ASIC v COMMERCIAL NOMINEES [2002] NSWSC 576 | Case summary

1363/01 - AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v COMMERCIAL NOMINEES OF AUSTRALIA LIMITED AS TRUSTEE FOR CONFIDENS INVESTMENT TRUST JUDGMENT 1 The applicant, Mr Prentice, was, by order made on 12 February 2001, appointed by the court to be the receiver to an unregistered managed investment scheme which the court ordered be wound up pursuant to s.601EE(1) of the Corporations Law. The relevant orders (which operated by reference to a definition of "Deed") were as follows: 1. The managed investment scheme ("the Scheme") operated by the Defendant pursuant to the Deed be wound up pursuant to section 601EE(1) of the Corporations Law . 2. Maxwell William Prentice of Prentice Parbury Barilla, Chartered Accountants, Level 15, 25 Bligh Street, Sydney ("the Receiver") be appointed as Receiver to the Scheme for the purpose of winding up the Scheme." 2 Ancillary orders conferred powers on the receiver, including "all powers necessary for the purpose of winding up the Scheme". 3 In his capacity as receiver so appointed, the applicant now seeks, by Interlocutory Process filed on 24 May 2002, the assistance of the court in determining the correct or appropriate method of distributing among beneficiaries of the trust that is the unregistered managed investment scheme the net cash proceeds resulting from the applicant's exercise of his powers as receiver. The scheme was, in essence, an investment fund designed to meet the investment needs of administrators of superannuation funds. 4 Upon the hearing of the application on 26 June, the applicant was represented by Mr Coles QC and Mr Dowdy of counsel. Mr Turner, solicitor, appeared for ASIC, the applicant for the orders for winding up and for the appointment of the present applicant as receiver. ASIC offered no submissions on the substantive matters the subject of the present application. Mr Kelso, solicitor, appeared for three beneficiaries or investors and made submissions on their behalf as to the appropriate basis for the distribution of assets among beneficiaries. On 27 June, Mr Ha, the principal of one of the superannuation fund investors represented by Mr Kelso, sought leave to make submissions of his own and, there being no objection, I heard those submissions. 5 There was some debate about the nature of and basis for the jurisdiction to be exercised by the court in this case. Three relevant statutory provisions were identified. First, reference was made to s.601EE(2) of the Corporations Act 2001 (Cth) which empowers the court to make "any orders it considers appropriate for the winding up of the scheme", that is, a scheme in respect of which the court makes an order for winding up under s.601EE(1). The jurisdiction conferred by s.601EE(2) is, it was submitted, very broad and sufficient to enable the court to determine the appropriate basis for the distribution of assets among beneficiaries or members of a scheme the subject of an order for winding up under s.601EE(1). 6 The second provision referred to was s.424(1) of the Corporations Act 2001 (Cth) under which a "controller of property of a corporation" may apply to the court for directions in relation to any matter arising in connection with the performance or exercise of any of the controller's functions and powers as controller. A receiver of the property of a corporation is within the definition of "controller" as it applies to the property of a corporation. 7 The third statutory provision to which reference was made is s.63 of the Trustee Act 1925 under which a trustee may apply to the court for its opinion, advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument. 8 The applicant's Interlocutory Process also seeks to invoke the court's inherent equitable jurisdiction. 9 There seems to me to be some difficulty in applying s.424(1) of the Corporations Act in this case. That section is concerned with, among others, a receiver "of property of a corporation". It may not be accurate to regard a person appointed as "Receiver to the Scheme" as within this category. For the moment, it is probably best not to state any concluded view on this question since, for reasons I shall explain, I do not think it necessary to resort to the s.424 jurisdiction. 10 I also entertain a doubt as to the applicability of s.63 of the Trustee Act in this case. A court appointed receiver is not a trustee in the strict sense (Vine v Raleigh (1883) 24 Ch D 238), although, of course, fiduciary duties are owed by such a receiver: Nugent v Nugent [1908] 1 Ch 546. Generally speaking, the defined term "trustee" in the Trustee Act refers to "a trustee as known to the law" and does not extend to a fiduciary not within that category: Metcalf v Permanent Building Society (1993) 10 WAR 145. I therefore prefer to look beyond s.63 of the Trustee Act for a source of relevant jurisdiction in this case. 11 The court's general equitable jurisdiction is, I think, a much clearer source of power for the court to give its opinion, advice or direction to a receiver it has appointed. Such a receiver is an officer of the court and, as such, may resort to the court for necessary guidance. An interesting and informative