Australian Securities and Investments Commission v CME Capital Australia Pty Ltd

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 56

Counsel for the Plaintiff: Mr M Pearce SC and Ms C van Proctor

Solicitor for the Plaintiff: Australian Securities and Investments Commission

Counsel for the First, Second, Third and Fourth Defendants: Mr S Rubenstein

Solicitor for the First, Second, Third and Fourth Defendants: Marsh and Maher

Counsel for the Fifth and Seventh Defendants: Ms A Folie

Solicitor for the Fifth and Seventh Defendants: Mills Oakley Lawyers

Counsel for the Sixth and Ninth Defendants: Mr D Williams QC and Mr G Herbert

Solicitor for the Sixth and Ninth Defendants: Kiatos and Co

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 762 of 2015

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

AND: CME CAPITAL AUSTRALIA PTY LTD (ACN 006 054 995)

BOSTON PACIFIC CAPITAL AUSTRALIA PTY LTD (ACN 006 594 396)

AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD (ACN 005 357 522)

COMMONWEALTH BANK OF AUSTRALIA LIMITED (ACN 123 123 124)

SAXO CAPITAL MARKETS (AUSTRALIA) PTY LTD (ACN 110 128 286)

JUDGE: MOSHINSKY J DATE OF ORDER: 21 DECEMBER 2015 WHERE MADE: MELBOURNE

1. Pursuant to section 472(2) of the Corporations Act 2001 (the Act), Ross Andrew Blakeley and Quentin James Olde of FTI Consulting are appointed joint and several provisional liquidators to the First, Second, Third, Fourth and Fifth Defendants (the Companies).
2. The provisional liquidators shall, within 42 days of their appointment, or such other time as the Court considers appropriate, provide to the Court and to the Plaintiff a report as to the provisional liquidation of each of the Companies, including: (a) the identification of the assets and liabilities of each of the Companies; (b) an opinion as to the solvency of each of the Companies; (c) the likely return to creditors; (d) any other information necessary to enable the financial position of the Companies to be assessed; (e) any suspected contravention of the Act by any of the Companies; and (f) any suspected contravention of the Act by the directors and officers of the Companies.
3. In addition to the powers conferred on them by the Act, the provisional liquidators have power to investigate into and report on: (a) the matters set out in paragraph 2 of this order; and (b) any other matters specified in the affidavits of Mr Caridi dated 13 November, 16 November, and 8 December 2015 and the affidavit of Mr Nicolaides dated 9 December 2015.
4. Paragraph 2 of the second orders of the Court made on 17 November 2015 as varied on 7 December 2015 be varied to read: "These orders operate until further order".
5. The parties and the provisional liquidators have liberty to apply.
6. The Plaintiff's costs of its interlocutory application are costs in the cause in the application for final relief. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 762 of 2015

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

AND: CME CAPITAL AUSTRALIA PTY LTD (ACN 006 054 995)

BOSTON PACIFIC CAPITAL AUSTRALIA PTY LTD (ACN 006 594 396)

AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD (ACN 005 357 522)

COMMONWEALTH BANK OF AUSTRALIA LIMITED (ACN 123 123 124)

SAXO CAPITAL MARKETS (AUSTRALIA) PTY LTD (ACN 110 128 286)

