Australian Securities and Investments Commission v AGKM Green Pty Ltd

BARKER J: 1 On 18 July 2017, at the instance of the Australian Securities and Investments Commission (ASIC) I made orders winding up 18 of the 19 defendants in this proceeding. The fourteenth defendant had earlier been wound up by an order in the Supreme Court of Western Australia. These are the reasons for the making of the winding up orders set out above. 2 ASIC applies for orders that: (1) each of the defendants (save for the fourteenth defendant) be wound up pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) on the ground that it is just and equitable that they be wound up; and (2) a liquidator be appointed to each of the relevant defendants. 3 ASIC's application is supported by: an affidavit of Mr Gary Martyn Bertram sworn 2 June 2017 (first Bertram affidavit); an affidavit of Mr Hayden Leigh White affirmed 19 June 2017 (White affidavit); an affidavit of Mr Bertram sworn 14 July 2017 (second Bertram affidavit); an affidavit of service of Mr Bertram sworn 6 July 2017; and a further affidavit of Mr Bertram sworn 18 July 2017.

Factual Background 4 On 23 June 2016, ASIC commenced a formal investigation pursuant to s 13 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) into suspected contraventions of the Corporations Act, the ASIC Act and the Criminal Code (WA) from 1 January 2011 onward. The focus of the investigation was on fundraising, disclosures, dealings and representations made in relation to the Newman Estate project and any other related property developments by Ms Desiree Veronica Macpherson and various companies associated with Ms Macpherson, including the defendants. 5 The evidence obtained by ASIC during the investigation to date has revealed the following: (1) Ms Macpherson has caused approximately 251 companies, including the defendants, to be incorporated in Australia; (2) under the control of Ms Macpherson a number of those companies, including the defendants and numerous corporate special purpose vehicles (SPVs), operated together to run a real estate and property development business under the banner of the "Macro" brand (Macro Group) from premises at Suite 3, 931 Albany Highway, East Victoria Park (East Victoria Park premises); (3) Lot 511, Great Northern Highway, Newman (Newman Estate) was acquired by 511 GTN Pty Ltd (Receivers & Managers Appointed) (In Liquidation) (511GTN) for $11 million in early 2012; (4) from late 2011, by various means, 511GTN, Macro Realty Developments Pty Ltd (In Liquidation) and other companies associated with Ms MacPherson, including a Singapore based company, Macro Realty Developments Pte Ltd (Macro Singapore), raised funds from senior lenders and private investors for the purposes of acquiring and developing all or part of the Newman Estate; (5) the funds borrowed by 511GTN for the purposes of developing the Newman Estate included $35,420,000 borrowed on or about 16 January 2014 from a company associated with a Hong Kong based hedge fund known as Pacific Alliance Group (PAG) at an interest rate of 27.5% per annum (PAG Facility); (6) the PAG facility was secured by a first ranking security over all of the assets of 511GTN and a first ranking mortgage over the Newman Estate granted to an Australian registered foreign company which is the security trustee and agent under the PAG Facility, Prominent Investment Holding (Australia) Ltd; (7) subdivision of the Newman Estate was completed by 511GTN, and separate titles in respect of the 244 subdivided lots which now make up the Newman Estate were issued by the Western Australian Land Information Authority (Landgate) on 16 April 2015; (8) in addition to raising funds for the purposes of developing the Newman Estate, numerous other companies and SPVs within the Macro Group, controlled by Ms Macpherson, have borrowed additional funds from predominantly overseas investors, ostensibly for the purposes of: (a) the purchase of lots in the Newman Estate from 511GTN and their subsequent development; (b) the purchase of lots in the Kurra Estate (another subdivision project in Newman, Western Australia) and their subsequent development; and (c) the purchase and development of other property in the Pilbara region of Western Australia; (9) during the period 30 July 2014 to 29 March 2016, approximately 170910 predominantly overseas based investors lent $109,818,103 to companies within the Macro Group, at interest rates varying from 11% per annum to 36% per annum; (10) Macro Developments operated as the central "bank" or "treasury" company within the Macro Group and substantially all of the $109,818,103 borrowed from private investors was eventually transferred to an Australian bank account in the name of Macro Developments; (11) the funds pooled in the bank account of Macro Developments were used to pay substantially all of the expenses of the Macro Group (except those of 511GTN) including payments of interest and repayments of principal to private lenders, regardless of the particular entity within the Macro Group to which the relevant private loan was originally made; (12) interest payments in respect of the private investor loans were made on a reasonably consistent basis by Macro Developments during the period July 2014 