Australian Securities and Investments Commission v Keystone Asset Management Ltd

Solicitor for the Administrators of the First Defendant: Ashurst

Counsel for the Second Defendant: Ms KA O'Gorman SC with Ms S Molyneaux

Solicitor for the Second Defendant: Holding Redlich

Counsel for Equity Trustees Superannuation Ltd: Mr DC Gration

Solicitor for Equity Trustees Superannuation Ltd: Greenfields Lawyers

Counsel for Macquarie Investment Management Ltd: Mr DF McAloon

Solicitor for Macquarie Investment Management Ltd: Allens

Counsel for the Receivers and Managers: Mr R Craig KC with Mr L Freckelton

Solicitor for the Receivers and Managers: Norton Rose Fulbright

Counsel for the Directors of the First Defendant: Mr C Withers SC with Mr B Ryde

Solicitor for the Directors of the First Defendant: Baker McKenzie

Counsel for the Venture Egg entities: Mr OD Lloyd

Solicitor for the Venture Egg entities: Thomson Geer

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff

AND: KEYSTONE ASSET MANAGEMENT LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) (ACN 612 443 008) First Defendant

order made by: MOSHINSKY J DATE OF ORDER: 5 SEPTEMBER 2024

1. Pursuant to s 440D of the Corporations Act 2001 (Cth) (Act), ASIC have leave now for then to proceed with proceeding VID 536 of 2024 and to commence the application the subject of the plaintiff's interlocutory process dated 30 August 2024 (the Interlocutory Process).
2. Pursuant to s 467(3)(b) of the Act, dispense with the requirements of s 465A of the Act and Rules 2.7, 5.4 and 5.6 of the Federal Court (Corporations) Rules 2000 (Cth).
3. The time for the service of the Interlocutory Process be abridged and the application be made returnable on 5 September 2024.
4. Pursuant to s 448C(1) of the Act, Jason Tracy and Lucica Palaghia have leave now for then to seek or consent to be appointed as the administrators of the First Defendant (Keystone) and of any deed of company arrangement to which Keystone may become party.
5. Pursuant to s 447A(1) of the Act and/or s 90-15 of the Insolvency Practice Schedule (Corporations) (being Sch 2 to the Act), Michael Korda, John Mouawad and Scott David Harry Langdon be removed as the administrators of Keystone, and Jason Tracy and Lucica Palaghia be appointed as the joint and several administrators of Keystone.
6. In relation to costs: (a) The Plaintiff's costs of the Interlocutory Process be reserved. (b) The costs of the Directors of Keystone of the Interlocutory Process be paid out of the Property of Keystone (as defined in the 27 August 2024 orders). (c) The Second Defendant's costs of the Interlocutory Process be reserved. (d) The costs of the administrators (namely Mr Korda, Mr Mouawad and Mr Langdon) of the Interlocutory Process be paid out of the Property of Keystone (as defined in the 27 August 2024 orders). (e) The Receivers' costs of the Interlocutory Process be costs in the administration of Keystone. (f) Otherwise, there be no order as to costs in relation to the Interlocutory Process. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 These reasons deal with an application by the plaintiff (ASIC) for the appointment of provisional liquidators to the first defendant, Keystone Asset Management Ltd (receivers and managers appointed) (administrators appointed) (Keystone). Alternatively, ASIC seeks an order for the replacement of the current administrators of Keystone with different administrators. In the further alternative, ASIC seeks orders for the demarcation of the roles of the current receivers and managers of the property of Keystone and the current administrators of Keystone. 2 By way of background, on Tuesday, 27 August 2024, pursuant to s 1323 of the Corporations Act 2001 (Cth) (the Act), I made orders on the application of ASIC for the appointment of Jason Tracy and Lucica Palaghia (of Deloitte Financial Advisory Pty Ltd) as receivers and managers of the property of Keystone: Australian Securities and Investments Commission v Keystone Asset Management Ltd [2024] FCA 1019. The orders appointing them as receivers and managers were stayed until 4.00 pm on Wednesday, 28 August 2024 to enable Keystone to consider whether to seek leave to appeal from my decision (without the receivership order having come into effect). A short time after 4.00 pm on 28 August 2024 (i.e., after the stay had ceased to operate and the orders had come into effect), the directors of Keystone resolved to appoint Scott Langdon, Michael Korda and John Mouawad of KordaMentha as joint and several administrators of Keystone, having formed the view that Keystone was, or was likely to become, insolvent. 