MATTER : Section 601ND, s 601NF and s 601EE of the Corporations Law of Western Australia

BETWEEN : AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Corporations - Managed investment schemes - Registered and unregistered - Whether the schemes should be wound up - Just and equitable ground - Public interest grounds - Who should be appointed to take responsibility for ensuring schemes are wound up

Corporations Act 2001, s 601ND, 601NF, 601EE

Managed Investments Act 1998 (Cth)

First Defendant : Mr K L Christensen & Ms E McCloskey

Second Defendant : Mr K L Christensen & Ms E McCloskey

Plaintiff : Australian Securities & Investments Commission

ASC v AS Nominees Ltd [1995] FCA 1663; (1995) 133 ALR 1

Australian Securities and Investments Commission v Austimber Pty Ltd [1999] FCA 566; (1999) 17 ACLC 893

Australian Securities and Investments Commission v Knightsbridge Managed Funds Ltd [2001] WASC 177

City & Suburban Pty Ltd v Smith [1998] FCA 822; (1998) 28 ACSR 328

Commissioner for Corporate Affairs v Harvey [1980] VicRp 64; [1980] VR 669

Fountain Selected Meat (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397

National Australia Bank Ltd v Market Holdings Pty Ltd [2001] NSWSC 253; (2001) 37 ACSR 629

Re Biposo Pty Ltd (1995) 17 ACSR 730

Re Bruton Pty Ltd (1990) 2 ACSR 277

Re Intercontinental Properties Pty Ltd (1977) 2 ACLR 488

Re Keith Morris Pty Ltd (1975) ACLC 40-206

Re Walter L Jacob and Co Ltd [1989] BCLC 345

Tanning Research Laboratories Inc v O'Brien (1990) 160 CLR 332

Waldron v MG Securities Australasia Ltd [1975] VicRp 52; [1975] VR 508

Westpac Banking Corporation v Totterdell (1998) 20 WAR 150

1 PULLIN J: This is an application by the plaintiff (ASIC):

(a) To wind up, and to appoint Mr G M Carrello to take responsibility for the winding up of, a managed investment scheme registered under the Corporations Law and known as the Knightsbridge Finance Mortgage Scheme (ARSN 091 023 979) ("KFM Scheme") pursuant to s 601ND(1) and s 601NF(1) of the Corporations Act 2001;

(b) To wind up, and to appoint Mr Carrello to take responsibility for the winding up of, 29 unregistered managed investment schemes which ASIC alleges operated before the KFM Scheme was registered on 22 December 1999 pursuant to s 601EE of the Corporations Act 2001.

2 One investor, Mrs Kay, opposes the application referred to in par 1(a) above because she contends that there were a number of separate investments which, together, did not have the features of a single "managed investment scheme" as defined in s 9 of the Corporations Act 2001. This contention is answered by ASIC seeking in the alternative to the order in par 1(a) above, a declaration that each separate investment is itself an unregistered managed investment scheme, and seeking a winding-up order in relation to each under s 601EE of the Corporations Act 2001. Mrs Kay also submits that, whether there is one registered managed investment scheme or a number of unregistered managed investment schemes, Mr Carrello should not be appointed as the person to take responsibility for the winding up.

3 As to the order sought in par 1(b), Mrs Kay agrees that each unregistered managed investment scheme should be wound up, but she opposes the appointment of Mr Carrello to take responsibility for the winding up.

4 Before I recite the facts as I find them, I should explain that, in general terms, the schemes all involve one or other, or both, of the first and second defendants performing, or undertaking to perform, the tasks of a mortgage broker. It, or they, would attract funds from investors and then those funds would be loaned to borrowers, who would grant mortgages as security for repayment of the loans and pay interest. In short, the schemes were mortgage-broking schemes. In the case of some borrowers, 50 or more investors would advance moneys to the borrower/mortgagor. In other cases, only one investor would advance money to the borrower/mortgagor.

5 I now turn to the details, and I make the following findings of fact.

6 The first defendant is an unlisted public company, registered in Western Australia on 13 September 1999. On that date, it was called Australian Managed Funds Ltd. On 19 June 2000, it changed its name to Knightsbridge Managed Funds Ltd. On 20 February 2001, the directors placed the company into administration by appointing Mr G M Carrello as its voluntary administrator. I will refer to this company as either "Australian Managed Funds" or "Knightsbridge Managed Funds", depending on whether the reference is to an event before or after 19 June 2000.

7 The second defendant was registered on 3 January 1969 under another name. On 21 February 1995, its name was changed from that other name to Clifton Partners Finance Pty Ltd. On 19 June 2000, it changed its name to Knightsbridge Finance Pty Ltd. I will refer to it throughout these reasons as either "Knightsbridge Finance" or "Clifton Partners", depending on whether the reference is to an event before or after 19 June 2000. On 29 January 2001, the directors placed Knightsbridge Finance into administration by appointing Mr Carrello as its voluntary administrator. On 15 May 2001, Mr Carrello was appointed liquidator. Mr Carrello has given written consent to this application by ASIC. See s 440D of the Corporations Act 2001.

8 The changes of name of the companies to Knightsbridge Managed Funds and Knightsbridge Finance occurred soon after the shareholders in the companies which were associated with Mr Kimberley John Clifton sold their shares to Knightsbridge Finance Group Pty Ltd, which was a company associated with a Mr Parkinson. This sale occurred on 30 May 2000. Knightsbridge Managed Funds and Knightsbridge Finance are now wholly owned subsidiaries of Knightsbridge Finance Group Pty Ltd.

9 On 22 December 1999, pursuant to s 601EB of the Corporations Law, ASIC registered a managed investment scheme under the name Clifton Partners Finance Mortgage Scheme (ARSN 091 023 979). This was renamed the KFM Scheme on 1 June 2000. The responsible entity of the KFM Scheme is Knightsbridge Managed Funds, which until this year held a security dealer's licence. Until I turn to deal with, and resolve, the issue raised by Mrs Kay, I will refer to the loans brokered after 22 December 1999 collectively as the KFM scheme.

10 Under an undated agreement in writing executed on about 20 March 2000, Knightsbridge Managed Funds delegated its duties as to management of the scheme and custodianship of scheme property, to Knightsbridge Finance.

11 Certain documents were lodged with ASIC when the application was made for registration of the KFM Scheme. There was a prospectus, a custodial agreement, and a constitution. The prospectus had a first part, which was given to all investors when they were invited to invest moneys. There was also a second part to the prospectus, which had blank spaces to be filled in with details of the property over which the advance would be secured by mortgage, along with details about the borrower, the amount of the loan, the interest rate, the monthly repayments, and an application form for the investor to fill in.