JUDGE: MOSHINSKY J DATE: 21 DECEMBER 2015 PLACE: MELBOURNE

Introduction 1 This is an interlocutory application by the plaintiff (ASIC) for the appointment of a provisional liquidator to each of the first to fifth defendants, namely: (a) CME Capital Australia Pty Ltd (ACN 006 054 995) (CME); (b) Boston Pacific Capital Australia Pty Ltd (ACN 006 594 396); (c) GKN Capital Pty Ltd (ACN 006 582 887); (d) Boston Pacific Capital Pty Ltd (ACN 167 099 087) (Boston Pacific Capital); and (e) IMCG Pty Ltd (ACN 146 851 649) (IMCG), (the Companies). 2 ASIC contends that there is substantial evidence that the Companies are operating a 'Ponzi scheme', and have committed, or have been knowingly concerned in, a number of contraventions of the Corporations Act 2001 (Cth) (the Act). ASIC contends that these matters have been put to the defendants, and that no adequate explanation has been provided. Indeed, ASIC contends that evidence that has been provided to ASIC by the defendants has confirmed that ASIC's concerns are justified and warrant the relief sought in the interlocutory process. 3 ASIC contends that there is substantial evidence justifying a lack of confidence in the controllers of the Companies and the manner in which they have managed and dealt with the funds raised by investors. ASIC also says that it has concerns about the financial position, and the adequacy of the accounts and records, of each of the Companies. 4 ASIC seeks the appointment of provisional liquidators to: (a) identify, secure, and preserve the assets of the Companies pending the final hearing and determination of ASIC's winding up application against the Companies; (b) identify, secure and preserve any assets held on trust for, or managed on behalf of, investors, and to make any necessary and appropriate distributions to investors from the assets of the Companies; and (c) empower an independent expert and officer of the Court to investigate the Companies' affairs and report back to the Court. 5 Since the filing of ASIC's interlocutory process, joint and several administrators have been appointed to the first four defendants, but not to the fifth defendant. The administrators sought a short adjournment, of a few days, of the hearing of ASIC's application in order to conduct some initial investigations and to consider whether a proposed deed of company arrangement (DOCA) may be in the interests of creditors. I granted that adjournment until today. In an affidavit filed yesterday, one of the administrators has indicated his view that it is not in the interests of creditors to allow the administrations of the first four defendants to continue to consider the DOCA proposal. 6 For the reasons that follow, I have concluded that: (a) I am not satisfied that it is in the interests of creditors of the first to fourth defendants for the administration of those companies to continue; (b) it is appropriate for provisional liquidators to be appointed to each of the first five defendants; and (c) the individuals proposed by ASIC, rather than the current administrators, should be appointed as the joint and several provisional liquidators of the Companies.

Overview 7 Mr Petrou is the sole director of each of the first to fourth defendants. The Companies have raised approximately $13.55 million from investors. The evidence indicates that the funds have been dispersed as follows: (a) Approximately $2 million has been lent to the eighth defendant, Loma Estate Pty Ltd (Loma), a company that appears to be operated by Mr Lou Garita. Mr Garita is recorded on ASIC's register as a director of Loma, although he is an undischarged bankrupt and ineligible to act in that position. His daughter is a director of the company. Funds have been provided by the defendants to Loma since early 2014, prior to any loan agreement being negotiated or documented. The loans were documented in mid-2015, although it appears that the documents were backdated to reflect the date on which the lending commenced. The loan documents do not record the provision of any security or equity by Loma to the Companies, although Mr Petrou has told ASIC that CME has equity in the property owned by Loma. It appears that Loma has not made any payments of interest or repayments of capital to any of the Companies since it commenced borrowing funds in early 2014. (b) About $1.751 million has been lent to the ninth defendant, a related company, Berkshire NWI Invest LLC (Berkshire). Although Berkshire is said by Mr Petrou to be cash flow positive (despite no supporting documents having been provided to ASIC), Mr Petrou has told ASIC that no income from reinvestment has been made available to the first to fourth defendants to fund interest payments to investors and confirmed this in his affidavit. Mr Petrou's evidence is that about USD40,000 is held in the trust account of Berkshire's US agent. (c) About $7.245 million has been lent to IMCG, in respect of which losses of about $2 million have been incurred. It appears that about $4.3 million is left, but more than $7.2 million is owed to the Companies. It appears that no income has been generated from the reinvestment by IMCG of funds raised from investors. Mr Petrou has deposed to the fact that IMCG has returned various amounts to CME, apparently at his direction, but there is no evidence that these amounts were referable to any income earned from the reinvestment of investors' funds. 8 The seventh defendant, Branislav Grujicic (Mr Grujicic), is identified in the records lodged with ASIC as the sole director of IMCG. However, it appears that Mr Grujicic is accustomed to acting in accordance with directions given by Mr Petrou. Mr Grujicic had no input into the drafting of IMCG's contracts. Mr Petrou has been kept updated on IMCG's trading performance regularly. The evidence indicates that, despite the substantial losses incurred by IMCG, Mr Petrou had instructed Mr Grujicic to "keep trading". 9 ASIC has said that it has concerns about the defendants' lack of expertise and experience in operating a securities trading business and that these concerns are heightened by certain representations made to investors.

