Australian Securities and Investments Commission v Letten

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 95 of 2010

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

JUDGE: GORDON J DATE: 13 MAY 2011 PLACE: MELBOURNE

INTRODUCTION 1 On 25 February 2010, the schemes numbered 1, 4 to 9 and 13 to 16 in Annexure A to these reasons for decision were wound up pursuant to s 601EE(1) of the Corporations Act 2001 (Cth) (the Act). Also on 25 February 2010, Mr Damian Templeton and Mr Phillip Hennessy of KPMG (the Receivers) were appointed as joint and several receivers and managers of certain property of each of the second to sixteenth and eighteenth to forty-fifth defendants (the Corporate Defendants) and as joint and several receivers and managers of identified property of each of the schemes listed in Annexure A (the Schemes) except for the scheme numbered 12: Australian Securities and Investments Commission v Letten [2010] FCA 140 (the 25 February Orders). 2 The 25 February Orders required the Receivers to file and serve a report in respect of, inter alia, the nature and identity of the property of each Scheme, any claims by third parties in relation to the property of the Scheme, the identities of investors and the nature of their investment (the Disclosure Reports). 3 On 13 April 2010, the Receivers filed Disclosure Reports in relation to each Scheme listed in Annexure A except for schemes numbered 6, 15 and 16. The Disclosure Reports for schemes numbered 6, 15 and 16 were filed on 28 April 2010. 4 By order made on 30 July 2010 (the 30 July Orders), the Receivers were also appointed joint and several receivers and managers of certain property of five additional schemes, being the schemes numbered 17 to 21 in Annexure A to these reasons for decision (the Additional Schemes). The Receivers were also appointed as joint and several receivers and managers of identified property of each of the forty-sixth to fifty-fourth defendants. The Schemes numbered 19, 20 and 21 in Annexure A were wound up pursuant to s 601EE(1) of the Act. Disclosure reports for the Additional Schemes were filed on 30 August 2010. 5 The Disclosure Reports reported on, amongst other things: 1. the nature and identity of the property of the Schemes and the Additional Schemes; 2. the claims of third parties in relation to the property of the Schemes and the Additional Schemes; and 3. the identities of the investors and the nature and extent of their interests in the Schemes and the Additional Schemes.

CURRENT APPLICATION 6 The Australian Securities and Investments Commission (ASIC) now seek orders pursuant to s 461(1)(k) of the Act that the second to sixth, ninth, tenth, sixteenth, eighteenth to twentieth and forty-sixth to fifty-fourth defendants be wound up. ASIC relies upon the Originating Process it filed and served on 17 February 2010. I am satisfied that notice of the application, together with the supporting material, was served on all relevant parties and stakeholders or their legal advisers by no later than 10 May 2011. Most were served on 18 April 2011. 7 Part of the supporting material included an affidavit sworn by Mr Glenn John Childs (the Childs Affidavit), a Senior Investigator employed by ASIC in its Deterrence Directorate, which summarised the information contained within the Disclosure Reports in relation to the "Letten Entities" - LGH Holdings Ltd, LGH Administration Pty Ltd and LGH Finance Pty Ltd - as well as the Disclosure Reports in relation to the Schemes numbered 1 to 3, 5 to 7 and 11 to 14 and the Additional Schemes numbered 17 to 21 in Annexure A. 8 No one has objected to ASIC's applications. 9 Notices of the filing of an application for the winding up have been lodged. There is, however, a problem with the Form 519 in respect of LGH Holdings Limited, the second defendant. The form and the subsequent advertisement of the application both incorrectly record the ACN as "007 191 943" instead of "077 191 943". ASIC submits, and I accept, that for the following reasons these errors should not prevent the Court winding up the second defendant if the Court is otherwise satisfied that it would be just and equitable to do so: 1. A company must have a name, or the expression "Australian Company Number" followed by the number (see s 118 of the Act) and the words required by s 148 of the Act to indicate its type. 2. Although the Act does not stipulate that the ACN should be stated in the documents filed in respect of the winding up, the prescribed Forms in the Federal Court (Corporations) Rules 2000 (Cth) (the Rules) do so. However, r 1.7 provides that it is sufficient compliance with the Rules in relation to a document that is required to be in accordance with a form in Sch 1 if the document is substantially in accordance with the form required. In the present case, I am satisfied there has been sufficient compliance because apart from the incorrect ACN the documents are substantially in the prescribed forms. 3. Pursuant to s 467A of the Act, an application for winding up must not be dismissed merely because of a defect or irregularity in connection with the application, unless the Court is satisfied that substantial injustice has been caused that cannot otherwise be remedied. The problem here is a defect or irregularity, and no injustice has been caused because the name of the second defendant is correctly stated, and notice of the winding up application is correctly reflected in the ASIC records for that company. 4. The notices and advertisement pursuant to s 465A of the Act are part of "a proceeding" within the meaning of s 1322(2) of the Act: see Re Macro Constructions Pty Ltd (1992) 8 ACSR 719. The winding up application in respect of the second defendant is not invalidated because of a procedural irregularity (see Cordiant Communications (Australia) Pty Ltd v Communications Group Holdings Pty Ltd (2005) 55 ACSR 185 at [103]) unless the Court deems the irregularity to have caused substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid. In the present case, no injustice has been caused because the name of the second defendant is correctly stated, and notice of the winding up application is correctly reflected in the ASIC records for that company.

