Winding up of the scheme and appointment of liquidators and receivers
124 Orders are sought by ASIC in accordance with s 1101B(1)(a)(i) of the Corporations Act in relation to the appointment of Scheme Receivers on a final basis and s 601EE(1) and s 461(1)(k) in relation to its application for orders that the unregistered managed investment Scheme and AMS in both its capacities be wound up (respectively). In particular:
(a) s 601EE(1) provides that if a person operates a managed investment scheme in contravention of s 601ED(5) ASIC may apply to have the scheme wound up and s 601EE(2) provides that the Court may make any orders it considers appropriate for the winding up of the scheme;
(b) s 461(1)(k) provides that the Court may order the winding up of a company if the Court is of opinion that it is just and equitable that AMS be wound up; and
(c) s 1101B(1)(a)(i) provides that the Court may make such order or orders as it thinks fit if on the application of ASIC, it appears to the Court that a person has contravened a provision of Ch 7.
125 Further considerations must also now be factored into the analysis by virtue of the appointment of the Voluntary Administrators as Voluntary Liquidators of AMS by special resolution at the resumed second creditors meeting on 26 November 2020. In its recent application in response to those events, ASIC relies on s 467B of the Corporations Act for an order that the Interim Receivers be appointed as the Court-Appointed Liquidators, such that the appointment of the Voluntary Liquidators is terminated. Section 467B provides as follows:
467B Court may order winding up of company that is being wound up voluntarily
The Court may make an order under section 233, 459A, 459B or 461 even if the company is already being wound up voluntarily.
126 Although s 467B is not a source of power to order a winding up, it confirms the Court's power to order a winding up even if the company is already being wound up voluntarily: In the matter of SPG Projects Pty Ltd (in liq) [2020] NSWSC 34 per Gleeson J (at [6]), citing Citrix Systems Inc v Tele Systems Learning Pty Ltd (in liq) (1988) 28 ACSR 529 per Moore J (at 535). The practical effect of such an order is that the court-appointed liquidator supersedes the voluntary liquidator: In the matter of Evcorp Grains Pty Ltd ACN 134 204 050 (No 2) [2014] NSWSC 155 per Brereton J (at [5]).
127 Turning to the winding up of AMS on the 'just and equitable ground' under s 461(k) (and s 467B), s 462(2)(e) and s 464 of the Corporations Act make clear that ASIC has standing to seek such an order if it is investigating, or has investigated, under Pt 3, Div 1 of the ASIC Act matters being, or connected with the affairs of a company. It is well established that ASIC may apply for the winding up of a company on the 'just and equitable ground' on the basis of public interest considerations: see, for example, Australian Securities Commission v AS Nominees Ltd (1995) 62 FCR 504 per Finn J (at 530G-531G). In the present case, Pegasus provides a compelling analogy. In Pegasus, Davies AJ granted a winding up on application by ASIC, having referred (at [91]) to observations of Owen J in Australian Securities and Investments Commission v Chase Capital Management Pty Ltd [2001] WASC 27 (at [75]) to the effect that '[t]he public interest justifies intervention where, among other things, it is required for investor protection and where there has been regular or repeated breaches of the law'.
128 I am satisfied that the evidence clearly establishes that similar considerations are equally applicable in the present proceedings such that both the Scheme and AMS ought be wound up. The authorities on orders under s 467B disclose the requirement for a 'good reason' to justify the replacement of the voluntary liquidator: Evcorp Grains (at [9]-[10]). In this case, the good reasons are obvious and numerous. At present, the Voluntary Liquidators are appointed to AMS alone in circumstances where Mr Marco is the only significant creditor of the company in the ordinary sense. The claims of investors to the assets of AMS in a winding up are contingent at best. What is important in circumstances where there is an interconnection and overlap and mixed assets, is that there be a single insolvency controller appointed to liquidate the assets as a whole, including the personal assets covered by the Scheme to ensure that it is done in a just and equitable manner and to minimise unnecessary cost. That, for example, was the approach taken by Siopis J in Australian Securities and Investments Commission v Westpoint Corporation Pty Ltd [2006] FCA 135, where his Honour said (at [19]-[21] and [32]-[36]):
19 Senior Counsel for ASIC, made submissions in support of the appointment of Mr Herbert and Mr Read as liquidators. He submitted that the company is part of a group comprising a large number of companies and Mr Herbert and Mr Read were already in control of Westpoint Management Pty Ltd - another of the companies in the group. He submitted that a factor which should be taken into account in considering whether to appoint Mr Read and Mr Herbert, is that the affairs of Westpoint Management Pty Ltd and the company are substantially intertwined, and that the on-going investigations would be assisted if there was one set of liquidators in respect of both companies. Further, he submitted that the appointment of the same persons as liquidators to the companies in a group of companies would be more efficient and would reduce the costs of the administration. It was in the interests of creditors, generally, if expenses were reduced.
