ASIC v Takaran

" ' member ': (a) in relation to a managed investment scheme---means a person who holds an interest in the scheme;" 12 The Act makes no attempt to define "scheme" for these purposes. It does, however, refer to the "features" of a "scheme" that make it a "managed investment scheme". Those "features" are, first, the act of contribution of money or money's worth by several persons; second, the accruing to those persons in return ("as consideration") of certain rights to benefits produced by the scheme; third, pooling of the contributions or other use of them in a common enterprise; fourth, an objective or expectation of accrual of benefits to persons for the time being holding the rights generated by contributions; and, fifth, absence of day-to-day control over the operation of the scheme by those persons. It is clear from the characteristics that a "scheme" must be capable of being identified within certain boundaries. Such identification is necessary to decide whether it has the characteristics which bring it within the statutory definition. "Managed investment scheme" 13 Aspects of the definition of "managed investment scheme" have been mentioned in several decided cases. Relevant judicial observations are conveniently collected in the following passage in the judgment of Pullin J in Australian Securities and Investments Commission v Knightsbridge Managed Funds Ltd [2001] WASC 339: "All that the word 'scheme' requires is that there should be some 'program or plan of action': see Australian Softwood Forests Pty Ltd v Attorney-General (NSW) (1981) 148 CLR 121 at 129. See also Clowes v Federal Commissioner of Taxation (1954) 91 CLR 209 at 225. I note that Owen J, in Australian Securities and Investments Commission v Chase Capital Management Pty Ltd [2001] WASC 27 at [57], and Douglas J, in Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd (1999) 33 ACSR 403, both considered that they could rely on what was said in the Australian Softwood Forests case ( supra ) about the meaning of the word 'scheme', for the purposes of considering the meaning of that word in the definition of 'managed investment scheme'. The word 'pooled' and the expression 'to be pooled', as they appear in the present definition of 'managed investment scheme', have been considered in Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd ( supra ) and on appeal in Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd (2000) 35 ACSR 620. From those cases, it appears that the word has its ordinary meaning. In particular, it will apply to describe arrangements where there is 'a common fund into or from which all gains and losses of the contributors are paid' or 'a fund made up of numerous payments from participants and used for a purpose they contemplate'. The phrase 'to be pooled … to produce' implies that the intention must be to pool the contributions and, by use of the pool, produce benefits. Pooling will occur where moneys are paid into or collected in an account: see Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd (2000) 35 ACSR at [8], [9] and [13]. The expression 'common enterprise' was discussed in the Australian Softwood Forests case ( supra ) at page 133, where Mason J said: 'The argument is that in order to constitute a "common enterprise" there must be a joint participation in all the elements and activities that constitute the enterprise. I do not agree. An enterprise may be described as common if it consists of two or more closely connected operations on the footing that one part is to be carried out by A and the other by B, each deriving a separate profit from what he does, even though there is no pooling or sharing of receipts of profit. It will be enough that the two operations constituting the enterprise contribute to the overall purpose that unites them. There is then an enterprise common to both participants and, accordingly, a common enterprise.' Finally, I agree with what was said by the Court of Appeal in Queensland in Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd and Ors (2000) 35 ACSR 620 at [17], that attempts to read down the broad words of the definition should be discouraged. The Court there agreed with, and I agree with, the comment made by Mason J in the Australian Softwood Forests case ( supra ) at page 130 where he said: 'There are real difficulties in the suggestion that the court can read down the very comprehensive definition of "interest" by reference to the supposedly unintended consequences of a literal reading on everyday commercial transactions.' This conclusion is enhanced because of the presence of the power to exempt by regulation, rights or interests which might unintentionally be caught up by the definition." 14 I would also adopt the description and explanation of "managed investment scheme" given by Davies AJ in Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561 at [26] to [32] where the earlier cases providing guidance are again reviewed. It is important to remember that, as the Queensland Court of Appeal observed in Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd (2000) 35 ACSR 620, attempts to read down the broad words of the definition are to be discouraged. 