First and Second Plaintiff v Defendant

Supreme Court of Victoria|2009-02-12|Before: JUDD J

CORPORATIONS - Managed Investment Scheme - application for order to wind up a scheme under s.601ND(1)(a) Corporations Act 2001 - standing of receivers to make application - appointment of scheme liquidator in lieu of responsible entity under s.601NF(1) - ownership of scheme property - termination of scheme documents - power to deal with non-scheme property - order made winding up registered schemes

For Australian Securities and Investments Commission

1 The third plaintiff, Environinvest, is an unlisted public company. Its business included inviting members of the public to participate in investment schemes and the management of those schemes. The schemes with which this proceeding is concerned relate to the establishment and management of eucalypt plantations.

2 On 19 September 2008 the directors of Environinvest appointed James Patrick Downey administrator of the company and associated entities. On 22 September 2008 the Commonwealth Bank of Australia Ltd appointed the first and second plaintiffs, Craig Peter Shepard and Mark Francis Xavier Mentha, receivers and managers of the assets and undertakings of Environinvest. The appointment of the receivers was made pursuant to a registered charge dated 16 May 2001. By 24 October 2008 Environinvest and twelve associated companies were in liquidation and Mr Downey was appointed liquidator.

3 The plaintiffs have applied to wind up a number of the schemes managed by Environinvest.[1] The receivers made application, pursuant to s 601ND(1)(a) of the Corporations Act 2001, in the name of Environinvest. They applied for the appointment of an independent scheme liquidator to take responsibility for the winding up in the place of Environinvest pursuant to s 601NF(1) of the Act.

4 The schemes with which this application is concerned fall into four broad categories:

(1) Primary Yield Eucalypt Project (PYEP), incorporating projects promoted in 1998, 1999, 2000, 2001, 2002 and 2003;

(2) Primary Yield Eucalypt Project No 7 (PYEP 7) incorporating projects promoted in 2004 and 2005;

(3) Primary Yield Eucalypt Project No 9 (PYEP 9), incorporating projects promoted in 2006 and 2007; and

(4) Three excluded offer projects promoted in 1998, 1999 and 2000.

5 There are material differences between the excluded offer projects and the registered schemes. The excluded offer projects were not promoted as part of a scheme regulated under the Corporations Law. They have no constitution or responsible entity. There is no trust deed. Each individual investment exceeded a prescribed minimum, designed to exempt the project from regulation. It is not suggested that the excluded offer projects were required to be registered under the Corporations Law or the Act.

6 On 1 October 2008 the receivers made application to the court for authorisation to pay insurance premiums on behalf of Environinvest to protect against the potential loss of plantations and sought indemnification for that expense from proceeds of sale of the trees. Orders were made authorising the expenditure and for indemnity. On 17 October 2008 orders were requiring notice to be given to scheme members, who prefer to be described as growers, informing them of the application to wind up the schemes. The scheme members in Schedules A and B appeared in response to the notices and were represented by counsel. Mr Stephenson, an investor in the 1999 excluded offer project, appeared in person.

7 The Australian Securities and Investments Commission was represented by counsel. ABL Nominees Pty Ltd, a subsidiary of the Adelaide Bank Ltd, was also represented by counsel. ABL Nominees provided financial accommodation to Primary Yield Finance Pty Ltd, which had made loans to investors to facilitate the scheme. ABL appointed receivers and managers to Primary Yield Finance on 22 September 2008.

8 On 7 November 2008, Bruce Carter, Martin Lewis and George Georges of Ferrier Hodgson, were jointly appointed receivers of each of the schemes for the limited purpose of assessing the solvency and viability of the schemes. Their report, dated 24 November 2008, was made available to parties and growers prior to the commencement of the hearing of the plaintiffs' application to wind up the schemes. ABL assumed responsibility, in the first instance, to pay the costs of the report.

9 The report, dated 24 November 2008, provides a very useful overview of the schemes and projects, including their structure. Unfortunately, for reasons which were not explored, the authors assumed when preparing their report, that Environinvest's right of indemnity from scheme property was limited to expenses incurred in performance of its duties in the administration of the schemes, but did not extend to expenditure or liability arising out of its role as scheme manager. As a consequence, the authors did not make any allowance for the value of any right Environinvest may have to be indemnified out of scheme property for undertaking its role as manager.

10 If Environinvest is entitled to claim indemnity out of scheme property the negative impact on the solvency and viability of the schemes and individual plantations may be profound. It is not necessary to value that right for the purpose of this proceeding.

