In this Order, the scheme is the "FUELbanc" scheme or financial product pursuant to which:
[2]
Investors give money and barter units known as "Trade Dollars" to the First Defendant.
[3]
The defendants invest the money and barter units received from investors.
[4]
Investors received or are to receive a stored value debit card to be used at petrol stations.
[5]
The Plaintiff have leave to amend its originating process in accordance with the draft Amended Originating Process exhibited to the affidavit of Andrew James Price sworn 20 July 2006.
Pursuant to ss.1101B and 1324(1) of the Act, the Defendants by themselves, their servants, agents or employees be restrained until 4.00pm on Tuesday 8 August 2006 or further order from:
[6]
(a) carrying on business in relation to financial products or financial services by:
[7]
(b) providing financial product advice in respect of the Scheme by recommending it, stating an opinion in respect of it or reporting either of those things;
[8]
(c) dealing in financial products by issuing, granting or making available the Scheme or participation in it;
[9]
(d) advertising, promoting or marketing any business or service that involves the use of stored value or debit cards for the payment of fuel;
[10]
(e) further operating or promoting the Scheme including the distribution or activation of "FUELbanc" debit cards;
[11]
(f) receiving, soliciting, transferring or disposing of any funds in connection with the Scheme including funds held on deposit by:
[12]
(i) the First Defendant at Westpac Banking Corporation account No. 220051 BSB 033-260;
[13]
(ii) the Second Defendant at Westpac Banking Corporation account No. 221118 BSB 033-260;
[14]
(iii) the Third Defendant at Westpac Banking Corporation account No. 222110 BSB 033-260;
[15]
(iv) the Fourth Defendant at Westpac Banking Corporation account No. 222129 BSB 033-260
[16]
(g) transferring any monies or assets in connection with the Scheme outside of Australia;
[17]
(h) subject to paragraphs 5 and 6, disposing of, destroying, amending, altering, parting with possession of, or causing or procuring any of these things to happen to the books and records of the Scheme or evidencing any dealings of the Defendants in relation to the Scheme and any moneys paid or received in connection with it.
[18]
Pursuant to s.1101B(4)(a)(i), the Defendants suspend all internet websites within their power or control promoting, advertising or offering the Scheme, in particular but not limited to the website conducted with the domain name http://www.fuelbanc.com.
[19]
Pursuant to s.449B of the Act that Michael John Griffin and Rajendra Kumar Khatri be removed as external administrators of the First Defendant.
[20]
Pursuant to ss.601EE and 1323 of the Act that Adrian Brown and George Georgesbe appointed as receivers of all the property of the Scheme and to investigate and report on the Scheme and within 4 weeks of their appointment provide the Court and the Plaintiff a written report which:
[21]
(a) identifies the investors and the nature and extent of their interests in the Scheme;
[22]
(b) the claims (actual, contingent or otherwise) of third parties in respect of the assets and property of the Scheme;
[23]
(e) identifies those steps which they believe ought to be undertaken in order to best preserve the assets of the Scheme.
[24]
Pursuant to s.472(2) of the Act that Adrian Brown and George Georgesbe appointed provisional liquidators of the First to Fourth Defendants.
[25]
The receivers have the power to do, in Australia and elsewhere, all things necessary or convenient to be done for or in connection with, or as incidental to the attainment of the objectives for which the receiver was appointed, including the powers identified in s.420 of the Act.
[26]
The receivers shall have the power to require, by request in writing, the Defendants and any employee, consultant, agent, banker, solicitor, stockbroker, accountant or other professionally qualified person of the Defendants to provide such assistance to the receivers as is specified from time to time.
[27]
The costs and expenses of the receivers appointed under paragraph 5 be paid by the Defendants.
[28]
Subject to and excluding the powers exercisable by the receivers and provisional liquidators appointed under paragraphs 5 and 6 above, each of the First, Second, Third and Fourth Defendants, by themselves, their servants agents or employees, be restrained until 4.00pm on Tuesday 8 August 2006 or further order from removing, or causing or permitting to be removed from any State of Australia and from Australia, or selling or otherwise dealing with or disposing or causing or permitting to be sold, or otherwise dealt with or disposed of, all or any of their respective assets, whether held legally or beneficially by them.
