ASIC v Elm Financial Services Pty Ltd & Ors

Supreme Court of NSW|2005-10-21|Before: Barrett J

CITATION : ASIC v Elm Financial Services Pty Ltd & Ors [2005] NSWSC 1065

Equity Division JURISDICTION : Corporations List

DECISION : Declarations of contravention and disqualification orders (see paragraphs 13 and 14)

LEGISLATION CITED : Corporations Act 2001 (Cth), s.708(10)

Australian Securities and Investments Commission v Elm Financial Services Pty Ltd & Ors [2005] NSWSC 1020 CASES CITED : Australian Securities and Investments Commission v Elm Financial Services Pty Ltd & Ors [2005] NSWSC 1033

Australian Securities and Investments Commission - Plaintif PARTIES : Dennis Howell Terracini - Eighth Defendant Duncan Grant McCartney - Tenth Defendant

Mr D.R. Stack - Plaintiff COUNSEL : Mr T.W. McGuffin, Solicitor - Eighth Defendant Mr S.P. Blim - Tenth Defendant

Mr Kim Turner, Solicitor for Australian Securities and Investments Commission - Plaintiff SOLICITORS : Swaab Attorneys - Eighth Defendant Simmons & McCartney - Tenth Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

2313/04 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v ELM FINANCIAL SERVICES PTY LTD & 11 ORS JUDGMENT 1 I have already made, by consent of the plaintiff (Australian Securities and Investments Commission) and the defendants concerned, declarations of contravention and consequential orders against the ninth, eleventh and twelfth defendants in these proceedings: see Australian Securities and Investments Commission v Elm Financial Services Pty Ltd & Ors [2005] NSWSC 1020 (11 October 2005); Australian Securities and Investments Commission v Elm Financial Services Pty Ltd & Ors [2005] NSWSC 1033 (13 October 2005). I am now asked by ASIC and by each of the tenth defendant (Duncan Grant McCartney) and the eighth defendant (Dennis Terracini) to make consent declarations and consequential orders in respect of each such defendant. 2 As previously, statements of agreed facts have been tendered. The facts agreed by ASIC and Mr McCartney are contained in Exhibit M1. The agreed facts in relation to Mr Dennis Terracini are in Exhibit DT1. I have adopted the course outlined in the first of the earlier judgments with a view to deciding whether, on the basis of the agreed facts, this court is, in each case, satisfied that the statutory conditions for the making of declarations of contravention have been met. 3 In relation to Mr McCartney, the agreed facts establish that he was, at material times, an "officer" of each of Elm Financial Services Pty Ltd, Elm Nominees Pty Ltd, Elm Management Pty Ltd, Elm Property Pty Ltd and E Star Redfern Pty Ltd; that each of those companies contravened provisions of the Corporations Act (in particular, Elm Financial Services and E Star Redfern together committed one contravention of s.727(1), Elm Financial Services and Elm Nominees together committed two contraventions of s.727(1), Elm Financial Services together with Fletcher Securities Pty Ltd together committed one contravention of s.727(1), Elm Financial Services and Elm Nominees committed one contravention of s.601ED(5), Elm Financial Services alone committed one contravention of s.601ED(5), Elm Financial Services and E Star Redfern together committed two contraventions of ss.995(2), 999 and 1000(1)(a) - plus, in the case of Elm Financial Services and E Star Redfern, ss.1041E(1), 1041F(1)(a) and 1041H(1) - Elm Financial Services and Elm Property together with Fletcher Securities Pty Ltd together committed one contravention of ss.1041E(1), 1041F(1)(a) and 1041H(1) and Elm Financial Services alone committed two contraventions of s.912A(1)(f)); that Mr McCartney, while an officer of the relevant company committing a contravention, failed to take reasonable steps to prevent the contravention; and that Mr McCartney thereby himself contravened ss.180(1) and 181(1) imposing duties upon officers. 4 I turn to Mr Terracini. The statement of agreed facts shows him to have been at material times an officer of each of Elm Financial Services, Elm Nominees, Elm Management, Elm Property, Fletcher Securities, E Star Redfern and E Star Surry Hills Pty Ltd. It also shows that he was himself a "providing entity" within the meaning of ss.945A and 946A of the Corporations Act. The statement of agreed facts in relation to Mr Terracini refers to all of the contraventions by companies appearing in the statement concerning Mr McCartney plus a number of other contraventions, being a contravention by Elm Financial Services of s.945A, a contravention by Elm Financial Services and E Star Redfern together of ss.1041E, 1041F(1)(a) and 1041H(1) and four contraventions by Elm Financial Services alone of the last-mentioned sections. There is also reference in the agreed facts to contraventions by individuals (other than Mr Terracini) involved in the companies' activities. It is shown by the agreed facts that Mr Terracini failed to take reasonable steps to prevent contraventions (both those by companies and those by individuals); also that Mr Terracini misused the authority he had over individuals. Resultant contraventions by Mr Terracini of ss.180(1) and 181(1) concerning duties of officers are accordingly established. 5 ASIC and each of the defendants has agreed that that defendant should be subjected to disqualification from managing corporations. In the case of Mr McCartney, ASIC and he ask that orders be made causing him to be disqualified for a period of five years. In the case of Mr Dennis Terracini, the request made by ASIC and him is that he be disqualified permanently. It is proposed that Mr McCartney be ordered to pay costs of $50,000 (by instalments) and that Mr Terracini be ordered to pay costs of the same amount (also by instalments) as well as paying $150,000 to the administrators of deeds of company arrangement entered into by the Elm companies, such payment to be made within eighteen months. 6 On the basis of the agreed facts, I am satisfied that the several alleged contraventions have been committed by each of Mr McCartney and Mr Terracini. Declarations of contravention will be made accordingly. 7 As to disqualification, it can be said in the case of Mr McCartney that his wrong-doing is, in general terms, commensurate with that of other defendants in respect of whom disqualification for five years has been found appropriate. An order leading to disqualification of Mr McCartney for the same period is warranted. 8 Mr Terracini's wrong-doing is of a more serious kind. He was the managing director of the Elm group and occupied a position of authority and influence in the conduct of its affairs. He therefore carried a particular responsibility to take reasonable steps to ensure that those affairs were conducted in accordance with the law and in an honest way. He failed conspicuously to discharge that responsibility and has shown himself deserving of a more onerous sanction than that imposed upon the other defendants. I am satisfied that he should be disqualified permanently from managing corporations and that he should be ordered to make available the agreed funds which may go some way towards repairing the damage investors have suffered. 9 These proceedings arose from flagrant and systematic disregard for fundamental investor protection laws. While no aspect of those laws should, in the abstract, be regarded as more important than any other, I do wish to make particular comment on the scant regard that was paid to a relatively new provision, being s.708(10) which creates an exception to the requirement for disclosure to investors under s.707. Section 708(10) is as follows: "An offer of a body's securities does not need disclosure to investors under this Part if:

(a) the offer is made through a financial services licensee; and

(b) the licensee is satisfied on reasonable grounds that the person to whom the offer is made has previous experience in investing in securities that allows them to assess: (i) the merits of the offer; and (ii) the value of the securities; and (iii) the risks involved in accepting the offer; and (iv) their own information needs; and (v) the adequacy of the information given by the person making the offer; and

(c) the licensee gives the person before, or at the time when, the offer is made a written statement of the licensee's reasons for being satisfied as to those matters; and

(d) the person to whom the offer is made signs a written acknowledgment before, or at the time when, the offer is made that the licensee has not given the person a disclosure document under this Part in relation to the offer." 10 This is, as I have said, a relatively new provision. There was significant debate about it when its introduction was mooted. It was recognised at the time and must be re-emphasised now that s.708(10) casts particular responsibility upon a financial services licensee. The requirement that the licensee be "satisfied on reasonable grounds" as to the matters stated in s.708(10)(b) is one that must be approached with diligence and care. The licensee has a statutory duty to make inquiry about all matters relevant to the opinion it must form and then, of course, to consider whether, in the factual circumstances, there exist the reasonable grounds for it to be satisfied as to the matters stated. Woolly thinking about some general concept of "sophisticated investor" is entirely misplaced. 11 I mention this matter because it is made clear by the agreed facts that the licensed Elm companies were content to consider s.708(10) applicable where even the most cursory attention to the statutory criteria would have made it immediately clear that there were no reasonable grounds for forming the relevant opinions about the relevant investors. 12 Mr Terracini has given an undertaking to ASIC under s.93AA of the Australian Securities and Investments Commission Act 2001 (Cth). A copy of this is Exhibit DT2. Mr Terracini is prepared to undertake to the court that he will comply with his s.93AA undertaking. 13 In relation to Duncan Grant McCartney (the tenth defendant), the court makes by consent the declarations and orders set out in the First Schedule to these reasons. 14 In relation to Dennis Terracini (the eighth defendant), the court makes by consent the declarations and orders set out in the Second Schedule to these reasons and notes and accepts the undertaking set out in that schedule. 15 I direct that Exhibits M1, DT1 and DT2 be retained as part of the record of these proceedings. First Schedule

With the consent of the Plaintiff (" ASIC ") and the 10th Defendant (" Grant McCartney "), THE COURT:

A. THE FUNDRAISING CONTRAVENTION DECLARATIONS:

Declares that Grant McCartney was an "officer" of the 1st Defendant ("Elm Financial Services") within the meaning of sections 9, 180, 181 and 182 of the Corporations Act from about 3 May 2002.
Declares that Grant McCartney was an "officer" of the 2nd Defendant ("Elm Nominees") within the meaning of sections 9, 180, 181 and 182 of the Corporations Act from 1 November 2000 to 10 April 2003
Declares that Grant McCartney was an "officer" of the 3rd Defendant ("Elm Management") within the meaning of sections 9, 180, 181 and 182 of the Corporations Act from 16 May 2002 to 10 April 2003.
Declares that Grant McCartney was an "officer" of the 4th Defendant ("Elm Property") within the meaning of sections 9, 180, 181 and 182 of the Corporations Act from 20 April 2001 to 10 April 2003.
Declares that Grant McCartney was an "officer" of the 6th Defendant ("E Star Redfern") within the meaning of sections 9, 180, 181 and 182 of the Corporations Act from 7 September 2000.
Declares that by promoting and causing the issue of the Stirling Debentures, as pleaded in paragraphs 30 to 31 of the Amended Statement of Claim ("the Claim"), Elm Financial Services and E Star Redfern contravened ("the Stirling Debenture Contravention") section 727 (1) of the Corporations Act.
Declares that Grant McCartney, whilst being an officer of E Star Redfern, failed to take reasonable steps to prevent the Stirling Debenture Contravention.
Declares that by promoting and causing the issue of the Port Heritage Debentures, as pleaded in paragraphs 38 to 39 of the Claim, Elm Financial Services and Elm Nominees contravened ("the Port Heritage Debenture Contravention") section 727 (1) of the Corporations Act.
Declares that Grant McCartney, whilst being an officer of Elm Nominees and Elm Financial Services, failed to take reasonable steps to prevent the Stirling Debenture Contravention.
Declares that by promoting and causing the issue of the Elm Nominee Debentures, as pleaded in paragraphs 46 to 47 of the Amended Statement of Claim ("the Claim"), Elm Financial Services and Elm Nominees contravened ("the Elm Nominee Debenture Contravention") section 727 (1) of the Corporations Act.
Declares that Grant McCartney, whilst being an officer of Elm Financial Services and Elm Nominees, failed to take reasonable steps to prevent the Elm Nominee Debenture Contravention.
Declares that by promoting and causing the issue of the Elm Property Debentures, as pleaded in paragraphs 54 to 55 of the Claim, Elm Financial Services and Fletcher Securities contravened ("the Elm Property Debenture Contravention") section 727 (1) of the Corporations Act.
Declares that Grant McCartney, whilst being an officer of Elm Financial Services, failed to take reasonable steps to prevent the Elm Property Debenture Contravention.
Declares that by promoting and causing the issue of units in the Elm Unit Trust, as pleaded in paragraphs 62 to 65 of the Claim, Elm Financial Services and Elm Nominees contravened ("the Elm Unit Trust Contravention") section 601ED (5) of the Corporations Act.
Declares that Grant McCartney, whilst being an officer of Elm Financial Services and Elm Nominees, failed to take reasonable steps to prevent the Elm Unit Trust Contravention.
Declares that promoting and causing the issue of the Ann Street Offer, as pleaded in paragraphs 70 to 73 of the Claim, Elm Financial Services contravened ("the Ann Street Contravention") section 601ED (5) of the Corporations Act.
Declares that Grant McCartney, whilst being an officer of Elm Financial Services, failed to take reasonable steps to prevent the Ann Street Contravention.

B. THE MISLEADING DECLARATIONS: 18. Declares that that by making the 1st Stirling Statements, as defined in paragraph 155 of the Claim, Elm Financial Services and E Star Redfern contravened ("the 1st Stirling Contravention"): (a) section 995 (2) of the Corporations Act (as it was immediately prior to its amendment on 11 March 2002);

(b) section 999 of the Corporations Act (as it was immediately prior to its amendment on 11 March 2002); and

(c) section 1000 (1) (a) of the Corporations Act (as it was immediately prior to its amendment on 11 March 2002). 19. Declares that Grant McCartney, whilst being an officer of E Star Redfern, failed to take reasonable steps to prevent the 1st Stirling Contravention. 20. Declares that that by making the 1st Port Heritage Statements, as defined in paragraph 174 of the Claim, Elm Financial Services and E Star Redfern contravened ("the 1st Port Heritage Contravention"): (a) section 995 (2) of the Corporations Act (as it was immediately prior to its amendment on 11 March 2002);