11 The authors of the Ferrier Hodgson report concluded that the schemes were incapable of becoming insolvent. They reached that conclusion because they treated the scheme as if trust property. In my view such an approach is too narrow. A scheme includes, but is not limited to scheme property. It is defined by the constitution, the scheme documents, the relationships thereby created and the scheme objectives, inputs and outcomes. If such an approach were to be adopted when analysing the solvency of the schemes, taking into account those elements and matters, a very different conclusion might have been reached.

12 Ferrier Hodgson engaged URS Australia Pty Ltd to advise on the likely cost of managing the various projects and potential revenues. This is a factor which will bear upon solvency and viability. Based on the information provided by URS, Ferrier Hodgson concluded that,

there is no upside in continuing to invest in the schemes.

Ferrier Hodgson also concluded that the net present value,

of each scheme as a whole is negative, indicating that none of the schemes as a whole are projected to be viable going forward.

13 There were a few cases where older plantations forming part of the PYEP scheme did generate positive values according to the model employed by Ferrier Hodgson. It was not suggested that there were any viable plantations within the PYEP 7 and PYEP 9 schemes. Ferrier Hodgson's overall conclusion was that,

the schemes and excluded offer projects are not viable.

14 The grounds upon which the plaintiffs support their application to wind up the schemes may be summarised as follows:

(1) Environinvest, as the responsible entity, is hopelessly insolvent. Receivers have been appointed to its assets and undertakings under a charge and mortgages over 17 parcels of land employed in the schemes and it has no funds with which to continue to perform any of its functions.

(2) The schemes have failed.

(3) The schemes are insolvent.

(4) There is no alternative responsible entity willing to assume the role of Environinvest.

(5) Even with adequate funding, the schemes are not viable.

(6) The schemes have been mismanaged by Environinvest.

15 The plaintiffs also submitted that the excluded offer projects formed part of the PYEP registered scheme and should be wound up under that scheme constitution. They submitted that the scheme constitutions provide that scheme documents (or project documents as they are defined in PYEP 7 and PYEP 9), including the leases, would terminate automatically upon the making of a winding up order. They sought declarations to that effect. They submitted that termination of the leases is an essential first step in the winding up, providing access to the trees for the purpose of harvest or sale.

16 All growers opposed the application to wind up the scheme. Their grounds for opposing the application may be summarised as follows:

(1) the plaintiffs do not have standing to apply to wind up any of the schemes;

(2) the application is, in any event, premature because not enough is known about the viability of each individual plantation;

(3) when considering whether it is just and equitable to wind up the schemes the growers' interests are paramount;

(4) the Court does not have power to wind up the excluded offer schemes;

(5) if a winding up order is to be made:

(a) the leases should be preserved; and

(b) a scheme liquidator does not, in any event, have power to deal with the leases and the trees standing on the plantations because they do not constitute scheme property.

17 The growers made a cross-application, by originating process, for the appointment of James Witham as an interim receiver of the PYEP scheme for the limited purpose of investigating the viability of the various plantations.

18 The issues to be decided in this proceeding are as follows:

(1) Do the receivers have standing to bring this application in the name of Environinvest as the responsible entity under s 601ND(1)(a) of the Act, to wind up the schemes;

(2) Should a receiver be appointed to the PYEP scheme for the limited purpose of assessing viability of individual plantations;

(3) Is it just and equitable to direct that the schemes be wound up;

(4) If an order to wind up any scheme is to be made:

(a) do the grower leases automatically terminate on the making of such an order;

(b) do the leases and trees constitute scheme property for the purpose of the winding up;

(c) who should be appointed to undertake the winding up.

(5) Any consequential orders and directions, including orders for costs and indemnity sought by the receivers.

19 Following amendments to the Corporations Law in 1998, managed investment schemes were required to be registered and to adopt an approved constitution and appoint a responsible entity. Previously, such schemes as were amenable to regulation under the Corporations Law, required a registered prospectus and an approved trust deed. The amendments took effect on 1 July 1998. Trustees and managers had two years in which to ensure that existing schemes complied with the new legislative regime. On 30 June 2000 Environinvest registered a constitution for its existing eucalypt plantation scheme and became the responsible entity. That scheme underwent some name changes and eventually became known as the Primary Yield Eucalypt Project. New schemes were commenced by Environinvest and registered in 2004 and 2006.

20 The total investment made by scheme members who invested in eucalypt plantation schemes, the subject of this application, in and between 1998 and 2007 was $56,499,699. Approximately $11 million was invested in the other schemes promoted by Environinvest. Thus, nearly 84% of the investment revenue to Environinvest was generated from the schemes the subject of this application.

