Re Ipo Wealth Holdings No 2 Pty Ltd (No 2)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

CORPORATIONS LIST

S ECI 2020 02284

IN THE MATTER OF IPO WEALTH HOLDINGS NO 2 PTY LTD & ORS

BETWEEN:

VASCO TRUSTEES LTD as trustee of the IPO Wealth Fund	Plaintiff
v
IPO WEALTH HOLDINGS NO 2 PTY LTD & ORS	Defendants

---

JUDGE:	Robson J
WHERE HELD:	Melbourne
DATE OF HEARING:	3, 16 and 17 September 2020
DATE OF REASONS:	6 November 2020
CASE MAY BE CITED AS:	Re IPO Wealth Holdings No 2 Pty Ltd (No 2)
MEDIUM NEUTRAL CITATION:	[2020] VSC 733

---

CORPORATIONS – Applications to wind up companies in a managed investment scheme – Under scheme investors acquired units in a trust fund and that fund was lent to companies managed by an investment manager – Unitholders were promised a fixed return much like a deposit account – Scheme not required to be registered under the Corporations Act2001 (Cth) – Application by the trustee and provisional liquidators of the companies for winding up of the borrowing companies on grounds of insolvency and the just and equitable ground – Provisional liquidators previously appointed to the companies – Findings that companies were badly and irresponsibly managed – Finding that borrower of investment moneys was insolvent – Finding that it was just and equitable to wind up the companies – Orders made to wind up the companies – Consideration of whether receivers should be appointed over trust fund to wind up the fund.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J L Evans QC and Ms C G Rome-Sievers	Madgwicks Lawyers
For the Defendants	Mr M J Galvin QC and Ms N L Papaleo	Thomson Geer
For the Contradictors	Mr S J Maiden QC and Ms F J Hudgson	Altus Lawyers
For ASIC	Dr J P Moore QC with Ms C van Proctor	ASIC
For James Mawhinney	In person

TABLE OF CONTENTS

Introduction.......................................................................................................................... 1
Mismanagement of the funds............................................................................................ 2
The applications................................................................................................................... 2
The IPO Wealth scheme...................................................................................................... 2
The structure of the scheme............................................................................................... 3
Background to the present applications........................................................................... 9
The reports of the provisional liquidators..................................................................... 12
The prospects of the scheme and the interests of unitholders.................................... 13
Relevant principles as to winding up............................................................................. 15
Solvency of the Borrower................................................................................................. 17
Solvency of the SPVs......................................................................................................... 17
Accounting irregularities.................................................................................................. 18
Difficulties valuing assets................................................................................................. 20
Improper capitalisation of expenses............................................................................... 23
Concerns as to sustainability of the scheme.................................................................. 26
Accloud PLC transaction.................................................................................................. 27
Paymate India transaction................................................................................................ 29
Loan to 101 Investments Ltd............................................................................................ 30
Loan to Mayfair 101 Ltd................................................................................................... 31
Isola San Spirito transaction............................................................................................. 31
Lack of security for scheme assets.................................................................................. 32
Submissions of the contradictors.................................................................................... 33
Role of the contradictors................................................................................................... 33
The process of the contradictors...................................................................................... 34
The Mayfair proposal........................................................................................................ 35
Replacement of the Trustee.............................................................................................. 36
Implementing the Mayfair proposal............................................................................... 37
Governance......................................................................................................................... 38
Assets available in liquidation and the alternative proposal...................................... 39
Respective merits of liquidation and the alternative proposal................................... 40
Mr Mawhinney’s investment acumen............................................................................ 42
Conclusion of the contradictors....................................................................................... 44
Conclusion.......................................................................................................................... 46

HIS HONOUR:

Introduction

IPO Wealth is a managed investment scheme. Under the scheme, investors acquired units in the IPO Wealth Fund (the Fund), a unit trust of which Vasco Trustees Ltd (the Trustee) is the trustee. The investors were to receive payments in the nature of interest and be able to withdraw their investment upon the completion of the agreed term. The Fund was marketed as an alternative to a bank deposit. It was only open to investors who were characterised as wholesale investors. The scheme was not required to be registered under the Corporations Act 2001 (Cth). In reality, many investors were unsophisticated and invested superannuation and retirement funds.

Some 180 unitholders invested some $80 million in units issued by the Trustee. These trust moneys were then lent by the Trustee to IPO Wealth Holdings Pty Ltd (the Borrower), a company controlled by Mr James Mawhinney. The Borrower then applied the bulk of the trust moneys to purchase investments held in sixteen companies owned by the Borrower, similarly named but differentiated as IPO Wealth Holdings No 2 through to No 17, and referred to as SPV 2, SPV 3 etc (the SPVs). The Borrower and the SPVs invested the trust money in a range of investments chosen by the investment manager of the Fund, which was IPO Wealth Pty Ltd, a company controlled by Mr Mawhinney (the Investment Manager).

The scheme was the brainchild of Mr Mawhinney and was one of several schemes he has in what he grandiosely calls the Mayfair 101 Group. The scheme has failed. The money has been lent and invested in poor investments. The Trustee has called up the trust moneys loaned to the Borrower. The Borrower has failed to repay the moneys due. The Borrower is insolvent. The unitholders stand to lose a great deal of money. On 17 September 2020, I ordered that the Borrower and the sixteen SPVs be wound up and I delivered preliminary reasons for my decision. I reserved the delivery of full reasons. I now do so.

Mismanagement of the funds

The mismanagement of the funds invested was extensive. The conduct engaged in by Mr Mawhinney in managing the investments was irresponsible and primarily driven for his own benefit at the expense of the unitholders. It is important to the unitholders, and to regulators and others interested in maintaining a fair and properly supervised investment market, that I explain in some detail the misconduct engaged in by Mr Mawhinney which justified the winding up of the companies, and the disastrous effects of his misconduct on the unitholders in this scheme. Hopefully, this catastrophe can be prevented from happening again with better regulation of managed investment schemes that are not required to be registered. Without purporting to address the regulation that should be considered, the defects in this scheme suggest that they should be supervised by a regulator to ensure proper accounts are kept and audited and that the trustee is provided with proper valuations of the scheme investments and with proper reports of the scheme’s performance.

The applications

At the hearing, I heard and determined applications by the Trustee and the provisional liquidators of the IPO Wealth Group companies, Messrs Hamish MacKinnon and Nicholas Giasoumi, for the winding up of the IPO Wealth Group companies on the ground of insolvency and on the just and equitable ground. The IPO Wealth Group comprises the Borrower and the SPVs.

The IPO Wealth scheme

The Fund was promoted by Mr Mawhinney. It was extensively advertised and potential investors were provided with an information memorandum. Investors nominated the ‘target income return’ they would seek to achieve from a range of investment options. These were fixed returns. The target income varied according to the term of the investment. The greater the target return, the longer the funds had to be invested, although the Trustee retained a right to refuse withdrawal. Investors were informed they could expect to receive regular income payments generated through investment of the trust moneys. There was a maximum an investor could earn but not a minimum amount. No income was guaranteed.

