Australian Securities and Investments Commission v Intertax Holdings & Ors

1.

Each of the nineteenth and twentieth respondents shall provide such assistance to the liquidators that the liquidators reasonably request in discharging the functions and exercising the powers of the liquidators in winding up the scheme provided that the eighteenth respondent is not required to answer any question that may incriminate him in any way.

2.

The nineteenth and twentieth respondents be permanently restrained and an injunction granted restraining each of them, whether by themselves, their employees or agents or otherwise howsoever from:

(a) Further promoting or operating the scheme or any other managed investment scheme that is required to be registered under s 601ED of the Corporations Act and is not registered;

(b) Doing any act in furtherance of the scheme; and

(c) Soliciting for, or receiving, any funds in connection with the scheme;

(d) Disposing of, destroying, amending, altering, parting with possession of, removing from their present location, or causing, procuring, assisting or permitting to be disposed of, destroyed, amended, altered, possession parted with or removed from their present location all and any books, papers, records, books of account, ledgers, journals, banking records, computer records or other documents of any type whatsoever recording or evidencing any dealings of the first to twentieth respondents in relation to the scheme;

(e) Issuing any interest, shares or units in connection with the scheme;

(f) Removing from Australia or selling, charging, mortgaging, encumbering, securing, diminishing, disposing of, parting with possession, making any declaration of trust in relation to, exercising any power to vary or modify any trust or any interest under any trust in relation to or removing from their present locations all or any of the property;

(g) Otherwise causing, procuring, assisting or permitting to be removed from Australia, sold, charged, mortgaged, encumbered, secured, diminished, disposed of or removed from their present locations, all or any of the property;

(h) Dealing in any way, whether directly or indirectly, with any fund or monies standing to the credit of or under the control of the first to twentieth respondents in relation to the operation of the scheme whether located in or outside Australia;

(i) Dealing in any way, either directly or indirectly, with any property, real or personal, acquired either wholly or partly with funds received as a result of the operation of the scheme whether located in or outside Australia;

3.

The nineteenth and twentieth respondents themselves, their employees or agents be permanently restrained from, unless licensed in accordance with the Act, dealing in financial products or carrying on a financial services business.

4.

Subject to paragraph 5, the applicant's costs and those of the intervenors J and M Backhouse of the originating application and the application seeking interlocutory relief filed 6 June 2006, including any reserved costs be costs in the winding up of the scheme and of the first to seventeenth respondents.

5.

The nineteenth and twentieth respondents pay the applicant's costs incurred in respect of today's hearing, to be assessed.

Corporations - Management and administration - Duties and liabilities of officers of corporation - Offences - Contravention of provisions of the Corporations Act 2001 - Procedure - Penalty - Other matters - Winding up - Declaratory orders - Declaration of criminality - Criminal prosecutions may follow declarations - Declarations of criminality should not be made by a court sitting in civil jurisdiction

Corporations - Management and administration - Duties and liabilities of officers of corporation - Offences - Contravention of provisions of the Act - Procedure -Mandatory and restraining injunctions - Discretion to grant injunction - Necessity for finding of future risk of offending - purpose of s 1324(7) Corporations Act 2001

Corporations Act 2001 (Cth), s 1324(7)

Australian Softwood Forests Pty Ltd & ors v Attorney-General (NSW); Ex relatione Corporate Affairs Commission [1981] HCA 49; (1981) 148 CLR 121, distinguished

Corporate Affairs Commissioner of New South Wales v Transphere Pty Ltd (1988) 15 NSWLR 596, discussed

