ASIC v Secured Bond Ltd

LEGISLATION CITED : Corporations Act 2001 (Cth) Australian Securities and Investments Commission Act 2001 (Cth)

CASES CITED : ASIC v Hawley [2008] FCA 1423; (2008) 68 ACSR 79 ASIC v Mauer-Swisse Securities Ltd (2002) 20 ACLC 1530

PARTIES : Plaintiff: Australian Securities and Investments Commission 3rd Defendant: David John Collard

COUNSEL : Plaintiff: Mr J Halley SC with Ms J Single 3rd Defendant: Ms A Ketas

SOLICITORS : Plaintiff: ASIC 3rd Defendant: n/a

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

4532/08 Australian Securities and Investments Commission v Secured Bond Ltd as trustee for the Master Fund & 12 Ors JUDGMENT 1 HIS HONOUR: This is an application by the Australian Securities and Investments Commission ("ASIC") that until 30 November 2009, the third defendant be restrained from leaving, or attempting to leave Australia and from applying for the issue of a passport. Pursuant to earlier orders of the court, the third defendant has delivered up his passport to the court. 2 Orders of this character have been made from time to time from 2 September 2008. Proceedings were commenced on that day naming Secured Bond Ltd as the first defendant company and various individuals and other companies as the second to thirteenth defendants. 3 The investigation which led to the proceedings started in August 2008. Today ASIC is investigating suspected contraventions of ss 911A, 601ED, 1041E, 1041G and 1041H of the Corporations Act 2001 (Cth). It is investigating the operation of a number of suspected unregistered managed investment schemes. The third defendant, Mr Collard, is a director of a number of the companies said to have been involved in the operation of such schemes and to have played a role called "administrator" in relation to the schemes. Other persons who are said to have a similar involvement include a Mr Hobbs and a Ms Li. 4 In the course of its investigation ASIC has used its powers to obtain documentary records from the companies and from individuals concerned. It says that the records which it has obtained are incomplete and many of the decisions made by at least Secured Bond Ltd are not recorded, and that other matters such as the basis on which payments were made to shareholders, the basis on which returns were paid to investors, and the basis on which commissions were paid, are also not recorded. 5 It also contends that Mr Collard and others received payments from the companies or the funds which form part of the scheme which are not properly accounted for in the records of the companies. It says that its investigations disclose prima facie serious contraventions of the Act. It submits that Mr Collard is likely to be a defendant to proceedings which are yet to be brought, but which are likely to contain allegations of serious contraventions of the Corporations Act and the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act"), including several penalty provisions. 6 Orders restraining Mr Collard from travelling outside Australia have been renewed from time to time during 2008 and 2009. On 15 and 16 June 2009 Austin J dealt with an application by ASIC for the extension of asset preservation orders, orders requiring the surrendering of Mr Collard's passport, and restraints on his travel overseas. 7 His Honour records in his reasons for judgment at ([4]-[6]): " [4] When the case opened this morning ASIC informed the court that it wished to extend the orders in relation to both asset preservation and surrendering of passport until 30 November 2009. However, when during the course of submissions I expressed some reluctance as to whether, in the circumstances of this case, the court ought to extend the passport orders for such a long period of time, senior counsel for ASIC took instructions and put forward a revised position. He informed the court that the work that was necessary to be done in relation to the third defendant, including preparation for further examination and the conduct of the examination, required that the orders be extended for eight weeks but that ASIC would not press the court for any extension beyond that time.

[5] It is important to note that senior counsel for ASIC made it clear that the eight weeks estimate was an estimate of how long it would take to complete the examination process currently in contemplation. He made it clear that if a serious issue emerged during the course of ASIC's further work that would require further investigation and further examination of Mr Collard, then it might be necessary for an application to be made to continue the passport order so that such further examination could be conducted.

