Australian Securities and Investments Commission v Letten

REASONS FOR JUDGMENT 1 This is the 24th judgment in a series about unregistered managed investment schemes in which Mr Mark Ronald Letten (Mr Letten), the first defendant, was involved. The history was summarised in Australian Securities and Investments Commission v Letten (No 7) (2010) 190 FCR 59 at [7]-[12]. The same terms and abbreviations are adopted in these reasons for judgment.

BACKGROUND FACTS 2 The Mount Hutt Project is one of the Additional Schemes as defined in paragraph 1 of Order Two made on 30 July 2010 (the Additional Schemes Appointment Order). Paragraph 9(c) of the Additional Schemes Appointment Order gives the Receivers the powers set out in ss 420(1) and (2) of the Corporations Act 2001 (Cth) (the Act), provided that the Receivers may not exercise the power to dispose of any Property (as defined) of the Additional Schemes, subject to any further or other order of the Court. Paragraph 9(d) of the Additional Schemes Appointment Order gives the Receivers the power to apply to the Court for directions or further orders, including orders varying the terms of the Additional Schemes Appointment Order. 3 Mr Templeton, one of the Receivers, gave sworn evidence that Mr Letten held a 70 per cent shareholding in Tosswill Limited (NZBN 9429035560500) (Tosswill), a New Zealand registered company which is the registered proprietor of two properties in New Zealand (Mount Hutt Properties). The other shareholder is Mr Salmon as trustee for the Samfer Family Trust. Mr Salmon is the sole director of Tosswill. The Receivers asserted a proprietary claim in relation to approximately NZD$1.42 million of Investor funds that were raised and contributed to the purchase of the Mount Hutt Properties by the Tenth Defendant, LGH Administration Pty Ltd (receivers & managers appointed) (in liquidation) (LGHA). The net equity of the monies advanced by LGHA on behalf of Investors is NZD$973,273.21. Mr Letten claims no beneficial interest in the shares and has confirmed this by deed poll. 4 Mr Salmon contends that the facts of this case, as deposed to by Mr Templeton, bear similarities to Australian Securities and Investments Commission v Letten (No 5) [2010] FCA 1047. In that case, Mr Letten owned 50 per cent of the shares of SY21 Retail Pty Ltd (SY21) and Mr Bate held the remaining 50 per cent. Mr Bate, and not Mr Letten, acted on behalf of SY21 in managing a property owned by SY21. The Court held, inter alia, in the absence of evidence that Mr Bate was aware that that Investor funds were being raised and deployed for the purposes of that property, the property itself did not constitute scheme property of the SY21 Scheme or the Schemes. Rather, the Investors' interest was confined to the shares in SY21 itself. 5 Mr Salmon has also asserted competing claims including, inter alia, a proprietary claim on the Mount Hutt Properties in respect of approximately NZD$449,000 paid by companies associated with Mr Salmon in order to service the mortgage and other costs associated with those properties, and a shareholder loan to Tosswill from Mr Salmon as trustee for the Samfer Family Trust for NZD$409,000. The Receivers do not dispute the shareholder loan and Mr Templeton has deposed to evidence the Receivers have sighted in relation to Mr Salmon's other claims which, at the very least, have satisfied the Receivers that they are reasonably arguable and, on their face, have some substance. 6 The Receivers have informed the Court that they apprehend that any step to assert a proprietary claim over the whole of the property owned by Tosswill through the New Zealand courts will be opposed by Mr Salmon and result in costly and uncertain proceedings in a foreign jurisdiction which will delay the completion of the receiverships. This would appear to be a reasonable concern. The Receivers have also informed the Court that they are unable to cause a liquidator to be appointed to Tosswill to resolve the deadlock, not that such appointment would necessarily advance a resolution of the matter in the Investors' favour in any event as the liquidator would still be faced with the competing proprietary claims. Similarly, the Receivers have informed the Court that they apprehend that appointing directors to Tosswill in order to realise the Investors' equity interest in the property (assuming directors can be found who would accept such an appointment) would also lead to litigation with Mr Salmon. 7 For those reasons, pursuant to ss 1323(1)(h) and 601EE(2) of the Act, s 23 of the Federal Court of Australia Act 1976 (Cth) and the liberty to apply provided by the Additional Schemes Appointment Order (see [2] above), the Receivers sought orders and directions: (a) That the Receivers are justified in causing the Receivership Entities to enter into and perform their obligations under a settlement deed dated 12 September 2014 (Settlement Deed); and (b) That the Receivers be granted the power to dispose of the assets of the Mount Hutt Project (as defined in the Additional Schemes Appointment Order) including without limitation the 14 shares in Tosswill now registered in the name of Mr Letten by causing the Receivership Entities to enter into and perform their obligations under the Settlement Deed. 8 The Applicant (ASIC), Westpac and Mr Letten have been served with the application. Mr Salmon has been given notice of the application and the Investors have also been given notice of the application and the hearing date. 9 The Receivers submit that the settlement is commercially justifiable. The settlement avoids the costs of litigation in a foreign jurisdiction and the inevitable delays associated with resolving the disputes through the Courts. It also avoids the additional costs of a liquidator. The Receivers also submitted that, assuming the validity of Mr Salmon's priority claim, the best realisation outcome would be approximately NZD$333,000, which does not factor in the likely legal and other expenses of realising this amount. 10 Looking at the compromise from Mr Salmon's perspective demonstrates the extent of the compromise on both sides. Mr Salmon's alleged proprietary claim is for NZD$449,000. His "other claims" total approximately NZD$543,000 as against the Receivers' claim on behalf of Investors of approximately NZD$973,000. Those "other claims" comprise 35.8 per cent of the total claims in respect of Tosswill and the Mount Hutt Properties (totalling approximately NZD$1,516,000) while the Receivers' claim on behalf of Investors comprise 64.2 per cent of the total claims. Assuming a sale of the Mount Hutt Properties for NZD$1.28 million, the amount to be divided would only be NZD$240,000, after paying costs of sale incurred by the Receivers and lawyers (approximately NZD$76,000), repaying a bank debt (NZD$515,000) and paying the Salmon priority claim (NZD$449,000)). The Investors' interest of approximately 64.2 per cent would equate to about NZD$154,000. 11 Under the Settlement Deed, the Investors would receive NZD$220,000, which is about halfway between the Receivers' best case of NZD$333,000 and their position under Mr Salmon's claim of NZD$154,000.