discussion of this aspect of equitable jurisdiction may be found in the judgment of Young J (as his Honour then was) in Glazier Holdings Pty Ltd v Australian Men's Health Pty Ltd (unreported, NSWSC, 30 April 1998) which concerned an application for judicial advice by a person appointed by the court as "Receiver without security of the Australian Men's Health Unit Trust, with powers to investigate the existence of, get in and convert to money the assets of the Trust and pay those moneys into Court". In that case, it was confirmed that there is a jurisdiction to give judicial advice to such a receiver, although the applicable principles are not necessarily in all respects the same as those which apply in the more commonly encountered cases of judicial advice to trustees and directions to liquidators. The following passage in the judgment of Young J is pertinent: "I said in Moclair v Moclair , 18 December 1986, unreported, following Re St George (1887) 19 LR Ir 566, that receivers are officers of the court and they should resort to the court for guidance when they think it is desirable to do so. I stand by what I there said, but I think it should be appreciated that there is a difference between a liquidator, who is doing the work that last century the court did itself in the Master's Office, or even with a trustee, in that those people have unlimited functions, whereas a receiver has a very limited and usually relatively mechanical function. Instead of making a broad statement that receivers may always seek the opinion of the court, it would be better to put the proposition more narrowly, that if a receiver within his own limitations requires the guidance of the court, then normally he should have it. Accordingly, I do not consider that many of the cases dealing with the sort of advice that is given to trustees, on the one hand, or liquidators, on the other hand, necessarily apply in the case of applications by receivers to get advice." 12 In relation to s.601EE(2) of the Corporations Act, I accept that the powers conferred upon the court are very broad. The concept of winding up, as it is applied by s.601EE to an unregistered managed investment scheme, is not the subject of any explanation or elaboration in the statute. It seems to me, as a matter of general principle, however, that what is contemplated is the realisation of assets of the scheme, discharge of liabilities and distribution of any surplus among beneficiaries or members in an appropriate way. So much is clearly implied by the expression "winding up", the general meaning of which may be gathered from approaches taken to that general subject under statutes dealing not only with companies but also with partnerships. Those statutory approaches were built on foundations which pre-dated legislation in either area. 13 Given that s.601EE(2) enables the court to make "any orders it considers appropriate for the winding up of the scheme" [emphasis added], it must be accepted that the court has jurisdiction to settle or prescribe any aspect or element of the basis for winding up or the winding up process which it is necessary to supply because that element cannot be obtained from any other source. In this respect, it is noteworthy that the statute itself does not attempt to lay down the basis for or method of winding up. That is, to my mind, an indicator of intention that the court should be able to act in the comprehensive way I have outlined. 14 In Australian Securities and Investments Commission v Koala Quality Produce Ltd [2002] NSWC 451 (20 May 2002), I had occasion to note that the Corporations Act does not attempt to prescribe any general framework according to which a s.601EE winding up is to occur. I observed there that, by analogy with Part 5C.9, that gap may be filled, by s.601EE(2) order, by reference to the terms of the constitution of the unregistered scheme, to the extent that they deal appropriately with the matter. Where they do not deal with it appropriately or cover only part of the necessary field, the court may, by order under s.601EE(2), supply other necessary provisions. In the Koala case, I made an order under s.601EE(2) at the same time as the winding up order to ensure that the scheme of realisation and distribution provided for in the trust deed itself in the event of termination according to its terms was also adopted in the winding up ordered under s.601EE(1). 15 In the present context, it seems to me that the best way to proceed, in a jurisdictional sense, is to regard s.601EE(2) as the source of jurisdiction to prescribe, by order, the appropriate basis of distribution of surplus and for the completion of the winding up; and to entertain, by reference to the court's general equitable jurisdiction, an application by the receiver for a direction to proceed to complete the winding up in accordance with the s.601EE(2) order, with both s.424 of the Corporations Act and s.63 of the Trustee Act left to one side as not immediately useful. 