12 The prospectus revealed what was proposed in the scheme. The following are selected extracts from the first part of the prospectus. (All of the references are to the replacement prospectus dated 23 October 2000, which replaced the first prospectus dated 22 December 1999 and another replacement prospectus dated 17 April 2000. It was not suggested by any party that the material terms of the prospectus changed on any of those occasions. When it was first issued, of course, references were to Clifton Partners and to Australian Managed Funds.) On the first page of the prospectus, the following words appeared:

"Prospectus for the issue of securities in the form of an interest in the managed investment scheme "Knightsbridge Finance Mortgage Scheme" (ARSN 091 023 979) promoted or to be promoted by Knightsbridge Finance Pty Ltd (ACN 008 716 872) for and on behalf of Knightsbridge Managed Funds Limited."

13 The prospectus contained, inter alia, the following paragraphs:

"Explanation of the Offer

Knightsbridge Finance Pty Ltd (formerly called Clifton Partners Finance Pty Ltd) as trustee for the Knightsbridge Finance Unit Trust (formerly called the Clifton Partners Finance Unit Trust), trading as Knightsbridge Finance (formerly called Clifton Partners Finance) has operated as a mortgage manager in Western Australia for 20 years and holds a prominent position in the mortgage investment industry in Western Australia.

Knightsbridge Managed Funds Limited, is a responsible entity for the Knightsbridge Finance Mortgage Scheme - that is Knightsbridge Managed Funds Limited must ensure that the Knightsbridge Finance Mortgage Scheme is run according to its constitution, the prospectus and the Corporations Law.

Knightsbridge Managed Funds Limited holds a dealer's licence under the Corporations Law which authorises it to operate the Knightsbridge Finance Mortgage Scheme.

Knightsbridge Finance Pty Ltd as trustee for the Knightsbridge Finance Unit Trust, will attend to all custody, settlements, cash flows and other financial transactions and will be responsible for the day to day running of the Knightsbridge Finance Mortgage Scheme and will act as custodian of scheme property.

The interests to be offered take the form of participation in mortgage loans originated and managed by Knightsbridge Finance Pty Ltd as part of the Knightsbridge Finance Mortgage Scheme. Investors themselves make the secured loans either individually or in conjunction with other investors.

In most cases, the investors' names appear on the mortgage as mortgagee. In some cases, Knightsbridge Managed Funds Limited will be reflected on the mortgage as mortgagee. However, in those cases, Knightsbridge Managed Funds Limited will hold the mortgages on trust for the individual investors and the mortgage can only be dealt with in accordance with the trust arrangements and the directions of the investors who have a specific beneficial interest in the relevant mortgage.

Background

The Knightsbridge Finance Mortgage Scheme is designed to provide investors with access to regular income at attractive rates of return from investments in secured loans. All loans are secured over property.

In accordance with Australian Securities and Investments Commission (ASIC) policy and class orders, the prospectus is divided into 2 parts. The first part contains information on the Knightsbridge Finance Mortgage Scheme and the main features of mortgage lending under the Knightsbridge Finance Mortgage Scheme. The first part has been lodged with ASIC.

The second part of the prospectus contains specific information on the proposed authorised investment. The second part of the prospectus does not have to be lodged with ASIC. ..."

"Why has this prospectus been issued?

... The first part of this prospectus is intended to be general in the sense of covering all offers or invitations issued by Knightsbridge Managed Funds Limited with respect to the Knightsbridge Finance Mortgage Scheme during the 12 month period this prospectus is current. ...

What is meant by originate?

Throughout this prospectus, reference is made to Knightsbridge Finance Pty Ltd originating secured loans. 'Originate' refers to the finance broking services provided by Knightsbridge Finance Pty Ltd. For a fee, Knightsbridge Finance Pty Ltd matches individuals and companies looking to borrow money with investors who have money to lend."

"Will I be the lender or will it be Knightsbridge Managed Funds Limited?

The investor will be the lender. In most cases, your name will be on the security documents and, as a result and if applicable, on the title to the property mortgaged to secure the loan. In some cases, Knightsbridge Managed Funds Limited will be the mortgagee and they will hold the mortgages on trust for the lenders. The mortgage can only be dealt with in accordance with the trust arrangements and the directions of the lenders (ie the lenders have a specific beneficial interest in the relevant mortgage)."

"If I make a loan with other investors, what share of the loan and security will I hold?

Your share of the loan and the security will be the same proportion as the amount of principal money owed to you from time to time bears to the total amount of all principal money owing under the particular loan at the same time.

In other words, if your capital is $50,000.00 on a $100,000.00 loan, you will be entitled to one half of principal and interest payments made on the loan, less one-half of the fees to which Knightsbridge Finance Pty Ltd is entitled with respect to the loan.

What returns are payable to investors?

Subject to the borrower not being in default under the loan, or unless as specified to the contrary in the second part of this Prospectus, investors are entitled to the income (ie interest paid on the particular secured loan made by them) less charges incurred by Knightsbridge Finance Pty Ltd and the fees to which Knightsbridge Finance Pty Ltd is entitled as well as a return of capital (ie principal) actually recovered by Knightsbridge Finance Pty Ltd on behalf of the investors. ..."

"What fee does Knightsbridge Finance Pty Ltd receive for originating loans?

Knightsbridge Finance Pty Ltd receives a brokerage fee for originating loans. This fee is set out in the second part of this prospectus.

What fee does Knightsbridge Finance Pty Ltd receive for management of loans?

The management fee Knightsbridge Finance Pty Ltd receives is set out in the second part of this prospectus.

What fee does Knightsbridge Managed Funds Limited receive for acting as single responsible entity of the Knightsbridge Finance Mortgage Scheme?

Knightsbridge Managed Funds Limited is paid an annual fee of $15,000.00 for acting as single responsible entity of the Knightsbridge Finance Mortgage Scheme."

"Management

Management of the secured loans is undertaken by Knightsbridge Finance Pty Ltd on behalf of the investors. Knightsbridge Finance Pty Ltd will act in the interests of investors and will manage the loans in accordance with the constitution for the Knightsbridge Finance Mortgage Scheme. Knightsbridge Finance Pty Ltd will keep investors informed on the conduct of their loan.

Investors' records are maintained by administration staff trained in their particular areas of responsibility and backed by a component computerised administration system called 'RealTime'.

All the executives of Knightsbridge Finance Pty Ltd are experienced with backgrounds in property, business, law, commerce or finance."

