42 As his Honour had made plain earlier on the same page, giving effect to that intention "does not require that a prima facie case of liability should be made out as is necessary in order to obtain interlocutory relief for the preservation of property by way of injunction or the appointment of a receiver under the general law and the Supreme Court Act. ...In the case of an application made shortly after an investigation has begun, the evidence may be regarded as sufficient if it establishes the general circumstances, the nature of the investigation and the reason why it is thought that there may be some liability on the part of a relevant person."
43 His Honour continued by contrasting that position with the position on some hypothetical later application, and considered the further evidence that might be then required.
44 Further, as I have said, the "necessary or desirable" inquiry focuses on protection of aggrieved persons. The drastic nature of the remedy does not inform that inquiry. At most, it informs the subsequent inquiry, arising from the words "may order", as to the exercise of the discretion (that by hypothesis) has been enlivened. In this context I use the word "exercise" to include at least two matters. The first is whether any order should be made at all. The second, assuming a positive answer to the first, is the form of the order to be made.
45 In short, I think, in asking whether it is necessary or desirable for the protection of aggrieved persons to appoint a receiver, one looks at the needs of those persons, and at the threats or risks to those needs, and not at the drastic nature of the remedy.
46 As I have said, it is necessary to bear in mind the purpose underlying s1323. That purpose is to preserve the status quo pending the outcome of an investigation. What may be preserved includes the assets of those suspected of wrongdoing. The preservation is for the benefit of those who may have a claim against the suspected wrongdoers. It would be quite inconsistent with that purpose to apply, without thought or adaptation, principles developed in relation to the appointment of receivers in other contexts and for other purposes.
47 For example, and as Waddell CJ in Eq pointed out in Walker, it is inherent in s1323 that investigations may not have reached a stage where particular wrongdoing or particular wrongdoers can be identified with precision. But to deny an order on the basis that matters had not got to the point of identifying a serious question to be tried would be to eviscerate both the jurisdiction and the purpose.
48 Powell J confirmed this in A.S.C. Timber at 476. His Honour said that the power to appoint a receiver is one that may be invoked once the necessary jurisdictional facts have been established. However, as his Honour noted at 478, "something out of the ordinary [needs] to be demonstrated to justify the appointment of a receiver". What is or may be something out of the ordinary for that purpose is a matter that requires evaluation on a case by case basis.
Disclosure orders
49 ASIC sought an order that Mr Byers disclose details of all his assets and liabilities. That order was to be subject to the right to claim privilege against self-incrimination or exposure to a penalty.
50 Mr Ashhurst raised two objections. The first was that such an order is not justified by s1323. I do not accept that submission. If the Court is satisfied that the appointment of a receiver is justified, a disclosure order would be ancillary to, and in aid of the effective implementation of, that appointment. For the reasons that I have given as to the powers that are available through subs(7) once the court decides to make an order under subs(1), the Court could make a disclosure order.
51 The second objection was based on what Mr Ashhurst said was the inadequacy of the protection against self-incrimination: particularly in circumstances where, if that privilege is claimed, ASIC seeks an order that Mr Byers provide full details of the claim in a second, confidential affidavit.
52 Giles JA (with whom Spigelman CJ and McColl JA agreed) pointed to the problems with such an order in Ross v Internet Wines Pty Ltd (2004) 60 NSWLR 436 at 450 [99] to 452 [104]. In my view, the same considerations apply in this case.
53 The Court has recognised the problem. See Practice Note SC Gen 14 at para 14, and see in particular the provisions of paras 8 and 9 as the draft ex parte freezing order referred to in para 14. In my view, if a disclosure order is to be made, it should reflect the wording of paras 8 and 9.
Application of the principles in this case
54 The administrators presently believe that the Fincorp Group may have been insolvent since mid 2006: ie, for about nine months before their appointment. Over that time, it raised approximately $110 million from the public. Over the time that Mr Byers was a director (from November 2006) it raised almost $60 million from the public. Indeed, if one focuses one's attention only on this year, it raised some $32 million from the public between 1 January and the date of appointment of the administrators.
55 The administrators give reasons in support of their preliminary view. Those reasons are logical. In particular, the administrators provide what might be regarded as a rebuttal of inferences otherwise available from the terms of the Ernst and Young report to which they refer. In this context, I refer to the revaluation of the properties of which Mr Winterbottom gave evidence. Whilst there is no material on which the Court could now make a positive finding of insolvency, the administrators' reasons do demonstrate that their preliminary view is not irrational or groundless.
56 That preliminary view also finds support in the draft financial statements of the Fincorp Group (more accurately, Fincorp Group Holdings Pty Limited and its controlled entities) as at 30 June 2006. Those draft financial statements were not finalised at the time of appointment of the administrators. Nonetheless, to the extent that they can be taken as demonstrating the financial position of the group as at 30 June 2006, they show:
· a net loss for the year of $17.2 million;
· a deficiency of assets over liabilities of $32 million;
· of particular relevance for present purposes, a deficiency of current assets compared to current liabilities (ie, an excess of current liabilities over current assets) in excess of $50 million.
57 When one bears in mind the statutory test of solvency posed in s95A of the Corporations Act, those draft financial statements - to the extent that they are accurate - do not undermine the administrators' preliminary view.
58 There are as I have said two investigations underway. Each - the administrators' investigation and ASIC's investigation - is at an early stage. The affairs of the Fincorp Group were complex. Much work will be required to disentangle them. The outcome of that work, in terms of solvency, cannot be predicted.