21 The plantations managed by Environinvest are located on 42 properties. Most of the land is near Beaufort in Western Victoria. The properties known as Beenak and Blacksands are located in the Yarra Valley. Q2 is located in South Australia. Only seventeen properties are owned by Environinvest. Two properties are owned by Environinvest Pastoral Pty Ltd and a further two properties are owned by Blackburne Pty Ltd, both of which are entities related to Environinvest. Two properties are owned by Arnac Pty Ltd, a company apparently controlled by a member of the Pescott family, and three properties are owned by Roger Pescott, who was a director of Environinvest and of many of its related entities.

22 Some properties appear to be owned at arms length from Environinvest and leased to it or a related entity. The property known as Addison is owned by Robert Addison. Thirteen properties are owned by Great Southern Plantations Ltd. The property known as Panthers is owned by Roslyn Barber and Q2 is owned by Snodgrass Nominees Pty Ltd.

23 Of the nineteen properties owned by Environinvest and Environinvest Pastoral Company, seventeen are mortgaged to the CBA. One property owned by Blackburne is also mortgaged to the CBA. Other properties employed in the schemes are mortgaged to different financial institutions. St George Bank is mortgagee of three properties - Pomonal, Ledcourt and Araluen. St George Bank is proposing to exercise its rights as mortgagee by reason of a default by the mortgagor. Environinvest is owner and mortgagor of Pomonal and Ledcourt and Blackburne is owner and mortgagor of Araluen. The CBA holds a second ranking mortgage over Pomonal and Ledcourt.

24 The charge granted by Environinvest in favour of the CBA, dated 16 May 2001, defines the charged property as,

all and singular the undertaking and property of the Mortgagor and all its assets whatsoever and wheresoever both present and future including its uncalled capital for the time being.

25 The deed of appointment of the receivers, dated 22 September 2008, appointed them receivers and managers of the "charged property" with all the powers and authorities given by the charge and by law. Clause 2.1(b) provided,

For the avoidance of doubt, it is acknowledged that the functions, powers and authorities of the Receivers and Managers extend to the Chargor acting in its capacity as responsible entity of any Scheme.

26 From December 2004, Primary Yield Finance, an entity associated with Environinvest, made loans to growers to assist them in making their contributions when subscribing for allotments in a project. Primary Yield Finance also took an assignment of loans which had been made to growers investing in earlier schemes by other financiers including Environinvest, BEP Finance Pty Ltd and Blackburne Pty Ltd.

27 Some of the grower loan agreements contained terms under which the grower granted to the lender a fixed charge over the growers' present and future interest in the project, while other loan agreements contained terms under which the grower was to provide security to the lender in the form of a mortgage over the growers' lease and a charge over the proceeds from the sale of any timber or insurance proceeds in the event of loss.

28 Between December 2004 and 2006, Primary Yield Finance assigned most of the grower loans and securities to ABL under a securitisation arrangement supported by the Adelaide Bank. Daniel Mathew Bryant, a receiver of Primary Yield Finance, estimated the total amount outstanding under loans assigned to ABL at around $33 million. Primary Yield Finance did not assign all of its loans to ABL, retaining an asset, represented by loans to growers, estimated to be about $6 million.

29 It is not entirely clear how many of the growers have loan agreements under which ABL is directly or indirectly entitled to security; nor is it clear how many of the loans are in default. By reference to the total amount of loans held by Primary Yield Finance or assigned to ABL, and the total investment in eucalypt projects managed by Environinvest it would appear that a very significant proportion of the overall investment by growers was financed under loan agreements.

30 There are approximately 400 growers who acquired an interest in the schemes. Thirteen growers acquired allotments in excluded offer schemes. Some of the growers are corporations while others are partnerships.

31 The offers made by Environinvest to members of the public under the offer documents typically invited investment in a lease and management agreement under which the manager agreed to prepare, plant and maintain a stand of eucalypts on allotments of one-half hectare. A review of offer documents indicates that there was a minimum holding for any one investor of six allotments or three hectares, although there were some holdings very much larger. The allocation of plantations to growers investing in a particular project was made by Environinvest.

32 There are some properties with a large number of individual investors. For example, Q2 has 55 individual grower plantations; Baangal South has 49 plantations; Lillirie has 26 plantations; Lyola and Ararat have 37 plantations and Eurambeen South has 22 plantations. Many of the properties include plantations allocated to investors in different projects. There are some large individual holdings and, in a number of cases, properties with only one grower plantation.[2]

33 Prior to a restructure of the PYEP scheme in 2000, to conform with the requirements of the Managed Investments Act 1998, each project (but not the excluded offer projects) was administered by a trustee, Burke Bond Corporate Ltd, pursuant to a trust deed made between Burke Bond Corporate as trustee and Environinvest as manager. Each applicant for allotments in a project was required to pay a once only management fee and an amount for the first year's rental under the lease agreement. An annual plantation maintenance fee was also payable.