The Trustee held the Fund and appointed the Investment Manager to select investments to be made with the trust moneys. At the Investment Manager’s direction, the Trustee lent the entirety of the trust moneys to the Borrower. This loan is the sole investment of the Fund. Both the Investment Manager and the Borrower are wholly owned by Online Investments Pty Ltd, a company which in turn is wholly owned by Mr Mawhinney. Mr Mawhinney was the guiding mind of the Investment Manager and the Borrower.

The Borrower advanced the loan moneys to the SPVs. The Borrower held all the shares in each of the SPVs. Each SPV invested the loan moneys in a particular asset, although the Borrower ultimately held some scheme assets directly. In practice, Mr Mawhinney assumed responsibility for making and managing the investments made by the Borrower and the SPVs. In general, the scheme funds were invested in private equity investments. Investments were not made in listed equities or liquid investments.

The Trustee remains as trustee of the Fund. The Trustee has agreed to wind up the trust fund, and has taken the necessary steps to set in train the winding up of the Fund. I will deal later with the suggestion by ASIC that I appoint a receiver and manager to the Fund, and effectively remove the Trustee from managing and winding up the Fund.

The structure of the scheme

By a constitution dated 17 March 2017 (the constitution), the Trustee declared the IPO Wealth Fund unit trust.

The constitution contemplated that the Fund may or may not form part of a managed investment scheme under Chapter 5C of the Corporations Act. The scheme was not registered, and was not required to be. The constitution provided that in the event of registration, the Trustee was to be the responsible entity.

The constitution provided for units in the Fund to be managed as follows. The Trustee had the power to offer units in the Fund to investors for subscription or sale. Unitholders could make a request to withdraw their funds to realise a specified amount. Where the Fund was not a registered scheme, the Trustee had an absolute discretion to deny withdrawal of units from the Fund. If approved, a withdrawal would render the withdrawing unitholder a creditor of the Fund.

The constitution also afforded the unitholders certain powers. The Trustee could convene a meeting of unitholders, at which the unitholders could vote to, among other things, retire the Trustee in certain circumstances, and to amend the constitution.

The constitution provided that the purpose of the Fund was the acquiring and holding of investments, to be selected by an investment manager in accordance with parameters which were set out in the ‘offer documents’. ‘Offer documents’ was defined to mean any document offering an interest in the Fund. As it was, the investment manager nominated was IPO Wealth Pty Ltd. By an investment management agreement dated 23 March 2017, the Trustee appointed IPO Wealth Pty Ltd as investment manager.

The constitution did not define the term ‘investment manager’. It did not specify remuneration for any investment manager appointed.

The constitution also provided for the payment of certain expenses out of the Fund. The Trustee was given the power to pay out of the Fund the fees and expenses payable to any investment manager, as well as the costs and expenses incurred in the establishment and initial promotion of the Fund. The Investment Manager was also given a right of indemnity out of the trust assets in respect of any ‘indemnified matter’, a term defined to include all expenses, liabilities, costs and any other matters in connection with the Fund.

Taken alone, the constitution of the Fund provided little insight into the ultimate form the scheme would take. The details of the scheme were given in an information memorandum, which constituted an offer document, as referred to above. Several information memorandums were produced throughout the life of the scheme.

The information memorandums provided that the scheme was only open to ‘qualifying investors’, which included investors who invested $500,000 or more, or who had at least $2.5 million in net assets, or an average income of at least $250,000 over two years.

The information memorandums dated 27 March 2017 and 8 May 2017 each identified the ‘investment objective’ of the scheme as providing investors with an attractive target income return by investing in a range of corporate finance transactions. They stated that the investments were expected to include debt finance investments, equity investments, being the purchase of shares in companies, and may include asset purchases. The information memorandums noted that these investments would be in ‘some instances’ investments in related parties of the Investment Manager.

A later information memorandum dated 18 December 2017 provided that the Fund moneys will be loaned to entities related to the Investment Manager. The most recent information memorandum placed in evidence, dated 1 March 2019, stated that the investment strategy of the Fund was to lend funds to the Borrower or related entities, who would then invest in what are described as ‘underlying assets’.

The provisional liquidators have not been able to identify any asset purchases. All investments appear to be debt finance or equity finance. The information memorandum said that a security interest would likely be taken subject to negotiation with the investee company. As discussed below, the provisional liquidators have found that the practice of Mr Mawhinney was not to take security, and that where security was taken, it was not registered as it should have been by Mr Mawhinney.

Under the heading ‘Provision of debt finance’ the March 2017 memorandum said that the Investment Manager had access to corporations in Australia, Asia and abroad seeking debt financing for their business activities. It was said that these corporations were typically experiencing a period of high growth, needed capital to fund their expansion plans, and had already exhausted traditional funding sources such as banks. The memorandum said that the Fund would provide debt finance (loans) to these corporations subject to fulfilling the Investment Manager’s due diligence requirements. A rate of return of 15% per annum and above was said to be expected to be charged for this form of finance to support the target income returns to unitholders.

The March 2017 information memorandum stated that the debt financing transactions provided the Fund with regular liquidity events due to the fast turnaround of these investments, plus the ability to generate monthly cash flow when interest payments were required at regular intervals. The provisional liquidators found, however, that a feature of the investments actually made were that they tended to be illiquid and long-term investments, contrary to what was foreshadowed in the information memorandum provided to investors. The provisional liquidators found that generally no, or occasionally very limited, interest payments were made on loans. This was largely due to the fact that the companies who were borrowers did not have the capacity to repay the money or even make interest payments.

By a loan facility agreement dated 21 April 2017, the trust moneys were lent to the Borrower at an interest rate of 10% per annum, calculated and accruing daily and payable monthly. The loan facility agreement was executed alongside a general security agreement also dated 21 April 2017, which gave the Trustee a general security over the assets of the Borrower, which included the shares held by the Borrower in the SPVs. As mentioned above, this secured loan was the sole investment held by the Fund. The Trustee held no security over the assets acquired by the SPVs with the unitholders’ funds. The loan does not provide the Trustee with any interests in the profits of investments subsequently made with the loan moneys.

The Borrower went on to advance the loan moneys to the SPVs. Sixteen substantially identical facility agreements between the Borrower and each of the sixteen SPVs were executed. Each facility agreement was on a 10-year term with interest at 12% per annum. Each facility agreement had a limit of $20 million. Interest payments were to be made annually. Events of default were defined but there was no provision as to what was to happen in the event of default. The loan agreements provided that repayment of the loans could be made by the borrower entity issuing shares in itself. This is an extraordinary provision, as it essentially meant the loans did not have to be repaid. Issuing further shares to the Borrower would be of little use as the Borrower already owned 100% of the SPVs. Mr Mawhinney contended that the moneys advanced to the SPVs were not loans but was consideration for new shares in the SPVs. The provisional liquidators contended that as the SPVs were already wholly owned by the Borrower, purchasing shares in the SPVs would have been of no benefit to the Borrower.