Applicable principles 10 Section 472(2) of the Act gives the Court power to appoint a provisional liquidator at any time after the filing of a winding up application and before the making of a winding up order. ASIC has applied to wind up the Companies under s 461(l)(k) of the Act. 11 The Court must be satisfied that there is a reasonable prospect that a winding up order will be made on the application: Tickle v Crest Insurance Co of Australia Ltd (1984) 2 ACLC 493 (Tickle) at 494; Australian Securities and Investments Commission v Solomon (1996) 19 ACSR 73 (Solomon) at 80 per Tamberlin J; Australian Securities and Investments Commission v Weerappah (No 2) [2009] FCA 249 (Weerappah) at [8]. 12 An applicant must show some good reason for intervention prior to the final hearing of the winding up application, such as a need to preserve the status quo or to protect the company's assets or affairs: Allstate Explorations NL v Batepro Australia Pty Ltd [2004] NSWSC 261 at [30]; Weerappah at [8]. 13 In some cases, the appointment of a provisional liquidator has been referred to as a "drastic" measure, but one that may be required to preserve the status quo: Zempilas v J N Taylor Holdings Ltd (No 2) (1990) 55 SASR 103 at 107; Constantinidis v JGL Trading Pty Ltd (1995) 17 ACSR 625 at 635; Lubavitch Mazal Pty Ltd v Yeshiva Properties No 1 Pty Ltd (2003) 47 ACSR 197 (Lubavitch Mazal v Yeshiva) at [105]; Weerappah at [8]. 14 The purpose of the appointment of a provisional liquidator was explained by Dodds-Streeton J in Australian Securities and Investments Commission v Tax Returns Australia Dot Com Pty Ltd [2010] FCA 715 at [86]: …The appointment of a provisional liquidator is, however, uniquely apt and necessary to preserve effectively and expeditiously the status quo, prevent the dissipation of assets prior to the final hearing of the winding up application and to ensure, in the public interest, that an independent official liquidator investigates and identifies the companies' records, transactions, assets and liabilities. 15 The court may appoint a provisional liquidator on any ground. The court's discretion is "wide": Re Huntford Pty Ltd (1993) 12 ACSR 274 at 277. In Re New Cap Reinsurance Corporation Holdings Ltd (1999) 32 ACSR 234, Young J said at [23]: … the power to appoint a provisional liquidator is by no means limited, the grounds on which a provisional liquidator may be appointed are infinite, and all that really has to be shown is that there is a bona fide application constituting sufficient ground for the making of the order. 16 That passage was quoted with approval by Gordon J in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) (2013) 93 ACSR 189 (ActiveSuper) at [12]. 17 The following principles were identified by Tamberlin J in Solomon, at 80: (a) The court should only appoint a provisional liquidator where it is satisfied that there is a valid and duly authorised winding up application and that there is a reasonable prospect that a winding up order will be made. (b) The fact that the assets of the corporation may be at risk is a relevant consideration. (c) The provisional liquidator's primary duty is to preserve the status quo to ensure the least possible harm to all concerned and to enable the court to decide, after a further examination, whether the company should be wound up. (d) The court should consider the degree of urgency, the need established by the applicant creditor and the balance of convenience. The power is a broad one and circumstances will vary greatly. Commercial affairs are infinitely complex and various and it is inappropriate to limit the power by restricting its exercise to fixed categories or classes of circumstances or fact. (e) It may be appropriate to appoint a provisional liquidator in the public interest where there is a need for an independent examination of the state of accounts of the corporation by someone other than the directors. (f) Where the affairs of the company have been carried on casually and without due regard to legal requirements so as to leave the court with no confidence that the company's affairs would be properly conducted with due regard for the interests of shareholders, it may be appropriate to appoint a provisional liquidator. (citations omitted) 18 These principles have been cited with approval in numerous cases including Weerappah at [10], ActiveSuper at [16] and Australian Securities and Investments Commission v Oceanic Asset Management Pty Ltd (2015) 108 ACSR 367 at [67]. 19 In Re Club Mediterranean Pty Ltd (1975) 11 SASR 481 at 483, Bright J appointed a provisional liquidator having formed the view that: unless a completely independent competent person comes in to take hold of the situation there is a strong possibility (to put it no higher) that there will, in one way or another, be further acts, neglects and proceedings which will be detrimental to creditors. 