Australian Securities & Investments Commission v Finchley Central Funds Management Ltd

REASONS FOR JUDGMENT 1 I made orders on 23 September 2009 including that the defendant, Finchley Central Funds Management Limited (Finchley), be wound up. I delivered ex tempore reasons. The following are those reasons which have been edited but not so as to affect the substance of them. 2 The plaintiff, the Australian Securities and Investments Commission (ASIC) has applied for orders including an order that Finchley be wound up pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) (the Act). This is the just and equitable ground for making such an order. The application is supported by an affidavit of Allan Maxwell Read sworn 30 July 2009 and affidavits by Michael James Sims affirmed 4 August, 15 and 16 September 2009. The defendant has not entered an appearance but I have been provided with a copy of a letter dated 21 September 2009 from the defendant, signed by one of its directors, Mr Simon Bell. The letter is in terms, relevantly, that the defendant does not intend to appear in the proceedings and that the company does not intend to oppose the relief sought by ASIC. 3 What is just and equitable is a question of fact and each case depends on its own circumstances: Re Tivoli Freeholds Ltd [1972] VR 445 at 468. The plaintiff stands in a somewhat different position to a private applicant for winding up on this ground because the public interest considerations attaching to ASIC as the corporate regulator are relevant to the application. Where companies are engaged in fund management and where there is evidence of serious mismanagement or repeated breaches of the Act so that there is a risk to the public, and in circumstances where ASIC has lost confidence in the company to comply with the relevant law, the court may act to wind up that company on the just and equitable ground: Australian Securities Commission v AS Nominees Limited (1995) 62 FCR 504, Australian Securities & Investments Commission v ABC Fund Managers Limited (2001) 39 ACSR 443, and Australian Securities & Investments Commission v Green Pacific Energy Limited (2006) 59 ASCR 142. 4 Finchley is a public company and is the holder of an Australian Financial Services Licence. It is the responsible entity of a registered managed investment scheme, the Finchley Development Capital Funds (Managed Investment Scheme) (the scheme). The scheme raises money from the public to on-lend to property developers. The scheme constitution and trust deed authorises the creation of sub trusts for different money-raising and on-lending activities. Two sub trusts are currently operating: The Gilead Trust and the Riverside Pier Trust. The Gilead Trust has raised in excess of $25 million from 617 members. That money has been on-lent for the development of the Gilead Retirement Resort in Mount Gilead, New South Wales. Contrary to the terms of the product disclosure statement, the members of that trust have not been repaid distributions, their principal or project bonus. It is possible that there will be a return to members who have invested in the Gilead Trust. 5 The Riverside Pier Trust has raised almost $16 million from 337 members. That money has been on-lent to PH3 Hotel Development Proprietary Limited, to develop the Riverside Pier Hotel on the Swan River front near the Bell Tower and Barrack Street pier. Contrary to the terms of the product disclosure statement, the members of that trust have not been repaid distributions or their principal. In addition, the developer has been given a notice of termination of sub-lease relating to that riverside land, although the developer is disputing the validity of the termination. The prospects of the members getting any return are slim. 6 The risk to the members in terms of their return on investment is, in this case, coupled with an inability on the part of the current management at Finchley to meet the requirements of the Act or its financial services licence by reason that Finchley: (a) has failed to lodge audited financial statements for itself and the scheme; (b) has an insufficient number of directors. Three directors are required but there are only two, only one of which is active; (c) does not maintain any insurance policy covering professional indemnity and fraud by its directors; (d) is not a member of an external dispute resolution scheme; (e) does not have the sufficient financial or human resources to properly provide financial services for which it is licensed; (f) is likely to be insolvent; and (g) is not maintaining a proper compliance regime. 7 Finchley's one active director, Mr Bell, has a very clear conflict of interest because he is also a director in substantial control of the developer of the Riverside Pier Hotel. Additionally, he has granted a personal guarantee to another lender to this development for a sum in excess of $3 million. ASIC has lost confidence, quite understandably in my view, in the ability of Finchley and its officers to comply with their obligations under the Act. 8 I am of the opinion that a winding up order will enable the scheme to be put under external administration so that a proper independent assessment of the recoverability of funds for the members of the Gilead Trust and the Riverside Pier Trust may be made. It may be that an application to wind up the scheme will be required in due course after assessment has been made. 9 I am satisfied that the procedural and service requirements in relation to this application have been met. 10 I accordingly conclude, for all these reasons, that the orders in terms of the minute filed by the ASIC should be made. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.