In any event, as mentioned above, the provisional liquidators have found executed loan agreements between the Borrower and each of the SPVs. These were executed by Mr Mawhinney as both a director of the Borrower and the relevant SPV.

Mr Mawhinney claimed the loan agreements were never acted upon, and all the investments were equity. The provisional liquidators have not been able to find any documents to support this contention by Mr Mawhinney. Also, there is no evidence of any dividends being declared by the SPVs to enable income to be distributed to their investors. During Mr Mawhinney’s public examination, in view of his claim that no loans were made, he was asked why the loan agreements were executed by him. He answered that he could not recall. Mr Mawhinney said that the loan agreements may have been entered into as the money had been lent, but that was not how they were subsequently treated. Mr Mawhinney was the sole director of all the IPO Wealth Group companies. In substance, he said that although they were originally recorded as loans and supported by formal loan documents, he subsequently decided that they were not loans but the purchase of shares in the SPVs.

Ultimately, Mr Mawhinney said that he entered into the loan agreements so that if they should need to treat any of the money as having been lent, they could rely on the loan documents. The provisional liquidators said that, according to Mr Mawhinney, the loan agreements were merely a matter of convenience and he could call them loans if it became convenient to do so for some reason, or, as happened in his examination, it suited him to call them equity investments.

Under the constitution, the Trustee was given wide powers to carry out business anywhere in the world with the funds received from the unitholders. The Trustee was given the power to advance and lend moneys to any persons; to apply for listing of the Fund on any stock exchange; to invest in any form of investment in any region or market; to share risk and returns with any other person or trust; and to appoint any person as its delegate to perform any act, carry out any obligation, or exercise any power that the Trustee might make under the constitution. As it was, the only investment made by the Trustee was to lend the whole of the trust moneys to the Borrower. Accordingly, the Trustee had no power to select, vet, approve or disapprove of any of the investments ultimately made with the trust moneys.

The sole asset of the Fund valued under a provision of the constitution was the loan to the Borrower. The constitution did not provide for valuation and reporting obligations in relation to the assets of the Borrower and the SPVs. Some valuation and reporting obligations to the Trustee were placed on the Investment Manager and the Borrower under the terms of the loan agreement, the general security agreement, and the investment management agreement. Whether by convention or under these agreements, an arrangement was reached where the Trustee received regular ‘asset summaries’.

As mentioned above, Online Investments Pty Ltd, one of Mr Mawhinney’s companies, was the sole shareholder of the Borrower, and the Borrower owned all the shares issued by the SPVs. This was a key feature of the scheme, so far as Mr Mawhinney was concerned. Any surplus profit made by the SPVs over the obligations of the Borrower to pay interest for unitholders and to repay withdrawn funds for unitholders would accrue to Mr Mawhinney. On the other hand, if there was any deficiency in interest payments or the repayment of unitholders, Mr Mawhinney would not be liable to make up any deficiency. As will be discussed below, this may explain the extraordinarily risky investments chosen by Mr Mawhinney. If they came off, he stood to make a good deal of money from the use of the unitholders’ moneys. On the other hand, if the investment did not come off, he was not exposed to any loss personally. Tails he wins, heads unitholders lose.

Background to the present applications

In April 2020, the Trustee received a report from the Borrower that showed a drop in the value of certain scheme assets. In particular, substantial devaluations were reported for two assets of the scheme: an investment in Accloud PLC (Accloud) and one of three investments in Paymate India. The Trustee requested an explanation for the drop in value. Mr Mawhinney’s response did not reassure them. Subsequently, in May 2020, the Borrower defaulted on an interest payment due to the Trustee under the loan. Discussions between the Trustee and the Borrower were fruitless. Accordingly, on 22 May 2020, the Trustee exercised its right under the general security agreement to appoint Messrs Hamish MacKinnon and Nicholas Giasoumi, registered liquidators practising as Dye & Co Pty Ltd, as receivers and managers over the property and assets of the Borrower.

The Trustee also applied to this court under s 37(1) of the Supreme Court Act 1986 (Vic) for receivers and managers to be appointed over the assets and undertaking of each of the SPVs. On 22 May 2020, I appointed Messrs MacKinnon and Giasoumi as receivers and managers over the property and assets of each of the SPVs and ordered that the books and records of the SPVs be delivered up to the receivers and managers. I ordered that the receivers report to the court by 28 May 2020 on the concerns raised by the Trustee.

On 29 May 2020, the matter came back before me. On that day, I received into evidence a report of Messrs MacKinnon and Giasoumi on the affairs of the SPVs prepared pursuant to my order of 22 May 2020. I also heard submissions from unitholders. While I did not treat those submissions as evidence, they gave the unitholders the opportunity to have their say.

On 29 May 2020, I also joined Mr Mawhinney as a party in this matter, with a view to ensuring that a contradictor was present to oppose the applications. At that time, Mr Mawhinney was represented by counsel.

Subsequent to the hearing before me, by an interlocutory process dated 29 May 2020, the Trustee sought that the Borrower be joined as 17^th defendant to the proceedings. The Trustee also sought an order that the Borrower be wound up on the just and equitable ground, and that Messrs MacKinnon and Giasoumi be appointed jointly and severally as provisional liquidators of the Borrower.

Also subsequent to the hearing before me, by an interlocutory process dated 29 May 2020, Messrs MacKinnon and Giasoumi, as receivers and managers of the SPVs, sought an order that each of the SPVs be wound up on the just and equitable ground, and that they be appointed jointly and severally as provisional liquidators of the SPVs.

On 22 June 2020, the Borrower’s sole shareholder, Online Investments Pty Ltd, appointed Barry Wight, Rachel Burdett and Darryl Kirk of Cor Cordis as voluntary administrators of the Borrower.

On 23 June 2020, the court received a second report from Messrs MacKinnon and Giasoumi on the affairs of the Borrower and the SPVs.

On 29 and 30 June 2020, I heard the applications for the appointment of provisional liquidators of the Borrower and the SPVs. At this hearing, Mr Mawhinney was represented by counsel, who opposed the applications.

At the conclusion of the hearing, I delivered short oral reasons and reserved giving fuller reasons. I ordered that Messrs MacKinnon and Giasoumi be appointed as provisional liquidators of the Borrower and the SPVs, pending the hearing of the winding up applications. I granted leave pursuant to s 532(2) of the Corporations Act to allow Messrs MacKinnon and Giasoumi to consent to act as provisional liquidators of both the Borrower and the SPVs. I also ordered that the voluntary administration of the Borrower thereby end, and that the Borrower be joined as 17^th defendant to this proceeding. My reasons for doing so were published on 9 September 2020 in Re IPO Wealth Holdings No 2 Pty Ltd.[1]
[1][2020] VSC 549.

On 21 July 2020, Messrs MacKinnon and Giasoumi, now provisional liquidators of the Borrower and the SPVs, applied for a public examination of Mr Mawhinney. A public examination of Mr Mawhinney took place on 17, 19, and 20 August 2020.

