ASIC v Sydney Investment House Equities Pty Ltd & Ors [2006] NSWSC 1264 | Case summary

1 On the application of the Australian Securities and Investments Commission ("ASIC") I appointed a provisional liquidator to Sydney Investment House (Newcastle) Pty Ltd ("Newcastle"), the sixth defendant, and appointed a receiver and manager of the assets comprised in seven trusts. I made an order that Edwin James Goulding, the third defendant, Stephen Geagea, the fourth defendant, Newcastle and AJEG Holding Pty Ltd ("AJEG"), the eleventh respondent, ("the relevant parties") have liberty to apply to the Court on 48 hours' notice to set aside the orders with respect to the appointment of the receiver and manager, that liberty not to be exercised before 13 December 2006. I said I would give my reasons for making these orders in due course. 2 The background to ASIC's claim and most of the facts thus far established are fully set out in the recent judgment of White J in ASIC v Sydney Investment House Equities Pty Ltd & 9 Ors [2006] NSWSC 1130. I will not repeat them. Suffice it to say that Sydney Investment House Equities Pty Ltd ("Equities"), the first defendant, a company controlled by Mr Goulding raised over $5 million from investors by way of unsecured loans upon the representation that the moneys would be on-lent to approved development borrowers, defined to mean parties approved by Equities for the purposes of lending money for the development of a property development project. The moneys were on-lent to other companies controlled by Mr Goulding which were not developing property, with the exception of Newcastle and Melbourne Investment House (Collingwood) Pty Ltd ("Collingwood"), the tenth defendant. Its property was sold at a loss in the 2006 financial year. 3 Many of the investors were persuaded to roll over their investment in Equities to redeemable preference shares in Sydney Investment House Capital Ltd ("Capital"), the second defendant. It raised over $8 million. All the money raised was lent to companies controlled by Mr Goulding. 4 White J appointed Quentin Olde as provisional liquidator of the corporate defendants with the exception of Newcastle. He excluded Newcastle on the basis that the appointment of a provisional liquidator might have an adverse effect on marketing the apartments it held and depress their market price. 5 Capital made loans to, amongst other entities, the Goulding Family Trust of $20,000. It also made loans of $3 million to Sydney Investment House Pty Ltd ("House"), the fifth defendant, as trustee of the NC49 Hybrid Trust, the NC41 Hybrid Trust, the WSS Unit Trust and the Discretionary Property Trust and $50,000 to House as trustee of the Alcorn Hybrid Trust. 6 Mr Olde has formed the view that House, Newcastle, Melbourne Investment House Pty Ltd ("Melbourne"), the eighth defendant, and Collingwood have no substantial assets with the consequence that the loans made by Capital to them are unlikely to be repaid. He has also formed the view that the loans made by Capital to Newcastle and Melbourne Investment House (Hawthorn) Pty Ltd ("Hawthorn"), the ninth defendant, are unlikely to be fully repaid. Provisional Liquidator of Newcastle 7 The application for the appointment of a provisional liquidator of Newcastle was supported by an affidavit by Mr Olde. His evidence established that Newcastle had entered into a number of "side deeds" with respect to the sale of its apartments under which some, but not all, investors were granted a discount on the purchase price of apartments related to the amount of their investment in Equities. There was a genuine fear that this process had diminished the market value of the apartments by creating the perception of fire sales. 8 There is, in my opinion, a serious concern that Mr Goulding, in dealing with individual investors, is adversely affecting the value of Newcastle's investment in the apartments such that the reservation that White J held on 27 October 2006 has been displaced. Unless there be an appointment of a provisional liquidator to Newcastle the interests of investors who are not parties to "side deals" will be further adversely affected. There is also a need to investigate the "side deals" that have been completed to ascertain whether some investors have received an unfair preference in terms of the Corporations Act 2001 (Cth), s 588FA(1) or uncommercial transactions have been made in terms of s 588FB(1) which, if entered into when Newcastle was insolvent would constitute insolvent transactions in terms of s 588FC and be voidable if within six months of the relation-back day or within two years of the relation-back day respectively under s 588FE. 9 Furthermore, there is serious concern that there is a lack of confidence in the conduct and management of the affairs of Newcastle. 10 I formed the view that it was appropriate that the provisional liquidator of the other corporate defendants be appointment provisional liquidator of Newcastle. The application was not opposed by the relevant parties. Appointment of receiver and manager 11 White J found that Equities had lent moneys to, amongst other companies controlled by Mr Goulding, House as trustee of the NC49 Hybrid Trust, the Goulding Family Trust, the Discretionary Property Trust and the WSS Unit Trust. In addition, Capital had lent moneys to, amongst other companies controlled by Mr Goulding, House as trustee of the Discretionary Property Trust, the NC49 Hybrid Trust, the WSS Unit Trust, the Alcorn Hybrid Trust and the Goulding Family Trust. 12 The evidence now reveals that AJEG has replaced House as the trustee of at least some of the trusts. Mr Goulding's mother is sole director and shareholder. 