[6] ASIC has also reserved the possibility that it might make an application for a further extension on some ground other than to pursue the investigations and examinations currently in contemplation: for example, if it emerges that the Mr Collard is likely to be an important witness in relation to other aspects of the proceedings and ASIC wishes to contend that there is a flight risk with respect to his availability for that purpose. It is unnecessary for me to express a view as to whether a passport order is appropriate in those circumstances. " 8 His Honour concluded that the "passport order" against Mr Collard should be extended for eight weeks. The asset preservation orders were extended to 30 November 2009. 9 In concluding that it was appropriate to extend the "passport orders" for eight weeks his Honour accepted ASIC's submission that (at [22]): "[22] Even so, it seems to me that ASIC has made out a case for an extension of the passport orders, in view in particular of the matters that it lists in para 12 of its written submissions, namely: (a) that Mr Collard is a material witness in an incomplete investigation of serious alleged contraventions of corporations legislation, that might reflect adversely on his probity and lead to the institution of civil proceedings for recovery of money or damages, civil penalties or even the laying of criminal charges; (b) according to the evidence available to ASIC at this stage, which of course has not been tested, he appears to have received substantial funds either directly or through related entities in connection with the Master Fund scheme; (c) by his own evidence he has very limited net assets in Australia; (d) he was a regular overseas traveller prior to the commencement of the proceedings; (e) though he has apparently extensive family ties in Australia, he has not pointed to any compelling family reason that would require him to return to Australia in the short to medium term; (f) he does not claim to have had any source of income in Australia since May 2008; (g) according to evidence upon which ASIC relies, which has not been tested, he appears to have displayed a serious lack of candour in a number of material respects in answers provided to ASIC; and (h) he does not have a financial services licence under the Australian legislation. " 10 As appears from the paragraphs of his Honour's reasons I have quoted, as at 16 June 2009 ASIC's examination of Mr Collard was incomplete. That position has now changed. ASIC presently does not have material about which it wishes to ask Mr Collard further questions. However, it anticipates it will obtain additional information from the examination of other persons who were involved in the administration of the alleged managed investment schemes. It anticipates that as a result of those examinations of others, it is likely it will obtain additional information about which it will wish to further examine Mr Collard. 11 Three individuals have been identified as being of particular relevance in this connection. The first is a Mr Hobbs. He is a resident of New Zealand, and some examination of him has occurred there. Examination of Mr Hobbs is incomplete. At present it is, in effect, stayed because of a medical condition of Mr Hobbs. It is quite uncertain as to when, if at all, ASIC will be able to complete its examination of Mr Hobbs. 12 The position of two other individuals is different. A Ms Dong, who is also a defendant, was overseas when the interlocutory process for the present relief was filed. She returned to Australia by 4 September 2009. A senior investigator for ASIC deposed on 7 September 2009 that he intended to conduct an examination under s 19 of the ASIC Act of Ms Dong in the week commencing 7 September 2009. He deposed that he did not anticipate that the examination would conclude in that week. He expected the examination to take several days and be concluded by the end of November. 13 I was told that the examination of Ms Dong did start in the week of 7 September 2009. No other information has been provided to the court in relation to what has emerged from that examination, and I infer that nothing particular has yet emerged about which ASIC would have further questions for Mr Collard. 14 The third individual concerned is a Ms Wu. She was examined by ASIC from 31 August 2009. Although the evidence from ASIC is that Ms Wu has stated that she worked with Mr Collard and with the fourth defendant, a Ms Li, and attended meetings at which Mr Collard was present in relation to two of the companies which are the subject of the investigation, it does not appear that anything particular has emerged from the examination of Ms Wu to date about which ASIC needs or wishes to ask questions of Mr Collard. 15 No definite or particular need has been identified that would require Mr Collard's continued presence in the jurisdiction to be available for further examination by ASIC. 16 As a result of orders made on 14 October 2008 requiring the defendants to give notice for the repatriation of funds from overseas, amounts totalling US $1,378,880.71 have been paid into court by four companies the subject of the investigation. It appears that these represent funds owed to investors in the scheme or schemes. ASIC submits that it is probable that orders will be made for the winding-up of the scheme and a liquidator will be appointed, and the liquidator will need the assistance of Mr Collard to assist in the distribution of these funds. 17 In that connection it might be relevant that on 9 September 2009 orders were made for Mr Collard, amongst others, to provide a full and detailed affidavit setting out various details in relation to the name and identities of investors, the existing funds made on behalf of investors, the returns paid to investors, and the like. No submissions have been made in respect of compliance or non-compliance with that order. 18 ASIC anticipates commencing substantive proceedings, which I infer would include proceedings for orders for the winding-up of the alleged schemes, by 20 November 2009. I do not think that there is a serious prospect that Mr Collard would be required to provide assistance to a liquidator prior to 30 November 2009. 19 As the interlocutory process seeks to restrain Mr Collard from travelling up to 30 November 2009, it does not appear to me that the possibility, or, if you will, the likelihood that he might be required to provide assistance to the liquidators in relation to the distribution of funds paid into court is of any significance in determining the present application. 20 The senior investigator for ASIC, Mr Connor, has concerns that if Mr Collard's passport were to be returned to him, he might leave Australia and not return. He gives as his reason for that concern, first, that Mr Collard has been a regular overseas traveller; secondly, that Mr Collard is aware of ASIC's investigation and its allegations of serious contraventions of the Corporations Act, including his being aware that ASIC suspects him of being involved in the operation of the fund and the recruiting of investors; thirdly, that Mr Collard is aware of a likely shortfall in funds owing to investors; fourthly, because he says Mr Collard, either personally or through entities associated with him, has received large sums of moneys from the investments; fifthly, he says that ASIC's investigations disclose that there are debits in excess of $300,000 from the first defendant's bank account which Mr Collard was authorised to operate and for which there are no proper records in the company's books and for which ASIC has not been able to find an explanation. Sixthly, he deposes that his concern is based in part on the fact that the fourth defendant, Mrs Li, who is a business colleague of Mr Collard and involved in the operation of the schemes, departed from Australia and has breached undertakings she gave to the court to return. Seventhly, he says that Mr Collard is in regular contact with Mr Hobbs; and finally, he says that he believes Mr Collard to be estranged from his wife and to have adult children. To that, counsel for ASIC adds that Mr Collard has limited assets in Australia, claims to have had no source of income since May 2008, and has incurred substantial legal fees and credit card debt. 21 Mr Collard deposes that he needs to be able to travel overseas in order to earn an income. He says that since being restrained from leaving the country he has been living on the charity of his family and that is a position which cannot continue. He deposed that: " Over the past 30 years I have developed my skills and derived my income as a sales and marketing manager who specialises in international markets. Over the years I have successfully managed sales and marketing operations in ten countries. The majority of the business contacts I have developed over the last 30 years are overseas contacts. "

