Australian Securities & Investments Commission, in the matter of GDK... [2006] FCA 1415 | Case summary

REASONS FOR JUDGMENT 1 Chapter 5C of the Corporations Act 2001 (Cth) makes provision for the regulation of what are described as managed investment schemes. The provisions are protective in nature. Their principal objects are to ensure that potential investors are given sufficient information to enable them to determine whether they should invest in a scheme, that following an investment the investors are given periodic reports about the scheme's financial performance and that those who control the scheme will act honestly, with due diligence and in accordance with the scheme's constitution. One aspect of this regulation is the requirement that schemes be registered. If things go wrong, there is provision for a scheme to be wound up. Even an unregistered scheme may be wound up. The power to make that order is found in s 601EE(1). The consequences of a winding up order are not described. Nor does the legislation provide guidance regarding the manner by which the winding up should take place. By s 601EE(2) parliament has left it to the court to "make any order it considers appropriate for the winding up of the scheme." This case raises for consideration, and not for the first time, the ambit of the court's power under this subsection. 2 There are two kinds of managed investment scheme: see the definition in s 9. Only one is relevant in this case. It is a scheme which, according to the definition, has three "features" viz: (1) People contribute money or money's worth to acquire rights (the rights are referred to as "interests") to benefits produced by the scheme; (2) The contributions are to be pooled or used in a common enterprise to produce financial benefits or benefits arising from interests in property for the contributors or those claiming through them (all of whom are called "members"); and (3) Members do not have day to day control over the operation of the scheme. A scheme, then, is the combination of these things necessarily connected by design. The scheme may also include those things or attributes that "contribute to the coherence and completeness" of the three essential elements: Australian Securities and Investments Commission v Takaran Pty Ltd (2002) 43 ACSR 46, 51. The definition goes on to exclude various arrangements, but none of them are of present relevance. 3 This suit is brought by ASIC to wind up two allegedly unregistered managed investment schemes established by the same promoters. Each involves an investment in a retirement village; in one case an actual village and in the other a prospective village. In most important respects each arrangement (to use a neutral expression) follows the same format. It will be sufficient, therefore, to describe one in detail and then to point to the essential differences between that arrangement and the other. The scheme I will describe is referred to in many of the documents as The Mews Village or The Mews Retirement Village. The other is called The Rosedale Retirement Village. 4 By way of background, the promoters of the schemes described their purpose as being to establish and operate a top-quality resort style retirement village with facilities for respite care. The idea was to develop and sell self-contained and fully serviced units and townhouses to people over the age of 55 years. The village was to be located on land purchased from another company associated with the promoters. Investors would put up the deposit with the balance to be raised by loans from the vendor. A management company controlled by the promoters would operate the village. After payment of a management fee, the profit would go to the investors. The key attraction to investors was the expectation that they would be entitled to deduct from their assessable income not only the amount of their investment but also their proportionate share of the loan taken to pay the balance of the purchase price. 5 The Mews Village was to be established on a 28 hectare parcel of land at Lot 4, Railway Parade, Upper Swan, a semi-rural area on the outskirts of Perth. The land was registered in the name of the third defendant, Western Retirement Village Management Pty Ltd. By a contract dated 18 April 2000 WRVM agreed to sell the land to the fourth defendant, The Mews Village Nominees Pty Limited, for $93,425,000. Other agreements to which Mews Village Nominees is a party show that it entered into the contract as "bare nominee" for a group of investors described as "Investor Partners". The contract of sale provided for the payment of a deposit of $18,048,000 with the balance to be paid by a loan from the vendor secured by a mortgage over the land. The purchase price was not the exchange value of the land. The price far exceeded that value. This came about because under the contract the vendor was required to construct the village. The building work was to take place in two stages over several years. Most of the deposit was raised from the investors who were grouped into several partnerships. The balance was provided by the vendor under a non-recourse loan agreement. The agreement required the loan to be repaid out of the fees payable by residents of the village. In the event of default the vendor could only look to the land for payment. 6 I indicated that the investors were grouped into several partnerships. The principal partnership is styled The Mews Village Partnership and has 14 "Investor Partners". It was established by a partnership agreement dated 18 April 2000. The parties to this agreement appear to be the Investor Partners (although no provision is made for them to execute the agreement) and two companies associated with the promoters, Mews Retirement Nominees Pty Ltd and the first defendant, GDK Financial Solutions Pty Ltd. The partnership business is described as "the development and operation of retirement village facilities [at Lot 4, Railway Parade, Upper Swan]". GDK was appointed to manage the partnership's business. Mews Retirement Nominees was appointed to hold the partnership property as "bare trustee for the partnership". 7 Several Investor Partners acquired their interest in and held their share of the partnership capital for other investors who had also come together as partners. The parties have referred to them as sub-partnerships. By way of example, one of the Investor Partners, Village Mews Nominees Pty Ltd, which holds a 2.73 per cent interest in The Mews Village Partnership, acquired its interest for The Village Mews Partnership, which is a partnership of 5 investors. Each sub-partnership has a manager, yet again a company controlled by the promoters. 