Australian Securities and Investments Commission v Centro Financial

Federal Court of Australia|2007-12-17|Before: Gilmour J

REASONS FOR JUDGMENT 1 The Australian Securities and Investment Commission (ASIC) has applied to the Court for orders to wind up Centro Financial Synergy Group Pty Ltd, on the ground that it is just and equitable for the defendant to be wound up as the defendant has ceased business and further or alternatively, the defendant's management are operating the defendant in breach of the Corporations Act 2001 (Cth) ("the Act") or likely to so operate the defendant namely by the failure to comply with the notices under s 912C of the Act in breach of s 1311(1) of the Act and failing to lodge with the plaintiff audited financial statements required by s 989B in the time required by s 989D of the Act and to comply with the conditions of its Australian Financial Services License required by s 912A(1)(b) of the Act which actions are in breach of s 1311(1) of the Act. 2 The affidavit of Nikola Petrovski sworn 17 January 2007 confirms that ASIC is investigating matters being, or connected with, the affairs of the company under Div 1 Pt 3 of the Australian Securities and Investment Commission Act 2001 (Cth) ("ASIC Act"). Consequently s 464(1) of the Act permits ASIC to apply to the Court for the winding up of the defendant. Further, the Act applies as if a winding up application had been made by the company: s 464(2) of the Act. 3 The application was as at April this year actively opposed. The alleged failure to comply with the s 912C notices was denied. However, when the motion was last before the Court the defendant's now counsel, Mr Detata, informed the Court that O'Connor Partners, Commercial Lawyers, wished to withdraw as the solicitors of record for the defendant as at 4 December 2007. Ms de Boer was present in Court at that time when the substantive hearing was listed for today's date. Additionally, ASIC wrote to the defendantby letter dated 11 December 2007 confirming the date and time of the hearing and enclosing copies of the minute of proposed orders and ASIC's written outline of submissions in support of the application. I gave O'Connor Partners leave to discontinue acting for the defendant from 4 December 2007.

JUST AND EQUITABLE GROUNDS 4 Section 461(1)(k) of the Act permits the Court to order that a company be wound up if the Court is of the opinion that it is "just and equitable" that the company be wound up. 5 Just and equitable grounds reflect a residual equitable jurisdiction and have been suggested as containing at least the following five grounds: (a) where the company was created and operated from inception for fraudulent reasons, (b) the company was created for objects that are not attainable, (c) the company is unable to carry on business, (d) the management are operating fraudulently, misleadingly or in breach of the law, (e) the directors or members owe each other equitable obligations in the nature of a quasi partnership. 6 The plaintiff relies upon (c) and (d) (limited to operations in breach of the law) set out above. 7 ASIC should identify the public interest on which it bases its application to wind up for just and equitable reasons: Australian Securities Commission v AS Nominees Ltd (1995) 133 ALR 1 and more recently in Australian Securities and Investments Commission v Green Pacific Energy Ltd (2006) 59 ACSR 142 per Greenwood J at [138]-[144]. The plaintiff points to the continued breaches of the Act as the public interest affected by the operations of the defendant through its management. The plaintiff also submits that the public interests requires that corporations have effective management so that creditors of the corporation are dealt with in accordance with the statutory duties of both the corporation and its directors. Winding up is the appropriate remedy to end a period of managerial limbo: Clarke v Bridges [2004] FCA 394 per Finkelstein J at [7] to [13].

EVIDENCE 8 The plaintiff relies on the following affidavits: · Nikola Petrovski sworn 17 January 2007; · Shona Anne Rogers sworn 2 February 2007; · Jeni Maree Hall sworn 2 February 2007; · Davide Scalzi sworn 7 February 2007; · Pamela Nancy Stewart sworn 30 July 2007; · James Stewart Natt sworn 27 July 2007; and · Varna Elen Roddan sworn 8 August 2007. 9 The defendant has filed an affidavit sworn on 2 April 2007 by Ms Annemeike de Boer, the director. 10 Ms Annemeike de Boer is the only director and secretary of the defendant and its sole shareholder, holding all the shares beneficially. The company carried on a financial services business. It was the holder of an Australian Financial Services Licence (No 219817). Some of the clients or former clients of the defendant invested in securities issued by companies associated with the Westpoint Group.

