ASIC v Tasman Investment Management Ltd

CATCHWORDS : CORPORATIONS - managed investment schemes - scheme required to be registered not registered - acknowledgment by operator that scheme should be wound up - proposal by operator that operator be allowed to sell scheme property with accountant as agent - no other functionary proposed by operator to administer or superintend winding up - whether court should accede to operator's proposal - whether independent person should be appointed as receiver to wind up scheme LEGISLATION CITED : Corporations Act 2001 (Cth), ss.601ED(5), 601EE, 708(10) Trustee Act 1925, s.27B Australian Securities and Investments Commission v Atlantic 3 Financial (Aust) Pty Ltd (2003) 47 ACSR 52 Australian Securities and Investments Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778 Australian Securities and Investments Commission v Commercial Nominees of Australia Ltd (2002) 42 ACSR 240 Australian Securities and Investments Commission v IP Product Management Group Pty Ltd (2002) 42 ACSR 343 Australian Securities and Investments Commission v McNamara (2002) 42 ACSR 488 Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561 CASES CITED : Australian Securities and Investments Commission v Takaran Pty Ltd (No 2) (2002) 43 ACSR 334 Australian Securities and Investments Commission v Young (2003) 173 FLR 441 Bells Securities Pty Ltd v LPG Mourant [2002] QSC 156 Cook v Law [2003] FCA 966 Cumulus Wines Pty Ltd v Huntley Management Ltd [2004] NSWSC 609 Hamilton v Piggott Wood and Baker [2003] FCA 1055 Re Lawloan Mortgages Pty Ltd [2003] 2 QdR 200 Woods v Dodge [2003] FCA 1066 Australian Securities and Investments Commission - Plaintiff Tasman Investment Management Limited - First Defendant Longevity Management Systems Pty Limited - Second Defendant PARTIES : QV Mortgage Pty Limited - Third Defendant Queen Victoria Project Management Company Pty Limited - Fourth Defendant Colin Philip Warne - Fifth Defendant

FILE NUMBER(S) : SC 1826/04 COUNSEL : Mr D R Stack - Plaintiff Mr J M Ireland QC - First, Third and Fifth Defendants SOLICITORS : Solicitor for Australian Securities and Investments Commission - Plaintiff Moloney - Lawyers - First, Third and Fifth Defendants