22 This evidence is more than a little opaque. He does not describe, with any specificity, the nature of the products which he sells or markets in international markets. 23 Oral evidence adduced on this application did not make the position much clearer. Mr Collard spoke in terms of being involved in wholesale funds and acting for clients who would look to place funds with him, then to be placed in a clearing house in the United States, apparently with a view to being applied, in some cases, to what was called project funding. But the nature of the projects and the nature of the funding was not otherwise described. He also gave evidence of various approaches to him to be involved in the marketing internationally, of a wide variety of products ranging from wine, coal, and iron ore to deodorisers. I agree with the description of ASIC's counsel of these proposals as apparently speculative. 24 Counsel for ASIC also points out that Mr Collard's tax returns for the period 2002 to 2007 do not reveal any foreign source income. 25 Whilst it was submitted for ASIC that there is a risk that Mr Collard will abscond if permitted to depart the jurisdiction and, hence, it was submitted that his true purpose in travelling overseas would not be to seek to derive income from the use of his business contacts, it was not submitted that he had any other purpose in seeking to travel. 26 The question is whether there is a sufficiently material risk that Mr Collard would not return if he is allowed to depart. Senior Counsel for ASIC accepted, in my view properly, that the long-term prospects of Mr Collard's remaining overseas would be very low. The primary reason for that is that, in contrast with Ms Li, to whom I referred earlier, Mr Collard has strong family connections in Australia. His elderly mother lives here, as do his children and grandchildren, and there is strong evidence of close family ties. To this can be added, as Mr Collard's counsel submits, the fact that he is an Australian citizen. It is not suggested he has any right of residence in any other country, and there would be time limits placed on him when he visited other countries. 27 As Perram J said in ASIC v Hawley [2008] FCA 1423; (2008) 68 ACSR 79 at 138, the function to be performed under s 1323(1) involves balancing the interests, on the one hand, of the aggrieved persons referred to in s 1323(1) and, on the other hand, the interests of the respondent in avoiding undue interference in his or her affairs. An order which interferes with a person's freedom of movement is not to be made lightly. 28 Once it is accepted that there is a very low prospect of Mr Collard's remaining out of the jurisdiction in the long-term, then I think the risk of his not returning in the short to medium term to provide any necessary assistance to a liquidator, to attend on any further examinations of ASIC, and to defend any proceedings that might be brought against him, should also be assessed as low. The reason for that is that he proffers undertakings to the court to provide ASIC with his contact details when he travels overseas and to return within 14 days of ASIC giving notice in accordance with the details so provided to attend for examination. He also offers an undertaking to the court not to travel overseas for more than three weeks at a time. 29 A breach of those undertakings could well have serious consequences. They could result in fine or imprisonment or both. 30 Whilst I accept that the lack of specificity in Mr Collard's evidence as to why he needs to travel overseas in order to earn income means that he has not provided compelling reasons of a need to travel, I do not think that that is the right question. Interference with his personal liberty at a time when no proceedings have been brought against him and no particular charges are laid against him which he has the opportunity to answer, is a serious matter. 31 Doubtless, if there were a significant risk that he would abscond so as to avoid the claims that companies or the investors might have against him, that would provide strong grounds for the making of an order restraining him from travelling. (See, for example, ASIC v Mauer-Swisse Securities Ltd (2002) 20 ACLC 1530 at [39].) If that were the case, I would not expect the present application to be for an order restraining his leaving or attempting to leave Australia only until 30 November 2009. 32 The evidence establishes only the possibility that Mr Collard might be required to provide assistance to ASIC in that period. I do not think that that possibility is a sufficient justification for the orders sought in the light of the undertakings Mr Collard has proffered. 33 Subject to submissions that counsel might have as to the form of orders, I propose to make the following orders:

1. that paragraphs 1 and 4 of the plaintiff's interlocutory process filed on 20 August 2009 be dismissed;

2. direct the Registrar to deliver up to the third defendant his passport;

3. note the undertaking of the third defendant to the court that until further order: (a) not later than 24 hours prior to the third defendant's departing from Australia he will give notice to the plaintiff in writing of his intention to travel overseas, details of the places to which he proposes to travel and details of where and how he can be contacted by phone, fax or email; (b) will make himself available for examination by the plaintiff within 14 days after notice is provided by the plaintiff to the address or in the manner so notified that it requires him to attend for examination; and (c) will not travel overseas for more than three weeks at any one time.

[Counsel addressed.] 34 I make those orders. I note that the third defendant gives those undertakings to the court through his counsel and I also note that the third defendant is in court.

[Counsel addressed on costs.] 35 Notwithstanding that the orders I have made have been partly based on the provision of an undertaking by the third defendant and notwithstanding that an undertaking in those particular terms has only been offered today, I think that the third defendant is entitled to his costs of the application. Prima facie, costs follow the event, and it would have been open to either party to have sought to negotiate an arrangement along the lines of the undertaking which has now been proffered. I order that the plaintiff pay the third defendant's costs of and incidental to the interlocutory process of 20 August 2009. These orders may be entered forthwith. Exhibit DC1 may be returned.

01/12/2009 - Amendment to coversheet: no solicitor acting for the 3rd defendant. - Paragraph(s) 0

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