8 The Mews Retirement Village was to be managed by WRVM. To this end a Marketing Management and Profit Share Agreement was entered into between Mews Village Nominees (the purchaser of the Upper Swan land) and WRVM. Only an unsigned copy of the agreement is in evidence. The copy does not indicate clearly the identity of the contracting parties. The front page suggests that the agreement is between WRVM and The Mews Retirement Nominees Pty Ltd which, it will be remembered, is the "bare nominee" of The Mews Village Partnership. A schedule records that the agreement is between WRVM and The Mews Retirement Village Nominees Pty Ltd. Notwithstanding those references, the body of the agreement shows that the agreement was between WRVM and Mews Village Nominees. The sealing clause is the latter company's name. A recital describes it as the purchaser of the Upper Swan land. Moving on, the only substantive provision of the agreement to which reference should be made is the management fee which is set at 40 per cent of the profit derived by the village plus a commission of 1 per cent of the fees received from residents. This suggests that not much was to go to the investors, although one should not lose sight of the substantial tax advantage they derived from entering into the scheme. 9 Notwithstanding the complex series of agreements, and the subscription by investors of capital in the order of $8 million, The Mews Retirement Village did not get off the ground. All that has happened is that The Mews Retirement Nominees paid the purchase price for the Upper Swan land using the investors' capital and loan funds obtained from the vendor. Despite receiving the purchase price, WRVM has not transferred the land to the purchaser: It remains registered as the proprietor of the land. Nor has WRVM carried out the building works which by the contract of sale it had promised to do. I assume it did not have the funds to undertake the work. There has been no accounting to investors for any of the money they contributed, despite many requests for information. The investors have simply been left in the dark. 10 There is no hope of the development going ahead, at least while it remains in the hands of its present controllers. GDK has been wound up. There is an unresolved dispute over the control of Mews Village Nominees. Attempts have been made (I cannot say whether they were successful) to remove Mews Village Nominees as trustee and replace it with Equitable Overseers Pty Ltd. It is possible that the partnership manager, WRVM, has also been replaced as manager by Equitable Overseers. To be blunt, things are in a mess and it will take a good deal of time and great expense to sort them out. 11 Turning to The Rosedale Retirement Village, this comprises an existing aged care facility village operating at Deaves Road, Cooranbong, New South Wales. The property was owned by Peridon Group Pty Ltd, another promoter company. An adjoining parcel of land was owned by the fifth defendant, Peridon Management Pty Ltd (in liq). By contracts made on 18 April 2000 both properties were sold to the sixth defendant, Rosedale Village Nominees Pty Ltd (rec and mgr apptd), for $40,113,191. The deposit of $7,926,558 was raised from investors and the balance funded by loans from the vendors. Rosedale Village Nominees has taken a transfer only of the land purchased from Peridon Group. Peridon Management is still registered as the proprietor of the land it sold to Rosedale Village Nominees. Both parcels of land are burdened by mortgages to secure the loans from the vendors. The mortgages are subject to challenge in the New South Wales Supreme Court. I know nothing about the litigation. 12 The Deaves Road property and the existing operation were purchased on behalf of a partnership called The Rosedale Village Partnership which had been established by a partnership agreement dated 18 April 2000. The two Investor Partners are Talisker Skye Pty Ltd, with a 95.37 per cent interest in the partnership, and Allturn Pty Ltd, which holds the balance. The sixth defendant, Rosedale Village Nominees, a party to the partnership agreement, was appointed to hold the partnership property on trust for the Investor Partners. GDK was appointed to manage the partnership. The manager of the Rosedale Retirement Village is Peridon Management. The remuneration payable for its services is substantially the same as that payable to WRVM for the management of The Mews Retirement Village. 13 Each Investor Partner holds its interest in the partnership on trust for a partnership of investors. In the case of Talisker Skye, the partnership was established by an agreement dated 18 April 2000 and is styled the Talisker Skye Partnership. Allturn holds its interest for the Allturn Partnership. Some members of the Talisker Skye Partnership are trustees for other investors, who have formed several sub-partnerships. The second defendant, Windsor Village Management Pty Ltd, is the manager of each sub-partnership. 14 The contract with Rosedale Village Nominees required the vendors to carry out building works to create a village that would comprise 215 two-bedroom apartments, 184 three-bedroom apartments and 90 assisted care facilities. None of that work has been done. The investors have not been given any explanation. They are unable to get any information from the manager of The Rosedale Retirement Village or from the managers of their respective partnerships. Perhaps one reason - I am sure not the only reason - is that the managers have been removed and replaced by incorporated associations. I have also been told that Rosedale Village Nominees may have been replaced by Rosedale Action Incorporated as the trustee of the Deaves Road land. In any event, Rosedale Village Nominees is in receivership, although the appointment of receivers is being challenged. Peridon Management is in liquidation. 15 It is not in dispute that each of the arrangements I have described is a managed investment scheme for the purpose of the Corporations Act. This conclusion could hardly be in dispute. Each element of the definition has been satisfied. Taking those elements in turn, by each arrangement: (1) investors contributed money to acquire a right to a proportion of the profits from the operation of the retirement village; (2) the contributions were pooled to make up the deposit for the purchase of the property on which each village was to be constructed or operated; and (3) none of the investors had (or was to have) control over the day to day operations of either the construction or operation of the village; all control was ceded to managers. That is more than sufficient to bring the arrangements within the definition. 16 Contrary to the Corporations Act, neither scheme was registered. Nor did they comply with many of the other requirements for managed investment schemes. Thus it was accepted on all sides that each scheme had to be wound up. ASIC seeks orders to that effect under s 601EE(1). But despite the apparent consensus there are several objections to the orders being made. The principal objection, which if correct would render the application unnecessary, is that the schemes have already been wound up. For reasons I will come to, none of the objections can be sustained and winding up orders will be made. It will be necessary therefore to consider what orders, if any, should be made under s 601EE(2) for carrying out the winding up. To that end it is appropriate to say something about the nature of a winding up of a managed investment scheme. 