to March 2016; (13) during that same period, the companies within the Macro Group generated very little by way of operating income or income from property development or sales; (14) the result was that almost all of the expenses of the Macro Group, including interest payments to the initial private investors, were paid using income derived from later private investors rather than from profits generated by any property development scheme or other business being operated by any of the companies within the Macro Group; (15) in or about March 2016, the inflow of income from new loans from private investors was no longer sufficient to meet the Macro Group's ongoing financial obligations to existing investors in respect of interest payments and the repayment of principal, with the result that the Macro Group: (a) ceased making interest payments to investors in respect of the loans made by them to companies within the Macro Group; (b) ceased making principal repayments to investors in respect of the loans made by them to companies within the Macro Group; and (c) ceased making payments to most of the trade creditors of the Macro Group; (16) 511GTN also defaulted on its obligations under the PAG Facility, with the result that on or about 14 July 2016, Prominent appointed Ian Francis and Michael Ryan of FTI Consulting (Receivers) as joint receivers and managers of the fifth defendant; (17) in or about June 2016, the companies within the Macro Group terminated the services of their remaining employees and contractors and vacated the East Victoria Park premises; (18) Bankwest, the first mortgagee in respect of the East Victoria Park premises, foreclosed on its mortgage and sold the East Victoria Park premises; and (19) on 30 May 2017, by orders made in this Court in proceeding WAD 73 of 2017, Macro Developments, 511GTN and four other companies within the Macro Group were wound up on the ground that it was just and equitable. 6 In respect of the fundraising activities of the companies within the Macro Group, the evidence obtained by ASIC during the investigation to date has led Mr Bertram to believe that certain materials provided to potential investors by Macro Developments and/or Macro Singapore for the purposes of fundraising in September 2014 contained statements which were misleading and deceptive or likely to mislead or deceive potential investors. 7 The evidence obtained by ASIC during the investigation with respect to the financial position and conduct of the defendants may be summarised as follows. 8 Each of the first to sixth defendants is an SPV company within the Macro Group controlled by Ms Macpherson, which is the registered proprietor of one or more lots in the Kurra Estate or Newman Estate. 9 The evidence indicates that those lots were acquired by them using money borrowed: in the case of the first to fourth and sixth defendants, from Macro Developments; and in the case of the fifth defendant, directly from private investors. 10 In respect of land which was acquired by the first to fourth and sixth defendants using money borrowed from Macro Developments, it may be inferred that such money was, in whole or in part, originally lent to companies within the Macro Group by private investors, before eventually transferred to Macro Developments as set out above. 11 The accounts of the first to sixth defendants indicate that in the period 1 July 2015 to 31 March 2016 each of them had no income and a deficiency of assets against liabilities. 12 Each of the first to sixth defendants has failed to comply with: its obligation to keep written records that correctly record and explain its transactions and financial position and performance, contrary to s 286(1)(a) of the Corporations Act; its obligation to keep written records that would enable true and fair financial statements to be prepared and audited, contrary to s 286(1)(b) of the Corporations Act; and a requirement to produce books and records made under s 30 of the ASIC Act, contrary to s 63 of the ASIC Act. 13 Each of the second and third defendants has failed to comply with its obligation to have a registered office in this jurisdiction, contrary to s 142(1) of the Corporations Act. 14 Each of the seventh to twelfth defendants is an SPV company within the Macro Group controlled by Ms Macpherson, which is not the registered proprietor of any land in the Kurra Estate or Newman Estate. 15 Notwithstanding that those defendants are not the owner of any land, the evidence indicates that each of them has borrowed money directly from private investors, which money has not been repaid. 16 The accounts of the seventh, eighth, tenth and twelfth defendants indicate that in the period 1 July 2015 to 31 March 2016 each of them had no income and had a deficiency of assets against liabilities. 17 The ninth and eleventh defendants do not appear to have maintained accounts. 18 To the extent that the assets of the seventh, eighth, tenth and twelfth defendants consist of intercompany loans to Macro Development, those assets are almost certainly of no value as the liquidator of Macros Development has deposed that it is unlikely that there will be any meaningful return to unsecured creditors in the winding up of Macro Developments. 