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

1826/04 - AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v TASMAN INVESTMENT MANAGEMENT LIMITED & 4 ORS JUDGMENT

The proceedings to date 1 By an originating process filed on 9 March 2004, the plaintiff (ASIC) sought various orders in relation to what it considered to be the unlawful operation of a managed investment scheme centred upon a proposal to develop a property at Wentworth Falls. The proposal was known as the "Queen Victoria Project", the property being the site of the former Queen Victoria Hospital. 2 The first return date was 12 March 2004. On that occasion, certain undertakings were proffered to and accepted by the court and certain orders were made. Among the undertakings was an undertaking by the fifth defendant (Mr Warne) that he would at his own expense: (a) commission and obtain a proper valuation of the Wentworth Falls property; (b) make such payments as may be necessary to the National Australia Bank to ensure that for the time being it did not appoint a receiver under its mortgage of the property; (c) subject to the prior approval of ASIC, prepare and circulate to all investors in the scheme "a report following upon the receipt of the valuation disclosing fully the alternatives which exist"; (d) subject to like approval, convene a meeting of all investors in the scheme "to report to them upon the proposals and to elucidate by vote the attitude of the investors to the alternatives which then exist"; and (e) subject to like approval, report to the court "the wishes of the investors alternatively for sale or completion of the project". 3 On 5 April 2004, an order was made by consent of ASIC, the second defendant (Longevity Management Systems Pty Ltd) and the fourth defendant (Queen Victoria Project Management Company Pty Ltd), restraining those two companies permanently from operating an unregistered managed investment scheme in contravention of s.601ED(5) of the Corporations Act 2001 (Cth). 4 On 16 April 2004, Mr Warne was released from undertaking (c) given on 12 March 2004 and he and the first defendant (Tasman Investment Management Ltd or "TIML") and the third defendant (QV Mortgage Pty Ltd) gave certain undertakings to the court. TIML undertook to cause to be sent to each investor a particularly identified circular. All three parties undertook that they would, subject to first receiving approval from ASIC, prepare and circulate to investors "a report setting out the options which exist with respect to the site" together with the valuation obtained. Mr Warne was, on 23 April 2004, released from the latter undertaking. 5 Various documents were in due course sent to investors and a meeting took place. I shall return to those matters. The hearing on 9 July 2004 6 The proceedings were listed before me on 9 July 2004 for hearing of ASIC's originating process. Mr Stack of counsel appeared for ASIC. Mr Ireland QC appeared for TIML, Mr Warne and the third defendant. 7 ASIC pressed for, first, a declaration that each of TIML and Mr Warne had contravened s.601ED by operating an unregistered managed investment scheme known as the "Queen Victoria Project", second, an order that TIML, Mr Warne and the third defendant be restrained permanently from operating an unregistered managed investment scheme in contravention of s.601ED(5), third, an order that Mr Parbery, an official liquidator, be appointed, without security, as receive and manager to wind up the scheme, fourth, certain orders ancillary to the third order and, finally, an order that TIML, Mr Warne and the third defendant pay ASIC's costs of the proceedings. 8 Mr Ireland QC announced that the making of the first and second of these orders was not opposed by the parties to whom the orders were directed. Mr Ireland also made it clear that his clients were content to see an order made under s.601EE for the winding up of the scheme, although on a particular basis that he described which would see no role at this point for Mr Parbery or any other official liquidator. 9 In the result, therefore, there was no submission that the court should not make an order for the winding up of the particular scheme, but there is no consensus as to the way in which the winding up should be carried out or as to who should have the carriage of it. Before addressing those issues, I should say something about the managed investment scheme, its history and its present circumstances. Background to the scheme 10 In December 2002, TIML obtained a dealer's licence under the Corporations Act authorising it to act as the responsible entity for two registered managed investment schemes, being the Tullimbah Village Trust and the Wollongong Prime Property Trust. In January 2004, ASIC served on both TIML and Longevity statutory notices requiring the production of specified documents in relation to the "Queen Victoria Village Project", the "Queen Victoria Trust" and the "QV Project". Documents were produced shortly afterwards. Those produced by TIML were sent to ASIC under cover of a letter dated 29 January 2004 from a firm of accountants, Shannon & Co. That letter stated certain background facts which I do not think are controversial and may usefully be stated: "By way of background, the QV Project commenced in or around June 2000 based upon developing a nursing home and retirement village complex at Wentworth Falls. Longevity Management Systems Pty Limited ('LMS') was the manager of the scheme with TIML responsible for raising the initial capital. TIML raised approximately $2 million to acquire the land and a further $2.7 million ($1.8 million from TIML) over eighteen months was raised to fund the project planning, DA's and holding costs of the project. In or around December 2001, Council rejected the DA for the retirement village component although TIML was not notified of this until some six months later." 11 Certain undisputed background facts may be added to those stated in the letter of 29 January 2004. Funds for the Queen Victoria Project were raised from some 74 investors. Of these, about 65 were introduced by Mr Warne who is an investment adviser and, at this stage, the sole director of TIML. The total raised was slightly more than $4,660,000. There is in evidence a form of circular and brochure Mr Warne used to solicit funds. Of the funds raised, some $2 million was spent on the acquisition of the Wentworth Falls property which currently stands registered in the name of TIML subject to a mortgage to the National Australia Bank securing a debt of some $680,000. The equity of redemption in the property is now essentially the only asset of the scheme, the balance of the funds raised having been expended. A recent valuation put the value of the property at some $2.3 million. If it proved possible to sell the property for that sum, there would be roughly $1.6 million left for investors after allowing for the bank debt. 12 The mortgage facility provided by National Australia Bank is said to have "expired", from which I infer that the principal sum is presently due and payable. Mr Shannon, the principal of Shannon & Co, said in evidence that TIML has no resources of its own to negotiate an extension of the existing facility or the creation of a new one. Mr Warne and his company, Warne Financial Services Pty Ltd, have kept up periodic interest payments out of their own resources. 13 Three trust instruments (or purported trust instruments) are in evidence. Under the first (apparently executed on 26 February 2002), the second defendant ostensibly became the trustee of a unit trust known as the "QV Trust" established "to develop and manage a multi-function longevity based health care facility" at the Wentworth Falls property. By the second, dated 27 February 2002, TIML appeared to replace the second defendant as trustee of the unit trust. By the third, dated 23 December 2002, the fourth defendant ostensibly replaced TIML as trustee. Various related documents are in evidence. Between them, these provide a clouded picture of legal relationships among the several defendants in relation to the Wentworth Falls property, the development project in which it was to play a part and the 74 persons who undoubtedly made funds available so that they might be pooled for the purposes of that project. It is sufficient to say, at this point, that there was a "managed investment scheme", as defined by s.9, in relation to the property, that it was never registered under Part 5C.1 of the Corporations Act and that the 74 investors were "members" of it, as defined by s.9. Ascertainment of the parameters and terms of the managed investment scheme will require examination at the appropriate time. The precise nature of the interests under the managed investment scheme was not canvassed before me and I make no findings on that subject. The question for decision 14 There is, as I have said, no contest on the question whether the court should order winding up of the scheme under s.601EE(2) and make declarations of contravention and related injunctions. As to the conduct of the winding up, however, the parties are in disagreement. 15 ASIC says that Mr Parbery, an official liquidator, should be appointed receiver and manager of the property of the scheme and to wind up the scheme and that the court should make ancillary orders conferring appropriate powers on him accordingly. 16 Mr Ireland's clients propose a different regime. They do not oppose, in concept, the making of an order for winding up but say that, so far as the conduct and incidents of the winding up are concerned, the court should, at this stage, not go beyond orders that TIML itself sell the Wentworth Falls property and bring the proceeds into court. It is envisaged that TIML would give to the court an undertaking to appoint Mr Shannon as its agent to effect the sale and that he would, in turn, undertake to the court to act for TIML in effecting a sale and pursuing it to completion and to bring the proceeds into court following completion. Mr Shannon's undertaking would be supplemented by an undertaking by Mr Warne "to continue to make interest payments to the National Australia Bank during the period of such sale from my own resources". 