15 The essence of a "scheme" is a coherent and defined purpose, in the form of a "programme" or "plan of action", coupled with a series of steps or course of conduct to effectuate the purpose and pursue the programme or plan. In some cases, the scope of the scheme will readily be gathered from some constitutive document in the nature of a blueprint setting out all relevant matters. In others, there may be no writing or such as there is may tell only part of the story, leaving the remainder to be supplied by necessary implication from all the circumstances. Profit making will almost invariably be a feature or objective of the kind of scheme with which the s. 9 definition of "managed investment scheme" is concerned, given the definition's references in several places to "benefits". Whatever is incidental and necessary to the pursuit of the profit (or "benefits") will therefore be comprehended by the scheme, including, it seems to me, steps sensible to counter risk of loss (or detriment). Every cogent plan caters for - or, at least, recognises and takes into account - contingencies of an adverse kind. 16 It must also be emphasised that a scheme having the characteristics bringing it within the s.9 definition of "managed investment scheme" will not necessarily possess those characteristics alone. In Royal Bank of Canada v Inland Revenue Commissioners [1972] Ch 665, Megarry J observed, in relation to the concept of "ordinary banking business", that "a statement of the essentials of a business does not seem to me, without more, to be exhaustive of all that is ordinary in that business". A managed investment scheme, like a banking business, may involve elements beyond the core attributes that give it its essential character. Elements which lie beyond those attributes but contribute to the coherence and completeness which make a "programme" or "plan of action" must form part of that "scheme". Every programme or plan of action must be taken to include the logical incidents of and consequences of and sequels to its acknowledged components. The defendants' first argument 17 I make these comments as a preliminary to considering the defendants' first argument, namely, that pursuit of the Federal Court proceedings against a valuer falls beyond the boundaries of the relevant scheme. That argument is advanced on the footing that the relevant scheme is, in effect, both constituted and circumscribed by a particular declaration of trust. An example of such a declaration forms part of the agreed bundle by reference to which submissions on the separate question were addressed. It was agreed that this form may be taken to be representative of all of them. 18 Each declaration of trust is expressed to be made by the fourth defendants ("the Partners") who, as I have said, are solicitors and by Takaran ("the Company") under its former name, Elliott & Tuthill (Mortgages) Pty Ltd. The recitals are as follows: "A. The Partners carry on business as Solicitors in partnership as the firm 'Elliot Tuthill' (hereinafter referred to as 'the Firm'). B. Clients of the Firm have deposited moneys from time to time to be held on trust by the members of the Firm for investment in legal first mortgages over real property in New South Wales which deposited moneys and interest in mortgages are hereinafter referred to as 'the trust interests'. C. It is a term of the trusts referred to in Recital B hereof that legal title to the said mortgages is held by the Company. D. The Partners JACK LEONARD JORDAN and DAVID ARTHUR JORDAN are the directors of the Company and the shareholders of the Company are the said Partners and associates of the said Partners as defined in Section 9 of the Companies (New South Wales) Code. E. The sole business of the Company is the holding and administration of mortgages on trust for the members of the Firm where they are themselves trustees for persons depositing moneys for investment as resaid [sic]." 19 Then follow the two operative provisions: "1. That the Company holds the mortgages referred to in Annexure 'A' hereof and the Partners hold the Trust Interests (including interests in the mortgages listed in the Annexure 'A' hereto) on trust for the clients of the Firm who have actually provided the moneys for investment therein (including in the case of the mortgages listed in the Schedule hereto the clients of the Firm therein set out). 2. In the event that any of the clients referred to in the Annexure marked 'A' (hereinafter referred to as 'the original contributors') request repayment by the firm of any of the moneys set out in Annexure 'A' and the partners comply with that request by using the moneys of other clients (hereinafter referred to as 'the substituting clients') without calling upon the mortgagor named in Annexure 'A' to repay moneys secured by the mortgage, then the company and the partners confirm that the mortgages referred to in Annexure 'A' will thereafter be held by the company for those of the original contributors and the substituting clients whose moneys have not been repaid in full." 20 The annexure A to the particular form of declaration before me is headed "Mortgage Details Report". It identifies a borrower by name and other particulars and sets out details of a loan and a security property, together with details of property insurance and a valuation made on a particular date by a particular valuer. There is also reference to a guarantor, although this would not necessarily be a component in all cases. Finally, there are particulars of forty providers of funds and of the amounts made available by each to make up, in the aggregate, the loan principal. 