Australian Securities and Investments Commission v Secure Investments Pty Ltd - [2020] FCA 639 - FCA 2020 case summary — Zoe

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Australian Securities and Investments Commission v Secure Investments Pty Ltd

[2020] FCA 639

Federal Court of Australia|2020-05-01|Before: Derrington J

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Court

Federal Court of Australia

Decision date

2020-05-01

Before

Derrington J

Source

Original judgment source is linked above.

Judgment (18 paragraphs)

[1]

For the purpose of this Order: "Corporations Act" means Corporations Act 2001 (Cth). "Dealing" includes: (a) Removing, causing, procuring, assisting or permitting any Property in the possession or under the control of the defendants (as applicable) to be removed from Australia or from the jurisdiction of this Court; and/or (b) Selling, charging, mortgaging, encumbering, securing, diminishing, disposing of, parting with possession, making any declaration of trust in relation to, exercising any power to vary or modify any trust deed or any interest under any trust in relation to the defendants' Property. "Property" means all real or personal property, assets or interests in property of any kind, within or outside Australia including, by virtue of subs 1323(2A) of the Corporations Act, any property held otherwise than as sole beneficial owner. "Unregistered Scheme" means all activities and arrangements whereby the first, second and/or third defendants and others associated with the said defendants, elicited or obtained funds from investors for the ostensible purpose of reinvesting, trading with and/or otherwise dealing with such funds for the purpose of providing a return to investors on the funds invested. "Investor Funds" means monies provided to the defendants, whether directly, or through any of the other defendants, or the defendants' authorised agents, servants and/or representatives for the ostensible purpose of reinvesting, trading with and/or otherwise dealing with such funds for the purpose of providing a return to the investors on the funds invested.

[2]

[3]

Asset preservation orders 4. Subject to the terms of paragraph 5 below, pursuant to s 1323 of the Corporations Act that, until further order, the second and third defendants, by themselves and their officers, servants, agents and employees be restrained from: (a) removing, or causing or permitting to be removed from Australia all or any of the Property; (b) selling, charging, mortgaging or otherwise dealing with, disposing of and/or diminishing the value of all or any of their Property; (c) causing or permitting to be sold, charged, mortgaged or otherwise dealt with, disposed of, or diminished in value, all or any of their Property; (d) without limiting the terms of sub-paragraphs (a) to (c) above, incurring new liabilities including, without limitation, liabilities incurred either directly or indirectly, through the use of a credit card, a credit facility, a drawdown facility or a re-draw facility; and (e) without limiting the terms of sub-paragraphs (a) to (d) above, withdrawing, transferring or otherwise disposing of or dealing with, any monies available in any account with any bank, building society or other financial institution (in Australia and elsewhere), in which the defendants have any legal or equitable interest. 5. The order sought in paragraph 4 above, shall not prevent: (a) each of the defendants from paying or otherwise incurring a liability for costs reasonably incurred in these proceedings and any criminal proceedings arising from the plaintiff's investigation into the affairs of each of the defendants; and (b) any bank, building society or financial institution from exercising any right of set-off which it may have in respect of a facility afforded by it to each of the defendants prior to the date of this order. (c) the second defendant from dealing with its assets for the following purposes: (i) the payment of reasonable legal expenses; (ii) dealings and dispositions in the ordinary and proper course of the second defendant's business, including paying business expenses bona fide and properly incurred; and (iii) dealings and dispositions in the discharge of obligations bona fide and properly incurred under a contract entered into by the second defendant before these orders were made; (d) the third defendant from dealing with his assets for the following purposes: (i) the payment of ordinary living expenses not exceeding $800 per week; (ii) the payment of reasonable legal expenses; and (iii) dealings and dispositions in the discharge of obligations bona fide and properly incurred under a contract entered into by the third defendant before these orders were made.

