Re Risqy Limited

[2008] QSC 107

SUPREME COURT OF QUEENSLAND

CITATION:

Re: Risqy Limited [2008] QSC 107

PARTIES:

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
(Applicant)
v
Risqy Limited (New Zealand Company Number 1259762)
(First respondent)
and
Leslie George Whitford
(Second respondent)
and
Graham George Lee
(Third respondent)
and
Elizabeth Flora Lacey
(Fourth respondent)

FILE NO/S:

BS 10408 of 2006

DIVISION:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court

DELIVERED ON:

29 February 2008

DELIVERED AT:

Brisbane

HEARING DATE:

29 February 2008

JUDGE:

Daubney J

ORDER:

Declarations and orders in relation to the Scheme

THE COURT DECLARES THAT:

1. In contravention of section 601ED of the Act, the Scheme is a managed investment scheme which is required to be registered under section 601EB of the Act and is not so registered.

THE COURT ORDERS THAT:

2. The Scheme be wound up.
3. William John Fletcher and Katherine Elizabeth Barnet, of Bentleys MRI Brisbane Pty Ltd, Level 26, AMP Place, 10 Eagle Street, Brisbane be appointed joint and several liquidators of the Scheme for the purposes of winding up of the Scheme.

Declarations and orders in relation to the First Respondent

THE COURT DECLARES THAT

4. In contravention of section 601CD of the Act, the First Respondent has carried on business in this jurisdiction without being registered to do so under Part 5B.2 of the Act and without having applied to be so registered.
5. In contravention of section 601ED(5) of the Act, the First Respondent has operated a managed investment scheme that was required to be registered under section 601EB of the Act and was not so registered.
6. The First Respondent is a Part 5.7 body within the meaning of section 583 of the Act.

AND THE COURT ORDERS THAT

7. The First Respondent, RISQY LIMITED New Zealand Company Number 1259762, be wound up.
8. WILLIAM JOHN FLETCHER and Katherine Elizabeth Barnet, of Bentleys MRI Brisbane Pty Ltd, Level 26, AMP Place, 10 Eagle Street, Brisbane, Brisbane be appointed joint and several liquidators of the First Respondent for the purposes of winding up the First Respondent.

Fees

9. An order that the fees of the Liquidators, including any staff of Bentleys MRI who may assist the Liquidators as they see fit, be calculated at an hourly rate by reference to the amounts set out in Schedule A hereto.

Costs

10. The Applicant’s costs of and incidental to this Application be costs in the winding up of the Scheme and of the First Respondent.

CORPORATIONS – MANAGED INVESTMENTS – WHAT CONSTITUTE – GENERALLY – where the first respondent controlled a scheme whereby it received deposits from investors which were then invested at the discretion of the first respondent in foreign exchange trading and futures markets – whether this scheme was a Managed Investment Scheme

CORPORATIONS – MANAGED INVESTMENTS – REGISTRATION OF SCHEME – where pooling and investing of funds occurred outside Australia – whether the first respondent operated a scheme the Corporations Act 2001 required to be registered

CORPORATIONS – MANAGED INVESTMENTS – WINDING UP – where the applicant contends that a scheme conducted by the first respondent was a managed investment scheme that was not appropriately registered under the Corporations Act – whether an order should be made for the winding up of both the scheme and the first respondent

ASIC v Edwards [2004] QSC 344
ASIC v Enterprise Solutions 2000 Pty Ltd [2005] ACSR 620
Luckins v Highway Motel (Canarvon) Pty Ltd (1975) 133 CLR 164

Corporations Act 2001(Cth)
Uniform Civil Procedure Rules 1999 (Qld)

COUNSEL:

GJ Gibson QC with C Conway for the applicant

SOLICITORS:

ASIC in-house solicitor for the applicant
Quinn & Scattini for the fourth and fifth respondent

SUPREME COURT OF QUEENSLAND

CIVIL JURISDICTION

DAUBNEY J

No BS 10408 of 2006

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION	Applicant
and
RISQY LIMITED NEW ZEALAND COMPANY NUMBER 1259762	First Respondent

and

LESLIE GEORGE WHITFORD                Second Respondent

and

GRAHAM GEORGE LEE                    Third Respondent

and

ELIZABETH FLORA LACEY                Fourth Respondent

and

FUN FINANCE PTY LTD ACN 065 603 714    Fifth Respondent

BRISBANE

..DATE 29/02/2008

JUDGMENT

HIS HONOUR:  The first respondent, Risqy Ltd ("Risqy") is a

company incorporated in New Zealand.  The applicant Australian

Securities and Investments Commission contends that a scheme,

to which I will refer in more detail shortly, conducted by

Risqy in 2006 was a managed investment scheme that was

required to be, but was not, registered under the Corporations

Act ("the Act") and that the scheme should, therefore, be

wound up.

