Australian Securities and Investments Commission v Commercial Nominees Ltd

CATCHWORDS : CORPORATIONS - Managed Investment Schemes - Registered scheme - Application to wind up managed investment scheme on just and equitable grounds - Orders sought included appointment of liquidators to take responsibility for winding-up and conferral of powers similar to those of a company liquidator - Scheme was already being wound up pursuant to a members' resolution - Current responsible entity having difficulties with obtaining documents from, inter alia, the previous responsible entity - Orders sought in order to facilitate winding-up - Corporations Act s 601FS, 601ND, 601NF - Held that appointment of proposed liquidators not necessary - Statute does not provide for conferral of corporate liquidator powers on entity winding up a registered scheme.

Corporations Act 2001 (Cth) LEGISLATION CITED : Managed Investments Act 1998 (Cth) Managed Investments Bill, 1987

Australian Securities and Investments Commission v Commercial Nominees Ltd (2002) 194 ALR 743 28 ACLC 1238; 42 ACSR 240) Australian Securities and Investments Commission v Takaran (No. 2) (2003) 21 ACLC 12; (2002) 43 ACSR 334 Australian Securities and Investments Commission v Atlantic 3 Financial (Aust) Pty Ltd (No. 3) [2003] QSC 386 Australian Securities and Investments Commission v Edwards (2004) 22 ACLC 1469 Australian Securities and Investments Commission v Tasman Investment Management Pty Ltd (2004) 50 ACSR 153 Australian Securities and Investments Commission v Landy DFK Securities Ltd (2002) 123 FCR 548 Re Brighton Joint Venture Partner No. 2 Scheme; Australian Securities and Investments Commission v Primelife Corp Ltd [2005] FCA 704 Australian Securities and Investments Commission v ABC Fund Managers Ltd (No. 3) [2001] VSC 397 CASES CITED : Australian Securities and Investments Commission v McNamara [2002] FCA 1005 Chief Commissioner of Stamp Duties for NSW v Buckle (1998) 192 CLR 226 Horwarth Corporate Pty Ltd v Huie (1999) 32 ACSR 43 Crocombe v Pine Forests of Australia Pty Ltd [2005] NSWSC 151 Australian Law Reform Commission and the Companies and Securities Advisory Committee on "Collective Investments: Other People's Money" (ALRC report No. 65, 1993) Australian Securities and Investments Commission v Knightsbridge Managed Funds Ltd) [2001] WASC 339 Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 Editions Tom Thompson Pty Ltd v Pilley (1997) 77 FCR 141 Jacobs, Law of Trusts in Australia, 6 ed Scott on Trusts, 4 ed

PARTIES : Application of Stacks Managed Investments Ltd as responsible entity of the Premium Mortgage Income Fund

COUNSEL : Applicant: B Coles QC, R McHugh, V Whittaker

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3187/05 Application of Stacks Managed Investments Ltd as responsible entity of the Premium Mortgage Income Fund JUDGMENT 1 HIS HONOUR: This is an application under ss 601ND and 601NF of the Corporations Act 2001 (Cth) for the appointment of persons to take responsibility for ensuring a registered managed investment scheme is wound up in accordance with its constitution, and orders giving directions as to how the scheme is to be wound up. The application seeks elaborate orders that the responsible persons to be appointed under s 601NF have numerous powers, including the power to issue examination summonses to officers of the former responsible entity of the scheme, and to issue orders for the production of documents. The orders seek to equate the position of the persons to be appointed under s 601NF(1), with a liquidator of a company being wound up, and to treat the creditors of the responsible entity of the scheme being wound up, as if they were creditors of a company in liquidation. Background 2 The scheme was established as a managed investment scheme known as the Premium Income Fund of Australia - 2000, by a deed made on 24 July 2000 by Cromwell Property Securities Ltd. It was registered with the Australian Securities and Investments Commission in accordance with Part 5C.1 of the Corporations Act on 9 August 2000. The constitution of the scheme recited that the Manager, (Cromwell Property Securities Ltd), intended to invite investment in the scheme in accordance with prospectuses. The scheme was established to invite persons to invest in mortgage lending arrangements in accordance with the prospectus. The Manager held the assets of the scheme on trust for the members of the scheme, subject to the provisions of the constitution and the Corporations Act. 3 The effect of clauses 2.9, 2.11 and 2.14 of the constitution, is that the assets of the scheme are divided into classes specified in the prospectuses. Each member has a beneficial interest in the class in which the member holds interests. The beneficial interest in the assets of each class are held by the members as tenants in common in shares proportional to the interests which they hold in each class. 