Australian Securities and Investments Commission v Piggott Wood & Baker

MCELWAINE: 1 When this matter was commenced, the Court operated a paper filing system. Mr Barry Hamilton, who brings this application, has toiled as the liquidator of the Piggott Wood and Baker Run-out Mortgage Business (the Firm and the Business) since his appointment (initially jointly with John William Woods, now retired) by orders made by Sundberg J on 13 December 2001 pursuant to s 601EE(1) of the Corporations Act 2001 (Cth) (the Act). The Firm was once a prominent legal practice in Tasmania. It operated a large pooled mortgage scheme by investing client funds in real estate and property development. It was a controlled fund within the meaning of the Rules of Practice 1994 (Tas). The total of advances made to December 1998 exceeded $60 million. By Tasmanian standards, the Firm was a medium size banker. However, imprudent lending practices brought about the demise of the lending business and ultimately the insolvency of most of the partners of the Firm. Much litigation ensued, including claims by the bankrupt partners for indemnity from top up professional indemnity insurers. The primary professional insurer, HIH Insurance Ltd and each of its subsidiaries, including FAI Insurance Ltd (together HIH Group), collapsed in March 2001 when provisional liquidators were first appointed. 2 For a more detailed account of the collapse of the Firm and subsequent litigation see: Law Society of Tasmania v Turner (2001) 11 Tas R 1; [2001] TASSC 129; Australian Securities & Investments Commission v Piggott Wood & Baker [2006] FCA 1774; Hamilton v Piggott Wood & Baker [2003] FCA 1055; Australian Securities & Investments Commission v Piggott Wood & Baker (A Firm) (No 3) (2008) 172 FCR 257; [2008] FCA 1547 and Australian Securities & Investments Commission v Piggott Wood & Baker (A Firm) (2015) 104 ACSR 261; [2015] FCA 18. 3 Mr Hamilton now applies pursuant to s 601EE of the Act for orders to conclude the liquidation of the run-out mortgage business. The orders sought are: 1. The liquidator be relieved of the obligation to serve this process set out in Regulation 7.5(6) of the Federal Court (Corporations) Rules 2000. 2. The liquidator is justified in placing an advertisement in the Mercury and Australian newspapers for any investor to make claim within 30 days of the date of the advertisements in respect of the unclaimed monies held by the liquidator in respect of the Piggott Wood & Baker Run-out Mortgage Business. 3. Within 2 months after the date of such advertisements, any unclaimed monies be paid by the liquidator to the Applicant, in such a manner as required by the Applicant pursuant to section 601NG of the Corporations Act 2001 (Cth). 4. That, 3 months after the liquidator lodges the final cash book with the Applicant in respect of the Piggott Wood & Baker Run-out Mortgage Business, the liquidator be entitled to destroy all books and records, including legal files maintained on his behalf, in respect of the Piggott Wood & Baker Run-out Mortgage Business and its litigation. 5. That upon the satisfaction of order 3 above, Barry Kenneth Hamilton be released liquidator of the Piggott Wood & Baker Run-out Mortgage business and that the liquidation is finalised. 6. That such release discharges Barry Kenneth Hamilton as liquidator of the Piggott Wood & Baker Run-out Mortgage Business from all liability in respect of any act done or default made by him in the administration of affairs of the Piggott Wood & Baker Run-out Mortgage Business or otherwise in relation to his conduct as liquidator, but any such order may be revoked on proof that it was obtained by fraud or by suppression or concealment of any material fact. 7. The liquidator's costs of and incidental to this application be paid out of the assets of the Piggott Wood & Baker Run-out Mortgage Business. 8. Such additional Orders as the Court deems fit. 4 In his affidavit in support, Mr Hamilton explains that he has distributed all recovered funds either to individual investors or to the Solicitors' Trust (it being the entity which guaranteed most of the money lost by investors): save for $227,528.89 due to investors that he has not been able to locate or who have not banked dividend cheques and $26,944.16 which he has withheld on account of finalisation costs and disbursements. There are no further recoveries for the benefit of creditors. The total of distributions to date is $1,555,148.61 to investors on account of interest, $1,125,284 to the Solicitors' Trust and $107,236.37 as a second dividend to investors on account of interest. On 14 October 2021, Mr Hamilton received a final dividend payment from the liquidators of the HIH Group and on 9 September 2022, he was advised by the liquidators that the liquidation of the HIH Group is now finalised and that an application had been made to deregister each relevant company. 5 Mr Hamilton states that he intends to publish advertisements in newspapers listing the names of the investors on whose account he holds unclaimed dividends with advice to lodge a claim within 30 days. If after that period he continues to hold investor funds, he intends to transfer the monies to the Australian Securities & Investments Commission (ASIC) as unclaimed money. In the winding up of a registered managed investment scheme, s 601NG of the Act permits that to be done. The difficulty which arises is that the Firm's scheme was unregistered. 