[11]

Introduction 1 This application was brought urgently by the Australian Securities and Investments Commission (ASIC), seeking a number of ex parte orders against the first defendant, Secure Investments Pty Ltd (Secure Investments), the second defendant, Aquila Group Pty Ltd (Aquila Group), and the third defendant, Mr Mudasir Mohammed Naseeruddin (Mr Naseeruddin). The substance of the orders sought were: (a) the appointment of a provisional liquidator to Secure Investments pursuant to s 472(2) of the Corporations Act 2001 (Cth) (Corporations Act); (b) the appointment of receivers and managers to the assets of the Aquila Group and Mr Naseeruddin pursuant to s 1323(1)(h) of the Corporations Act; (c) asset preservation orders pursuant to s 1323(1) of the Corporations Act; (d) orders pursuant to ss 1101B(1) and 1324 of the Corporations Act restraining the defendants from disposing of or dealing with their assets or promoting or carrying on a business, which appears to be an unregistered managed investment scheme; and (e) certain travel restraints upon Mr Naseeruddin pursuant to s 1323(1)(k) of the Corporations Act. 2 The material on which ASIC relied in these proceedings was fully and thoroughly set out in the affidavit of Mr Jarrah Todd Wheeler Nicholson dated 29 April 2020. From that document it was apparent that ASIC's investigation in relation to the issues the subject of this application was substantial and detailed. As a consequence the Court can have a significant degree of confidence in the conclusions drawn by ASIC's officers, subject, of course, to the fact that the investigation has not been completed and the defendants to these proceedings have not had any opportunity to respond to or answer the evidence adduced by ASIC. 3 The application was heard ex parte. In the ordinary course, such applications are approached with caution, as was this one. The Court is necessarily reluctant to make orders in the absence of parties whose interests will be affected and, especially, prior to their having any opportunity to refute the case against them. However, on occasion, and particularly where there is evidence of a danger of the dissipation of assets if the defendants are informed of the proceedings, such orders can and should be made.

[13]

ASIC's concerns flowing from its investigations 6 Following its investigation ASIC is concerned that Secure Investments and Mr Naseeruddin appear to have been promoting and operating an unregistered managed investment scheme, contrary to s 601ED of the Corporations Act. That scheme appears to have involved inducing members of the public to establish their own self-managed superannuation fund (SMSF), which Mr Naseeruddin would assist them to do, and then utilising the funds in those SMSFs by advancing money to Secure Investments, and subsequently to Aquila Group, for the purported purpose of making investments. 7 ASIC's investigation has revealed that a substantial amount of the investors' money has been redirected, possibly misappropriated, to a wide variety of bank accounts, including those held personally by Mr Naseeruddin and entities and persons associated with him. Many of those funds have been used, to the extent it is presently possible to discern, for purposes other than investment. 8 ASIC also has concerns in relation to the Aquila Group. In that respect it appears that a second managed investment scheme is now being created by Mr Naseeruddin and Aquila Group, although the participants in that scheme only number two at this stage. 9 From this brief discussion of the underlying facts there is more than an inference that Mr Naseeruddin has been engaging in a business of promoting unregistered managed investment schemes. 10 It is also apparent from the material that Mr Naseeruddin's enterprises have stumbled. It does not appear that he has been able to produce any proper return for the people who invested with Secure Investments or Aquila Group, and, indeed, the money seems to have been dissipated and lost. Importantly, a number of investors have recently complained to ASIC about the loss of their investment, and the information obtained indicates that they have been pressing Mr Naseeruddin to repay them their money, but no repayment has been forthcoming. It also appears that Secure Investments is insolvent and has no assets from which to repay the investors, and neither does Mr Naseeruddin. That said, it also appears Mr Naseeruddin has or may have assets overseas, and perhaps has places where he might reside overseas. For that reason, ASIC seeks orders preventing Mr Naseeruddin's departure from Australia.