4 Clauses 11.1 to 11.7 of the constitution deal with "Dissolution of the Scheme". Those clauses make provisions for the winding-up of the scheme which reflect those in Part 5C.9 of the Corporations Act, and require the manager to engage a registered company auditor to conduct an independent audit of the final accounts of the scheme after the scheme is "dissolved". 5 Cromwell Property Securities Ltd was the manager and responsible entity of the scheme from the date of its registration until 21 September 2001. On that date Mercator Funds Management Ltd (now known as Lion Advantage Limited) ("Mercator") took over from Cromwell as the responsible entity of the scheme. An extraordinary general meeting of members of the scheme was held on 8 September 2004. The members passed an extraordinary resolution that Mercator be forthwith removed as the current manager and responsible entity of the scheme. The members also resolved that the plaintiff be appointed the manager and responsible entity of the scheme forthwith, and that it be directed to wind up the scheme. By the same resolution, the members requested the plaintiff to appoint Taylor Woodings Corporate Services Pty Ltd as consultant to advise the plaintiff on the winding-up of the scheme. The minutes record that the members present at the meeting were informed that if the resolutions were passed, the scheme would be wound up under the plaintiff's management. 6 The plaintiff was registered as the responsible entity of the scheme on 16 September 2004. 7 The plaintiff complains that Mercator and the scheme's auditors have only partially complied with its requests for the production of documents in relation to the scheme. It has requested the production of many documents. Amongst the documents which it has not received are invoices and purchase orders for all transactions recorded in electronic accounting files for liabilities and expenses, bank statements for nine accounts, details of redemptions since the fund was established, invoices and purchase orders for all transactions recorded in the electronic accounting files as debtors, tax returns for the fund, loan agreements, correspondence, documentation relating to the remuneration paid to Mercator for the years ended 30 June 2002, 30 June 2003 and 30 June 2004, correspondence with auditors, and legal advice and correspondence for all legal matters raised by the fund or against it. 8 The plaintiff says that it is presently unable to determine the members' entitlements to the moneys which have been received following the repayment of the loans made by Mercator, or its predecessor, as responsible entity of the scheme. It says that there is a disconformity between the accounts maintained by the scheme and other records as to which assets belong to which class. There are uncertainties over the use of assets of one class to another class. 9 Several prospectuses and supplementary prospectuses have been registered since the scheme's establishment. The prospectus of 12 February 2002 described two classes of units called "First Mortgage Income Portfolio (Pooled)" and "High Yield Income Portfolio (Pooled)". The aim of the First Mortgage Income Portfolio was to pay a secure and consistent income in first mortgage securities secured over existing real estate, and not to provide development finance or construction loans. Moneys invested in the High Yield Income Portfolio were aimed to provide a higher return, reflecting a higher risk, from investments in property development projects secured by first or subsequent mortgages. The responsible entity was entitled to a much higher management fee on the High Yield Income Portfolio than the First Mortgage Income Portfolio. 10 A prospectus dated 12 March 2003 recorded that two loans made from the First Mortgage Income Portfolio to a particular borrower totalling $1,269,715 were in default. Mercator expressed the opinion that the loans, which had been initiated by the previous manager, had been provided on inadequate security. The prospectus stated that Mercator had arranged for the loans to be refinanced from 11 March 2003. In a supplementary prospectus dated 19 June 2003, Mercator stated that the borrower had signed consolidating securities and a refinance had been arranged for part-repayment for the outstanding debt, prior to consolidation of the balance of the funds owed under a mortgage in the High Yield Portfolio. The refinance and consolidation would remove the borrower from the First Mortgage Income Portfolio. It appears from Mercator's correspondence to the plaintiff that it contends that the refinance mortgage is held in the High Yield Portfolio, but that the First Mortgage Portfolio owns a share of that mortgage. The plaintiff wishes to investigate this transaction. A number of issues appears to arise from it, as the constitution does not appear to contemplate the pooling of loans from different classes. The plaintiff also wishes to challenge the propriety of the refinancing having regard to the borrower's existing defaults. 