"Returns

... Knightsbridge Finance Pty Ltd is entitled to charge a fee for the time spent by its employees for looking after the investors' interests in a loan upon the occurrence of a breach by the borrower of its obligations under the loan. The basis for calculation of this fee will (in the absence of anything to the contrary in the second part of this prospectus) be made by reference to the hourly rates recommended by the Insolvency Practitioners Association of Australia from time to time. In this regard, Knightsbridge Finance Pty Ltd will determine the seniority levels of its employees.

Knightsbridge Finance Pty Ltd will endeavour to collect this fee from the borrower. However, where this cannot be done, the investor must pay this fee."

"Knightsbridge Managed Funds Limited

... Knightsbridge Managed Funds Limited was specifically incorporated to act as a responsible entity for schemes under the managed investments legislation of the Corporations Law.

Knightsbridge Managed Funds Limited, is the responsible entity for the Knightsbridge Finance Mortgage Scheme - that is Knightsbridge Managed Funds Limited must ensure that the Knightsbridge Finance Mortgage Scheme is run according to the Corporations Law.

Knightsbridge Managed Funds Limited holds a dealer's licence under the Corporations Law which authorises it to operate the Knightsbridge Finance Mortgage Scheme.

Knightsbridge Finance Pty Ltd will hold the scheme property as custodian and will be responsible for the day to day running of the Knightsbridge Finance Mortgage Scheme. ..."

"Application (loan) money

All application moneys should be made payable to Knightsbridge Finance Mortgage Scheme and will be banked into the cash management account of the Knightsbridge Finance Mortgage Scheme.

Upon receipt by Knightsbridge Finance Pty Ltd, application moneys will be held in trust for the applicant in a bank account established by Knightsbridge Finance Pty Ltd to receive application funds. No money other than management fees will be released from this account without written authority from the investor or when invested into the approved investment.

Application moneys held in the designated bank account will earn interest from the date on which they are deposited until the particular authorised loan is settled.

Interest less management fees payable to Knightsbridge Finance Pty Ltd will be paid to the applicant at the rate published by Knightsbridge Finance Pty Ltd from time to time.

Where a particular loan is not made, all moneys received by Knightsbridge Finance Pty Ltd from an applicant with respect to the loan will be retained in trust, unless the applicant directs in writing that the moneys be returned. The applicant may be offered an alternative investment application (ie; in relation to a different loan) and if the applicant wishes to proceed with the further application, the moneys will be allocated to the new application."

"Interest to be issued

Upon acceptance of an application in relation to a particular loan, Knightsbridge Finance Pty Ltd may then proceed to settle drawdown of the loan, subject of course, to the satisfaction of the conditions relating to the loan.

Following drawdown of a loan, Knightsbridge Finance Pty Ltd will issue written confirmation to the particular applicant confirming that the loan has been made, setting out details of the first interest payment due under the loan and verifying the particular entitlement of the investor with respect to that loan."

"Constitution

The responsibilities of Knightsbridge Managed Funds Limited together with all matters pertaining to the Knightsbridge Finance Mortgage Scheme are set out in the constitution dated 22 December 1999. A copy of the constitution may be inspected during usual business hours at the office of either Knightsbridge Managed Funds Limited or Knightsbridge Finance Pty Ltd. ..."

"Custodian Agreement

A custodian agreement exists between Knightsbridge Managed Funds Limited and Knightsbridge Finance Pty Ltd. The agreement sets out the terms and conditions on which Knightsbridge Finance Pty Ltd is appointed and the activities for which it has responsibility.

Knightsbridge Finance Pty Ltd will hold scheme property and has responsibility to attend to the day to day running of the Knightsbridge Finance Mortgage Scheme including the origination and management of loans. Knightsbridge Finance Pty Ltd must ensure that these activities are carried out in accordance with loan policy and procedures, statutory obligations imposed on Knightsbridge Managed Funds Limited as well as in accordance with the terms of the constitution, compliance plan and this prospectus. Knightsbridge Finance Pty Ltd must ensure that its systems, policies and procedures are maintained and that key personnel are suitably qualified and trained to ensure its ability to meet its responsibilities under the custodial agreement."

14 I have already described the contents of the second part of the prospectus. It contained loan-specific information, which concluded with the paragraph:

"All applications should be accompanied by a cheque for the full value of the amount applied for (less any moneys held by Knightsbridge Finance Pty Ltd on behalf of investors and available to be applied). Cheques should be made payable to Knightsbridge Finance Mortgage Scheme and sent to: Knightsbridge Finance Pty Ltd ..."

15 In addition, a Constitution was lodged with ASIC, as required by s 601EA(4)(a) of the Corporations Law. This stated that the document would become the contract as between each investor and the responsible entity, as required by s 601GB of the Corporations Act 2001. It obliged the responsible entity to operate the scheme, and contained a clause stating that in relation to the scheme, the responsible entity had all the powers of a natural person to operate any bank accounts deemed necessary by the responsible entity, and to delegate the responsible entity's authorities to such persons or corporations as the responsible entity thought fit.

16 Clause 28 of the Constitution required an applicant, at the time of lodging an application pursuant to the prospectus, to pay the application moneys to the custodian. The clause stated that the custodian must reconcile the application moneys against the application forms received and must bank the application moneys into the "scheme bank account" no later than the business day after receipt. ("Scheme bank account" was defined to mean "the scheme bank account opened by the custodian".)

17 Clause 34 of the Constitution provided that an investor could not interfere with the functions of the responsible entity.

40. The investors are entitled to the income (ie, the interest paid on the particular loan made by them) less charges incurred by the responsible entity and the fees to which the responsible entity is entitled. The investors are also entitled to a return of capital (ie, principal) unless the borrower defaults under the loan and the investors are unable to recover the income and/or capital advanced from the resultant legal proceedings.

41. The timing of payment of the income return to the investors matches the interest payments actually received by the responsible entity. For example, if payments on a secured loan are calculated and received by the responsible entity monthly in arrears, the income return to the investors who made that particular secured loan will be also be made monthly in arrears."

19 Clause 47 obliged the responsible entity to wind up the scheme, or cause it to be wound up, if the scheme was without a responsible entity.

20 Under the Custodial Agreement, Australian Managed Funds appointed Clifton Partners "as custodian of the scheme property and as its agent to originate loans and assist with the administration and management of the scheme ...".

21 The KFM Scheme began operating on 22 December 1999, when it was registered. By 28 February 2001, there were 32 borrowers who had been advanced a total of $16,396,340.33 and who had not repaid their loans. As I have mentioned, in a few cases a single investor advanced all of the funds, and in others many did so. For example, in the case of an advance of $100,000 to Woodzone Nominees Pty Ltd, one investor had advanced all funds. In the case of an advance of $3,349,000 to Meadow Springs Fairway Resort, 36 investors had advanced the funds.