20 Senior counsel also submitted that there was no real conflict between the roles which Mr Herbert and Mr Read might have to perform as liquidators of the company and as provisional liquidators of Westpoint Management Pty Ltd. He submitted that the authorities are to the effect that it is desirable that where companies in a group go into liquidation, to the extent that it is possible to do so without there being a real conflict of interest, one liquidator should be appointed to the companies in liquidation. Mr Colvin SC relied upon the following observations of Lehane J in the case of Re Chilia Properties Pty Ltd, (admin apptd) (1997) 154 ALR 179 at 180 ('Chilia'):
'…it is well established that in the absence of any real, as opposed to theoretical, conflict of interest it is generally desirable that the external administration of a group of companies should be placed in the hands of one administrator.'
21 Mr Colvin SC further submitted that, where there were dealings within a group of companies between companies that were under the effective control of the same persons, in assessing real conflict, a distinction should be drawn between dealings which affected the interests of external creditors and other external interests, and those which did not. Mr Colvin SC also submitted that it is well accepted that the courts would appoint a single liquidator to a group of companies, notwithstanding that there might be some possible theoretical conflict, on the basis that if a real conflict emerged during the course of the administration, that the liquidator could then make alternative arrangements as to how to deal with the real conflict. The fact that there might be a theoretical conflict should not be an inhibition on the appointment of a single liquidator.
…
32 First, I agree that the observations made by Lehane J in Chilia, referred to above, state the principles to be applied in this case. The principles are also reflected in the following observations by Hoffmann J (as he then was) in Re Arrows Ltd [1992] BCC 121, which were cited with approval by Warren J in Sisu Capital:
'…It is by no means uncommon in the case of the insolvency of a substantial group of companies for cross-claims and conflicts of interest to arise between companies within the group. That does not usually deflect the court from appointing a single firm of insolvency practitioners in the first instance to deal with the whole insolvency of the group, leaving the question of potential conflict of interests to be dealt with if and when it arises.'
33 I accept the arguments advanced by Mr Colvin SC and Mr Thomson that in the situation where there is no obvious and real conflict but there is a possibility of a theoretical conflict, a court should not thereby be inhibited from appointing a single set of liquidators when that would advance the efficiency of the liquidation, and result in fewer fees being charged in respect of the liquidation.
34 I am not satisfied that on the evidence that is before me that there is any real conflict in the sense that that concept is recognised in the cases. There is no evidence the appointment of Mr Herbert and Mr Read to the position of liquidators of the company would adversely affect the interests of external creditors or other external interests. The evidence of Mr Francis as to the inter-relationship between Westpoint Management Pty Ltd and the company does not demonstrate any such prejudice.
35 I am also confident that in the event that any real conflict does emerge that the liquidators will approach the Court and seek directions in relation to how to deal with that conflict, as is foreshadowed in the authorities.
36 Second, as to the question of the extent of work that has already been done, I accept that the administrators have done some good work in relation to the investigation of the affairs of the company as is evidenced by the draft report to creditors of 13 February 2006, exhibited to the affidavit of Mr Francis. However, as is recognised in that document itself, the amount of work which will be required to be done in the conduct of a liquidation of this size and of this complexity would be substantially more than has already been done. Therefore, the fact that there has been some work done in investigating the affairs of the company, does not, in my view, operate as a decisive factor in favour of appointing the administrators as liquidators.
(see also Australian Securities and Investments Commission v Mercorella (No 2) [2006] FCA 763).
