His Honour gave no reasons for this order, and it is not clear what is meant by the qualification " with such modifications as are reasonably necessary in the circumstances ".
35 Although it has been held that s 601EE(2) empowers the making of orders conferring powers on the "liquidator" of the scheme to be wound up to which third parties will be subject in the same way third parties can be subject to the powers of a liquidator which are conferred by statute, the basis for this has not been clearly explained. It is not clear to me how some of the orders are intended to operate, and whether, as well as deeming a scheme to be a company, a person who formerly managed the scheme is also to be deemed to be an officer of the company so created, and thus made subject to the provisions of the Corporations Act, including the penalty provisions, to which he was not otherwise subject. If so, the power to make orders which create new offences might be thought to warrant close attention. If not, the "liquidator" of a scheme will not have the same power of obtaining documents and information in respect of the scheme as would a liquidator of a company. On any view, the orders seek to expand the reach of Chapter 5. It may be that a person who fails to comply with a demand made by a "liquidator" of a scheme pursuant to the powers conferred by an order under s 601EE(2), is not in breach of the relevant section of Chapter 5 in its expanded operation, but is to be taken to have interfered with the "liquidator" in the performance of his functions and is liable to be punished for contempt.
36 In practice, I suspect that "liquidators" of unregistered schemes assume they have the powers of company liquidators. As Barrett J pointed out in Australian Securities and Investments Commission v Tasman Investment Management Ltd (2004) 50 ACSR 153 at 173, [73], applications have been made by liquidators of schemes for directions under s 479(3) of the Corporations Act as for approval of deeds of settlement under s 477(2A) of the Corporations Act, when there was no warrant for such applications under those sections, although doubtless the same directions and orders could have been given under s 601EE(2). Of course, their powers depend on what orders can be made, and are made, under s 601EE(2).
37 I do not express any conclusion on the scope of the Court's power under s 601EE(2). As Barrett J said in ASIC v Commercial Nominees Ltd in the passage quoted at paragraph 28 above, the power to make orders for the winding-up, must extend to settling or prescribing any aspect or element of the basis of winding up or the winding-up process which cannot be supplied from other sources. Section 601EE(2) empowers the Court to fashion the winding-up process. By contrast, s 601NF(2), gives power to make directions about how a registered scheme is to be wound up, where the winding-up may already be on foot and should be provided for by the scheme's constitution.
38 In Australian Securities and Investments Commission v Takaran Pty Ltd (2002) 43 ACSR 46, Barrett J had to consider whether a person was or was not operating an unregistered managed investment scheme in contravention of s 601ED(5). Section 601ED(6)(b) provides that a person is not operating a scheme for the purpose of subs (5), merely because he or she is taking steps to wind up the scheme.
39 His Honour concluded that the references in Part 5C to the winding-up of a managed investment scheme were to the process created and recognised by statute (at 55, [36]). His Honour said (at 55, [37]):
" In the case of a registered managed investment scheme, "winding up" may occur in any of the ways recognised by the Pt 5C.9 provisions already noticed. In the case of an unregistered managed investment scheme, what the Act calls "winding up" may occur only through s 601EE, that being the sole provision contemplating the "winding up" of such a scheme. While, apart from the Act, steps may be taken to put an end to an unregistered scheme by resort to contractual provisions or, if applicable, principles of partnership law or principles of equity concerning the termination of partnerships or trusts - all of which, in a broad and undefined sense, may be regarded as a kind of "winding up" - none of these will result in the kind of "winding up" provided for or contemplated by those provisions of the Act that deal with winding up . "
40 His Honour thus held that a winding-up of a scheme does not begin until, in the case of an unregistered scheme, an order for its winding-up is made under s 601EE. By parity of reasoning, the winding-up of a registered scheme does not begin until the happening of the specified time, circumstance or event for which the constitution provides for a scheme's winding-up, (s 601NA), the passing of a member's resolution (s 601NB), the passing of 28 days without a meeting after a responsible entity has given notice of its intention to wind up the scheme (s 601NC), or the making or an order for the winding-up of a scheme (s 601ND).