20 Where an appearance has been filed by the defendant, the onus on the applicant is not as great. As Young J said in Riviana (Aust) Pty Ltd v Laospac Trading Pty Ltd (1986) 10 ACLR 865 at 866, that is because: … the court takes into account the fact that the company is present, so that the company has an opportunity of putting before the court any relevant factors as to why a provisional liquidator should not be appointed. If the plaintiff's affidavits raise matters to which a court would expect there to be some answer and there is no answer provided then that in itself raises a matter of suspicion that it may well be in the public interest to put in a provisional liquidator. 21 That passage was cited with approval in Emmacourt Pty Limited v Jewels of Australia Pty Limited [2007] FCA 1483 at [11]; Australian Securities and Investments Commission v Global SDR Technologies Pty Ltd (2004) 51 ACSR 42 at [50]; and ActiveSuper at [18]. 22 The primary ground relied upon by ASIC for an order winding up the Companies is s 461(1)(k): the just and equitable ground. ASIC has standing to bring that application under s 462(2) and s 464 of the Act. 23 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]-[97]. 24 It is long been established that a company may be wound up on the just and equitable ground where there is "a justifiable lack of confidence in the conduct and management of the company's affairs" and thus a risk to the public interest that warrants protection: Loch v John Blackwood Ltd [1924] AC 783 at 788 per Lord Shaw. Three principles were referred to by Warren J (as her Honour then was) in Australian Securities and Investments Commission v ABC Fund Managers (2001) 39 ACSR 443 at [119]: 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. (citations omitted) 25 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. 26 There is accordingly a significant overlap between the matters relevant to the just and equitable ground and the matters which weigh in favour of the exercise of the court's discretion to appoint a provisional liquidator: ActiveSuper at [22]. 27 In respect of the second principle, Gordon J said in ActiveSuper 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 s 461(1)(k) and which are relevant to the appointment of a provisional liquidator. (citations omitted) 28 In relation to the third principle, the reluctance to wind up a solvent company does not prevent solvent companies being wound up on the just and equitable ground where it is appropriate to do so, although a stronger case might be required: ActiveSuper at [24]. 29 Lander J in Australian Securities and Investments Commission v International Unity Insurance Pty Ltd (2004) 22 ACLC 1416; [2004] FCA 1059 summarised the relevant principles at [135]-[139] as follows: [135] The plaintiff 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 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. (citations omitted) 30 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]: 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 or repeated breaches of the 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. 31 In the present context it is necessary to have regard to s 440A of the Act. Section 440A relevantly provides: (2) The Court is to adjourn the hearing of an application for an order to wind up a company if the company is under administration and the Court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up. (3) The Court is not to appoint a provisional liquidator of a company if the company is under administration and the Court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than have a provisional liquidator appointed. 32 The onus is on the defendants to satisfy the Court that it is in the interests of creditors for the administration to continue. In Lubavitch Mazal v Yeshiva, Austin J said at [78]: … Section 440A(3) requires the court, when confronted with an application for the appointment of a provisional liquidator of a company in administration, to consider whether it is in the interests of the company's creditors for it to continue under administration rather than to have a provisional liquidator appointed. The choice is between administration and the appointment of a provisional liquidator, rather than (under s 440A(2)) between administration and winding up. Subject to that difference, however, it appears to me that the investigation is essentially the same, and the principles governing it are those stated in the cases to which I have referred. Under subs (3), as under subs (2), the person resisting winding up or the appointment of a provisional liquidator has the onus of satisfying the court that the interests of the company's creditors are better served by administration. The question (or at any rate, the main question) will be whether there is on the evidence any real, practical prospect, as opposed to mere optimistic speculation, that the creditors will receive a better or quicker dividend if administration is permitted to continue, than they would eventually hope to receive if a provisional liquidator were appointed.