16 The scheme is constituted by a deed dated 23 March 1998 between Flinders Asset Management Limited (designated "manager") and Commercial Nominees of Australia Limited as trustee. The deed recites an intention of the trustee to accept application moneys on trust for participants under the trust constituted by it and that the trust is established for the purpose of the manager managing the assets of the trust for the participants in accordance with their investment authorities. These recitals reflect a number of important features of the trust. A central characteristic is that an investor could select the way in which funds entrusted by him or her to the trustee were to be invested by the trustee for the benefit of the investor. In broad terms, an investor could require that funds be invested in cash securities or in equity securities, with an opportunity, within the equity sector, to choose among various types of investment. 17 The evidence of the terms on which investment was solicited and of the way in which investor accounts were maintained and reporting to investors occurred makes it clear that there was, as it were, a clear earmarking of particular assets held by the trustee so as to be identified with particular investors. There is thus a divergence from the more common form of unit or investment trust under which an investor or beneficiary cannot point to any interest (in a broad sense) in particular assets in the hands of the trustee. The divergence is exemplified by clause 2.5(a) of the trust deed: "Each Participant has a beneficial interest in any Authorised Investment acquired on behalf of that Participant under a direction in an Investment Authority given by the Participant and is recorded in the Investment Register for that Participant …" 18 The extract just quoted is followed by a proviso making it clear that an individual participant does not have a beneficial interest in any other asset of the trust and is not entitled to interfere with the rights or powers of the trustee or the manager in their dealings with the trust or any assets of the trust or the exercise of any rights in respect of authorised investments. The concept that the trustee will acquire investments "on behalf of" a particular investor or participant who then has a "beneficial interest" therein nevertheless comes through in unmistakable terms. 19 Investment in the fund was offered in the context of an opportunity for an investor to borrow part of the sum to be invested. Those administering the fund arranged and administered such borrowings for investors. Aspects related to the borrowings therefore form part of the general relationship. 20 I come now to the particular circumstances which have caused the applicant, as the receiver appointed by the court, to seek the assistance of the court in relation to the disposition of funds in his hands. 21 Investors could, as I have said, elect for their funds to be allocated, in broad terms, to cash investments or to equity investments. Where an election in favour of cash investments was made, the funds concerned were virtually as a matter of course invested in units of a cash management trust operated by interests associated with the trustee of the fund itself. For reasons which are not relevant, the vast bulk of the cash resources thus entrusted to the trustee of that cash management trust was lost, with the result that realisation of units of the cash management trust yielded very much less than would have been yielded had the loss not occurred. Equity investments of the fund, on the other hand, were not subjected to any such abnormal loss and maintained (and even increased) their value. 22 The question arising in these circumstances is, in essence, where the fund's loss attributable to the investment in units of the cash management trust should fall as regards investors in the fund itself. 23 The plaintiff has approached this question on the basis of not only his own assessment of the position, but also advice taken from Mr Kevin Bush, a chartered accountant and a principal of P.K. Bush Van Dam whose forensic accounting expertise has been called upon by the plaintiff and his partners in several insolvency administrations over the past four years. The plaintiff has also corresponded with all investors and went to the extent of convening a meeting of investors at which possible distribution bases determined in consultation with Mr Bush were explained and discussed. I need not go into the detail of the evidence about communication and consultation with investors. It is sufficient to say that the plaintiff has, in my view, acted in such a way as to inform all investors fully and fairly of the possibilities under consideration and to give them a basis for assessing the benefits and disadvantages that may accrue to them in the various eventualities. Indeed, the evidence shows that particular concerns and questions raised by individual investors have been dealt with frankly and adequately by the plaintiff. Furthermore, three investors were represented at the hearing before me by Mr Kelso who made submissions that one particular method should be preferred. The plaintiff, I am satisfied, had furnished to Mr Kelso and his clients all necessary information to enable them to form the views that were advanced before me. I shall come back to the particular parties represented by Mr Kelso. 