11 The plaintiff has identified other possible mixing of assets of the portfolios which make the calculation of members' entitlements difficult. For example, it says that when moneys were paid by another borrower to repay mortgages for money advanced from the High Yield Income Portfolio, the proceeds were paid to the First Mortgage Income Portfolio. 12 A letter from the Scheme's auditors dated 13 September 2004, noted that the internal documentation with respect to the "First Mortgage component" of a certain loan was not adequately reflected at the time within the loan statements, or the fund's accounting records. An independent audit report dated 23 September 2004 stated the auditor's opinion that "the internal documentation (loan statements and accounting records) reflecting the intention of the Responsible Entity in this set of transactions was not clear in allocating the loans as between either First Mortgage or High Yield Income Portfolio loans." 13 The plaintiff faces issues in dealing with creditors. Debts incurred by responsible entities are liabilities of the responsible entity. If the debt was properly incurred, the responsible entity will be entitled to be indemnified out of the assets of the scheme in respect of the liability. Section 601FS of the Corporations Act deals with the transfer of rights, obligations and liabilities on the change of a responsible entity of a registered scheme. The provision can hardly be regarded as satisfactory from the point of view of any creditor dealing with a responsible entity, or of the new responsible entity. Section 601FS(1) provides: "If the responsible entity of a registered scheme changes, the rights, obligations and liabilities of the former responsible entity in relation to the scheme become rights, obligations and liabilities of the new responsible entity. " 14 Section 601FS(2) provides: " Despite subsection (1), the following rights and liabilities remain rights and liabilities of the former responsible entity:

( d) any liability for which the former responsible entity could not have been indemnified out of the scheme property if it had remained the scheme's responsible entity." 15 The effect of these provisions is that the former responsible entity is discharged from its liability to a creditor unless it "could not have been indemnified out of the scheme property if it had remained the scheme's responsible entity". Leaving aside the question whether this refers only to a legal entitlement to indemnity, or also the existence of available assets from which the right of indemnity can be satisfied, the section appears to mean that the creditor will not know whether he should sue the former responsible entity or the new responsible entity for his debt, unless he can determine whether the former responsible entity is entitled to an indemnity. A court will not be able to determine which entity is liable for the debt without resolving the question whether it was properly incurred by the former responsible entity, and the new responsible entity has to make the same assessment. 16 The plaintiff faces just such an issue. A firm of solicitors retained by Mercator claims that the plaintiff is liable in the sum of $75,206.86 for legal professional services rendered to Mercator. The plaintiff considers that Mercator may not be entitled to indemnity, at least in respect of all of the debt claimed, because at least part of it relates to legal expenses incurred in defending a claim after Mercator had legal advice that the claim should not be defended. The plaintiff says that without the opportunity of investigating more fully the actions of Mercator and obtaining copies of records still held by Mercator and by the solicitors making the claim, it cannot determine whether it should pay the outstanding invoices or not. 17 The plaintiff also says that another firm of solicitors retained by Mercator have appropriated trust moneys on Mercator's instructions to satisfy their claim for fees, when Mercator was not entitled to deal with the moneys. 