17 Mr Shannon, as I have said, is the principal of Shannon & Co to which reference has already been made. He and his firm have performed a number of tasks for Mr Warne and TIML in relation to the Queen Victoria Project, including, in particular, in connection with the meeting of investors held on 29 April 2004. Mr Shannon and his firm were first retained by Mr Warne and his interests in August 2003. His involvement in matters concerning the Queen Victoria Project dates from January 2004. Approaches in decided cases 18 Section 601EE(2) says nothing about the way a winding up ordered by the court is to be carried out or who ought have the carriage of it. These matters are left entirely to the court's orders. The present case is not the first in which it has been submitted that the court should allow the entity operating and administering the scheme to attend to its winding up under s.601EE. It is instructive to look at some of the decided cases. 19 In Australian Securities and Investments Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778, it was submitted that the court should not order winding up of the relevant schemes but, rather, allow persons associated with them to realise assets and distribute them among the investors. Owen J rejected any such approach: "I have come to the conclusion that it would be in the public interest for the schemes to be wound up in a formal administration. I have reached these conclusions for a number of reasons. (1) As detailed in the receiver's report, at least some of the investments are in a questionable state and, in my view, it would be better if an independent person were in control of the recovery processes. The statement that there are question marks hanging over some of the investments is especially the case in relation to BBF for the reasons set out in paras 5.97-5.108 of the receiver's report. (2) It is at least conceivable, because of the intra-group transactions, that there may be disputes as to the true ownership of some assets and as to the true purport of certain of the transactions. (3) It may also be the case that investors take differing views as to the appropriate method of finalisation, for example, if some were to request direct transfer of securities while others opted for the proceed of realisation. Difficult questions might arise as to the allocation of costs. Again, it would be preferable for an independent person to take control of these investigations. (4) I note also the evidence that in some instances dividends have been paid to investors purportedly as returns from certain investments that are in excess of receipts in relation to those investments. If this is so, there must inevitably be an accounting between the various interest. (5) Finally, placing the schemes under the control of an independent external controller in a winding up will remove the conceptual problems that would arise if finalisation were to be effected with further breaches (albeit technical) of the Law. In this respect, it is difficult to see how the schemes could be finalised without dealings in securities. It is common ground that neither Hicks, Sims nor Percy nor any of the corporate entities are the holders of requisite dealers' licences." 20 In Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561, Davies AJ appointed an external and independent person to carry out a winding up ordered under s.601EE(2). Part of his reason for doing so is stated in the following passage: "Funds are still held and their distribution needs to be resolved. In the present case, the winding up of the scheme should not be left to Mr McKim or any other person who may be connected with Pegasus. It is in the interest of the investors and it is in the public interest that the scheme should be wound up in a formal administration." 21 The same approach was taken by Byrne J in Australian Securities and Investments Commission v IP Product Management Group Pty Ltd (2002) 42 ACSR 343: "The continuing operation of these schemes would involve a contravention of s 601ED(5) and, as will be seen, their project manager is also to be wound up. The proper course is for the affairs of the music schemes to be placed in the hands of a responsible, experienced and reputable person who can, if possible, get in the assets and distribute them to those persons who may be entitled to them." 22 In Australian Securities and Investments Commission v McNamara (2002) 42 ACSR 488, it was submitted that the schemes' operator could attend to winding up under a limited power of attorney already held. Mansfield J did not accept that submission: "I do not think the position is as clear as he says. Given the timing of the purported assignment of rights of the limited partners in AFLP through their units, the purported cancellation of those units, and the issue of shares in EMS, I am not persuaded that each of those transactions was independent and without consideration. The scheme still has some funds, albeit minor. It is unclear whether the unit holders have any ongoing rights in funds already paid to ASSF, or what accounting from ASSF the scheme might be entitled to. Moreover, there are matters indicating that the extent of rights that AFLP has in any successful marine salvage are uncertain. AAIS purported to transfer the rights of AFLP under the joint venture agreement dated 28 November 2001, but it is not a party to that agreement and it is unclear how it was able to do so. There may be some issue to explore, by virtue of JJM's information provided to ASIC that he has assigned 80% of what he gets under the joint venture agreement with ASSF to AFLP, as to the extent of AFLP's rights. He has indicated to ASIC a further agreement with ASSF dated 27 February 2002, which he said varied the joint venture agreement dated 28 November 2001, but in a way which does not accord with the purported transfer of rights under that agreement to AFLP. Legal advice provided to JJM and AFLP, moreover, has described the documentation as 'poorly drafted', 'incomplete' and 'difficult to follow'. That advice stated that the solicitors were 'not confident at all that the documentation accurately reflects (and more importantly protects) the respective parties and their interests'. In the circumstances, I consider that it is in the public interest, and in the interests of those limited partners of AFLP granted units in AFLP in response to an application made following the proposal are better protected if the scheme is wound up by the appointment of a liquidator independent of the parties, rather than to leave it in its present position where it may or may not be wound up, or if it is to be wound up would be wound up under the control of one of the persons presently directly involved in its control." 23 The operator of the relevant schemes was appointed to wind them up in Re Lawloan Mortgages Pty Ltd [2003] 2 QdR 200, but under the supervision of two registered liquidators who had previously been appointed by the operator to be "supervisors of the loan schemes". The functions of the "supervisors", as stated in a deed appointing them, were described by Holmes J as follows: "The deed of appointment confers on the supervisors powers to review the applicant's actions in relation to each loan and the conduct of the winding up; to make inquiries for the purposes of advice to the applicant and to advise ASIC separately of such advice; and to report to ASIC on any matter of concern in the winding up, including any negligence, breach of trust or illegal conduct on the part of any past or present officer of the applicant, any investor, borrower or any other person associated with the scheme. However, it specifically exempts the supervisors from any obligation to conduct a historical review of the conduct of the schemes." 24 In deciding to commit the winding up to the scheme operator under the supervision of two registered liquidators, her Honour considered five main factors. The first was, in general terms, the question whether conflicting interests of the operator would cause it to be ineffective in, or present potential dangers to, due and orderly administration of the realisation of assets and distribution to members. The second factor (an aspect of the first) was whether due conduct of the winding up might require assessment of rights of action the investors could have against the operator and persons associated with it. The third matter was a submission that appointment of an outside party was likely to create a marketplace perception "that bargains were to be had when the properties were being sold: the 'fire sale' effect". The fourth factor was fees: those proposed to be charged by the "supervisors" were lower than those proposed to be charged by the external and independent person proposed for appointment. The fifth matter was the views of the investors. 25 In Bells Securities Pty Ltd v LPG Mourant [2002] QSC 156, heard a few weeks before the Lawloan case, an outcome equivalent to that there sought and granted was denied. Wilson J considered it inappropriate to order that the scheme's operator be responsible for the winding up, even under the supervision of two insolvency practitioners. Her Honour accepted the submission of ASIC, as intervenor, that independent parties should be appointed. The task she saw as confronting the court upon such an application was stated as follows: "Under s610EE (2) of the Corporations Act the Court "may make any orders it considers appropriate for the winding up of the scheme." It is a wide discretion. In the course of argument the following factors were identified as relevant to its exercise:

(a) the conduct of the mortgage lending business including the circumstances of the four remaining loans;

(b) the potential that the applicant, the operator of the scheme, may face a conflict of interests, strictly a conflict of duty and interest, in winding up its own scheme;

(d) the comparative costs of the applicant's proposal and those of a winding up by independent liquidators;

(e) the public interest in the integrity of the system of investor protection for which the Corporations Act stands. (See ASIC v Chase Capital Management Pty Ltd (2001) 36 ACSR 778 at 795 per Justice Owen.)

Counsel for the applicant stressed that of the 84 loans made by the applicant since 1996 only these four remain. Be that as it may, I must determine what is the most appropriate order to make with respect to the winding up of these four loans." 26 Australian Securities and Investments Commission v Takaran Pty Ltd (No 2) (2002) 43 ACSR 334 was not a case in which the court was asked to allow the scheme operator to effect the winding up. At a later stage, however, there was opposition to the proposal that the external and independent appointee be empowered to deal fully with scheme assets. I had occasion to refer to the public interest aspect of the choice of person to effect winding up: "The orders made on 16 September 2002 state that the winding up is to be conducted by the receivers, not by Takaran, the principals of Elliott Tuthill or anyone else. I have already noted that a winding up regime imposed by the court under s.601EE might possibly entail some continuing control by the existing operator of the scheme, as in the Lawloan Mortgages case (above). It seems to me, however, that such an approach would not be favoured except in exceptional circumstances. The fact that a scheme is being operated by its existing operators in contravention of statute activates a public interest in favour of not only its being wound up under s.601EE ( Australian Securities and Investments Commission v McNamara [2002] FCA 1005) but also "ensuring the transparency of the winding up process and the safeguarding of the rights of the contributories" by committing the winding up to an independent party ( Bells Securities Pty Ltd v LPG Mourant [2002] QSC 156 per Wilson J; see also Australian Securities and Investments Commission v Product Management Group Pty Ltd [2002] VSC 255)." 27 The next case to be mentioned is the decision of Mullins J in Australian Securities and Investments Commission v Atlantic 3 Financial (Aust) Pty Ltd (2003) 47 ACSR 52. In that case, orders were made under s.601EE for the winding up of several unregistered managed investment schemes. In some instances, the scheme's operator was ordered to wind it up and in others the task was committed to insolvency practitioners. After referring to the decisions in Bells Securities, Lawloan Mortgages and Australian Securities and Investments Commission v Takaran Pty Ltd (No 2), her Honour said: "These decisions illustrate that there can be a tension in the winding-up process of an unregistered scheme between what is required for protection of investors, as a matter of public interest, and what is perceived to be in the interests of each of the investors, as a matter of private interest. Ultimately, it is a matter of balancing all the factors relevant to the winding up of a particular scheme, in determining who should be the party given the responsibility for winding up the scheme and on what terms." 28 It is instructive to record the observations of Mullins J as to reasons for making an external appointment in the cases where she was not willing to entrust the winding up to the scheme's operator:

Mackay Leagues Club Ltd: "Notwithstanding that 69.5% by value of 55 investors in this scheme support winding up of the scheme by the first respondent and the investors will be affected by the costs of independent liquidators, the recommendation of the accountants that an independent liquidator be appointed to wind up this scheme should be followed, particularly because of the amount of the total investment in this scheme and the longstanding default under the loan."

Numinko Pty Ltd : "Notwithstanding the support of a majority of investors for the proposal that the scheme be wound up by the first respondent, the fact that significant funds were procured by the first respondent for this investment after the respondents were aware that it was necessary to register a managed investment scheme, it is not appropriate that the first respondent have the carriage of the winding up of this scheme. I therefore propose to follow the recommendation of the accountants that independent liquidators be appointed to wind up this scheme. It is appropriate to appoint the accountants for that purpose."

Sentry Alliance Pty Ltd : "Notwithstanding the support of a majority of investors for the winding up of this scheme by the first respondent, the history of the loan, the promotion by the first respondent of this scheme to 8 investors when the respondents knew the scheme was unregistered and the loan was in default and the lack of information provided both to the court and the accountants in relation to the quantum of interest paid by the first respondent to investors justifies the appointment of the accountants to wind up this scheme."

Plymouth Greens Pty Ltd & Ors : "In view of the quantum of funds contributed to each of the Plymouth Greens scheme and the Maryborough scheme and the relationship between them, it is not appropriate that the first respondent be involved in the winding up of these schemes. These schemes should be under the control of an independent liquidator. It is appropriate that the accountants be appointed to wind up these schemes."