24 The possible methods of resolution of investors' interests advanced by the plaintiff were the subject of some explanation in a letter of 10 April 2002 sent to investors by the applicant in connection with the meeting of investors which was held on 18 April 2002. That letter read in part as follows, the reference to "CIT" being a reference to the managed investment scheme itself (or what I have called "the fund") and the reference to "ECMT" being a reference to the associated cash management trust to which I have referred: "The investments made by CIT were either in the purchase of shares and interests in managed schemes ('equities'), or the deposit of cash into an account with ECMT. The equities were held by the Colonial State Bank (now Commonwealth Bank of Australia ('CBA')) as security for the Margin Lending Facility. Prior to my appointment as Receiver, many of the equities had been sold by the trustee of CIT, at the request of the investors, and the proceeds paid into an account which I took control of on my appointment. The remaining equities were sold after my appointment by the CBA as mortgagee exercising its power of sale. After repayment of the Margin Lending Facility, I have by application to the Court, recovered the surplus proceeds of sale which are now held by me in the Fund. There appear to me to be two alternatives for the distribution of the Fund, namely: Proposal 1: to distribute the Fund after adjusting the loss in CIT first, against notional cash balances in the respective investor accounts and then the balance of the loss, if any, against the value of the equities held in each investor account; or Proposal 2: to distribute the Fund among all investors on a pari passu basis (proportionately), based on the notional value of their current investment in CIT, so that the loss in CIT is debited against all investments, both equities and cash, and not just the cash component of each investor's account." 25 Mr Bush gave an explanation of the respective methods at the meeting by reference to particular examples. In addition, there have been placed before the court spreadsheets prepared by Mr Bush which show the impact of the respective proposals upon each investor separately. It is also pertinent to quote the following evidence of Mr Bush contained in his affidavit of 24 May 2002: "11. As the most substantial and unaccounted for losses which were suffered by CIT were in the cash maintained on deposit with ECMT, I regard it as fair and equitable to discriminate between Investors on the basis of the proportion of their investment that was held as a Cash Deposit ('Option 1'). 12. The adoption of Option 1 as the basis for the distribution of the Recovered Monies to Investors would have the result that those Investors who had a greater part of their investment in the form of a Cash Deposit as at October 2000 would suffer a greater loss than those who had the greater part of their investments in Equity Investments at that time. 13. From my knowledge of the investments made in CIT by Investors, I believe the investments were held as Cash Deposits for one of the following reasons: (a) Under the terms of the prospectuses issued in respect of investment in CIT, copies of which form annexures 'E' and 'H' to an affidavit sworn in these proceedings by Mr Michael Buchorn of the Australian Securities and Investment Commission, at least 5% of every investment contribution (net of certain fees and charges) was required to be maintained in a 'cash account'; (b) In some instances, individual Investors gave instructions for some additional part of their investment to be held in cash; (c) Cash received either with an application for investment or upon redemption of an Equity Investment, was held pending instructions from the Investor or while arrangements were completed to proceed with the acquisition of an Equity Investment; or (d) Dividends or other returns from Equity Investments were paid and held in cash pending Investor instructors to re-invest them or remit them to the Investor. 14. I have become aware of some instances in which Investors issued instructions to CNA as early as March 2000 for certain amounts held by CIT on their behalf as a Cash Deposit to be invested in an Equity Investment but those instructions were not carried out, with the result that their cash balance was greater in October 2000 than it would have been had their instruction been carried out in a reasonably timely manner. 15. After the Investors' meeting which was convened by the Receiver on 18 April 2002, I was approached on behalf of three such Investors, J & S Ha Super Fund, Peter Kelso Super Fund and Garland Super Fund, who expressed the view that Option 1 unfairly discriminated against them because they had issued instructions to CAN in April 2000 for certain amounts held by CIT on their behalf in cash to be invested in managed funds but those instructions were not carried out. The Investors produced to me documentation which supported their assertions. I believe that by adjusting the cash balance of each of those Investors in the sums identified by them to me, any unfair discrimination in the application of Option 1 to them can be avoided." 