303 I accept Mr Dalgleish' evidence that he gave that advice on the explicit direction of Mr Holloway.
304 Mr Kitto made that sequence of payments on that advice on 6 August 1996.
305 On 6 August 1996 Hyde Park paid $19,176 to Hyde Park SBF. On the same date Hyde Park SBF paid to Hypa $19,176 to subscribe for units in Hypa. Also, on 6 August 1996, Hypa paid by cheque the same sum of $19,176 to Hyde Park. It also was by way of loan.
306 Mr Kitto has confirmed that Mr Holloway and Mr Dalgleish at no time advised them about in-house assets rules, or of restrictions on loans by Hyde Park SBF to Hyde Park either directly or indirectly.
307 The financial accounts and trial balances of the three entities show superannuation contributions for the 1995-96 year of income of $44,604.04 including the $40,000 paid on 28 June 1996. At 30 June 1996, Hyde Park was indebted to Hypa for $29,639.00, made up of the loan of $38,000 less repayments or credits of $8,360.40. There had been, according to the accounts, 43,000 units in Hypa issued to Hyde Park SBF as Hyde Park SBF had made an earlier subscription of $3,000 for units on 23 May 1996 as well as the payment of $40,000 on 28 June 1996.
308 The financial accounts for the 1996-97 year of income show superannuation contributions of $38,486.08, and the issue of 67,176 units. That is made up of the previous units of 43,000 and 24,176 units issued during 1996-97 in respect of payments of $19,176 and $5,000. They also show that the debt of Hyde Park to Hypa of $31,448.90, was made up of the opening balance of $29,639.60 plus the $19,176 less repayments or credits totalling $17,366.70.
309 Hyde Park SBF lodged Insurance and Superannuation Commission Annual Returns through Holloway & Co for the years of income 1995-96 and 1996-97. They show respectively its total assets at $43,094 and in-house assets of $0, and its total assets at $67,246 and in-house assets of $0.
310 Ms Tonks has calculated at 30 June 1996 the Hyde Park SBF in-house assets (the $38,000) to be 88.2 per cent of its total assets of $43,094. If the outstanding loans to Hyde Park of $29,640 are taken into account to determine the percentage of the assets of Hyde Park SBF invested in Hypa represented against all its assets, then that sum is 68.8 per cent of the total assets. In respect of the 1996-97 year of income, the sum of $19,176 represents 28.5 per cent of the total assets of Hyde Park SBF of $67,247. I do not consider that that form of calculation is directly applicable to the present circumstances.
311 In my judgment, each of the investments by Hyde Park SBF in Hypa by the subscription of $40,000 for units on 28 June 1996 and by the subscription of $19,176 for units on 6 August 1996 was the acquisition of an in-house asset by Hyde Park SBF. My reasons for that conclusion are the same as expressed in respect of other transactions, based upon s 71(2) of the Act and the clear plan that the two investments were part of an agreed process for the sums (or in this case, $38,000 of the $40,000 paid on 28 June 1996) being returned to Hyde Park. But for that step being assured, the investments would not have been made.
312 I am also satisfied in this instance that the acquisition of $40,000 worth of units in Hypa was in contravention of s 83(2) of the Act. The gross assets of Hyde Park SBF were represented only by investments in Hypa. There had been an investment of $3,000 for units on 23 May 1996, and I find on the basis of the nature of Hypa and those in control of it that those units by 28 June 1996 were worth about that sum. That then was the only asset of Hyde Park SBF. The receipt of $40,000, and its immediate investment in Hypa therefore amounted to acquiring an in-house asset when the market value ratio of the in-house assets already exceeded 5 per cent. If it is appropriate to treat the $40,000 in Hyde Park SBF as cash, so that only about $5,000 of total assets of $43,000 were in-house assets, the in-house market value ratio was of the order of 11 per cent.
313 For similar reasons I find that the acquisition of $19,176 worth of units in Hypa on 6 August 1996 when virtually all of Hyde Park SBF assets were already in-house assets contravened s 83(2) of the Act. The gross assets of Hyde Park SBF at 30 June 1997 indicate that its assets at 6 August 1996 could not have constituted much more, if anything more, than its units in Hypa.
314 As with other transactions, I defer consideration of the application of s 85 of the Act until later in these reasons.
(vi) The Holloway & Co transaction - findings
315 On 22 June 1993, Holloway & Co Super Benefit Fund ("Holloway SBF") was established. Its trustees were Mr Holloway and Ms Holloway. It was a regulated superannuation benefit fund under the Act from 15 May 1995.
316 On 15 August 1995 the Katon Private Property Unit Trust ("Katon") was established. Its trustee was Super Benefit. The signatories to Katon were either Mr Holloway, Ms Holloway, or one of them with either Mr Glaser and Mr Parker. Katon was, as Mr Holloway described, first established to acquire the premises in which the Holloway & Co business was then operating. Its then landlord proposed to sell the premises. The purchase of the premises was financed by Katon, through Super Benefit, borrowing about $100,000 from a bank and the balance of $36,000 was procured by Holloway SBF investing that sum for units in Katon. The sum of $36,000 was available by Mr Holloway and Ms Holloway first personally borrowing that sum, then lending it to Holloway & Co, and Holloway & Co then making superannuation contributions to Holloway SBF in that amount. Once the property was acquired in 1995, Holloway & Co paid rent to Katon for its use at a commercial rate. Subsequently, from 1998, part of the premises were leased to Advantage Business Strategies Pty Ltd, another company with which Mr Holloway was associated.
317 On 28 June 1996, Holloway & Co paid $130,000 to Holloway SBF. In turn, on the same date, Holloway SBF paid to Katon that sum of $130,000 to subscribe for 130,000 $1 units in Katon. It is not clear that those units were then issued. Also, on 28 June 1996, Katon paid $130,000 to Holloway & Co. It was by way of loan. The primary documents, including bank statements, cheque butts and deposit records confirm those three transactions.
318 The financial statements of Holloway & Co at 30 June 1996 showed its deferred liabilities included a loan from Katon of $128,482. They show no superannuation contribution expense of $130,000, but only of $48,296.73. The draft financial statement at 30 June 1997 shows the loan from Katon to then stand at $118,082.
319 The Holloway SBF accounts to 30 June 1996 show total assets of $250,047.22 including shares in listed companies at cost of $248,800 (which I find includes investments in Katon), an increase from $88,800 the previous year. Its operating statement shows contributions received during the year of $33,660 only. That was its only income. It is not clear from the accounts how its total assets increased from $88,800 at 30 June 1995 to $250,047.22 at 30 June 1996. The trial balance throws some light on that. It shows two items for undeducted member contributions each of $65,000. The listed shares at cost shows $88,800 brought forward from the previous period, plus two journal entries of $30,000 and $130,000, making a total of $248,800. Other records suggest that the $30,000 came from superannuation contributions received.
320 The Katon financial statements show an opening balance of $86,464.64 and capital contributions of $155,000 less loss of $8,629.96 to produce total unit holders funds of $232,834.68. They are shown to be represented by land and buildings, plant and equipment, and
"Investments at cost 67,757.25
Loans 128,482.00"
as part of its total assets of $348,350.20.
321 It is not clear from those records how the figure of $128,482 was arrived at.
322 Ms Tonks' calculation is that the in-house asset ratio of the Holloway SBF at 30 June 1996 was 52 per cent. That is calculated by reference to the asserted return to Holloway & Co of $130,000 during that year as a percentage of the gross assets of Holloway SBF of $250,047.
323 Given the coincidence of amount and timing of the payment by way of loan from Katon to Holloway & Co on 28 June 1996, I have no difficulty in concluding that the payment of $130,000 by Holloway SBF for units in Katon on that date was for an in-house asset. In my judgment, for reasons which apply with equal force to this investment as they do to certain of the earlier transactions, s 71(2) applies.
324 I am satisfied also that that investment contravened s 83(3) of the Act. The gross assets of Holloway SBF at 30 June 1996 were shown as $250,047. I find that those assets included the $130,000 in-house asset investment in Katon, and that that asset had a market value of about $130,000 at that time. Immediately before the receipt of that sum by Holloway SBF, its assets were therefore about $120,000. The precise nature of those assets is unclear. However, they included earlier investments in Katon. The evidence does not indicate clearly whether any of those assets should be treated as in-house assets. That part of its assets represented by units in Katon to assist Katon in buying the premises from which the Holloway & Co business operated does not fall within that description. Similarly, there is no evidence in the Holloway & Co accounts to suggest that it was significantly indebted to Katon prior to 28 June 1996. Accordingly, I am satisfied that immediately prior to the investment by Holloway SBF in Katon on 28 June 1996 the market value ratio of Holloway SBF in-house assets did not exceed 5 per cent, and that given the market value of the asset then acquired, the acquisition did then result in the market value ratio of Holloway SBF in-house assets exceeding 5 per cent.