18 The plaintiff wishes to have the insolvency practitioners who are registered liquidators and are acting as its advisers, appointed as persons to take responsibility for ensuring that the Scheme is wound up. It seeks the usual conferral of powers on such persons of the kind conferred on receivers and liquidators under ss 420 and 477 of the Corporations Act. It then seeks orders to confer powers on those persons to require the production of documents and conduct examinations in the same way that liquidators of companies have those powers. It seeks orders setting out an order for the application of moneys realised by the "responsible persons", and orders to permit the "responsible persons" to call for proofs of debt by all persons having claims against the Scheme with provision for the "responsible persons" to adjudicate upon the proofs of debt and to confer rights of appeal on creditors whose proofs are rejected. It seeks orders removing the plaintiff as the responsible entity of the Scheme and providing that it will have no further obligations to perform under Part 5C of the Corporations Act. It seeks an order that a transfer of the interest of members in the Scheme or an alteration of the status of members in the Scheme made subsequent to the making of the orders is void, except so far as the Court otherwise orders, and an order prohibiting the commencement or continuation of any court proceeding against the Scheme, or the plaintiff as responsible entity of the Scheme, except with its consent or leave of the Court. It seeks orders empowering the "responsible persons" to give notice, requiring officers of the former responsible entities, or persons employed by the Scheme or the current or former responsible entities, to provide a report containing such information as is specified in the notice as to the affairs of the Scheme, or to such of them as are specified in the notice. It seeks orders requiring each officer of the plaintiff and of the former responsible entities of the Scheme to deliver up to the responsible persons all books in their possession that relate to the Scheme, and otherwise to attend on the responsible persons and give them such information about the Scheme's business, property, affairs and financial circumstances as the responsible persons may reasonably require. 19 In other words, the plaintiff has adapted the provisions in the Corporations Act dealing with the winding-up of companies to the circumstances of the scheme, and contends that powers can be conferred on the responsible persons, obligations imposed on third parties, and rights of creditors restricted, to bring the winding-up of the scheme into line with the winding-up of companies. The managing director of the plaintiff deposes that: · the plaintiff is unable to determine the amount of any distributions of moneys to the First Mortgage Portfolio and High Yield Portfolio until the issues relating to the "consolidation" of loans is resolved, and that requires the production of books and records Mercator has been asked to provide and an examination of parties involved in the transaction; · the gross asset values of the portfolios on the basis of which Mercator was entitled to charge management fees, could only be determined once all of the relevant books and records from Mercator have been provided; · with respect to the claims of various creditors and Mercator, the plaintiff is uncertain as to whether the amounts are properly due and payable from the assets of the scheme and whether the plaintiff, as the responsible entity of the scheme, is obliged to make those payments, and the responsible persons require powers similar to a liquidator to conduct investigations and examinations with respect to those claims; · the best way to determine the claims is through responsible persons being allowed to deal with creditors' claims by way of a proof of debt process, whereby the responsible persons would invite all potential creditors to submit claims specifying in detail the nature and amount of the claim against the Scheme and then adjudicate upon the claims with the creditors entitled to appeal to the Court against a rejection of a proof of debt. Statutory Scheme 20 Part 5C of the Corporations Act deals with the registration, regulation and winding-up of managed investment schemes. The responsible entity of a registered scheme must be a public company that holds an Australian financial services license authorising it to operate a managed investment scheme. (Section 601FA). A responsible entity has power to appoint an agent, or otherwise engage a person to do anything that it is authorised to do in connection with the scheme. (Section 601FB(2)). 21 The responsible entity holds scheme property on trust for scheme members. (Section 601FC(2)). 