19 Each of the seventh to twelfth defendants has failed to comply with: its obligation to keep written records that correctly record and explain its transactions and financial position and performance, contrary to s 286(1)(a) of the Corporations Act; and its obligation to keep written records that would enable true and fair financial statements to be prepared and audited, contrary to s 286(1)(b) of the Corporations Act. 20 Each of the eighth to twelfth defendants has failed to comply with a requirement to produce books and records made under section 30 of the ASIC Act, contrary to s 63 of the ASIC Act. 21 Each of the seventh to twelfth defendants has failed to comply with its obligation to have a registered office in this jurisdiction, contrary to s 142(1) of the Corporations Act. 22 Each of the thirteenth to fifteenth defendants is an SPV company within the Macro Group controlled by Ms Macpherson, which is not the registered proprietor of any land in the Kurra Estate or Newman Estate and which does not appear to have borrowed money directly from private investors. 23 Each of the thirteenth to fifteenth defendants has failed to comply with: its obligation to keep written records that correctly record and explain its transactions and financial position and performance, contrary to s 286(1)(a) of the Corporations Act; its obligation to keep written records that would enable true and fair financial statements to be prepared and audited, contrary to s 286(1)(b) of the Corporations Act; and the requirement to produce books and records under s 30 of the ASIC Act, contrary to s 63 of the ASIC Act. 24 Each of the thirteenth and fifteenth defendants has failed to comply with its obligation to have a registered office in this jurisdiction, contrary to s 142(1) of the Corporations Act. 25 The sixteenth defendant is a company within the Macro Group controlled by Ms Macpherson, which is the registered proprietor of the property at 5 Edkins Place, South Hedland. 26 The sixteenth defendant's accounts indicate that in the period 1 July 2015 to 31 March 2016 the sixteenth defendant made a net loss of $24,052 and had a total deficiency of assets against liabilities of $1,222,613 as at 31 March 2016. 27 The seventeenth defendant is a company within the Macro Group, of which Ms Macpherson is a director, along with Mr Darin Jinks. It is, or was, the registered proprietor of 12 units at 2 McKay Street, Port Hedland. 28 The seventeenth defendant's accounts indicate that in the period 1 July 2015 to 31 March 2016 the seventeenth defendant made a net loss of $17,157 and had a total deficiency of assets against liabilities of $2,982,320 as at 31 March 2016. 29 Two controllers have been appointed to the seventeenth defendant pursuant to registered mortgages with respect to one of more of the lots owned, or formerly owned, by the seventeenth defendant at 2 McKay Street, Port Hedland. 30 The eighteenth defendant is a company within the Macro Group controlled by Ms Macpherson. 31 The eighteenth defendant's accounts indicate that in the period 1 July 2015 to 31 March 2016 the eighteenth defendant made a net loss of $2,266,640 and had a total deficiency of assets against liabilities of $4,551,021 as at 31 March 2016. 32 The nineteenth defendant is a company within the Macro Group controlled by Ms Macpherson and Mr Macpherson, which, until 6 February 2017, was the registered proprietor of the property at 49A Sutherland Street, Port Hedland. 33 On the sale of the property at 49A Sutherland Street by the nineteenth defendant, all of the proceeds of sale were paid to Westpac Bank. 34 The nineteenth defendant's accounts indicate that in the period 1 July 2015 to 31 March 2016 the nineteenth defendant had no income or expenses and had a total deficiency of assets against liabilities of $9,435 as at 31 March 2016. 35 Each of the sixteenth to nineteenth defendants has failed to comply with: its obligation to keep written records that correctly record and explain its transactions and financial position and performance, contrary to s 286(1)(a) of the Corporations Act; its obligation to keep written records that would enable true and fair financial statements to be prepared and audited, contrary to s 286(1)(b) of the Corporations Act; and the requirement to produce books and records under s 30 of the ASIC Act, contrary to s 63 of the ASIC Act. 36 The sixteenth defendant has failed to comply with its obligation to have a registered office in this jurisdiction, contrary to s 142(1) of the Corporations Act. 37 The financial position of the defendants as summarised above does not make any allowance for: (1) depreciation expenses; (2) accrued but unpaid interest liabilities; (3) withholding tax liability; (4) fringe benefits tax liability; or (5) contingent liability arising by reason of the giving of guarantees; which any of the defendants may have had as at 31 March 2016 as those matters were not recorded in the accounts prepared by the head of finance for the Macro Group. 38 Furthermore, to the extent that the assets of any of the defendants consist of land in the Newman Estate or Kurra Estate recorded in the accounts of those defendants 'at cost', the actual value of that land is likely to be significantly less than the value recorded in those accounts.