(b) section 999 of the Corporations Act (as it was immediately prior to its amendment on 11 March 2002); and

(e) section 1041F (1) (a) of the Corporations Act ; and

(f) section 1041H (1) of the Corporations Act . 21. Declares that Grant McCartney, whilst being an officer of Elm Nominees and Elm Financial Services, failed to take reasonable steps to prevent the 1st Port Heritage Contravention. 22. Declares that that by making the Elm Property Statements, as defined in paragraph 249 of the Claim, Elm Financial Services, Elm Property and Fletcher Securities contravened ("the Elm Property Contravention"): (a) section 1041E (1) of the Corporations Act ;

(b) section 1041F (1) (a) of the Corporations Act ; and

(c) section 1041H (1) of the Corporations Act . 23. Declares that Grant McCartney, whilst being an officer of Elm Financial Services and Elm Property, failed to take reasonable steps to prevent the Elm Property Contravention.

C. THE TRAINING CONTRAVENTION: 24. Declares that between June 2002 and April 2004, Elm Financial Services contravened ("the Training Contravention") section 912A (1) (f) of the Corporations Act by failing to ensure that its authorised representatives were trained or properly trained and were otherwise competent to provide financial services in respect of the following: (a) the Elm Nominees Offers, as defined in paragraph 46 of the Claim; and

(b) the Elm Property Offers, as defined in paragraph 54 of the Claim. 25. Declares that Grant McCartney, whilst being an officer of Elm Financial Services, failed to take reasonable steps to prevent the Training Contravention. 26. Declares that between June 2002 and April 2004, Elm Financial Services contravened ("the Port Heritage Disposal Contravention") section 912A (1) (a) of the Corporations Act by: (a) failing to ensure that the Port Heritage Funds, as defined in paragraph 39 of the Claim, were paid to Port Heritage Developer, as defined in paragraph 38 of the Claim; and

(b) failing to prevent the expenditure of the Port Heritage Funds on matters unrelated to the development and construction of the Port Heritage Resort, as defined in paragraph 38 of the Claim. 27. Declares that Grant McCartney, whilst being an officer of Elm Financial Services, failed to take reasonable steps to prevent the Port Heritage Disposal Contravention.

D. THE OFFICER DUTY CONTRAVENTIONS: 28. Declares that by reason of the facts, matters and circumstances giving rise to the declarations in paragraphs 9, 11, 13, 15, 17, 21, 23, 25, 27 and ,above, Grant McCartney, in contravention of section 180 (1) of the Corporations Act, failed to exercise his powers and discharge his duties as an officer of Elm Financial Services, with the requisite degree of care and diligence. 29. Declares that by reason of the facts, matters and circumstances giving rise to the declarations in paragraphs 9, 11, 13, 15, 17, 21, 23, 25, 27 and , above, Grant McCartney, in contravention of section 181 (1) of the Corporations Act, failed to exercise his powers and discharge his duties as an officer of Elm Financial Services, in good faith in the best interests of that corporation and for a proper purpose. 30. Declares that by reason of the facts, matters and circumstances giving rise to the declarations in paragraphs 9, 11, 15 and 21 above, Grant McCartney, in contravention of section 180 (1) of the Corporations Act, failed to exercise his powers and discharge his duties as an officer of Elm Nominees with the requisite degree of care and diligence. 31. Declares that by reason of the facts, matters and circumstances giving rise to the declarations in paragraphs 9, 11, 15 and 21 above, Grant McCartney, in contravention of section 181 (1) of the Corporations Act, failed to exercise his powers and discharge his duties as an officer of Elm Nominees, in good faith in the best interests of that corporation and for a proper purpose. 32. Declares that by reason of the facts, matters and circumstances giving rise to the declarations in paragraphs 7 and 19 above, Grant McCartney, in contravention of section 180 (1) of the Corporations Act, failed to exercise his powers and discharge his duties as an officer of E Star Redfern with the requisite degree of care and diligence. 33. Declares that by reason of the facts, matters and circumstances giving rise to the declarations in paragraphs 7 and 19 above, Grant McCartney, in contravention of section 181 (1) of the Corporations Act, failed to exercise his powers and discharge his duties as an officer of E Star Redfern, in good faith in the best interests of that corporation and for a proper purpose. 34. Declares that by reason of the facts, matters and circumstances giving rise to the declarations in paragraph 23 above, Grant McCartney, in contravention of section 180 (1) of the Corporations Act, failed to exercise his powers and discharge his duties as an officer of Elm Property with the requisite degree of care and diligence. 35. Declares that by reason of the facts, matters and circumstances giving rise to the declarations in paragraph 23 above, Grant McCartney, in contravention of section 181 (1) of the Corporations Act, failed to exercise his powers and discharge his duties as an officer of Elm Property, in good faith in the best interests of that corporation and for a proper purpose.