22 These advances were made following the raising of money from investors using the documents in the prospectus, and all were made after 22 December 1999. By the date of the hearing of this application, the number of unadministered and uncompleted loan transactions numbered eight. Five of these involved loans by borrowers who had granted mortgages to multiple investors. Three related to borrowers who had borrowed all the money and granted a mortgage to one lender only. The number fell from the 32 cases on 28 February 2001 to the eight which were left on the first day of the hearing of this application because loans had either been finalised and paid out or arrangements made between the parties that Knightsbridge Managed Funds and Knightsbridge Finance were no longer responsible for their administration.

23 Before the KFM Scheme was registered, Clifton Partners was brokering loans in similar fashion. In short, Clifton Partners was in the business of arranging mortgage investments by matching prospective borrowers with investors in a way that was similar to the post 22 December 1999 KFM Scheme. Specifically:

(a) loans were generally secured by first and other ranking mortgages over real property;

(b) in most cases, loan funds were from multiple investors whose money was pooled to advance to the borrower;

(c) each lender generally held an interest in the mortgage as a tenant in common with other investors in the pool;

(d) each interest in the mortgage was in the proportion that the capital amount advanced by each bore to the entire loan;

(e) in some cases the mortgage was granted by the borrower to Knightsbridge Finance and held on trust for each of the investors, and in those cases Knightsbridge Finance appeared on the certificate of title as mortgagee;

(f) Knightsbridge Finance then managed the loans on behalf of the investors, which involved Knightsbridge Finance collecting the interest and principal due from the mortgagor into a trust account and paying it to the relevant investors after deducting fees to which it was entitled;

(g) Knightsbridge Finance also acted on behalf of investors to enforce mortgages when the borrower defaulted;

(h) Knightsbridge Finance attended to all settlements, cash flows and other financial transactions relating to the scheme property;

(i) usually, when the investor paid money to Knightsbridge Finance for the purpose of Knightsbridge Finance advancing it to a borrower, the money was first paid into a cash management account with BankWest, which account would earn interest and on which the investor would earn his or her or its share of interest earned on the outstanding balance. In those cases, money would then be transferred from the cash management account to a separate account with BankWest, which was a current account and from which cheques would be drawn to pay to the borrower. This latter account was called the "Trust Account". The cash management account was also, of course, a trust account.

24 Into the Trust Account, the borrower or mortgagor would pay interest and principal when principal was due to be repaid, and from the Trust Account money would then be paid to the investors. Knightsbridge Finance maintained separate ledgers for each investor. These were called "split accounts". These were linked via a computer program and a direct phone line with the cash management bank account, so that if an investor paid money into the BankWest cash management account, that amount would be recorded in Knightsbridge Finance's records in the split account for that investor. This was in accordance with s 48 of the Finance Brokers Control Act 1975, which permits a finance broker to mix trust funds by paying all trust moneys into one "trust account", but requires the broker to keep separate records for such person for whom the broker holds money on trust. Interest which BankWest paid on the outstanding credit balance in the cash management account would be apportioned to each of the investors in proportion to the amount they had in the cash management account. This would be recorded in each investor's "split account".

25 After the registration of the KFM Scheme, the banking arrangements continued exactly as I have set them out in the preceding paragraph. All that distinguished transactions in the KFM Scheme from those which were not part of the registered KFM Scheme was, first, that in the case of investors who advanced funds under the KFM Scheme, they would do so on application after receiving a copy of the pro forma part 2 of the prospectus, which, in turn, referred to part 1 of the prospectus and to the constitution and, secondly, by a coding in Knightsbridge Finance records which distinguished KFM Scheme transactions from the unregistered scheme transactions.

26 I return now to mention some further details about the unregistered schemes. As at 28 February 2001, there were 137 borrowers who had been advanced $68,434,749.92 before December 1999 and whose loans had not been repaid. Once again, some borrowers were advanced funds raised entirely from one investor (eg in the case of $35,000 advanced to Shannon Equity Pty Ltd), and others were advanced funds by multiple investors (eg in the case of $2,338,956 advanced to Rylestone Pty Ltd, there were 52 investors who had provided the funds).

27 On the first day of the hearing, the number of borrowers had been reduced to 29. The number had fallen to that figure because some loans had been finalised and paid out, or dealt with in a manner as to bring to an end the management responsibilities of Knightsbridge Managed Funds and Knightsbridge Finance and, in addition, single investor loans had been excluded as a result of ASIC no longer seeking an order in relation to those loans. There was good reason for ASIC's decision in that regard, because a single-investor loan would not fit the definition of a managed investment scheme when it was not part of a registered managed investment scheme.

28 By the beginning of 2001, Knightsbridge Finance and Knightsbridge Managed Funds were in financial difficulties, and Mr G M Carrello was appointed voluntary administrator of Knightsbridge Finance (on 29 January 2001) and Knightsbridge Managed Funds (on 20 February 2001).

29 Mr Carrello began managing both the scheme loans and the non-scheme loans on 29 January 2001.

30 Between September 2000 and 12 March 2001, the Finance Brokers Supervisory Board had received 18 complaints from investors about the conduct of Knightsbridge Finance before Mr Carrello was appointed administrator. Three investigations were undertaken in relation to three separate investments. All three identified breaches by Knightsbridge Finance of the Finance Brokers Control Act 1975 and its Code of Conduct. As a result of a number of complaints received by the Board and the outcome of the investigations, the Board concluded that Knightsbridge Finance had not been conducting itself in accordance with the Act or the Code of Conduct. As a result, the Board made an application to the District Court for authorisation to appoint a supervisor to Knightsbridge Finance.

31 On 23 February 2001, Commissioner Reynolds in the District Court of Western Australia ordered that the Board was authorised to appoint a supervisor to Knightsbridge Finance and that the supervisor be empowered to take possession of the moneys constituting the trust account of Knightsbridge Finance. On 27 February 2001, the Board appointed Mr R E Dymock as supervisor of Knightsbridge Finance.