[29]
Each of the Fifth, Sixth and Seventh Defendants be restrained until 4.00pm on Tuesday 8 August 2006 or further order from removing, or causing or permitting to be removed from any State of Australia and from Australia, or selling or otherwise dealing with or disposing or causing or permitting to be sold, or otherwise dealt with or disposed of, all or any of their respective assets, save and except that the Fifth, Sixth, and Seventh Defendants may use personal assets or funds:
[30]
(a) to incur personal living expenses not exceeding in aggregate the sum of $10,000;
[31]
(b) to obtain legal assistance and/or representation in connection with this proceeding provided that the expenditure of funds for those purposes shall not exceed the sum of $15,000.
[32]
Pursuant to section 1323(1)(k) of the Corporations Act, until 4.00pm on Tuesday 8 August 2006, the Fifth to Seventh Defendants inclusive be restrained from leaving Australia.
[33]
The time for service of the Plaintiff's originating process under Rule 2.7 of the Federal Court (Corporations) Rules 2000 be abridged or dispensed with pursuant to Order 3 Rule 3 of the Federal Court Rules.
[34]
The proceeding is adjourned to 9.30am of Tuesday 8 August 2006.
[35]
The costs of the Plaintiff's application for interlocutory relief are reserved.
[36]
(a) the affidavit of Ailsa Marilyn Wilson sworn 20 July 2006;
[37]
(b) the further affidavit of Andrew James Price sworn 20 July 2006;
[38]
(c) the Consent to Act as Joint Receivers of George Georges and Adrian Lawrence Brown dated 20 July 2006; and
[39]
(d) the Consent to Act as Joint Provisional Liquidators of George Georges and Adrian Lawrence Brown dated 19 July 2006.
[40]
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
[41]
IN THE MATTER OF FUELBANC AUSTRALIA LIMITED (ACN 117 937 327)
[42]
BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
[43]
AND: FUELBANC AUSTRALIA LIMITED (ACN 117 937 327)
[44]
REASONS FOR JUDGMENT
1 I have before me an application by the plaintiff ('ASIC') for interim orders in relation to the conduct of an unregistered scheme that ASIC alleges is a managed investment scheme within the meaning of the Corporations Act 2001 (Cth). The first, second, third and fourth defendants are corporations involved in the conduct of the scheme ('the corporate defendants'). The broad nature of the scheme is that the scheme operates by scheme members investing funds and/or barter entitlements in order to receive a debit card which can be used at petrol stations.
2 The individual defendants are Mr Stephen McDougall ('McDougall') and his two sons, Timothy and Matthew. They control, or appear to control, the corporate defendants. One of the companies involved in the conduct of the scheme, Fuelbanc Australia Limited ('Fuelbanc'), was placed by its directors in voluntary administration on 14 July 2006. By letter dated 18 July 2006 ('the 18 July letter'), the two administrators, Mr Michael Griffin and Mr Raj Khatri, advised ASIC that, based on the information that had become available to them since their appointment, they believe that the appointment by the Court of independent liquidators to all of the companies involved in this proceeding is desirable.
3 ASIC is concerned that a large proportion of funds contributed by members to the scheme have been distributed overseas. In an examination conducted under s 19 of the Australian Securities and Investments Commission Act 2001 (Cth), McDougall said that about $1 million had been invested offshore in unspecified high-yield investments, but he could not identify the precise location of the funds. It now appears that scheme funds may have been stolen or misappropriated, as this is the reason that has been given for the appointment of the voluntary administrators to Fuelbanc.
4 On 17 and 19 July 2006, on the ex parte application of ASIC, I made protective orders that were limited to operate until 4.00pm today. ASIC now applies for the continuation of protective orders, but seeks additional and somewhat varied orders compared to the orders I made on 17 and 19 July 2006. In particular, ASIC seeks orders appointing receivers of the scheme assets, and orders appointing the receivers additionally as provisional liquidators of the corporate defendants.