26 Mr Bush also deposed: "18. Subject to making the adjustments referred to in the preceding paragraphs and having regard to the matters listed in paragraph 12 above, I make the following further comments concerning the adoption of Option 1 as the manner in which the Recovered Monies could be distributed: (a) The loss suffered by Investors as a result of the requirement identified in paragraph 13(a) would be equally shared by all Investors; (b) As to the balance of paragraph 12, there is a permissible inference that funds held in cash for the reasons there identified were so held as a result of a commercial decision by the relevant Investors who should now bear the consequent loss flowing from that decision or relevant inaction. 19. In all the circumstances, I have advised the Receiver that I am of the view that Option 1 constitutes a fair means of achieving a just and equitable distribution of the Recovered Monies. 20. The only alternative which I consider capable of also achieving a just and equitable distribution of the Recovered Monies would be to do so on a pari passu basis without discriminating between Investors on any basis other than the value of their investment in CIT as at 31 October 2000 ('Option 2'), calculated as described in this affidavit and my Report. A distribution based on Option 2 would be relatively simple to calculate and have the effect of allowing losses 'to fall where they lie'. Further, the adoption of Option 2 will avoid any injustice that may arise should there be other discrepancies in CIT's records of which I am not presently aware such as those described in paragraphs 14 to 16 above." 27 I have omitted paragraph 16 of Mr Bush's affidavit which refers to a particular investor whose assertions similar to those in paragraph 15 were, on examination, found not to be sustainable. I should also mention that the investors mentioned in paragraph 15 are those now represented by Mr Kelso. 28 In the light of this evidence, it is appropriate to return to the provisions of the trust deed and to look briefly at those concerning termination of the trust in accordance with the mechanisms for termination it contains. These provisions are, of course, not directly applicable to the present circumstances which is one of winding up pursuant to s.601EE of the Corporations Act. But they do, as I have said, provide useful guidance as to expectations that it is reasonable to extend to a winding up of the present kind and, as necessary, to cause to apply in the winding up by order under s.601EE(2). The relevant provisions are within clause 19 of the trust deed. 29 Clause 19.3 provides for realisation of the assets of the trust, payment of outstanding expenses and the making of provision for outstanding liabilities and payment to each investor of the balance in the investor's participation account. Such an account reflects, pursuant to clause 5.3, credits and debits of various kinds referable to the particular participant and those investments which are, in relation to the participant, "Participant's Investments", an expression defined by the deed as follows: "'Participant's Investments' means in relation to a Participant such of the Assets of the Trust as are held on behalf of the Participant and recorded in the Participant's Investment Register, and any of those Assets" [emphasis added]. 30 Clause 19.4 goes on to require the trustee to pay the balance in each participation account to or as directed by the particular participant. There is, in clause 19.5, provision for a participant to elect to receive in specie any of the "Participant's Investments" being, as I have mentioned, assets of the trust "held on behalf of" that participant and recorded accordingly. 31 These termination provisions, viewed in the context of the other aspects of the trust deed to which reference has already been made, confirm in my mind the clear impression that this is not a situation of the commonly encountered kind where each investor, by investing, comes to occupy a position vis-à-vis other investors distinguishable only by reference to the amount of the investment. That commonly encountered position entails the consequence that profits and losses, benefits and detriments accruing to the fund or scheme as a whole are enjoyed or borne by the investors pro rata according to the amounts of their investments. The present scheme is, by contrast, one in which, by virtue of elections made by investors in such a way as to be binding as among them and upon the trustee and the manager, each investor has what the deed terms "a beneficial interest" in separate elements of the assets held by the trustee and constituting the fund. It is unnecessary to dwell upon the precise meaning and scope of the provision purporting to create or confer that "beneficial interest". It is sufficient to recognise that the position of an individual investor, in terms of risk of loss or prospect of profit, is made referable to assets or asset categories of the fund specifically identified with the particular investor. 