On 27 August 2020, the provisional liquidators produced a third report on the affairs of the Borrower and the SPVs.

On 31 August 2020, the matter came back before me for directions. I fixed hearing of the winding up applications for 3 September 2020. At this directions hearing, Mr Mawhinney was self-represented.

At the hearing, the court was informed that Mr Mawhinney was canvassing votes from unitholders with a view to replacing the Trustee and rearranging the assets and structure of the scheme. The results of Mr Mawhinney’s canvassing indicated significant concern among unitholders as to the effect of the winding up, and a desire to explore alternatives to the winding up process.

Prior to the hearing of the winding up applications on 3 September 2020, Mr Mawhinney in his capacity as a party to the proceedings, made written submissions to the court.

At the winding up applications on 3 September 2020, I informed the parties that, in light of unitholders’ concerns, I intended to appoint a contradictor to represent the unitholders’ interests at the winding up applications. I found that Mr Mawhinney would not be an adequate contradictor, especially as he was no longer represented by counsel. I expressed the view that Mr Mawhinney’s interests were not in line with those of the unitholders. I adjourned the hearing of the winding up applications until 16 September 2020, to allow for the contradictor to be appointed and to prepare for the hearing. I asked ASIC, who was represented by counsel before me on 3 September 2020, to nominate three senior counsel who they considered would be appropriate to act as contradictor, which ASIC did. ASIC sought to be excused at this stage from the further hearing of the winding up applications.

On 4 September 2020, I appointed Mr S J Maiden, one of Her Majesty’s counsel, and Ms F J Hudson of counsel as contradictors in this proceeding. On 7 September 2020, I appointed Altus Lawyers as instructing solicitors to assist the contradictors.

By interlocutory process dated 4 September 2020, the Trustee applied for an injunction restraining Mr Mawhinney from communicating with unitholders to garner support for a proposed restructure of the IPO Wealth scheme. On 7 September 2020, I heard the application and granted an interim injunction until the hearing of the winding up applications. In substance, I found that Mr Mawhinney had misused a confidential register of unitholder contact details and made misleading representations to unitholders about the state of affairs of the scheme.

The winding up applications came on for hearing on 16 and 17 September 2020. At the hearing, I received into evidence an electronic court book, a supplementary court book, and a third report of Messrs MacKinnon and Giasoumi as to the affairs of the Borrower and the SPVs. The supplementary court book included the transcript of the public examinations of Mr Mawhinney.

At the hearing, both the Trustee and the provisional liquidators sought leave to amend their pleadings to seek winding up on the ground of insolvency, in addition to the just and equitable ground already pleaded. I granted leave for the amendments to be made.

The reports of the provisional liquidators

As mentioned above, the provisional liquidators have provided three reports to the court. The first two reports were made as receivers and managers, on 28 May 2020 and 23 June 2020. The third report, made as provisional liquidators, was provided to the court on 27 August 2020. The third report was made consequent to the public examination of Mr Mawhinney. The provisional liquidators submitted that the three reports are evidence given by an officer of the company as to the company’s affairs, and in most cases comprise of what was found in the books and records of the relevant companies.

At the hearing, the provisional liquidators relied upon six affidavits of Hamish MacKinnon, as receiver and manager and then provisional liquidator of the IPO Wealth Group companies, sworn on 28 May 2020, 11 June 2020, 19 June 2020, 24 June 2020, 1 September 2020 and 10 September 2020. The provisional liquidators also relied upon the affidavits of Craig Mathew Dunstan, an officer of the Trustee, sworn on 22 May 2020, 29 May 2020, 18 June 2020 and 2 September 2020. They also relied upon an affidavit of Robert John Storai, an accountant acting for a unitholder, sworn 2 September 2020.

The prospects of the scheme and the interests of unitholders

As mentioned above, some $80 million worth of units have been purchased in the Fund. In his affidavit of 2 September 2020, Mr Dunstan deposed that the Fund held cash of $4,310,417.87 in its operations account, and $2,323,414.23 in its capital protection reserve account. The main asset of the Fund was the loan of $79,062,394.02 to the Borrower, under which the Borrower was in default. At the date of the hearing, the provisional liquidators had recovered $751,018.45 from assets of the Borrower and SPVs.

In addition to these assets, the provisional liquidators’ report of 27 August 2020 reported that they had formed a preliminary view that several causes of action may exist as assets of the scheme. Relevantly, these included recovery actions in relation to a loan of some $12 million to 101 Investments Ltd and a loan of $3,266,204 to Mayfair 101 Ltd, both of which are discussed below.

The provisional liquidators also reported that claims may be made against Mr Mawhinney under Part 5.7B of the Corporations Act, which provides for recovering property or compensation for the benefit of creditors of an insolvent company. They also reported that causes of action may exist against Mr Mawhinney for breaches of his directors’ duties and misleading or deceptive conduct, which they reported may be accompanied by applications for pecuniary penalties, relinquishment orders and/or compensation orders pursuant to Part 9.4B of the Corporations Act. However, the provisional liquidators emphasised that they had extensive investigations yet to complete and had not formed a final view as to the claims that might be available to them.

The provisional liquidators reported that it was presently their view that a full return to creditors was unlikely.

The contradictors submitted that the central focus of the court’s inquiry in the winding up applications should be the interests of the unitholders. They submitted that the circumstances of the unitholders greatly varied. Some are substantial investors whose units represent part of a larger portfolio. Some are retirees who invested their life savings in the scheme. Some were reliant on their investments to provide income on which they or loved ones depended for their day-to-day living expenses. The contradictors submitted that the turmoil of the Fund’s collapse has taken a significant emotional and even physical toll on many unitholders.

The contradictors submitted that, from a practical perspective, the only real creditors of the Borrower and the SPVs were the unitholders. They submitted that the Borrower was only insolvent because it owed money to the Trustee, and that the unitholders were beneficiaries on whose behalf the Trustee held the debt. Further, they submitted that if the SPVs were insolvent, they would only be insolvent because they had liabilities to the Borrower to repay moneys that were originally borrowed from the Trustee.

The contradictors submitted that the unitholders had a significant interest in the future of the scheme. The contradictors submitted that many of the unitholders had everything at stake in the scheme, in circumstances where the units in the scheme were marketed as an alternative to term deposits. The contradictors submitted that many unitholders invested in the scheme as they thought their capital was relatively secure and that they could get a higher rate than they would on a bank deposit.

Accordingly, the contradictors submitted that, insofar as the applications rested on the just and equitable ground, it could only be just and equitable to wind up the Borrower and the SPVs if it was in the unitholders’ interests to do so.

With that in mind, I have been asked to consider two proposals for the future of the scheme. The Trustee and the provisional liquidators support the winding up of the scheme. The contradictors have considered alternatives to winding up the scheme, largely as proposed by Mr Mawhinney, as well as the possibility of adjourning the winding up applications to allow further consideration of the alternatives. Ultimately, the contradictors did not oppose the winding up applications, and agreed that the appropriate course was to wind up the Borrower and the SPVs.