Reasons for ASIC's Application 39 By reason of the matters set out above, and the more detailed materials contained in the first Bertram affidavit and the second Bertram affidavit, ASIC reasonably submits that: (1) it has reason to suspect that Ms Macpherson and companies controlled by her, including the defendants, have committed, or have been involved in, numerous contraventions of the Corporations Act, the ASIC Act and the Code; (2) Ms Macpherson and companies controlled by her have operated a Ponzi scheme in respect of funds raised by them from investors in Australia and overseas, ostensibly for the purposes of funding various property developments, including the development of the Newman Estate; (3) the Court can have no confidence that the affairs of the various companies controlled by Ms Macpherson, including the defendants, have been or are being properly managed; (4) there would be a serious risk to the public interest if the defendants were not wound up and Ms Macpherson were permitted to continue to manage the affairs of the defendants; and (5) with the exception of the thirteenth and fifteenth defendants, the defendants are insolvent. 40 Thus it seeks orders that the defendants (save for the fourteenth defendant) be wound up on the ground that it is just and equitable to do so.

Applicable Legal Principles 41 ASIC sought the winding up of the defendants on just and equitable grounds under s 461(1)(k) of the Corporations Act. It has standing to bring that application pursuant to s 462(2)(e) and s 464(1) of the Corporations Act because it commenced the investigation. 42 The principles applicable to an application by the regulator to wind up a company on just and equitable grounds were recently summarised by Moshinsky J in Australian Securities and Investments Commission v CME Capital Australia Pty Ltd (No 2) [2016] FCA 544 at [14] to [26]. 43 The classes of conduct which justify the winding up of a company on the just and equitable ground are not closed and each application will depend upon the circumstances of the particular case: Australian Securities and Investments Commission v Kingsley Brown Properties Pty Ltd [2005] VSC 506 at [96]. 44 Generally speaking, a company may be wound up on just and equitable grounds where there is a justified lack of confidence in the conduct and management of the company's affairs such as to give rise to a real risk to the public interest that warrants protection: Australian Securities and Investments Commission v Bilkurra Investments Pty Ltd [2016] FCA 371 at [55]. 45 Warren J (as her Honour then was) identified three factors of central significance in Australian Securities and Investments Commission v ABC Fund Managers (2001) 39 ACSR 443 at 469-470; [2001] VSC 383: First, there needs to be a lack of confidence in the conduct and management of the affairs of the company. Second, in these types of circumstances it needs to be demonstrated that there is a risk to the public interest that warrants protection. Third, there is a reluctance on the part of the courts to wind up a solvent company. 46 The first principle was explained by Sifris J in Galanopoulos v Moustafa [2010] VSC 380 at [32]: If, after examining the entire conduct of the affairs of the company, the conclusion is that there is a lack of confidence in the propensity of the controllers to comply with obligations, including the keeping of books, records and documents, and looking after the affairs of the company, that is sufficient to conclude that it is just and equitable that the company be wound up. 47 In respect of the second principle, Gordon J (as her Honour then was) said in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) (2013) 93 ACSR 189; [2013] FCA 234 at [23]: [A] risk to the public interest may take several forms. For example, a winding up order may be necessary to ensure investor protection or where a company has not carried on its business candidly and in a straightforward manner with the public. Alternatively, it might be justified in order to prevent and condemn repeated breaches of the law. Again there is an overlap between matters which would pose a risk to the public interest for the purpose of s461(1)(k) and which are relevant to the appointment of a provisional liquidator. 48 If a company is solvent, that may point against a winding up on the just and equitable ground, but it is not a bar. A case in which there have been numerous contraventions of the Corporations Act is one in which it is "precisely the situation where a solvent company should be wound up": Australian Securities and Investments Commission v Planet Platinum [2015] VSC 682 at [95]. 49 Conversely, if there is good reason to believe that a company is either cash flow insolvent or balance sheet insolvent, whether or not the formal elements of s 459A of the Corporations Act have been satisfied, such circumstances can be taken into account under the just and equitable ground in any event as one of the factors to consider: Bilkurra Investments at [58]. 