Australian Securities and Investments Commission v Merhi

(a) there is a justifiable lack of confidence in the conduct and management of their affairs;

(b) it is alleged by ASIC on substantial evidence that VEFS and UFA have each committed a number of contraventions of the Corporations Act and that clients of VEFS and UFA are likely to lose very large amounts of superannuation investments;

(c) there is a risk to the public in relation to potential further contraventions of the Corporations Act that warrants protection; and

(d) it appears that each of VEFS and UFA is insolvent.

1. Each of these matters is addressed in detail in ASIC's outline of submissions: see [49]-[79]. It is important to note, however, that at this stage no findings have been made as to ASIC's allegations.
2. ASIC alleges that the evidence reveals extensive and widespread deficiencies in VEFS's and UFA's provision of financial services and in the Companies' compliance with the law. ASIC alleges that the Companies were used to channel large numbers of individual investors into making substantial investments of superannuation monies into Shield and First Guardian, and for which ASIC alleges that Venture Egg (and Mr Merhi and his associated entities) received substantial benefits.
3. ASIC alleges that Mr Merhi, VEFS and UFA have each committed serious contraventions of the Corporations Act and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) in the provision of financial product advice by way of a system or pattern of unconscionable conduct. ASIC submits that such contraventions are illustrated by the following matters (which are alleged by ASIC):

(a) Mr Merhi, in his role as the sole director of VEFS and UFA, supervised and/or had responsibility for overseeing the operation of Venture Egg as a Corporate Authorised Representative (CAR) of Interprac Financial Planning Pty Ltd (Interprac);

(b) Mr Merhi was the subject of multiple serious breach reports. Between 3 November 2023 and 11 September 2024, several breach reports were lodged with ASIC by various superannuation platforms in relation to Venture Egg pertaining to: the quality of advice given through Venture Egg; whether the advice provided was in the best interests of, and appropriate for, individual clients; the receipt of conflicted remuneration by Mr Merhi; and alleged misleading and deceptive conduct and dishonest conduct in relation to financial advice provided by Mr Merhi and other authorised representatives of Interprac;

(c) Macquarie Investment Management Limited and Equity Trustees Superannuation Limited conducted reviews in relation to the work undertaken by Venture Egg, which reviews questioned the financial advice provided to clients by Venture Egg advisers (namely Mr Merhi), and found instances of misleading or deceptive conduct and failures to disclose information within statements of advice;

(d) during Mr Merhi's tenure as the sole director, managing director and compliance manager of Financial Services Group Australia Pty Ltd (FSGA), FSGA demonstrated a propensity to fail to comply with its statutory obligations, including failing to take any action when concerns were raised by the responsible manager about particular statements of advice provided to clients; and

(e) on or around 31 May 2025, Interprac terminated Venture Egg as a CAR. There is no evidence that Venture Egg has obtained an appointment as an authorised representative of any other licensee, and its website states that that business has been shut down. Mr Merhi has also deposed that by 31 May 2025 Venture Egg had ceased carrying on a financial services business. However, remaining under the control of Mr Merhi as sole shareholder, there is the prospect that VEFS and UFA may continue or recommence active operations.

1. The provisional liquidator, Ms Di Carlo, has opined that:

(a) based on her review of the Companies' records to date, she does not consider that the records maintained by the Companies comply with s 286 of the Corporations Act;

(b) Mr Abbas and Mr Merhi may have failed to exercise their powers and discharge their duties to the Companies with the degree of care and diligence required by s 180 of the Corporations Act; the Companies were insolvent from at least August 2023; and a reasonable person in each of Mr Abbas's and Mr Merhi's positions would have had cause to believe the Companies were insolvent from this date. However, the Companies continued to trade and incur debts after this date. Further, funds of the Companies were used for the personal purposes of Mr Abbas and Mr Merhi;

(c) by virtue of the matters discussed at sub-paragraph (b) above, Mr Merhi and Mr Abbas appear to have breached their duty under s 588G of the Corporations Act to prevent the Companies from trading whilst insolvent;

(d) Mr Abbas and Mr Merhi failed to act in good faith and for a proper purpose in contravention of s 181 of the Corporations Act, as they allowed the Companies to trade whilst insolvent;

(e) Mr Merhi appears to have used his position as director to obtain a personal benefit to the detriment of the Companies, in contravention of s 182 of the Corporations Act, in that multiple transactions on AMEX credit card statements in the name of the Companies appear to be personal in nature;

(f) given Ms Di Carlo's findings regarding the Companies' financial records, she considers that Mr Merhi and Mr Abbas may have contravened s 344(1) of the Corporations Act by failing to take all reasonable steps to comply, or to secure compliance, with s 286 of the Corporations Act;

(g) each of Mr Merhi and Mr Abbas has failed to complete and submit a Report on the Company Activities and Property in contravention of s 475 of the Corporations Act; and

(h) Mr Merhi and Mr Abbas have failed to provide Ms Di Carlo with information regarding the Companies' business, property, affairs and financial position, including by failing to deliver up books and records in their possession, in contravention of ss 530A and 530B of the Corporations Act.