17 When a winding up order is made in respect of a company the statutory regime that is brought into operation has been succinctly described by McPherson SPJ in Re Crust 'N' Crumb Bakers (Wholesale) Pty Ltd [1992] 2 Qd R 76, 78. He said that "[w]inding up is a process that consists of collecting the assets [of the company], realising and reducing them to money, dealing with proofs of creditors [of the company] by admitting or rejecting them, and distributing the net proceeds, after providing for costs and expenses, to the persons entitled." Obviously this is a description, albeit brief, of what flows by reason of statute from a winding up order. 18 An order for the winding up of an unregistered managed investment scheme does not bring about the same consequences. At least the order will not automatically produce those consequences. The reason is simple. No statutory procedure for the winding up is brought into play when the order is made. What then, one might ask, is the effect of a winding up order? It is, I think, appropriate when answering this question to act on the premise which I hope is uncontroversial that a winding up order must produce some consequence. Every order of a court settles some party's rights or obligations, duties or liabilities. When a winding up order is made it must affect the rights or obligations of, at least, the investors. In the kind of scheme with which we are dealing, the order may also affect the rights and obligations of other persons, for example the trustee and managers. 19 In my view the effect of the order is that each investor is immediately entitled to insist that steps be taken to wind up the scheme. I will put to one side for a moment what those steps should be. The order also means that save for the purposes of its winding up, the scheme should not continue in operation. Accordingly, to the extent that any agreement requires the scheme to continue, that agreement is overridden by the order. Whether or not the order is an event that frustrates the agreement so that the rights and obligations of the parties come to an end, is a difficult question that I need not resolve. Further, in my view the winding up order also prevents any person involved in the scheme from imposing new obligations on the investors or affecting their interest in the scheme property, save to the extent this will occur in the course of the winding up. 20 Although the winding up order permits investors to insist that steps be taken for the scheme to be brought to an end, if all the investors are in agreement the winding up need not follow the same steps as the winding up of a company. If the scheme has failed, the company model is likely to be the only appropriate method for the winding up. I think that is what Keane JA must have had in mind when he said in Mier v F N Management Pty Ltd (2005) 56 ACSR 93, 97-98 that the winding up of a managed investment scheme should follow the same path as the winding up of a company. But this will not always be appropriate, especially when the scheme is a successful commercial venture. In that event all that might be required is a reorganisation or reconstruction that will alter the relationship between the parties to ensure that their continued association is lawful. This was recognised in Warne v GDK Financial Solutions Pty Ltd; Billingham v Parbery [2006] NSWSC 259. See also Australian Securities and Investments Commission v Atlantic 3 Financial (Aust) Pty Ltd (2003) 47 ACSR 52. 21 Whenever it is necessary to work out how to effect the winding up of an unregistered managed investment scheme, several questions will arise, viz: Precisely what is being wound up? What assets are to be collected and dealt with, whether by realisation or otherwise? Which creditors (if any) are to be paid out? How are the persons entitled to share in the scheme assets to be identified? 22 In this case the first question - What is being wound up? - can be answered by reference to the elements of the scheme, most of which have already been identified. In each case investors formed partnerships, subscribed money which was pooled and, together with borrowed money, applied on their behalf by managers toward the purchase by a trustee of an asset - in one case land and in the other land and an operating business. In a broad sense the scheme comprises the relationships established by the various agreements that gave rise to those transactions. However, the only part of the overall scheme that I intend to wind up at this point is that part of the arrangement by which scheme property is held on trust by a trustee and managed by a manager. It is not my intention to bring to an end all the agreements that make up the scheme. Once the scheme property is disposed of or dealt with in some way that takes it out of the hands of the trustee and away from the control of a manager, the unregistered scheme should be at an end. 23 As regards the other agreements, it is not necessary for them immediately to be discharged. The position is that none of them were illegal when made: Karl Suleman Enterprizes Pty Ltd (in liq) v Babanour (2004) 49 ACSR 612. Of course, the destruction of the scheme by a winding up order will affect those obligations under the agreements that require the scheme to, or assume that it will, continue. Those obligations will not survive the winding up order. On the other hand all other obligations should remain in place, at least for the time being. 24 On this aspect I have in mind in particular the partnership agreements. The scheme can be wound up leaving those agreements in place. But in due course each partnership will have to be dissolved. Viewed in isolation the partnerships themselves may constitute an unregistered managed investment scheme. However that may be, at present it is not possible to dissolve the partnerships for none of the partners are parties and in their absence it is not appropriate to order a dissolution: Waters v Taylor (1807) 15 Ves 10; 33 ER 658; Ex parte Ford (1801) 7 Ves 617; 32 ER 248. The proper thing to do is to stand over that issue. If ASIC or any investor intends to move for a dissolution that should be done either on notice to the partners or by joining them as parties: Victoria v Sutton (1998) 195 CLR 291, 316-8. When the partnerships are dissolved it will be necessary to rule upon the partners' respective entitlements. Some of the partners, in particular those associated with the promoters, appear not to have put up any capital and for that reason may not following dissolution be entitled to share in the proceeds. 