21 It is accepted by the defendants that the plan of action evidenced by each such declaration of trust is a "managed investment scheme". But, it was submitted, pursuit of causes of action against the relevant valuer in the Federal Court proceedings lies beyond the boundaries of that scheme. That submission was initially put on two bases. The first is that the obtaining of the valuation occurred before the relevant declaration of trust was executed and therefore preceded the inception of that scheme. That submission was eventually not pressed, it being conceded that a number of events preceding the execution of the document had to be accepted as forming part of the scheme. Among these are the various past events referred to in the recitals and others made obvious by the annexure A, including the earmarking of the particular borrower and security property and the matching of them with the various providers of funds in specified amounts. The obtaining of the valuation is also reflected in the annexure A and it seems to me that that too must be accepted as having occurred as part of the co-ordinated and coherent series of events which surrounded the collection and pooling of moneys for an identified purpose which was eventually effectuated. 22 The second basis on which it was submitted that pursuit of causes of action against the valuer is not part of the relevant scheme is that the causes of action did not accrue until after the power of sale had been exercised and a shortfall had emerged. It was at that point, it is said, that loss was incurred by the mortgagee and a chose in action, in the form of a right of action against the valuer, arose; and that point, it was submitted, was reached after the scheme had concluded, since completion of the sale by the mortgagee and registration of the resultant transfer under the Real Property Act 1900 had, by virtue of ss.58 and 59 of that Act, put an end to the mortgage, so that there was no longer anything subject to the declaration of trust. 23 Submissions as to the time at which the causes of action against the valuer arose or accrued were made both by Mr Pembroke and by Mr Lynch of counsel who appeared for ASIC. They referred to the decision of the English Court of Appeal in Forster v Outred & Co [1982] 1 WLR 86, the decision of the High Court in Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 and the decision of the Court of Appeal of this Court in Scarcella v Lettice (2000) 51 NSWLR 302. Those cases address the question whether, for limitation purposes, a cause of action based on faulty advice or misleading conduct arises when the plaintiff acts in reliance on the advice or conduct, or when actual loss is suffered. 24 Assuming that an action is maintainable against the valuer (something which, I hasten to say, has yet to be shown), it seems to me unnecessary to decide in this case whether the chose in action consisting of the right to proceed against the valuer came into existence when the valuation was relied upon (ie, at the time of the making of the mortgage loan) or when loss was crystallised (upon or after exercise of the power of sale). I say this because, whatever the answer may be, I consider the existence and pursuit of the causes action to be within the scope of, and to form part of, the relevant "scheme". 25 It is true, as Mr Pembroke submitted, that such a chose in action does not form part of the property expressed to be subject to the written declaration of trust. But as he also recognised, Takaran, which is the party having standing to sue the valuer, does not seek to say that it will enjoy beneficially such fruits as the litigation may produce. Takaran recognises that any proceeds will be held by it for the benefit of the persons who contributed the moneys lent under the mortgage. Mr Pembroke acknowledges that the chose in action should be regarded as held on trust for those persons, that trust being, however, distinct from the trusts evidenced by the declaration of trust. 26 The real issue here is whether the declaration of trust can and should be regarded as marking out the four corners of the relevant scheme. I am of the view that it cannot and should not. As has been seen, the scheme clearly involved, in relation to the mortgage loan, a number of steps taken before the declaration of trust was executed. When those steps were taken, a relevant scheme obviously existed. And once the document came into being, it could not, in my view, be regarded as having assumed the status of an exhaustive catalogue of the scope and terms of the remainder of the scheme. It merely recorded and formalised what might be regarded as the core relationship of trustees and beneficiaries in a summary way. Taken at face value, the declaration of trust involved no more than the passive holding of property in trust. The scheme involves more than that. There was, obviously enough, a power and a duty to manage and administer the mortgage, to account to beneficiaries for interest as received and, for example, to pursue any guarantor in the way in which a guarantor is being pursued in the proceedings brought by Takaran in this court. 