ASIC today seeks that winding up order, an order that Risqy be

wound up pursuant to section 583 of the Act, and certain

declaratory relief.

On the material before me, the scheme operated as follows:

(a) from January to November 2006 some 266 investors (whose

identities are disclosed in the material) deposited amounts of

money totalling $14,446,834.19 into Risqy's accounts with the

Bank of New Zealand ("BNZ accounts").

(b) Some of those funds were transferred from Risqy's BNZ

accounts to other accounts including the so-called "OEC

account" (more properly described as an open E'cry account)

which was held in the United States of America.  This was to

enable Risqy to trade in foreign exchange trading and in

futures markets which, it was said by Risqy, would enable

investors to receive a fixed rate of interest on their money

of 4.23 per cent per month.

(c) Investors received a monthly e-mail and spreadsheet from

Risqy's account managers (who are identified in the

material)which purported to inform them of the return earned

by that investor for the previous month.

(d) Risqy applied the funds deposited at its own discretion

(e) no investors were signatories either to the BNZ accounts

or to the OEC account or, for that matter, to any other

accounts operated by Risqy.

The registration of managed investment schemes is regulated by

part 5C.1 of the Act.  The first inquiry obviously is to

determine whether the scheme I have just described was a

managed investment scheme which fell for regulation under that

part.

The term “managed investment scheme” is relevantly defined in

section 9 of the Act to mean a scheme that has the following

features:

"(i) people contribute money or moneys worth as

consideration to acquire rights (interests) to benefits

produced by the scheme (whether the rights are actual,

perspective or contingent and whether they are

enforceable or not);

(ii) any of the contributions are to be pooled or used in

a common enterprise to produce financial benefits or

benefits consisting of rights or interests in property

for the people (the members) who hold interests in the      

scheme (whether as contributors to the scheme or as

people who have acquired interests from holders);

(iii) the members do not have day-to-day control over the

operation of the scheme (whether or not they have the

right to be consulted or to give directions);..."

As to the first of these elements, the evidence is that the

investors contributed money into the scheme by depositing

funds directly into the BNZ accounts as consideration for

acquiring rights to the benefit, or at least the prospective

benefit, of earning interest at the rate of 4.23 per cent per

month compounding.

As to the second element, it is to be noted that the word

"pooled" in this context is given its ordinary meaning and

that it occurs when moneys are paid into or collected in an

account - see ASIC v. Enterprise Solutions 2000 Pty Ltd [2005]

ACSR 620.  The payment of the investor’s money into the BNZ

accounts satisfies that element in this case.

In relation to the third element, I am satisfied that in this

case the evidence is clear that the investors did not have

day-to-day control over the operation of the scheme.  None of

them was a signatory to any of the accounts into which their

funds were deposited. None of them had any input into how the

funds would be invested or utilised.  The material suggests

that the trading on behalf of Risqy was conducted by the

second respondent, Mr Whitford, but it is unnecessary for

present purposes for me to make a concluded finding on that

particular point.

Accordingly, this scheme was a managed investment scheme

within the meaning of that term in the Act.  Section 601 ED

(1)(a) relevantly provides to the effect that a managed

investment scheme must be registered under part 5C.1 of the

Act if it has more than 20 members.  This scheme clearly had

many more than 20 members, but it was not registered.

The fact of non-registration invokes the operation of section

601 ED (5) which provides:

"A person must not operate in this jurisdiction a managed

investment scheme that this section requires to be

registered under section 601 EB unless the scheme is so

registered."

Section 601 EE(1) relevantly provides that if a person

operates a managed investment scheme in contravention of

subsection 601 ED(5), ASIC may apply to have the scheme wound

up. By section 601 EE (2), the Court may make any orders it

considers appropriate for the winding up of the scheme.

The conduct prohibited by section 601 ED(5), which is the

necessary precondition for a winding up application under

section 601 EE, is the operation of the scheme in this

jurisdiction.  No technical gloss needs to be given to the

word "operate" in this context.  It is an ordinary word which

carries its ordinary meaning.  I accept the submission that

this jurisdiction need not be the only jurisdiction in which

the scheme operates.  If the scale and the nature of the

activities conducted by the scheme within this jurisdiction

are such as to lead to the conclusion that it is operating

here, even if it is also operating elsewhere, then it is

caught by section 601 ED(5).  See for comparison ASIC v.

Edwards [2004] QSC 344.