25 It will also be necessary to consider what should be done with the contracts of sale, loan agreements and mortgages. I do not know enough of the facts to have formed any view, but it is possible that some of these transactions are vulnerable to attack. I note for example that the amount of the loans may need to be reduced on account of the failure of the vendors to carry out the promised building works. As presently advised I cannot see how the vendors can avoid some kind of set-off against their respective loans. But that is a matter for another day. All I need do is to reserve liberty to any party to make an application in relation to those agreements. 26 The next issue to consider is what procedure should be adopted for the winding up. This is not a case where the appropriate mechanisms, whatever they may be, can be worked out by the parties themselves, or by their representatives: Compare Lyon v Haynes (1843) 5 Man & G 504; 134 ER 661 where a banking company governed by 7 Geo 4 c 46, was voluntarily dissolved. The winding up of these schemes must be administered by the court. In a practical sense this can only be achieved by the appointment of an officer of the court to implement the winding up. The appropriate officer is a receiver. 27 Although the origins of receivership are obscure, the appointment of sequestrators, receivers of rents and profits and committees dates back to at least the mid 1600s: G Spence, 'The equitable jurisdiction of the Court of Chancery' vol 1, 673. Originally receivers were appointed to protect and preserve property for the benefit of those interested in it. Later they were also appointed to collect property for sale and to distribute the proceeds to all claimants who proved their claim. Disputed claims were adjudicated by the court. By the 1800s receivers were also appointed to manage property under their control, especially if the property was a business to be sold as a going concern: In Re Manchester and Mitford Railway Company; ex parte Cambrian Railway Company (1880) 14 Ch D 645; Taylor v Neate (1888) 39 Ch D 538. 28 The order appointing a receiver must identify the property which the receiver is to take into his possession or else refer to the pleadings or some other document that describes the property: Crow v Wood (1850) 13 Beav 271, 273; 51 ER 104, 105; Hawkes v Holland [1881] WN 128; Seton on Decrees, vol 1, p 738. There also needs to be a direction that the person in possession give up possession to the receiver. In the absence of that direction, the person in possession may not be required to give over possession to the receiver (Freeman v Trimble (1906) 6 SR (NSW) 133) or at least might not be cited for contempt for his refusal to do so. It is also usual for the order to require any person who has them to deliver up those books and records relating to the property that the receiver may need: Fripp v The Chard Railway Co (1867) 11 Hare 241; 68 ER 1264. 29 On his appointment, the receiver is an officer of the court, not of the party at whose instance he is appointed: In Re Flowers & Co [1897] 1 QB 14. His authority is to act in the manner directed by the court. Thus, for example, in the absence of an order, the receiver has no right to sell any property in his possession. That is, a power of sale will not be implied from the mere appointment: Australian Industry Development Corp v Co-operative Farmers & Graziers Direct Meat Supply Ltd (1978) 3 ACLR 543. But it is not necessary for every act to be authorised by a prior order. For instance the old rule was that a receiver could not pay any expenses in the absence of an order: Fletcher v Dodd (1789) 1 Ves 85; 30 ER 242. Since the 1880s, however, it has been accepted that a receiver can meet all expenses incurred by him in the absence of any order and the reasonableness of those expenses will be determined when the receiver passes his accounts: Tempest v Ord (1816) Mer 55; 35 ER 861. Still, it is prudent for the order to specify what payments the receiver can make and what contracts he can enter into. In a case where the receiver is appointed to run a business there should be an order that he can employ staff and maintain a bank account. He should also be ordered to keep strict accounts and immediately report to the court if the business is operating at a loss. 30 It is important to appreciate that the property which the receiver is directed to take into his possession does not vest in him by virtue of his appointment: Re Satoris's Estate [1892] 1 Ch 11. For that reason the receiver is not entitled to sue in his own name for a debt due to the person whose property is the subject of the receiving order: Re Sacker (1888) 22 QBD 179. If an action is to be brought it must be in the name of the person entitled to the property. 31 I will appoint a receiver to take possession of the scheme assets in so far as they are presently known; in the case of the Mews scheme, the land at Lot 4, Railway Parade, Upper Swan and in relation to the Rosedale scheme, the land and business at Deaves Road, Cooranbong as well as the adjacent land. The order will describe the land by reference to its title particulars. The receiver will be given power to manage the existing Rosedale Retirement Village business. If the receiver encounters any difficulty in taking possession of either property or the business, I will direct that he make any necessary application to the court. The usual position is that the application should be made by a party (Parker v Dunn (1848) 8 Beav 497; 50 ER 195) but that is often too time consuming. Of course, any application which the receiver may make should be on notice to the parties. 32 The receiver will be directed to find a buyer for the properties of which he takes possession. He will not, however, be authorised to sell the properties, save under a contract that is conditional upon court approval. For one thing the beneficial owners of the properties are not before the court and I do not know whether they have notice of this proceeding. I suspect most do not. In their absence a sale order probably could not be made. Even were I to have the power, I would not make an order unless the beneficial owners were on notice that a sale was sought. 33 For another thing, before the properties are capable of being sold it will be necessary to determine the rights of prior encumbrancers, and there appear to be several claimants. The winding up order is not intended to affect the rights, interests and remedies of any person who has a prior interest over any of the properties. Certainly the appointment of a receiver will not affect those rights (Waters v Taylor (1807) 15 Ves 10; 33 ER 658) except, of course, where the right concerns possession. The claims of prior encumbrancers will have to be adjudicated before there is a sale. Indeed, dependent upon the outcome of the adjudication, there may be no sale. 34 Lastly, the investors may not want the properties sold. The parties have informed me that attempts are being made to put together a "rescue package" of a kind that will allow the investors to take direct control over the assets. The investors will be given the opportunity to pursue that course but they will need to act quickly, for I will not allow the winding up to be delayed for any significant period. 