27 The obtaining of and reliance upon the valuation in connection with the making of the relevant mortgage loan were activities which formed part of the scheme involving that mortgage loan. And this is so even though those activities were not engaged in by reference to any declaration of trust. Pursuit of the valuer for damages on account of alleged defects in the valuation - being a course Takaran acknowledges it will take not for its own benefit but for the benefit of the relevant providers of funds - arises naturally from and is a logical sequel to the earlier activities to which I have just referred. The pursuit of that course must be regarded likewise as a part of the same programme or plan of action and the effectuation of the same purpose as comprehended obtaining of and reliance on the valuation in the first place. 28 The continued conduct by Takaran of each Federal Court proceeding will, if undertaken at all, be undertaken in the course of and as part of a "managed investment scheme" as defined by s.9 of the Corporations Act. The significance of this to the separate question I am to determine is something to which I shall return. The defendants' second argument 29 The defendants' second argument is based on the terms of the legislation. I have already referred to the central prohibition in s.601ED(5). Its operative words are "must not operate … a managed investment scheme". The meaning of "operate", in the s.601ED(5) context, is elaborated by s.601ED(6): " For the purpose of subsection (5), a person is not operating a scheme merely because: (a) they are acting as an agent or employee of another person; or (b) they are taking steps to wind up the scheme or remedy a defect that led to the scheme being deregistered." 30 It was submitted on behalf of the defendants that conduct of proceedings against a valuer in the Federal Court or against a guarantor in this court amounts to "steps to wind up the scheme" as referred to in s.601ED(6)(b), with the result that, in view of the words "merely because" in the first part of s.601ED(6), those matters are to be left out of account in judging, for the purposes of s.601ED(5), whether or not the defendants, or any of them, are "operating" the relevant scheme. 31 This raises squarely the meaning of "wind up the scheme", and it is instructive, in the first instance, to see what else the Act itself has to say about "winding up" of managed investment schemes. 32 First, of course, there are the provisions in s.601EE upon which the proceedings brought by ASIC are based and which entail winding up of an unregistered scheme by order of the court. More particularly, the court may, in defined circumstances, make orders "for the winding up of the scheme" upon an application being made by a competent applicant "to have the scheme wound up". In this particular context, the relevant species of winding up does not begin until a court order is made. 33 The concept of winding up, as it applies to a managed investment scheme, is also mentioned in s.601GA which prescribes requirements as to the content of the constitution of a registered scheme (that is, a managed investment scheme that is registered under s.601EB). The constitution must "make adequate provision for … winding up the scheme". Part 5C.9 (ss.601NA to 601NG) contains comprehensive provisions about the winding up of registered schemes. Several provisions of Pt 5C.9 seem to me to throw light on the Act's concept of "winding up" as applied to managed investment schemes. It is recognised that the constitution may stipulate a time at which or event upon which "the scheme is to be wound up". It is also recognised that members may, by a particular process, direct the responsible entity "to wind up the scheme". The court may also, in certain circumstances, direct the responsible entity "to wind up the scheme". There are provisions which require a responsible entity to ensure that "the scheme is wound up" in accordance with its constitution and any applicable court orders. 34 Other provisions empower the responsible entity to "wind up the scheme" in accordance with the constitution and any such orders. One provision (s.601NC) authorises a responsible entity to "take steps to wind up the scheme", being steps which are then set out and entail, in essence, submitting to members that the scheme's purpose either has been accomplished or cannot be accomplished, the implication being, no doubt, that the scheme has reached the end of its viability. If those steps are taken and members do not act to call a meeting to consider the winding up, the responsible entity "may wind up the scheme". 