E. THE ORDERS: 36. Orders, pursuant to sections 206C (1), 206D(1) and 206E (1) of the Corporations Act, that Grant McCartney be disqualified from managing corporations for a period of five (5) years commencing on the date when this Order is made. 37. Orders that Grant McCartney pay ASIC's costs agreed in the sum of $50,000 with: (a) $10,000 being payable by 11 November 2005;

(f) $8,000 being payable by 14 April 2005. 38. Orders that otherwise these Proceedings, so far as they concern ASIC and Grant McCartney, be dismissed.

Orders that all other orders relating to Grant McCartney predating the Orders set out herein be set aside, dissolved and discharged. Second Schedule

THE COURT NOTES that the Plaintiff ("ASIC") and the 8th Defendant ("Dennis Terracini") have had discussions and have agreed to resolve the issues raised against Dennis Terracini in these civil proceedings, as pleaded in the Amended Statement of Claim. Pursuant to that agreement and with their consent, THE COURT: A. THE FUNDRAISING CONTRAVENTION DECLARATIONS:

Declares that Dennis Terracini was an "officer" of the 1st Defendant ("Elm Financial Services") within the meaning of sections 9, 180, 181 and 182 of the Corporations Act from 7 November 1998.

Declares that Dennis Terracini was an "officer" of the 2nd Defendant ("Elm Nominees") within the meaning of sections 9, 180, 181 and 182 of the Corporations Act from 1 November 2000.

Declares that Dennis Terracini was an "officer" of the 3rd Defendant ("Elm Management") within the meaning of sections 9, 180, 181 and 182 of the Corporations Act from 21 November 1988.

Declares that Dennis Terracini was an "officer" of the 4th Defendant ("Elm Property") within the meaning of sections 9, 180, 181 and 182 of the Corporations Act from 20 April 2001.

Declares that Dennis Terracini was an "officer" of the 5th Defendant ("Fletcher Securities") within the meaning of sections 9, 180, 181 and 182 of the Corporations Act from 24 April 2001 to 1 June 2001.

Declares that Dennis Terracini was an "officer" of the 6th Defendant ("E Star Redfern") within the meaning of sections 9, 180, 181 and 182 of the Corporations Act from 7 September 2000.

Declares that Dennis Terracini was an "officer" of the 7th Defendant ("E Star Surry Hills") within the meaning of sections 9, 180, 181 and 182 of the Corporations Act from 26 November 2001 to 25 June 2004.

Declares that Dennis Terracini was a "providing entity" within the meaning of sections 945A and 946A of the Corporations Act.

Declares that by promoting and causing the issue of the Stirling Debentures, as pleaded in paragraphs 30 to 31 of the Amended Statement of Claim ("the Claim"), Elm Financial Services and E Star Redfern contravened ("the Stirling Debenture Contravention") section 727 (1) of the Corporations Act.

Declares that Dennis Terracini, whilst being an officer of Elm Financial Services and E Star Redfern, failed to take reasonable steps to prevent the Stirling Debenture Contravention.

Declares that by promoting and causing the issue of the Port Heritage Debentures, as pleaded in paragraphs 38 to 39 of the Claim, Elm Financial Services and Elm Nominees contravened ("the Port Heritage Debenture Contravention") section 727 (1) of the Corporations Act.

Declares that Dennis Terracini, whilst being an officer of Elm Nominees and Elm Financial Services, failed to take reasonable steps to prevent the Port Heritage Debenture Contravention.

Declares that by promoting and causing the issue of the Elm Nominee Debentures, as pleaded in paragraphs 46 to 47 of the Amended Statement of Claim ("the Claim"), Elm Financial Services and Elm Nominees contravened ("the Elm Nominee Debenture Contravention") section 727 (1) of the Corporations Act.

Declares that Dennis Terracini, whilst being an officer of Elm Financial Services and Elm Nominees, failed to take reasonable steps to prevent the Elm Nominee Debenture Contravention.

Declares that by promoting and causing the issue of the Elm Property Debentures, as pleaded in paragraphs 54 to 55 of the Claim, Elm Financial Services, Elm Property and Fletcher Securities contravened ("the Elm Property Debenture Contravention") section 727 (1) of the Corporations Act.

Declares that Dennis Terracini, whilst being an officer of Elm Financial Services, Elm Property and Fletcher Securities, failed to take reasonable steps to prevent the Elm Property Debenture Contravention.

Declares that by promoting and causing the issue of units in the Elm Unit Trust, as pleaded in paragraphs 62 to 65 of the Claim, Elm Financial Services and Elm Nominees contravened ("the Elm Unit Trust Contravention") section 601ED (5) of the Corporations Act.