50 In Australian Securities and Investments Commission v International Unity Insurance Pty Ltd [2004] FCA 1059 at [135]-[139], Lander J identified other grounds which may justify a winding up order on just and equitable grounds (citations omitted): [135] [ASIC] is authorised to make an application for winding up on the just and equitable ground where it is in the public interest to do so. [136] There are a number of separate grounds which justify the making of a winding up order under this head. If mismanagement, misconduct, or lack of confidence in the conduct and management of the affairs of a company is established, it may be appropriate to wind up the company under this head. [137] If the plaintiff can establish that there have been breaches of the provisions of the [Corporations] Act, including but not limited to, breaches of directors' duties, inadequacy of accounts and inadequacy of record keeping, it may be appropriate to make an order under this head. [138] If there is a need to ensure investor protection, a winding up order may be made under this head. [139] An order may be made if a company has not carried on its business candidly and in a straightforward manner with the public. Such an order would also be appropriate where the corporation has acted fraudulently or entered into sham transactions. 51 There are important public interest considerations when ASIC applies for a winding up order. In Australian Securities and Investments Commission v Finchley Central Funds Management Ltd [2009] FCA 1110, Gilmour J said at [3] (citations omitted): The plaintiff stands in a somewhat different position to a private applicant for winding up on this ground because the public interest considerations attaching to ASIC as the corporate regulator are relevant to the application. Where companies are engaged in fund management and where there is evidence of serious mismanagement and repeated breaches of the [Corporations] Act so that there is a risk to the public, and in circumstances where ASIC has lost confidence in the company to comply with the relevant law, the court may act to wind up that company on the just and equitable ground. 52 In Australian Securities Commission v AS Nominees Limited (1995) 62 FCR 504 at 531; [1995] FCA 1663, Finn J said at 531, in relation to statutory bodies authorised to apply for winding up orders: [T]here seems to be no reason at all why a court entertaining such an application should not have regard to such actual public interest considerations as have … or may have induced the governmental body to seek a just and equitable winding up order. 53 His Honour also said (at 532) that "there is a distinct public interest in the ASC securing compliance with the Corporations Law as such. Its statutory object requires that of it".

Application of the relevant principles to the facts 54 The evidence in this matter points strongly toward the conclusion that the defendants, under the control of Ms Macpherson, form part of a group of companies which have raised in excess of $100 million from private investors by way of the operation of an apparent Ponzi scheme. 55 When regard is had to the three factors of central consideration on an application such as this, as identified by Warren J in ABC Fund Managers, all three factors weigh in favour of a winding up order being made in respect of each of the defendants. More specifically: the Court can have no confidence in the proper conduct and management of each of the defendants; the defendants' involvement in raising investment funds from the public by way of a Ponzi scheme and/or using such funds to purchase property, as well as their past and ongoing contraventions of the Corporations Act demonstrate that there is a need to ensure investor protection and a real risk to the public interest that warrants protection; and the reluctance of the Courts to wind up a solvent company has no application in this matter, as the evidence demonstrates that the defendants are either insolvent, or have failed to maintain sufficient financial records to allow their solvency status to be properly assessed by the regulator. 56 No reasonable and objective assessor of these defendants could have any confidence that the affairs of the defendants have been or are being properly managed. In my view, there would be a serious risk to the public interest if the defendants were not to be wound up. As in AS Nominees, the Court is entitled to regard the actual public interest identified by ASIC as the corporate regulator.

Conclusion 57 The Court shares the lack of confidence of ASIC and considers that it is just and equitable that each of the defendants, with the exception of the fourteenth defendant, should be wound up. 58 For these reasons, the above orders were made. I certify that the preceding fifty-eight (58) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker.

SCHEDULE OF PARTIES WAD 251 of 2017 Defendants Fourth Defendant: FERROUS FERRIC PTY LTD (ACN 607 117 948) Fifth Defendant: MACPHERSON REALTY OPTIONS PTY LTD (ACN 126 711 162) Sixth Defendant: SPLENDIFEROUS ENTERPRISES PTY LTD (ACN 606 731 177) Seventh Defendant: AIPLE ENTERPRISES PTY LTD (ACN 607 117 724) Eighth Defendant: BRAYST WA PTY LTD (ACN 609 165 479) Ninth Defendant: CHIPPERE PTY LTD (ACN 607 117 662) Tenth Defendant: EDWY14 WA PTY LTD (ACN 610 296 645) Eleventh Defendant: MCKST PTY LTD (ACN 610 296 618) Twelfth Defendant: NEWKINS WA PTY LTD (ACN 609 165 598) Thirteenth Defendant: KURST WA PTY LTD (ACN 611 094 332) Fifteenth Defendant: MRF KURRA PTY LTD (ACN 603 215 756) Sixteenth Defendant: DEE VEE ENTERPRISES PTY LTD (ACN 145 136 652) Seventeenth Defendant: HEDLAND PROJECTS PTY LTD (ACN 145 328 418) Eighteenth Defendant: MACRO PROJECTS TS PH PTY LTD (ACN 169 433 158) Nineteenth Defendant: PRIME HOLDINGS GROUP PTY LTD (ACN 131 361 450)