6 Mr Hamilton also holds a very large number of books and records that were the property of the Firm. He seeks to dispose of the records. In support he notes that the last request received to inspect the records was made by officers of Tasmania Police in 2007. He deposes that to the best of his belief he is not aware of any circumstances in relation to the liquidation which may result in a need to produce the books and records within the next five years. 7 Although not directly applicable to the liquidation of an unregistered managed investment scheme, Mr Hamilton has deposed as to the matters ordinarily considered upon an application to release a liquidator and deregister a company pursuant to r 7.5 of the Federal Court (Corporations) Rules 2000 (Cth). He states (in summary): (a) Upon making the payments referred to in paragraph 4, so much of the property has been realised as can be realised without needlessly protracting the winding up of the Business; (b) No calls have been made on contributories in the course of the winding up; (c) The amounts paid in the course of the winding up which could be considered as dividends are detailed in the table annexed to his affidavit; (d) There is no committee of inspection; (e) ASIC has not caused the books in relation to the Business to be audited; (f) The Court has not ordered a report on the accounts of the liquidator be prepared; (g) He has not received any objection to his release as liquidator; (h) No report has been submitted to ASIC under s 533 of the Act; (i) He does not consider it necessary to report on the affairs of the Business or any of its officers, beyond the extent to which he has already reported; (j) He did not disclaim any property in the course of the winding up of the Business; (k) Remuneration paid to himself as liquidator amounted to $2,537,787.19, in accordance with court orders; (l) He estimates that the $26,944.16 held will be used to pay the costs, charges and expenses payable in respect of his legal fees, storage fees and expenses for destruction of documents following his release. His remuneration will exceed $15,000.00, however, there will only be sufficient funds to make a partial payment of this amount, if approved by this Court. 8 Finally, Mr Hamilton states that to the best of his belief "there has been no act done or default made by me in the administration of the affairs of the [Firm] or otherwise in relation to my conduct as liquidator which is likely to give rise to any liability to the [Firm] or any creditor or contributory" and that he is "not aware of any claim made by any person that there has been such act or default". 9 I accept in its entirety the evidence of Mr Hamilton and I make findings of fact according to it. 10 It is uncontroversial that where a court has power to appoint a liquidator of an unregistered scheme pursuant to s 601EE of the Act, it also has power to make orders for the release of the liquidator: Re Idyllic Solutions Pty Ltd [2018] NSWSC 700 at [3], Black J. 11 ASIC has provided correspondence to Mr Hamilton's solicitors dated 28 February 2023 to the effect that it does not wish to be heard upon the application and does not oppose the orders sought save for one matter that it draws to the attention of the Court. It is whether Part 9.7 of the Act which deals with unclaimed property applies to the winding up of an unregistered managed investment scheme. To the extent relevant the Act provides at s 601NG: If, on completion of the winding up of a registered scheme, the person who has been winding up the scheme has in their possession or under their control any unclaimed or undistributed money or other property that was part of the scheme property, the person must, as soon as practicable, pay the money or transfer the property to ASIC to be dealt with under Part 9.7. 12 There is no similar provision which applies to unregistered schemes. Section 601EE provides: Unregistered schemes may be wound up (1) If a person operates a managed investment scheme in contravention of subsection 601ED(5), the following may apply to the Court to have the scheme wound up: (a) ASIC; (b) the person operating the scheme; (c) a member of the scheme. (2) The Court may make any orders it considers appropriate for the winding up of the scheme. 13 The issue to which ASIC adverts is whether s 601EE(2) permits the making of an order for the payment of unclaimed monies held by a liquidator of an unregistered scheme to ASIC to be held as if the monies are unclaimed or undistributed to be dealt with under Part 9.7 of the Act. 14 Unclaimed property is defined at s 9 of the Act as: unclaimed property means: (a) property paid or transferred to ASIC under a provision of this Act that provides for property to be transferred, or for the Court to direct that property be transferred, to ASIC to be dealt with under Part 9.7; or (b) any other property that a provision of this Act provides for ASIC to deal with under Part 9.7; or (c) property that vests in ASIC under section 1404; or (d) an accretion to, or substitution for, property that is unclaimed property because of any other application or applications of this definition. 