Whilst it is apparent in this case that the actual

pooling of funds and investment of funds occurred outside

Australia, the evidence discloses significant activities of

the scheme undertaken within Australia, namely:

- the introduction of the scheme to persons in Australia

operating bank accounts in Australia,

- the transmission of funds from Australia in Australian

dollars,

- the payment of monies out of the scheme to contributors in

Australia by Australian dollars

- the scheme’s system of "gathering" investors in Australia

- the scheme’s organisation of Australian investors to make

payments to the BNZ accounts in Australian dollars

-the provision of scheme documents to potential investors

in Australia.

These factors collectively are sufficient, in my view, to

lead to the conclusion that this scheme was operating in

Australia.  Absent registration, its operation was prohibited

by section 601ED(5). ASIC is entitled, as it now does, to

apply to wind up the scheme.

Both Risqy and Mr Whitford have been given notice of this

application.  A receiver was appointed to the scheme by order

of this Court made on 29 November 2006.

The receiver has reported that there is a shortfall between

the assets and liabilities of Risqy (which are in truth the

assets and liabilities of the scheme) of nearly AUD $17

million.  There is a fund of some AUD $4.5 million frozen

under the order of 29 November 2006 which is awaiting

disbursement to investors upon a winding up of the scheme. 

There is no good reason not to order the winding up of the  

scheme. On the contrary, there is every reason to do so, at

least to permit the investors to salvage what they can from  

the scheme's wreckage.  I propose ordering that the scheme be

wound up.

The applicant seeks further declaratory relief concerning

Risqy and applies for an order that Risqy be wound up.  The

declarations sought are:

- that in contravention of section 601 CD of the Act, the

first respondent has carried on business in this jurisdiction

without being registered to do so under part 5 B.2 of the Act

and without having applied to be so registered

- that in contravention of section 601 ED (5), the

first respondent has operated a managed investment scheme that

was required to be registered under section 601 EB of the Act

and was not so registered

- that the first respondent is a part 5.7 body within the

meaning of the Act.

The affidavits of service make it clear that both the first

and second respondents have been served with the originating

process. Neither has filed a notice of intention to defend and

both are, therefore, in default under the Rules of Court.

Rule 288 of the Uniform Civil Procedure Rules permits the

applicant to apply in cases of relief such as that claimed for

in these proceedings  for judgment in default and "on the

application the Court may give the judgment it considers is

justified on the pleadings even if the judgment was not

claimed".

The material before me further discloses that:

- the respondents have been properly served with the material

relating to the current application

- the winding up proceedings have been properly advertised as

required by the rules

- a consent to act has been provided by the proposed

liquidators, one of whom is presently the receiver.

The winding up of Risqy is sought pursuant to section 583 of

the Act, which relevantly provides that a "Part 5.7 body" may

be wound up under chapter 5 of the Act (which relates to

external administration) if, inter alia, the Part 5.7 body is

unable to pay its debts or if the Court is of the opinion that

it is just and equitable for the Part 5.7 body to be wound up.

The term "Part 5.7 body" is defined in section 9 of the Act to

be "a registrable body that is a foreign company and:

(i) is registered under Division 2 of Part 5B.2:   or

(ii) is not registered under that division, but carries on

business in Australia".

Risqy was incorporated in New Zealand and is clearly a foreign

company (as that term is defined in section 9).  It was not,

however, registered to carry on business in Australia pursuant

to Division 2 of Part 5 B.2.  In that regard it is to be noted

that section 601 CD(1) provides to the effect that a foreign

company must not carry on business in this jurisdiction unless

it is, or has at least applied to be, registered under Part 5

B.2 Division two.

In order to ascertain whether Risqy is a part 5.7 body under

the second limb of the definition it is, therefore, necessary

to inquire whether it "carried on business in Australia".

Section 21(2) of the Act relevantly provides that carrying on

business in Australia means, inter alia, "administering,

managing or otherwise dealing with properties situated in

Australia...as an agent, legal personal representative or

trustee whether by employees or agents or otherwise".  It is

necessary in this context that the foreign company’s conduct

within the jurisdiction amounts to "a succession of acts

designed to advance some enterprise of the company pursued

with a view to pecuniary gain" - Luckins v.  Highway Motel

(Canarvon) Pty Ltd [1975] 133 CLR 164 at 178.

The evidence to which I have already referred in connection

with the operation of the scheme in Australia by Risqy makes

it equally clear that Risqy was carrying on business in

Australia. As it was not registered pursuant to and under part

5 B.2 division 2, Risqy is a part 5.7 body.

I have already referred to the evidence of insolvency put

before me by the receiver.  It is clear on the material that

Risqy is unable to pay its debts as when they fall due and

payable and that it ought be wound up.  For the reasons that I

have given I also consider it appropriate to make the

declaration sought.

Accordingly, I make the declarations and winding up orders

relating to the scheme and Risqy which are set out in the

draft order which I now initial and place with the papers.

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