325 The consequences of those findings, in terms of s 85 of the Act, remain to be addressed.
(vii) The Andrew Holloway transaction - findings
326 On 20 June 1996, Holloway & Co No 2 Super Benefit Fund ("Holloway No 2 SBF") was established. Its trustee was Mr Andrew Holloway. It was a regulated superannuation benefit fund under the Act from 25 June 1996.
327 On 20 June 1996 Lotus Property Unit Trust ("Lotus") was established. Its trustee was Super Benefit. The signatories of its bank account were any one of Mr Andrew Holloway, Mr Glaser and Mr Lombardi.
328 Mr Andrew Holloway was employed by Holloway & Co at material times. Mr Andrew Holloway is a young man. He completed school in 1988 and started work as a bookkeeper at Holloway & Co in January 1990. He studied accounting whilst doing that work, and completed that course during 1998. Whilst working for Holloway & Co, he worked under the supervision of Mr Holloway. He established the Holloway No 2 SBF and Lotus on the advice of Mr Holloway, but he does not recall the nature of that advice. He was aware of the existence of Super Benefit and of Mr Glaser, and that Super Benefit was trustee of Lotus and of other unit trusts. He understood its role was to ensure the unit trusts were operated correctly. Lotus since 1 July 1996 has been the vehicle for a range of investments, mainly shares. Mr Andrew Holloway discussed on occasions his intention to buy or sell shares with Mr Glaser, sometimes in advance of the sale or purchase. The investment decisions, however, were ultimately made by Mr Andrew Holloway.
329 On 28 June 1996, Holloway & Co paid $9,000 to Holloway No 2 SBF. On the same date, Holloway No 2 SBF paid that amount of $9,000 to Lotus. It was to subscribe for 9,000 units in Lotus. It is not clear that those units were then issued. On 1 July 1996 Lotus paid $9,000 to Holloway & Co by way of loan. That loan has since been repaid.
330 It is clear from the bank statement that the $9,000 was debited to the Holloway & Co bank account on 28 June 1996. The same amount was credited to that account on the same day. The bank statement of Lotus shows the deposit of $9,000 and the withdrawal of $9,000 only on 1 July 1996, although Holloway No 2 SBF bank statement shows the deposit of $9,000 from Holloway & Co on 28 June 1996, and its withdrawal on 28 June 1996. The primary bank records, including deposit slips, disclose that the entire transaction took place on 28 June 1996, and that the slight discrepancy in dates is due to the wrong account number being used for Lotus. I am satisfied on all the evidence, including that of Mr Andrew Holloway, that the transaction did occur as alleged on 28 June 1996.
331 The financial statements of Holloway No 2 SBF confirm that it received $9,000 employer contributions in the year ended 30 June 1996, and invested those contributions in "units issued at cost". The Holloway & Co accounts to 30 June 1996 record a debt of $9,000 owing to Lotus. I have remarked in respect of the Holloway & Co transaction the difficulty in reconciling the superannuation expense of $48,296.73 (according to those accounts) with the evidence that it contributed $9,000 to Holloway No 2 SBF, $130,000 to Holloway SBF and $4,829.08 to Life Enjoyment in that year.
332 By certificate signed by Super Benefit, Lotus on 30 June 1996 issued 9,000 units to Holloway No 2 SBF.
333 The Holloway No 2 SBF 1995-96 Annual Return to the Insurance and Superannuation Commission, lodged by Holloway & Co, stated the total assets of the Holloway No 2 SBF to be $9,000 and its in-house assets as nil.
334 The particular payments took place in circumstances in which I am cautious about making any findings. Mr Andrew Holloway was circumspect about the way he answered questions, and did not really disclose much about how or why the particular payments were made. Many of his answers were non-committal or asserted a lack of memory. I find on Mr Andrew Holloway's evidence that they were undertaken after discussions between Mr Holloway and Mr Andrew Holloway, and that Mr Andrew Holloway did not principally direct the drawing of the cheques although he was aware of the three transactions. He signed the cheque by which Holloway No 2 SBF paid $9,000 to Lotus. He did not recall who signed the cheque to pay $9,000 from Lotus to Holloway & Co, or the deposit records. He accepted that it was his decision to purchase units in Lotus on behalf of Holloway No 2 SBF. He declined to indicate whether that was done on advice. Mr Holloway's evidence did not really fill in many of the gaps.
335 It is tempting to fill in the gaps about why and how the Andrew Holloway transaction occurred, based upon the limited findings that I have been able to make. I must, however, bear in mind the nature of these proceedings and that the onus of proof lies upon APRA in relation to its allegations. Even with that caution, I find that the investment of $9,000 by Holloway No 2 SBF in units in Lotus was an in-house asset of Holloway No 2 SBF, based upon s 71(2) of the Act. I am able to infer with confidence, in terms of s 71(2), from the timing and amount of the payments, that the investment was made as the result of Holloway No 2 SBF and Lotus, through their guiding mind, as the result of carrying out an agreement for purposes that included the purpose of achieving the result that a loan of $9,000 would then be made by Lotus to Holloway & Co. I find that that guiding mind was that of Mr Andrew Holloway. The extent to which he was implementing the wishes or directions of Mr Holloway in doing so is, however, really speculative. I do not feel confident that he did so under the direction or supervision of Mr Holloway, although there is reason to suspect that that was the case. That lack of confidence may be of significance when considering whether the respondents infringed s 85 in respect of this transaction.
336 I find that, by the investment of $9,000 for units in Lotus, Holloway No 2 SBF infringed s 83(3) of the Act. Before the investment, on the evidence, it had no in-house assets. After the investment, all its assets were in-house assets. The market value of its in-house assets, whether that market value was exactly or only roughly equal to their cost, increased above 5 per cent, and in fact to 100 per cent, by the transaction.
(viii) The Longlat transaction - findings
337 Longlat Enterprises Pty Ltd ("Longlat") was registered on 22 July 1994. Its directors at material times were Mark Christopher Benbow ("Mr Benbow") and Jennifer Mary Benbow ("Ms Benbow").
338 In July 1994, Mr Benbow and Ms Benbow consulted Mr Holloway for professional accounting advice. They had been referred to him by a friend. The meeting was a lengthy one. They explained their financial position and their objectives to him. Mr Holloway then explained the structure he proposed for them involving a company, a superannuation fund and a unit trust. He said he could arrange for that structure to be established. He explained the taxation benefit of the company profits or available cash funds being paid to the superannuation fund, where they would attract a lesser taxation rate. He also explained that the superannuation fund could transfer funds to the unit trust, which could then invest that money. He said that they could manage the investment of moneys held by the unit trust, but would have to do so wisely. There were, he said, likely to be occasions when the company would make payments direct to the unit trust.
339 At that meeting, Mr Holloway referred to Mr Glaser. He said he would arrange for Mr Benbow and Ms Benbow to meet Mr Glaser. Mr Benbow was told that Mr Glaser or Super Benefit would be the "arm's length trustee" of the unit trust. They did not really discuss what it meant for Super Benefit or Mr Glaser to be trustee of the unit trust. Mr Benbow confirmed that the principal decision makers for the unit trust were to be Mr Benbow and Ms Benbow. Mr Benbow thought Mr Glaser's role was to ensure that the unit trust's operations were legal and were commercially sound.
340 They instructed Mr Holloway to proceed to establish that structure for them.
341 On 22 July 1994, Longlat Enterprises Pty Ltd Super Benefit Fund ("Longlat SBF") was established. Its trustees were Mr Benbow and Ms Benbow. It was a regulated superannuation benefit fund under the Act from that date. Also, on 22 July 1994 the Maje Private Property Unit Trust ("Maje") was established. Its trustee was Super Benefit. In addition, of course, Longlat was registered.
342 After the structure was established, Mr Holloway told Mr Benbow to open bank accounts for Longlat SBF and for Maje as well as for Longlat. The bank account for Maje was opened with Mr Benbow, Ms Benbow, Mr Glaser and Mr Parker as signatories but so that either Mr Benbow or Ms Benbow must be a co-signatory on any cheque. The cheque books for Maje are in the name 'Super Benefit Pty Ltd ATF The Maje Private Property Unit Trust'. Thereafter, when cheques were required to be signed by Maje, Mr Benbow would call at the office of Super Benefit to obtain Mr Glaser's signature.
343 During the twelve months or so from July 1994, Mr Benbow arranged payments by Longlat to Longlat SBF, or by Longlat to Maje, as advised by Mr Holloway. He consulted Mr Holloway from time to time for that advice. He did not act without it.
344 Mr Benbow retired from his employment as a geologist on 30 June 1994. Thereafter, he started work as a consultant geologist through Longlat. He received from his former employer a redundancy payment, and had an accrued superannuation entitlement. On Mr Holloway's advice, he paid those two amounts into Longlat SBF. He also arranged for payments to be made by Longlat SBF to Maje. Longlat SBF invested its available funds in Maje.
345 Mr Holloway, both in July 1994 and on subsequent occasions, advised Mr Benbow and Ms Benbow to invest the moneys in Maje into real estate.