Application of Principles to the Present Case 33 The evidence filed by ASIC establishes that interest payments have been made to investors from funds received by way of new investments from other investors. The defendants have not adduced any evidence to suggest that this is not the case. To the contrary, the evidence adduced by the defendants tends to confirm that this has been occurring. 34 In my view, the appointment of a provisional liquidator is supported by a justifiable lack of confidence in the management of the affairs of the Companies. That lack of confidence arises as a result of the defendants' inability to provide explanations for many of the concerns that ASIC has raised, despite having the opportunity to do so during the s 19 examinations and by affidavit. 35 When ASIC put its concerns to Mr Grujicic in his s 19 examination, Mr Grujicic gave the following evidence in response: (a) IMCG borrowed around $7.2 million from Boston Pacific Capital and CME from funds Mr Grujicic knew were raised from investors. (b) The funds were advanced on IMCG pursuant to oral and written loans without security, to be repaid when Mr Grujicic was "comfortable with the trading", at an interest rate of 13%, without Mr Grujicic having any track record to demonstrate that IMCG would be able to repay the principal and pay interest. (c) IMCG owes money to Boston Pacific Capital and CME, but (despite being the sole director of IMCG) he does not know how much IMCG owes to either company. He does not know how much he received from each company. (d) Mr Petrou has asked Mr Grujicic to send money back at various times. Mr Grujicic returned the funds but could not say whether the payments were of interest or principal. Mr Grujicic said he was simply operating on the basis that "the agreement was for me to send money when I feel comfortable". Payments have been made even though IMCG is not making a profit. (e) None of IMCG's accounts are profitable. There are two trading accounts and each has lost money. $2 million has been lost. If the securities were to be liquidated now there would be a $2.5 million shortfall. Mr Grujicic accepts that interest of $742,000 has accrued but not been paid. (f) IMCG pays for a vehicle and fuel used by Mr Grujicic, from funds advanced by Boston Pacific Capital and CME. IMCG pays Mr Grujicic's salary but this is not recorded in its accounts. Mr Grujicic's personal account has been used to deal with IMCG's funds, including $1 million paid from IMCG into Mr Grujicic's personal account for the purpose of trading. 36 ASIC has raised concerns about Mr Grujicic's lack of expertise and experience in managing several million dollars of investors' funds. ASIC also says it has concerns about the terms on which the first four defendants have lent funds to IMCG. 37 When ASIC put its concerns to Mr Petrou in his s 19 examination, Mr Petrou confirmed that the Companies' only, or primary, source of income is funds received from IMCG and "incoming investor funds". 38 Mr Petrou has also given evidence that: (a) He is aware that IMCG has sustained $2 million of losses. (b) IMCG has returned the sum of $1.6 million to other companies voluntarily, at Mr Petrou's request. The funds were sought from IMCG for "Capital adequacy requirements, liquidity". (c) Aside from interest payments coming in from new investors the Companies have no other source of income. (d) The records lodged with ASIC reflecting Mr Grujicic's shareholding in the Companies are correct (which is contrary to evidence given by Mr Grujicic). (e) The Companies' funds were used for recent overseas travel for eight people, which included Mr Petrou and Mr Grujicic, and which was "part business". Mr Grujicic's evidence was that Mr Petrou had funded his recent holiday overseas and that Mr Grujicic's travel was not for work. 39 ASIC has raised concerns about the terms on which investors' funds have been lent to third parties pursuant to documents drafted by Mr Petrou in respect of which, it appears, he received no external advice. 40 ASIC has also raised concerns that despite deposing to the financial affairs of Berkshire, of which Mr Petrou is the sole director, no books and records disclosing its financial position have been provided to ASIC (in circumstances where more than $1.7 million of investors' funds have been transferred to a foreign, related entity). 