3 Following an exchange of correspondence between ASIC's solicitors and the solicitors for Keystone, and between ASIC's solicitors and the solicitors acting for the administrators, ASIC filed an interlocutory process dated 30 August 2024 (the Interlocutory Process), and the matter came before me on that day for a case management hearing at which ASIC sought an urgent hearing of paragraphs 1 to 6 of the Interlocutory Process. At the case management hearing, it was arranged that paragraphs 1 to 6 of the Interlocutory Process would be listed for hearing on 5 September 2024 (that is, today) and a timetable was set for the filing of affidavits and submissions. By paragraphs 1 to 6 of the Interlocutory Process, ASIC seeks the following relief: Leave to bring this application, dispensation from notice requirements, and abridgement of time 1. An order under section 440D of the Corporations Act 2001 (Cth) (Act) that ASIC have leave now for then to proceed with proceeding VID 536 of 2024 and to commence the application the subject of this interlocutory process. 2. An order under section 467(3)(b) Act dispensing with the requirements of section 465A of the Act and Rules 2.7, 5.4 and 5.6 of the Federal Court (Corporations) Rules 2000 (Cth). 3. An order that the time for the service of this interlocutory process be abridged and the application be made returnable instanter. Orders concerning Keystone's voluntary administration 4. Orders: (a) under section 447A(1) of the Act that the voluntary administration of Keystone end forthwith; (b) under section 532(2) of the Act that Jason Tracy and Lucica Palaghia have leave now for then to seek to be appointed or to act as the liquidators of the first respondent (Keystone); (c) under s 472(2) of the Act that Jason Tracy and Lucica Palaghia be appointed provisionally as the liquidators of Keystone; (d) that the provisional liquidators have control of the whole of the "Property" of the Keystone (as that term is defined in the orders made on 27 August 2024 in this proceeding) and the same powers conferred on them by those orders; 5. Alternatively to paragraph 4 above, orders: (a) under section 448C(1) of the Act that Jason Tracy and Lucica Palaghia have leave now for then to seek or consent to be appointed as the administrators of Keystone and of any deed of company arrangement to which Keystone may become party; and (b) under section 447A(1) of the Act that Michael Korda, John Mouawad and Scott David Harry Langdon be removed as the administrators of Keystone and that Jason Tracy and Lucica Palaghia be appointed as the joint and several administrators of Keystone. 6. Alternatively to paragraphs 4 and 5 above an order under section 447A(1) of that Act that, until trial or further order, Part 5.3A of the Act is to operate in relation to Keystone such that: (a) Jason Tracy and Lucica Palaghia (in their capacity as receivers of the "Property" of Keystone (as that term is defined in the orders made on 27 August 2024 in this proceeding) have control of all of that property; (b) alternatively, sections 437A, 437D and 438A of the Act are not to apply to such of Keystone's property as it holds: (i) in its capacity as the responsible entity of the Shield Master Fund (ARSN 650 112 057); (ii) in its capacity as the trustee of the Advantage Diversified Property Fund; or (iii) in its capacity as the trustee of the Quantum PE Fund. 4 The following affidavit material was filed in connection with the hearing today: (a) by ASIC - an affidavit of Rebecca Jaffe dated 30 August 2024; (b) by Mr Tracy and Ms Palaghia (the Receivers) - an affidavit of Mr Tracy dated 2 September 2024 (the Third Tracy Affidavit) and an affidavit of Mr Tracy dated 4 September 2024 (the Fourth Tracy Affidavit). (c) by Equity Trustees Superannuation Ltd (Equity Trustees) - an affidavit of Daniel Levy dated 4 September 2024; (d) by Macquarie Investment Management Ltd (Macquarie) - an affidavit of James Campbell dated 5 September 2024; (e) by the current administrators - an affidavit of Mr Korda dated 3 September 2024; and (f) by Venture Egg Financial Services Pty Ltd and United Financial Advice Pty Ltd (which jointly trade as Venture Egg Financial Services) and Financial Services Group Australia Pty Ltd (together, the Venture Egg entities) - an affidavit of Ferras Merhi dated 3 September 2024. 5 Each of these affidavits was read at the hearing today. In addition, reliance was placed on some affidavits filed earlier in the proceeding. 6 In advance of the hearing today, outlines of submissions were filed by the following: (a) ASIC; (b) the second defendant, Mr Chiodo; (c) Equity Trustees; (d) Macquarie; (e) the Receivers; (f) the current administrators; (g) some current and former directors of Keystone, namely Louie Kortesis, Mark Yorston and Maadhvi Patel (the Directors); and (h) the Venture Egg entities. 7 Each of the above appeared and made submissions at the hearing today, save that the Venture Egg entities relied on their written material and did not make oral submissions. 8 These reasons should be read together with my reasons of 27 August 2024.