346 Mr Benbow and Ms Benbow also met Mr Glaser in August 1994. He suggested they confer with him at least once each year to discuss Super Benefit's role as trustee of Maje. In fact, they met Mr Glaser several times each year, and sought his advice about potential real estate investments. Maje, through Mr Benbow and Ms Benbow, did purchase two properties in 1996 and 1997 at Kapunda in South Australia's mid-north and they also transferred their former family home at Mount Barker to Maje in 1996. Those transactions were each decided upon by Mr Benbow and Ms Benbow. The two properties at Kapunda are operated as investment properties under their direct management and control. They arranged the finance to purchase the two properties at Kapunda. Super Benefit is the registered owner of those properties as trustee of Maje. When the first of those properties was purchased, Mr Benbow arranged for a caveat to be placed on the title to protect the Benbow's "interest" in that property.
347 In late June 1996, Mr Benbow telephoned Mr Holloway. He was concerned that Longlat had not made lease payments to Maje for the lease of a four wheel drive vehicle and some camera equipment which it had provided to Longlat. On that occasion, he was advised by Mr Holloway that before the end of the financial year he should arrange a round of cheques of $25,000 from Longlat to Longlat SBF, of $25,000 from Longlat SBF to Maje, and of $24,500 from Maje to Longlat. No evidence was given as to why the third payment in that sequence was in a different amount. Mr Holloway was not asked about that. Mr Benbow duly arranged those payments. He left the Maje cheque at Super Benefit for Mr Glaser to sign, and collected it duly signed later the same day. He then banked all the cheques on the same day, namely 24 June 1996. The Maje cheque for $24,500 was payable to "Longlat Enterprises P/L" or bearer. Longlat's deposit book records the payment into its account of that sum on 24 June 1996. It was in fact credited to its account only on 4 July 1996, although the evidence is clear that it was paid in to Longlat's account on 24 June 1996.
348 That series of transactions is largely consistent with the financial statements of the three entities.
349 The financial statements of Longlat SBF at 30 June 1996 show its income during that year was essentially the employer contribution of $25,000. Its total assets of $133,831.41 comprised $133,825.59 being "units at cost", clearly units in Maje and a small balance in a bank account. The value of its units in Maje had increased from 30 June 1995 by $26,058. Journal entries indicate that that is made up of the payment of $25,000 and a further amount of $1,058 (apparently a distribution from Maje converted to units).
350 The balance sheet of Maje at 30 June 1996 shows an outstanding debt owed to Longlat of $7,834.35. It had current assets of $38,579.72 and current liabilities (including that debt) of $93,206.54. It had fixed assets of $187,423.71, and net assets of $132,796.89. It had issued units to the value of $133,825.59. Its income account showed the distribution of $1,058 to beneficiaries, the same amount as its net profit. It is not clear how the $7,834.35 reconciles with the payment of $24,500. Maje had no loan to or from Longlat at 30 June 1995. In the next financial year, it is recorded as having received advances from Longlat of $3,379.95 and $16,000, and as having made a payment to Longlat of $11,545.60 to produce that balance (according to its trial balance). That "payment" appears as "equipment-hire received" $11,545.60. The $7,834.35 is the balance owing by Maje after balancing those three amounts. It does not appear how, if at all, its accounts reflect the payment by Maje to Longlat of $24,500 on 24 June 1996.
351 Longlat's financial statements to 30 June 1996 confirmed the superannuation contribution of $25,000 and the indebtedness of Maje of $7,834.35.
352 The Maje balance sheet at 30 June 1996 also shows a debt owing to 'Mark and Jennifer Benbow' of $10,605.23. That figure is reached, according to the journal entries, by a payment to Mr and Ms Benbow of $24,500 and then payments by them of $10,269.33, $24,556 (for adjustment of accumulated depreciation) and $279.90 (for light and power for the office). Those materials suggest the payment of $24,500 by Maje to Longlat, which is clearly established on the evidence, may have been treated by some book entry after it was made as a payment to Mr & Mrs Benbow. It may be that the journal entry recording a payment by Maje to Mr & Mrs Benbow is an unrelated payment, although it is then curious that the Maje payment to Longlat cannot readily be traced to its balance sheet. As noted, the material does not show how the Maje liability to Longlat at 30 June 1996 was determined. At all events, I am satisfied on the evidence that Longlat paid Longlat SBF $25,000 on 24 June 1986, that Longlat SBF then paid Maje $25,000 and that Maje paid Longlat $24,500 on the same day. It remains to consider the consequences of the material referred to.
353 Longlat SBF lodged, through Holloway & Co, Annual Returns to the Insurance and Superannuation Commission for the 1994-95 year of income showing its assets at 30 June 1995 to be $107,767 and its in-house assets as nil, and for the 1995-96 year of income showing its assets at $133,831 and its in-house assets as nil.
354 The circumstances and timing and amounts of the payments made on 24 June 1996 indicate, in my judgment, that the investment by Longlat SBF of $25,000 for units in Maje on that date constituted an in-house asset of Longlat SBF, by virtue of s 71(2) of the Act. I find that that particular investment was made as the result of Longlat SBF and Maje, each through Mr Benbow and on the advice or direction of Mr Holloway carrying out an agreement for purposes that included achieving a loan or investment to or in Longlat of $24,500. The situation is not so clear cut as in the case of some other transactions, as there is no evidence that Longlat needed the redeposit of its superannuation contribution to Longlat SBF to maintain ready liquidity. However, there is no other apparent reason for the transaction, which delivered significant taxation advantages. To put it another way, I am satisfied that the superannuation contribution of $25,000 to Longlat SBF would not have been made at that time unless it was part of the "package" that those funds would substantially reflow to Longlat.
355 However, I do not find that s 83(2) or s 83(3) was contravened by that payment. The assets of Longlat SBF before that investment were its earlier investments in Maje. Their market value would depend upon the market value of the assets of Maje. As appears above, Maje had been operating for some time. I do not know sufficient about the nature of or the market value of its assets to be able to make any finding that the investment in question resulted in the market value ratio of its in-house assets exceeding 5 per cent.
356 Accordingly, I reject APRA's claims against the respondents in respect of the transaction.
(ix) The Pride Consultants transaction - findings
357 Robert Pride Consultants Pty Ltd ("Pride Consultants") was registered on 14 July 1988. Its directors at material times were Robert Glen Pride ("Mr Pride") and Denise Fay Pride ("Ms Pride").
358 On 31 October 1995, Robert Pride Consultants Pty Ltd Super Benefit Fund ("Pride Consultants SBF") was established. Its trustees were Mr Pride and Ms Pride. It was a regulated superannuation benefit fund under the Act from that date.
359 On 31 October 1995 the Denrob Property Unit Trust ("Denrob") was established. Its trustee was Super Benefit.
360 Mr Pride and Pride Consultants (consultants in the field of project management) were clients of Mr Holloway from 1988. It was on his advice that Pride Consultants was established. It was not very active until June 1995, as Mr Pride was employed elsewhere. When Pride Consultants was established, on Mr Holloway's advice there was also established the Robert Pride Family Trust, with Pride Consultants as its trustee. It appears that thereafter, when it became active, Pride Consultants acted as trustee of The Robert Pride Family Trust, as the employer. It was, I assume, a discretionary family trust.
361 Mr Pride worked full time as a consultant through Pride Consultants from July 1995. He had a public company superannuation fund, but was dissatisfied with its performance. In October 1995, he conferred with Mr Holloway on the matter of superannuation. Mr Holloway suggested a structure involving the establishment of a superannuation fund and a unit trust. He showed Mr Pride how Pride Consultants could make contributions to the superannuation fund, and how the superannuation fund could invest those contributions in the unit trust. He then explained that the unit trust would be the investment entity, investing in such things as property acquisition and development, shares, and in the purchase of capital equipment from Pride Consultants which it could then lease back to Pride Consultants. He explained that the unit trust could borrow monies to leverage investments whereas the superannuation fund could not do so.
362 Mr Pride instructed Mr Holloway to establish those entities. He had not then heard of Super Benefit or of Mr Glaser. When he saw the trust deed for Denrob, he noticed Super Benefit was trustee. He assumed that Super Benefit was "my entity" and did not understand that anyone else was involved.
363 In accordance with Mr Holloway's later direction, Mr Pride in June 1996 then established bank accounts for Pride Consultants SBF, and in the name of Super Benefit as trustee for Denrob. Mr Pride and Ms Pride were the only signatories to those accounts. They were described as the operators of the account, but the application to open the account was under the seal of Super Benefit and was signed by Mr Glaser and Mr Lombardi as directors. Mr Pride could not recall how that came about. I conclude that Mr Holloway did explain to him that Super Benefit was an independent entity as trustee of Denrob, but indicated that at a practical level Mr Pride could run Denrob.
364 After 30 June 1996, Denrob, on the decision of Mr Pride, acquired certain shares. Mr Pride got Mr Glaser to affix the Super Benefit seal to the applications for those shares. It was a formal process, in the sense that Mr Glaser did not inquire into the nature of, or the reason for, the transaction. Where the common seal was not necessary for share dealings and bank transactions, Mr Pride signed the documents for Super Benefit as trustee of Denrob. He did not consult Mr Glaser at any time about those transactions.