41 The winding up of a company on the just and equitable ground is appropriate where there is evidence of serious mismanagement or repeated breaches of the Corporations Act. The evidence suggests that the first to fourth defendants may have contravened ss 113, 283AA, 601ED(5), 727, 911A and 1041H of the Act. The evidence of Mr Petrou that he believed offers to have been made only to "professional investors" is not a sufficient response, at least for present purposes. The provisions of the Act referred to above do not require a contravenor to know that the impugned conduct constitutes a contravention of the Act in order for the contravention to be established. The evidence indicates that offers were made to persons who were not professional investors as contemplated by s 708 of the Act. Further, Mr Petrou has acknowledged that no PDS was issued and no financial services licence is held. 42 ASIC also contends that Mr Petrou's affidavit supports a conclusion that the Companies are operating an unregistered managed investment scheme in contravention of s 601ED(5) of the Act. ASIC points to Mr Petrou's evidence to the effect that his investment business raises capital and then makes investments directly or indirectly in a range of asset classes. ASIC submits that the scheme described by Mr Petrou has the features of a managed investment scheme identified in s 9 of the Act, being a scheme by which: (a) investors contribute money to acquire a financial benefit; (b) investors' contributions are to be pooled or used in a common enterprise to produce the financial benefits; and (c) the investors do not have day to day control over the operation of the scheme. It is not necessary for present purposes to reach a concluded view on these contentions. 43 The evidence suggests that IMCG may have been involved in contraventions of ss 113, 283AA, 727, 911A and 1041H. IMCG received the funds raised from investors. ASIC contends that Mr Petrou (who ASIC contends was a de facto director of IMCG) had knowledge of the essential facts giving rise to primary contraventions. 44 The matters referred to above raise concerns that the affairs of the Companies have not been carried out with due regard to legal requirements. 45 The evidence indicates that: (a) The first to fourth defendants do not earn sufficient income from the reinvestment of investors' funds or any other source to meet existing and likely future obligations to investors. Mr Petrou's evidence that the Companies "always held more than sufficient cash reserves to meet cash needs" seems to reflect the fact that the Companies were using new investments to fund interest obligations to existing investors, continuing to incur further obligations to investors. (b) Although Mr Petrou has said that Berkshire is "generating positive cash flows from its operations", the documentary evidence does not substantiate this contention. Berkshire has received more than $1.7 million of investors' funds. (c) IMCG has received more than $7 million of investors' funds and incurred losses of more than $2 million. Despite Mr Petrou deposing to having caused IMCG to return $1.55 million, the funds do not reflect any net income earned by the reinvestment of investors' funds. 46 As noted above, since the filing of ASIC's interlocutory process, joint and several administrators have been appointed to the first to fourth defendants. They are Dennis Turner and Luke Targett of BDO. Mr Turner has prepared two affidavits which have been filed in this proceeding. In his first affidavit, which was not long after the appointment of the administrators, Mr Turner outlined his reasons for seeking a short adjournment of the proceeding. One of the reasons was to enable further investigations to be made in relation to the possibility of a DOCA. That adjournment was granted and, yesterday, Mr Turner swore a second affidavit. In that affidavit Mr Turner states that, in his opinion, it is not in the interests of creditors to allow the administrations of the first to fourth defendants to continue to consider the DOCA proposal. 47 Mr Turner's second affidavit sets out, carefully and in detail, concerns about how the first to fourth defendants have been managed. His view on these matters provides independent support for the concerns raised by ASIC. 48 Mr Turner's second affidavit also details approaches that have been made to IMCG over recent days. It is important to note that, unlike the first to fourth defendants, IMCG is not under administration. Mr Turner instructed his solicitor to approach IMCG's solicitors to see whether IMCG had any proposal for its assets to form part of a DOCA (as funder) of the entities in voluntary administration. IMCG's solicitors responded that they do not have instructions to put forward any proposal in relation to funding by IMCG under a proposed DOCA. Mr Turner says that, given that $7.2 million of the funds of the first to fourth defendants was lent to IMCG, he believes it is critical to an outcome which could be in the interests of all creditors of the first to fourth defendants that the assets of IMCG comprise part of an equitable return of funds to creditors; and that without those funds it would be almost impossible, in his view, for a DOCA proposal to be in the interests of creditors. 