The Interlocutory Process 9 Paragraphs 1, 2 and 3 of ASIC's interlocutory process are procedural in nature and there is no real issue about them. The focus of the hearing today was on paragraphs 4, 5 and 6 of the Interlocutory Process, in which ASIC seeks alternative forms of relief. The primary relief sought by ASIC (by paragraph 4) is to have Mr Tracy and Ms Palaghia appointed provisional liquidators of Keystone and for the administration of the company to be brought to an end. The alternative form of relief sought by ASIC (by paragraph 5) is to have Mr Tracy and Ms Palaghia appointed as the administrators of Keystone in place of the current administrators. The further alternative form of relief sought by ASIC (by paragraph 6) is to have orders made to delineate the roles of the Receivers (on the one hand) and the current administrators (on the other hand). 10 The main bases upon which ASIC seeks the relief set out in paragraph 4 or 5 of the Interlocutory Process are the duplication of work between the Receivers and the current administrators, and the potential for disputation as between the Receivers and the administrators regarding, eg, their respective powers over Keystone's property. The background and context is one in which, even before their recent appointment as receivers and managers, Mr Tracy and Ms Palaghia had already carried out extensive work in relation to the affairs of Keystone since their appointment to a supervisory role by Court orders made (by consent) on 26 June 2024. 11 At the hearing today, ASIC submitted that it is concerned that duplication of work between the Receivers and the current administrators, and the associated expense, will reduce the pool of funds available for investors of the relevant funds. ASIC also submitted that there is a risk of disagreement and disputation between the Receivers and the current administrators, which could lead to delay and added costs.

Paragraph 4 of the Interlocutory Process 12 I will first consider ASIC's application (by paragraph 4 of its interlocutory process) for the appointment of Mr Tracy and Ms Palaghia as provisional liquidators of Keystone and orders bringing the administration to an end. 13 The order for the appointment of provisional liquidators is sought under s 472(2) of the Act, which provides that the Court may appoint a registered liquidator provisionally at any time after the filing of a winding up application and before the making of a winding up order. The Court has a wide discretion when considering whether or not to appoint a provisional liquidator: Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) [2013] FCA 234; 93 ACSR 189 (ActiveSuper) at [11]-[12] per Gordon J. An applicant must show some good reason for the intervention of a provisional liquidator prior to a final hearing, having regard to the nature of the intrusion into the affairs of the company: for example, where the appointment is needed in the public interest, to preserve the status quo, or to protect the company's assets or affairs: Lubavitch Mazal Pty Ltd v Yeshiva Properties No 1 Pty Ltd [2003] NSWSC 535; 47 ACSR 197 (Lubavitch) at [105] per Austin J, ActiveSuper at [13]-[14]. See also Australian Securities and Investments Commission v Continental Coal Limited [2016] FCA 416 at [4] per Barker J. 14 Considerations relevant to the appointment of an interim receiver, or other forms of interlocutory relief to protect assets, may also be relevant to the appointment of a provisional liquidator: see Lubavitch at [106]. 15 In Australian Securities Commission v Solomon (1996) 19 ACSR 73 at 80, Tamberlin J explained that: (a) the court should only appoint a provisional liquidator where it is satisfied that there is a valid and duly authorised winding up application and that there is a reasonable prospect that a winding up order will be made; (b) the fact that the assets of the corporation may be at risk is a relevant consideration; (c) the provisional liquidator's primary duty is to preserve the status quo to ensure the least possible harm to all concerned and to enable the court to decide, after a further examination, whether the company should be wound up; (d) the court should consider the degree of urgency, the need established by the applicant creditor and the balance of convenience. The power is a broad one and circumstances will vary greatly; (e) it may be appropriate to appoint a provisional liquidator in the public interest where there is a need for an independent examination of the state of accounts of the corporation by someone other than the directors; and (f) where the affairs of the company have been carried on casually and without due regard to legal requirements so as to leave the court with no confidence that the company's affairs would be properly conducted with due regard for the interests of shareholders, it may be appropriate to appoint a provisional liquidator. 16 In the present case, the jurisdictional requirements for the appointment of a provisional liquidator under s 472(2) are satisfied, in that a winding up application has been filed and the present time is before the making up of a winding up order. 17 Having regard to the relevant considerations referred to in the cases, I am not satisfied that it is appropriate to appoint provisional liquidators to Keystone. By virtue of the appointment of Mr Tracy and Ms Palaghia as receivers and managers, as well as the appointment of the administrators, there is no risk of dissipation of the assets of Keystone (apart from dissipation through duplication of work). As Keystone is already the subject of external administration, the facts and matters that would ordinarily justify the appointment of a provisional liquidator, as referred to in the cases discussed above, are not present. I do not consider the risk of duplication and disputation to provide, in this case, sufficient reason for the appointment of provisional liquidators. 18 For these reasons, I am not satisfied that it is appropriate to appoint provisional liquidators to Keystone.