Relevant principles as to winding up

Section 461(1)(k) of the Corporations Act provides that the court may order the winding up of a company if the court is of the opinion it is just and equitable that the company be wound up.

The Trustee made the following submissions as to the applicable principles for winding up on the just and equitable ground. These principles were not in dispute:

(1)‘The classes of conduct which justify the winding up of a company on the just and equitable ground are not closed, and each application will depend upon the circumstances of the particular case’.[2]
(2)‘[A] company may be wound up where there is “a justifiable lack of confidence in the conduct and management of the company’s affairs” and thus a risk to the public interest that warrants protection’.[3]
(3)‘[A] lack of confidence may arise where, “after examining the entire conduct of the affairs of the company” the Court cannot have confidence in “the propensity of the controllers to comply with obligations, including the keeping of books, records and documents, and looking after the affairs of the company”’.[4]
(4)‘[A] risk to the public interest may take several forms. For example, a winding-up order may be necessary to ensure investor protection, or where a company has not carried on its business candidly and in a straightforward manner with the public. Alternatively, it might be justified in order to prevent and condemn repeated breaches of the law’.[5] Such an order would also be appropriate where the corporation has acted fraudulently or entered into sham transactions.[6]
(5)‘“[A] stronger case might be required where the company was prosperous, or at least solvent”. Solvency, however, is not a bar to the appointment of liquidators on the just and equitable ground, particularly where there have been serious and ongoing breaches of the Corporations Act.’[7] Indeed a case in which there have been numerous contraventions of the Corporations Act is ‘precisely the situation where a solvent company should be wound up.’[8]

[2]ASIC v ActiveSuper Pty Ltd (in liq) (No 2) (2013) 93 ACSR 189, 194 [19].

[3]Ibid 195 [20], citing Loch v John Blackwood Ltd [1924] AC 783, 788.

[4]ASIC v ActiveSuper Pty Ltd (in liq) (No 2) (2013) 93 ACSR 189, 195 [21], citing Galanopoulos v Moustafa [2010] VSC 380, [32].

[5]Ibid 195 [23] (citations omitted).

[6]ASIC v International Unity Insurance Pty Ltd [2004] FCA 1059, [139].

[7]ASIC v ActiveSuper Pty Ltd (in liq) (No 2) (2013) 93 ACSR 189, 195 [24] citing ASIC v Kingsley Brown Properties Pty Ltd [2005] VSC 506, [96] (citations omitted). See also ASIC v ABC Fund Managers (2001) 39 ACSR 443, 470–472 [124]–[130].

[8]ASIC v Planet Platinum (in prov liq) [2015] VSC 682, [95].

As to winding up on the ground of insolvency, a company is insolvent under s 95A of the Corporations Act where it is unable to pay all of its debts as and when they become due and payable. An insolvent company may be wound up on application by an order of this court under s 459A of the Corporations Act.

The provisional liquidators referred to several matters in support of their applications to wind up the Borrower and the SPVs on the ground of insolvency and on the just and equitable ground. The Trustee largely adopted the provisional liquidators’ submissions.

Solvency of the Borrower

The provisional liquidators submitted that there is no question that the Borrower is insolvent and should be wound up as a result. The evidence establishes that the Borrower had, as at 2 June 2020, a liability to the Trustee for an amount of $79,062,394.02. On 3 June 2020, the Trustee made a formal demand for payment of that debt. The demand was not met by the Borrower nor any explanation given for the non-payment of the debt. Mr Mawhinney does not contest that the amount owing by the Borrower to the Trustee is due and cannot be repaid.

The provisional liquidators contend that the appointment of administrators to the Borrower by Mr Mawhinney on 22 June 2020 establishes that he had formed the view that the Borrower was insolvent.

In their report of 27 August 2020, the provisional liquidators concluded that, based on their investigations of the financial position of the SPVs, the SPVs will not realise sufficient funds from their investments to enable the Borrower to pay back its debt to the Trustee. They reported that ‘observable data’ of credit impairment was present for each of the scheme’s debt investments, and that only one of the equity investments has been returning dividend income.

Solvency of the SPVs

The provisional liquidators concluded from their examination of the financial position of the SPVs that most are insolvent. Many SPVs owe substantial sums to the Borrower and have no readily realisable assets with which to satisfy those debts.

Mr Mawhinney deposed that the relationship between the Borrower and the SPVs is an equity relationship. He deposed that while loan agreements exist between the Borrower and the SPVs, these loans have not been drawn. Mr Mawhinney made similar claims at his public examination. He asserted that the advance of moneys from the Borrower to the SPVs was not lent but was paid for with ‘unissued share capital’.

As discussed above, the provisional liquidators produced loan agreements between the Borrower and each of the SPVs that would have governed all moneys advanced by the Borrower to each of the SPVs. They contend there is no evidence to support Mr Mawhinney’s claim that the moneys advanced by the Borrower to each of the SPVs was anything but a loan. The provisional liquidators said that there was no evidence of any shares being issued in the SPVs in exchange for the moneys advanced.

As the SPVs were already wholly owned by the Borrower, the suggestion that the Borrower would have accepted further shares in the SPVs, when it was obliged to have funds available to repay the Trustee for the moneys advanced by unitholders, is untenable. In any event, the existence of the loan agreements between the Borrower and each of the SPVs satisfies me that the unitholders’ moneys were lent by the Borrower to the SPVs.

The provisional liquidators found that what had been recorded as loans were sought to be treated as equity investments. The provisional liquidators contended that the IPO Wealth Group made a decision to eliminate intercompany loans and record them as equity investments at a time when the liquidity and solvency of the group emerged as a concern. The provisional liquidators submitted that Mr Mawhinney’s characterisation of the payments as equity investments was made in an attempt to defeat claims that the SPVs are insolvent.

It is not necessary for me to decide whether each of the SPVs was insolvent, as the provisional liquidators contend. They each formed an essential part of the IPO Wealth scheme, which has failed. Investors are unable to withdraw their funds from the Fund. Interest payments have ceased. For the reasons discussed below, I find that the Borrower and each of the SPVs should be wound up on the just and equitable ground.

Accounting irregularities

The provisional liquidators found that the accounts of the Borrower and the SPVs kept by Mr Mawhinney did not correctly record and explain their transactions and financial position and performance, and did not enable true and fair financial statements to be prepared and audited within the meaning of s 286 of the Corporations Act.

As discussed in Re IPO Wealth Holdings No 2 Pty Ltd,[9] some of the SPVs’ accounts include unissued shares as an asset of the Borrower. Treating unissued shares as an asset of the relevant company is a concept unknown to accounting. Unissued shares cannot constitute an asset of the company. Only issued shares can be accounted for as part of shareholders’ funds, and if issued, should be matched by a corresponding increase in assets or a reduction in liabilities.
[9][2020] VSC 549, [68].