5 I have heard submissions from counsel for ASIC, Mr Scott, and also submissions from McDougall and his sons, who represented themselves at the hearing. I gave leave to ASIC to file two additional affidavits, being an affidavit of Ailsa Marilyn Wilson, sworn 20 July 2006, and an affidavit of Andrew James Price, sworn 20 July 2006. I also granted ASIC leave to amend its originating process so as to claim orders for the appointment of provisional liquidators to the corporate defendants.
6 On an application such as this, it is undesirable that I express any firm or definite views about the legal or factual issues that may be in contention in this proceeding. I need to address two questions: first whether the claim for protective relief is seriously arguable; and secondly whether the balance of justice and convenience supports the grant of the interim protective orders that ASIC seeks in order to preserve the status quo and to protect the interests of investors in the scheme.
[45]
mcDougall's submissions
7 McDougall drew a number of matters to my attention which I will briefly summarise. First he submitted that neither he nor his sons had been able to obtain legal advice or assistance in the period since 17 July 2006 when ASIC obtained its first ex parte orders. He said that they wished to obtain such advice and assistance. He also submitted that they needed access to personal funds to be able to do so.
8 Secondly, McDougall submitted that the Fuelbanc scheme is already, to some extent at least, in the hands of the administrators who were appointed on 14 July 2006. He said that negotiations were under way for a rescue package involving E Banc Trade Australia Pty Ltd ('E Banc'), and that the orders sought by ASIC might prejudice that rescue package. The submission stands in some tension with the 18 July letter from the administrators, in which the administrators advised that it would be appropriate to appoint provisional liquidators to all of the corporate defendants. In any event, given the very recent appointment of the administrators to the first defendant, there is no reason why receivers or provisional liquidators appointed by this Court will not be able to follow any appropriate proposal that is designed to maximise the return to investors.
9 Thirdly, McDougall submitted, quite correctly, that the email to members of 19 July 2006 was not dispatched by any companies under his control but, rather, by E Banc. ASIC accepts that this was the case. The email expressly states that Fuelbanc entered into voluntary administration as a result of the misappropriation of its investment funds and that the company has subsequently ceased trading.
10 Fourthly, McDougall submitted that the scheme was established on the basis of legal advice from a Brisbane firm of solicitors, McCullough Robertson, to the effect that it complied with the managed investment provisions of the Corporations Act. Whether it does or does not is an issue for final hearing. I am satisfied that there is a serious question as to the compliance of the scheme with the provisions of the Corporations Act and I need go no further than that for the purposes of this application.
11 One of the grounds for ASIC's application for protective orders is that there is evidence before me that scheme funds were mixed with personal funds by the individual defendants and the companies they control and that scheme monies have been applied to meet personal expenses. This is disputed by McDougall. At the moment, there is, however, uncontradicted evidence before me that such mixing has occurred.
[46]
Proposed orders
12 I turn to the orders that have been proposed by ASIC. Having given consideration to the evidence filed by ASIC, ASIC's submissions, and the submissions made by McDougall and his son Timothy, I am satisfied that I should continue interim protective orders in this matter for a period of 14 days. However, I also consider that some modification is required to the orders proposed by ASIC.
13 ASIC proposes orders that Mr Adrian Brown and Mr George Georges be appointed as receivers of all of the property of the scheme. They propose that some specified powers should be conferred by the Court on the receivers. They also propose that the Court should direct the receivers to report on the scheme to the Court by means of a written report. I am satisfied that it is an appropriate case to appoint receivers and to confer the powers suggested by ASIC. As I was delivering these reasons for decision, ASIC handed up written consents from Mr Brown and Mr Georges to act as receivers of the scheme assets and as provisional liquidators of the corporate defendants.
14 The plaintiff proposes that Mr Brown and Mr Georges be additionally appointed as provisional liquidators of the corporate defendants. The difference between the two appointments is that as receivers, they would act as receivers of all of the property of the scheme, whereas as provisional liquidators they would be concerned with the position of the four corporate defendants. As provisional liquidators, they will have the powers conferred upon them by s 477 of the Corporations Act. If and to the extent that any difficulty is created by reason of the fact that Mr Brown and Mr Georges are appointed as receivers of the property of the scheme and, additionally, as provisional liquidators of the corporate defendants, they have the right to approach the Court for appropriate directions in that regard.