41 Although the statutorily created process of winding up determines when the winding-up commences, the nature of the winding-up process depends on what it is that is being wound up.
42 Part 5C.9 provides for the winding-up of a registered scheme in accordance with its constitution and any order the Court might make under s 601NF(2). Where the scheme is a trust, what is envisaged by the winding-up of a scheme is the realisation of its property, the payment by the responsible entity of liabilities incurred on behalf of the scheme or the retention by it of funds with which to meet its liabilities, the ascertainment of the members' entitlements, and the distribution of the trust assets to the members in accordance with their entitlements. The winding-up of a trust involves the performance of the trust, by the trustee's accounting to the beneficiaries for trust property in accordance with the terms of the trust, and its termination.
43 The trustee is entitled to be indemnified out of the trust assets in respect of liabilities which it incurs in the course of administering the trust, but is personally liable to creditors in respect of such liabilities unless it has contracted with a creditor to limit the creditor's recourse against it. If the trustee has discharged the liability out of his individual property, he is entitled to reimbursement from the trust fund. If he has not discharged it, he is entitled to be exonerated from the trust fund for the liabilities properly incurred in the administration of the trust. He cannot be compelled to surrender the trust property to the beneficiaries until his claim has been satisfied. The beneficiaries' entitlement is to so much of the assets as are available after the liabilities of the trustee have been discharged or provision has been made for them. (Chief Commissioner of Stamp Duties for NSW v Buckle (1998) 192 CLR 226 at 245-246).
44 Winding up a trust is quite a different thing from winding up a company. (Horwarth Corporate Pty Ltd v Huie (1999) 32 ACSR 43). Because the scheme, where it is a trust, is not a legal entity, the expression "scheme creditors" is at best a shorthand expression for those creditors of the responsible entity in respect of whose debts the responsible entity is entitled to be indemnified out of the scheme assets. There can be no question of settling an order of priority of "scheme creditors", or of precluding "scheme creditors" from taking or continuing proceedings for the recovery of their debts, or requiring them to submit to a process of lodgement of proof of debts with consequent appeals to the court from a decision on the acceptance or rejection of proofs. Unless the responsible entity were itself being wound up, creditors could not be precluded from enforcing the personal liability of the responsible entity in accordance with the ordinary processes of the Court.
45 The liquidation of a company is a matter governed by statute. Amongst other things, the statutory provisions for the winding-up of companies regulate who may be appointed as liquidator (s 532), suspend the powers of officers of the company on the appointment of the liquidator (ss 471A and 495), oblige the directors to provide a report as to the company's affairs to the liquidator appointed by the Court (s 475), or to attach a statement of affairs to a declaration of solvency on a voluntary winding-up (s 494), oblige officers of a company to deliver to the liquidator all books in the officers' possession that relate to the company, and to comply with reasonable requirements of the liquidator (s 503A), empower the Court to make orders for delivery of property to the liquidator, (s 483), oblige the liquidator to report suspected offences in relation to the company (s 533), empower the liquidator to conduct examinations (ss 596A and 596B), regulate the liquidator's conduct, e.g. ss 473, 479, 538, 539, 540), regulate claims that are provable in winding-up, the calling for proofs of debt, the ranking of debts and claims, and provide for the stay of proceedings brought against the company being wound up in insolvency or by the Court (ss 471B and 485 and Pt 5.6 Division 6).
46 The Corporations Act makes none of these provisions applicable to the winding-up of a scheme. Presumably this is because of the differences between winding up companies and winding up trusts or partnerships. The joint report of the Australian Law Reform Commission and the Companies and Securities Advisory Committee on "Collective Investments: Other People's Money" (ALRC report No. 65, 1993) which ultimately led to the Managed Investments Act 1998, proposed that many of the provisions applicable to corporate windings up and voluntary administration should be made applicable to collective investment schemes. (Paragraphs 8.11-8.14; draft Explanatory Memorandum paras 14.7 to 14.14; and draft Part 5.6A). However, Parliament did not act on these recommendations. Neither the Second Reading Speech upon the Managed Investments Bill, 1987, nor the Explanatory Memorandum, explains the reasons for this omission.