On 1 June 2020, the Pinnacle Advisory Group Pty Ltd (Pinnacle Group) ceased acting as accountants for the IPO Wealth Group. They were not replaced by any other accountants. Thus from 1 June 2020, the accounts were not kept by qualified accountants. At his public examination, Mr Mawhinney sought to blame his former accountants for some of the deficiencies in the accounts. He gave evidence that, in some instances, journal entries were made by Pinnacle Group without his instruction. The Pinnacle Group did not appear in the matters before me. I make no findings on the Pinnacle Group’s conduct.

The provisional liquidators found that the accounts of the Borrower and the SPVs for the financial years ended 30 June 2018, 2019 and 2020 had not been completed and remained in draft form. As such, they had not been audited.

Mr Mawhinney gave evidence at his public examination that the Borrower and the SPVs largely operated from one bank account. According to the provisional liquidators, many of the SPVs did not have their own bank accounts. Accordingly, the provisional liquidators found that they could not identify transactions between the Borrower and the SPVs by reference to bank statements. The transactions would be effected by mere book entries, if at all.

Mr Mawhinney deposed that the primary accounting document for the Borrower and the SPVs was a quarterly investment portfolio summary, also known as an asset summary, which is an Excel spreadsheet. The spreadsheet purported to record asset values of the assets held by the Borrower and the SPVs. The provisional liquidators found that the values recorded were without foundation or were misleading, and that the values were unsupported by working papers or source material.

Of course, a spreadsheet setting out asset values does not provide any information as to the income, if any, being generated by these investments. As mentioned above, the IPO Wealth Group had lost its accountants. The provisional liquidators were not able to identify what funds were received from investments or which investments could have been used to facilitate payments of interest to unitholders. As mentioned above, there was generally only one bank account kept for the group and the provisional liquidators have been unable to find any accounting records that identify the transactions made by each of the SPVs through the common bank account.

The provisional liquidators found that documentation recording the acquisition of investments by the companies was inadequate. Further they found that documents purportedly recording ownership of shares in companies did not reconcile with the share registers of those companies. The provisional liquidators found that records kept by the Borrower and the SPVs did not record whether convertible notes held as investments had or had not been converted to equity. They found a lack of up-to-date information regarding a number of investments, and a lack of consistent information as to when investments were actually made.

Difficulties valuing assets

The provisional liquidators found several instances where the valuation placed by Mr Mawhinney on scheme assets was inaccurate or unreliable. The provisional liquidators found that there was no readily ascertainable market value for many scheme assets, unless the assets were offered for sale. Many of the scheme shareholdings are not listed or traded in an active market and are therefore difficult to value.

Mr Mawhinney prepared a Report on Company Activities and Property (ROCAP) for the Borrower, which claimed $21,255.73 was owed by the Borrower to Australian Income Solutions. Investigations by the provisional liquidators have ascertained that a liability of $284,011 is in fact owed by Australian Income Solutions to the Borrower, for which a demand has been made by the provisional liquidators. The provisional liquidators reported that no response to that demand has been made.

Mr Mawhinney declared in the ROCAP for the Borrower that it held an investment in TF Global Markets (Aust) Pty Ltd worth $1,624,295. Mr Mawhinney, however, gave evidence at his public examination that at the time of declaring the ROCAP, he had already entered into an agreement to redeem those shares for $800,000. Evidently, the $800,000 cost price of the asset is less than half of the value of the shares as claimed in the ROCAP. The provisional liquidators reported that interim dividends of $28,322 were received from these shares.

Mr Mawhinney reported in the ROCAP for the Borrower that it held an investment in Paymate India valued at $6,633,813. The company is not listed. When asked in his public examination how he reached valuations for unlisted equity investments, Mr Mawhinney gave a variety of answers, claiming that in many cases the valuation is based on his knowledge of the last price paid for the shares. In the case of Paymate India, he claimed it was soon to be listed. It remains unlisted. The provisional liquidators reported that their attempts to value the Paymate India shares disclosed a loss of 78,550,746 rupees on revenues of 2,360,062,044 rupees in that company’s most recent financial statements. The provisional liquidators did not submit that this meant the value afforded to the shares was inaccurate, but did give this as an example of the extreme difficulty involved in valuing the assets held by the Borrower and the SPVs.

Mr Mawhinney prepared a ROCAP for SPV 4. Mr Mawhinney gave an estimated asset value of $395,629.26 for the shares held by SPV 4 in ‘Laundromapp Pty Ltd’. The provisional liquidators found that SPV 4 held 1,000,000 shares in the similarly named Laundromapp Holdings Ltd (Laundromapp). At his public examination, Mr Mawhinney said that he believed this valuation was based upon ‘the most recent share prices’ of Laundromapp, and that he recalled receiving an email from Laundromapp advising him of the price of a recent investment. The provisional liquidators reported that Laundromapp advised them that the price for its most recently issued shares, on 9 December 2019, was $0.10c per share. Based on this share value, the value of the 1,000,000 shares held by SPV 4 would be $100,000, not $395,629.35.

Mr Mawhinney prepared a ROCAP for SPV 7. SPV 7 holds an investment in Bright LED Ltd (Bright LED). Mr Mawhinney said in his examination that Bright LED was also known as Bright Innovations. Mr Mawhinney described it as a smart city technology company based out of Haifa in Israel. This asset was valued in the asset summary as $1,106,685. In his ROCAP, Mr Mawhinney valued the asset at $682,039. The provisional liquidators tendered an agreement between Bright LED and SPV 7 providing for the issue of convertible notes reflecting a $600,000 investment. The provisional liquidators reported that an additional $82,039.52 had been added to this value by Mr Mawhinney in capitalised expenses. The provisional liquidators reported that Bright LED has been totally unresponsive to correspondence sent by the provisional liquidators to date and the company is not paying interest under the agreement. Mr Mawhinney acknowledged in his public examination that he was not in a position to value the assets held in Bright LED. He also acknowledged that as the company was not paying interest, there was potentially reason to suspect it may not be able to pay its debts. The provisional liquidators are concerned that Bright LED may not be able to repay the loan or current outstanding interest.

Mr Mawhinney declared in a ROCAP for SPV 11 that it held 7,959,380 shares in Liven Pty Ltd (Liven), with an estimated asset value of $5,200,015. The provisional liquidators reported that on 24 June 2020 the CEO of Liven, Mr William Wong, informed them that SPV 11 holds 131,560 ordinary shares, for which the Borrower paid $525,000. Mr Wong also informed the provisional liquidators that SPV 11 holds a $2.5 million convertible note, which the provisional liquidators estimate would convert to 591,000 Class A preferential shares. The provisional liquidators have not yet been able to determine the reason for the discrepancy between the number of shares declared by Mr Mawhinney in the ROCAP and the number of shares referred to by Mr Wong.

Mr Mawhinney reported in a ROCAP for SPV 15 that it held $2,062,500 in equity in Adbit Pty Ltd (Adbit). The provisional liquidators reported that an ASIC search did not disclose any interest held by SPV 15 in Adbit. The provisional liquidators reported that Adbit is unlisted and that the investment is illiquid.