15 ASIC sought an order restraining each of the corporate defendants from selling, dealing with or disposing any of their respective assets, whether held legally or beneficially by them. ASIC also sought an identical order in respect of the individual defendants. In my view, such an order is appropriate in the case of the corporate defendants. It is not appropriate, unless modified, in the case of the individual defendants. The evidence that there has been a mixing of scheme funds and personal funds supports the making of an order restraining the individual defendants from disposing of their assets, but ordinary living expenses involving the use of personal funds and the expenditure of personal funds in relation to obtaining legal assistance or representation in connection with this case must be excepted from any such order. As to the extent of these exceptions, I consider that it is appropriate to fix a cap of $10,000 over the next two weeks in the case of ordinary personal living expenses for the three defendants, and a cap of $15,000 in respect of the expenditure of personal funds in obtaining legal advice and assistance.
16 The question was also raised whether I should make an exception permitting McDougall to deal with or dispose of his interest in a property situated at 147 Amery Road, Thoona, Victoria. McDougall has a joint interest in the property with Ms Lisa Petrusch. The property has been held by McDougall for something like six years. ASIC does not contend that the property was purchased using scheme funds, although it did submit that it was unclear at the moment whether scheme funds have been used to fund the mortgage interest payments in relation to the property. The property has recently been advertised for sale by McDougall. Given that my interim orders will only operate for a period of two weeks, in the absence of further order, I do not propose to except this property from the orders I make.
17 The final issue concerning ASIC's proposed orders that was the subject of some discussion was whether there ought to be any restraint on McDougall and his sons coming within one kilometre of an Australian point of overseas departure. Under my orders of 17 and 19 July, the individual defendants have delivered up their passports and they do not, or have not this morning, disputed a restraint that would prevent them leaving Australia in the interim. However, McDougall submitted that he may wish to travel to Brisbane to consult with McCullough Robinson (the solicitors he previously has engaged in relation to this scheme) and that the form of the order sought by ASIC would prevent him going to an airport in order to travel to Brisbane. It is sufficient that the order impose a restraint upon the individual defendants leaving Australia. I will exclude from the order a reference to any restraint on McDougall and his sons coming within one kilometre of an Australian point of overseas departure.
18 In these reasons I have not canvassed everything that may ultimately be relevant to this case. I have dealt with the issues that were raised this morning and I have dealt with the fundamental basis for the continuation of the interim relief. I have addressed the facts in a preliminary way only. In these reasons, I have not stated, and should not be read as stating, any final views concerning any of the legal issues and factual issues that will arise in this case.
19 For the foregoing reasons I will pronounce orders as follows:
The Plaintiff have leave to amend its originating process in accordance with the draft Amended Originating Process exhibited to the affidavit of Andrew James Price sworn 20 July 2006.
Pursuant to ss.1101B and 1324(1) of the Act, the Defendants by themselves, their servants, agents or employees be restrained until 4.00pm on Tuesday 8 August 2006 or further order from:
(a) carrying on business in relation to financial products or financial services by:
(b) providing financial product advice in respect of the Scheme by recommending it, stating an opinion in respect of it or reporting either of those things;
(c) dealing in financial products by issuing, granting or making available the Scheme or participation in it;
(d) advertising, promoting or marketing any business or service that involves the use of stored value or debit cards for the payment of fuel;
(e) further operating or promoting the Scheme including the distribution or activation of "FUELbanc" debit cards;
(f) receiving, soliciting, transferring or disposing of any funds in connection with the Scheme including funds held on deposit by:
(i) the First Defendant at Westpac Banking Corporation account No. 220051 BSB 033-260;
(ii) the Second Defendant at Westpac Banking Corporation account No. 221118 BSB 033-260;
(iii) the Third Defendant at Westpac Banking Corporation account No. 222110 BSB 033-260;
(iv) the Fourth Defendant at Westpac Banking Corporation account No. 222129 BSB 033-260
(g) transferring any monies or assets in connection with the Scheme outside of Australia;
(h) subject to paragraphs 5 and 6, disposing of, destroying, amending, altering, parting with possession of, or causing or procuring any of these things to happen to the books and records of the Scheme or evidencing any dealings of the Defendants in relation to the Scheme and any moneys paid or received in connection with it.