Clearview Properties Pty Ltd : "The accountants recommended that an independent liquidator be appointed to wind up this scheme. That is appropriate in view of the different interests which the first respondent has in the property the subject of this scheme and that investments to the extent of $1.55m were procured when the respondents were aware that it was unlawful to operate a managed investment scheme which was unregistered." 29 I refer also to the decision of Muir J in Australian Securities and Investments Commission v Young (2003) 173 FLR 441. His Honour found that an unregistered managed investment scheme was being operated in contravention of s.601ED(5). As to the appropriate form of relief, he said: "I accept that the JVP schemes should be brought to an end but I am not convinced that the appointment of receivers is necessary to achieve that objective. The development involved in the JVP schemes are largely defunct or concluded. The applicant does not suggest and the evidence does not reveal that investors' funds are at risk. It seems that in the past whenever a club member has requested repayment of moneys advanced under the scheme, the request has been complied with. The appointment of a receiver in respect of these schemes, as well as causing unnecessary expense, may damage the respondents' business and this, in turn, could impact on the respondents' ability to repay. The subject statutory provisions exist to protect members of the public. Care should be taken to ensure that orders made under them do not defeat their object by causing investors avoidable injury. Although some 40 loans totalling in excess of $1,500,000 are outstanding, it should be a fairly straightforward matter to ensure that the loans (and other scheme moneys) are promptly repaid. I invite the parties to agree on an appropriate regime to terminate the JVP schemes with a minimum of expense."

It is unclear precisely what orders were eventually made, although the comments of Muir J show that he was disposed to allow termination of the schemes to remain in the hands of their operators. 30 The most recent case relevant to these questions is Cumulus Wines Pty Ltd v Huntley Management Ltd [2004] NSWSC 609 (7 July 2004). Austin J there referred to the competing contentions on the question who should be responsible for winding up schemes found to have been operated in contravention of s.601ED(5): "The plaintiffs contend that it would be appropriate for the court to appoint the defendant, Huntley Management, as the person responsible for the winding up pursuant to s 601EE(2), although they offer as a less preferred alternative the appointment of Mr Dean-Willcocks, a registered liquidator. Either those appointments would avoid any conflict of interest that the plaintiffs as managers may have, as managers with an interest in recovery of management fees, if they were left to be responsible for the winding up. Additionally, the plaintiffs' own evidence is that they do not have the appropriate expertise to carry out the winding up of the projects.

The plaintiffs submit that Huntley Management has the expertise to carry out the winding up of the projects, and is willing to do so. It would bring to the task its existing knowledge and understanding of the projects. Therefore, in the plaintiffs' submission, Huntley Management would be able to finalise the winding up of the projects more quickly and economically than a registered liquidator.

On the other hand, Huntley Management is the trustee of the leasehold interests in the land on which the grape vines have been grown. Its duty as trustee is to protect the interests of the beneficiaries, the investors. Its seems to me that this duty might come into conflict with the duty that it would undertake if it were appointed to wind up the projects. For example, one of the immediate issues for Huntley Management will be whether to try to keep the leasehold interests alive. I do not know whether it would have access to sufficient funds to do so, but if that were so, there may be an issue whether it should pay rent in the interests of investors so as to prevent the landowners from terminating the leases, even though that may not be a rational step to take in the winding up of the projects. I am not sure, from the evidence, whether that example identifies a real problem, but it does seem to me that the dual roles that Huntley Management would occupy if it were appointed to wind up the schemes would create the potential for such conflicts on a recurring basis. It would be better to have the winding up carried out by a registered liquidator even if there is some additional cost in doing so."

Austin J ordered that the schemes be wound up and that Mr Dean-Willcocks be appointed as the person responsible for the winding up of the projects. 31 Several threads run through these cases. I would respectfully adopt the observation of Mullins J in the Atlantic 3 case that there can be a tension between what is required, as a matter of public interest, for the protection of the body of investors and what is perceived, as a matter of private interest, to be in the interests of investors individually; and that is ultimately a matter of balancing all factors relevant to the particular case in determining who should be entrusted with the task of winding up the scheme and on what terms. At the same time, I remain of the general view (expressed in ASIC v Takaran (No 2)) that the public interest dimension would cause winding up by the existing and contravening operator not to be favoured except in exceptional circumstances. 32 The cases indicate the following as factors relevant to the court's decision as to the selection of a person to be responsible for a s.601EE(2) winding up: 1. the existence of or potential for uncertainty and dispute as to members' legal position and rights and the true purport of transactions 2. potential for different views as to the appropriate method of bringing the scheme to an end, including as to allocation of costs 3. the existence of, or potential for, conflicts indicating a possible need for an accounting between different interests or to distance the winding up from the operator and persons associated with it 4. the need to assess rights investors may have against the operator or outside parties 5. the conduct of the operator in and about the operation of the scheme and solicitation of investment, including the provision of information to investors 6. any depressing effect the appointment of an external controller may have on the scheme's operation or the value of assets 7. the expenses likely to be involved in different and competing winding up proposal 8. the amount at stake, in terms of funds invested and funds to be administered 9. the views of investors. 33 I proceed now to a consideration of a number of matters relevant to these factors in the present case. Mr Warne and Mr Shannon 34 The proposal adumbrated by Mr Ireland QC on behalf of Mr Warne, TIML and the third defendant does not envisage that anyone should be appointed to have the overall carriage of the winding up ordered by the court. Rather, it is proposed that TIML, in the context of undertakings given to the court by Mr Shannon and Mr Warne and with Mr Shannon acting as TIML's agent, should be ordered by the court to perform the limited task of selling the property and bringing the proceeds into court. There would thus be no person having the general superintendence of the overall property of the scheme and, to the extent that things needed to be done or might advantageously be done that were beyond the defined ambit of the court's order under which Mr Shannon was to play a part, the doing of those things would, by default, be left in the hands of TIML of which Mr Warne has been the sole director since December 2003. 35 ASIC says that TIML is an inappropriate person to play any active role in the carrying out of the winding up of the scheme. ASIC makes this submission on the basis of reservations it entertains as to the fitness of Mr Warne. It points to minutes of several meetings of directors of TIML at times when it had more than one director and regulatory issues relevant to the Queen Victoria Project were discussed. Minutes of meetings in the later part of 2002 show a concern among some directors that certain matters (not precisely defined) concerning the raising of funds for the project and its operation should be brought to ASIC's attention. This disquiet continued into 2003. ASIC has no record of TIML having informed it of any breach of the Corporations Act in relation to the Queen Victoria Project. 36 When Mr Warne was examined under oath by a delegate of ASIC on 23 February 2004, he maintained that there had been no breach of the Corporations Act (or Corporations Law) in connection with the promotion of the Queen Victoria Project and the raising of funds from investors. He held that view, he said, because of the effect of s.708(10). The argument, as I understand it, is that s.708(10) operated to put offers of interests in the project beyond the reach of s.707 (requiring disclosure to investors by way of prospectus or like document) with the result that the requirement for registration of the managed investment scheme otherwise applicable under s.601ED(1) was displaced by s.601ED(2) as in force at the relevant time: "A managed investment scheme does not have to be registered if all the issues of interests in the scheme that have been made did not need disclosure to investors under Part 6D.2 (see sections 706 and 708) when they were made." 37 Further questioning of Mr Warne made two things clear: first, that he had only a vague idea of the nature of the interest of each investor in the Queen Victoria Project (indeed, this did not emerge in any definite way from the materials presently before the court); and, second, that, to his knowledge, certain conditions of the applicability of s.708(10) had not been fulfilled. I refer to the conditions in ss.708(10)(c) and (d) as to the giving to an offeree of a written statement of the reasons of the intermediary dealer for being satisfied as to the s.708(10)(b) characteristics of the office (being characteristics concerned with the investment experience of the offeree) and as to a written acknowledgment by the offeree of non-receipt from the licensee of a Part 6D.2 disclosure statement. I quote the following part of the examination: "Q. Okay. If we just go on to section 708(10) again, section 708(10) requires the financial licensee to provide a written statement to the licensee explaining the reasons why disclosure hasn't been made to them. A. A written statement to the investors, you mean? Q. Yes. A. Privilege. But a written statement wasn't made to the investors explaining it to them, and that was purely because of - I wasn't aware of that requirement. Q. Okay. It also requires a written acknowledgment from the investors at the time the offer is made, basically so that the investors understand that no - no proper disclosure has been made to them, or no disclosure under the Act has been made to them. A. Mmm - privilege. That's very confusing, but -- Q. Yeah. A. - the disclosure we gave them was an information memorandum which basically gave the information outlining the, the nature and - of the investment and the risk of the investment. So, frankly, the documentation, although not a registered document with ASIC -" 38 There is in evidence part of a letter of advice from solicitors dated 26 August 2002. That part contains an opinion that a prospectus was required in connection with solicitation of investment in the Queen Victoria project and that the document actually issued was not a prospectus complying with Part 6D.2. The part of the letter in evidence does not refer to s.708(10). I am satisfied that Mr Warne became aware of this letter at the time it was written. I am not able to say when he adopted the stance that s.708(10) solved the problem. But I very much doubt that that is an opinion that he reached in any informed or analytical way. The part of his ASIC examination I have quoted shows that he had no grasp of the basic elements of s.708(10) and its operation. Furthermore, he conceded in cross-examination before me that he had been aware from mid 2002 there had been breach of the corporations legislation in relation to the scheme, although he seems to have been of the view that that would not really be a problem unless and until it appeared that investors would suffer loss. 39 Mr Shannon, in due course, also found it appropriate to regard s.708(10) as a basis for the scheme's regulatory legitimacy. I have already referred to the fact that he was retained in August 2003 to provide certain services to Mr Warne and his interests and to the fact that his firm, Shannon & Co, sent a letter of 29 January 2004 to ASIC. That letter acknowledged that the "QV Project" was not a registered managed investment scheme so that certain documents sought by ASIC (being documents of a kind made mandatory for registered schemes) did not exist and could not be produced. Shannon & Co also said: "Please note that my client is relying upon the provisions of Section 601ED(2) and 708(1)) of the Corporations Law/Act in relation to the promotion and compliance of the QV Project." 40 Mr Shannon conceded in cross-examination that he did not believe that s.708(10) applied in the beneficial way stated in this letter. I quote the following passage from the cross-examination: "Q. You say you were advising him in relation to this matter and in particular in relation to the ASIC notice to produce and that you were discussing whether or not there was a contravention of the Corporations Act with Mr Warne at some stage, is that not so? A. Yes.