Mr Mawhinney declared in the ROCAP for SPV 15 that it also held a $1,491,258.51 debt in Adbit. At his public examination, Mr Mawhinney gave evidence that $700,000 was advanced to Adbit, with a repayable amount of two times face value. A draft binding term sheet between SPV 15 and Adbit, as well as another entity, Green Horse (Aust) Pty Ltd, was put in evidence. That term sheet provided for $1,000,000 to be paid to Adbit in three tranches. The provisional liquidators reported that $700,000 appears to have been advanced to Adbit under that term sheet. The provisional liquidators reported that on 3 August 2020 the solicitors for Adbit wrote to the provisional liquidators advising that their ‘preliminary view is that the $700K advance from IPO is not repayable.’ The provisional liquidators are concerned that Adbit will not repay the debt.

The examination of the above SPVs is not intended to fully deal with the reports on the SPVs made by the provisional liquidators but is intended to indicate the type of problems and inconsistencies that the provisional liquidators found in the accounts and affairs of the SPVs.

Improper capitalisation of expenses

The provisional liquidators found that expenses have been wrongly capitalised to inflate the value of scheme assets. The provisional liquidators referred to a document of the Borrower from February 2019 titled ‘IPO Wealth Holdings and related entities: Investment expenses allocation policy.’ Relevantly, this policy provided that

Investment Expenses are incurred by related parties to grow the value of each SPV investment. The expenses are allocated by Eleuthera back to each SPV in a way that fairly represents the proportion of time and effort applied to each investment in growing its value. As such the Borrower has determined that the most appropriate method for the allocation of the expenses incurred is as a % of total value based on the latest fair value of each investment. Fair value estimations are undertaken quarterly and these values form the basis of the monthly allocation.

Eleuthera Group Pty Ltd (Eleuthera) is a treasury entity for the Mayfair 101 Group. It is not part of the IPO Wealth Group.

The investment expenses allocation policy also provided that

The Borrower may elect to allocate expenses to specific SPV's [sic] if it considers a specific allocation is required in order to more accurately reflect the true expenses associated with a specific investment. This may be beneficial to enable the Borrower to more accurately measure the return on investment achieved across the portfolio.

As regards the references to ‘fair value estimations’ of investments in the investment expenses allocation policy, the provisional liquidators found that it is not apparent how valuations of assets were reached in circumstances where many assets have had their value improperly inflated through capitalisation of expenses.

The provisional liquidators submitted that the effect of this policy was that expenses incurred on behalf of the IPO Wealth Group were allocated across the SPVs in proportion to the estimated value of their respective investments. They submitted that where an amount of expenditure had been allocated to a particular SPV, the purported value of its assets in the balance sheet was increased pro tanto.

The provisional liquidators submitted that the investment expenses allocation policy did not explain the basis for the decision to allocate expenses in this way. At the public examination, Mr Mawhinney said that in accordance with the policy, expenses were allocated back to each SPV in a way that fairly represented the portion of time and effort applied to the SPV. He was unable to comment on whether this meant that the value of any expense could be added dollar for dollar to the value of the asset in relation to which the expense was incurred.

The provisional liquidators submitted that expenditure does not necessarily increase the value of an asset, particularly where the expenditure is in the nature of advertising and marketing expenditure and the assets of the company are equity or debt investments. They submitted that the expense allocation policy, as it was put into practice, artificially inflated the value of the investments. I accept this submission. The investment expense allocation policy maintained by Mr Mawhinney contained no logical foundation for increasing the value of investments by expenses that had no effect on the value of the investment.

The provisional liquidators found a particularly egregious instance of the improper capitalisation of expenses in the case of SPV 17. Its sole investment was in M12 Global Ltd (M12 Global). The sole director of M12 Global is Mr Mawhinney.

The accounts of SPV 17 record the total value of the investment in M12 Global as $31,554,782, comprised of, among other things, a drawdown of $40,000, capitalised expenses of $15,588,198, and an upwards revaluation of $13,901,174. The asset summary provided to the Trustee for the quarter ended 31 March 2020 disclosed that the carrying value of the investment was $17,626,000, with a projected value of $34,752,461, based on what was described in the asset summary as ‘Investment contract term (2x investment $)’. The provisional liquidators found no evidence to suggest the investment had doubled in value. Rather, the provisional liquidators found it likely that SPV 17 had spent significant sums on marketing and advertising for the IPO Wealth Group, and that the value of the investment in M12 Global had been artificially inflated through the capitalisation of advertising expenses, on the contention that they had increased the value of the asset.

The provisional liquidators reported that a $100 purchase of flowers, paid for by Eleuthera, was capitalised and added to the value of the assets of SPV 17. In his public examination, Mr Mawhinney confirmed that the $100 spent on flowers would have been added to the value of SPV 17’s assets. He stated that the flowers were likely purchased for the group’s marketing manager as a birthday present. Mr Mawhinney claimed that the capitalisation of the expense represented an application of human capital that created value in SPV 17. I find this claim untenable and indicative of Mr Mawhinney’s ignorance of proper accounting practice.

Concerns as to sustainability of the scheme

The provisional liquidators found it was unclear how the debt to the Trustee was being serviced by the Borrower in circumstances where the assets of the Fund were illiquid and not yielding a steady income. They submitted that the scheme’s dependency on long-term investments to provide short-term returns to unitholders was a fundamental flaw in the scheme, which doomed it to failure. The provisional liquidators submitted that Mr Mawhinney was operating a Ponzi scheme, where new investors’ moneys were being used to redeem old investors’ redemptions, rather than generating investment income to make the payments.

The provisional liquidators referred to R v Lovell,[10] where Chesterman JA held that

a Ponzi scheme [is] a fraudulent investment operation that pays returns to investors from their own money or money paid into the scheme by subsequent investors rather than from any actual profit earned from money invested. The scheme entices new investors by offering returns legitimate investments cannot, returns that [are] both abnormally high and consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever increasing flow of money from subsequent investors to keep the scheme going.[11]

[10][2012] QCA 43.

[11]Ibid [30].

In Finnigan v The Queen,[12] Campbell J held that

In one sense, … a Ponzi scheme consists of “robbing Peter to pay Paul”. But there must be an endless, serial recruitment of Peters, each of whom, if he or she knew the truth, could hope for no better than to take a turn as Paul because the “entitlements” of previous investors must be paid out with the receipts obtained from the new. There is no investment.[13]

Mr Mawhinney accounted for part of the value of the scheme in terms of ‘unissued shares.’ ‘Unissued share capital’ is a concept unknown to accounting. The adoption of this practice seems to display an ignorance of accounting principles, or worse, a means of falsely inflating the value of investments.

Mr Mawhinney has pursued policies which give false and misleading valuations of the assets of the scheme. Significant expenses incurred in advertising and promoting the Fund were treated as an asset and added to the value of investments made by the SPVs. Under accepted accounting principles, they ought to have been treated as operating expenses. It is difficult to conceive how anyone could come to the view that advertising the existence of the Fund could add to the value of individual investments in the Fund.