129 Relevant also, particularly to the creditors will be the fact that the Voluntary Administrators incurred costs in excess of $500,000 during the administration and have a potential cost estimate as high as $1.5 million for the winding up of AMS, as deposed by Mr Shaw. This highlights the importance of the insolvency proceeding as efficiently as possible. The Interim Receivers have been in place since May 2020, as distinct from the Voluntary Administrators who were appointed at Mr Marco's request in late September 2020. There is no doubt that it is more efficient for a single insolvency practitioner to be appointed across all the potential assets forming part of the Scheme. It is conventional to appoint ASIC's nominee and particularly so in this case where a substantial amount of work has already been carried out by the Interim Receivers. Further, there has clearly been duplication in the work of the Interim Receivers and the Voluntary Administrators to date which has given rise to unnecessary costs. Certainly, the Interim Receivers have an advanced understanding of the affairs of AMS and the Scheme, which is a relevant consideration for their appointment: see Australian Securities and Investments Commission v Linchpin Capital Group Ltd (No 2) [2019] FCA 398 per Derrington J (at [4]) and, of course, Siopis J in Westpoint.
130 There is no doubt that this case calls out for the same insolvency practitioners to be appointed to all of the relevant constituent elements of the Scheme. For Mr Marco, it was contended that there was concern that because the Interim Receivers were appointed by ASIC, they might not be independent. While it is true that the Interim Receivers were appointed on ASIC's application, they were actually appointed by the Court as independent Interim Receivers for the purpose of preparing a Report for the benefit of the Court. There is no reason at all to consider they have not discharged their obligations to date objectively in accordance with their professional obligations. At the same time, the Voluntary Administrators were appointed on the application of Mr Marco, a director of AMS. To the extent that there could be any potential perceived concern it might more readily look to be in the case of that appointment, although I hasten to add there is no reason to consider that there is any concern on the face of either appointment. There is no doubt that each has independent obligations and responsibilities and there is no doubt that there is an absence of evidence that either is relevantly compromised in any way. But any concern about the independence of the Interim Receivers is without foundation: see Westpoint (at [38]).
131 As to Mr Marco's concerns about the interaction between Court-Appointed Liquidators, Scheme Receivers and the existing asset preservation orders, ASIC's current form of relief adequately provides for their consistent operation. It is entirely appropriate in the interim period for sufficient provision to be made to enable the party the subject of the asset preservation orders to continue to pay legal expenses and to continue to draw amounts to meet normal living expenses. Such provision for personal expenses is a fundamental component of the regime under s 1323 of the Corporations Act for circumstances where the Court has not determined the final merits of a particular dispute. Ultimately though, the reality is that Mr Marco has personally guaranteed each of the Declarations of Trust. Unless the declarations can be set aside, the inevitable result will be bankruptcy and the protection afforded under the Bankruptcy Act 1966 (Cth). That also, of course, will give Mr Marco protection in the event that he cannot meet certain specified debts. It would appear inevitable that the guarantees will be drawn upon, given the very substantial deficit in funds available for investors. In terms then of the ongoing interrelationship between the Scheme Receivers and the Court-Appointed Liquidators, the position is clear that the Scheme Receivers will deliver up that part of the property, that is the property of the Scheme to the liquidators and that the asset preservation orders will lapse upon the later appointment of the Scheme Receivers and Court-Appointed Liquidators.
132 As to the appointment of the Scheme Receivers, which Mr Marco opposes particularly in relation to his personal assets, it is entirely appropriate and conventional where there will be no asset preservation orders on an ongoing basis. Receivers and liquidators can be concurrently appointed in appropriate circumstances : see, for example, Kirman v RWE Robinson and Sons Pty Ltd (in liq), in the matter of RWE Robinson and Sons Pty Ltd (in liq) [2019] FCA 372. Here, the role of the Scheme Receivers is to secure, identify and deliver up all Scheme property to the Court-Appointed Liquidators. While there is merit in Mr Marco's contention that ASIC's relief does not provide for a termination of the receivership and it is unclear what their ongoing role will be after delivery up of the Scheme property, the practical reality is that both appointments will be carried out by the same insolvency practitioners (the current Interim Receivers). It is not the case that the concurrent appointments will occasion unnecessary duplication or cost, rather it is a prudent approach to ensuring that the appointed insolvency practitioner is sufficiently empowered to do what is necessary to bring the Scheme to an end and return available funds to investors. This being said, Mr Marco will have liberty to apply on any matter at short notice, and specifically in relation to the ongoing appointment of the Scheme Receivers (or specifically their capacity as Individual Receivers).
133 I accept ASIC's submission that orders 10 and 23 are appropriate for the purpose of protecting what otherwise might be rather a sterile argument about whether or not the liquidators were able to look to particular assets or not for the purpose of their remuneration on the basis that they might be assets of the Scheme or assets of AMS, given the manner in which AMS was operating and its involvement in the Scheme.