34 The 1999 prospectus stated that an applicant would become a grower by completing the attached application form and power of attorney and paying the appropriate subscription sum. The management fee per allotment was $2,730. For the minimum six allotments the management subscription fee was $16,380. This sum was apparently to cover the cost of preparation and establishment of the plantation. The annual land rental for six allotments was $540 and the annual plantation maintenance cost, $180.

35 Each grower was required to and did engage Environinvest as manager to develop, establish and maintain the plantation. For the 1999 project the plantation was to be established on land owned by Blackburne.

36 The 1999 lease arrangements were not straightforward. Blackburne leased the land to S.T.Y. (Afforestation) Pty Ltd, described as the landlord, which in turn leased the land to Burke Bond Securities Ltd, described as the lessor. Burke Bond Securities leased the land to the growers. STY was described in the prospectus as having been in the business of processing pulpwood for over 30 years.

37 The complex lease structure was apparently designed to facilitate the growers right to require STY to purchase some of the growers' trees during growth years three to eight. In the third growth year the grower had a qualified right to require STY to pay a price of $3,850 for the trees on an allotment. In the fourth year the payment increased to $4,300; in the fifth year, $4,800; in the sixth year, $5,350; in the seventh year, $5,900; and in the eighth year, $6,550. The right was apparently designed to allow each grower, if they wished, to dispose of all of their trees by the eighth year of growth. There were qualifications on the obligation of STY to take the trees. Having acquired a growers' interest in trees, STY assumed all continuing liabilities of the grower in respect of those trees.

38 The 1999 prospectus assumed that trees would reach maturity by eight years. For those who did not dispose of their trees to STY, estimates were given in the prospectus of the projected returns from the harvested timber.

39 Investor numbers varied between projects, as did the amounts invested. For the excluded offer projects there were five investors in 1998, seven in 1999 and one in 2000. The minimum investment by each such investor was to be more than $500,000, thus avoiding compliance obligations under the Corporations Law relating to prescribed interests. An investment of $507,600 entitled the excluded offer investor to 180 allotments or 90 hectares of land to be cultivated and planted with trees. Mr Stephenson, who appeared in person, invested in the 1999 excluded offer project.

40 For the projects comprising the registered schemes there were the following number of investors each year, including some companies and partnerships.

41 While the majority of growers subscribed for less than 100 allotments there were some very significant investments. In 1998, six growers invested more than $100,000. In 1999 there were twelve such investors; and one whose investment exceeded $1 million. In 2000 there were 31 growers investing more than $100,000; one investment exceeding $3 million; and one investment exceeding $7 million. In 2001 there were eleven growers investing more than $100,000; two exceeding $1 million; and one exceeding $3 million. In 2002 there were three growers investing more than $100,000; fourteen in 2003; and eighteen in 2004. In 2005 there were five growers investing more than $100,000; and two exceeding $1 million. In 2006 there were ten growers investing more than $100,000 and six in 2007.

42 In their opposition to the application to wind up the schemes the growers focussed their attention on the rights created under the lease arrangements and their ownership of the trees. They sought to have those rights preserved. They were anxious to define their relationship with Environinvest as operators of individual businesses (growing trees) on leased land with attendant rights and obligations, having appointed Environinvest to manage their businesses. Whatever substance their characterisation may have, it overlooks the true nature of the scheme in which they participated and its consequential regulation by the constitutions and the Act.

43 The growers' concern to protect their leasehold interests and ownership rights was, at least to some extent, excited by the plaintiffs' submission that upon making an order to wind up the schemes all grower leases would terminate automatically by reason of the constitution of each of the registered schemes. The plaintiffs submitted that termination of the leases was necessary to ensure access to trees for the purpose of sale.

44 The plaintiffs submitted that upon the making of a winding up order the scheme terminated. They relied upon cll 33 and 34 of the PYEP constitution and the corresponding provisions in the other scheme constitutions. Clause 33 of the PYEP constitution makes provision for the duration and termination of the scheme. It provides:

33.1 Term of the Project

The project continues in operation until the earlier of:

(a) the expiry of the last of the Project Documents;

(b) the Project being wound up; or

(c) the expiry of the period of 80 years from the commencement date.