1. ASIC submits that in circumstances where (as discussed in ASIC's submissions):

(a) Mr Abbas does not appear to have any prior relevant experience in managing companies involved in the provision of financial product advice; and

(b) a number of other companies of which Mr Abbas was the director went into liquidation shortly after his appointment,

the Court cannot have any confidence in Mr Abbas's ability to conduct and manage the Companies' affairs.

1. ASIC submits that having ceased their businesses and replaced the sole director of each company with an individual not experienced in the management of a financial services business, there are real grounds for concern as to the ongoing conduct and management of the assets and affairs of VEFS and UFA.
2. As noted above, there was no opposition to the appointment of Ms Di Carlo as provisional liquidator, and there is no opposition to the winding up application.
3. ASIC submits that neither Mr Abbas nor Mr Merhi have co-operated with Ms Di Carlo in the exercise of her duties as provisional liquidator.
4. ASIC submits that the Court:

(a) can safely conclude that the Companies have been abandoned; and

(b) cannot have any confidence in the management of the affairs of the Companies.

1. ASIC also submits that there is a risk to the public that warrants protection, for the reasons set out in [62]-[67] of its submissions.
2. ASIC submits that the evidence shows that VEFS and UFA are insolvent, for the reasons set out at [74]-[79] of its submissions. Without making a finding on this issue, the material raises a real concern as to whether the Companies may be insolvent.
3. Venture Egg is no longer trading, is no longer a CAR, and its website states that that business has been shut down.
4. In light of the above, I consider it appropriate to order the winding up of each of the Companies on the just and equitable ground.

1. In its Amended OP, ASIC seeks declarations of contravention against VEFS and UFA pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth), s 1317E of the Corporations Act and/or s 12GBA of the ASIC Act, for contraventions of ss 952E, 961B, 961G, 961J, 961Q of the Corporations Act and s 12CB of the ASIC Act.
2. ASIC states in its submissions that it intends to seek leave to file a further amended originating process which will seek pecuniary penalties against the Companies pursuant to s 1317G of the Corporations Act and s 12GBB of the ASIC Act.
3. ASIC states that its intention in seeking those orders is to fulfil its statutory duty to enforce compliance with the Corporations Act and the ASIC Act, and to promote market integrity and consumer protection in connection with the Australian financial system. ASIC does not expect to be able to make any financial recovery from VEFS or UFA as a result of seeking the pecuniary penalty orders.
4. ASIC states that it considers that, in order to aid deterrence, there is a significant public interest in declarations of contravention and the imposition of penalties being on the public record. Accordingly, if it is successful in obtaining such relief, ASIC considers that it would signal the Court's condemnation of the relevant contraventions.
5. The principles relating to leave to proceed were summarised by Foster J in Rushleigh Services Pty Ltd (In Liq) (Receivers and Managers Appointed) v Forge Group Ltd (In Liq) (Receivers and Managers Appointed) [2016] FCA 1471 at [15]; see also Australian Competition and Consumer Commission v Birubi Art Pty Ltd (No 2) [2018] FCA 1785 (Birubi) at [8]-[10] per Perry J.
6. ASIC has indicated that it is content to provide an undertaking to the Court not to seek to enforce against VEFS or UFA any order for the payment of money, whether by way of penalty, costs or otherwise, without the further leave of the Court. In this way, the grant of any such relief as against VEFS and UFA would not, of itself, impact creditors.
7. Ms Di Carlo has been informed of ASIC's intention to seek leave to proceed against the Companies and to seek pecuniary penalty orders against them, and has indicated that she does not object to that course.
8. I am satisfied that it is appropriate to grant leave to proceed in the present case for the following reasons:

(a) the relief sought by ASIC against the Companies (being declarations of contravention and other relief) are not recoverable by way of a proof of debt. Accordingly, this is a case where the usual procedure is unavailable;

(b) the alleged contraventions the subject of this proceeding are serious;

(c) ASIC is content to proffer an undertaking to the Court not to seek to enforce against VEFS or UFA any order for the payment of money, whether by way of penalty, costs or otherwise, without the further leave of the Court; and accordingly:

(i) there will be limited impact on the creditors of each company; and

(ii) the liquidator will not be unduly distracted by the proceeding,

as demonstrated by Ms Di Carlo's attitude to the application; and

(d) there is a clear and significant public interest in allowing ASIC, as the independent financial services regulator, to fulfil its statutory duty to enforce compliance with the Corporations Act and the ASIC Act, particularly given the number of investors and the significant quantum of investor funds affected by the collapse of Shield and First Guardian.

1. I will therefore make order substantially as sought by ASIC.

I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Moshinsky.

FINANCIAL SERVICES GROUP AUSTRALIA PTY LTD (IN LIQUIDATION) (ACN 009 569 939)