Declares that Dennis Terracini, whilst being an officer of Elm Financial Services and Elm Nominees, failed to take reasonable steps to prevent the Elm Unit Trust Contravention.

Declares that by promoting and causing the issue of the Ann Street Offer, as pleaded in paragraphs 70 to 73 of the Claim, Elm Financial Services contravened ("the Ann Street Contravention") section 601ED (5) of the Corporations Act.

Declares that Dennis Terracini, whilst being an officer of Elm Financial Services, failed to take reasonable steps to prevent the Ann Street Contravention. B. THE REASONABLE ADVICE PROVISIONS:

Declares that by the making of the Jeffery Recommendation as pleaded in paragraph 80 of the Claim, Elm Financial Services contravened (the Jeffery Contravention") section 945A(1) of the Corporations Act.

Declares that Dennis Terracini, whilst being an officer of Elm Financial Services, did not take reasonable steps to prevent the Jeffery Contravention.

Declares that Andrew Terracini, by the making of the 1st Wilkinson Recommendation as pleaded in paragraph 92 of the Claim, contravened section 945A(1) of the Corporations Act.

Declares that Dennis Terracini, whilst being an officer of Elm Financial Services, did not take reasonable steps to prevent the contravention of section 945A(1) of the Corporations Act by Andrew Terracini.

Declares that Mr Young, by the making of the 2nd Wilkinson Recommendation as pleaded in paragraph 96 of the Claim, contravened section 945A(1) of the Corporations Act.

Declares that Dennis Terracini, whilst being an officer of Elm Financial Services, did not take reasonable steps to prevent the contravention of section 945A(1) of the Corporations Act by Mr Young. C. THE MISLEADING DECLARATIONS:

Declares that that by making the 1st Stirling Statements, as defined in paragraph 155 of the Claim, Elm Financial Services and E Star Redfern contravened ("the 1st Stirling Contravention"): (a) section 995 (2) of the Corporations Act (as it was immediately prior to its amendment on 11 March 2002);

(b) section 999 of the Corporations Act (as it was immediately prior to its amendment on 11 March 2002); and

Declares that Dennis Terracini, whilst being an officer of Elm Financial Services and E Star Redfern, failed to take reasonable steps to prevent the 1st Stirling Contravention.

Declares that that by making the 2nd Stirling Statements, as defined in paragraph 164 of the Claim, Elm Financial Services and E Star Redfern contravened ("the 2nd Stirling Contravention"):

(b) section 1041F (1) (a) of the Corporations Act ; and

Declares that Dennis Terracini, whilst being an officer of Elm Financial Services and E Star Redfern, failed to take reasonable steps to prevent the 2nd Stirling Contravention.

Declares that that by making the 1st Port Heritage Statements, as defined in paragraph 174 of the Claim, Elm Financial Services and E Star Redfern contravened ("the 1st Port Heritage Contravention"): (a) section 995 (2) of the Corporations Act (as it was immediately prior to its amendment on 11 March 2002);

(b) section 999 of the Corporations Act (as it was immediately prior to its amendment on 11 March 2002); and

(e) section 1041F (1) (a) of the Corporations Act ; and

(f) section 1041H (1) of the Corporations Act . 32. Declares that Dennis Terracini, whilst being an officer of Elm Nominees and Elm Financial Services, failed to take reasonable steps to prevent the 1st Port Heritage Contravention.

Declares that that Dennis Terracini by making the Stokes-Terracini Statements, as defined in paragraph 183 of the Claim, Elm Financial Services: (a) section 1041E (1) of the Corporations Act ;

Declares that Dennis Terracini by making the Frogley Statements, as defined in paragraph 201 of the Claim, he contravened: (a) section 1041E (1) of the Corporations Act ;

Declares that by making the James Statements, as defined in paragraph 208 of the Claim, Elm Financial Services contravened ("the James Contravention"): (a) section 1041E (1) of the Corporations Act ;

(b) section 1041F (1) (a) of the Corporations Act; and

Declares that Dennis Terracini, whilst being an officer of Elm Financial Services, failed to take reasonable steps to prevent the James Contravention.

Declares that by making the O'Connor Statements, as defined in paragraph 217 of the Claim, Elm Financial Services contravened ("the O'Connor Contravention"): (a) section 1041E (1) of the Corporations Act ;

(b) section 1041F (1) (a) of the Corporations Act; and

Declares that Dennis Terracini, whilst being an officer of Elm Financial Services, failed to take reasonable steps to prevent the O'Connor Contravention.