13 Mr Goulding caused companies controlled by him to breach orders made by the Court that prevented them from dealing with or disposing of their assets. 14 On 4 September 2006 Barrett J, amongst other orders, ordered House, its officers, servants, agents or employees to be restrained from removing, or causing or permitting to be removed, from the States of New South Wales, Victoria, Queensland and from Australia, or selling, charging, mortgaging, or otherwise dealing with, or disposing of, or causing, or permitting to be sold, charged, mortgaged or otherwise dealt with or disposed of, all or any of its assets including, but not limited to, any of its rights and interests provided that the order should not prevent House from paying any such moneys as were necessary in the ordinary cause of business and should not prevent House from paying costs reasonably incurred in relation to the proceedings up to an amount of $10,000. 15 On 7 September 2006, Mr Goulding caused House to exchange a contract for the sale of a property at Coogee for $2.87 million. 16 Hawthorn was bound by the same order of Barrett J. The evidence reveals that in contravention of that order on 15 September 2006 Mr Goulding caused it to exchange a contract for the sale of a Hawthorn property for $3.805 million. 17 In defence of the relevant parties it was said that the sale of the Hawthorn property was of little moment because the consent of the liquidator had been obtained on 20 November 2006. That consent records that it was given notwithstanding the injunction in the previous orders. The fact that the provisional liquidator was prepared to condone the sale does not excuse the breach of the injunction committed by Hawthorn. 18 Mr Olde has ascertained that House as trustee of the Goulding Family Trust entered into a contract for the purchase of a property at Maleny in Queensland in May 2006 with a settlement date of 18 November 2006 and that, of the deposit of $55,000, $44,000 was provided by Newcastle. There is nothing on the material before the Court to indicate that the payment was in the ordinary course of Newcastle's business. 19 It was submitted that House entered into the contract for purchase of the Maleny property in error because it had been replaced by AJEG as trustee of the Goulding Family Trust on 26 September 2005. AJEG was not bound by the injunctions. Nevertheless, Mr Goulding caused House to execute the agreement and to incur a liability to part with assets in contravention of the injunction. 20 On 1 November 2006, White J, amongst other orders, varied the orders of 4 September 2006 with respect to Newcastle and ordered that, until further order or the written consent of the provisional liquidator, Newcastle, whether by its officers, servants, agents or employees, be restrained from removing, or causing or permitting to be removed from the State of New South Wales, Victoria, Queensland and from Australia, or selling, charging, mortgaging or otherwise dealing with or disposing of, Newcastle's assets, including but not limited to, any of their rights and interests provided that the order should not prevent Newcastle from paying any such moneys as were necessary in the ordinary course of business (including but not limited to the payment of salary and/or wages of employees and officers of Newcastle). 21 The evidence establishes that in November 2006, after White J had varied the earlier orders of the Court, Newcastle paid $5,000 to the Goulding Family Trust. Prima facie that payment was in breach of the orders made on 1 November 2006 as there is nothing to suggest that that payment was in the ordinary course of Newcastle's business. 22 In his affidavit Mr Olde had sworn to information provided by Stephen Kelly of Day Dockrill with regard to the rescission or termination of contracts of sale of some of the apartments of Newcastle and a statement that Mr Goulding had advised Mr Kelly that he was signing a contract for the sale of the remaining apartments en masse. Mr Kelly took issue with these statements. In my view, however, that conflict does not detract from the evidence of breach of Court orders. 23 Mr Olde has also discovered that Mr Goulding has caused various unit trusts to issue units to certain investors. Dr Neophyton has received units in the NC49 Hybrid Trust and Tresair Pty Ltd has received units in the WSS Unit Trust. In addition Mr Goulding has caused Newcastle to acquire a liability in respect of debts owed by some of the other corporate defendants to Dr Neophyton and Tresair for no consideration. 24 Mr Olde had sought from the National Australia Bank a stop order on an account of House as trustee of the Alcorn Hybrid Trust. That led to the solicitors for Mr Goulding and AJEG to inform Mr Olde that House had been replaced by AJEG as trustee of the Alcorn Hybrid Trust and neither Mr Goulding nor AJEG gave Mr Olde permission to deal with the assets of the Alcorn Hybrid Trust in any way. 25 Mr Goulding asserted that he, Mr Geagea and AJEG and the beneficiaries of the trusts of which AJEG was trustee, would be prejudiced by an order restraining the defendants in the manner sought in the interlocutory process because that would constitute an irremediable default under the terms of a loan facility guaranteed and entered into by those parties in relation to assets owned by the trusts. It would prevent the trusts from meeting their obligations under the respective loans and result in the mortgagees of the properties entering into possession. 