32 Mr Dymock then appointed a firm of chartered accountants called Hall Chadwick to audit the trust accounts maintained by Knightsbridge Finance. The period covered by the audit was from 1 July 2000 to 31 December 2000 in relation to the Trust Account ledger, and 1 July 2000 to 28 February 2001 in relation to the cash management account ledger. This latter date was later extended to 4 April 2001. The audit revealed that in the period covered by the audit, the Trust Account ledger was in order, save that on 31 December 2000, of its 13 constituent individual trust accounts (ie, the "split accounts"), six were in debit to a total of $1,087.94. At that date, the Trust Account bank account was $2,599.25 in credit. The debit balances arose due to cheques received from borrowers for loan repayments or interest repayments, being dishonoured after payments of the amounts received by cheque had been made to the investors from the mortgage trust account bank account. Those debit balances were eliminated after the dishonoured cheques were represented in January 2001.

33 With one exception, the cash management account ledger was in order.

34 As a result of the audit, Mr Cooke deposed in his affidavit that:

"there was no evidence of intermingling of moneys between investors' trust accounts in the Mortgage Trust Account ledger or the Cash Management Account ledger during the respective audit periods. That is to say, it appears that no moneys were removed without authority from any individual Knightsbridge Finance investor client's trust account and applied to any other investor client's trust account during that time."

35 On 2 March 2001, Knightsbridge Managed Funds security dealer's licence was revoked under s 826 of the Corporations Law.

36 As mentioned above, on 15 May 2001, Mr Carrello was appointed liquidator of Knightsbridge Finance. As a result, the voluntary administration of that company came to an end.

37 In Mr Carrello's opinion, there is a risk of capital loss with respect to the remaining loans, due to the failure of borrowers or the inadequacy of security.

38 Chapter 5C of the Corporations Act 2001, which relates to managed investment schemes, became part of the Corporations Law as a result of the passing of the Managed Investments Act 1998 (Cth), which commenced on 1 July 1998. Managed investments schemes have been described as "residual investment opportunities remaining after shares and debentures are considered". See Ford's Principles of Corporations Law, par 22.470. The raising of capital via shares and debentures is governed closely by the law relating to companies which has developed over a long period of time. Other investment schemes where a number of investors contribute funds to be managed by a third party can, however, take many different legal forms. The regulation of investment interests, other than shares and debentures, began in the 1970s under the "prescribed interest" provisions, first in some of the State Companies Acts, and then later in the Companies Codes.

39 There was discussion about reforms to the "prescribed interest" provisions over a number of years, and the "Financial System Enquiry Final Report" March 1997 (the Wallis Report) recommended in Recommendation 89 that there should be some changes to the regulatory framework in relation to "public offer collective investments", to harmonise it with the superannuation regulatory framework.

40 The Australian Law Reform Commission and the Companies and Securities Advisory Committee report entitled "Review of the Law of Collective Investments: Other People's Money" (ALRC 65 1993), examined in detail the reforms which might be made to the regulation of "collective investment schemes" or "enterprise schemes". It was noted that:

"Collective investment schemes are a major way in which households ... save and invest. They allow individuals and groups with relatively small savings to get better returns by pooling their money, giving them more investment opportunities. ..."

41 One of the points thought necessary to reform was that the law at the time of the report required each scheme to have both a manager and a trustee or investors' representative. The report considered that this led to unnecessary confusion, encouraged unsatisfactory commercial practices and sometimes resulted in neither taking responsibility for compliance with the law because each could blame the other. The report suggested that the split in responsibility presently prescribed by the law should cease and that the scheme operator should take responsibility for compliance with obligations under the law and the constitution of the scheme.

42 When the Managed Investments Bill 1997 was introduced, the responsible Minister, in the second reading speech, noted the call for reform in the two reports referred to above. The bill provided for a single responsible entity in lieu of the split of duties between trustee and scheme operator. The explanatory memorandum to the Managed Investment Bill noted that "managed investment schemes are currently regulated under the prescribed interest provisions of the Law. The complex and seemingly all-embracing definition of prescribed interest has been widely criticised because of its lack of precision".

43 One of the changes brought about by the Managed Investments Act 1998 was the introduction into the Corporations Law (now the Corporations Act 2001) of the expression "managed investment scheme", which was defined in s 9 to mean:

(i) people contribute money or money's worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not)

(ii) any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders);

(iii) the members do not have day-to-day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions) ..."

44 Although there is a change in defined term from "prescribed interest" to "managed investment scheme", a number of the words or expressions which appear in the new definition, are words or expressions which appeared in the old "prescribed interests" legislation. In my view, the authorities defining the meaning of some of these words or expressions will be relevant to the new definition. I will mention a number of the authorities which assist in understanding some of the words used in the new definition.

45 All that the word "scheme" requires is that there should be some "program or plan of action": see Australian Softwood Forests Pty Ltd v Attorney-General (NSW) [1981] HCA 49; (1981) 148 CLR 121 at 129. See also Clowes v Federal Commissioner of Taxation [1954] HCA 10; (1954) 91 CLR 209 at 225. I note that Owen J, in Australian Securities and Investments Commission v Chase Capital Management Pty Ltd [2001] WASC 27 at [57], and Douglas J, in Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd (1999) 33 ACSR 403, both considered that they could rely on what was said in the Australian Softwood Forests case (supra) about the meaning of the word "scheme", for the purposes of considering the meaning of that word in the definition of "managed investment scheme".

46 The word "pooled" and the expression "to be pooled", as they appear in the present definition of "managed investment scheme", have been considered in Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd (supra) and on appeal in Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd [2000] QCA 452; (2000) 35 ACSR 620. From those cases, it appears that the word has its ordinary meaning. In particular, it will apply to describe arrangements where there is "a common fund into or from which all gains and losses of the contributors are paid" or "a fund made up of numerous payments from participants and used for a purpose they contemplate". The phrase "to be pooled ... to produce" implies that the intention must be to pool the contributions and, by use of the pool, produce benefits. Pooling will occur where moneys are paid into or collected in an account: see Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd [2000] QCA 452; (2000) 35 ACSR 620 at [8], [9] and [13].

47 The expression "common enterprise" was discussed in the Australian Softwood Forests case (supra)" at page 133, where Mason J said:

"The argument is that in order to constitute a 'common enterprise' there must be a joint participation in all the elements and activities that constitute the enterprise. I do not agree. An enterprise may be described as common if it consists of two or more closely connected operations on the footing that one part is to be carried out by A and the other by B, each deriving a separate profit from what he does, even though there is no pooling or sharing of receipts of profit. It will be enough that the two operations constituting the enterprise contribute to the overall purpose that unites them. There is then an enterprise common to both participants and, accordingly, a common enterprise."