35 In addition to being appointed receiver over the Mews scheme assets and receiver and manager of the Rosedale scheme assets and given the powers I have mentioned, the question arises whether the receiver should be given any additional powers. ASIC has referred me to several cases where a receiver of a managed investment scheme has been given all the powers that a liquidator of a company has under s 477 of the Corporations Act as if the scheme were a company. It submits that s 601EE(2) is the source of power to make such an order. 36 In my view, there are three reasons why the order should not be made. In summary they are, first, that the receiver already has most of the powers he needs and does not need many of the s 477 powers to carry out his task; second, that several of the s 477 powers are not appropriately given to the receiver; and, finally, that the order, mistakenly in my view, assumes that the receiver can be given all the powers of a liquidator. 37 As to the first point, I have already referred to some powers of a receiver that exist by virtue of his appointment. The appointment will allow him to take possession of the property identified in the order. He will be able to insure the property and keep it under repair: In Re Graham [1895] 1 Ch 66. If the receiver recovers any cash it may be invested, although it might be prudent to first obtain an order. If the receiver is required to sell property he can employ a solicitor, agent or auctioneer for that purpose without further order. Where a receiver is appointed to manage a concern, he needs no special power to operate the business. On the other hand, a prudent receiver may want some orders along the lines I have mentioned, for example the power to employ staff, engage agents, operate a bank account and the like. 38 As to the second point, s 477 confers a power of sale on a liquidator. I have indicated that the receiver should not be given that power. Any sale should be under the court's control. Section 477 also permits a liquidator to distribute property to the persons entitled to it. That is not an appropriate power to confer on a receiver. It is another matter over which the court should retain control. The section gives a liquidator power to compromise claims made by creditors. Except for very small claims, it is not appropriate for the receiver to compromise claims. This is not to suggest that the receiver will have no role in relation to claims against property in his possession. There will be an order that any claim by a person asserting an interest in the property should be presented to the receiver. The claim should be made in a like manner to a proof of debt in a bankruptcy or liquidation. The receiver must accept or reject the claim, after assessing its validity. It is appropriate that a time be placed both on presenting claims and dealing with them. If it turns out that any claim is disputed by the receiver, it will be adjudicated by the court. Any claim allowed by the receiver must be approved by the court before it is discharged out of the property in the receiver's control. The approval will take place when the court makes an order for the distribution of the proceeds. If there are small claims the receiver can apply for permission to compromise them. In all likelihood that permission will be granted. 39 The last point is the most difficult. Among the powers given to a liquidator by s 477 is the power to inspect the books of the company in liquidation: see s 477(3). A person who refuses to allow the liquidator to inspect the books is guilty of an offence. In my opinion, this power cannot be conferred on the receiver. The first difficulty is that having regard to the way these schemes are structured there probably is no person on whom the obligation would attach. Even if "the scheme" is to be substituted for "the company" in the relevant provisions that will not spell out whose books the receiver is entitled to inspect - the former trustee, one of the old managers, any of the new managers? For the relevant sections to work in respect of these schemes they would need to be redrafted, and parliament is the institution that drafts statutes. 40 There is, in any event, a more substantial difficulty. It is that, in my view, s 601EE(2) does not permit the court to impose new duties or obligations on any person. This issue is brought into sharp focus when consideration is given to ASIC's request that the receiver be directed to carry out an investigation into various aspects of the schemes, with power to compel not only the parties to the suit but also third parties to provide whatever information the receiver needs to further that investigation. What ASIC wants is for the receiver to carry out an investigation that will identify all scheme assets, all debts incurred during the operation of each scheme and all contributions in cash or in kind made by the investors. In addition, in relation to the Rosedale scheme, ASIC wants the receiver to prepare for the investors a report that will contain not only that information but also details of all borrowings secured against the scheme land, how the borrowed money was applied, what claims there are against the scheme assets and whether the scheme is solvent. The object of this report is to enable the investors to decide how the scheme should be wound up. 41 The problem with ASIC's proposal is that a receiver has no power of inquiry, in the sense that he cannot require any person to provide him with any information or any documents, save those documents which he is required to take into his possession: In Re Manchester and Milford Railway Company; ex parte Cambrian Railway Company (1880) 14 Ch D 645, 655. Perhaps for this reason courts have made orders conferring upon the receiver of a managed investment scheme the power to compulsorily acquire information from third parties. There are instances for example where a receiver has been directed to conduct an investigation into specific topics and the promoter, manager or trustee of scheme property has been ordered to make all relevant books and records available to the receiver. On occasion it has been ordered that the directors, officers, servants and agents of the promoter, manager or trustee (as the case may be) provide on oath any information requested of them. There are even examples of an order that a receiver may apply for a summons under s 596A to examine any person about the affairs of the scheme. That section permits a person to be examined about the affairs of a company in administration or to a company that is being wound up. The order is fashioned so that the section applies to a managed investment scheme. 