35 I refer to these provisions about registered schemes not because any of them applies in this case but to explore the relevant "winding up" concept. In general, "winding up" seems to be recognised as a discrete process which is triggered by an identifiable event. That such an impression comes through from the Pt 5C.9 provisions in particular is not surprising. Those provisions are concerned, in the main, with formal mechanisms contemplated by a constitution, court order or the Act itself, those mechanisms being part of the statutory scheme of administration of registered schemes. 36 In the Corporations Act, "managed investment scheme", like "company", refers to a statutory construct. The Act also refers, in various places, to "association" and "partnership" but these, unlike "managed investment scheme" and "company", have a general law meaning as distinct from a statutory meaning, so that references to their formation (eg, s.115) and dissolution (eg, s.582(3)) are references to general law concepts rather than processes prescribed or contemplated by the Act itself. When the Act both creates a statutory construct ("company" or "managed investment scheme") and creates or recognises a process labelled "winding up" in relation to it, there seems to me to be no room to regard any of the Act's references to "winding up" in relation to the construct as references to something distinct from the statutorily created or recognised process. 37 In the case of a registered managed investment scheme, "winding up" may occur in any of the ways recognised by the Pt 5C.9 provisions already noticed. In the case of an unregistered managed investment scheme, what the Act calls "winding up" may occur only through s.601EE, that being the sole provision contemplating the "winding up" of such a scheme. While, apart from the Act, steps may be taken to put an end to an unregistered scheme by resort to contractual provisions or, if applicable, principles of partnership law or principles of equity concerning the termination of partnerships or trusts - all of which, in a broad and undefined sense, may be regarded as a kind of "winding up" - none of these will result in the kind of "winding up" provided for or contemplated by those provisions of the Act that deal with winding up. 38 It has long been recognised in relation to companies created and governed by companies legislation that "winding up" refers to the statutory processes introduced in 1844 by the first winding up act 7 & 8 Vict. c. 111 under which an official is appointed in accordance with the legislation to collect the property and assets and to enforce contributions due from members for the purpose of distributing the sums raised among creditors in the first instance and members thereafter. This approach in relation to the winding up of companies is a product of the statutory scheme for effecting a settlement of the interests of stakeholders as a preliminary to extinction. The statutory scheme in relation to managed investment schemes is sufficiently similar in concept and approach to warrant the same analysis. 39 This leads to a consideration of what winding up entails and when winding up occurs, these being factors important to an understanding of the phrase "steps to wind up the scheme" in s.601ED(6)(b). 40 In the case of an unregistered scheme, it is important to note just what it is that s.601EE contemplates. First, it contemplates that a person with the necessary standing "may apply to the Court to have the scheme wound up". Second, it empowers the court to make "any orders it considers appropriate for the winding up of the scheme". These aspects combine to make it clear that there is no winding up unless and until court orders are made. The effect of those orders will be to require the scheme to be wound up and, no doubt, to say how it is to be wound up, that being a matter on which the Act itself is silent, apart from recognising that it may be dealt with by the court. The process of winding up under s.601EE must be taken to begin either upon, or at some time after, the making of the court order; and it must be taken to continue until it is completed according to its terms as derived from the orders of the court. 41 This is the timing sequence involved in the winding up of a company. A well known passage in the judgment of McPherson SPJ in Re Crust 'n' Crumbs Bakers (Wholesale) Pty Ltd [1992] 2 Qd R 76 explains the matter in relation to companies: "What is meant by 'winding up in this context? In my opinion it does not comprehend steps or proceedings taken for the purpose of obtaining an order that the company be wound up. Winding up is a process that consists of collecting the assets, realising and reducing them to money, dealing with proofs of creditors by admitting or rejecting them, and distributing the net proceeds, after providing for costs and expenses, to the persons entitled. It is a process, comparable to an administration in equity, that begins or 'starts' with and order of the court. However it is not the court order itself that 'winds up' the company; the order does no more than direct that the company be wound up, which is then carried into effect by an officer of the court, the liquidator, who does the things that I have identified in order to liquidate the company's assets and wind up its affairs. In referring to 'winding up' or to the company being 'wound up', and to the manner and the incidents of doing so, s.601 therefore speaks not of proceedings aimed at obtaining an order of court to wind up the company but of the process that ensues from and follows such an order. Leaving aside the case of a successful appeal, winding up thus 'starts' when, and not before, an order to wind up is made appointing a liquidator." 