Q. And you had had those discussions by 29 January 2004, had you not? A. Yes.

Q. So one of the issues that you were discussing was whether or not there had been a contravention of the fund raising provisions; is that not so? A. Yes.

Q. In fact, your letter essentially relies upon a defence available under 708(10); is that not so? A. Yes.

Q. In circumstances where you had read the advice from Phillips Fox, where they said there was no such defence available, is that not so? A. Yes.

Q. In those circumstances you well knew at the time there was no defence available under the fund raising provisions; is that not so? A. I think I have answered that question.

Q. Answer it again for me? A. My understanding, because of the way the legislation is written, is that the Court makes the - has the, I guess, jurisdiction and makes the decisions on the remedies that are available.

HIS HONOUR: Q. Is this under section 708(10) you are referring to? A. Well, yes, in terms of an unregistered scheme.

STACK: Q. That is back in 601ED? A. Yes, but it ties into the prospectus provisions. So one of the requirements of 601(1) of the exemptions for those registered schemes is that it needs an exemption under the fund raising provisions. So the two tie in again.

Q. You knew section 708(10) was not available as at 29 January 2004? A. I knew they had not complied with that section of the code, yes.

Q. And they couldn't rely on it? A. I didn't know that. I didn't form a view on that.

Q. That was your opinion, wasn't it? You had been asked to offer an opinion on it and you had seen advice from lawyers that said it wasn't available? A. I did not provide an opinion on that question.

