Re Environinvest Ltd (No 3) - [2010] VSC 301

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 2384 of 2010

IN THE MATTER OF ENVIRONINVEST LIMITED
(RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION)
ACN 080 743 791

ENVIRONINVEST LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 080 743 791) (IN ITS CAPACITY AS RESPONSIBLE ENTITY OF EACH OF THE MANAGED INVESTMENT SCHEMES LISTED IN SCHEDULE 1)	First Plaintiff
JAMES PATRICK DOWNEY (IN HIS CAPACITY AS SCHEME LIQUIDATOR OF EACH OF THE MANAGED INVESTMENT SCHEMES LISTED IN SCHEDULE 1)	Second Plaintiff
MARKO YURI MISKO & ORS	Defendants

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JUDGE:	JUDD J
WHERE HELD:	Melbourne
DATES OF HEARING:	23 June 2010
DATE OF JUDGMENT:	30 June 2010
CASE MAY BE CITED AS:	Re Environinvest Ltd (No. 3)
MEDIUM NEUTRAL CITATION:	[2010] VSC 301

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COMMERCIAL AND EQUITY – Managed Investment Scheme– Winding up by a person appointed under s 601NF(1) of the Corporations Act 2001 (Cth) – Conflict of duty – Person appointed to wind up the schemes also the liquidator of the responsible entity – Directions in winding up under s 601NF(2) of the Corporations Act.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr S Rubenstein	Norton Rose
For the Defendants	Mr MJ Galvin	Brian Ward & Partners
For the Commonwealth Bank of Australia and the Receivers and Managers of Environinvest Ltd	Mr CT Moller	Minter Ellison
For ABL Nominees Pty Ltd	Dr O Bigos	Gadens Lawyers.

HIS HONOUR:

On 12 February 2009, I delivered judgment on the application by the receivers and managers of Environinvest Ltd for orders to wind up the managed investment schemes known as PYEP, PYEP 7 and PYEP 9. Orders were made directing the Prothonotary to nominate a person, from the role of official liquidators, to be appointed to take responsibility for ensuring that the schemes were wound up. For reasons which are not material to this application, it became apparent that there was great difficulty in finding an appropriate liquidator. At that time, James Patrick Downey was the liquidator of Environinvest. Mr Downey ultimately agreed to accept appointment as the person responsible to wind up the schemes under s 601NF(1) of the Corporations Act 2001 (Cth). He agreed to do so on condition that the Commonwealth Bank, which appointed the receivers and managers, grant to him a partial indemnity for his fees. The bank agreed to that condition.

Mr Downey’s position as liquidator of Environinvest exposed him to the risk that conflicts would arise in connection with his duty to wind up the schemes. Some potential areas of conflict were readily identified. In order to deal with the possible conflict, a committee was established and procedures implemented to ensure that, where necessary, the court would supervise and could approve conduct which might otherwise be inhibited by reason of a real or perceived conflict.

On 11 March 2010 I delivered judgment on the application by Mr Downey, as liquidator of Environinvest, for approval to disclaim certain leases.[1] He submitted that while approval would not ordinarily be required, he…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2010] VSC 301
Decision Date: 30 June 2010

CaseChat Overview and Summary

Environinvest Ltd, a company that operated managed investment schemes, was the subject of winding up proceedings. The liquidator of Environinvest Ltd, who had been appointed under the Corporations Act 2001 (Cth), was also appointed to wind up the managed investment schemes pursuant to s 601NF(1) of the Corporations Act. The dispute centred on whether the liquidator was able to direct the winding up of the managed investment schemes while also acting as liquidator of the responsible entity. The central issue was whether the liquidator could direct the winding up of the schemes under s 601NF(2) of the Corporations Act without breaching their duty to avoid conflicts of interest.

The court examined the statutory framework and found that the Corporations Act did not explicitly prohibit the liquidator from also being appointed to wind up the managed investment schemes. However, the court considered the potential conflict of interest and the principles of equity that apply to such situations. The court held that the liquidator, while acting in their capacity to wind up the schemes, should not be allowed to direct the winding up in a way that could benefit themselves as liquidator of the responsible entity. This would create a conflict of interest, potentially undermining the equitable principle of avoiding conflicts between the roles.

Given the potential for conflict, the court decided that the liquidator was not entitled to direct the winding up of the managed investment schemes. The court's reasoning was grounded in the need to maintain the integrity of the liquidation process and to ensure that the interests of the creditors and other stakeholders were not compromised. The court issued directions to prevent the liquidator from directing the winding up of the managed investment schemes, while still allowing the winding up to proceed in a manner that was fair and equitable to all parties involved.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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