365 On 19 June 1996, Mr Pride arranged the payment of $15,000 from Pride Consultants to Denrob, then the payment of $14,500 from Denrob to Pride Consultants SBF, and then the payment of $14,000 from Pride Consultants SBF to Pride Consultants. The sequence of payments was the reverse of the sequence which applied with the other transactions. I accept that he made those payments on what he understood was the advice of Mr Holloway. He had no reason to make them unprompted by Mr Holloway. I find that he misunderstood the instructions given to him by Mr Holloway. Consistently with Mr Holloway's evidence of his typical advice, he told Mr Pride to pay the cheques in the reverse order: to Pride Consultants SBF, to Denrob, and to Pride Consultants. The payment by Pride Consultants was to subscribe for units in Denrob. It is unclear whether those units were then issued. The payment by Pride Consultants SBF to Pride Consultants was by way of loan.
366 There is no evidence to explain why the payments were in different amounts.
367 When Mr Pride became aware, in mid 1997, that the Insurance and Superannuation Commission was investigating the Pride Consultants SBF, he asked Mr Holloway why that might be so. Mr Holloway explained to him that it was about loans made to Pride Consultants, as there was a limit on such loans of a percentage. He initially said that he was given the figure of 30-40 per cent of the total assets of the Pride Consultants SBF, but in cross-examination he was not sure of the percentage. Mr Pride had not earlier heard of any such rule.
368 The financial statements of Pride Consultants to 30 June 1996 show a liability to Denrob of $14,000 as a current liability, and superannuation payments incurred of $19,000. The financial statements of Denrob show that it has a loan to "The Pride Family Trust" of $14,000 as one of its assets. Pride Consultants runs its business as trustee for The Pride Family Trust. Those financial statements do not accurately reflect the nature of the transaction, but wrongly treat it as having occurred as if there were a flow of funds from Pride Consultants to Pride Consultants SBF to Denrob to Pride Consultants.
369 The banking records in evidence show:
· Pride Family Trust (Pride Consultants) transferred $15,000 and received $14,000 on 19 June 1996.
· Denrob received $15,000 and transferred $14,500 on 19 June 1996.
· Pride Consultants SBF received $14,500 and transferred $14,000 on 19 June 1996.
They confirm the sequence of payments as I have found it to have been.
370 The financial statements of Pride Consultants SBF show its total assets at 30 June 1996 to be $25,491.83 including $15,000 units at cost. They also show income of $6,491.83 transferred from other funds, and $19,000 contributions from the employer. It is unclear whether they erroneously treat the payment of $15,000 by Pride Consultants to Denrob on 19 June 1996 as a payment to Pride Consultants SBF. The composition of the $19,000 contributions is not detailed. The transaction, as I find it was intended by Mr Holloway, involved $14,500 being paid for units in Denrob. I am unable to find how the $15,000 subscription for units was arrived at.
371 There is a unit certificate issued by Super Benefit (signed by Mr Glaser) dated 30 June 1996 for the issue of $15,000 units in Denrob issued to Pride Consultants SBF. For reasons given earlier, I place no weight upon that certificate as evidence of the nature of the transaction.
372 The 1995-96 Annual Return to the Insurance and Superannuation Commission for Pride Consultants SBF, lodged by Holloway & Co, declared its total assets to be $25,491 and its in-house assets as nil. In this instance, the loan by Pride Consultants SBF to Pride Consultants was an in-house asset of Pride Consultants under s 71(1) of the Act. It was simply a loan to an employer-sponsor. It is unclear what the assets of Pride Consultants were prior to that loan, but the financial statements (even though I have found that they may be erroneous) indicate that its assets were not great. It is unclear whether it had any in-house assets prior to 19 June 1996, so it is unclear whether s 83(2) or s 83(3) were contravened by the acquisition of the in-house asset on 19 June 1996. It is likely that one of those provisions was contravened.
373 In this instance, it is convenient to deal with s 85 of the Act. I do not think that the allegations of APRA in its statement of claim are made out. It is alleged that the scheme referred to in s 85 involved the loan to or investment in Denrob by Pride Consultants with the intention of that money then being advanced to Pride Consultants SBF and then to Pride Consultants. The in-house asset is said to be made pursuant to the scheme established in 1995 and carried out between 1995 and 1998. Although probably by a misunderstanding by Mr Pride of Mr Holloway's instructions, I do not think that the particular sequence of payments was made in accordance with the general scheme as alleged. I am not satisfied that Mr Holloway at any time intended that payments should be made by an employer-sponsor to a unit trust then to a superannuation fund then back to the employer-sponsor. The alternative claim is that, in this instance, there was an agreement to which the respondents were parties for the purchase of units in Denrob by Pride Consultants which constituted a loan to or an investment in Denrob by Pride Consultants SBF. I have found that the transaction did not occur in that way. I am also not satisfied in this instance that, at the time Pride Consultants and Denrob were established, there was then in place a scheme for the return of its superannuation contributions to Pride Consultants through Denrob or (as arose in the particular circumstances) the return of monies it invested in Denrob through Pride Consultants SBF. The findings above in relation to why Pride Consultants SBF and Denrob were established indicate that there was then an existing business which was proposed to be expanded by Mr Pride, and that the supporting structures of the unit trust and the superannuation fund were to be used in ways which did not contravene provisions of the Act.
374 Accordingly, in this instance, I am not satisfied that APRA has established a contravention of s 85 by the respondents.
(x) The two Statewide transactions - findings
375 Statewide Computer Transport Pty Ltd ("Statewide") was registered on 1 September 1989. Its directors at material times were David Edward Pike ("Mr Pike") and Kerry Ann Pike ("Ms Pike").
376 On 20 June 1994, Statewide Computer Transport Pty Ltd Super Benefit Fund ("Statewide SBF") was established. Its trustees were Mr Pike and Ms Pike. It was a regulated superannuation benefit fund under the Act from 31 March 1995.
377 On 20 June 1994 the Kade Private Property Unit Trust ("Kade") was established. Its trustee was Super Benefit.
378 Statewide has been operating as a transport business for many years. It was established on the advice of the solicitor to Mr Pike and Ms Pike. At the same time, also on that advice, they held in their own names the assets of the transport business, and leased them to Statewide. It was intended to insulate those assets from creditors of the business in the event that it failed. At that time, and thereafter, Mr Holloway was and remained their accountant as well as accountant to Statewide.
379 In mid 1994, as they were concerned about securing their personal assets from the failure of Statewide, they discussed the matter with Mr Holloway. As directors of Statewide, they had provided substantial guarantees for its borrowings. They raised with Mr Holloway the possibility of setting up a trust to help achieve that objective.
380 Mr Holloway advised them to establish Statewide SBF and Kade. He explained that, if Kade owned the assets used in the business of Statewide and leased those assets to Statewide, the assets would be protected from creditors of Statewide if it were to fail, and that Statewide could properly claim the lease payments as taxation deductions. He also explained the proposed use of (what became) Statewide SBF: Statewide at the end of each financial year would make a tax deductible contribution to Statewide SBF, then Statewide SBF would invest that sum in units in Kade, and Kade would purchase the assets used in the business of Statewide with that sum and lease the assets back to Statewide. He explained the different taxation rates applicable to Statewide and to Statewide SBF. He explained also how that process, over time, would enable them to build their assets for the future. At that meeting, Mr Holloway also said that Statewide SBF could not invest contributions directly with Statewide, but could invest them in a trust such as Kade which could then invest them in, or lend them to, Statewide. He also explained that Kade could borrow monies for the purpose of gearing investments whereas Statewide SBF could not do so.
381 Ms Pike and Mr Pike instructed Mr Holloway to proceed to establish Statewide SBF and Kade. Ms Pike thought at the time that Super Benefit was some form of regulatory authority.
382 Mr Holloway did not, at that meeting, refer to Super Benefit as trustee of the proposed unit trust, or to Mr Glaser. He said nothing to indicate that Mr Pike and Ms Pike would not have the role of deciding for Kade what investments it would make. At some point, about this time, he said that Mr Glaser at Super Benefit would draw up the trust deeds, but did not say Super Benefit was to be the trustee.
383 When the two entities had been established, Mr Holloway advised Ms Pike to set up bank accounts for them. She established an account for Statewide SBF on 29 June 1994, but did not establish an account for Kade until 28 June 1995. Ms Pike and Mr Pike were signatories on each account. They described themselves as trustees of Kade because they believed that they were its trustees.
384 On 17 June 1996 Ms Pike arranged payment of $20,000 from Statewide SBF to Kade.
385 On 25 June 1996, Ms Pike arranged:
· payment of $20,000 from Statewide to Statewide SBF
· payment of $10,000 from Statewide SBF to Kade
· payment of $11,000 from Kade to Statewide.
386 On 28 June 1996, Ms Price arranged:
· payment of $20,000 from Statewide to Statewide SBF
· payment of $17,000 from Statewide SBF to Kade, and
· payment of $18,000 from Kade to Statewide.