42 The courts making those orders have assumed that the requisite power is found in s 601EE(2). I accept that this section gives the court a very broad power. In Australian Securities and Investments Commission v Commercial Nominees of Australia Limited (2002) 42 ACSR 240, 243 Barratt J said that under s 601EE(2): "[T]he 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." In Australian Securities and Investments Commission v Takaran Pty Ltd (No 2) (2002) 43 ACSR 334, 338 he said that: "[T]he power [under s 601EE(2)] extends … not only to the imposition of an appropriate winding up regime at inception but also to the making, as and when needed after inception, of such further orders as are needed in connection with the due conduct and completion of the winding up." Indeed, in Australian Securities and Investments Commission v Atlantic 3 Financial (Aust) Pty Ltd (No 3) [2004] 1 Qd R 591, Mullins J said that the power conferred by the section is almost without restriction. 43 For my own part, however, I do not accept that the power conferred by s 601EE(2) is without restriction. In particular, I do not accept that the section permits the court to impose an otherwise nonexistent obligation on a person to provide information to a receiver appointed to wind up a managed investment scheme. It is a well established principle of statutory construction that, in the absence of clearly expressed language to the contrary, courts will presume that legislation is intended to leave individual rights intact. This principle has been described by Lord Steyn as "the principle of legality" (R v Secretary of State to the Home Department; Ex parte Pierson [1998] AC 539, 587). It can be traced as far back as the sixteenth century (Stradling v Morgan (1560) 1 Plowd 199, 204-205; 75 ER 305, 312-315) and has been regularly affirmed by the High Court from as early as 1908 (Potter v Minahan (1908) 7 CLR 277, 304 per O'Connor J) to very recently. 44 For example, in Plaintiff S157/2002 v Commonwealth (2003) 211 CLR 476, 492 Gleeson CJ said: "[C]ourts do not impute to the legislature an intention to abrogate or curtail fundamental rights or freedoms unless such an intention is clearly manifested by unmistakable and unambiguous language. General words will rarely be sufficient for that purpose. What courts will look for is a clear indication that the legislature has directed its attention to the rights or freedoms in question, and has consciously decided upon abrogation or curtailment." Similarly, in Al-Kateb v Godwin (2004) 219 CLR 562, 577 the Chief Justice said: "Courts do not impute to the legislature an intention to abrogate or curtail certain human rights or freedoms … unless such an intention is clearly manifested by unambiguous language, which indicates that the legislature has directed its attention to the rights or freedoms in question, and has consciously decided upon abrogation or curtailment." In these cases, the High Court was construing provisions that, respectively, purported to have the effect of restricting the subject's access to the courts and authorising the subject's indefinite detention as an "unlawful non-citizen." The principle applies to other rights: see, for example, Ex parte Yerger 8 Wall 85 (1869) at 102-3, recently affirmed by the United States Supreme Court in Hamdan v Rumsfeld 126 S Ct 2749, 2764 (2006) (right to appeal); Melbourne Corp v Barry (1922) 31 CLR 174 (right to take part in processions); Pyneboard Pty Ltd v Trade Practices Commission (1983) 152 CLR 328 (privilege against self-incrimination); Clunies Ross v Commonwealth (1984) 155 CLR 193, 201 (property rights); Brown v Classification Review Board (1998) 154 ALR 67, 83 (freedom of expression); Daniels Corp International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543, 560 (right to legal professional privilege). It also applies to legislation which purports to impose previously nonexistent obligations: Amalgamated Television Services Pty Ltd v Australian Broadcasting Tribunal (1989) 88 ALR 287, 304 ff and Grech v Bird (1936) 56 CLR 228 (obligation to provide a statutory declaration); O'Brien v Gillies (1990) 69 NTR 1, 4 (obligation to provide a blood test). See also: J J Spigelman, 'Principle of Legality and the Clear Statement Principle' (2005) 79(12) ALJ 769; P D Finn, 'Statutes and the Common Law' (1992) 22 UWALR 7. 45 It is simply not possible to read into s 601EE(2) the power to do what the courts have done. Obligations cannot be imposed by the court unless its power to do so is expressed "with irresistible clearness" (Potter v Minahan (1908) 7 CLR 277, 304, approved in Bropho v State of Western Australia (1990) 171 CLR 1, 17). 46 A further reason, if one is needed, is provided by consideration of the consequences of a failure to comply with the court-imposed obligation. In a winding up of a company, the statute imposes the duties of disclosure and prescribes the punishment for their breach. But if the duty is to be created by the court, a failure to comply would amount to contempt. A regulatory offence would be turned into criminal conduct. 47 Moreover, in almost all cases a scheme can be wound up without any need to compulsorily acquire information. The assets of the scheme will almost always be easily identified. Creditors who wish to be paid out of scheme assets must prove their claim by providing appropriate evidence. In any event, in most cases there will not be 'creditors' of the scheme. There may be potential claimants on the scheme property as an asset out of which certain debts must be discharged. For instance, in this case the scheme property is trust property. The trustee has incurred expenses in the course of carrying out its duties and has a right to be indemnified out of the trust property in respect of any personal liability incurred in the performance of its duties. It is also entitled to be reimbursed for expenses it has paid out. Those rights are a first charge on the trust property. To make good any claim for indemnity or reimbursement the trustee will be required to provide the appropriate details. If there are any surplus assets to be divided between the investors they will have to substantiate their claims. In these circumstances it could not be said that if the power to require a third party to provide information is not implied, the purpose of the division will be defeated. 48 The only case in which the power of the court has been discussed is Australian Securities and Investments Commission v Mercorella (No 2) [2006] FCA 763. There, in an ex tempore judgment, Mansfield J decided that s 601EE(2) authorised the court to require a person to attend for oral examination under Part 5.9 of the Corporations Act. Mansfield J said that this had been decided by Mier v F N Management Pty Ltd (2005) 56 ACSR 93. He referred to the judgment of Keane JA, with whom the other judges agreed. In his judgment Keane JA pointed out that in Re Stacks Managed Investments Ltd (2005) 54 ACSR 466 White J reviewed the authorities in which a receiver of a managed investment scheme had been given the same powers as a liquidator of a company. In the course of so doing, White J raised the prospect that there was no power for such an order, but declined to express an opinion on the matter. On my reading of his judgment, Keane JA did not take the matter any further. That is, he did not express his own opinion on the correctness or otherwise of the cases to which White J had referred. He did suggest, however, that s 601EE(2) was confined to making orders of a procedural kind. With great respect, I think that Mansfield J misstated the ratio of Mier. In this state of affairs, there is no considered opinion of a court which I am required to follow. 