33.2 Termination of Project Documents

Upon the termination of this Project all the rights and obligations of the parties under the Project Documents cease and the Project Documents are automatically terminated. However, any rights which have been accrued under the Project Documents prior to a determination (including but not limited to harvesting rights) will remain.[3]

45 In the PYEP constitution, Project Documents is defined to mean,

the lease agreement, management agreement and any other documents entered into by a grower in connection with the project.[4]

46 Section 601GA(1) of the Act requires the constitution of a registered scheme to make adequate provision for the winding up of the scheme. Clause 34 of the PYEP constitution contains the following provision relating to winding up the project:

34.1 Events which cause a winding up

The Responsible Entity:

(a) must wind up or cause the winding up of the Project if:

(i) the Project comes to the end of its term (as set out in this Constitution);

(ii) the Project is without a responsible entity;

(iii) a court orders the Project be wound up pursuant to section 601ND of the Corporations Act; or

(iv) any of the other circumstances set out in section 601NE of the Corporations Act apply; and

(b) may wind up or cause the winding up of the Project in accordance with section 601NC of the Corporations Legislation.

34.2 Process of winding up

(a) The winding up shall be conducted in accordance with the provisions of Part 5C.9 of the Corporations Act.

(b) The Responsible Entity must convert to money all Scheme Property, deduct all proper costs and then divide the balance amongst the Growers (as the case requires) according to their interests.

(c) The Responsible Entity may make interim distributions during the winding up process as it sees fit.

(d) The Responsible Entity must proceed with the winding up efficiently, diligently and without undue delay. However, if it is in the interests of Growers to do so, then the Responsible Entity may postpone any part of the winding up for such time as it thinks desirable.

34.3 Responsible Entity may withhold proceeds of realisation

The Responsible Entity may retain from the proceeds of realisation of Scheme Property such funds as in the reasonable opinion of the Responsible Entity may be required:

(a) to meet future payment obligations which the Responsible Entity reasonably believes will fall due after a distribution is made to Growers; and

(b) to pay its own remuneration and expenses for work to be done prior to and following the realisation of Scheme Property.

34.4 Termination of other agreements

During the winding up of the Project, the Responsible Entity may terminate any other agreements or arrangements it has entered into with the Growers which relate to this Project. The Responsible Entity must give notice to the Growers of the termination of those agreements or arrangements.

47 Because the excluded offer projects have no trust deed or constitution, there is no like provision regulating the relationship between Environinvest (or a scheme manager) and grower in relation to winding up those projects.

48 The lease arrangements varied from project to project. The growers rely upon their asserted rights as lessee as well as variously expressed rights to require an entity to buy back their trees and assume responsibility for their obligations.

49 Some growers leased directly from Environinvest while others leased their land from related entities. Under the lease agreement promulgated for the 1998 project, Burke Bond Corporate was lessor and STY agreed to purchase trees from the grower commencing in year three of the lease at a predetermined price. For the 1999 project, Burke Bond Securities was lessor and STY agreed to purchase trees at the prescribed times. The same parties and a similar regime existed under the 2000 project, but in 2001 Custodial Ltd assumed the role of lessor. No buyback agreement was included in the lease agreement employed by Environinvest for that year. From 2002 Environinvest became landlord and there was no buyback agreement forming part of the lease.

50 The lease agreements employed by Environinvest from 2003 to 2007 acknowledged the growers' ownership of trees on each allotment during the continuation of the grower lease. The lease agreements also granted to Environinvest a lien over the trees for any sum owing under the lease. The earlier lease agreements did not contain any such express acknowledgement, although they acknowledge the growers' right to use the land for the purpose of growing trees.

51 The term of each lease ended upon the first clear fall of any trees to be planted on the land. That termination provision persisted until the regime was changed in 2004 to include an early termination right in favour of growers and provide for termination on the day following harvest or a date in accordance with the constitution. All constitutions provided that the leases terminate upon termination of the scheme. The event defined in the early lease agreement, as the first clear fall of trees, seems to correspond, in all practical respects, with the concept of harvest employed in the later lease agreements.

52 The evidence disclosed that in May 2000 some growers entered into a deed of agreement with Blackburne, STY and Burke Bond Securities, which had the effect of altering rights under their lease agreements. It is not clear how many subscribers under the 2000 project entered into such a deed. The deed made material amendments to the lease agreements by removing a limitation on the growers' right to require STY to purchase trees. Notice of the tree purchase was required to be given on or after 1 April 2010. The growers who benefit from that right wish to maintain the right even though STY is in liquidation. Blackburne guaranteed the obligation of STY. Blackburne is not in liquidation.

