Ms Fullarton
52 As an overarching submission, the 14th and 15th defendants admit that it is neither necessary nor desirable to appoint Receivers to their estates since the assets are protected by the regime put in place by the 11 September orders and 16 September orders. Insofar as information is concerned, there are other ways for ASIC to gather information.
53 In response to an observation that one of the difficulties facing ASIC, and which forms part of the ongoing investigation, is that the extent of the assets is not yet known, Ms Fullarton and Mr McWilliams submitted that the identification of assets can be obtained not just through the disclosure affidavits which have been filed, but for examination to take place on the disclosure affidavits as well as compulsory examinations under s 19 of the Australian Securities and Investments Commission Act, yet none of that has occurred. Further, approximately 1.3 million documents have been obtained as a result of ASIC executing a search warrant, but not yet examined.
54 It is on that basis that Ms Fullarton submits the application for the appointment of a Receiver is premature.
55 I do not accept that submission. Certainly, the investigation is at an early stage, however there is a proper basis for ASIC's investigation and given the way funds are seemingly transferred in a random fashion, not simply within the Corporate defendants but also to Mr McWilliams, Ms Fullarton and also to third parties, there is a clear necessity to protect the interests of those who appear to have provided investment funds.
56 Although asset preservation orders assist in controlling the flow of funds and the dissipation of assets, the scenario with which ASIC is faced potentially has far more serious consequences which include, at the least, the tracing and recovery of investors' funds, as well as the identification of any assets purchased using investor funds for the benefit Ms Fullarton and Mr McWilliams.
57 Ms Fullarton makes a number of specific submissions that no Receiver should be appointed.
58 First, Ms Fullarton submits she does not come within s 1323(1)(a) because an investigation is not being carried out in relation to an act or omission that constitutes, or may constitute, a contravention of the Act. Ms Fullarton submits the mere possibility of a contravention does not come within the purview of the section.
59 Ms Fullarton refers to [81]-[82] of the first Cleary affidavit which deposes that Mr McWilliams may have:
(a) Contravened s 182 of the Act by improperly using his position to gain an advantage for himself or someone else or cause detriment to the relevant corporation;
(b) Committed an offence under s 184(1) of the Act by recklessly or dishonestly failing to exercise his powers and discharge his duties as a Director of the Corporate defendants in good faith, in the best interests of the corporation, and for a proper purpose;
(c) Committed an offence under s 184(2) of the Act by dishonestly using his position as a Director of the Corporate defendants with the intention of directly or indirectly gaining an advantage for himself; or
(d) Been reckless as to whether such use may result in himself or someone else directly or indirectly gaining an advantage, or in causing detriment to the Corporation, such that ASIC is concerned that, amongst others, Ms Fullarton may have been involved in these contraventions and offences by reason of her receipt, and potential involvement in the improper transfer, of investor funds by Mr McWilliams.
60 Ms Fullarton submits that the only matter deposed to in relation to her, is the receipt of funds which she submits is insufficient to establish knowing involvement within the meaning of s 79(1) of the Act in relation to a breach of director's duties under ss 182 and 184 of the Act.
61 In support of that submission, Ms Fullarton refers to ASIC v MyWealth Financial Manager Services Pty Ltd (No 2) [2019] FCA 2107.
62 MyWealth concerned, amongst other things, the running of an unregistered managed investment scheme contrary to the provisions of s 601ED of the Act.
63 At [54]-[55], Derrington J observed that there was no evidence put before the Court that two of the recipients of money obtained by the defendants: Secure Investments Pty Ltd and MyWealth Protection Pty Ltd, had any involvement in the unregistered managed investment scheme. Further, it was not suggested that the transfer of investor funds to either of those two companies was a part of the scheme, such that the circumstances surrounding the receipt of the funds by those two companies did not establish that the receipt may have constituted a contravention of s 601ED. Still further, insufficient facts had been established to show that there existed a reasonable probability or reason or suspicion that the receipt of funds amounted to or could amount to the operation of the unregistered managed investment scheme.
64 At [56] Derrington J referred to ASIC seeking to rely upon s 79 of the Act and the involvement of one or both companies in the contraventions of the other defendants. His Honour found no attempt was made to identify any evidence which suggested that Secure Investments had any knowledge of the acts constituting the operation of the unregistered managed investment scheme or the provision of financial services. His Honour observed that such knowledge would be essential for the making of a successful claim that the company had been "concerned" in the alleged contravention and that such evidence was lacking: Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661; Gore v ASIC [2017] FCAFC 13; (2017) 249 FCR 167.