48 Finally, I agree with what was said by the Court of Appeal in Queensland in Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd and Ors [2000] QCA 452; (2000) 35 ACSR 620 at [17], that attempts to read down the broad words of the definition should be discouraged. The Court there agreed with, and I agree with, the comment made by Mason J in the Australian Softwood Forests case (supra) at page 130 where he said:

"There are real difficulties in the suggestion that the court can read down the very comprehensive definition of 'interest' by reference to the supposedly unintended consequences of a literal reading on everyday commercial transactions."

49 This conclusion is enhanced because of the presence of the power to exempt by regulation, rights or interests which might unintentionally be caught up by the definition.

Was the KFM Scheme a single "managed investment scheme" or a series of unregistered schemes?

50 In the case of the KFM Scheme, there was a plan of action as set out in the prospectus. The question then is, whether the plan of action, ie the "scheme", had the three features listed in the definition of the phrase "managed investment scheme".

51 There is no doubt that the investors contributed money. This money was paid as consideration to acquire rights, namely the right to earn interest from a borrower under a loan arrangement which would be secured by mortgage in favour of the investors. In addition, the money was paid knowing that fees would be deducted from it by Knightsbridge Finance. On that basis, the money was also paid as consideration to acquire rights, namely the right to secure the services of Knightsbridge Managed Funds as responsible entity, and Knightsbridge Finance as the entity responsible for managing the scheme.

52 The second element of the definition requires that contributions be pooled, or alternatively used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the contributors. I hold that the contributions were pooled. When investors were invited to advance moneys to a borrower, the plan, as revealed by the prospectus, was that moneys were to be placed into the BankWest cash management account until those moneys were ready for payment to the borrower at settlement, in exchange for the mortgage security documents. When funds were sitting waiting for payment out, the total of the moneys in the account would earn interest. This interest was then shared among all investors pro rata. Pooled moneys therefore produced "financial benefits" in a direct sense.

53 The pooled moneys, of course, also produced financial benefits in the sense that after they had been pooled, they would then be paid out to borrowers, who would pay interest on those borrowed funds. The contributions were therefore also used in a "common enterprise". What Owen J said in Australian Securities and Investments Commission v Chase Capital Management Pty Ltd (supra) in relation to the facts of that case, is apposite in this case. He said at [59]:

"It seems to me that each investment is itself a separate part of the scheme but, nonetheless, it is part of the overall scheme. I acknowledge that each is comprised of different participants ... The target or object of the various investments were different ..."

"It is the same overall structure, using the same method of operation and designed towards the same end. ... But that does not mean that the individuality of a particular investment is ignored. It would be unrealistic to ignore the subtle differences between the individual components that go, in combination, to make up the scheme. In the end, on the finalisation of the scheme ... each individual investment will have to be accounted for separately."

55 The third feature of a managed investment scheme is that the members do not have day-to-day control over operation of the scheme. I find that this element of the definition is satisfied. In fact, no party suggested otherwise.

The KFM Scheme was a single "managed investment scheme"

56 As a result, I find the KFM Scheme is a "managed investment scheme". A lot of time and energy was dedicated to the issue (raised by Mrs Kay) about whether, after 22 December 1999, there was one scheme or whether each of the loans after that date constituted an unregistered managed investment scheme which should be wound up under s 601EE of the Corporations Act 2001.

57 It is true that the investors in relation to each loan can be shown to have contributed moneys worth, as consideration to acquire benefits; that the contributions were both to be pooled and used in a common enterprise to produce financial benefits; and that the members did not have day-to-day control of the investment. In other words, each loan was also a managed investment scheme. However, these did not have to be registered, because Class Orders [SCO 99/1639] and [CO 00/203] had issued. The effect of these orders was that because the KFM Scheme was registered, the individual loans within it did not have to be registered as separate schemes. The class orders were issued by ASIC under s 601QA of the Corporations Law, which authorised ASIC to exempt persons or securities from the provisions of ch 5C. That being so, there could be no winding up of these unregistered schemes under s 601EE, because there was no requirement that they be registered, and this has to be shown before an order can be made to wind up an unregistered scheme. Mrs Kay argued that the class orders did not apply in the particular circumstances of this case, because the moneys were used not only for mortgage loans, but also to invest in the cash management accounts. In my view, the class orders do apply, because the only investments of the KFM Scheme were mortgages and deposits with Australian ADI's, both of which are mentioned in the class orders.

58 However, even if I were wrong and the class orders did not apply, then it would mean that there were grounds for winding up the individual unregistered schemes under s 601EE.

The unregistered schemes were "managed investment schemes"

59 There was no submission by any party that the loans preceding the registration of the KFM Scheme were not managed investment schemes. Each was unregistered. Notwithstanding that there was no issue, it is still necessary for me to make the finding (which I do) that each of the 29 unregistered schemes listed in the schedule to the originating process satisfies the definition of "managed investment scheme". In each case, people contributed money, or moneys worth, as consideration to acquire rights to benefits produced by the scheme; the contributions were pooled and used in a common enterprise to produce financial benefits; and the members did not have day-to-day control over the operation of the scheme.

60 It therefore becomes necessary to consider whether there are grounds to wind up the KFM Scheme and the 29 unregistered schemes and, if so, who should be appointed to take responsibility for ensuring that the schemes are wound up.

Are there grounds to wind up the KFM Scheme?

61 ASIC relies upon ss 601ND(1) and s 601NF(1).

62 Section 601ND(1) provides that the Court may, by order, direct the responsible entity of a registered scheme to wind up the scheme if the Court thinks it is just and equitable to make the order. The responsible entity in this case is Knightsbridge Managed Funds. It no longer qualifies as a responsible entity because its security dealer's licence was revoked by ASIC on 6 March 2001. I note, however, that s 601ED(6)(b) makes it clear that Mr Carrello's present activities in administering the KFM Scheme as liquidator of Knightsbridge Finance, do not require him to apply for registration. Before an order is made under s 601ND, it is necessary to establish the ground for the winding up, which in this case is the just and equitable ground.

63 ASIC points to the fact that the whole administration of the scheme has broken down. Knightsbridge Managed Funds is under administration. Knightsbridge Finance is insolvent and a liquidator appointed. The immediate difficulty is that there are no funds available to continue with the winding up. To date, Mr Carrello has been operating as liquidator of Knightsbridge Finance and in that capacity, working on the winding up of the KFM Scheme and the unregistered schemes, using funds advanced by the State government. The State, via the Finance Brokers Supervisory Board, has informed Mr Carrello that funding will cease. If the State ceases its funding, there is no suggestion that any creditors are prepared to fund the liquidator on a scale necessary to complete the task at hand. Mr Carrello gave evidence that if his funding from the State runs out, he will then have to seek to disclaim the contracts which oblige Knightsbridge Finance to manage the schemes. If that happens, then the work that has to be done to manage and bring to a conclusion the winding up of the loans, will grind to a halt.