Paragraph 5 of the Interlocutory Process 19 I turn now to consider the alternative form of relief sought by ASIC, namely the appointment of Mr Tracy and Ms Palaghia as administrators of Keystone in place of the current administrators. Mr Tracy and Ms Palaghia have consented to being appointed as administrators. 20 This order is sought under s 447A of the Act, which provides as follows: 447A General power to make orders (1) The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company. (2) For example, if the Court is satisfied that the administration of a company should end: (a) because the company is solvent; or (b) because provisions of this Part are being abused; or (c) for some other reason; the Court may order under subsection (1) that the administration is to end. (3) An order may be made subject to conditions. (4) An order may be made on the application of: (a) the company; or (b) a creditor of the company; or (c) in the case of a company under administration--the administrator of the company; or (d) in the case of a company that has executed a deed of company arrangement--the deed's administrator; or (e) ASIC; or (f) any other interested person. 21 The order sought in paragraph 4 of the Interlocutory Process may also be supported by s 90-15 of the Insolvency Practice Schedule (Corporations) (being Sch 2 to the Act). 22 Section 447A allows for the removal and appointment of administrators: see, eg, Spacorp Australia Pty Ltd (admin apptd) v Fitzgerald [2001] VSC 61; 19 ACLC 979 at [26]; Blacktown City Council v Macarthur Telecommunications Pty Ltd (admin apptd) [2003] NSWSC 883; 47 ACSR 391; Wallace-Smith, in the matter of National Express Group Australia (Bayside Trains) Pty Ltd (recs and mgrs apptd) (admins apptd) [2003] FCA 764; 46 ACSR 674 at [7]. These steps may be taken where required by the interests of creditors or the public interest: Australian Securities and Investments Commission v Midland Hwy Pty Ltd (admin apptd); in the matter of Midland Hwy Pty Ltd (admin apptd) [2015] FCA 1360; 110 ACSR 203 (Midland Hwy) at [65] per Beach J, citing Deputy Commissioner of Taxation v Woodings (1995) 16 ACSR 266 at 279 per Wallwork J. 23 The Court's power under s 447A has been described as a plenary power "to do whatever [the Court] thinks is just in all the circumstances": Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607 at 611 per Young J. 24 As Beach J explained in Midland Hwy at [67]-[68]: 67 The Court's power under s 447A is to be exercised having regard to, inter alia, the interests of the creditors as a whole and the public interest. But in an unusual case, the public interest may override the creditors' interests and favour liquidation. 68 The public interest includes considerations of commercial morality and the interests of the public at large … 25 At the hearing today, ASIC stated that it was not aware of a case in which the power in s 447A had been used to remove and substitute administrators at the same time. Nevertheless, given the breadth of the statutory language and the context and purpose of the provision, I am satisfied that the power extends to such a situation. 26 In the unusual circumstances of the present case, I consider that there are strong reasons in favour of the appointment of Mr Tracy and Ms Palaghia as administrators of Keystone and the removal of the current administrators. 27 First, the material before the Court demonstrates that there is likely to be duplication between (a) the work already carried out by Mr Tracy and Ms Palaghia pursuant to their appointment by the Court on 26 June 2024 and the further work to be carried out by them pursuant to the 27 August 2024 appointment; and (b) the work to be carried out by the current administrators. Duplication would lead to increased costs, and a consequent reduction in the funds available for investors in the relevant funds. It is true that Mr Korda in his affidavit indicates steps that the current administrators will take to avoid duplication. However, I consider that some duplication is nevertheless inevitable. To take a simple example, the process of the administrators familiarising themselves with the affairs of the company will involve duplication. In my opinion, it would be inefficient and potentially costly to have this duplication, and it is contrary to the interests of investors in the relevant funds. 