49 I mention in passing that on one view the decision in Australian Securities and Investments Commission v Commercial Nominees of Australia Ltd (2002) 42 ACSR 240 supports the contention that s 601EE(2) can be used to create new rights. In that case Barrett J said (at 244) that the subsection ought be regarded as "the source of jurisdiction to prescribe, by order, the appropriate basis of distribution of surplus and for the completion of the winding up". It is the statement that the court has power to deal with the surplus that caught my attention. It is not clear precisely what Barrett J had in mind but his statement might be taken to mean that the court could order that the net proceeds of the realisation of scheme assets be distributed in a way that is inconsistent with the legal or equitable rights in respect of that property. I do not think that this is what Barrett J intended, but if it is then, regrettably, I would disagree. I prefer the view of Justice Holmes in William Filene's Sons Company v Weed, Receivers of William S Butler & Company, Inc. 245 US 597, 602 (1917) that "when the courts without statute take possession of all the assets of a corporation under a bill like the present and so make it impossible to collect debts except from the court's hands, they have no warrant for excluding creditors, or for introducing supposed equities other than those determined by the contracts that the debtor was content to make and the creditors to accept." 50 Notwithstanding the lack of a statutory source of power, the court nevertheless has jurisdiction to order some kind of investigation, though not as broad as is sought by ASIC. Each manager and each trustee is an accounting party. The action for an account is one of the oldest actions known to the law. It appears to have developed, at common law, as early as the twelfth century as a method to force manorial bailiffs to account to their landowners for money received or income derived from the management of the land. The modern equitable action of account, which has all but superseded the common law action, imposes the duty to account more broadly than the common law. Accounts can be required for purely equitable demands or of legal demands that are ancillary to other equitable relief. Thus all fiduciaries are accounting parties: Makepeace v Rogers (1865) 34 LJCh 396; Le Mesurier v Connor (1926) 29 WALR 66. Accounts can be ordered also when the transactions between the parties are too complex to be resolved in legal demands (O'Connor v Spaight (1804) 1 Sch & Lef 305). That the remedy is available in a broad category of cases was made plain in North-Eastern Railway Company v Martin (1848) 2 Ph 758, 762; 41 ER 1136, 1138 where Lord Cottenham said: "It is … impossible with precision to lay down rules or establish definitions as to the cases in which it may be proper for this court to exercise this jurisdiction. The infinitely varied transactions of mankind would be found continually to baffle such rules, and to escape from such definitions. It is, therefore, necessary for this Court to reserve to itself a large discretion, in the exercise of which due regard must be had, not only to the nature of the case, but to the conduct of the parties." 51 When accounts are ordered it is often appropriate to also order that there be an inquiry into matters that need to be investigated to complete the accounts. In the past the inquiries were undertaken by the Master. The cases in which the Master was directed to make inquiries were so numerous and various in their nature that they are impossible to categorise: Daniell's Chancery Practice (1871) vol 2, 1215. Examples of the kinds of inquiries that have been ordered are to be found in Seton on Decrees. For the purposes of both the taking of accounts and the inquiry the plaintiff can obtain discovery from the defendant: Wormsley v Sturt (1856) 22 Beav 398; 52 ER 1161; S J Stoljar, 'The Transformations of Account' (1964) 80 LQR 203, 222. The discovery can include the delivery of interrogatories: Saunders v Jones (1877) 7 Ch D 435. To obtain the information required of him, the accounting party is obliged to make due and proper inquiries of its servants, agents, bankers or solicitors: Bank of Russian Trade Ltd v British Screen Productions Ltd [1930] 2 KB 90; Alliott v Smith [1895] 2 Ch 111. In some cases the plaintiff is able to compel the accounting party to testify under oath on any disputed matter relating to the accounts as they appear in the verified accounts: Wormsley v Sturt (1856) 22 Beav 398; 52 ER 1161; Re Lord's Estate (1866) 2 Eq Rep 605. There is also authority for the proposition that the accounting party's employees can be cross-examined as well: Story, Commentaries on Equity Jurisprudence (14th ed, 1918)s 1262 n 3. On this basis it might also be possible to examine former employees. 52 Interestingly, in Fry v Oddy [1999] 1 VR 557, 578 Ormiston J noted that the "inquisitorial" nature of the jurisdiction entitles a judge to direct that a third party make the inquiries that will produce the information necessary to complete the accounts. The combination of this rule and s 601EE(2) would permit me to delegate the task to a receiver. 53 I will invite ASIC to propose the form of accounts and inquiries that should be ordered and what directions should be given for them to be undertaken. There will, however, be a stay on those orders. The usual rule is that accounts are ordered only when all necessary parties (that is all parties who will be bound by the accounts) have been joined or have been given notice of the order. A stay will enable steps to be taken to join the relevant persons or put them on notice. 54 Before leaving the topic of receivers there are two further observations I wish to make. The first concerns the receiver obtaining the views of investors in the Rosedale scheme how they wish the winding up of their scheme to proceed. ASIC suggests that the receiver be directed to convene a meeting of investors to take their views. I agree. In a case such as this the meeting need not be structured as formally as ASIC proposes. The investors' views could be taken on a show of hands with some calculation of the value of their contributions. But the receiver need not go to much trouble in that regard. What each investor considers is due to him will suffice for my purposes. After all, nothing that the investors decide will be binding. 