65 It is on that basis that his Honour considered that without more, the mere receipt of funds by either company, or the subsequent disposal of the funds by the companies, was not sufficient for the purposes of constituting a contravention of the Act.
66 Ms Fullarton submitted the same consideration applies to her situation, that is, the only act or omission that has been referred to and relied upon by ASIC is the receipt of funds, and the plaintiff's evidence provides no more than circumstantial suspicion that she has been "involved" within the meaning of s 79(C) of the Act.
67 In answer to that submission, ASIC submits that the difference between the position in this matter and that which Derrington J found in MyWealth is that neither Secure Investments nor MyWealth Protection were related to the people under investigation. Neither of those two companies had been a part of the initial investigation and ASIC had not been able to identify any provision of the Act which the two companies may have contravened.
68 It submits that apart from the receipt of funds, Ms Fullarton has been married to Mr McWilliams since 2005, had five children together, they live together, and Ms Fullarton is employed as a clerical assistant by ALAMMC 1.
69 It submits that, unlike the position in MyWealth, ASIC is conducting an investigation into, amongst others, Ms Fullarton and on the evidence put before the Court there is a proper basis for the investigation: Krecichwost at [47].
70 The evidence put before the Court reveals Ms Fullarton has received significant sums of money from ALAMMC 1 as well as the other Corporate defendants and Mr McWilliams. Utilising those funds she has purchased at least the Gold Coast property. Specifically, ASIC refers to the withdrawal of $540,000 from the accounts of ALAMMC 2 and transferred to what appears to be a legal firm for the purposes of settling on the Gold Coast property: first Cleary affidavit [75]; first Spalding affidavit, [26], [27].
71 ASIC also refers to other third-party transfers about which ASIC currently has no information and which are unexplained.
72 There are also three other properties owned by Ms Fullarton, one of which at Tallebudgera, on the Gold Coast, which was purchased in April 2024 for $5.088 million, but which has remained vacant since on or about 2 May 2024. That property is said to be for investment purposes and for rental. The property was purchased with facilities totalling approximately $6.3 million from AILV Securities Pty Ltd and Beech Capital 2024 Pty Ltd in the name of Whipz AUD Pty Ltd, a company of which Ms Fullarton is the Sole Director.
73 I deal with that transaction later in these reasons but there is no evidence as to how those loans, which are of short duration, are to be repaid or refinanced.
74 ASIC submits that all is required for the purposes of s 79 of the Act to show an involvement in a contravention is for a person to have aided, abetted, counselled or procured the contravention: s 79(a), or has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to the contravention by Mr McWilliams of his duties to one of the Corporate defendants: s 79(c). In particular, ASIC does not need to show a prima facie case of knowing involvement, simply that there is some proper basis for the investigation.
75 To that extent, ASIC submits the observations of Derrington J in MyWealth do not assist Ms Fullarton.
76 I accept ASIC's submissions. There is evidence before the Court going to a number of deposits from what appears to be investors across the Corporate defendants and a series of transactions involving the transfer of significant sums of money within the Corporate defendants, as well as to Mr McWilliams and Ms Fullarton, and the use of those funds, in the case of Ms Fullarton, for the purchase of various assets, including the Gold Coast property.
77 Accordingly, I do not accept Ms Fullarton's submission that the first of the preconditions in s 1323 is not satisfied insofar as she is concerned.
78 Next, Ms Fullarton submits that the orders sought are unnecessary to protect the interests of potentially aggrieved persons where the amounts the subject of "knowing receipt" comprises three transfers totalling approximately $1.09 million, $540,000 of which relates to the Gold Coast property. In particular, the remaining cash component comprising approximately $551,000 is currently the subject of asset preservation orders. Ms Fullarton submits that the net position is that either the assets or the cash are protected by those orders.
79 I do not accept that submission. First, it assumes that is the extent of the assets when there is a real question as to whether that is in fact the case. By way of example, Ms Fullarton currently owns four properties. The Gold Coast property where she and her family resides appears to have been purchased, at least in part, using investor funds, but the position is not yet clear in relation to the remaining three properties.
80 Second, to the extent there are other assets which may have been purchased with investor funds, those assets need to be identified so that they can be protected in the interests of investors.
81 ASIC submits further that the evidence adduced on the application to this point is more than sufficient to warrant the appointment of Receivers but that does not mean that will be the limit of the investigations. I accept that submission.
82 ASIC also submits that in the circumstances, the appointment of Receivers is both desirable and necessary. I accept that submission.