15 The question is does reference in paragraph (a) of that definition to property transferred as directed by the Court to be dealt with under Part 9.7 constrain its application to provisions which expressly so provide? An example is s 544, which applies to liquidations generally: Unclaimed money to be paid to ASIC (1) Where a liquidator of a company has in his or her hands or under his or her control: (a) any amount being a dividend or other money that has remained unclaimed for more than 6 months after the day when the dividend or other money became payable; or (b) after making a final distribution, any unclaimed or undistributed amount of money arising from the property of the company; he or she must forthwith pay that money to ASIC to be dealt with under Part 9.7. (1A) If a liquidator has, or has control of, the money of a company that has no members, the liquidator must pay it to ASIC as soon as practicable for it to be dealt with under Part 9.7. (2) The Court may at any time, on the application of ASIC: (a) order a liquidator of a company to submit to it an account, verified by affidavit, of any unclaimed or undistributed funds, dividends or other money in his or her hands or under his or her control; and (b) direct an audit of accounts submitted to it in accordance with paragraph (a); and (c) direct a liquidator of a company to pay any money referred to in paragraph (a) to ASIC to be dealt with under Part 9.7. (3) Where a liquidator of a company pays money to ASIC pursuant to subsection (1) or (1A) or an order of the Court made under paragraph (2)(c), the liquidator is entitled to a receipt for the money so paid and the giving of that receipt discharges the liquidator from any liability in respect of the money. (4) For the purposes of this section the Court may exercise all the powers conferred by this Act with respect to the discovery and realisation of the property of a company and the provisions of this Act with respect to the exercise of those powers apply, with such adaptations as are prescribed, to proceedings under this section. (5) The provisions of this section do not, except as expressly declared in this Act, deprive a person of any other right or remedy to which the person is entitled against the liquidator or another person. 16 Justice Austin dealt with the powers of a court to make orders and give directions about the distribution of funds in the winding up of an unregistered managed investment scheme in Australian Securities & Investments Commission v Tasman Investment Management Ltd (2006) 59 ACSR 113; [2006] NSWSC 943. In part, his Honour said at [16]-[19]: There is no statutory scheme for the winding up of an unregistered managed investment scheme, of a kind comparable to Pts 5.4B, 5.5 and 5.6 of the Corporations Act in the case of the winding up of a company. Instead, there is a single, short section. Section 601EE(1) simply says that if a person operates a managed investment scheme in contravention of s 601ED(5) (which prohibits the operation of a managed investment scheme that is required to be registered, unless it is registered), ASIC and certain others may apply to the court to have the scheme wound up. Then s 601EE(2) gives the court the power to make any orders it considers appropriate for the winding up of the scheme. It was submitted on behalf of Mr Parbery that this subsection permits the court to make orders determining who is entitled to the surplus assets of the scheme. If the Queen Victoria Project had been developed by a company and there were surplus assets in the court-ordered winding up of the company after the payment of creditors and the costs of the winding up, the liquidator would be required, after settling a list of contributories under s 478, to adjust the rights of the contributories among themselves and distribute any surplus among the persons entitled to it, with the court's special leave: ss 485(2) and 488(2). Subject to the provisions of the company's constitution, that would normally lead to a pro rata distribution among contributories in the same class. According to the submission, the court should sanction the distribution of the surplus assets of the scheme to the investors on a pro rata basis, by analogy with the winding up of a company. Care must be taken to avoid any unreflective application of company law ideas to enterprises organised as managed investment schemes, whether registered or unregistered. As White J pointed out in Re Stacks Managed Investments Ltd (2005) 219ALR 532; 54 ACSR 466; [2005] NSWSC 753 at [41], the nature of the winding-up process depends on what it is that is being wound up. Thus, the winding up of a trust is quite a different thing from the winding up of a company, in terms of such matters as the rights of "scheme creditors" and investors: Stacks Managed Investments at [42]-[44]; see also Mier v FN Management Pty Ltd [2006] 1 Qd R 339; (2005) 56 ACSR 93; [2005] QCA 408 at [20] per Keane JA. Other analytical frameworks apply to the winding up of a scheme based on partnership, and a scheme based on contractual arrangements. Sometimes the person appointed to wind up a registered or unregistered scheme is described as a "liquidator", a title accurate enough to designate the function to be performed, but not to be confused with the liquidator of a company whose appointment carries with it the statutory consequences identified by White J: Stacks Managed Investments at [45]; see also Mier v FN Management per Keane JA, a case where a "liquidator" had been appointed. Although the winding up of a managed