Pursuant to s.1101B(4)(a)(i), the Defendants suspend all internet websites within their power or control promoting, advertising or offering the Scheme, in particular but not limited to the website conducted with the domain name http://www.fuelbanc.com.
Pursuant to s.449B of the Act that Michael John Griffin and Rajendra Kumar Khatri be removed as external administrators of the First Defendant.
Pursuant to ss.601EE and 1323 of the Act that Adrian Brown and George Georges be appointed as receivers of all the property of the Scheme and to investigate and report on the Scheme and within 4 weeks of their appointment provide the Court and the Plaintiff a written report which:
(a) identifies the investors and the nature and extent of their interests in the Scheme;
(b) the claims (actual, contingent or otherwise) of third parties in respect of the assets and property of the Scheme;
(c) identifies the assets of the Scheme;
(d) identifies the liabilities of the Scheme; and
(e) identifies those steps which they believe ought to be undertaken in order to best preserve the assets of the Scheme.
Pursuant to s. 472(2) of the Act that Adrian Brown and George Georges be appointed provisional liquidators of the First to Fourth Defendants.
[47]
Liberty to apply is reserved to all parties.'
I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Young.
[48]
Solicitor for the Plaintiff: Australian Government Solicitor
[49]
Counsel for the Defendants: S McDougall, T McDougall and M McDougall appeared in person. They made submissions on their own behalf and on behalf of the First, Second, Third and Fourth Defendants.
The receivers have the power to do, in Australia and elsewhere, all things necessary or convenient to be done for or in connection with, or as incidental to the attainment of the objectives for which the receiver was appointed, including the powers identified in s.420 of the Act.
The receivers shall have the power to require, by request in writing, the Defendants and any employee, consultant, agent, banker, solicitor, stockbroker, accountant or other professionally qualified person of the Defendants to provide such assistance to the receivers as is specified from time to time.
The costs and expenses of the receivers appointed under paragraph 5 be paid by the Defendants.
Subject to and excluding the powers exercisable by the receivers and provisional liquidators appointed under paragraphs 5 and 6 above, each of the First, Second, Third and Fourth Defendants, by themselves, their servants agents or employees, be restrained until 4.00pm on Tuesday 8 August 2006 or further order from removing, or causing or permitting to be removed from any State of Australia and from Australia, or selling or otherwise dealing with or disposing or causing or permitting to be sold, or otherwise dealt with or disposed of, all or any of their respective assets, whether held legally or beneficially by them.
Each of the Fifth, Sixth and Seventh Defendants be restrained until 4.00pm on Tuesday 8 August 2006 or further order from removing, or causing or permitting to be removed from any State of Australia and from Australia, or selling or otherwise dealing with or disposing or causing or permitting to be sold, or otherwise dealt with or disposed of, all or any of their respective assets, save and except that the Fifth, Sixth, and Seventh Defendants may use personal assets or funds:
(a) to incur personal living expenses not exceeding in aggregate the sum of $10,000;
(b) to obtain legal assistance and/or representation in connection with this proceeding provided that the expenditure of funds for those purposes shall not exceed the sum of $15,000.
Pursuant to section 1323(1)(k) of the Corporations Act, until 4.00pm on Tuesday 8 August 2006, the Fifth to Seventh Defendants inclusive be restrained from leaving Australia.
The time for service of the Plaintiff's originating process under Rule 2.7 of the Federal Court (Corporations) Rules 2000 be abridged or dispensed with pursuant to Order 3 Rule 3 of the Federal Court Rules.
The proceeding is adjourned to 9.30am of Tuesday 8 August 2006.
The costs of the Plaintiff's application for interlocutory relief are reserved.
The Plaintiff have leave to file in Court:
(a) the affidavit of Ailsa Marilyn Wilson sworn 20 July 2006;
(b) the further affidavit of Andrew James Price sworn 20 July 2006;
(c) the Consent to Act as Joint Receivers of George Georges and Adrian Lawrence Brown dated 20 July 2006; and
(d) the Consent to Act as Joint Provisional Liquidators of George Georges and Adrian Lawrence Brown dated 19 July 2006.