D J Campbell SC with E Longbottom for the applicant

C D Coulsen for the nineteenth and twentieth respondents

Australian Securities and Investments Commission for the applicant

Woods Hatchers Solicitors for the nineteenth and twentieth respondents

[2006] QSC 276

INTERTAX HOLDINGS PTY LTD AND OTHERS ACN 112 714 566

HIS HONOUR: The proceedings before the Court are based on an

originating application brought by the Australian Securities

and Investments Commission, which I shall call ASIC, against

Intertax Holdings Pty Ltd and 19 other respondents. The

originating application sought the winding up of a managed

scheme as defined in the application and the winding up of the

companies involved in it, certain declarations in relation to

a number of the respondents, and a number of orders regarding

As regards the first to the 18th respondents I disposed of the

matter by orders made on the 26th of August when I ordered

that the scheme and the companies participating in it be wound up and issued injunctions against Mr Palmer, the main person involved in the scheme. Proceedings against the 19th and 20th respondents, Mr Collins and Mr Trudgeon, were adjourned until today by reason of late service of affidavits.

The matter has come on today and the position now is somewhat

simpler. No question regarding winding up arises because the

scheme has already been wound up. The relief which ASIC seeks

against Mr Trudgeon and Mr Collins consists of three

declarations regarding contraventions of s 601ED(5) of the

Corporations (the Act) Act, s 911A of the Act and s 727 of the

Act and orders in the form of mandatory and restraining

injunctions against the 19th and 20th respondents - the first

that they provide assistance to the liquidators and the second

restraining them from further involvement in the scheme or any

other unregistered scheme, (I am summarising a long list of

Most of the hearing has been taken up with evidence designed

to establish whether, in fact, the two respondents who are

before me today - and I shall call them the respondents for

simplicity - operated the scheme. That necessarily is

involved if I were to make declarations that are sought. In the event, as things have turned out, it is not as central to the outcome of the case to make a determination on that issue as it seemed this morning. However, in deference to the way in which the matter has been conducted I think I should proceed to make findings on that question.

The scheme originally consisted of one large investment fund

which in March 2005 was split into a number of funds which

were said to be trusts. The particular trusts were allocated

to specific projects and investors could nominate which

project their funds should be directed toward. The scheme was

operated mainly by Mr Palmer and there is no evidence that the

present respondents were involved in it until November 2005. In fact, the money invested in the scheme was not maintained in separate bank accounts, but was mixed and it is dubious whether, despite representations to the contrary, actual trusts were established. There may, of course, have been constructive trusts, but that is not to the point at the

The respondents had involvement with Mr Palmer prior

to November 2005 by reason of involvement with a company

In November 2005 the position had been reached whereby

Mr Trudgeon and Mr Collins were heavily indebted to Mr Palmer

and his companies in a sum in the order of $2 million. A

proposal was discussed among them for a new arrangement to be

entered into. It involved the formation of two new companies,

Lifeland Developments Pty Ltd and Park Developments Pty Ltd,

which entities were going to carry out development projects

financed by moneys invested in the scheme. The profits were

to be shared by payment of those profits into scheme funds for

the ultimate benefit of investors and also to benefit the

respondents by reason of their use to pay off the debt which

they owed to Mr Palmer and his companies. No actual money was

ever transferred to either of these companies, but it is

clear that their involvement was at a greater level than

simply planning. Journal entries were made in their books

which appeared to have been effective to create legal

relationships between the companies and the other companies

A management agreement was entered into by each respondent on

1st November. It provided that Mr Palmer's company,

Intertax Holdings Pty Ltd, or its assigned entities would

establish the fund on behalf of Lifeland Development Pty Ltd

in one case and Park Development Pty Ltd in the other,

register the company and the trust pertaining to the fund,

carry out liaison with investors, find, transfer or allocate

investors to the fund, maintain all accounting records

pertaining to the fund, establish a bank account for the fund,

make monthly interest payments to investors, make capital

repayments to investors, meet monthly to discuss the operation

of the fund, maintain the investor register, issue monthly

unit certificates signed by Lifeland Development and Park

Development respectively and maintain investor files, maintain

written correspondence and financial records, provide all

statutory services and act with due care and attention to all

In return Lifeland and Park agreed to exchange the existing

debt which they and the respondents had with Intertax Holdings

Pty Ltd for their profit entitlement to the extent of the

fund's liability, to locate, acquire and finance and develop

projects which would meet profit objectives, to market and

sell those projects, to close the fund and repay all investors

once sufficient projects were completed, to act with due care

Each of the respondents signed the respective agreements.