investment scheme proceeds within the appropriate general law framework, the statutory provisions governing the winding up of schemes give the court a great deal of flexibility. Subject to the provisions of the scheme's constitution in the case of a registered scheme, the court may use its statutory powers under Ch 5C (s 601EE(2) for an unregistered scheme, and s 601NF(2) for a registered scheme), and its general statutory and inherent powers, to make appropriate orders for the winding up of the scheme: Warne v GDK Financial Solutions Pty Ltd [2006] NSWSC 259 at [93]-[100] per Young CJ in Equity; Cumulus Wines Pty Ltd v Huntley Management Ltd (2004) 50 ACSR 58; [2004] NSWSC 609. In the case of an unregistered scheme, the statute does not attempt to lay down a basis for or method of winding up, and s 601EE(2) empowers the court to make "any orders it considers appropriate for the winding up of the scheme" [emphasis added]. That led Barrett J to remark, in Australian Securities and Investments Commission v Commercial Nominees of Australia Ltd (2002) 42 ACSR 240; [2002] NSWSC 576 at [13]: [13]…the court has jurisdiction to settle or prescribe any aspect or element of the basis for winding up or the winding up process which it is necessary to supply because that element cannot be obtained from any other source. 17 At [21] his Honour expressed reservation and concluded at [22] that the statutory power at s 601EE(2) does not authorise the making of orders that override proprietary rights. Therefore the court did not in that case authorise the making of orders to distribute surplus assets otherwise than to the persons entitled: [26]. No difficulty of that character arises in this case. The investors and the proportionate entitlements are known: the problem is that the investors cannot be located or have chosen for whatever reason not to bank dividend cheques as sent by Mr Hamilton. 18 It is important in my view not to read into the broad conferral of power at s 601EE(2) limitations that are not expressed, more so as this is the only provision that confers power to make facilitating orders in the winding up of an unregistered managed investment scheme: see The Owners of the ship "Shin Kobe Maru" v Empire Shipping Company Inc. (1994) 181 CLR 404 at 421. The power is to make any orders that are considered appropriate for the winding up of an unregistered scheme. An order which relates to unclaimed money the property of individual investors which is protective in effect is in my view within the statutory power. In this case it is obviously appropriate that facilitating orders be made so that the liquidation of the Business can be finalised in a manner that preserves the entitlements of individual investors to make claims despite finalisation. Part 9.7 of the Act is the collection of provisions that deal with unclaimed property. In the liquidation of a registered scheme, it expressly applies to unclaimed scheme money or property: s 601NG. There is no logical reason why unclaimed money or property of an unregistered scheme should be dealt with differently. 19 Accordingly, Mr Hamilton may be ordered to pay the balance of the unclaimed monies to ASIC to be dealt with under Part 9.7 of the Act. That order will then operate as one within the meaning of the definition of unclaimed property at s 9: it will be property which the Court has directed be transferred to ASIC under a provision of the Act, in this case s 601EE(2).

Orders 20 During submissions, counsel for Mr Hamilton refined the form of the orders sought and I am satisfied that it is appropriate to make each. For these reasons I order as follows:

1. The liquidator is justified in placing an advertisement in the Mercury, Australian, Advocate and Examiner newspapers for any investor to make claim within 30 days of the date of the advertisements in respect of the unclaimed monies held by the liquidator in respect of the Piggott Wood & Baker Run-out Mortgage Business.
2. Within 2 months after the date of such advertisements, any unclaimed monies be paid by the liquidator to the Applicant, in such a manner as required by the Applicant to be dealt with under Part 9.7 of the Corporations Act 2001 (Cth).
3. That, 3 months after the liquidator lodges the final cash book with the Applicant in respect of the Piggott Wood & Baker Run-out Mortgage Business, the liquidator be entitled to destroy all books and records, including legal files maintained on his behalf, in respect of the Piggott Wood & Baker Run-out Mortgage Business and its litigation.
4. That upon the satisfaction of order 3 above, Barry Kenneth Hamilton be released as liquidator of the Piggott Wood & Baker Run-out Mortgage Business and that the liquidation be finalised.
5. That such release discharges Barry Kenneth Hamilton as liquidator of the Piggott Wood & Baker Run-out Mortgage Business from all liability in respect of any act done or default made by him in the administration of affairs of the Piggott Wood & Baker Run-out Mortgage Business or otherwise in relation to his conduct as liquidator, but any such order may be revoked on proof that it was obtained by fraud or by suppression or concealment of any material fact.
6. The liquidator's costs of and incidental to this application be paid out of the assets of the Piggott Wood & Baker Run-out Mortgage Business. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McElwaine.