83 Next, Ms Fullarton submits that the orders sought are disproportionate to the risk to potentially aggrieved persons when regard is had to the prejudice that Ms Fullarton is likely to suffer if the orders were made.
84 I do not accept the first point that the orders sought are disproportionate to the risk to potentially aggrieved persons. Notwithstanding the early stage of the investigation, there is the obvious potential for very significant sums of money to be involved and multiple investors.
85 As to the second point, the prejudice is said to arise for three reasons.
86 The first reason is that the making of an order appointing a Receiver would constitute an event of default under facility agreements in relation to Ms Fullarton's four properties, which could lead to the secured parties exercising their power of sale over those properties.
87 I accept the appointment of a Receiver may constitute an event of default under facility agreements which has various consequences, including an entitlement to charge interest at a higher rate per annum than that which is currently charged, as well as the exercise a power of sale.
88 However, it seems to me that the appointment of a Receiver allows for the orderly management of Ms Fullarton's estate and the identification of assets. Whereas I accept the appointment of Receivers is likely to constitute an event of default, that is a matter to be weighed up in considering whether to make orders appointing Receivers.
89 ASIC submits that asset preservation orders already exist in respect of Ms Fullarton's property, so that the question is not what prejudice the appointment of a Receiver would cause, but what additional prejudice might be occasioned by the appointment of Receivers.
90 ASIC points to Annexure LMF-02 to Ms Fullarton's affidavit, affirmed 10 October 24, at Tab 3, which is a facility agreement with AILV. Tab 4 to the same annexure contains a facility agreement with Beech. These facilities relate to the Tallebudgera property.
91 Terms of the facility with AILV include:
(a) The borrower is WHIPZ AUD Pty Ltd, a company of which Ms Fullarton is the Sole Director, with Ms Fullarton named as guarantor;
(b) The security under the facility is a mortgage over each of Ms Fullarton's four properties;
(c) The facility limit is $5,932,998 commencing on the earlier of 24 April 2024 or the date when the loan is made by the mortgagee. The term of the loan is nine months after the commencement date;
(d) AILV has retained interest in the sum of $500,597, which is deducted from the facility limit to pay towards interest owed to it, with a minimum interest payment being three months calculated on the facility limit;
(e) The interest rate under the agreement is variable with the lender being able to vary the interest rates at any time depending on, amongst other things, the lenders cost of making, funding or maintaining the agreement; and
(f) A condition subsequent is that the residential property currently occupied by Ms Fullarton and her family is to be placed on the market for sale by no later than month four of the loan term, i.e August/September 2024.
92 ASIC submits further that if a secured party wishes to enforce its rights against Ms Fullarton on the basis of an event of default, that is already open to it. It submits that under both the AILV facility agreement and the Beech facility agreement, an "Event of Default" includes action by any "Government Agency" which "in the Lenders opinion, has or could have a Material Adverse Effect or any circumstance arises which may give rise to any such action, claim, requirement or breach;": annexure LMF-02, Tab 3 p 119, Tab 4 p 317.
93 "Material Adverse Effect" in both agreements is defined as including the ability of any "Obligor", which includes Ms Fullarton, to perform her obligations under any finance document to which it is a party: annexure LMF-02, Tab 3 p 83, Tab 4 p 281.
94 To that extent, the appointment of Receivers does not change the current position in so far as the loan agreements with AILV and Beech are concerned.
95 I accept that submission.
96 The second reason is that Receivers could exercise a power of sale over Ms Fullarton's properties, including the Gold Coast property in which Ms Fullarton, Mr McWilliams and their five children reside. There is also a concern on the well-being of Ms Fullarton and her children.
97 The Court is acutely aware of the impact the appointment of Receivers may have on the well-being of individuals. Nonetheless that is not a reason not to make the orders.
98 As to the concern that the Receivers could exercise their power of sale over the Gold Coast property, that concern is something that can be accommodated by appropriate orders, although I note that the property is to be placed on the market under the facility agreement with AILV.
99 The third reason is that appointment of a Receiver would entail significant financial cost ultimately to be borne by Ms Fullarton's estate.
100 ASIC submits that if the matter is as straightforward as suggested by Ms Fullarton and Mr McWilliams in their submissions, there is no reason to suspect that the fees charged by the Receivers would be particularly high. Further, the orders can accommodate any concerns about fees by imposing a practical limit on the Receivership, such that the Receivers are to prepare a report for the Court within a short timeframe.
101 I accept ASIC's submissions about the cost of the Receivership.