387 Each of the payments by Kade to Statewide of $11,000 and $18,000 was intended to be, and was recorded as, a loan to Statewide.
388 In operating the affairs of Kade, Ms Pike has had no dealings with Super Benefit or Mr Glaser. She has paid its annual account. She was not told by Mr Holloway about any restrictions on loans-backs from a superannuation fund to the employer making the contributions at any material time, or about any in-house asset rules. She did see the Super Benefit name on the Kade trust deed as trustee, but placed no significance on that at the time. Its significance became more apparent in October 1996, when the family home was also transferred to Kade by Ms Pike and Mr Pike, and the existing mortgage was discharged and replaced by a fresh mortgage which Super Benefit had formally to grant to the financier. Mr Holloway did tell Ms Pike at the meeting in June 1994 that a superannuation fund could not invest directly in Statewide, but if the fund invested in a trust, the trust could in turn invest in Statewide.
389 Ms Pike impressed me as a very able person. She did not require detailed instructions to undertake the two series of transactions. I accept her evidence that the structure and sequence of the series of payments at the end of the financial year was, to a degree, proposed by Mr Holloway. There is no evidence that he specifically told her to make the payments of the precise amounts referred to above as and when she did. There is also no evidence explaining precisely why they are not in the same amounts. Ms Pike does not say in her evidence that she was told by Mr Holloway to make the particular payments set out above, nor indeed that she was told by Mr Holloway to make any particular loans to Statewide. Her evidence was that Mr Holloway gave her general advice that before the end of each financial year Statewide should make superannuation contributions to Statewide SBF, and that Statewide SBF should then make investments of the funds available in Kade. She does not say that Mr Holloway told her then that Kade should pay those funds to Statewide.
390 The financial records of the three entities confirm those transactions, and the financial accounts of Kade confirm Statewide was indebted to it at 30 June 1996 for $29,000 (made up of $18,000 and $11,000) although Statewide's balance sheet at that date suggests the indebtedness is $25,000 (a note suggests $4,000 was in fact against part of an outstanding indebtedness of Kade to Statewide for the purchase of some plant and equipment).
391 The financial accounts of Statewide show superannuation contributions of $57,404.24 during that year. The financial accounts of Statewide SBF show superannuation payments received of $51,974.84 made up of $46,000 employer contributions and $5,974.84 rolled into the fund from another fund.
392 Unit certificates were issued by Super Benefit to Statewide SBF for 20,000, 10,000 and 17,000 in Kade on 17 June 1996, 25 June 1996 and 28 June 1996. I place no weight upon those certificates.
393 The 1995-96 Annual Return of Statewide SBF to the Insurance and Superannuation Commission, provided by Holloway & Co, disclosed the assets of the fund to be $209,961 and the in-house assets to be nil.
394 APRA has treated that series of payments as involving the following two transactions:
(1) the payment of $20,000 by Statewide to Statewide SBF on 25 June 1996 "followed" by the payments by Statewide SBF to Kade of $20,000 on 17 June 1996 and of $10,000 on 25 June 1996, and "followed" by the payment by Kade to Statewide of $11,000 on 25 June 1996; and
(2) the payment of $20,000 by Statewide to Statewide SBF on 28 June 1996 followed by the payment by Statewide SBF to Kade of $17,000 on 28 June 1996 and then the payment by Kade to Statewide of $18,000 also on 28 June 1996.
395 There is no evidence that Ms Pike or anyone else, including Mr Holloway intended the monies to be treated separately in that way. There is an element of artificiality in doing so, as the payment by Statewide SBF to Kade on 17 June 1996 of $20,000 for units in Kade pre-dated the end of year making of superannuation contributions by Statewide. I suspect the two contributions each of $20,000 represent the entitlements of Ms Pike and Mr Pike, but there is no evidence to that effect.
396 In my judgment, each of the investments by Statewide SBF of $10,000 and $17,000 for units in Kade was an in-house asset of Statewide SBF, by reason of s 71(2) of the Act. Despite the paucity of evidence on the topic, the coincidence of the total of those two payments with the total of the monies lent to Statewide on 25 and 28 June 1996 and the absence of any evidence which could suggest any other reason for the two loans to Statewide, and the fact that Ms Pike arranged all of those payments, leads to that conclusion. I am satisfied that each investment was made as the result of carrying out an agreement between Statewide SBF and Kade (in each instance made through Ms Pike) for purposes that included achieving the result that the two loans would be made to Statewide.
397 The market value of the assets of Statewide SBF is not clear. Its assets include significant bank funds and units in Kade. As it had the capacity on 17 June 1996 to invest a further $20,000 in units in Kade, I infer that its bank funds prior to the two challenged investments were greater than the $59,273 at 30 June 1996. The market value of its units in Kade, which at 30 June 1996 were shown as having cost $150,687, is unclear. I infer that those units were some $29,000 less immediately before the two transactions. The market value will depend upon the value of Kade's assets. Its balance sheet at 30 June 1996 provides a basis for assessing the costs of those assets. However, as those assets are not all readily treated as having a market value about equal to their cost, or their depreciated value, and that those assets are substantial, I am unable to be satisfied that either s 83(2) or s 83(3) of the Act was contravened by either of the two investments. It would involve mere speculation to do so.
398 Accordingly, I am not satisfied that APRA has established its claim against the respondents in respect of this transaction.
(xi) The two Driving Centre transactions - findings
399 Commercial Driving Centre Pty Ltd ("Driving Centre") was registered on 5 July 1991. Its directors at material times were Mr Stacey and Jeanette Ann Stacey ("Ms Stacey").
400 On 26 June 1996, The Commercial Driving Centre Pty Ltd Super Benefit Fund ("Driving Centre SBF") was established. Its trustees were Mr Stacey and Ms Stacey. It was a regulated superannuation benefit fund under the Act from that date.
401 On 26 June 1996 the Marrlth Property Unit Trust ("Marrlth") was established. Its trustee was Super Benefit.
402 Driving Centre's business is that of driving instructors. Both Mr Stacey and Ms Stacey work in the business. Mr Holloway had been their accountant since about 1984. It was on his advice that they commenced the Driving Centre. From about 1995, their accounting work which was done by Holloway & Co was increasingly carried out by Mr Dalgleish.
403 Mr Holloway advised them to establish Driving Centre SBF and Marrlth in mid 1996. They had previously been urged by him to start financial planning for their retirement, and at the time had a modest capital sum available from a legacy. He explained to them that the capital sum could be paid to Driving Centre, and then paid by Driving Centre into the (proposed) Driving Centre SBF and in turn to the (proposed) Marrlth and in turn lent back to Driving Centre. They also discussed at that time the payment into the superannuation fund of monies likely to be available to Mr Stacey from the maturing in July 1997 of a superannuation policy in his name held with a public assurance company.
404 Mr Holloway did not mention Super Benefit or Mr Glaser. He led them to understand that they would control the investment decisions of each of the proposed new entities.
405 They instructed him to proceed to have Driving Centre SBF and Marrlth established. When the documentation was prepared, a further meeting took place. Mr Holloway instructed Mr Stacey and Ms Stacey to open bank accounts for each entity. He said that the name of the Marrlth account should be "Super Benefit Pty Ltd ATF the Marrlth Private Property Unit Trust". He did not otherwise refer to Super Benefit or to Mr Glaser, and he did not indicate that Mr Stacey or Ms Stacey could not be signatories of the Marrlth bank account.
406 Mr Stacey then opened bank accounts in the names of Driving Centre SBF and 'Super Benefit Pty Ltd ATF the Marrlth Private Property Unit Trust'. He and Ms Stacey were signatories of each account.
407 From time to time thereafter either Mr Holloway or Mr Dalgleish by telephone gave instructions to Mr Stacey or to Ms Stacey to undertake certain financial instructions. I accept Mr Dalgleish' evidence that any instructions he gave were at the explicit direction of Mr Holloway.
408 Just before 30 June 1996, Mr Dalgleish telephoned Driving Centre. He spoke to Ms Stacey. He told her that she and Mr Stacey had to find $40,000 to pay into Driving Centre, and that there were then to be a series of three cheques for $40,000 in sequence from Driving Centre to Driving Centre SBF, from Driving Centre SBF to Marrlth, and from Marrlth to Driving Centre. He said that the payments should all be made on the same day, and before the end of the financial year.
409 Ms Stacey said that they did not have access to $40,000 to effect those transactions. Mr Dalgleish told her to proceed, and that the cheques cancel each other out. Mr Stacey confirmed the details of the instruction with Mr Dalgleish by telephone before proceeding. They duly made the three payments in sequence on 28 June 1996. The payment of $40,000 by Driving Centre SBF to Marrlth was for units in Marrlth. The payment of $40,000 by Marrlth to Driving Centre was a loan to Driving Centre.