ANALYSIS 10 Against that background, I turn to consider whether each of the named defendants should be wound up pursuant to s 461(1)(k) of the Act on the grounds that it is "just and equitable". Before turning to consider the applicable principles, it is necessary to address ASIC's standing to make the application. Under s 462(2)(e), ASIC may apply for an order to wind up a company in connection with an investigation under the Australian Securities and Investment Commission Act 2001 (Cth). I am satisfied that these proceedings were commenced as a result of an investigation conducted by ASIC: see Australian Securities and Investments Commission v Letten [2010] FCA 140. 11 What then are the principles relevant to an application under s 461(1)(k)? 12 As noted, under s 461(1)(k) of the Act, the Court may order the winding up of a company if the Court is of the opinion that it is just and equitable that the company be wound up. The categories of circumstances that satisfy the just and equitable ground are not closed or rigid: Australian Securities and Investment Commission v Storm Financial Ltd (2009) 71 ACSR 81 at [65] and Re Westbourne Galleries Ltd [1973] AC 360. 13 In the past, orders under s 461(1)(k) of the Act have included cases: 1. where, on application by a public authority, it is in the public interest that a company be wound up because there is a 'justifiable lack of confidence in the conduct and management of the affairs of the company': Australian Securities and Investments Commission v Green Pacific Energy Ltd (2006) 59 ACSR 142 at 181 [137] to [139]; 2. where the winding up will serve to protect investors: see Australian Securities and Investments Commission v Pegasus (2002) 41 ACSR 561 at 579 [96] to [98]; and 3. the affairs of the company have been conducted in a way which demonstrates a lack of probity productive of a justifiable lack of confidence in the administration of the company, or where there has been misconduct or illegality in the conduct of the affairs such as it is in the public interest in the protection of investors that the company be wound up: Loch v John Blackwood Ltd [1924] AC 283 at 788; Australian Securities Commission v AS Nominees Pty Ltd (1995) 62 FCR 503 at 530-533; Australian Securities and Investments Commission v ABC Fund Managers Ltd (2001) 39 ACSR 443 at [116] - [129]; Deputy Commissioner of Taxation v Casualife Furniture International Pty Ltd (2004) 9 VR 549 at [449] - [464]; Australian Securities and Investments Commission v International Unity Insurance Pty Ltd [2004] FCA 1059 at [135] - [139]; Australian Securities and Investments Commission v West (2008) 66 ACSR 143 at [140] - [160]. 14 It is now well established that in determining whether to make an order for the winding up of a company on the just and equitable ground, the Court must itself evaluate the factual matrix in order to form a view as to whether a sufficient reason for making the order is demonstrated: Australian Securities and Investments Commission v Green Pacific Energy Ltd (2006) 59 ACSR 142 at 181 [139]. 15 In Australian Securities and Investments Commission v Storm Financial Ltd (2009) 71 ACSR 81 at 109 [67], Logan J observed: That Parliament intended that ASIC would act as a scrutineer of the public interest in a case like the present is evident from s.1(2)(a) and (b) of the Australian Securities and Investments Commission Act 2001(Cth), which materially provide that it is to strive to: (a) maintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial certainty ...; and (b) promote the confident and informed participation of investors and consumers in the financial system. 16 In the present case, the evidence demonstrates that the second to sixth, ninth, tenth, sixteenth, eighteenth to twentieth and forty-sixth to fifty-fourth defendants operated an unregistered management investment scheme or schemes that was or were required to be registered under s 601ED(1) of the Act but were not registered. This is a contravention of s 601ED(5) of the Act which gives rise to an offence under s 1311of the Act: see Sch 3 item 163. 17 ASIC therefore submits and I accept that the second to sixth, ninth, tenth, sixteenth, eighteenth to twentieth and forty-sixth to fifty-fourth defendants should be wound up under s 461(1)(k) of the Act because: 1. In contravention of s 601ED(1) of the Act, these companies operated an unregistered management investment scheme or schemes that was or were required to be registered under the Act; 2. These companies owe investors large sums of money in principal and capital gain in circumstances where investors have good contractual claims to these moneys and these companies are either no longer trading or with no real prospect of these companies continuing their former business; 3. These companies formed part of a web of companies whose combined operations raised substantial sums of money from investors for the purpose of investing in commercial and/or retail property joint venture projects which were required to be registered as managed investment schemes under the Act but were not registered; 4. The manner in which these companies raised funds, in particular the lack of disclosure has resulted in investors being misled as to the true nature of the application to be made of the funds and the risks associated with their investment; 5. These companies misapplied investors' funds without the knowledge and consent of investors to other joint venture projects and to such non-investment purposes as to other related companies and persons of these companies; 6. The properties acquired by these companies with the funds received from investors have been sold; and 7. There is no good reason to maintain the registration of these companies. 18 In those circumstances, the Court is therefore justified in making each of the winding up orders sought by ASIC. I therefore propose to make an order that each of the second to sixth, ninth, tenth, sixteenth, eighteenth to twentieth and forty-sixth to fifty-fourth defendants be wound up, pursuant to s 461(1)(k) of the Act, and that Damian John Templeton and Philip Hennessy of KPMG be appointed as joint and several liquidators of each named defendant. 19 It is appropriate that ASIC's costs of this application be taxed and reimbursed in accordance with s 466(2) of the Act. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.