55 The second observation relates to the provision of security by the receiver. It has not been suggested that the receivers should provide security. This is somewhat surprising because in the ordinary case the court will not dispense with the requirement. That is so even when the parties consent to the dispensation: Manners v Fuze (1847) 11 Beav 30; 50 ER 727. The cases in which courts have dispensed with the requirement seem generally to be restricted to those where: (a) the receiver has been appointed without remuneration (Gardner v Blane (1842) 1 Hare 381; 66 ER 1080); (b) an official liquidator is appointed as receiver (eg Joseph v Joseph (unreported, QSC, de Jersey CJ, 22 April 1998) - a discretionary factor which has been elevated to a rule of law; (c) the scope of the receivership is so limited that security is not required (Hyde v Warden (1876) 1 Ex D 309); and (d) the receiver shows that he has sufficient assets to cover his potential liability as receiver: Kerr & Hunter on Receivers and Administrators (18th ed, 2005), 124. For reasons I have not been able to ascertain, no court appointing a receiver to wind up a managed investment scheme has required the provision of security. The issue has not even been discussed. Perhaps all the managed investment scheme cases fall within category (b), but that is not clear. Even if this is so the dispensation should not be automatic. Investors in unregistered managed investment schemes have as much need for protection from the risks of receivership as any other person whose property is taken into custody by court order. However that may be, I do not think it appropriate for me to follow a different course. I will dispense with security and as required by the rules, the order will record that fact. One day the proprietary of this approach will be sorted out by an appeal court. 56 Now I can deal with the grounds upon which the winding up orders were opposed. Mr Levet, who appears for Rosedale Village Nominees and also purports to appear on behalf of Mews Village Nominees, submitted there is no power to wind up the schemes or to appoint a receiver to their assets. There are two planks upon which his argument is constructed. The first is that each scheme had already been wound up by order of the Supreme Court of the Australian Capital Territory. The second argument is that the conditions for the exercise of the statutory power to wind up had not been triggered. 57 By way of background, the person currently behind both Rosedale Village Nominees and Mews Village Nominees is Mr Shiels QC. Through a company, E O Finance Pty Ltd, Mr Shiels is also an investor in the Rosedale Retirement Village. Mr Shiels may or may not have an interest in Swan Western Incorporated, which is an investor in the Mews Retirement Village. At any rate, in mid-2005, E O Finance Pty Ltd purporting to represent all Investor Partners in the Talisker Skye Partnership brought an action in the ACT Supreme Court to wind up the Talisker Syke Partnership on the ground that it was an unregistered managed investment scheme. According to the affidavit filed in support of the application, the Talisker Skye Partnership was established by an agreement of 18 April 2000; the first defendant, Rosedale Action Incorporated, was appointed manager of the partnership; and, the second defendant, Rosedale Talisker Incorporated, held the partnership assets on trust for the partners. 58 The action did not come on for trial. Instead on 12 August 2005 it was disposed of by consent orders. The orders which the court made were: 1. The activities carried on by the first and second defendants known as the Talisker Skye Partnership ("the Talisker scheme") be wound up as an unregistered managed investment scheme pursuant to s 601EE of the Corporations Act 2001 (Cth). 2. Mr William Rangott of Rangott and Slavin be appointed to wind up the Talisker scheme. 3. Mr William Rangott have all the powers outlined in section 477 of the Corporations Act 2001 (Cth) as are necessary to fulfil his role and as if the winding up was a liquidation of a solvent company ordered by the Court. 4. Mr William Rangott distribute, whether in specie or otherwise, the assets of the Talisker Skye Partnership to the persons ultimately entitled thereto in his proper opinion. 5. The parties pay their own costs in relation to this action." 59 I make the following observations about the orders. First, the precise "activity" ordered to be wound up is not described. One is not much better informed upon reading the affidavit. Paragraph 4 states that the plaintiff is an investor in the Talisker Skye Partnership which is thereafter referred to as the Talisker Skye Scheme. Paragraph 36 states that the Talisker Skye Scheme "was organised as a partnership, pursuant to an agreement dated 18 April 2000, to buy and develop aged care accommodation." Paragraph 37 states that the scheme has, among others, the following features: the partners contributed money as consideration to acquire rights and benefits to be produced by the scheme; those moneys were pooled to buy the aged care accommodation at Rosedale; and, the partners do not have day to day control over the operation of the aged care accommodation. Little else is explained. 60 Second, because of the brevity of its language it is nearly impossible to determine the effect of the order. Doing the best I can, I am of the view that the order operates only to wind up the Talisker Skye Partnership established by the partnership agreement of 18 April 2000. That is what the order in terms purports to do, though not by reference to the agreement. My preferred construction is confirmed when regard is had to the affidavit, although I am by no means persuaded that it is permissible to go to the affidavit for that purpose. I say this because the order was made by consent and it is unlikely that the judge read the affidavit. If the order does not wind up the partnership it has no operative effect. Importantly for present purposes, in my view the order does not wind up the Rosedale scheme that I have described. 61 On 12 October 2005, the Supreme Court of the Australian Capital Territory wound up the Mews Village Partnership. The action in which that order was made was brought by Swan Western Incorporated. The affidavit filed in the proceeding states that Swan Western acquired its interest in the partnership from the second plaintiff, Lionheart Management Pty Ltd. The defendants to the action were Mews Village Nominees, Equitable Overseers, GDK Partnership Management, Villager Mews Nominees, E O Finance Pty Ltd and Rosedale Action Incorporated. The second to sixth defendants were sued as investor partners. The winding up order which was also made by consent is as follows: "1. The activities carried on by the first and second defendants known as The Mews Village Partnership ("The Mews Village Scheme") be wound up as an unregistered managed investment scheme pursuant to s 601EE of the Corporations Act 2001 (Cth)."

Australian Securities & Investments Commission, in the matter of GDK Financial Solutions Pty Ltd v GDK Financial Solutions Pty Ltd

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