26 The injunctive relief sought in the interlocutory process was in the alternative to the appointment of a receiver and manager. Counsel for the relevant parties stated that his instructions were that the same result would follow the appointment of a receiver and manager. 27 There is no guarantee that the mortgagees would take precipitate action in the event of an act of default under the loan facility. And the risk of such action must be balanced against the risk to the investors of the trusts remaining under the control of Mr Goulding. 28 It has been said that the appointment of a receiver over a person's assets is an extraordinary step for a Court to take, although it may be justified when associated with allegations of misappropriation of property though not necessarily exclusively fraudulent (ASIC v Burke [2000] NSWSC 694 at [8]). But proof of actual or apprehended fraud is not a precondition to the appointment of a receiver and manager (ASIC v Marshall Bell Hawkins Ltd & ors (2002) 43 ACSR 340 at [13]). Thus the appointment of a receiver may be justified even though asset preservation orders are in place where there is real doubt about the existence and location of assets and about the nature and identity of claimants and the nature of claims, and where defendants are engaged in business activities that entail that asset preservation orders allow assets to be turned over in the ordinary course of business (Burke at [8]). 29 An order will be made where the evidence demonstrates that there is a risk to the public interest that warrants protection (ASIC v ABC Fund Managers (2001) 39 ACSR 443 at [119]). And an order will be made where, as here, it is inappropriate for the corporate defendants and the relevant trusts to solicit, manage and handle moneys that, it would appear, could only have been derived from moneys lent by Equities and Capital that had been derived from investors' funds. That is where there is a lack of confidence in the conduct and management of the affairs of the companies and trusts (ABC Fund Managers at [119]). 30 The Corporations Act 2001 (Cth), s 1323(1)(h)(ii) enables the Court to appoint a receiver and manager having such powers as the Court orders of the property or of part of the property of a body corporate. The power is exercisable once there is, in terms of s 1323(1)(a), s 1323(1)(b) or s 1323(1)(c) an investigation being carried out under the Australian Securities and Investments Commission Act 2001 (Cth), a prosecution begun for contravention of the Corporations Act 2001 (Cth), or a civil proceeding begun against a person under that Act, respectively. The jurisdiction arises even in the absence of strong evidence of dissipation of assets, and even in the absence of a prima facie or, at least, a reasonably persuasive case against the individual concerned (Re HIH Insurance Ltd; ASIC v Adler & ors (2001) 38 ACSR 266 at [7]). 31 The Supreme Court Act 1970, s 67 provides that the Court may at any stage of proceedings, on terms, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient so to do. Under this power the Court will appoint a receiver of trust property where that property is in jeopardy through misconduct, waste, improper disposition, breach of the trustee's duty, or the unsuitable character of the trustee. The case in favour of the appointment of a receiver must be a strong one, but in assessing the risk to the trust, the Court will apply a qualitative judgment. A receiver will be appointed to preserve the benefit of a person who has an interest in the property (Yunghanns v Candoora No 19 Pty Ltd (No 2) (2000) 35 ACSR 34 at [84]). 32 It was argued by the relevant parties that there was no evidence of a need for urgency, and no evidence of dissipation of assets. Reference was made to Cardile v LED Builders Pty Ltd (1999) 198 CLR 380. But in that case, at [57], it was said that a mareva order might be appropriate against the third party if the third party held assets including claims and expectancies of a potential judgment debtor. 33 It was submitted that there was no evidence of a threat to the jurisdiction of the Court. 34 There is ample evidence to establish that funds invested with Equities and Capital have found their way into the various trusts of which AJEG is now the trustee. There are potential claims that may be made on behalf of the investors against assets of those trusts. Mr Goulding has caused various defendants to breach the terms of orders already made by this Court and the Court can have no confidence in his continued conduct and management of the affairs of the trusts. AJEG is not subject to the injunctions that bind the other defendants. 35 Notwithstanding the risk that the appointment of a receiver and manager may trigger an act of default under a loan facility, the overpowering public interest and that of the investors leads inexorably to the conclusion that a receiver and manager be appointed. 36 It was for these reasons that I appointed Mr Olde receiver and manager of the assets comprised in the Alcorn Hybrid Trust, the WSS Unit Trust, the NC13 Hybrid Trust, the NC41 Hybrid Trust, the NC49 Hybrid Trust, the Goulding Family Trust and the Discretionary Property Trust. 37 Since the relevant parties had little time to meet the application, I made an order that they have liberty to move to set aside the orders relating to the appointment of Mr Olde as receiver and manager, exercisable after a specified date. The latter part of the order was designed to give Mr Olde time to ascertain the position in relation to each of the trusts. **********

ASIC v Sydney Investment House Equities Pty Ltd & Ors

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