49 Later in his affidavit Mr Turner says that, given his views, he has also formed the view that it would be unworkable for him to: (a) continue as administrator of the first to fourth defendants; and (b) be appointed by the Court as receiver and manager of IMCG. 50 He says that he has formed this view because he would be unable to achieve the objectives of obtaining the maximum return to creditors of the first to fourth defendants as a Court-appointed receiver and manager of IMCG. He says that he would be in control of the assets of IMCG but, for example, would not have the power to appoint an administrator if a global DOCA proposal was in his professional opinion in the interests of all creditors of the first to fourth defendants. 51 In light of the above, I am not satisfied that it is in the interests of creditors of the first to fourth defendants for the administration of those companies to continue. It follows that s 440A(3) does not preclude the appointment of a provisional liquidator to the first to fourth defendants. 52 Further, in light of the evidence referred to above, I consider it appropriate for a provisional liquidator to be appointed to each of the first to fifth defendants. There are, on the available evidence, possible contraventions of the Act and grounds for a lack of confidence in the management of the affairs of the Companies. There is a need for a provisional liquidator to be appointed to enable an independent person to investigate the affairs and transactions of each of the Companies and, if necessary, to take steps to protect and preserve their interests. It also is a case in which it is appropriate to appoint a provisional liquidator in the public interest as there is a need for an independent examination of the state of accounts of the Companies by someone other than the directors. I am satisfied that there is a reasonable prospect that a winding up order will be made, and that there is good reason for intervention prior to the final hearing of the winding up application. 53 On behalf of IMCG and Mr Grujicic, it was submitted that appointment of a receiver and manager was preferable to a provisional liquidator. For the reasons adverted to in Mr Turner's affidavit, I consider it preferable for a provisional liquidator to be appointed given the wider set of powers that would be available. 54 On behalf of Mr Petrou and Berkshire, it was submitted that if I formed the view that a provisional liquidator should be appointed to IMCG, and if I appointed Messrs Turner and Targett to that role, it would be best to allow the administration of the first to fourth defendants to continue for a short period of time to explore whether, in that scenario, the proposed DOCA was in the interests of creditors, given the ability of a provisional liquidator to appoint an administrator and given the views expressed in Mr Turner's affidavit. In my opinion, it is simpler and preferable, in all of the circumstances, to appoint a provisional liquidator to each of the first five defendants. 55 There remains the question of who should be appointed as provisional liquidator. In my view, it is appropriate for the two individuals proposed by ASIC, namely Ross Blakeley and Quentin Olde of FTI Consulting, to be appointed. They have the necessary qualifications and experience and have consented to act. Although the administrators of the first to fourth defendants have indicated that they would be content to be appointed, and it may be said that some efficiencies could be derived from their appointment, I consider it appropriate in the circumstances that the appointment be of the individuals proposed by ASIC. I should make clear that this does not reflect in any way on the current administrators whose material has been of considerable assistance to the Court. 56 For these reasons, I will make orders for the appointment of joint and several provisional liquidators to each of the first five defendants. I certify that the preceding fifty-six (56) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moshinsky.