32 Against this background, it seems to me that the most appropriate method of allocating value over the whole body of investors in the circumstances now prevailing is what Mr Prentice's letter to investors dated 10 April 2002 described as "Proposal 1" (i.e, "Option 1" in paragraph 11 of Mr Bush's affidavit of 24 May 2002). Under that method, there is recognition that the loss incurred in relation to the cash assets is allocated in such a way as to fall upon the investors who elected to have cash assets held on their behalf, according to the extent of their respective "beneficial interests" in those cash assets, and so that the loss does not impact the positions of investors who elected for equity assets as distinct from cash assets. The loss will then lie where it is most appropriately regarded as having fallen. Of course, an investor whose investment is split between the cash sector and the equity sector will participate in both sectors according to the respective portions allocated to those sectors. 33 The alternative approach ("Proposal 2" in Mr Prentice's letter of 10 April 2002 and "Option 2" in paragraph 20 of Mr Bush's affidavit of 24 May 2002) involves rateable distribution of funds among investors according to the amounts remaining invested and without regard for any differentiation between those on whose behalf cash assets were held and those on whose behalf equity assets were held. An approach of that kind is, obviously enough, consonant with the notion of equality which prevails in company winding up generally and finds favour in the eyes of equity: see Birch v Cropper; Re Bridgewater Navigation Co Ltd (1889) 14 App Cas 525; Re Driffield Gas Light Co [1898] 1 Ch 451. The same approach applies, in the absence of contrary specification, upon the dissolution of unincorporated associations: Brown v Dale (18878) LR 9 ChD 79, Re St Andrews Allotment Association [1969] 1 WLR 229, Re GKN Sports Club [1982] 1 WLR 775, Tierney v Tough [1914] IR 142. But such a principle of equality as it applies in the sphere of company winding up and the dissolution of clubs and the like is always susceptible to modification by the compact among members represented by the constitution. It is commonly replaced by another regime in companies where there are different classes of shares representing, in a commercial sense, different species of investment. 34 As regards the principle of equality just mentioned, I see this case as one in which an intention to displace is manifested by the identification of different forms of investment with individual investors by virtue of the system of allocation exemplified by clause 2.5(a) by reference to so-called "beneficial interest" and to the holding of investments "on their behalf". The same intention is recognised and reflected in the termination provisions of clause 19. 35 I turn now to the special position of Mr Kelso's clients. They have investments in the cash sector which may be regarded as unauthorised in the sense either that the extent of the cash investment is inconsistent with instructions given or established principles of the investor known to and acted upon by the trustee. Mr Ha, in his further submissions, made it clear that there existed in relation to the J & S Ha Superannuation Fund what amounted to a standing instruction that the cash component should be of the order of 5% of that investor's total investment. When the fund failed, the cash component represented, for unexplained reasons and contrary to that established and accepted basis of dealing, a much greater proportion of the total investment. The situation was thus tantamount to one in which the trustee had failed to obey instructions to convert cash investments to equity investments, so that what should have been done was not done. 36 On one view, it is appropriate to regard these three investors as simply having the cash investments they actually have and to leave them to pursue such remedies as they may have against the trustee for failure to implement their instructions. The view I prefer is that the investors in question should, in the winding up, be treated as if the instructions had been complied with. An analogy may be drawn with the case of company winding up in which a person whose name appears in the register as a holder of shares carrying an unpaid liability claims rectification of the register so that his or her name is not included in the list of contributories. One situation specifically within this rectification jurisdiction is that where default or unnecessary delay occurs in entering in the register the fact that a person has ceased to be a member. There is thus, in the company law field, a clear policy that a person should not be left merely to such remedies as may be pursued against those responsible for the default or delay and are entitled to be treated as if that which ought to have been done had been done - which is, in any event, consonant with general equitable principle. 37 For these reasons, I am of the opinion that Proposal 1 should be followed in the winding up of the scheme on the footing that there are attributed to the three investors referred to in paragraph 15 of Mr Bush's affidavit beneficial interests in the equity sector commensurate with the position that would have applied had their instructions (express or implied) to avoid cash investments in favour of equity investments or to convert cash investments to equity been implemented, and with their cash investments regarded as reduced accordingly. I am aware that, as Mr Bush points out in his affidavit of 19 June 2002, such an adjustment in relation to the three investors will work to the disadvantage of others but, for the reasons stated, I consider the adjustment to be equitable. 