ANNEXURE A Scheme Description of property Joint venture manager/s

1. 211 Wellington Road Joint Venture 211 Wellington Road, Mulgrave, Victoria 211 Wellington Road Pty Ltd - Third Defendant
2. Healesville Walk Shopping Centre Joint Venture 251-263 Maroondah Highway, Healesville, Victoria Bluemist Holdings Pty Ltd - Fourth Defendant
3. Howleys Road Joint Venture 40-48 Howleys Road, Notting Hill, Victoria Dellwood Holdings Pty Ltd - Fifth Defendant
4. George Street Joint Venture 34 George Street, Launceston, Tasmania Enmore Enterprises Pty Ltd - Sixth Defendant
5. Cimitiere House Joint Venture 113 Cimitiere Street, Launceston, Tasmania Enmore Enterprises Pty Ltd - Sixth Defendant
6. Reef House Resort 99 Williams Esplanade Palm Cove, Qld - The Sebel Reef House Resort Firbank Arch Pty Ltd - Seventh Defendant Glenline Pty Ltd - Eighth Defendants
7. Queen Street Joint Venture 118 Queen Street, Melbourne, Victoria Gerling Holdings Pty Ltd - Ninth Defendant
8. Low Head Joint Venture 136 Low Head Road George Town, Tasmania, 142 Low Head Road, George Town, Tasmania & 40 Gunn Parade, George Town, Tasmania Low Head Village Pty Ltd - Twelfth Defendant
9. Nicholson Street Joint Venture 127-137 Nicholson Street, East Brunswick, Victoria Nicholson Street Pty Ltd - Thirteenth Defendant Holloway Crest Pty Ltd - Fourteenth Defendant Rosebery Enterprises Pty Ltd - Fifteenth Defendant
10. National Boulevard Joint Venture 144 National Boulevard, Campbellfield, Victoria Rosebery Enterprises Pty Ltd - Fifteenth Defendant
11. Simms Investment Project 626 Pittwater Road, Brookvale, NSW Simms Investments Pty Ltd - Sixteenth Defendant
12. SY21 Retail Complex Project
13. The Glen Centre Joint Venture 673-681 Glenferrie Road, Hawthorn, Victoria The Glen Centre Hawthorn Pty Ltd - Eighteenth Defendant Castello Holdings Pty Ltd - Nineteenth Defendant
14. Twinview Joint Venture 167 Flinders Lane, Melbourne, Victoria Twinview Nominees - Twentieth Defendant