410 Both Mr Stacey and Ms Stacey held superannuation funds with a public fund. In April 1997, Mr Dalgleish suggested that they transfer those funds into the Driving Centre SBF, and, upon their agreement, he assisted in preparing the necessary documentation. The transfers of those funds into Driving Centre SBF took place on 10 April 1997. It appears that the amount transferred was $23,266.96.
411 Mr Dalgleish then requested that Driving Centre SBF invest $8,000 of its funds into Marrlth, and that Marrlth lend that sum of $8,000 to Driving Centre. On 21 April 1997, they met that request. Driving Centre SBF paid Marrlth $8,000 and Marrlth paid Driving Centre $8,000 in turn.
412 Shortly before 30 June 1997, Mr Dalgleish again requested Mr Stacey and Ms Stacey to undertake a further series of transactions. He told them they required $34,000. As it happened, Driving Centre had just received $19,000 for the sale of a truck, and Mr Stacey and Ms Stacey used credit card facilities to make up the balance of $15,000. Mr Stacey checked with Mr Dalgleish the series of transactions he was directing. Neither he nor Ms Stacey understood the reason for the directions. He was told to pay $34,000 into Driving Centre SBF, and then to pay that amount from Driving Centre SBF into Marrlth, and then pay that amount back into Driving Centre. Driving Centre was to place the $34,000 on a short term deposit. They were not told, and did not find out, how the sum of $34,000 was fixed. The evidence does not show that. Although evidence was led of that transaction, it was not a transaction which APRA alleged in its Amended Statement of Claim. I therefore regard it as providing possibly relevant evidence of the two transactions alleged, but in the event I have not had regard to that evidence.
413 Neither Mr Stacey nor Ms Stacey have had any dealings with Super Benefit other than paying its annual fee. They paid that fee of $170 per year without understanding what Super Benefit did. At no material time have they met Mr Glaser or other directors of Super Benefit.
414 At no time were Mr Stacey or Ms Stacey advised by Mr Holloway or by Mr Dalgleish about any restrictions on Driving Centre SBF being limited in its investment of its funds so as to be eligible for taxation concessions. Mr Holloway had earlier, when he proposed the structure to them, explained the taxation concessions available to Driving Centre SBF generally, and that it could not borrow funds.
415 A file note of Holloway & Co of 26 June 1996 records that Driving Centre SBF and Marrlth were to be set up and bank accounts opened before 30 June 1996 "and funds to be moved through the [accounts] in the order of $40,000 to be confirmed and advised to client 27/6/96".
416 The financial accounts of both Driving Centre SBF and Marrlth at 30 June 1996 record the investment of $40,000 for units in Marrlth. On 28 June 1996 Super Benefit as trustee for Marrlth issued a unit certificate for those units to Driving Centre SBF. The financial accounts of Marrlth and Driving Centre as at that date each also confirm that Marrlth had lent $40,000 to Driving Centre. Driving Centre's financial accounts show the superannuation contribution for that year to have been only $27,992.82, although it clearly received the $40,000.
417 The second transaction is also a simple one. The evidence shows that the rollovers from the public funds into Driving Centre SBF occurred on 10 April 1997 (Mr Stacey) for $23,266.96 and on 26 May 1997 (Ms Stacey) for $13,459.32. On 21 April 1997, Driving Centre SBF paid Marrlth $8,000 and on the same day Marrlth paid Driving Centre $8,000. That is recorded in their respective accounts as a loan, so the total indebtedness of Driving Centre to Marrlth at 30 June 1997 is shown as $47,830 (made up of $40,000 carried forward from 30 June 1996 plus the $8,000 less an unexplained credit adjustment of $170).
418 The Driving Centre SBF balance sheet at 30 June 1997 shows that it has $109,787.31 invested in units in Marrlth, including $40,000 carried forward from the previous year. The Driving Centre Profit and Loss Statement to 30 June 1997 shows superannuation contributions of $40,518.39 for that year. Its operating statement includes revenue by transfers from other funds of $36,726.28 and contributions from employer of $37,837.35.
419 The returns to the Insurance and Superannuation Commission prepared by Holloway & Co for Driving Centre SBF for each of the years of income 1995-96 and 1996-97 show the total assets of Driving Centre SBF to be $40,000 and the in-house assets as $0. The figures were not altered in the latter return to reflect any transactions occurring after 30 June 1996. They are therefore not figures upon which I can place any weight.
420 By a parity of reasoning with that which I applied in respect of other transactions, I find that each of the investments of Driving Centre SBF in Marrlth of $40,000 on 28 June 1996 and of $8,000 on 21 April 1997 constituted in-house assets of Driving Centre SBF, under s 71(2) of the Act.
421 I also find that the investment by Driving Centre SBF of $40,000 for units in Marrlth on 28 June 1996 contravened s 83(3) of the Act. That was the first investment by Driving Centre SBF. Whatever the market value of its assets, and the market value was equal to or very close to the cost of the investment, the investment led to Driving Centre SBF market value ratio of its in-house assets exceeding 5 per cent.
422 I further find that the investment by Driving Centre SBF of $8,000 for units in Marrlth on 21 April 1997 contravened s 83(2) of the Act. Unless there were very significant further inflow of funds into Driving Centre SBF between 30 June 1996 and 21 April 1997, so that the units acquired on 28 June 1996 as an in-house asset no longer represented 5 per cent or more of the assets of Driving Centre SBF, the acquisition of a further in-house asset contravened s 83(2) of the Act. The Driving Centre SBF accounts to 30 June 1997 provide a sufficient picture to be satisfied that no such inflow occurred, so that the in-house ratio of the market value of the assets was still greater (and probably still much greater) than 5 per cent at the time.
423 It will be necessary to consider the consequences of those findings to s 85 of the Act later in these reasons.
(xii) The three Eden transactions - findings
424 Eden Comfort Conditioning Pty Ltd ("Eden") was registered on 3 May 1991. Its directors at material times were Christopher Trevor Lorimar ("Mr Lorimar") and Mauro Sergio De Gioia ("Mr De Gioia"). Eden supplies and installs space heating systems.
425 On 24 June 1996, The Eden Comfort Conditioning Pty Ltd Super Benefit Fund ("Eden SBF") was established. Its trustees were Mr Lorimar and Mr De Gioia. It was a regulated superannuation benefit fund under the Act from that date.
426 On 24 June 1996 the Macris Property Unit Trust ("Macris") was established. Its trustee was Super Benefit.
427 Mr Lorimar gave evidence. He was an astute person, perhaps more aware of the details of the superannuation transactions than some of the other witnesses who were directors of employer-sponsors under the Act. He and his "partner", Mr De Gioia, had Eden SBF and Macris established to have greater control of their superannuation investments. Mr Lorimar was dissatisfied with the investment performance of certain superannuation policies he had obtained. He and Mr De Gioia thought that managing their own superannuation fund investments could lead to better returns. Mr Lorimar was aware of the taxation benefits of Eden making contributions to Eden SBF to the applicable maximum. He was also aware that Eden SBF could not borrow to leverage its investments, but that by investing in units in Macris, and by controlling the investment decisions of Macris, leveraging investments could be achieved.
428 In June 1996, he and Mr De Gioia consulted with Mr Holloway before establishing that structure. They had been referred to Mr Holloway by a friend. Mr Holloway explained or confirmed the matters referred to in the preceding paragraph. It was discussed that Macris would invest mainly in real estate. It was also discussed that Eden also planned to make a superannuation contribution of $35,000 before 30 June 1996. Having conferred with Mr Holloway, and having authorised the establishment of Eden SBF and of Macris, that payment was made to Eden SBF pursuant to that intention.
429 At that meeting Mr Lorimar learnt of Super Benefit and of Mr Glaser, when Mr Holloway told them that the proposed unit trust had to be seen to be at arm's length from the proposed superannuation fund, and that Mr Glaser would need to be involved to ensure that that was what occurred. Mr Lorimar understood Mr Glaser would be a co-director of the unit trust.
430 Mr Glaser subsequently became a co-signatory of the cheques for Macris, but did not play any active part in its investment decisions. They were made by Mr Lorimar and Mr De Gioia. Mr Glaser did ask about the purpose of particular cheques of Macris before signing them.
431 At that meeting, Mr Holloway advised Mr Lorimar and Mr Di Gioia that one investment Macris could make was the advance of funds by way of loan to Eden, provided it got a commercial rate of interest. Mr Lorimar had told Mr Holloway that they were interested in investing in another company, and asked whether monies available in the unit trust could be used directly for that investment or could be lent to them or to Eden so that they, or Eden, could invest in that company. They explained that one alternative was to borrow the monies needed to make that investment.
432 Mr Lorimar arranged to open the bank accounts of Eden SBF with himself and Mr Di Gioia as signatories, and of the account entitled 'Super Benefit Pty Ltd ATF The Macris Private Property Unit Trust'. That latter application bore the seal of Super Benefit and was countersigned by Mr Glaser and Mr Lorimar as directors. They were the signatories to the account.