[15]

The scheme involving Secure Investments 12 It appears that Mr Naseeruddin held himself out or promoted himself as being involved in property developments and offering opportunities for third parties to invest in those developments. Whether he was in fact involved in property developments may or may not be true. In any event, he utilised his company Secure Investments, of which he was a director and a signatory to its bank account, for the purposes of his scheme as allegedly being the vehicle through which the investments would occur. 13 Mr Naseeruddin has been an authorised representative of two entities which have held Australian Financial Services Licences during the relevant period, but currently he holds no authorisation and, particularly, he has never had an authorisation to operate or issue units in a managed investment scheme. 14 As outlined above, the principal scheme appears to have involved Mr Naseeruddin advising people to establish SMSFs and invest or loan their monies in Secure Investments. The investors, appear to have been derived generally from Mr Naseeruddin's social network. As is not unusually the case, his promotion of the scheme to them involved suggesting the potential for significant returns on capital, none of which materialised. 15 The standard process of introducing members to the scheme was that Mr Naseeruddin would arrange for the establishment of a SMSF for the investor. That usually included having a Macquarie Bank cash management account opened in the name of the SMSF, and rolling into it the investor's superannuation funds. A disturbing aspect of this was that Mr Naseeruddin himself obtained control of the Macquarie Bank cash management accounts. His phone number was often provided as the contact phone number for the accounts, with the result that he was able to operate them as he pleased. Investors were asked to enter into a loan agreement with Secure Investments which provided for the loan of capital via the newly established SMSF. It does not appear that the loans were properly documented, if at all. 16 One investor has indicated that they had no knowledge of the establishment of a SMSF in their name, or of an associated cash management account, or the use of it by Mr Naseeruddin. A recording of a conversation between a person thought to be Mr Naseeruddin and an officer at Macquarie Bank was part of the evidence attached to Mr Nicholson's affidavit. ASIC alleged that the tape suggests that Mr Naseeruddin impersonated the investor to the Macquarie Bank for the purposes of accessing and utilising the cash management account. If that allegation is made out - and it must be stressed that Mr Naseeruddin was not present to defend himself and has not had the chance to answer it - it would be a very serious matter indeed. 17 Concerningly, ASIC has identified that from the period of early 2017 to late 2019 some $2.4 million was received by Secure Investments in the conduct of the managed investment scheme from approximately 28 SMSFs. Significant amounts of those funds were disbursed to entities related to Mr Naseeruddin, as well as significant amounts to him personally. ASIC has identified in that latter respect that $520,113 was transferred to Mr Naseeruddin, about $326,000 was transferred to family members, and approximately $240,000 was transferred to related entities. The investigations of ASIC also reveal that Mr Naseeruddin transferred money directly into his own personal bank account from cash management accounts held by SMSFs. 18 A s 19 examination of Mr Naseeruddin was conducted by ASIC on 20 February 2020. During that examination, Mr Naseeruddin acknowledged that Secure Investments owed approximately $2 million to investors. In the course of the interview he admitted the existence of the scheme as it has been identified above. He suggested that he would repay the $2 million owed out of his personal assets and made vague assertions that the members of his wider family group would also contribute to the repayment. 19 Mr Naseeruddin also claimed during the examination that Secure Investments lent him the sum of $480,000, which he put into a personal trust and which was subsequently invested in an entity called Dome Securities. The authorisation for that investment remains unclear, if there was any, but what is of concern is that there is no loan agreement in relation to the money paid from Secure Investments to the trust. 20 Following the s 19 examination, ASIC has by notice required Mr Naseeruddin to provide further information to it in relation to its investigation. The information sought by those notices was in no way oppressive, and the matters of which ASIC sought to be informed were obviously relevant to its investigation. Mr Naseeruddin has refused to comply with those notices, despite the evidence showing that he must be aware that very serious issues surround his conduct. At a prima facie level, that tends to suggest he is aware that the information he might give may involve admissions of liability. 21 Quite properly, given that this is an ex parte application, Ms Freeman, who appeared for ASIC, identified some matters which might militate against the making of the orders, namely that Secure Investments has some interests in various properties or has had some interests in various properties which may represent investors' funds. However, in the course of his examination, Mr Naseeruddin acknowledged the existence of only one property relevant to the operation of the scheme. As was submitted by ASIC - and I accept it on the evidence available - ultimately, the investors have not received a return on their investments, let alone a return of capital.