53 Environinvest is plainly insolvent, even though no attempt has been made to value its right to indemnity from scheme property. Its right to indemnity is disputed by the growers. Environinvest has no funds with which to carry on business as manager of the schemes. Whatever right of indemnity Environinvest may have, the growers submitted that the trees do not constitute scheme property out of which Environinvest might be indemnified. The dispute concerning any right of indemnity available to Environinvest and the limits upon any such right is not one I must resolve for the purpose of this application.

54 There is also a dispute between some growers and Environinvest (or STY) over buy-back rights. Growers have sought to exercise their right to require STY or Environinvest to purchase trees. As a consequence of the dispute, the growers have withheld lease and management fees, as at 30 June 2008, in the sum of $4,829,799.

55 Cash flow forecasts for each of the registered schemes indicated a cash shortfall for the PYEP scheme to 30 June 2008 of $1,920,751. The cash shortfall for the PYEP 7 scheme to 30 June 2008 was $799,849; and for the PYEP 9 scheme to 30 June 2008 was $397,756. These cash shortfalls will compound, in the absence of adequate funding, as time passes. Future maintenance of the plantations will require a substantial cash injection. Management of the plantations requires culling, weed control, fertilisation, replacement of dead seedlings and pest control. There are substantial insurance premiums to pay as well as labour and equipment costs. Environinvest also has obligations under leased properties.

56 In their report as to affairs, the directors of Environinvest estimated its financial position was in deficit between $96 million and $106 million with unsecured liabilities in excess of $77 million. While there is some uncertainty about the accuracy of the report, it is plain that Environinvest is hopelessly insolvent, without funds to continue to manage the plantations or perform its duties as responsible entity. Its assets, including many of the scheme properties, are in the hands of the receivers. Environinvest is indebted to the CBA in a sum in excess of $46 million.

57 Environinvest is also in default under some of the leases taken by it over properties employed as part of the schemes. It has failed to pay rent in respect of Addisons, Eurambeen North, Eurambeen South and Q2. Further defaults are inevitable.

58 St George Bank is moving to exercise its rights as mortgagee in respect of the Pomonal and Ledcourt properties, both owned by Environinvest. The CBA has already appointed receivers of the land mortgaged to it. Nevertheless, the growers submitted that the schemes are not insolvent and that no order should be made winding them up, at least at this time.

59 The growers challenged the standing of the plaintiffs to bring and maintain an application in the name of Environinvest to wind up the schemes. They submitted that the only power to wind up schemes is to be found in Part 5C of the Act. Section 601EE(2) authorises the court to wind up a managed investment scheme that was required to be registered but which was unregistered. Because the excluded offer projects were not required to be registered, s 601EE has no application. The other schemes are registered.

60 The growers submitted that the winding up provisions in Part 5C.9 of the Act are confined in their application to registered schemes. I agree. An application to wind up a registered scheme, other than one made by a creditor of the responsible entity in its capacity as the scheme's responsible entity, may only be made by the responsible entity, a director, a scheme member or ASIC. Section 601ND provides:

601ND Winding up ordered by Court

(1) The Court may, by order, direct the responsible entity of a registered scheme to wind up the scheme if:

(a) the Court thinks it is just and equitable to make the order; or

(b) within 3 months before the application for the order was made, execution or other process was issued on a judgment, decree or order obtained in a court (whether an Australian court or not) in favour of a creditor of, and against, the responsible entity in its capacity as the scheme's responsible entity and the execution or process has been returned unsatisfied.

(2) An order based on paragraph (1)(a) may be made on the application of:

(a) the responsible entity; or

(b) a director of the responsible entity; or

(c) a member of the scheme; or

(d) ASIC.

(3) An order based on paragraph (1)(b) may be made on the application of a creditor.

61 The plaintiffs' application, made under s 601ND(1)(a) of the Act, authorises the court to make an order directing the responsible entity of a registered scheme to wind up the scheme if the court thinks it is just and equitable to make the order. The receivers submitted that they are entitled to bring the application in the name of Environinvest.

62 The growers submitted that the powers of the receivers do not extend to authorise this proceeding in the name of Environinvest and accordingly there is no proper applicant. They submitted that upon the appointment of the liquidator to Environinvest, the receivers ceased to be agents of the company, although they may continue to act pursuant to their powers as agents of the mortgagee. Their limited authority, it was submitted, did not extend to maintaining this proceeding.

