ASIC v Tasman Investment Management Ltd

LEGISLATION CITED : Corporations Act 2001 (Cth), ss.601ED(5), 601EE(2)

Australian Securities and Investments Commission v Commercial Nominees Ltd (2002) 42 ACSR 240 Australian Securities and Investments Commission v Tasman Investment Management Ltd (2004) 50 ACSR 153 CASES CITED : Mier v F N Management Pty Ltd [2005] QCA 408 Re Stacks Managed Investments Ltd (2005) 54 ACSR 466

Australian Securities and Investments Commission - Plaintiff Tasman Investment Management Limited - First Defendant Longevity Management Systems Pty Ltd - Second Defendant PARTIES : QV Mortgage Pty Ltd - Third Defendant Queen Victoria Project Management Company Pty Ltd - Fourth Defendant Colin Warne - Fifth Defendant

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 1 On 28 July 2004, I ordered that Mr Parbery be appointed as receiver and manager to wind up an unregistered managed investment scheme known as the "Queen Victoria Project". Certain consequential orders were made: see Australian Securities and Investments Commission v Tasman Investment Management Ltd (2004) 50 ACSR 153. 2 The case was one in which it was found that the managed investment scheme, being unregistered, was being operated in contravention of s.601ED(5) of the Corporations Act 2001 (Cth). The order appointing Mr Parberty to wind it up was made pursuant to s.601EE(2). 3 On 12 December 2005, Mr Parbery approached the court seeking advice or direction of the kind that, in the court ordered winding up of a company, might be given to a liquidator under s.479(3) of the Corporations Act. The advice or direction Mr Parbery sought related to the performance by him of a conditional agreement he had made with a person holding a sub-lease of part of the property of the scheme. The deed envisaged a payment to that person in return for an agreement to surrender the sub-lease - something that, in Mr Parbery's estimation, would enhance the value of the property concerned by making it more saleable. Because that opinion appeared on the evidence to be justified (with the result that the transaction was beneficial to the winding up), I made an order in the following terms, indicating that I would later deliver brief reasons: "Pursuant to s.600EE of the Corporations Act , I order and declare that Stephen James Parbery, receiver appointed by the court on 23 July 2004, is justified in (a) having entered into the deed of surrender and release dated 9 December 2005 between himself and Judith Harrison and (b) performing and giving effect to that deed." 4 In giving reasons, as I now do, I do not need to say more about the substantive merits. I do, however, wish to say a few words about the scope of s.601EE and its capacity to support the order made on 12 December 2005. 5 Section 601EE is the only provision of the Corporations Act for the winding up of a managed investment scheme that is operated in contravention of s.601ED(5). The effect of s.601EE(2) has been the subject of comment in a number of cases. A survey of relevant judicial observations on the matter, as at July 2005, appears in the judgment of White J in Re Stacks Managed Investments Ltd (2005) 54 ACSR 466 at pp.473-4: "28 Under that provision, courts have made orders as to the appropriate basis for the distribution of moneys to members of the scheme ( Australian Securities and Investments Commission v Commercial Nominees Ltd (2002) 42 ACSR 240). In that case, Barrett J said (at 243-4, [13]): 'Given that s 601EE(2) enables the court to make "any orders it considers appropriate for the winding up of the scheme" (emphasis added), it must be accepted that the court has jurisdiction to settle or prescribe any aspect or element of the basis for winding up or the winding up process which it is necessary to supply because that element cannot be obtained from any other source. In this respect, it is noteworthy that the statute itself does not attempt to lay down the basis for or method of winding up. That is, to my mind, an indicator of intention that the court should be able to act in the comprehensive way I have outlined.' 29 In Australian Securities and Investments Commission v Takaran (No. 2) (2003) 21 ACLC 12; (2002) 43 ACSR 334, Barrett J said (at [11]-[12]): 'The process of winding up under s 601EE of the Corporations Act 2001 (Cth) is not prescribed or in any way elaborated by the provisions of the Act. …. … The power extends, in my judgment, not only to the imposition of an appropriate winding up regime at inception but also to the making, as and when needed after inception, of such further orders as are needed in connection with the due conduct and completion of the winding up.' 30 Perhaps more controversially, in Australian Securities and Investments Commission v Atlantic 3 Financial (Aust) Pty Ltd (No. 3) [2003] QSC 386 Mullins J said (at [28]) that the powers conferred by s 601EE(2) were very broad and without restriction.

31 Where orders are made for the winding-up of an unregistered managed investment scheme under s 601EE, courts have appointed persons variously as receivers, (eg Australian Securities and Investments Commission v Takaran Pty Ltd & Ors (No. 2) ), or as receivers and managers (eg Australian Securities and Investments Commission v Edwards (2004) 22 ACLC 1469; Australian Securities and Investments Commission v Tasman Investment Management Pty Ltd (2004) 50 ACSR 153), or as "liquidators" (eg Australian Securities and Investments Commission v Landy DFK Securities Ltd (2002) 123 FCR 548), and have appointed independent accountants to investigate and report on the scheme assets, (e .g. Brighton Joint Venture Partner No. 2 Scheme; Australian Securities and Investments Commission v Primelife Corporation Ltd [2005] FCA 704). It is usual to confer on such persons the receiver's powers under s 420, or the liquidator's powers under s 477, of the Corporations Act .