Q. But did you offer any view? A. My commercial view was that there had been a breach of the law. There were likely significant consequences of that and if there was a loss in relation to the scheme, the company was most likely liable. Q. And in terms of the position, I take it from what you just said, you communicated that to Mr Warne, you told him you thought in all probability it was an unregistered management investment scheme and that the Court would have to intervene; is that not so? A. Yes." Mr Shannon's report to investors 41 I turn next to the general matter of investor preference and steps taken to ascertain investors' views. A meeting of investors was convened as envisaged by the undertakings given to the court. It was held on 29 April 2004. Evidence about the meeting has been given by both Mr Warne and Mr Shannon. Mr Shannon was the chairman of the meeting. Investors were sent, in advance of the meeting, a report prepared by Mr Shannon and a copy of a current valuation of the Wentworth Falls property, plus other documents including a letter dated 23 April 2004 from the solicitors for Mr Warne and TIML. The solicitors' letter conveyed a number of reservations ASIC had expressed about the content of Mr Shannon's report. 42 It is relevant to quote the following which appears on the first page of Mr Shannon's report: "The purpose of this report is to provide Investors with a comprehensive background and the current standing of the QV Project so as to consider various options proposed by TIML based upon my own enquiries and examination of the documents provided. Those options are: A. to have a Court appointed Receiver wind up the Investment Scheme B. to sell the property without the appointment of receiver (i) for immediate sale (ii) for a deferred sale C. to establish a new Investment scheme to carry out one of various development scenarios." 43 The solicitors' letter referred to a concern of ASIC about "the options available as expressed to the investors". The solicitors' letter said: "It is common ground between ASIC and Mr. Warne that there are only two options available to the investors: (a) the first option involves the winding up of the Queen Victoria Scheme by an independent accountant appointed by the Court; and (b) the second option involves the winding up of the Queen Victoria Scheme by Mr Warne and Tasman." 44 Mr Shannon's report stated that Mr Warne and TIML recommended Option B(i) - "immediate sale", being, it seems, sale without the appointment of a receiver by the court. This recommendation followed an appraisal by Mr Shannon of the various options. In relation to Option A - appointment of receiver by the court - Mr Shannon referred to a view of Mr Warne and TIML that this would "add a significant layer of management and the cost will be borne through lower investment returns". From that point, Mr Shannon's commentary on Option A continued: "12B.1 Based upon the Nelson Partners valuation (refer section 9), I believe that Investors will receive a return of 32% of the Investment funds by TIML selling the property in its present condition. I believe that an orderly sale would take at least six months however I think that it would be prudent to allow for a twelve month sale period. 12B.2 Alternatively, you may wish to have the property sold as a development site. TIML would approach developers to devise a workable development plan and sell the property on a conditional basis. It will most likely increase the sale time by six to twelve months but TIML believe there are prospects of selling the property for up to $7 million (net of costs) with an appropriate DA. 12B.3 Any returns from recovery proceedings referred to in paragraph 8.13 above would be additional to the return from the sale of the property." 45 The ASIC concern, as conveyed by the solicitors' letter, was stated as follows: "ASIC has informed Mr Warne that the Shannon Report does not properly inform investors about the merits of either of these options - in fact, it only speaks of the detriment perceived by Mr Warne and Tasman following the appointment of a Receiver and of the benefit of Mr Warne and Tasman selling the Property." 46 The ASIC concern is well placed. I am content to refer to one matter as illustrating a distinct slant in the report against Option A. In paragraph 12A.3, Mr Shannon says that page 24 of the accompanying property valuation of Nelson Partners "identifies that a significant discount on that figure would arise upon a forced sale" - a view in relation to which Mr Shannon himself said, "I completely agree". The reference to "a forced sale" is, in the context, clearly enough a reference to a sale by a receiver appointed by the court. The reference to "that figure" is somewhat unclear as to its meaning in that no figure is given at any earlier point in paragraph 12A.3 or, for that matter, in section 12A as a whole. It appears likely, however, that the figure intended to be mentioned is the figure of $2.3 million appearing in bold type in two places on page 24 of the Nelson Partners valuation. 47 But nothing on page 24 of the Nelson Partners valuation refers in any way to "a forced sale". Nelson Partners say, on page 22, that maximum realisation would be achieved through sale in two holdings, one consisting of Lot 1 and the other of Lot 152 sold in conjunction with Lot 13. On pages 22 and 23 there is discussion of the value of Lot 1 subject to an existing lease at a rent of $35,000 per year and a term extending out to June 2017 and allowing for outgoings of $5,000 per year. On that basis, Nelson Partners adopt a value of $470,000 for Lot 1. 48 Nelson Partners then deal with Lots 13 and 152 on pages 23 and 24. To these they ascribe a value of $1,830,000. Nelson & Partners go on to express, in summary form, their overall view: "Having regard to the above calculations, together with the prevailing market conditions, abovementioned issues relating to limited market, restrictive zoning, Heritage and bushfire hazards, we consider the fair and reasonable market value for internal company realisation purposes to be $2,300,000 . In addition, a realistic range "as is" is considered from $2,000,000-$2,500,000. The above is a combined gross value on the assumption Lot 1 is sold separately to Lots 152 and 13. A discount may be expected on the basis the 3 lots are realised "in one line", possibly up to 25% of the above combined figure. A discount is also considered likely, given the nature of this property having a limited market appeal. Our valuation assumes a reasonable, say up to 6 to 8 months, selling period with appropriate marketing and on an unconditional sale basis." 49 Nowhere here do Nelson & Partners say that "a significant discount on that figure would arise upon a forced sale". What they do say is that a discount of possibly up to 25% of the combined figure of $2,300,000 "may be expected on the basis the 3 lots are realised 'in one line'". Contrary to the clear implication in Mr Shannon's report, a receiver appointed by the court is under no duty to sell property "in one line". A receiver's fiduciary position causes him or her to be sensitive to all factors affecting the price at which property is to be sold. If there is any doubt about the power of a receiver, in a particular case, to postpone sale in the way contemplated by s.27B of the Trustee Act 1925, the court can supply the power. A practical constraint may be a receiver's inability to obtain funds necessary to allow the postponement, but that is an entirely different matter - although in the present case, there is apparently a small rental income. And, of course, offering of the two areas for separate sale, even simultaneously, would not entail sale "in one line". 50 In short, I am of the view that there is substance in ASIC's criticism of Mr Shannon's report as stated in paragraph [45] above. Matters arising from the minutes of the meeting 51 Detailed minutes of the meeting of investors held on 29 April 2004 were prepared by Mr Shannon and are in evidence. It is relevant to quote and comment on several parts of them. 52 First, I refer to certain introductory remarks made by Mr Shannon: "I point out that ASIC have applied to the Supreme Court for the appointment of a Receiver to wind up the Scheme. ASIC's concerns appear to relate to the method upon which TIML raised funds from Investors and it has not to my knowledge concerned itself with any other aspect of the Scheme. TIML has opposed ASIC's application for a number of reasons. · On commercial grounds, TIML would have lost control over the Property without proper research into alternative development options. · TIML required an accounting of LMS expenditure. · TIML wished to formulate the best possible options for Investors and to report to them in a proper way. · A concern over the commercial ramifications of a Receivership in respect of likely returns to Investors. As a result of ASIC's application, the Court will decide as to whether a Scheme Receiver is appointed or not. It may be that the wishes of Investors are ignored. However, I believe that it is more probable that the Court will take account the wishes of Investors in that you are the most affected parties." 53 This, of course, entirely overlooks or obscures the fact that the basis of ASIC's application to the court was operation of the scheme in contravention of s.601ED(5). ASIC's concern was not confined to "the method upon which TIML raised funds from Investors". In initiating proceedings, it focussed squarely on the absence of fundamental elements of the statutory scheme of ongoing investor protection. Those responsible for the operation of the scheme had not put in place or maintained the means the law requires for safeguarding investors' interests as the particular scheme is pursued and implemented. As a result, there was a continuing situation of default in the provision of investor protection. It was quite misleading to say to investors that ASIC's concern was confined to the historical matter of the method of fundraising. 54 The passage I have quoted was, however, accurate in saying that the court would take account of investors' wishes. But the weight the court affords investors' wishes will be assessed in the light of conclusions it reaches as to the integrity of the information on which they based their decisions. 55 I refer next to the following questions and answers: "33. Unidentified 'What is the liability of Longevity?' Shannon 'I have reviewed the documents obtained by us pursuant to subpoenas. The general findings in relation to those investigations are set forth in my report. It is my view that a claim exists as against Longevity and Brennan.' 34. Unidentified 'What steps are being taken to pursue those claims on behalf of investors?' Moloney 'The difficulty with respect to those claims is that ASIC presently regard the commencement of those proceedings as conducting the Scheme which Tasman has given undertakings not to do. Although we do not necessarily share that view we believe it would be prudent to await the determination of the proceedings which are presently before the Supreme Court. In circumstances where a receiver is appointed those proceedings may more properly be undertaken by a receiver.' Shannon 'I would go a bit further than that and say that we have senior Counsel's advice that Tasman can pursue a claim irrespective of ASIC's proceedings. Statements of claim are being drawn and will be lodged when we are ready.'" 56 The suggestion here is that the scheme as such may have among its assets certain rights of action. There is no way in which I can, at this point, assess the validity of that suggestion. I must, I think, take it at face value. 57 In due course, a vote was taken in such a way that investors present, and persons appointed as proxies by investors not present, expressed preferences by reference to the Options A, B(i), B(ii) and C outlined at paragraph [42] above. The minutes record one investor ($20,000) as in favour of Option A, six ($285,000) in favour of Option B(i), 47 ($2,515,423) in favour of Option B(ii) and none favouring Option C. The minutes record Mr Shannon as then having said: "It looks to me that the Option B(ii) has polled about 85% in both number of Investors and in value. The votes other than the B(ii) option appear to represent the directed proxies that were submitted prior to the meeting, I will have confirmed but it looks like option B(ii) was a unanimous choice of Investors present here tonight. That is a compelling result and it gives Tasman a clear direction in moving forward with the scheme." 58 After the meeting, Mr Shannon wrote a letter to the investor whose proxy had voted for Option A. The letter set out the voting results stated above, together with the additional information that seven investors ($1,275,987) did not vote and that a further 15 investors ($567,576) were neither present nor represented at the meeting. The letter then said: "At that meeting, Investors that were present unanimously voted to have Tasman Investment Management Limited ('TIML') implement Option B(ii), that is to sell the property on a deferred basis. Find enclosed a copy of the minutes of that meeting. TIML will seek orders from the Court to proceed on this basis. As shown in the above table, you were the only Investor that chose option A, the appointment of a Court Receiver. In view of the overwhelming response from the other Investors, if you wish to recast your vote then please complete the attached Post Meeting Poll and return to this office by post or fax (on the address shown) within the next seven days." 59 The investor thus approached by Mr Shannon returned the "Post Meeting Poll" document indicating a preference for Option B(ii). There was a covering letter saying that the investor had revised its position. A similar letter from Mr Shannon accompanied by a "Post Meeting Poll" form was sent to all investors who had not attended or been represented at the meeting, as well as the seven who were present but did not vote. The form was sent in order to enable these persons to express a view. Seven of these persons replied. All of them expressed support for Option B(ii). 60 It will be recalled that the course recommended by Mr Warne and TIML in his report (see paragraph [44] above) was Option B(i) - "immediate sale". The course ostensibly preferred by investors, including those who submitted "Post Meeting Poll" papers after having been told how others had voted, was Option B(ii) - "deferred sale". Significantly, however, I can find nothing in the report to investors or the minutes of the meeting indicating that investors were told anything of any substance about how a deferral of sale would be funded. As I read the report and the minutes, there was no reference to the fact that the National Australia Bank facility had "expired" which, as I have said, I take as an indication that the principal sum has become immediately due and payable. They were merely told at paragraph 6.3 of the report that National Australia Bank was owed $677,000. Nor were investors informed of the significant matter mentioned in Mr Shannon's affidavit that TIML has no resources of its own to negotiate an extension of the facility or the creation of a new one. One person present at the meeting is recorded as having asked: "If we decided to adopt the deferred sale option, who would pay for the costs?"