63 The growers submitted that the receivers' powers are confined to dealing with property subject to the charge. That is, the secured property. They submitted that the power to bring this application is not property over which the CBA holds security. The growers submitted that it would be open to the plaintiffs to maintain the proceeding with the approval of the liquidator, but this has not been sought and obtained.[5]

64 In my opinion, the receivers have power to bring this application on behalf of Environinvest. The property charged was "all and singular the undertaking and property of the mortgagor and all its assets whatsoever and wheresoever both present and future..." The business of Environinvest was, prior to 30 June 2000, to act as project manager and promoter of the scheme. After 30 June 2000, and the registration of constitutions, Environinvest became the responsible entity and project manager. Its business as responsible entity formed part of its undertaking with consequential rights and obligations under each constitution and the Act. For example, by reason of its role as responsible entity, Environinvest has a right of indemnity under each constitution. There is no suggestion that such a right does not form part of the charged property.

65 The winding up provisions in Part 5C.9 of the Act contemplate a winding up carried out by the responsible entity, as does each constitution. While s 601NF(1) authorises the court to appoint a person, other than the responsible entity, to ensure that a registered scheme is wound up in accordance with its constitution, the order contemplated under s 601ND(1) is one directing the responsible entity of a registered scheme to wind up the scheme. Winding up the scheme is plainly part of the business of the responsible entity.

66 The deed of appointment of the receivers of Environinvest expressly acknowledged,

That the functions, powers and authorities of the Receivers and Managers extend to the Chargor acting in its capacity as responsible entity of any Scheme.

67 The receivers also rely upon s 420 of the Act and in particular paragraphs (2)(a)(h) and (k). The relevant provisions are as follows,

(1) Subject to this section, a receiver of property of a corporation has power to do, in Australia and elsewhere, all things necessary or convenient to be done for or in connection with, or as incidental to, the attainment of the objectives for which the receiver was appointed.

(2) Without limiting the generality of subsection (1), but subject to any provision of the court order by which, or the instrument under which, the receiver was appointed, being a provision that limits the receiver's powers in any way, a receiver of property of a corporation has, in addition to any powers conferred by that order or instrument, as the case may be, or by any other law, power, for the purpose of attaining the objectives for which the receiver was appointed:

(a) to enter into possession and take control of property of the corporation in accordance with the terms of that order or instrument; and

...

(h) to carry on any business of the corporation; and

...

(k) to execute any document, bring or defend any proceedings or do any other act or thing in the name of and on behalf of the corporation;

68 The receivers submitted that the prosecution of this proceeding is a matter which is "necessary or convenient to be done for or in connection with, or as incidental to, the attainment of the object for which the receiver was appointed" within the meaning of s 420(1) of the Act. They submitted that it is only through the winding up of the schemes that the final position and the assets and liabilities of Environinvest can be ascertained. The receivers further submitted that the limitation upon the scope of their power, adverted to by the growers, is one which prevents them from creating new liabilities provable in the winding up.[6] They submitted that the prosecution of this application does not purport to create any liabilities provable against Environinvest in the winding up. Accordingly, there is no principle of law which would prevent them from maintaining this proceeding in the name of Environinvest.

69 ASIC supported the submissions made on behalf of the receivers in relation to standing. It submitted that they were authorised to bring this application on behalf of and in the name of Environinvest to seek a winding up order under s 601ND(1)(a) of the Act. It also submitted that the power was to be found in s 420(1) and (2)(k) of the Act.

70 In my opinion it is necessary and convenient for the receivers to make and maintain this application to wind up the schemes. It is part of the business or undertaking of Environinvest, under each of the constitutions, to wind up the schemes in prescribed circumstances and by the prescribed process. There is no reason to segregate that part of its business or undertaking from its overall function as scheme manager and responsible entity which is subject to the charge in favour of the CBA. The receivers have been expressly authorised by their instrument of appointment to exercise the powers of Environinvest as responsible entity.

71 Managed investment schemes require a functional and solvent responsible entity. Environinvest is insolvent and in liquidation. It does not have funds available to it to continue to manage the schemes. The proper management of the plantations will require substantial capital if they are to be maintained. In the absence of proper maintenance the interest of the growers, as scheme members, is at risk. The growers, Environinvest and the CBA all have an interest in protecting the trees.

72 It is not only convenient, but necessary that Environinvest make this application. ASIC did not make any application. The directors did not make any application and the members opposed the application.

73 For reasons set out below I have reached the conclusion that the registered managed investment schemes should be wound up and propose to make orders to that effect.

74 The Act and the scheme constitutions presuppose a winding up of the scheme by the responsible entity. The Act recognises, however, the possibility that the responsible entity may be unable to conduct the winding up. Section 601NF provides,

(1) The Court may, by order, appoint a person to take responsibility for ensuring a registered scheme is wound up in accordance with its constitution and any orders under subsection (2) if the Court thinks it necessary to do so (including for the reason that the responsible entity has ceased to exist or is not properly discharging its obligations in relation to the winding up).