22 Section 601GA(1)(d) provides that the constitution of a registered scheme must make adequate provision for its winding-up. Part 5C.9 deals with winding-up. If members of a registered scheme want the scheme to be wound up, they may take action for the calling of a members meeting to consider and vote on an extraordinary resolution directing the responsible entity to wind up the scheme. (Section 601NB). In this case the members have taken that action and given the direction. 23 Under 601NC a responsible entity may take steps to wind up a scheme after giving notices to members and to ASIC if it considers that the purpose of the scheme has been accomplished or cannot be accomplished. 24 Section 601ND provides: " 601ND. Winding up ordered by Court (1) The Court may, by order, direct the responsible entity of a registered scheme to wind up the scheme if: (a) the Court thinks it is just and equitable to make the order; or (b) within 3 months before the application for the order was made, execution or other process was issued on a judgment, decree or order obtained in a court (whether an Australian court or not) in favour of a creditor of, and against, the responsible entity in its capacity as the scheme's responsible entity and the execution or process has been returned unsatisfied. (2) An order based on paragraph (1)(a) may be made on the application of: (a) the responsible entity; or (b) a director of the responsible entity; or (c) a member of the scheme; or (d) ASIC. (3) An order based on paragraph (1)(b) may be made on the application of a creditor. " 25 The originating process is expressed to be brought partly under that section. 26 Sections 601NE and 601NF provide: " 601NE. The winding up of the scheme (1) The responsible entity of a registered scheme must ensure that the scheme is wound up in accordance with its constitution and any orders under subsection 601NF(2) if: (a) the scheme's constitution provides that the scheme is to be wound up at a specified time, in specified circumstances occur or that event occurs; or (b) the members pass an extraordinary resolution directing the responsible entity to wind up the scheme; or (c) the Court makes an order directing the responsible entity to wind up the scheme; or (d) the members pass a resolution removing the responsible entity but do not, at the same meeting, pass a resolution choosing a company to be the new responsible entity that consents to becoming the scheme's responsible entity. Note: For the Court's power to order winding up, see subsection 601FQ(5) and section 601ND. (2) The responsible entity of a registered scheme may wind up the scheme in accordance with its constitution and any orders under subsection 601NF(2) if the responsible entity is permitted by subsection 601NC(3) to wind up the scheme. (3) Interests must not be issued in a registered scheme at a time after the responsible entity has become obliged to ensure the scheme is wound up, or after the scheme as started to be wound up. 601NF. Other orders about winding up (1) The Court may, by order, appoint a person to take responsibility for ensuring a registered scheme is wound up in accordance with its constitution and any orders under subsection (2) 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). (2) The Court may, by order, give directions about how a registered scheme is to be wound up if the Court thinks it necessary to do so (including for the reason that the provisions in the scheme's constitution are inadequate or impracticable). (3) An order under subsection (1) or (2) may be made on the application of: (a) the responsible entity; or (b) a director of the responsible entity; or (c) a member of the scheme; or (d) ASIC. " 27 Section 601NF(2) can be compared with s 601EE(2). Section 601EE empowers the Court to make an order to wind up a managed investment scheme which has not been registered in contravention of subs 601ED(5). Subsection 601EE(2) provides: " The Court may make any orders it considers appropriate for the winding-up of the scheme ." 28 Under that provision, courts have made orders as to the appropriate basis for the distribution of moneys to members of the scheme (Australian Securities and Investments Commission v Commercial Nominees Ltd (2002) 42 ACSR 240). In that case, Barrett J said (at 243-4, [13]): " Given that s 601EE(2) enables the court to make "any orders it considers appropriate for the winding up of the scheme" (emphasis added), it must be accepted that the court has jurisdiction to settle or prescribe any aspect or element of the basis for winding up or the winding up process which it is necessary to supply because that element cannot be obtained from any other source. In this respect, it is noteworthy that the statute itself does not attempt to lay down the basis for or method of winding up. That is, to my mind, an indicator of intention that the court should be able to act in the comprehensive way I have outlined. " 29 In Australian Securities and Investments Commission v Takaran (No. 2) (2003) 21 ACLC 12; (2002) 43 ACSR 334, Barrett J said (at [11]-[12]): " The process of winding up under s 601EE of the Corporations Act 2001 (Cth) is not prescribed or in any way elaborated by the provisions of the Act. …. … The power extends, in my judgment, not only to the imposition of an appropriate winding up regime at inception but also to the making, as and when needed after inception, of such further orders as are needed in connection with the due conduct and completion of the winding up ." 