32 Although I was not referred to authority illustrating the width of orders made under s 601EE(2), orders have been made under that section which purport to confer on the receiver or liquidator appointed, powers similar to those conferred by the Act on liquidators of companies. In ASIC v Edwards McMurdo J conferred on the receivers and managers, powers " necessary for the purpose of winding up the …. scheme, including, but not limiting (sic) to … the power to require (by request in writing) any of the respondents or any officer, employee, consultant, banker, solicitor, accountant or agent of any of the respondents to provide reasonable assistance. " In Brighton Joint Venture Partner No. 2 the investigating accountant was given all powers necessary to enable him to carry out and complete an enquiry into and report on the assets of the scheme, the claims of third parties in relation to those assets, the identity and interests of members and payments made to or by members, the nature and identity of the liabilities of the scheme, (sic), and its solvency.

33 In Australian Securities and Investments Commission v ABC Fund Managers Ltd (No. 3) [2001] VSC 397, Warren J (as her Honour then was) said that s 601EE(2) conferred a wide and unqualified discretion, (which is certainly true) and that the liquidator of the schemes ordered to be wound up should have every power as if the schemes were corporations to be wound up. Her Honour made an order that: 'b. the liquidator shall have the power to investigate or cause to be investigated any deficiency in the schemes and to exercise the powers under Pt 5.9 Division 1 of the Corporations Act as if the schemes were corporations being wound up;'

Division 1 of Pt 5.9 includes Section 596A which gives a liquidator the right to obtain a summons for examination of a corporation's officer, and section 596B which empowers him to seek a summons for the examination of persons who were not officers. It includes s 597A which empowers a court to require an examinable officer of a corporation to file an affidavit about its examinable affairs. It is not clear whether her Honour intended to engage the powers in s 596A and 597A (as well as s 596B) by deeming the persons responsible for managing the schemes to be officers of the deemed corporation.

34 In Australian Securities and Investments Commission v McNamara [2002] FCA 1005, Mansfield J made an order under s 601EE(1) for the winding-up of an unregistered scheme which was a limited partnership. His Honour ordered that a liquidator be appointed to the scheme and that: ' 3. The liquidator may exercise such functions and powers as set out in Chapter 5 of the Act as he would be entitled to exercise if the managed investment scheme were a company, with such modifications as are reasonably necessary in the circumstances .'

His Honour gave no reasons for this order, and it is not clear what is meant by the qualification ' with such modifications as are reasonably necessary in the circumstances '." 6 White J went on to say (at p.475): "36 In practice, I suspect that 'liquidators' of unregistered schemes assume they have the powers of company liquidators. As Barrett J pointed out in Australian Securities and Investments Commission v Tasman Investment Management Ltd (2004) 50 ACSR 153 at 173, [73], applications have been made by liquidators of schemes for directions under s 479(3) of the Corporations Act as for approval of deeds of settlement under s 477(2A) of the Corporations Act , when there was no warrant for such applications under those sections, although doubtless the same directions and orders could have been given under s 601EE(2). Of course, their powers depend on what orders can be made, and are made, under s 601EE(2)." 7 More recently, the Queensland Court of Appeal, in Mier v F N Management Pty Ltd [2005] QCA 408, has emphasised the importance of maintaining analogies between winding up under s.601EE(2) and under established winding up regimes relating to companies, partnerships and trusts. Keane JA (with whom McMurdo P and Douglas J agreed) said, after referring to a passage in the judgment in Australian Securities and Investments Commission v Commercial Nominees Ltd (2002) 42 ACSR 240 quoted at paragraph 28 of the judgment of White J in Stacks: "I would add only one caveat. While it is true that the Act does not explicitly lay down a method for the winding up of an unregistered scheme it must be assumed that, in general, a court would be guided by analogies with the law relating to the winding up of companies, partnerships and trusts when deciding on the appropriate procedure for the winding up of a scheme. The best analogy would suggest the procedure to be followed. In my opinion, good reason should be shown before a court would make an order in the winding up of a scheme that did not have a precedent or parallel in the Act, partnership legislation or the law relating to the winding up of trusts. Of course, the best analogy might be thought to be the winding up procedure applicable to a registered scheme. Unfortunately for present purposes, the Act, beyond directing that a registered scheme be wound up in accordance with its constitution, also leaves the detail of the winding up of a registered scheme in the hands of the Court, which may make such orders as it 'thinks necessary to do so'." 8 Having regard to these analogies it is, in my view, open to the court under s.601EE(2) to give to the person appointed by it to effect a winding up directions of the kind that would be given to a company liquidator under s.479(3) or to a controller of property of a corporation under s.424(1). Designation and appointment of a person by the court to be a receiver charged by the court with the duty of winding up an unregistered managed investment scheme emphasises the person's status as an officer of the court with the duty of getting in, holding and preserving property for the benefit of the person entitled to it. That status underlines the need for the court to render assistance to the receiver by way of direction when reasonably requested to do so: see Australian Securities and Investments Commission v Commercial Nominees Ltd (above) at [11]. 9 Section 601EE(2) is itself the source of a power of the court to make an order of the kind Mr Parbery sought in this case. And the status of the receiver as an officer of the court means, as I have said, that the court should make the order if the receiver shows a proper case for the order to be made. **********

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