38 It is appropriate for these adjustments to apply only in relation to the three particular cases. This is because I am satisfied, on the evidence, that adequate information was given to all investors to enable any others similarly affected to come forward and that the only other one who did so was properly regarded as not having shown an appropriate claim. 39 I should also refer to certain possible approaches considered by Mr Bush but not favoured. This is best done by quoting paragraphs 9 and 10 of his affidavit of 24 May 2002: "9. One possible basis for distribution considered by me is to discriminate between Investors on the basis of the extent to which they had relied on loan funds drawn down from the MLF in acquiring their Equity Investments. However, while in many circumstances losses are suffered by investors when they borrow too heavily against an asset that falls in value, this was not the case in CIT. Indeed, with only a few exceptions, the value of the Equity Investments increased during the period when the MLF was made available to CIT's Investors. The nature and extent of CIT's borrowings had little or no impact on the loss suffered by the fund or its investors. Furthermore, the debt on the MLF, together with interest and fees charged by CSB in respect of the MLF, have been applied against the value of each of the Equity Investments held by CIT for those Investors who had made use of MLF funding, thereby making appropriate allowance to the position of those Investors for the loan funds and the cost of those funds. 10. Another basis is to discriminate between Investors by an assessment of the performance of the Equity Investments in which CIT had invested on their instructions. As a matter of practicality, however, calculating an appropriate allowance for performance would be difficult, if not impossible. Further, in my view of the manner in which a substantial number of the Equity Investments were effectively the subject of a "forced sale" by CSB in realising its security, there is, in my view, a degree of arbitrariness to such an approach. In any event, as all Equity Investments have been traced and allocated as indicated in my Report, Investor account balances already reflect losses or appreciation on Equity Investments, if any." 40 For the reasons Mr Bush states, these possibilities may be regarded as less satisfactory, as a matter of equitable resolution generally, than the others. They therefore do not disturb my view that "Proposal 1", adjusted as I have described with respect to the three particular investors, should be adopted. 41 It remains to consider the appropriate form of orders. The principal order sought in the applicant's Interlocutory Process is as follows: "A direction that the funds available for distribution to investors in CIT be distributed after adjusting the loss in CIT first, against notional cash balances in the respective investor accounts and then the balance of the loss, if any, against the value of the equities held in each investor account." 42 It seems to me, however, that, in light of the bases of jurisdiction which have been discussed, more than this is required. The appropriate course will be for the court to make, pursuant to s.601EE(2) of the Corporations Act, an order to the effect that the applicant proceed to completion of the winding up of the unregistered managed investment scheme by taking, to the extent that they have not already been taken, the steps prescribed in clause 19.3(b) (construed so as not to be subject to clause 19.5), clause 19.3(c), clause 19.3(d) and clause 19.3(e) of the trust deed on the basis that the loss in the scheme is applied first against notional cash balances in the respective investor accounts and as to any balance of the loss against the value of the equities held in each investor account, with the investor accounts of J & S Ha Superannuation Fund, Peter Kelso Superannuation Fund and Garland Super Fund being notionally adjusted to reflect the position that would have prevailed if the trustee of the scheme had maintained the limited level of cash investment called for by the instructions and course of dealing involving those parties, with a corresponding notional increase in the level of equity investment. There should also be a direction to the applicant that he proceed with the winding up in accordance with the s.601EE(2) order. It may be that there are also matters of consequential detail that the applicant would wish to see included. 43 The applicant should bring in short minutes of orders giving effect to this judgment. In view of the applicant's desire to effect distributions to investors not later than 30 June, I am prepared to deal with the short minutes during the course of today. **********

ASIC v COMMERCIAL NOMINEES

At a glance

Court

Decision date

Before

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Judgment (7 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (1)

Cited By (7)