[17]

Relevant statutory provisions 25 That being a brief analysis of the evidence, I turn to the provisions on which ASIC relied. Section 1101B of the Corporations Act gives the Court power to make orders where it appears a person has contravened a provision of Chapter 7 or a law relating to dealing in financial products or providing financial services. Importantly, the Court has wide powers under s 1101B(4) to restrain persons from engaging in certain conduct, disposing of assets or providing financial services and power to appoint receivers. The Court also has the power to make interim orders to the same effect, if it is thought appropriate. 26 Section 1232 of the Corporations Act was also relied upon. It provides for similarly wide powers in relation to contraventions of the Act, and, similarly, allows the Court may make orders on an interim basis, where it is desirable to do so, before considering the application on an interlocutory or final basis. 27 The nature of the power and the scope of s 1232 were considered in Australian Securities and Investments Commission v Carey (No 3) (2006) 232 ALR 577 (ASIC v Carey), and a number of principles have evolved from that decision. They are as follows: (a) The purpose of the section is to provide a means by which property that may, in due course, represent a source for the vindication of the rights of those persons identified is preserved for their benefit: See Australian Securities and Investments Commission v Burnard (2007) 64 ACSR 360 at [14]. (b) There is no requirement on ASIC to demonstrate a prima facie case of liability under the Act or general law on the part of the relevant person or that the person's assets may have been or are about to be dissipated: ASIC v Carey at [26]. The purpose of the provision is to "preserve the status quo pending investigation, and even before evidence necessary to establish liability has been collected, or before that liability has been established: ASIC v Carey at [25]. (c) The interests of the aggrieved persons may be protected not only by orders designed to protect against the dissipation of assets, but also by orders which create an opportunity for the assets of the person under investigation to be ascertained: ASIC v Carey at [27]. (d) Orders may be obtained by ASIC even in the absence of evidence of a significant risk of dissipation of assets where it seeks asset preservation orders in pursuit of its public interest role and wider public interest considerations centred around the interests of creditors, contributories and the public are relevant: Australian Securities and Investments Commission v Adler (2001) 38 ACSR 266 (ASIC v Adler) at [7(c)]. (e) In relation to the appointment of a receiver, the overriding concern is to protect assets for the benefit of those entitled to them: see Australian Securities and Investments Commission v Burke [2000] NSWSC 694 at [6]. The fact that there has been misappropriation of property supports the exercise of discretion in favour of appointing a receiver: ASIC v Adler at [7(b)]. 28 As the submissions made by ASIC appropriately identified, the Court should be cautious in exercising any power to appoint a receiver and manager to the assets of an entity or a person because such orders are drastic in their nature and have an immediate and detrimental effect on the entity or person to whose assets the receivers are appointed. The Court should also be cognisant of the cost involved in appointing receivers, and that that may come to fall on the person against whose assets the receivers have been appointed. But, in this case, as Ms Freeman submitted, there exists the strong suspicion of, at best, incompetence in the management of affairs or, at worst, persistent deliberate breaches of trust and possible dishonesty. It should be recognised that proof of fraud or dishonesty is not a requirement or precondition to the appointment of a receiver, but where there is a suspicion that it has occurred, the making of such an appointment is more likely. 29 Also identified in ASIC's submissions were the appropriate observations as to the necessary degree of caution required when making orders in the nature of an injunction, particularly under s 1324(1) of the Corporations Act. The Court has wide powers to do so, but it should refrain from doing so unless it is convinced that there will be some utility to it, or a purpose will be served for which the Act provides. For example, if there is a risk of future contraventions. Also appropriately noted was the observation that, whilst the Court is not constrained by the equitable rules for the granting of an injunction, such as the requirement for a prima facie case or a serious question to be tried or a consideration of the balance of convenience, these are effectively brought into the Court's consideration, under s 1324(4) of the Corporations Act, because they are relevant to the criteria of the interests of justice.