42 The company analogy is apt here where there is a distinct measure of assimilation of the statutory provisions concerning managed investment schemes to those dealing with companies. The analogy shows that winding up occurs when the winding up process is complete and that, until that point, there is in train a continuing and uncompleted course of winding up initiated by an identifiable event that marks the start of the process. A reference to "steps to wind up" must therefore be taken to be a reference to steps taken in the course of the decreed winding up process, the culmination and result of all those steps being that the scheme has reached a point of finality in having been "wound up". 43 Having reached this point by reference wholly to the terms of the Act, I must now consider the decided cases in which the meaning and effect of s.601ED(6)(b) have been mentioned. There are two such cases. The first is Australian Securities and Investments Commission v Knightsbridge Managed Funds Ltd (above) where, in the course of deciding whether an order should be made for the winding up of a registered managed investment scheme, Pullin J said: "ASIC relies upon ss.601ND(1) and s.601NF(1). Section 601ND(1) provides that the Court may, by order, direct the responsible entity of a registered scheme to wind up the scheme if the Court thinks it is just and equitable to make the order. The responsible entity in this case is Knightsbridge Managed Funds. It no longer qualifies as a responsible entity because its security dealer's licence was revoked by ASIC on 6 March 2001. I note, however, that s.601ED(6)(b) makes it clear that Mr Carrello's present activities in administering the KFM Scheme as liquidator of Knightsbridge Finance, do not require him to apply for registration. Before an order is made under s.601ND, it is necessary to establish the ground for the winding up, which in this case is the just and equitable ground. ASIC points to the fact that the whole administration of the scheme has broken down. Knightsbridge Managed Funds is under administration. Knightsbridge Finance is insolvent and a liquidator appointed. The immediate difficulty is that there are no funds available to continue with the winding up. To date, Mr Carrello has been operating as liquidator of Knightsbridge Finance and in that capacity, working on the winding up of the KFM Scheme and the unregistered schemes, using funds advanced by the State government. The State, via the Finance Brokers Supervisory Board, has informed Mr Carrello that funding will cease. If the State ceases its funding, there is no suggestion that any creditors are prepared to fund the liquidator on a scale necessary to complete the task at hand. Mr Carrello gave evidence that if his funding from the State runs out, he will then have to seek to disclaim the contracts which oblige Knightsbridge Finance to manage the schemes. If that happens, then the work that has to be done to manage and bring to a conclusion the winding up of the loans, will grind to a halt." 44 It appears from this extract and from other parts of his Honour's judgment that Mr Carrello, the liquidator of Knightsbridge Finance, was administering what amounted to a de facto liquidation of the affairs of the KFM Scheme. The responsible entity (Knightsbridge Managed Funds) was no longer qualified to act, there were a few loans still on foot and Mr Carrello was filling the gap by providing necessary services in circumstances where there was really no one else to do so. His Honour referred specifically to "the work that has to be done to manage and bring to a conclusion the winding up of the loans", making it clear that that was the work in which Mr Carrello was engaged. The KFM Scheme itself had not become subject to any formal winding up regime under the Act. Indeed, one of the questions before Pullin J was whether the court should order a winding up of the KFM Scheme on the just and equitable ground provided for in s.601ND(1). His Honour's observation that s.601ED(6)(b) made it clear that Mr Carrello did not require registration to enable him to administer the KFM Scheme as liquidator of Knightsbridge Finance must therefore have been based on a view that the steps which Mr Carrello was taking to attend to remaining matters within the KFM Scheme and to bring that scheme to a conclusion were properly regarded as "steps to wind up the scheme". 