfer the shares to the investors identified in Schedule 24 in accordance with their entitlements. That includes 145,705 shares to MML's interest. There is no provision for the claims of the three investors referred to. There is no dispute as to this proposed apportionment.
Sons of Gwalia
This concerns an investment of 825 shares held by MML for one investor. No discrepancy having been found, the liquidator proposes to transfer the shares to the investor identified in Schedule 25 who is shown by MML's records as entitled to the shares.
S.P.C. Limited
This investment is of 300 convertible preference shares held for one investor. S.P.C. has confirmed the investment and, no discrepancy existing in or with MML's records, the liquidator proposes to transfer the shares to the investor who is identified in Schedule 26.
Suncorp Metway Limited
This is another investment, of 389 shares, held for one investor. There being no discrepancy in the records, the liquidator proposes to transfer the shares to the investor identified in Schedule 27.
Tailored Plastics Pty Ltd
This company is in liquidation, and there is no apparent prospect of a return to unsecured creditors. That is significant because the investments shown in MML's records were loans in the sum of $98,746.08 held by six investors. The investors agree with the records. The records also identify that MML lent $30,025 in its own right. The liquidator proposes to assign MML's rights and interest in the loans to the six investors identified in Schedule 28.
Tap Oil NL
All records and sources agree that the 3,000 shares in this company are held for two investors to whom the liquidator proposes to transfer the shares as appears in Schedule 30.
Conclusion
There will be a direction that the applicant liquidator may proceed to a final distribution of the assets of MML not beneficially held by the company by making distributions in accordance with the following table. Where reference is made in the table to a schedule, that schedule is the schedule appended to the affidavit sworn by the liquidator on 22 February 2002, and the distribution is to be made to the persons and for the interests identified therein.
Asset
Proposed final distribution
AES Logistics (On Track Transport Pty Ltd)
Schedule 1
Schedule 2
Amrad Corporation Ltd
Schedule 3
Australian International Carbon
Schedule 4
Carter Research & Development
Schedule 5
Covenant Environmental Technologies Inc
Schedule 6
Convertible notes – no distribution
Evolution Adrenalin
Schedule 7
Exprofuels Inc
No distribution
Fraser Range Holdings Ltd
Schedule 8
Greens Foods Ltd
Schedule 9
Harbinger Mining Pty Ltd
Schedule 10
Highlands Pacific Ltd
Schedule 11
Interchem (N.A.) Industries Inc
Schedule 13
Kage Group Ltd (subject to deed of company arrangement)
Schedule 14
Margin Loan assets
In the manner indicated in paragraphs 251, 252 and 253 of the said affidavit, and on the basis that the loan repayment instalment of $50,000 referred to in paragraph 310 of the said affidavit forms part of the Margin Loan assets.
La Telco International Inc
Schedule 15
FX Energy Inc
Schedule 16
Zaxis International Inc
Schedule 17
Progen Industries Ltd
Schedule 18
Mosaic Oil NL
Schedule 19
Nautronix Ltd
Schedule 20
Normandy Mining Ltd
No distribution
Omni Resources Inc
Schedule 21
Palau Investments
No distribution (see paragraph 284 of the said affidavit)
Palladian Resources L.C.
No distribution
Pirelli Cables Australia Ltd
Schedule 22
Rhonda Mining Corporation
Schedule 23
Sensational Foods Pty Ltd
Schedule 24
Sons of Gwalia Ltd
Schedule 25
S.P.C Ltd
Schedule 26
Suncorp Metway Ltd
Schedule 27
Tailored Plastics Pty Ltd
Schedule 28
Tap Oil NL
Schedule 30
The following orders will be made concerning the liquidator’s costs. I will order that the costs and expenses of the liquidator of and incidental to investigating, getting in, safeguarding and distributing the non-beneficially held assets of the company (inclusive of the plaintiff's remuneration as liquidator), together with his costs of and incidental to this application, be paid out of the funds in National Australia Bank account no 479953718 in the name of the company ("the Trust Account") to the extent that the credit balance of the Trust Account so far extends, and that they otherwise be costs and expenses of the winding up of the company. So as to avoid any doubt, the costs of and incidental to this application are to be assessed on an indemnity basis.
The above orders are as stated in a letter from the liquidator's solicitors dated 26 July 2002 which is marked as Exhibit C.
There will be a further order to deal with the matter raised by Ms O'Neill[23] of distributions to the directors of MML and their associates. The liquidator has proposed[24] the following as an appropriate form of order. With a small change, I will make the order. The order is that before the liquidator distributes any funds or transfers any interest in the assets of MML to any of:
[23]See [30].
[24]In a letter from his solicitors provided subsequent to the hearing and which is marked as Exhibit D.
(a)Ruth Dorothy Saunders
(b)Paul Ronan Stanley
(c)Anthony John Frederick Ponting
(d)Craig Jones
(e)Fiona Heather Churcher Jones
(f)Alan Robert Scott
(g)Ian Robert Brown
(h)Conaly Bedell
(i)Paul William Logan
or any entity known by the liquidator to be a related entity of any such person, the liquidator must first give 28 days' written notice of his intention to do so to Therese O'Neill of 2A Sandown Street, Brighton, in the State of Victoria.
I will hear counsel on the matter of Kathroban's costs.
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