The recorded response from Mr Shannon is: "Tasman would fund the interim costs. These would include holdings costs, NAB interest and a proportion of the planning costs. At this stage I do not know how much of the planning costs will need to be incurred to have the property saleable to a developer. We may need to lodge a DA or series of DA's and we may need to joint venture with the developer to partially fund the planning cost." 61 Two things should be said about this. First, the notion that TIML will pay costs of deferral finds no place in the proposal now before the court. Second, there was no indication that deferral would involve replacement or extension of the National Australia Bank facility. 62 It must follow that persons who expressed a preference for "deferred sale" did so on the basis of an understanding as to the viability of that approach that was, in a fundamental way, incomplete and uninformed. Mr Shannon conceded in cross-examination this limitation upon the utility of the results of investors' decision making in this context: "Q. When you wrote to the investors - this is the second time after the meeting - to those investors that had not voted in person or by proxy, you indicated that the investors who had attended the meeting had voted in favour of a deferred sale? A. Yes.

Q. And you said that Tasman would seek orders from the court to proceed on that basis, is that not so? A. Yes.

Q. So, I take it, that that view was the view that Tasman held, that there should be a deferred sale? A. Yes.

Q. That's what Tasman would be asking the Court to do? A. Yes.

Q. That's not what is being asked for today? A. No.

Q. What is being asked for today is for immediate sale of the property? A. Yes.

Q. And that you be permitted to run that sale; is that not so? A. Yes.

Q. Tell me, have you communicated that to the investors? A. No." Cost factors 63 In his affidavit, Mr Shannon lists tasks he thinks a receiver appointed by the court would be likely to undertake in effecting a sale of the property. He estimates that a receiver starting afresh would incur professional fees of the order of $75,000 to $100,000 in connection with these tasks and would replicate in large measure work already undertaken. The tasks are described in the affidavit as follows: "(a) conduct investigations and enquiries with respect to the land including title investigations; (b) call for submissions from potential selling agents for the property with marketing proposals and budgets for advertising; (c) commission a planning report to consider the zoning of the property and permitted uses bearing on the identity and range of potential purchasers of the property; (d) appoint a selling agent and agree a marketing campaign and advertising expenditure in relation to the property; (e) undertake discussion with the National Australia Bank and/or its solicitors as first mortgagee concerning the bank's position with respect to the sale; (f) obtain a valuation of the property; (g) instruct solicitors to prepare a contract and act otherwise then in connection with the sale of the property; (h) attend to any sale enquiries during the marketing period and endeavour to provide information to persons interested and assist the selling agents to identify potential purchasers of the property during the marketing campaign; (i) conclude the sale of the property." 64 In cross-examination, Mr Shannon agreed that items (a), (b), (d), (e), (g), (h) and (i) would be required whichever means of realisation was adopted and that the cost would be the same whether the sale was in the hands of a receiver appointed by the court or in the hands of TIML and Mr Shannon in the way for which Mr Ireland's clients contend. As to item (c), Mr Shannon stated that TIML already had a town planning report and that it would be available to any receiver appointed by the court, although he questioned whether such a receiver would be willing to rely on a report he or she had not commissioned. Mr Shannon made the same statement in relation to item (f) and the existing valuation to which I have already referred. It would, of course, be open to such a receiver to seek short and confirmatory reports from the town planning consultants and valuers by whom the existing reports had been prepared. 65 In short, therefore, Mr Shannon's evidence does not provide any foundation at all for a view that a receiver appointed by the court would, in his words, "replicate in large measure work already undertaken by me". Nor is there evidence to substantiate his assertion of an incremental cost of $75,000 to $100,000. 66 The other point to be mentioned here is that, if Mr Shannon were retained to perform the functions in relation to sale proposed by Mr Warne, TIML and the third defendant, he would charge fees. So too would a receiver appointed by the court. There is accordingly no basis for qualitative distinction between the alternatives on that basis. Nor is there evidence to ground a finding that one fee regime would be more or less burdensome than the other. The forced sale factor 67 Mr Warne says in his affidavit: "I am concerned that in the event that the Court appoints a receiver with power to sell the Wentworth Falls property, then the prospect of obtaining a realistic price for that property will be much less than if the property were sold otherwise than by receiver. I am also apprehensive that in the event that the Court appoints a receiver to sell the property then the National Australia Bank will appoint its own receiver to sell the property under instructions from the Bank exercising its powers as mortgagee. In the event of mortgagee sale of the property, the likely realisation would, in my opinion, be even more greatly reduced, particularly having regard to the actual level of debt now owed by TIML to the National Australia Bank." 68 I admitted this paragraph only as evidence that Mr Warne holds the concern and apprehension stated. But whether he holds them or not, there are several unavoidable realities. Neither the scheme nor TIML has the resources to negotiate a new National Australia Bank facility or an extension of the expired facility. For reasons I have stated, the principal under that facility should be taken to be immediately due and payable. As a result, the bank must be assumed to be in a position where it may resort to secured creditor remedies. Because there is a small rental income from the property, the bank, if minded to move at all, might appoint a receiver of the rents and profits. A parallel and more fruitful course might well be for it to move immediately to exercise its power of sale as mortgagee. 69 Mr Warne and his own company have been meeting interest payments under the bank facility from their own resources. The basis on which they have done so has not been explained but it would be surprising if they regarded the payments as gifts rather than loans. It may be that the bank will stay its hand while this situation continues. But it is a situation that is simply not viable for any length of time since, if my assumption as to the character of the payments is correct, it merely adds to the debt burden ultimately affecting investors. 70 As operator of the scheme, TIML has reached a point where immediate sale of the Wentworth Falls property represents the only way forward. Operation of the scheme by sale will be unlawful under s.601ED(5). TIML itself therefore cannot sell except as part of a winding up ordered under s.601EE(2). But whatever regime of administration may be in place, one thing will be clear: the sale will be of such a character as to be regarded as "forced". This will be so whether the person making decisions in relation to the sale is an agent of TIML installed, in a winding up context, in the way for which Mr Ireland's clients contend, a receiver appointed by the court or National Bank of Australia (or a receiver appointed by it under its security) exercising a mortgagee's power of sale. 71 The contention that appointment of a receiver by the court and sale of the property by that receiver carries overtones of "fire sale" that would not attend the other possible methods of realisation therefore does not withstand scrutiny. Utility of the TIML proposal 72 An order that an unregistered managed investment scheme "be wound up" is, of itself, of little, if any, utility. Such an order, by resorting to the expression "wound up", connotes a process involving the realisation of assets of the scheme, discharge of liabilities associated with it and distribution of any surplus among beneficiaries or members in an appropriate way, so that "approaches to the general subject under statutes dealing not only with companies but also with partnerships" are generally relevant: Australian Securities and Investments Commission v Commercial Nominees of Australia Ltd (2002) 42 ACSR 240. Because there is no statutory scheme of winding up analogous with that applicable to companies, an order that an unregistered managed investment scheme "be wound up" can only sensibly be made if fleshed out by ancillary orders as to the principles to be applied in effecting the winding up and the manner in which it is to be conducted: see Australian Securities and Investments Commission v Commercial Nominees of Australia Ltd (above). 73 One such ancillary order will generally be that a person be appointed to conduct the winding up. Appointment of a receiver will generally be an appropriate step, given the analogy with cases in which partnership property or trust assets need to be taken under the court's protection. In some cases, a person designated "liquidator" has been appointed and there are instances in which, apparently without statutory warrant, provisions of the Corporations Act applicable to liquidators of companies have been assumed to apply to such a "liquidator": see for example Cook v Law [2003] FCA 966 (s.477(2A)); Hamilton v Piggott Wood and Baker [2003] FCA 1055 (s.479(3)); Woods v Dodge [2003] FCA 1066 (s.479(3)). In some cases, as I have already noted, the scheme's operator has been ordered by the court to wind it up. 74 The proposal of Mr Warne, TIML and the third defendant does not envisage that anyone will have the general function of administering the winding up. Rather, it is proposed that, in the winding up, TIML itself will sell the property (with Mr Shannon acting as its agent) and bring the proceeds into court. No one will be charged with responsibility for seeking to ascertain the rights and interests of investors or dealing with the claims of creditors. Nor will there be anyone whose task it is to seek to discover exactly what the scheme assets are. It is at least possible that the conduct of the scheme may have given rise to liabilities on the part of third parties which may be regarded as reflective of assets of the scheme, as distinct from the investors personally. 75 In a real sense, therefore, the proposal advanced by Mr Warne, TIML and the third defendant will entail a vacuum that, by default, will fall to be filled by some form of continuing supervision by the court itself. That is a situation that should not be allowed to arise. It is the kind of situation that has historically been addressed by the appointment of a receiver. Conclusions 76 In the present case, the precise rights and interests of investors under and in relation to the scheme are unclear. Mr Warne, in my opinion, would face a conflict of interest were he to play any part in the winding up of the scheme. In addition, he and Mr Shannon have failed to acknowledge the serious state of non-compliance in which the scheme has found itself, even though aware of it. Mr Shannon's report to investors was slanted in the way referred to at paragraph [45] above. Investors expressing a preference at and after the 29 April 2004 meeting for the "deferred sale" option did so in circumstances where they had not been made aware that important investor protection measures had been denied them and that TIML was faced with an apparent need to pay in the short term the full National Australia Bank debt that it had no way of refinancing or of paying except through sale of the property. The expression of investor preference is therefore of no real value to the court. Given the need for early sale and the distinct possibility that the mortgagee will act if its principal is not repaid, any argument that sale by a receiver appointed by the court would represent the kind of "forced sale" that might be avoided by adopting the alternative proposal advanced by Mr Warne, TIML and the third defendant is at best difficult to maintain and probably spurious. Because that alternative proposal entails supervision by a fee-charging professional and, so far as the selling task is concerned, that professional and a receiver appointed by the court would have to perform almost the same functions, it cannot be said that the alternative proposal would involve demonstrable costs savings. There is also the important point that, in this case, investors as a body have a large amount at stake. 77 All these factors point inexorably to rejection of the proposal advanced on behalf of Mr Warne, TIML and the third defendant and imposition of a winding up regime under which a receiver appointed by the court can take control of the scheme assets in their entirety and determine what properly ought to be done to fulfil the legitimate expectations of investors who appear to have suffered substantial losses under the present management. 78 Mr Parbery's consent to act as receiver has been tendered. I make the following declarations and orders as sought by ASIC: 1. Declare that each of the first and fifth defendants by themselves, their servants agents and employees contravened s.601ED of the Corporations Act by operating an unregistered managed investment scheme known as the "Queen Victoria Project" ("the Scheme"). 2. Order that each of the first, third and fifth Defendants by themselves, their servants, agents and employees be permanently restrained from operating an unregistered managed investment scheme in contravention of s.601ED(5) of the Corporations Act . 3. Order that Stephen Parbery of PBB, chartered accountants of Level 15, 25 Bligh Street, Sydney NSW 2000 ("the Receiver") be appointed, without security, as Receiver and Manager to wind up the Scheme. 4. Order that the Receiver have all powers necessary for the winding up of the Scheme, including, but not limited to, all the specific powers identified in subsections 420(2)(a), (b), (e), (f), (g), (h), (j), (k), (o), (p), (q) and (r) of the Corporations Act . 5. Order that the reasonable costs and expenses of the Receiver incurred in relation to his winding up of the Scheme, be paid out of the assets of the Scheme. 6. Order that the Receiver file with the court and serve on the plaintiff, a report: (a) identifying and describing the assets and liabilities of the Scheme; (b) confirming whether proper financial records have been kept for the Scheme; and (c) identifying any reason for suspecting that any of the defendants may have any liability to the members of the scheme in their capacity as such. 7. Grant leave to the Receiver to apply in these proceedings on seven days notice to all parties for such orders under s.601EE of the Corporations Act as he considers necessary or desirable for the effectual winding up of the Scheme. 8. Order that each of the first, third and fifth defendants pay the plaintiff's costs of these proceedings. **********

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