[18]

Consideration 30 Turning, then, to the specific relief which is sought and, firstly, to the application to appoint a provisional liquidator to Secure Investments. The essential purpose of appointing a provisional liquidator to the company is so that its assets and position can be identified, secured and preserved, pending the final hearing of ASIC's application, to wind it up and to ensure that the public interest is served by having an independent operator control the company. In the circumstances of this case it is likely, perhaps even very likely, that a winding up order would be made. Despite the order being a drastic intrusion into the affairs of the company, I am convinced, even on an ex parte application, that such an order is warranted. 31 I am fortified in that view because the circumstances indicate that urgent action is required to protect any assets which Secure Investments holds from dissipation. The conduct of Mr Naseeruddin and Secure Investments has, on the evidence available, been shown to be of great concern. When viewed objectively, there is a sufficiently high degree of probability that ASIC will succeed in establishing that Secure Investments, through Mr Naseeruddin, has operated an unregistered managed investment scheme. Moreover, ASIC is likely to establish that the scheme promoted to investors has not been sufficiently or appropriately carried out, with the result that it appears that the assets of the company have been dissipated for Mr Naseeruddin's personal use. That is a very serious matter indeed. 32 One might also add that Mr Naseeruddin's scheme, promoted through Secure Investments, has failed and is coming to an end. The investors have not had their money repaid at the time they were initially told it would be returned, and that is despite them pressing Mr Naseeruddin for it. Unfortunately, it is more than foreseeable that the company has been insolvent for some time and, unless a provisional liquidator is appointed, the disposition of any remaining assets is likely to occur. It does not appear that Mr Naseeruddin has sought to cause Secure Investments to comply with its obligations to the investors or to operate in accordance with the Corporations Act. As I have said, it is more than likely that the company will be wound up on the application of ASIC, if not on the grounds of insolvency, then on the just and equitable grounds. 33 It follows that there are more than sufficient grounds for appointing provisional liquidators to Secure Investments. 34 I turn to the question of whether or not receivers should be appointed to the assets of Aquila Group and Mr Naseeruddin. On the material provided to date, I am satisfied that ASIC has discharged the burden of establishing a prima facie contravention of the Corporations Act, and that there is a reasonable suspicion that the activities on which they rely are activities which are in contravention of that Act. In particular, Mr Naseeruddin himself has been operating, or involved in operating, the managed investment scheme via Secure Investments. It is also likely that he has been involved in misleading investors about the way in which Secure Investments would invest their money. He appears to have made these misleading statements in order to encourage the prospective investors to part with their funds, but there is no evidence that he carried through on those proposed investments. There are significant contraventions which may flow from that, including breaches of ss 1041E, 1041F and possibly s 1041G of the Corporations Act. 35 In relation to his activities surrounding Aquila Group, it appears that Mr Naseeruddin has been offering to secure early release of funds from individuals' superannuation funds in contravention of the rules governing the operation of such funds. At present, not all the facts necessary to reach that conclusion are before the Court, but the known facts certainly give that appearance. ASIC also submitted that the available evidence establishes that Mr Naseeruddin, through Secure Investments and/or Aquila Group, may have been giving advice as to the establishment of SMSFs without an appropriate licence to do so. There is perhaps good reason to think that that is occurring, and if it is established that will amount to a contravention of s 911A of the Corporations Act. 36 Concerningly, as has been mentioned, there is at least an appearance that Mr Naseeruddin has impersonated an investor in order to make changes to a bank account held by that investor. Mr Naseeruddin has also ignored investors' requests to access their SMSFs, and operated their accounts without their authorisation. ASIC alleged this to be evidence of dishonest conduct. On the material available, there is strong support for that allegation. That, if established, would be a contravention of s 1041G of the Corporations Act. Further, there is also strong evidence of the disposal of the investors' property. 