47 I turn to the orders which are sought. No order was expressly sought in the originating process for an order under s 601ND directing the responsible entity to wind up the scheme on just and equitable grounds. However that section was referred to both in the originating process and in oral submissions.
48 Part 5C.9 deals with various ways in which the scheme may be wound up in accordance with its constitution and any order under s 601NF(2). It may be wound up because an event prescribed in its constitution for winding up has occurred, (s 601NA). It may be wound up by resolution of members under s 601NB. It may be wound up at the instance of the responsible entity under s 601NC. It may be wound up on the application of the responsible entity, a director, a member of the scheme, ASIC, or a creditor under s 601ND. In this case, the members have already resolved that the plaintiff should wind up the scheme, and it is doing so. There is no reason to make an order under s 601ND directing the plaintiff to wind up the scheme. It is not just and equitable to make the order because the scheme is already being wound up. It is unnecessary to consider the question of whether the members would need to be joined to, or given notice of, such a proceeding before an order could be made. (Horwarth Corporate Pty Ltd v Huie (1999) 32 ACSR 413 at 414, [8]; Crocombe v Pine Forests of Australia Pty Ltd [2005] NSWSC 151 at [91]-[93]).
49 The plaintiff seeks an order that Messrs Ryan & Olde, be appointed as persons to take responsibility for ensuring that the scheme is wound up. The power to make that order under s 601NF(1) arises if the Court "thinks it necessary to do so (including for the reason that the responsible entity has ceased to exist or is not properly discharging its obligations in relation to the winding up)". An order is also sought that the plaintiff have no further responsibility, nor liability as a responsible entity of the scheme under Part 5C of the Corporations Act, and that it be removed as responsible entity on the making of the orders. I have considerable doubt about the power to make these last orders, or what would happen to the debts for which the plaintiff is liable under s 601FS, if the orders were made. But in the view I take, it is unnecessary to pursue the question of what happens to the responsible entity responsible for winding up a scheme if an order is made under s 601NF(1).
50 The reason for seeking the appointment of Messrs Ryan & Olde is that they are registered liquidators and have the expertise, which the plaintiff does not, in handling administrations. However, the responsible entity is entitled under s 601FB to appoint those persons as its agent, or otherwise engage those persons, to do what the plaintiff is authorised to do in connection with the scheme. The members were told that the scheme would be wound up by the plaintiff with the advice of Taylor Woodings Corporate Services Pty Ltd, not that it would be wound up by registered liquidators who were directors of that company and partners of the firm, Taylor Woodings. There is no necessity for the order which is sought under s 601NF(1). Such an order might be necessary if the plaintiff were failing in its duty to wind up the scheme, but there is no suggestion of that. It might be arguable that the order under s 601NF(1) was necessary if that was the only gateway for making orders under s 601NF(2) which were themselves necessary for the efficient winding-up of the scheme. However, I think it is clear from s 601NE that orders may be made under s 601NF(2), irrespective of whether an order is made under subs 601NF(1).
51 If Messrs Ryan and Olde were appointed as "responsible persons" they would be officers of the Court and any interference in their performance of their duties would be a contempt. I do not consider this to be a sufficient reason for thinking their appointment to be necessary.
52 I turn to whether I can and should make orders of the kind sought under s 601NF(2). The power to give directions under s 601NF(2) is a power limited to giving directions about "how a registered scheme is to be wound up". It doubtless empowers the Court to give directions, where it is necessary to do so, on how the responsible entity is to exercise its powers in winding up the scheme. It authorises the making of directions of a kind which would be made in an administration suit for the purpose of settling the entitlements of members. But in my view, and notwithstanding the authorities under s 601EE(2), the subsection does not authorise the Court to confer additional powers upon a responsible entity to which third parties would be made subject, or to interfere with the rights which third parties would otherwise enjoy. The fact that the power is to give directions, indicates that it is one to direct the responsible entity in how to perform its functions and obligations, not that it be the source of new powers. In this respect it differs from s 601EE(2).