30 Perhaps more controversially, in Australian Securities and Investments Commission v Atlantic 3 Financial (Aust) Pty Ltd (No. 3) [2003] QSC 386 Mullins J said (at [28]) that the powers conferred by s 601EE(2) were very broad and without restriction. 31 Where orders are made for the winding-up of an unregistered managed investment scheme under s 601EE, courts have appointed persons variously as receivers, (eg Australian Securities and Investments Commission v Takaran Pty Ltd & Ors (No. 2)), or as receivers and managers (eg Australian Securities and Investments Commission v Edwards (2004) 22 ACLC 1469; Australian Securities and Investments Commission v Tasman Investment Management Pty Ltd (2004) 50 ACSR 153), or as "liquidators" (eg Australian Securities and Investments Commission v Landy DFK Securities Ltd (2002) 123 FCR 548), and have appointed independent accountants to investigate and report on the scheme assets, (e.g. Brighton Joint Venture Partner No. 2 Scheme; Australian Securities and Investments Commission v Primelife Corporation Ltd [2005] FCA 704). It is usual to confer on such persons the receiver's powers under s 420, or the liquidator's powers under s 477, of the Corporations Act. 32 Although I was not referred to authority illustrating the width of orders made under s 601EE(2), orders have been made under that section which purport to confer on the receiver or liquidator appointed, powers similar to those conferred by the Act on liquidators of companies. In ASIC v Edwards McMurdo J conferred on the receivers and managers, powers "necessary for the purpose of winding up the …. scheme, including, but not limiting (sic) to … the power to require (by request in writing) any of the respondents or any officer, employee, consultant, banker, solicitor, accountant or agent of any of the respondents to provide reasonable assistance." In Brighton Joint Venture Partner No. 2 the investigating accountant was given all powers necessary to enable him to carry out and complete an enquiry into and report on the assets of the scheme, the claims of third parties in relation to those assets, the identity and interests of members and payments made to or by members, the nature and identity of the liabilities of the scheme, (sic), and its solvency. 33 In Australian Securities and Investments Commission v ABC Fund Managers Ltd (No. 3) [2001] VSC 397, Warren J (as her Honour then was) said that s 601EE(2) conferred a wide and unqualified discretion, (which is certainly true) and that the liquidator of the schemes ordered to be wound up should have every power as if the schemes were corporations to be wound up. Her Honour made an order that: "b. the liquidator shall have the power to investigate or cause to be investigated any deficiency in the schemes and to exercise the powers under Pt 5.9 Division 1 of the Corporations Act as if the schemes were corporations being wound up;"

Division 1 of Pt 5.9 includes Section 596A which gives a liquidator the right to obtain a summons for examination of a corporation's officer, and section 596B which empowers him to seek a summons for the examination of persons who were not officers. It includes s 597A which empowers a court to require an examinable officer of a corporation to file an affidavit about its examinable affairs. It is not clear whether her Honour intended to engage the powers in s 596A and 597A (as well as s 596B) by deeming the persons responsible for managing the schemes to be officers of the deemed corporation. 34 In Australian Securities and Investments Commission v McNamara [2002] FCA 1005, Mansfield J made an order under s 601EE(1) for the winding-up of an unregistered scheme which was a limited partnership. His Honour ordered that a liquidator be appointed to the scheme and that: " 3. The liquidator may exercise such functions and powers as set out in Chapter 5 of the Act as he would be entitled to exercise if the managed investment scheme were a company, with such modifications as are reasonably necessary in the circumstances. "

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.

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