37 The facts identified above warrant the appointment of receivers and managers to the assets of Mr Naseeruddin and Aquila Group. Such appointment will preserve what assets might be left for those who invested in Mr Naseeruddin's schemes, and will assist ASIC in further investigations. Ultimately, that will be in the interests of the investors. 38 It follows from what has been said that the orders sought by ASIC restraining the defendants from engaging in the provision of financial services ought also be made. It appears that there have been persistent contraventions of s 911A of the Corporations Act by Secure Investments and Mr Naseeruddin, and all of the defendants appear to have been engaged in advising potential investors to establish SMSFs for the purposes of making investments promoted by them, without an appropriate licence to do so. Once that conclusion is reached, there seems to be no reason why orders ought not be made to restrain the defendants from engaging in any further activity, lest any further person be wrongly misled into entering an unlawful scheme; being one fraught with significant risk. 39 ASIC also sought orders that the defendants provide books and records to the receivers to the extent they relate to the unregistered scheme. Given the appointment of the receivers it is appropriate that such orders ought be made, they being designed to facilitate the orders sought under the Act. 40 I turn lastly, then, to the orders sought in relation to restraining travel by Mr Naseeruddin. Ms Freeman for ASIC appropriately identified the reluctance of courts to make orders which impose restrictions on a person's freedom of travel, and I have kept those in mind. Ms Freeman also referred to the decision of Siopis J in Australian Securities and Investments Commission v Johnston [2009] FCA 1276 at [10]-[12], where his Honour identified a number of factors which ought be taken into account when considering making orders of the type presently sought. They are: (a) the fact that the investigation being carried out cannot be properly or effectively conducted in the absence of the person; (b) the importance of the person in the ongoing investigation, the character of the potential offences, the fact that the person has a base overseas and the stage at which the investigation is at; (c) whether there is evidence that by examination of the person (which may be thwarted if the person flees Australia) ASIC is likely to improve the chances of the aggrieved persons retrieving their moneys. 41 Here, the material before the Court and the submissions made were convincing. It is apparent that without Mr Naseeruddin and his cooperation, ASIC's current investigation cannot be effectively conducted, and will be hampered. Mr Naseeruddin is, obviously, therefore, central to the ongoing investigations. The conduct which ASIC has identified is serious and there are suggestions, not inappropriately made, that the conduct involves dishonesty. Mr Naseeruddin appears to have connections overseas, and travels from Australia not infrequently. 42 In those circumstances, the conclusion is easily reached that ASIC's investigations will be effectively prevented if Mr Naseeruddin leaves the country and does not return. Certainly, they will be enhanced were he to remain. In reaching the conclusion that the orders sought should be made, I also take into account Mr Naseeruddin's lack of compliance with the notices issued by ASIC. It is a matter of great importance that the scheme set up under the Australian Securities and Investments Commission Act 2001 (Cth) for ASIC to regulate the affairs of corporations not be thwarted. The Act gives ASIC power to require persons in control of companies and others to provide documents, attend for examinations and to answer questions. Particularly in those cases where companies are insolvent or near insolvent, or where there is good evidence of a concern about the management of companies, the obligation to respond to ASIC's notices is obviously significant. A failure to comply with ASIC's lawful requests for documents and information without explanation must necessarily raise the suspicion that the recipient of the notice is intending to hide and conceal those documents or important information from ASIC. By doing so, the public interest is damaged, as are the interests of persons who might otherwise suffer loss. The refusal or a non-compliance with the lawful issue of a notice by ASIC is a significant factor in reaching the conclusion that an order restraining travel by the recipient of the notice ought be made. 43 In these circumstances ASIC has established sufficient grounds for the making of orders restricting Mr Naseeruddin's travel. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Derrington.

Australian Securities and Investments Commission v Secure Investments Pty Ltd

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