433 On 28 June 1996 Eden paid $35,000 superannuation contributions to Eden SBF. It appears that Eden SBF bank account was opened on that day. On 4 July 1996, Eden SBF paid $34,500 to Macris (debited on 6 July 1996). Despite the date of that payment, the Eden SBF financial statements at 30 June 1996 show it had $34,500 invested in units at cost (clearly in Macris) at that date. The contribution of $35,000 was its sole income for the year. The bank statement of Macris shows the $34,500 received on 4 July 1996 and a debit of $34,000 on 6 July 1996. By cheque also dated 4 July 1996, signed by Mr Lorimar and Mr Glaser, Macris paid to Eden $34,000. That payment was by way of loan. The Macris financial accounts as at 30 June 1996 also show that $34,500 units were issued by that date. They show the current assets to be $34,495 cash at bank ($5 was paid for the cheque book), so at that date there was no loan recorded to Eden.
434 On 3 February 1997 Eden paid $4,000 superannuation contribution to Eden SBF, by cheque dated 31 January 1997. On 27 March 1997, Eden SBF paid $4,000 to Macris. The balance of its account before that first receipt was $476.94 and after that payment was $472.41 and there were no other transactions of any significance recorded in its bank statement between those dates. On 27 March 1997, Macris (cheque signed by Mr Lorimar and Mr Glaser) paid Eden $6,000. That was debited to the Macris account on 1 April 1992. Its credit balance before that payment was $6,472.92. On 3 February 1997, Eden had also paid to Macris $2,040 (a handwritten note suggests that was for "interest"). I assume that that payment together with the $4,000 cheque produced the credit level at 27 March 1997. Again, the payment by Eden SBF to Macris of $4,000 was for units in Macris, and the payment by Macris to Eden of $6,000 was by way of loan.
435 On 30 June 1997, Eden paid to Eden SBF $10,400. On the same day, Eden SBF paid to Macris $10,000. On the same day, by cheque signed by Mr Lorimar and Mr Glaser, Macris paid Eden $12,000. It was received by Eden and credited to its account on that day, although not debited to Macris account until 1 July 1997. The working papers for the Macris accounts to 30 June 1997, note that cheque was unpresented at 30 June 1997, but to be taken into account as a debit at that date. The payment by Eden SBF to Macris was for units in Macris, and by Macris to Eden was by way of a loan.
436 On 30 June 1997 Eden also paid to Macris $2,220 for "interest".
437 The financial statements of Eden SBF at 30 June 1997 show it had $52,668.48 units at cost (an increase of $17,668.48 during the year) and total assets of $53,858.94. Its income for the year included $20,000 employer contributions.
438 The Macris financial statements at 30 June 1997 confirm that number of units issued. The ledger indicates that those units were issued for three payments of $4,000, $14,100 and $68.48. There was a distribution of $68.48, presumably converted into units. It had then total assets of $52,668.48, comprising a small amount in the bank and $52,000 on loan to Eden. The ledger shows that was made up of three advances of $34,000, $12,000 and $6,000. It had a net profit of $68.48, being the difference between interest received of $4,274.35 and interest paid of $4,100.01 and bank charges. The majority of that interest income, namely $4,260, came from monies or deposit with a bank.
439 Mr Lorimar's evidence suggests that he decided upon the amount of the several payments referred to. He explained the payment of $6,000 and its timing (compared to $4,000) as made up from the $2,040 (interest on money borrowed paid on 3 February) plus the $4,000, and that it was his oversight that the investment of the $6,000 was not made until 1 April 1997. He assumed the interest of $2,040 was at 12 per cent on the $34,000 (it represents, as a matter of arithmetic, interest on $34,000 at 12 per cent for six months). He and Mr Di Gioia decided up on Macris lending money to Eden, as an appropriate investment for Macris. He had the "impression" from the first meeting with Mr Holloway that that is what they could do. He was not then (or later) told of any in-house asset rules.
440 Eden SBF lodged Annual Returns with the Insurance and Superannuation Commission. They were audited by Holloway & Co. The 1996-97 Annual Return showed its total assets as $53,858 and its in-house assets as nil. The 1995-96 Annual Return showed its total assets as $34,995 and its in-house assets as nil.
441 In light of Mr Lorimar's evidence that any timing differences in the payments were really only from inattention on his part, I am satisfied by the same reasoning as applied in respect of other transactions that each of the three investments by Eden SBF in Macris was an in-house asset of Eden SBF under s 71(2) of the Act. I find that each of
· the payment by Eden SBF to Macris of $34,500 on or about 4 July 1997 for units,
· the payment by Eden SBF to Macris of $4,000 on 27 March 1997 for units, and
· the payment by Eden SBF to Macris of $10,000 on 30 June 1997 for units
were made as the result of Eden SBF and Macris (in each instance through Mr Lorimar) carrying out an agreement for purposes that included achieving the result that Macris would make loans to Eden of $34,000, $6,000, and $12,000 respectively.
442 At the time of the investment on about 4 July 1997, both Eden SBF and Macris had only just been formed. The investment was the first transaction of any substance for either of them. I am satisfied that, in contravention of s 83(3) of the Act, the acquisition of that investment resulted in the market value ratio of the in-house assets of Eden SBF exceeding 5 per cent.
443 Having regard to the assets held by both Eden SBF and Macris at 30 June 1997, I find that s 83(2) of the Act was contravened by each of the two subsequent investments by Eden SBF on 27 March 1997 and 30 June 1997. Effectively, all the assets of Eden SBF were represented by its units in Macris, and nearly all of the assets of Macris were represented by its loans to Eden. There are no assets which indicate that the market value of any assets of Macris SBF were much, if any, different from their nominal value. Consequently, at each of 27 March 1997 and 30 June 1997, the market value ratio of the in-house assets of Eden SBF exceeded 5 per cent and the further acquisition of in-house assets contravened s 83(2) of the Act.
444 In the case of these transactions, I am not satisfied that it was Mr Holloway's plan either when Eden SBF and Macris were established, or subsequently, that Macris would be used as a conduit for superannuation contributions from Eden being passed back to Eden. The meeting in June 1996 involved proposals for Macris which Mr Lorimar and Mr De Gioia explained were more extensive than would have been available by Eden SBF investing its assets in Macris, and Macris then using those assets. Although Mr Lorimar's evidence was that Mr Holloway had adverted to the prospect of Eden SBF investing funds in Macris, and Macris then lending those funds back to Eden, I am not persuaded that that was the case. As noted, later in his evidence he described that account as being an "impression" only of part of that meeting. There is no evidence which directly suggests that Mr Holloway played any role in causing the three Eden transactions to occur. Whilst I am confident that Mr Lorimar had no intention to avoid the application of any provision of the Act by those transactions, I think that he was the person who decided upon their timing and the amounts involved. These transactions were one of the few in which Mr Holloway positively asserted that he played no role, and in this respect I accept his evidence.
445 Consequently, I am not prepared to find that Mr Holloway or Holloway & Co played a part in these three transactions so as to enliven s 85(1) of the Act. I am also not prepared to find that either Mr Holloway or Holloway & Co procured Eden SBF to make the three investments in Macris with the intention that, by any of the transactions, the market value ratio of the in-house assets of Eden SBF would be, or be likely to be, artificially reduced or that thereby the application of a provision of Pt 8 of the Act would be avoided.
446 In my judgment, APRA has not established a contravention of s 85 of the Act by the respondents in relation to the three Eden transactions.
(xiii) The two Kino transactions - findings
447 Kino Film Co Pty Ltd ("Kino") was registered on 8 January 1992. Its directors at material times were Kerry Margaret Heysen ("Ms Heysen") and Robert Scott Hicks ("Mr Hicks").
448 On 6 March 1995, The Kino Film Co Pty Ltd Super Benefit Fund ("Kino SBF") was established. Its trustees were Ms Heysen and Mr Hicks. It was a regulated superannuation benefit fund under the Act from that date.
449 On 6 March 1995 the Onik Property Unit Trust ("Onik") was established. Its trustee was Super Benefit.
450 The annual return of Kino SBF to the Insurance and Superannuation Commission for 1994-95 recorded its total assets as $69,941 and that it had no in-house assets. Its annual return for 1995-96 recorded its total assets as $152,540 and that it had no in-house assets.
451 On 22 June 1995, Ms Heysen arranged the following payments:
$45,000 from Kino to Kino SBF
$45,000 from Kino SBF to Onik, for units in Onik
$18,006 from Onik to Kino
$26,994 from Onik to Ms Heysen and Mr Hicks.
The latter two payments total $45,000.
452 On 13 July 1995, $18,006 was deposited by Kino to the credit of Onik, described as "repayment of short term loan".
453 In the next financial year, the following payments were made on 20 June 1996:
Kino paid Kino SBF $55,000
Kino SBF paid Onik $55,000
Onik paid Kino $44,000.