ASIC INVESTIGATION 11 Since June 2005, pursuant to subs 13(1) and (6) of the ASIC Act, ASIC has been investigating suspected contraventions of ss 184 and 588G of the Act, s 12DA of the ASIC Act and ss 373 and 409 of the Criminal Code of Western Australia for the period from 1 July 2003 and continuing by several entities associated with the Westpoint Corporation Pty Ltd ("Westpoint Group"). 12 Since about March 2006, ASIC has made enquiries for the purposes of ensuring compliance with the corporations legislation for the period from 1 January 1998 and continuing by several entities, including the Defendant, which have been associated with the sale of financial products of the Westpoint Group ("Westpoint Investments"). 13 In Ms de Boer's affidavit, she states that she suffered a depressive illness "largely due to worry" arising from the Westpoint Group collapse in late 2005 early 2006. The illness has required the assistance of medical practitioners, periods of hospitalisation and medication. Ms de Boer, according to her affidavit, was still undertaking comprehensive weekly counselling to enable her to cope with depression as well as undergoing occasional hospitalisation. 14 In or about early 2006, Ms de Boer reduced the office opening hours of the defendant, its assets were sold and she resolved to close the business. She wrote to ASIC, on behalf of the defendant, giving notice of cancellation of its Australian Financial Service Licence, No 219817, effective from 30 June 2006. The reason given was "due to extended ill health of key personnel". I infer this to actually be a reference to the ill health of Ms de Boer. She advised that as from 30 June 2006 the defendant would cease to carry out any financial services business that required such a licence. 15 In about late May to June 2006, the defendant "sold" its clientele to a Mr Cubbage, and transferred its client files to him. 16 Between March and December 2006, ASIC sought to contact Ms de Boer and served notices under s 912C of the Act, on the defendant. These, importantly, sought detailed information concerning the defendant's dealings with companies in the Westpoint Group. The enquiries and notices issued and served by ASIC have been ignored, in breach of the Act. The claims of clients or former clients in relation to their investments have also been ignored by the defendant. This is evidenced by the affidavits of Ms Stewart, Mr Natt and Ms Roddan. 17 Ms de Boer does not deny that the defendant received these notices. She deposes to the fact that as a result of medical treatment she is unable to recall with exact specificity many of the events that have occurred. She also says that she is unable, for medical reasons, and because she has not retained any documents relevant to the matter to produce any written statement as requested by ASIC or otherwise to assist ASIC. 18 As at 16 January 2007 the defendant had not and to date still has not filed a copy of its audited financial statements to 30 June 2006 in breach of the Act. 19 From enquiries made on behalf of ASIC, the defendant quite evidently is unable to carry on its financial services business and indeed has ceased to do so. These enquiries also reveal that the defendant is not carrying on any other business. 20 In September of this year, ASIC permanently banned Ms de Boer from providing financial services as a result, broadly, of the matters which are relied upon by ASIC in this application.

PROCEDURAL MATTERS 21 The affidavit of Davide Scalzi sworn 7 February 2007 deposes to the publication of a notice advertising the winding-up application in the Western Australian newspaper on 7 February 2007. The affidavit, made by the plaintiff's solicitor as required by Corporations Rules 2.12(2)(a), annexes the advertisement and confirms: (a) the date of the advertisement: Corporations Rules 2.12(2)(a); (b) compliance with Corporations Rules 5.6(2)(a) and Form 9; (c) publication more than 3 days after service of the originating process and more than 7 days prior to the hearing: s 465A of the Act and Corporations Rules 2.11; and (d) publication in a newspaper circulating generally in the place of the principal or last know place of the respondent's business: s 465A of the Act and Corporations Rules 2.11. 22 The affidavit of Jeni Maree Hall sworn on 2 February 2007 deposes to service of the originating process and affidavit of Nikola Petrovski on 31 January 2007 by pre paid post. 23 The plaintiff's affidavit of Shona Anne Rogers sworn 2 February 2007 deposes to the lodgement of a form 519 "Notification of court action relating to winding up" with ASIC. 24 The affidavits together confirm: (a) service of the originating process within 14 days of filing: s 465A of the Act; (b) service of the originating process and supporting affidavits more than 5 days before the hearing: Corporations Rules 2.7(1); (c) service in a manner permitted by s 109X of the Act; and (c) lodgement of the notice of the application with ASIC on 23 January 2007, s 465A(a) of the Act, being three business days after the day when the application was filed. 25 The liquidator's consent dated 1 November 2007 was served at least 1 day before the hearing: Corporations Rules 5.5(3)(b). The liquidator has annexed his hourly rates: Corporations Rules Form 8.

REASONING 26 There is a clear public interest in ensuring compliance with the Act. That interest has been compromised by the defendant's repeated failure to respond to the s 912C notices, related to the investigations into the collapse of the Westpoint Group, an investigation of considerable public concern. The failure to deal with the inquiries of Ms Stewart, Mr Natt and Ms Roddan goes to the public concern that the corporation is without effective management. 27 The evidence demonstrates that the defendant is being managed in breach of the Act or likely to be so operated by reason of the defendant: (a) failing to comply with notices under s 912C of the Act in breach of s 1311(1) of the Act; (b) failing to lodge with the plaintiff audited financial statements required by s 989B of the Act in the time required by s 989D of the Act; and (c) failing to comply with the conditions of its Australian Financial Services Licence required by s 912A(1)(b) of the Act which actions are in breach of s 1311(1) of the Act. 28 I am satisfied that the procedural requirements have all been met. I am also satisfied that the defendant is unable to carry on business and has over a considerable period of time been operating in breach of the Act, having failed to comply with three sets of s 912C notices between 31 March and 15 December 2006, in breach of s 1311 of the Act, failed to lodge with ASIC audited financial statements in breach of s 989B within the time required by s 989D and failed to comply with the conditions of its Australian Financial Services Licence as required by s 912A(1)(b) of the Act in breach of s 1311 of the Act. By reason of these findings, I am persuaded that it would be just and equitable to order that the defendant be wound up. I will make orders accordingly. 29 Section 466(2) of the Act provides that the liquidator must reimburse the plaintiff out of the property of the company, the taxed costs incurred by the plaintiff unless the Court orders otherwise. The plaintiff submits that the current application is not a circumstance in which it is appropriate to order otherwise and seeks its costs to be taxed and paid from company property. I accept this submission, and so order. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.

Associate: Dated: 21 December 2007 Counsel for the Plaintiff: Mr C Slater

Solicitor for the Plaintiff: Australian Securities & Investment Commission

Corporations Act 2001(Cth)ss 461(1)(k), 462(2)(e), 464, 464(2), 912A(1)(b), 912C, 989B, 989D, 1311, 1311(1)

Australian Securities and Investment Commission Act 2001(Cth)

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