59 Of course, proof of insolvent trading does not without more make a director liable under s588G so as to render him or her liable to an order to pay compensation. It is necessary to show that, at the time a liability was incurred, there were reasonable grounds to suspect that the company was or would become thereby insolvent. There are the defences provided by s588H. Having said that, proof of insolvent trading is an important step along the way to liability.
60 By way of aside: it is at least likely that further investigation of the question of insolvent trading, with a view to demonstrating when the group became insolvent, is likely of itself to cast light upon the requirement set out in s588G(1)(c), to demonstrate reasonable grounds for suspecting insolvency.
61 It is clear that many people have suffered loss. They will include those who have invested since mid 2006 and who did not (or could not) redeem their investments. Those persons will have lost, in some cases about half and in others all, their investments. If insolvent trading be proved, those persons may well have a claim against directors at the relevant time. So may the liquidator.
62 There is no direct evidence that Mr Stubbs has sought to dispose of his assets. Mr Stack referred to a transfer by Mr Stubbs to his wife of an interest in a property at Daleys Point. Although the evidence is sketchy, the transfer that was identified (undated, unstamped and unregistered though it is) states a consideration for the transfer. There is no evidence that the consideration is, or was at whatever may have been the relevant time, insufficient. Equally, there is no evidence that the consideration has been paid. I have to say that I would have thought that Mr Stubbs was in a position to illuminate the Court on those matters if he chose to do so. Equally, I note that Mr Stack did not seek to cross-examine Mr Stubbs in relation to this transaction (or at all).
63 In addition, the evidence suggests that Mr Stubbs assisted other directors to transfer assets to their wives. He did so by causing Fincorp Group money to be used for the payment of stamp duty on those transfers. Those transactions - the total involved is approximately $100,000 - are among the matters under investigation by the administrators.
64 There is some evidence that might suggest that Mr Byers may have sought to disguise an asset - his ownership of York Capital Limited. There is, however, no direct evidence that Mr Byers has sought to dispose of his assets; and I note that he has given sworn evidence that he has no present intention of doing so. Although Mr Byers was cross-examined, he was not challenged on that assertion. I think that, notwithstanding some perhaps unsatisfactory aspects of other parts of his evidence, I should accept it. But present intentions may change.
65 In each case, I conclude, the risk of dissipation, whilst on the evidence low, cannot be discounted.
66 Mr Stubbs' evidence is that his assets are small. That may be so; but it does not follow that they should not be protected for the possible benefit of aggrieved persons.
67 Mr Byers said further that the making of any order (or, for that matter, the giving by him of an undertaking) would have a significant adverse impact on his reputation. I accept that as a real possibility. But I am required to consider the interests of aggrieved persons. I do not think that possible damage to reputation overcomes their interests; indeed, that damage follows (if at all) from the very scheme of the section.
68 Mr Byers gave no other evidence of adverse impact; and Mr Stubbs gave none.
69 I accept that the positive case against Messrs Stubbs and Byers, in relation to insolvent trading, is not at this stage strong. But, as I have said, the investigations are at an early stage. To adapt the words of Waddell CJ in Eq in Walker, the evidence satisfies me of the general circumstances, the nature of the investigations and the reasons why it is thought that there may be some liability on the part of Messrs Stubbs and Byers.
70 Balancing all the considerations as best I can, I have come to the conclusion that it would be desirable in the interests of aggrieved persons - including the thousands who have lost some or all of their investments - that a receiver be appointed to the assets of Messrs Stubbs and Byers.
71 I acknowledge that the evidence of risk is low. But the section contemplates that, as it does the drastic nature of the relief. And it contemplates that such relief might be granted at an early stage, as Waddell CJ in Eq observed in Walker.
72 In this case, the risk of dissipation needs to be assessed against the very large amounts of the potential claims. I have indicated the range of those claims: from $110 million at one extreme to $32 million at the other. They are not small sums of money.
73 I take into account the nature of the investigations, the relatively early stage (having regard to the complexity of the task) that they have reached and the surrounding circumstances to which I have referred. I take into account also the relatively short duration for which the orders are sought - some two months; and the availability of liberty to apply. I take into account the absence of any evidence of harm other than reputational damage.
74 Thus, I need to consider the precise manner of exercise of the discretion that, on my findings, has been enlivened. At this point it becomes relevant to take into account the drastic impact of receivership, and (among other things) the absence of any recourse in relation to damages. I also take into account that the evidence of risk of dissipation is inferential rather than direct; and of course I take into account the other circumstances to which I have referred.
75 Taking all those matters into consideration, I do not propose to appoint receivers but instead to make a freezing order. It seems to me that this less intrusive order, again for two months and subject to liberty to apply, balances the public interest that ASIC seeks to vindicate with the private interests of Messrs Stubbs and Byers.
76 I accept that such an order may cause reputational damage, as Mr Byers has said. That is unfortunate. But the extent to which the making of an order will really add to such damage may have accrued to date from publicity to date is a matter of conjecture.
77 I make orders in accordance with paragraphs 3 (as amended) and 6 to 9 of the short minutes of order initialled by me and dated today's date.
78 I will hear ASIC and Mr Byers on the form of any disclosure order to give effect to what I have said on this topic.
79 I will hear the parties on costs.
(For submissions re costs see third last and second last pages of the transcript for 14 August 2007.)