45 The second decision is that of Austin J in Interstate Mortgage & Investments Pty Ltd v Australian Securities and Investments Commission (unreported, NSWSC, 22 July 2002). In that case, the operator of an unregistered scheme applied for a winding up order under s.601EE in respect of the scheme. A preliminary question was, in effect, whether s.601EE(1)(b), which provides that "the person operating the scheme" may apply for an order for the winding up of an unregistered scheme, is defeated by s.601ED(6)(b) which says that someone who "is taking steps to wind up the scheme" is not, by reference to that activity alone, to be regarded as "operating" the scheme. Austin J held that what is effectively the special meaning of "operating" arising from s.601ED(6)(b) applies only for the purpose of deciding whether a person is "operating" a scheme in contravention of s.601ED(5) and does not affect the question whether that person is "the person operating the scheme" as referred to in s.601EE(1)(b), that question being one which is to be determined by indicia of "operating" other than those with which s.601ED(6) is concerned. This conclusion was reached by reference to the words "For the purpose of subsection (5)" at the start of s.601EB(6). 46 These decided cases are of little assistance in the present case. The decision of Austin J did not address the scope and meaning of s.601ED(6)(b) as it qualifies or affects s.601ED(5). The decision of Pullin J, although not purporting to offer any analysis, does seem to proceed on an assumption that steps taken in the course of the final stages of administration are within s.601ED(6)(b). 47 I do not accept that the actual administration of the scheme in circumstances where it is nearing the end of its useful life can be regarded as "steps to wind up the scheme". Steps to complete and to bring to its natural conclusion the programme or plan of action constituting the scheme are steps to effectuate it, not steps to wind it up. Speaking of a situation similar to that now before me, where tail-end salvage operations were in train in relation to remaining mortgages in a solicitors' mortgage investment scheme, Austin J said in Interstate Mortgage & Investments Pty Ltd v Australian Securities and Investments Commission (above): "It seems to me that the natural meaning of the words 'operating the scheme' is wide enough to encompass the activity by way of winding down and realisation of security that I have described because that activity is a natural part of the operation of such a scheme." 48 I accept that characterisation as applicable to the present circumstances where Takaran is pursuing remedies it considers itself to have as a result of things clearly done in furtherance of the particular scheme; and is doing so wholly for the benefit of the participants in the scheme. It is true that that course is being adopted with a view to bringing the scheme to a conclusion and that, in one sense, it is a step towards what must inevitably be a winding up of the scheme. But the course of action is not a step "to" wind up because it does not, of itself, form part of the only winding up regime that the Act makes available in this case, namely, a regime put in place by an order made under s.601EE(1). To the extent that this conclusion may be at odds with what was said about s.601ED(6)(b) by Pullin J in Knightsbridge Managed Funds, I regret to say that I find myself in disagreement with his Honour. Conclusion 49 The finding that the conduct of the relevant proceedings against the valuer or the guarantor is, in each case, something that is being done in furtherance of the programme or plan of action constituting the managed investment scheme and does not amount to "steps to wind up the scheme" leads to a consideration of the final issue, namely, whether conduct of the proceedings by Takaran entails its "operating" the scheme. The meaning of "operate" in this context was considered by Davies AJ in Pegasus Leveraged Options (above) at [55] and [56]: "The word 'operate' is an ordinary word of the English language and, in the context, should be given its meaning in ordinary parlance. The term is not used to refer to ownership or proprietorship but rather to the acts which constitute the management of or the carrying out of the activities which constitute the managed investment scheme. The Oxford English Dictionary gives these relevant meanings: '5. To effect or produce by action or the exertion of force or influence; to bring about, accomplish work. 6. To cause or actuate the working of; to work (a machine, etc). Chiefly US. 7. To direct the working of; to manage, conduct, work (a railway, business, etc); to carry out or through, direct to an end (a principle, an undertaking, etc) orig US.' I have concluded that Mr McKim operated the managed investment scheme. He was the living person who formulated and directed the scheme and he was actively involved in its day to day operations. He supervised others in their performance." 50 I agree with this statement. Because, on the view I take, pursuit of the proceedings the subject of the separate question is part of the activities that constitute the relevant scheme, the actions of Takaran in conducting those proceedings entail its operating the scheme. Each scheme being unregistered, the separate question is therefore answered in the affirmative. **********

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