Declares that by making the Wilkinson Statements, as defined in paragraph 229 of the Claim, Elm Financial Services contravened ("the Wilkinson Contravention"): (a) section 1041E (1) of the Corporations Act ;

(b) section 1041F (1) (a) of the Corporations Act; and

Declares that Dennis Terracini, whilst being an officer of Elm Financial Services, failed to take reasonable steps to prevent the Wilkinson Contravention.

Declares that Mr Young, by making the Jeffery Recommendation, as defined in paragraph 80 of the Claim, contravened section 945A (1) of the Corporations Act.

Declares that Dennis Terracini, whilst being an officer of Elm Financial Services, failed to take reasonable steps to prevent the contravention of section 945A (1) of the Corporations Act by Mr Young.

Declares that by making the Blinman Statements, as defined in paragraph 238 of the Claim, Elm Financial Services contravened ("the Blinman Contravention"): (a) section 1041E (1) of the Corporations Act ;

(b) section 1041F (1) (a) of the Corporations Act ; and

Declares that Dennis Terracini, whilst being an officer of Elm Financial Services, failed to take reasonable steps to prevent the Blinman Contravention.

Declares that that by making the Elm Property Statements, as defined in paragraph 249 of the Claim, Elm Financial Services, Elm Property and Fletcher Securities contravened ("the Elm Property Contravention"): (a) section 1041E (1) of the Corporations Act ;

(b) section 1041F (1) (a) of the Corporations Act ; and

Declares that Dennis Terracini, whilst being an officer of Elm Financial Services and Elm Property, failed to take reasonable steps to prevent the Elm Property Contravention.

Declares that between June 2002 and April 2004, Elm Financial Services contravened ("the Training Contravention") section 912A (1) (f) of the Corporations Act by failing to ensure that its authorised representatives were trained or properly trained and were otherwise competent to provide financial services in respect of the following: (a) the Stirling Offers, as defined in paragraph 30 of the Claim;

(b) the Port Heritage Offers, as defined in paragraph 38 of the Claim;

(d) the Elm Property Offers, as defined in paragraph 54 of the Claim.

Declares that Dennis Terracini, whilst being an officer of Elm Financial Services, failed to take reasonable steps to prevent the Training Contravention.

Declares that by failing to ensure that the Stirling Funds, as defined in paragraph 31 of the Claim, were secured as defined in paragraphs 261 and by failing to ensure that the Stirling Funds were: (a) secured by a debenture mortgage;

(b) secured by personal guarantees provided by the directors;

with the Stirling Offers; and (d) otherwise spent on matters related to the purchase and redevelopment of the Stirling Apartments, Elm Financial Services contravened ("the Stirling Funds Contravention") section 912A(1) (a) of the Corporations Act.

Declares that Denis Terracini failed to take reasonable steps to prevent the Stirling Funds Contravention.

Declares that between June 2002 and April 2004, Elm Financial Services contravened ("the Port Heritage Disposal Contravention") section 912A (1) (a) of the Corporations Act by: (a) failing to ensure that the Port Heritage Funds, as defined in paragraph 39 of the Claim, were paid to Port Heritage Developer, as defined in paragraph 38 of the Claim; and

(b) failing to prevent the expenditure of the Port Heritage Funds on matters unrelated to the development and construction of the Port Heritage Resort, as defined in paragraph 38 of the Claim.

Declares that Dennis Terracini, whilst being an officer of Elm Financial Services, failed to take reasonable steps to prevent the Port Heritage Disposal Contravention.

Declares that in about May or June 2003, Dennis Terracini, in his capacity as an officer of Elm Financial Services, directed an employee of Elm Financial Services to wrongfully conceal an investment made by investors in the Port Heritage Debentures, as defined in paragraph 39 of the Claim, through the issue of the Revised Bellamy Advice, as defined in paragraph 274 of the Claim.

Declares that on and from 4 September 2003, Dennis Terracini, in his capacity as an officer of Elm Financial Services, directed employees, servants and agents of Elm Financial Services to continue to recommend: (a) the Elm Nominees Debentures; and

(b) the Elm Property Debentures, to investors on the basis that the exemption afforded under section 708(10) of the Corporations Act was available, in circumstances where he had informed ASIC, in writing, that Elm Financial Services would not do so.

Declares that on 12 December 2003, Dennis Terracini, in his capacity as an officer of Elm Financial Services, directed employees of Elm Financial Services to provide to ASIC the 1st Elm Nominees Register, as defined in paragraph 278 of the Claim, in circumstances where he knew that that Register was incomplete and incorrect. D. THE OFFICER DUTY CONTRAVENTIONS:

Declares that by reason of the facts, matters and circumstances giving rise to each of the declarations in paragraphs 10, 12, 14, 16, 18, 20, 22, 24, 26, 28, 30, 32, 33, 34, 36, 38, 40, 42, 44, 46, 48, 50, 51, 52, 53, 54 and 55 above, Dennis Terracini, in contravention of section 180 (1) of the Corporations Act, failed to exercise his powers and discharge his duties as an officer of Elm Financial Services, with the requisite degree of care and diligence.