15. Yarra Valley Golf Joint Venture St John of God's Seminary and Henley Farm, Chirnside Park, Victoria Yarra Valley Golf Pty Ltd - Twenty-First Defendant Adina Rise Pty Ltd - Twenty-Second Defendant Albright Investments Pty Ltd - Twenty-Third Defendant Ashfield Rise Pty Ltd - Twenty-Fourth Defendant Bradfield Corporation Pty Ltd - Twenty-Fifth Defendant Copeland Enterprises Pty Ltd - Twenty-Sixth Defendant Devlin Way Pty Ltd - Twenty-Seventh Defendant First Hazelwood Pty Ltd - Twenty-Eighth Defendant Glenbelle Pty Ltd - Twenty-Ninth Defendant Glenvale Way Pty Ltd - Thirtieth Defendant Greenview Lane Pty Ltd - Thirty-First Defendant Hallmark Corporation Pty Ltd - Thirty-Second Defendant Moorleigh Holdings Pty Ltd - Thirty-Third Defendant Norton Ridge Pty Ltd - Thirty-Fourth Defendant Raleigh Glen Pty Ltd - Thirty-Fifth Defendant Redcrest Holdings Pty Ltd - Thirty-Sixth Defendant Suri Corporation Pty Ltd - Thirty-Seventh Defendant Sutton Rise Pty Ltd - Thirty-Eighth Defendant The Virtual Mlmer Pty Ltd - Thirty-Ninth Defendant Tivendale Pty Ltd - Fortieth Defendant Tulloch Downes Pty Ltd - Forty-First Defendant Mainking Pty Ltd - Forty-Second Defendant Topglen Pty Ltd - Forty-Third Defendant Allblue Pty Ltd - Forty-Fourth Defendant Aranbay Pty Ltd - Forty-Fifth Defendant
16. Glenbelle Project Sebel Heritage Lodge Management Lot, Yarra Valley Golf Course, Chirnside Park, Victoria Glenbelle Pty Ltd - Twenty-Ninth Defendant Redcrest Holdings Pty Ltd - Thirty-Sixth Defendant
17. Tomasetti House Joint Venture 277-279 Flinders LaneMelbourne Victoria Melville Corporation Pty Ltd - Forty-Sixth Defendant
18. Aurora Park Project 443-447 Warringah RoadFrenchs Forest Tilley Lane Pty Ltd - Forty-Seventh Defendant Maywood Investments Pty Ltd - Fifty-First New South Wales Defendant Acetrain Pty Ltd - Fifty-Second Defendant Sage Bay Pty Ltd - Fifty-Third Defendant Tobago Holdings Pty Ltd - Fifty-Fourth Defendant
19. Moorhouse Shopping Centre Project 343-359 Moorhouse Avenue HPSC Pty Ltd - Forty-Eighth Defendant Christchurch New Zealand
20. Cass Bay Spur Project 60 Governors Bay Road Jensdale Pty Ltd - Forty-Ninth Defendant Cass Bay Lyttelton Harbour New Zealand 21 Mount Hutt Project McLennans Bush Road Oakdale Rise Pty Ltd - Fiftieth Defendant Methven New Zealand