28 Secondly, there is the potential for disagreement and/or disputation between the Receivers and the current administrators. This is evident from the correspondence set out in paragraphs 22 and 23 of the Third Tracy Affidavit. It is apparent from that correspondence that the preliminary view of the current administrators is that their powers extend to the "Property" as defined in the orders of the Court made on 27 August 2024. In other words, the Court has appointed Mr Tracy and Ms Palaghia as receivers and managers of the "Property" (as defined) of Keystone, and the current administrators hold the view that their powers extend to the same property. In my view, there is a real possibility of disagreement and/or disputation in the circumstances. 29 Equity Trustees and Macquarie, which represent a large proportion of investors in the relevant funds, support the orders sought by ASIC in paragraph 5 of the Interlocutory Process (if the Court does not make the orders sought in paragraph 4 of the Interlocutory Process, which they also support). 30 Mr Chiodo did not make submissions for or against the orders sought in paragraph 5 of the Interlocutory Process (and did not take an active part in the hearing today). 31 The Directors oppose the orders sought in paragraph 5 of the Interlocutory Process. The main submission that they made in opposition to paragraph 5 was that the Receivers have already formed a view that it would be appropriate to wind up the company and therefore the Receivers would not approach the administration of the company with an open mind, as would the current administrators. It is true that in the Third Tracy Affidavit, Mr Tracy expresses the opinion (at paragraph 33) that he considers that continuation of the administration of Keystone would be inconsistent with the objects of the process under Pt 5.3A of the Act for the reasons set out in sub-paragraphs (a) to (e). He also states (at paragraph 35) that he does not consider an administration to be appropriate for Keystone. However, having regard to the Third and Fourth Tracy Affidavits as a whole, I am satisfied that if the Court decides that it is more appropriate for the company to remain in administration (rather than having provisional liquidators appointed and bringing the administration to an end), Mr Tracy and Ms Palaghia would be perfectly capable of performing the role of administrators with an open mind and consistently with the duties imposed on administrators. I note that in paragraph 35 of the Third Tracy Affidavit, Mr Tracy specifically states that if the company were to remain in administration, then in his view it would be in the best interests of creditors for the Receivers to be appointed administrators. As noted earlier, Mr Tracy and Ms Palaghia have consented to act as administrators. 32 The second point made by the Directors was that certain past work carried out by Mr Tracy and Ms Palaghia for Keystone could give rise to an actual or apparent conflict of interests. However, this did not present an obstacle to Keystone proposing the appointment of Mr Tracy and Ms Palaghia on 26 June 2024, and this matter was not raised by Keystone at the hearing on 27 August 2024 (at which Keystone opposed their appointment on other bases). I am not satisfied that this is a reason not to appoint Mr Tracy and Ms Palaghia as administrators of Keystone. I consider that, should an issue arise in relation to their past work, it can be addressed at that time and managed in an appropriate way. 33 Having regard to the above, I consider it appropriate to make orders as sought in paragraph 5 of the Interlocutory Process. 34 It is therefore unnecessary to consider paragraph 6 of the Interlocutory Process.

Costs 35 At the hearing today, the Directors sought an order that their costs be reimbursed from the property of Keystone. I consider this appropriate as they have performed the role of contradictor, which has assisted the Court. [Discussion then took place with counsel in relation to other costs issues.] I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Moshinsky.