I am satisfied the books and records of the IPO Wealth Group companies in which the funds have been invested have not been properly kept and are misleading. I do not have confidence that, if control of the companies were returned to Mr Mawhinney, proper accounting obligations would be complied with.

Bearing in mind the state of the accounts, the provisional liquidators have attested to the immense difficulty they face in confirming the value of the assets in the Fund. There may be no buyer for many of the assets held by the Fund.

The investments made by Mr Mawhinney on behalf of the Fund were generally long-term and illiquid. The investments were not of the kind to produce an income stream to enable interest to be paid to unitholders. Rather, the investments were highly speculative and generated no immediate income. In accordance with this, the provisional liquidators suggest that some of the repayments made on the loan to the Trustee were serviced using new investments, rather than income generated from the assets of the Fund. The provisional liquidators described this as the essential characteristic of a Ponzi scheme.

The scheme was not managed in a manner which suggests Mr Mawhinney properly considered the unitholders’ interests. Unitholders’ money was distributed to the SPVs under loan agreements. A remarkable clause in those loan agreements provided that the repayment of the loan could be made by the issue of shares in the borrowing SPV at the election of the borrowing SPV. Further interest payments could also be met by the issue of shares, again at the discretion of the borrowing SPV.

Mr Mawhinney has engaged in transactions with scheme assets which appear to have transferred assets of the Fund to entities related to him, with little to no benefit to the scheme. He has consistently been unable to explain these transactions. After several months, Mr Mawhinney has still not given an adequate reason for backdating the sale of Accloud shares to 101 Investments Ltd, the entity in the British Virgin Islands which he controls. The best excuse Mr Mawhinney could come up with was that his accountant said that the backdating of the sale of the shares to his own company was appropriate. I do not accept that explanation. I am satisfied that Mr Mawhinney provided inconsistent information to the court and the provisional liquidators in relation to the transfer of the Accloud shares.

The Paymate India transaction and the Isola San Spirito transaction are also of concern. I am satisfied that Mr Mawhinney’s governance has seen the transfer of valuable assets out of the IPO Wealth Group to the benefit of himself, without justification.

Mr Mawhinney has also consistently failed to register security interests over assets where it was his duty to do so. I am satisfied that Mr Mawhinney has grossly mismanaged the scheme to the loss and disadvantage of unitholders.

In my view, this conduct epitomises the cavalier way Mr Mawhinney has administered the unitholders’ funds. At the hearing, Mr Maiden informed the court of the sad and tragic circumstances of many unitholders who invested in this fund.

As the sole asset of the Fund was a loan, had the scheme succeeded and any of the investments realised value over the amount due on interest and principal, that value was to be entirely the property of Mr Mawhinney. From the way the scheme was structured, and the type of speculative investments Mr Mawhinney made, one can only draw the conclusion that the scheme was essentially run for the personal benefit of Mr Mawhinney, who was willing to, and did put, the unitholders’ funds at risk in the hope of making a windfall gain for himself.

Contradictors were appointed in the absence of any party opposing the winding up of the companies. The contradictors have consulted widely with unitholders. The contradictors’ thorough submissions were of significant assistance to the court. In particular, the contradictors have considered an alternative proposal to liquidation which has been put forward by Mr Mawhinney.

The contradictors do not submit that the applications for winding up should be adjourned to enable Mr Mawhinney’s proposal to be considered by unitholders. Rather, after examining the proposal, the contradictors formed the view that it was in the best interests of the unitholders that the IPO Wealth Group companies be wound up, as is sought by the provisional liquidators and the Trustee.

In essence, the Mayfair proposal put forward by Mr Mawhinney provides for the assets held by the SPVs to be transferred to a new company, NewCo. NewCo would have two independent directors, although it would be owned and therefore ultimately controlled by Mr Mawhinney. In essence, NewCo would aim to realise the assets transferred to it over a three-year period with the assistance of Mr Mawhinney.

Mr Mawhinney would receive a fee for conducting the realisation process. Mr Mawhinney is also prepared to transfer 5 million of the Accloud shares that were transferred to 101 Investments Ltd to New Co. The provisional liquidators have raised the possibility of recovering those shares through a cause of action under the Corporations Act. Needless to say, such assets that the provisional liquidators may have had in taking proceedings against Mr Mawhinney for wrongful transactions could not be pursued if the Mayfair proposal were undertaken.

The contradictors were asked what benefits the Mawhinney proposal would have over liquidation. The contradictors said that Mr Mawhinney claimed that as he is more familiar with them, having made the investments in the first place, he would be better placed to realise the assets for the best possible price.

I am satisfied that Mr Mawhinney’s proposal would not be in the interests of unitholders. First and foremost, Mr Mawhinney’s observance of the principles of good governance is far from what should be expected of a company director or a company officer. His failure to keep proper accounts, his practice of making loans without security, and his record of transferring scheme assets to his own companies demonstrate that Mr Mawhinney is not a person who should realise the assets of the Fund, or be the director of the relevant companies.

I am therefore not prepared to adjourn the winding up applications to enable Mr Mawhinney to seek to implement the Mayfair proposal.

The contradictors referred me to submissions of ASIC made at the 3 September 2020 hearing, urging that I appoint a receiver to the trust fund in the event of a successful winding up application. However, the Trustee has undertaken to the court that it will implement any necessary steps under the constitution to terminate and wind up the trust fund which, coupled with the liquidations of the Borrower and the SPVS, will allow distributions to be made to the unitholders. I am satisfied with this proposal. Accordingly, I will not appoint receivers over the trust fund.

I am satisfied that the Borrower is insolvent, having defaulted on its debt to the Trustee, and should be wound up accordingly. In light of the above evidence on the managing of the scheme, I am also satisfied that the Borrower should be wound up on the just and equitable ground.

For the reasons above, I ordered that the Borrower and the SPVs be wound up on the just and equitable ground and in the case of the Borrower on the additional ground of insolvency.

The contradictors considered whether the appointment of the same liquidators to all 17 defendant companies might cause conflict, but in the absence of any significant third party creditors in any of the companies, and given the wholly-owned subsidiary structure, they submitted that there is no immediately apparent conflict caused by the proposed group appointment. I accept that submission and I ordered that the provisional liquidators be appointed liquidators to the Borrower and each of the SPVs.

Citations

Re IPO Wealth Holdings No 2 Pty Ltd (No 2) [2020] VSC 733

Most Recent Citation

Cases Citing This Decision

5

Islam v Australian Real Estate Relation Pty Ltd [2023] NSWCA 47

Mawhinney v Australian Securities and Investments Commission [2022] FCAFC 159

Australian Securities and Investments Commission v PE Capital Funds Management Limited (administrators appointed), in the matter of PE Capital Funds Management Limited (administrators appointed) [2022] FCA 76

Cases Cited

1

Statutory Material Cited

0

Re Ipo Wealth Holdings No 2 Pty Ltd [2020] VSC 549

Actions

Download as PDF Download as Word Document

[2020] VSC 733

6 November 2020