64 I find that the original arrangement, as set out in the prospectus, has broken down. In my opinion, it is, as a result, just and equitable for the Court to intervene and to wind up the KFM Scheme. In addition, intervention is justified on public interest grounds because the investors require protection: see Australian Securities and Investments Commission v Chase Capital Management Pty Ltd (supra) at [75] and the authorities there cited. I am therefore satisfied that the grounds for winding up the KFM Scheme have been established under s 601ND(1). This section authorises the Court to order that the responsible entity wind up the scheme. Knightsbridge Managed Funds is, however, under administration and its agent, Knightsbridge Finance, is in liquidation. It is therefore appropriate to make an order under s 601NF(1) appointing a person to take responsibility for ensuring that the KFM Scheme is wound up.

Have the grounds for winding up the unregistered schemes been established?

65 Section 601EE(1) of the Corporations Act 2001 provides that:

"If a person operates a managed investment scheme in contravention of subsection 601ED(5) ...",

66 ASIC may apply to the Court to have the scheme wound up.

67 Section 601ED(5) reads:

"A person must not operate in this jurisdiction a managed investment scheme that this section requires to be registered under section 601EB unless the scheme is so registered."

68 Section 601ED(1) states when a scheme must be registered. It provides that:

"... a managed investment scheme must be registered under section 601EB if:

(b) it was promoted by a person ... who was, when the scheme was promoted, in the business of promoting managed investment schemes ...".

69 When the application was made, and as at the date of the hearing, there were some schemes which had more than 20 members. So, for example, the loan to Unitshelfco No 51 Pty Ltd involved 21 investors, High Point Nominees Pty Ltd involved 22 investors, and Ocean Holdings Pty Ltd involved 37 investors. All of the other unregistered schemes involved multiple investors, but in each case less than 20. In those cases, they were all promoted by Clifton Partners, which was at the time in the business of promoting other loans which satisfied the definition of "managed investment schemes". On that basis, once Pt 5C of the Corporations Law commenced, Knightsbridge Finance was obliged to register the schemes under s 601EB, which it did not do.

70 I am therefore satisfied that the grounds for winding up the unregistered schemes have been established.

Should Mr Carrello be appointed liquidator?

71 It is submitted by Mrs Kay that Mr Carrello should not be appointed as the person responsible for ensuring the winding up of the schemes, because it is alleged that there are several circumstances in which there is a real possibility that he will be in a position of conflict. In my opinion, the allegations cannot be sustained.

72 Mrs Kay alleges that there is evidence to suggest that there had been overdrawing of ledger accounts and misapplication of moneys, including the misapplication of trust moneys as a result of the deduction of unauthorised management fees by Knightsbridge Finance. This evidence is about events which occurred before Mr Carrello was appointed as administrator of the two Knightsbridge companies. Indeed, the evidence suggests that the bulk of the alleged irregularities occurred before Knightsbridge Finance Group Pty Ltd acquired the two companies. An audit conducted by Mr Cooke revealed few irregularities in the period of his audit. There is no doubt that among the documents tendered, there are examples of some ledgers (or "split accounts" as they were known) having debit balances. Exactly why this was so is a matter which might require further investigation. Sometimes debit balances can appear merely because debit and credit entries are posted in the wrong order. This may explain some of the irregularities. In other cases there may be more serious irregularities. I make no finding about those matters. Let me assume, however, for the purpose of considering whether or not Mr Carrello should be appointed as the person to be responsible for the winding up of the schemes, that there was evidence of serious irregularities in relation to trust moneys. If that is so, then the individual investors will have the right to take whatever action, and make whatever claims, they consider appropriate against the persons responsible.

73 Mrs Kay submitted that such claims would include claims against Knightsbridge Finance or Knightsbridge Managed Funds. She submitted that Mr Carrello, in his capacity as the person appointed to take responsibility for ensuring the schemes were wound up, would have to decide what to do about those claims. (It seems that he has already notified insurers about at least one threatened claim.) Mrs Kay said this would put Mr Carrello in a position of conflict because he would have to institute such claims on behalf of the investors. The orders proposed, however, would not necessarily put Mr Carrello in the situation where he would be required to bring claims on behalf of investors against the Knightsbridge companies of which he was the liquidator or administrator. The orders proposed are directed to the orderly winding up of the schemes. The orders proposed would not authorise Mr Carrello to take over, and conduct, causes of action or suits on behalf of investors in relation to claims of the sort described without seeking directions from the Court. If conflicts arise, then that will be the time to address the problem.

74 Counsel appearing for Mrs Kay urge me to take account of the decision of Owen J in Conlan v Registrar of Titles [2001] WASC 201. Owen J concluded that, in the circumstances of that case, those with registered mortgages had an indefeasible interest, and those investors with no security who had paid money into overdrawn trust bank accounts could not trace their moneys into the fund. It was suggested that the trust account in this case was overdrawn. In fact, it seems that the trust accounts, ie, the two BankWest accounts, were never overdrawn. As I have mentioned above, the trust ledgers, or the split accounts, were in many instances in debit from time to time, but the reasons why that occurred are matters to be investigated by the person appointed to wind up the schemes. However, the problems Conlan's case (supra) identifies and the solutions that it might offer in this case, are matters for the person winding up the schemes to consider. In my view, nothing in Conlan's case (supra) affects the decision about whether or not Mr Carrello should be appointed to ensure winding up of the schemes.

75 Another complaint made by counsel for Mrs Kay was that Mr Carrello was not suitable to be appointed to be responsible for the winding up of the schemes because there was delay in delivering some documents requested by investors in relation to the Black Rock Caravan Park investment. Mr Carrello, however, explained that the delay was the result of a need to receive legal advice because the requests were made in the early days of his administration of the two companies. In my view, this incident provides no basis at all for refusing to appoint Mr Carrello.

76 Counsel for Mrs Kay also attempted to demonstrate that Mr Carrello had not taken account of certain irregularities in the administration of trust accounts which had been uncovered by ASIC and made the subject of internal memoranda and reports within ASIC's office. It was submitted that if Mr Carrello had knowledge of these irregularities and disregarded them, he was not a suitable person to be appointed to wind up the schemes. In fact, it emerged that Mr Carrello had only become aware in the last two weeks of the ASIC investigations and the conclusions they had drawn. This awareness came as a result of seeing an affidavit filed by Mrs Kay and sworn by Mr Giles on 11 September 2001. Mr Carrello had only been shown the affidavit in the week or two before this hearing. As a result, Mr Carrello cannot be criticised for failure to deal with matters which had not, before then, been drawn to his attention.