In their evidence they went to great efforts to distance themselves from Mr Palmer. Essentially, they asserted that Mr Palmer did everything. They had no knowledge of what he did. They paid no attention to the books and records of their companies, notwithstanding that they were the sole shareholders and directors. They did not look at any

documents which they signed, but simply allowed Mr Palmer's

staff to prepare the documents which they signed because they

were asked to. I regret to say that I do not believe them.

It seems plain to me that the documents which were signed

could not have been signed with the level of ignorance which

they profess. They were signed over a period of time (I have

in mind in particular the unit certificates) and they make

plain on their face what they are. Mr Trudgeon went so far as

to assert that on at least one occasion a document which he

signed was covered up by Mr Palmer. I cannot believe that a

businessman of Mr Trudgeon's experience would permit such a

The evidence shows that a schedule of investors was created in

respect of the operations involving the two companies and the

respondents swore that the respective schedules were true

copies of a schedule of investors for their respective

companies. Mr Collins sought to resile from the word "true"

in his affidavit when he realised the significance of the

schedule and Mr Trudgeon asserted that in his case the

schedule had been created by others and he simply could not

The fact is that these schedules clearly show the involvement

of these companies in the scheme by reason of the references

to a variety of destinations for the money and I think it was

Mr Trudgeon who admitted that Mr Palmer was all the time

Mr Collins had contact with the investors as he himself said

in an earlier examination. Although he now wishes to deny

I am quite satisfied that in each case, the respondents at

least did not care what they signed and were quite willing to

do whatever Mr Palmer asked them to further the scheme in the

hope of paying off the debt which they owed. Quite likely, it

For these reasons, I am satisfied that their involvement was

sufficiently substantial to find that they operated the scheme

within the meaning of section 601ED(5) of the Corporations

Act. I reject Mr Coulsen's submission that someone who does not play an integral part in the overall or whole management of the scheme does not operate the scheme.

In the end, it is not, I think, necessary for me to make that definitive finding, because its necessity arises only were I prepared to make declarations of the type sought by paragraphs (1), (2) and (3) of the originating application. I am not prepared, in the circumstances of this case, to make such declarations.

I acknowledge immediately that there is a jurisdiction to make

a declaration in association with the winding up of a scheme,

and that there may be many cases in which such a declaration

is appropriate. Examples of cases in which this has been done

and in which the declarations have been made are set out in

the judgment of Davies AJ in Australian Securities and

Investments Commission v. Pegasus Leveraged Options Group Pty

Ltd [2002] NSWSC 310; (2002) 41 ACSR 561 at page 571. They are also noted by

Atkinson J in ASIC v. Atlantic 3 Financial (Aust) Pty Ltd and

Ors [2006] QSC 132 at paragraph 52, note 5.

Those two cases do not seem to give detailed consideration to

the background of declarations, but that is not true of the

decision of Young J, which they cite, that decision being

Corporate Affairs Commission of New South Wales v. Transphere

Pty Ltd (1988) 15 NSWLR 596. At page 603, his Honour said:

"The authorities show the types of situations in which

Courts will consider it appropriate to exercise the power

to make a declaration and it seems to me that so far as

the present case is concerned, the following propositions

must be borne in mind. Ordinarily a declaration is not

made that the defendant has committed a crime. There is

no doubt at all that there is jurisdiction to make such a

declaration in a proper case, but ordinarily the criminal

courts are the proper forum for such questions. It has,

however, been recognised that there will be situations

where despite the fact that a penal law is involved, it

ascertain by an authoritative pronouncement the precise

business person who is told by the regulatory authority

something to apply for a declaration that that view is

erroneous. Because the business person can do it, it has

been assumed the right is mutual so the Crown can also

obtain a declaration that the business person's conduct

does contravene the law. That practice, which was common

in New South Wales, has been given the seal of approval

by the High Court in Australian Softwood Forests Pty Ltd

v. Attorney-General for New South Wales (1981) 148 CLR

With the exception of the last case, I have refrained from

inserting the citations which his Honour has given for a

number of things which he said. I do not disagree with

most of that passage, although I would not, myself, comment on what might be the New South Wales practice. There is, however, one exception to my concurrence: that is that I do not read the decision of the High Court as giving the seal of approval to what his Honour describes as the common practice in New South Wales if, by that, his Honour means that it has become a common practice for the Crown to obtain a declaration that a person's conduct contravenes the law in circumstances where the contravention constitutes an offence. The approval given by the High Court in Australian Softwood Forests was to the proposition that a declaration could be granted notwithstanding that an injunction would not be granted. That is not the issue in the present case.

His Honour also pointed out that where there is a genuine

belief that conduct is not in breach of a law or an order of a

Court, it is often inappropriate to launch a prosecution and,

instead, the Court encourages an application for declaratory

relief. That does not assist ASIC in the present case. ASIC has expressly refused to give any undertaking that a prosecution will not follow. It seems to me that this is a case where the ordinary position described by Young J ought to apply. It might be otherwise if it were clear that there would be no prosecution. Where the possibility of a

prosecution is open, it would, in my judgment, be contrary to

the ordinary practice for the authority of this Court to be

given to a declaration which, in substance, amounted to a

declaration that a defendant had committed a crime. One

should not make a declaration which might be falsified by a

subsequent acquittal in proceedings between the same parties.

Therefore I have come to the conclusion that notwithstanding

my finding on the facts, I am not prepared to make the

declarations sought in paragraphs (1), (2) and (3) of the

The position is rather different in relation to the orders by

way of mandatory and restraining injunction. Even if I be

wrong about my finding that the respondents have operated the

scheme, there can, I think on the evidence, be no doubt that

within the meaning of section 1324(1) of the Act, they have

aided Mr Palmer to contravene the Act. They sought, in their evidence, to convince me that they knew nothing of what Mr Palmer was doing, but I cannot believe that they could have been doing what they were doing over the period of time that they did it without having a shrewd idea of what was happening. It is open to me to make the orders sought in paragraphs 4, 5 and 6 of the draft which has been provided to me by counsel for ASIC.

The order in paragraph 4 is not consented to, but is not

opposed by the respondents. The order in paragraph 5 is

opposed on the ground that it lacks utility. I was attracted

to that argument at first, but my attention has been drawn to

section 1324(7) of the Corporations Act, and that, in my

judgment, makes it clear that an injunction may issue whether

or not it appears that there is any future risk of re-

offending or repeating the offending conduct. The discretion

to grant the injunction is enlivened when a person has engaged

in conduct which would constitute aiding another to contravene

the Act, and I am satisfied that one way or another, that is

what the respondents have done. In the light of the statutory

provisions it is not necessary to find a risk of future re-

offending, and I make no such finding in the present case.

The section is designed to allow an injunction to be granted

purely as a precautionary measure in order to ensure that

someone who has misbehaved once does not do so again,

I am, therefore, prepared to make orders in terms of

HIS HONOUR: It seems to me that today's hearing has been made

necessary by the opposition of the 19th and 20th respondents.

They have contested the injunction in paragraph 5 of the

draft and paragraph 6 and have contested the question of

their involvement in operating the scheme. They have been

successful, it is true, in opposing the declarations

which ASIC sought, but the vast bulk of today's hearing has

been taken up hearing evidence and deciding questions of fact

on which their evidence has not been accepted. In these

circumstances, they should, I think, pay ASIC's costs of

The orders I propose in respect of costs are these: paragraph

(4) in the draft; "Subject to paragraph (5), the applicant's

costs and those of the intervenors, J and M Backhouse, of the

originating application, and the application seeking

interlocutory relief filed 6 June 2006, including any reserved

costs, be costs in the winding up of the scheme and of the 1st

to 17th respondents. (5) The 19th and 20th respondents pay

ASIC's costs incurred in respect of today's hearing to be