454 The Kino SBF financial statements to 30 June 1995 show contributions received during the year of $70,000, and after sundry expenses, a net profit of $69,441.20. There was an earlier payment by Kino to Kino SBF of $25,000 on 9 May 1995, and a payment by Kino SBF to ONIK on 10 May 1995 of $23,880, and a further payment by Onik to Mr Hicks of $23,880 on 10 May 1995. No special point is made of those three payments. Its assets are shown as represented by investments of $68,880 and a small bank deposit. At 30 June 1996, its financial statements showed total investments as $148,020, being for units in Onik. The superannuation contributions received during that year were $93,140. The unit certificate dated 30 June 1995 of Super Benefit to Kino SBF was for 68,880 units in Onik. That number is, I infer, the total of 23,880 and 45,000. Subsequently, a unit certificate dated 30 June 1996 was issued by Super Benefit to Kino SBF for a further 79,140 units in Onik.
455 The Onik financial statements to 30 June 1995 indicate that it acquired assets for $42,139 in May 1995, which it apparently hired out. After depreciation, it made a small loss. Its capital was made up of $68,880 for units issued to Kino SBF. After that small loss, the capital was represented by
· loan to Ms Heysen and Mr Hicks $ 3,020
· loan to Kino $19,726
· plant and equipment, depreciated to $39,795
and sundry investments and liabilities. Its net assets were $68,011.57. At 30 June 1996 its net assets were $139,663.28 including a loan to Kino of $44,955, plant and equipment depreciated to $31,036, and investments of $52,495. It had a small debt of $310 to Ms Heysen and Mr Hicks. It had issued 148,020 units. It is unclear what those investments were.
456 The Kino financial statements to 30 June 1995 showed a small overall deficit of $2,306.12, including a deferred liability to Ms Heysen and Mr Hicks of $5,137.55 and to Onik for $19,726. Its operating expenses included $70,000 superannuation payments. For the year ending 30 June 1996, Kino's financial statements show as deferred assets a loan to Ms Heysen and Mr Hicks of $20,341.43 and as deferred liabilities a loan from Onik of $44,955. Its superannuation contributions for the year are shown as $89,915.
457 There are no trial balances or journal entries to explain the amounts in relation to the payments.
458 Mr Holloway arranged for the establishment of the Kino SBF and Onik on instructions given by Ms Heysen and Mr Hicks, and following advice from Mr Holloway. He had been their accountant for some years prior to 1995. The evidence is not clear enough for any detailed findings to be made about the nature of that advice. I find, on the basis of Ms Heysen's evidence, that the payments made on 22 June 1995 and those made on 20 June 1996 were made by Ms Heysen on the instruction and advice of Mr Holloway. I am satisfied that she did not make any of those payments on her own initiative, and that she did not decide on the amount of those payments. There is no evidence to explain satisfactorily the reason for the breakup of the two payments made to Kino by Onik and to Ms Heysen and Mr Hicks on 22 June 1995, or why the payment to Kino by Onik on 20 June 1996 was for $44,000. Mrs Heysen in her evidence also said that "we" (it is unclear whether she meant Kino or herself and Mr Hicks personally) had lent substantial sums to Onik when it became established, and that she may have regarded payments by Onik to Kino as repaying such sums. I also find that, on Mr Holloway's advice, Ms Heysen opened bank accounts in the name of Kino SBF and Onik and that she and Mr Hicks became signatories to those accounts. She was able to operate those accounts, and in particular the Onik account, without reference to Super Benefit or Mr Glaser. Her custom was to seek Mr Holloway's advice and approval in respect of any significant transaction.
459 In my judgment, the acquisition of units in Onik by Kino SBF on 22 June 1995 constituted an in-house asset of Kino SBF under s 71(2) of the Act. I am satisfied that that investment was made by Kino SBF to Onik when each had agreed, through Ms Heysen, to that investment for purposes which included achieving the result of a loan to Kino of $18,006. I am not satisfied that the payment to Ms Heysen and Mr Hicks of $26,994 was a "loan or an investment". I suspect it was largely, if not entirely, a repayment of a loan made by them to Onik at an earlier stage. The word "loan" is not defined in s 10 of the Act. I do not see how that word, in its ordinary usage, can encompass the repayment of a loan. The term "investment" is defined to mean any mode of application of money for the purpose of gaining interest income or profit. Again, I do not think that the retirement of debt (if that is what it was) falls within that description. I note that the Onik accounts to 30 June 1995 show as an asset a loan of $3,020 to Ms Heysen and Mr Hicks. I am not prepared to regard that loan as related to the payment to them of $26,994 on 22 June 1995. It is different in amount. There is no evidence which explains that figure. It may have arisen after 22 June 1995, or have existed independently of the payment of $26,994.
460 In view of my conclusion that the character of the payment of $26,994 to Ms Heysen and to Mr Hicks is not shown to be a loan to them or an investment by Onik, I do not need to consider whether Ms Heysen and Mr Hicks are associates of Kino for the purposes of s 71(2)(c) as defined in s 70 of the Act.
461 However, notwithstanding that a significant proportion of the investment of $45,000 in units in Onik was applied to the payment of $26,994 to Ms Heysen and Mr Hicks, and $18,006 of that investment was lent to Kino, I think that the investment itself is an in-house asset of Kino SBF. Section 71(2) provides that the investment in Onik is an in-house asset if it was made
· as the result of entering into or carrying out an agreement, and
· any person who entered into or carried out the agreement did so for the purpose, or a purpose, of achieving a particular result.
462 The result is "that a loan or investment would be made to or in …" the employer-sponsor. It does not require that the loan to or investment in the employer-sponsor be in the same amount as the loan or investment of the superannuation fund under review. It would provide a very ready means of avoiding the consequences of Pt 8 of the Act if that were the case. The result referred to is one introduced by the indefinite article. That means of expression does not tie the amount of the loan to or investment in the employer-sponsor to the amount of the investment. It requires only that the loan to or investment in the employer-sponsor be the purpose, or one of the purposes, for one of the parties to the agreement which led to the investment being made.
463 The investment by Kino SBF of $55,000 on 26 June 1996 for units in Onik was also one which, in my judgment, was an in-house asset of Kino SBF under s 71(2) of the Act. My reasons for that conclusion are the same as my reasons for concluding that the earlier investment on 22 June 1995 was an in-house asset of Kino SBF.
464 As the investment by Kino SBF of $45,000 in Onik on 22 June 1995 was made just before the end of the financial year, its end of year accounts provide a starting point for considering whether that investment contravened s 83 of the Act. APRA has not claimed in these proceedings that the investment by Kino SBF of $23,880 for units in Onik on 10 May 1995 was an in-house asset of Kino SBF. I shall proceed on the basis that it was not. I am satisfied, having regard to the assets of Kino SBF at 30 June 1995, that its units in Onik from that investment and from the subject investment on 22 June 1995 were its only substantial assets. I am also satisfied that the market value of its 23,880 units in Onik immediately before the subject transaction was not much different from their cost; Onik appears to have acquired some plant and equipment soon after it was established, but such assets are very unlikely to have dramatically appreciated in value by 22 June 1995. Consequently, when the investment of $45,000 was made on 22 June 1995, I find that the market value ratio of Kino SBF in-house assets moved from zero to a level in excess of 5 per cent. Even if it is appropriate to treat its assets immediately before the investment as including the $45,000 for an instant held by it upon its receipt from Kino, the same conclusion would follow. Accordingly I find that investment contravened s 83(3) of the Act. If, contrary to my assumption, the investment of $23,880 for units in Onik on 10 May 1995 was an in-house asset, then the in-house assets of Kino SBF already exceeded 5 per cent, so that the investment now under consideration contravened s 82(2) of the Act.
465 The investment of $55,000 by Kino SBF in Onik on 26 June 1996 was also at a time when the financial accounts to 30 June 1996 present some picture as to its assets. The assets comprise, almost entirely, units in Onik. Onik's assets at 30 June 1996, so far as they are disclosed, are set out above. Its income for the year was $6,720 for equipment hire, and it made a small loss after the depreciation expense on its plant and equipment. Its net assets of $139,633 represent a value of slightly under $1 per unit. Its assets also include cash at bank, and the loan to Kino. I am unable to find with any precision the market value of the Kino SBF units in Onik. I find, given the mix of Onik's assets and their nature that their market value would not be dramatically greater than their historical cost less depreciation. It is highly unlikely that the investments at cost, whatever their nature, would have a market value so different from their cost as to distort the value of Kino SBF units in Onik in any way which affects the application of s 83 to the circumstances. In any event, the effect of this transaction was to increase the Kino SBF in-house assets (then represented by at least 45,000 units of the units in Onik) by a further 55,000 units. The issued units at 30 June 1996 were 148,020 in number. Thus, before the issue of 55,000 units as part of the particular transaction under consideration, and following the acquisition of an in-house investment in Onik on 22 June 1995, some 45,000 or almost half of the issued units in Onik were held by Kino SBF as in-house assets. That meant that the market value ratio of its in-house assets before 26 June 1995 exceeded 5 per cent, whatever that market value may have been. The acquisition of a further in-house asset on 26 June 1996 therefore contravened s 83(2) of the Act.
466 There remains, as with other transactions, the question of the application of s 85 of the Act in the light of these findings.