77 It was also argued on behalf of Mrs Kay that Mr Carrello was an inappropriate person to appoint because he would be disqualified under s 532(2)(a) of the Corporations Act, because Knightsbridge Managed Funds, of which he is an administrator, is a creditor in excess of $5,000. There are two points about that submission. First, s 532 does not apply, because the section is concerned with the appointment of liquidators to companies. Even referring to it by analogy, however, does not assist Mrs Kay, because the Court may always grant leave under s 532(2)(a), even if the liquidator is a creditor in excess of $5,000. In my view, leave would be granted in these circumstances.

78 Counsel for Mrs Kay also pointed to the fact that some investors did not hold the mortgage security in their names. Other companies associated with Mr Clifton appeared on the title as the registered mortgagee. It was submitted that, in some cases, these companies had become registered mortgagees although they were "unfunded". It was submitted by counsel for Mrs Kay that these problems also meant that Mr Carrello should not be appointed to wind up these schemes. In my view, the existence of the circumstances referred to does not provide any reason for not appointing Mr Carrello. Once again, I see those sorts of problems as problems that the person appointed to wind up the schemes will have to grapple with.

79 Mr Carrello, if appointed, will not be a liquidator with all the powers and duties of a company liquidator. He will be a person nominated as the person "responsible" for the winding up in accordance with the powers conferred by the orders of the Court. Nevertheless, the cases dealing with the disqualification of liquidators, and cases which deal with the principles involving the removal of a liquidator, can be applied by analogy. It is true that a liquidator must be independent and seen as independent: see, for example, Re National Safety Council of Australia, Victorian Division [1990] VicRp 2; [1990] VR 29 at 33 - 34.

80 Liquidators who wind up companies are often required to deal with interests which might theoretically suggest conflict but which do not warrant removal. For example, a person appointed liquidator of various companies in a group of companies might be thought to be in a position of potential conflict, but in the absence of real conflict there is no ground for refusing such appointment. See, for example, Re Nida Pty Ltd (1993) 10 ACSR 195.

81 The onus is on a person alleging that a person should not be the liquidator, and the onus will not be easy to discharge if the person has become well acquainted with the affairs of the company, or in this case the schemes. It must be shown that there is a real conflict - some realistic prospect of embarrassment - before a liquidator will be removed: see Advance Housing Pty Ltd (In Liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230 at 232 - 4. In this case, Mr Carrello has become well acquainted with the schemes. He has worked for many months, attending meetings with creditors, working to resolve troublesome loans, effecting settlements and paying out investors where that has been possible, and coming to grips with the complicated factual issues involved in many of these schemes. It would be to the financial disadvantage of investors if Mr Carrello were not appointed. A new person would have to spend a considerable amount of time and money coming to grips with the problems associated with each loan. In those circumstances, Mrs Kay has a heavy onus to demonstrate with clear evidence that there is a real prospect of conflict. In my opinion, that onus has not been discharged.

82 I find that there was no evidence of real conflict which would lead me to the conclusion that Mr Carrello should not be appointed. If a conflict does emerge, then the proposed orders allow for an approach to the Court for directions.

83 As a result, under s 601NF of the Corporations Act 2001, I am prepared to appoint Mr Carrello as the person to take responsibility for ensuring that the KFM Scheme and the unregistered schemes are wound up.

86 It was suggested by counsel for Mrs Kay that in the case of some loans, there may be investors who had advanced funds before the KFM Scheme was registered and then after the KFM Scheme was registered those same investors advanced further funds, this time as a result of receiving the prospectus. The total of those funds was then advanced to the same borrower and one mortgage taken as security. Mrs Kay submitted that Meadow Springs was one of these cases. ASIC does not agree that that is so, and submits that the only evidence before the Court is that all of the Meadow Springs investors advanced their moneys under the KFM Scheme. That is so. I should add immediately, however, that the orders will grant liberty to apply, and if Mrs Kay's submissions can be supported by evidence, then the list of unregistered schemes can be added to. If that happened, Meadow Springs would appear on both of the above lists. Other adjustments of that kind can be made by direction of the Court under the liberty to apply provisions of the orders.

87 I therefore propose making orders in terms of the amended originating process.

88 In a sense, the order that I propose making will not make much difference to what happens on a day-to-day basis. Mr Carrello, in his capacity as liquidator of Knightsbridge Finance and as administrator of Knightsbridge Funds Management, is winding up the schemes. At the moment, however, there is a real risk that his work will come to an end because of lack of funding. Once the orders are made, he will continue to perform his role as liquidator of Knightsbridge Finance and administrator of Knightsbridge Funds Management, but he will also have the additional role as the court-appointed person responsible for ensuring the winding up of the schemes under s 601NF and s 601EE of the Corporations Act. The orders that I propose will provide for proper funding and will provide for a committee of inspection for each non-performing loan. The orders will also allow for members to withdraw from the court-managed winding up, if the members comprising not less than 75 per cent of the members holding an interest in the loan, and members with interests in that loan valued at not less than 75 per cent of the total of the interests in the loan, give notice that they wish to do so. That will then put in train a process which will allow the court to make alternative arrangements for management of the loan, if that significant majority wish to do so. That will overcome the present problem, where consent of 100 per cent of the members in relation to non-performing loans cannot be obtained (in some cases perhaps because of lack of interest rather than opposition from one or more of the members). The orders proposed will provide for much greater flexibility than exists under the present arrangement.

89 I should, in conclusion, mention the appearance of Mr Gay. He was an investor appearing in person. He made submissions in closing which I found to be most helpful.

90 Mr Gay explained to me that when the proceedings were commenced, he objected to the orders which were then proposed. He says that the orders then sought were widely opposed by investors. He explained that, as a result of the objections and the affidavits which were filed in the proceedings, public meetings were held and, as a consequence of those meetings, ASIC decided to meet with investors to address some of their concerns. He said that ASIC held those meetings and, as a result of a very long process of negotiation and discussion, the present set of orders were arrived at. He submitted that he thought it was fair to say that the orders, while there may still be the odd deficiency from some people's point of view, were the orders that he thought the majority of investors found acceptable. He noted, as I have found, that the unpaid mortgage loans have been reduced in number and in value. He submitted that all that remained were a small collection of "damaged" mortgages which are the ones that are of the greatest concern. He said that they were all in default; that each one was different; and that each one has a different set of problems. He submitted that if Mr Carrello was not appointed, then it would be very detrimental to the process of dealing with the properties.