53 Where the Court makes orders under s 601EE for the winding-up of an unregistered scheme, it must fashion orders to establish a winding-up regime, in the context of parties having carried on an enterprise unlawfully. By contrast, s 601NF operates where there is an established regime for the winding-up of a scheme in accordance with its constitution. I do not conclude from the fact that orders have been made under s 601EE(2), designed to subject third parties to powers conferred on the "liquidator" (however described), that the same power exists under s 601NF. In my view, the power under s 601NF(2) to give directions is a power to give directions to a person, namely the responsible entity, or the person appointed under s 601NF(1). It is akin to the power on a liquidator's application under s 479(3) to give directions on a matter arising in a winding-up. Under that provision, the Court does not have power to affect the substantive rights of third parties. (Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 679-680; Editions Tom Thompson Pty Ltd v Pilley (1997) 77 FCR 141 at 147).
54 In the only case I have found of orders under s 601NF, (Australian Securities and Investments Commission v Knightsbridge Managed Funds Ltd [2001] WASC 339), Pullin J made orders for the appointment of a committee of inspection of each non-performing loan of a scheme, and to allow members to withdraw from the court-appointed winding-up if at least 75% by number and value of members holding interests in the loan elected to do so. It appears that at least many members held the assets, which were mortgages, in their own name, in common with other members. Whilst his Honour's orders do not provide explicit support for my view as to the width of the section, they are not inconsistent with it.
55 In my view, Parliament deliberately did not apply the regime for the winding-up of companies to the winding-up of registered schemes. It could have, but it did not, provide for the appointment of a liquidator to the affairs of a registered scheme, who is independent of the responsible entity. It could have, but it did not, make the provisions which regulate the winding-up of companies applicable to the winding-up of registered schemes, including, for example, the power to apply to the Court for the issue of examination summonses. It did not give the Court powers of the kind described in s 447A in relation to administrations and deeds of company arrangement. I do not read the power to give directions in s 601NF(2) in the wide way for which the plaintiff contends, as in effect, permitting the Court, by order, to impose a new legislative regime on the winding-up of a particular scheme, and thereby affecting the rights of and imposing duties on third parties.
56 The plaintiff has the means of resolving the issues which need to be determined in order to wind up the affairs of the trust, although the procedures may be more costly and slower than if the scheme could be wound up as if it were a company, the officers of the former responsible entities treated as if they were officers of the deemed company, and the plaintiff's advisers appointed liquidators. The plaintiff can bring proceedings against Mercator to compel the production of the records which Mercator was required to deliver pursuant to s 601FR and which it contends have been withheld. Further, in my view, s 601FR(a) does not exhaustively state the obligation of the former responsible entity to hand over the records of the scheme. Where the former responsible entity is a trustee, it is required to hand over the trust documents and records in its possession, custody or control to the new trustee, whether or not they are books which it was required to keep in relation to the scheme. One of the duties of a new trustee is to take proper steps to recover trust property from its predecessor. (Jacobs, Law of Trusts in Australia, 6 ed, para 1702; Scott on Trusts, 4 ed para 223.2). Mercator's fiduciary obligations to members of the scheme arising from its appointment and conduct as the responsible entity, were not discharged on its being removed as the responsible entity. Although the issue is not before me, I should think it at least arguable that Mercator's duty to provide "assistance" also extends beyond that imposed by s 601FR(b) to give reasonable assistance to facilitate the change of responsible entity, and that as a former trustee it can be compelled to give a proper account of its trusteeship. However, I do not consider that s 601NF(2) authorises the orders which are sought.
57 For these reasons I dismiss the originating process. The plaintiff sought an order that its costs be paid out of the assets of the scheme. I do not think I should make that order. I am not saying that the costs were not properly incurred, or that the plaintiff is not entitled to be indemnified out of the assets of the scheme. But there is no contradictor on that issue. If a member seeks to falsify the disbursement in the plaintiff's accounts, the issue will be resolved on the taking of accounts.
58 The exhibits may be returned after 28 days.