134 As it has been established that the defendants have contravened s 601ED(5) and s 911A of the Corporations Act, it is appropriate to exercise the discretion conferred under each of the provisions above to make orders for the appointment of receivers to the defendants on a final basis and for the winding up of both the unregistered managed investment scheme and AMS. Many of the factors which weigh in favour of the exercise of each of those discretions have been traversed previously, for example in Marco (No 3) (at [108]-[127]).
135 It is appropriate to make orders for the orderly cessation of the Scheme and the winding up of AMS because of the:
(a) persistence and seriousness of the contraventions at issue;
(b) evident shortfall in investor funds;
(c) absence of any reasonably foreseeable prospect of a significant return to investors;
(d) evidence of related party and personal expenditure from investor funds; and
(e) deficiencies in record keeping as to investor entitlements.
136 Orders are sought pursuant to s 1324B of the Corporations Act for the publication of a newspaper notice in a form to be approved by the Court. The power in s 1324B is enlivened in circumstances where the Court is satisfied that a person has engaged in conduct constituting a contravention of, relevantly, Ch 5C (which encompasses s 601ED(5)). ASIC has prepared a draft notice and provided a copy to the defendants and the Interim Receivers.
137 In relation to the publication orders, I am not satisfied that they are desirable. It will add further cost and further reduce the funds available to creditors. The proceedings have had ample publicity.
138 As to costs, the defendants contended that because ASIC narrowed the scope of its relief, the defendants should be entitled to costs or some reduction in costs. I cannot accept that submission. Mr Marco has put ASIC to proof on every aspect of this proceeding until the very last moment. There have been no relevant admissions and even in the context of submissions concerning the orders to be made, it was contended that there was no proof of contraventions by AMS in either of its capacities. It is clear that ASIC has gone to extraordinary lengths to examine and bring before the Court the very complex and unsatisfactory affairs that have been involved in this financial exercise. ASIC has been required to lead all evidence necessary to prove its case. It is true that it has made concessions in relation to the relief, but I do not think these are such that warrant a reduction in the costs that it should be awarded. These concessions have clearly been on issues subsidiary to the primary relief of winding up which ASIC has pressed for since May 2020.
139 It is necessary to say something about the costs of the Interim Receivers. Ms Thornton for the defendants made the submission, correctly, that against ASIC's opposition, I made orders that ASIC be responsible for certain costs of the Interim Receivers for the reasons given in Marco (No 4) (at [12]-[33]). Senior counsel for ASIC made the point that ASIC had not paid costs to the Interim Receivers beyond the cost of preparation of the Interim Receivers' Report. Although the Interim Receivers have been paid for the costs of preparation of their Report, which was certainly a substantial task, the Interim Receivers have done additional work on the basis that they have no present entitlement from ASIC and if they wish to agitate that matter, they will have to raise it with the Court, as matters currently stand. Senior counsel for ASIC made clear that the Interim Receivers were prepared to continue to act in circumstances where ASIC had made no commitment to meet their costs beyond the preparation of the Interim Receivers' Report. Additionally, the Interim Receivers were represented at the hearing, with their counsel electing to read their evidence and then be excused. Clearly they have had (and will continue to have) the opportunity to be heard on the issue. Notwithstanding this, I note that ASIC has sought orders which would protect the Interim Receivers beyond simply the preparation of the Interim Receivers' Report. Although I had concerns initially about the costs of appointing receivers detracting from the availability of funds for creditors, now that the matter has reached this stage of finality, in my view, it is appropriate to make the conventional orders as reflected by order 7. That does not mean, however, that I have ruled on whether ASIC be entitled to recover, on the assessment of its costs, the disbursements incurred in paying the Interim Receivers for preparation of the their Report. That is a matter which should be separately addressed in light of my firm view that those costs should not be borne by creditors.
140 Finally, I note ASIC's observation that while the relief which has been sought is partly for the benefit of investors, partly for the protection of other members of the community, and partly as a way of precluding ongoing activity of this nature by the defendants, those investing with Mr Marco or at least some of them, must surely have known that promises made were too good to be true. The expectation of receiving extremely high interest returns from investments, when those returns were far beyond those normally available is not something to be completely overlooked. To some extent, some investors at least should surely have realised that such promises were too good to be true and took unnecessary risks. That said, Mr Marco's unlawful conduct and attitude to financial affairs have apparently caused financial loss and no doubt related hardship to investors on a scale rarely seen.