Declares that by reason of the facts, matters and circumstances giving rise to each of the declarations in paragraphs 10, 12, 14, 16, 18, 20, 22, 24, 26, 28, 30, 32, 33, 34, 36, 38, 40, 42, 44, 46, 48, 50, 51, 52, 53, 54 and 55 above, Dennis Terracini, in contravention of section 181 (1) of the Corporations Act, failed to exercise his powers and discharge his duties as an officer of Elm Financial Services, in good faith in the best interests of that corporation and for a proper purpose.

Declares that by reason of the facts, matters and circumstances giving rise to each of the declarations in paragraphs 12, 14, 18 and 32 above, Dennis Terracini, in contravention of section 180 (1) of the Corporations Act, failed to exercise his powers and discharge his duties as an officer of Elm Nominees with the requisite degree of care and diligence.

Declares that by reason of the facts, matters and circumstances giving rise to each of the declarations in paragraphs 12, 14, 18 and 32 above, Dennis Terracini, in contravention of section 181 (1) of the Corporations Act, failed to exercise his powers and discharge his duties as an officer of Elm Nominees, in good faith in the best interests of that corporation and for a proper purpose.

Declares that by reason of the facts, matters and circumstances giving rise to each of the declarations in paragraphs 10, 28 and 30 above, Dennis Terracini, in contravention of section 180 (1) of the Corporations Act, failed to exercise his powers and discharge his duties as an officer of E Star Redfern with the requisite degree of care and diligence.

Declares that by reason of the facts, matters and circumstances giving rise to each of the declarations in paragraphs 10, 28 and 30 above, Dennis Terracini, in contravention of section 181 (1) of the Corporations Act, failed to exercise his powers and discharge his duties as an officer of E Star Redfern, in good faith in the best interests of that corporation and for a proper purpose.

Declares that by reason of the facts, matters and circumstances giving rise to each of the declarations in paragraphs 16, 18 and 46 above, Dennis Terracini, in contravention of section 180 (1) of the Corporations Act, failed to exercise his powers and discharge his duties as an officer of Elm Property with the requisite degree of care and diligence.

Declares that by reason of the facts, matters and circumstances giving rise to each of the declarations in paragraphs 16, 18 and 46 above, Dennis Terracini, in contravention of section 181 (1) of the Corporations Act, failed to exercise his powers and discharge his duties as an officer of Elm Property, in good faith in the best interests of that corporation and for a proper purpose.

Declares that by reason of the facts, matters and circumstances giving rise to the declaration in paragraph 16 above, Dennis Terracini, in contravention of section 180 (1) of the Corporations Act, failed to exercise his powers and discharge his duties as an officer of Fletcher Securities with the requisite degree of care and diligence.

Declares that by reason of the facts, matters and circumstances giving rise to the declarations in paragraph 16 above, Dennis Terracini, in contravention of section 181 (1) of the Corporations Act, failed to exercise his powers and discharge his duties as an officer of Fletcher Securities, in good faith in the best interests of that corporation and for a proper purpose.

Orders, pursuant to sections 206C (1), 206D(1) and 206E (1) of the Corporations Act, that Dennis Terracini be disqualified permanently from managing corporations, commencing on the date when this Order is made.

Orders that Dennis Terracini pay ASIC's costs agreed in the sum of $50,000 with: (a) $20,000 being payable within 28 days of these orders being made;

(b) $30,000 being payable within 18 months of these orders being made. 68. Orders, pursuant to section 1317H (1) of the Corporations Act, that Dennis Terracini pay the sum of $150,000.00 to John Frederick Lord and John Maxwell Morgan as Deed Administrators of the Elm Companies within 18 months of these orders being made.

Orders that otherwise these Proceedings, so far as they concern ASIC and Dennis Terracini, be dismissed.

Orders that all other orders relating to Dennis Terracini predating the Orders set out herein be set aside, dissolved and discharged. AND THE COURT NOTES AND ACCEPTS THE UNDERTAKING GIVEN TO IT BY AND ON BEHALF OF DENNIS TERRACINI THAT:

Dennis Terracini will comply with the terms of the undertaking given by him to ASIC pursuant to section 93AA of the Australian Securities and Investments Commission Act, a copy of which is Exhibit DT2. **********

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