(2) The Court may, by order, give directions about how a registered scheme is to be wound up if the Court thinks it necessary to do so (including for the reason that the provisions in the scheme's constitution are inadequate or impracticable).

(3) An order under subsection (1) or (2) may be made on the application of:

(a) the responsible entity; or

(b) a director of the responsible entity; or

(c) a member of the scheme; or

(d) ASIC.

75 The requirement of a direction to the responsible entity, to wind up the scheme, reflects the pivotal role of the responsible entity under the constitution and the Act. Whether the scheme is to be wound up by the responsible entity, or by a person appointed under s 601NF(1), the winding up is to be conducted in accordance with the scheme constitution and any orders under s 601NF(2) of the Act.[7]

76 A crucial consideration in any application to wind up a scheme is to identify what is to be wound up.[8] It is the scheme, not merely scheme property, that is the subject of the order. The scheme is not an entity. Although there are similarities, it is not the same process as terminating a trust or winding up a partnership.

77 The scheme is defined by the constitution and project documents, which create relationships between the parties. The project documents include the leases, management agreements, powers of attorney and "any other documents required to be entered into by a Grower to hold an interest in the Project". Add to that mix the "project property" or "scheme property", as defined in the constitutions, and the scheme begins to take shape as a series of agreements, arrangements and undertakings with defined relationships, objectives, inputs and outcomes. Thus, the scheme to be wound up includes, but is not limited to, scheme property.

78 There is a dispute as to what constitutes scheme property for the purpose of a winding up. While it is not possible or appropriate to endeavour to decide in this proceeding the extent of the property to be dealt with in a winding up of the schemes, the position in relation to the leases and the trees standing on the various allotments is a matter of fundamental concern to the growers, security holders (including the CBA and ABL) and in particular a scheme liquidator appointed to undertake the winding up.

79 Under the constitution of each registered scheme the responsible entity is required to convert to money all "scheme property". Scheme property, or project property, as defined in the constitutions is more limited than the meaning of scheme property under the Act. That limitation does not, however, circumscribe the power of a scheme liquidator to wind up the scheme.

80 The plaintiffs submitted that the leases and trees are scheme property for the purpose of the winding up and may be dealt with and sold by the scheme liquidator. The growers argue to the contrary. The broad position adopted by the growers in relation to the trees is supported by ASIC and seemed to be predicated upon the assumption that the scheme documents succeeded in meeting a requirement of the Australian Taxation Office that, for scheme expenditure to be an allowable deduction against income the trees must be owned by the growers and not held upon trust for them as scheme members. Such a requirement explains the acknowledgements of grower ownership contained in the various project documents.

81 ASIC submitted, however, that a person winding up a scheme may nevertheless deal with the trees. It submitted that where the responsible entity is the lessor to the grower of plantation allotments, upon the termination of the lease (which it assumed would occur upon the making of an order to wind up the scheme) the trees become the property of the lessor and are thereupon held on trust for the relevant growers. I do not accept, for reasons given below, that the leases terminate automatically upon the making of a winding up order.

82 The growers' submissions that the leases and trees are not available to be dealt with by a scheme liquidator, did not apply uniformly to all schemes. The growers submitted that for those who invested in projects prior to 1 July 2000, the leases and trees did not constitute scheme property as defined in the Act because of the transformation of the trust arrangements into managed investment schemes on 1 July 2000. The growers submitted that upon the happening of that event they brought their property with them into the new arrangement.[9] Accordingly, that property was not scheme property under the Act.

83 I do not accept the growers' submission that the change that took place on 1 July 2000 should be interpreted as a commencement of a new scheme to which the existing growers contributed their leases and trees. The rights and relationships created in 1998, 1999 and 2000 did not terminate on 30 June 2000. They continued as before. The material changes were the registration of the trust deed as the constitution and the blending of the role of the trustee and manager merged into the responsible entity, Environinvest. Part 5C of the Corporations Law operated to regulate the scheme.[10]

84 The growers' submissions of more general application, in relation to the status of the leases and trees, depend upon giving effect to the limitation in the constitution of the definition of scheme property, with the conferral of ownership rights under the scheme documents.

85 In response ASIC advanced an alternative basis upon which a scheme liquidator may deal with the trees. It submitted that the effect of a winding up order is to give the scheme liquidator power to realise property that is inherently part of a scheme even if the project documents vest legal title in the trees with individual growers.

86 There is force in the alternative submission made by ASIC. To confine the property available to a scheme liquidator in a winding up to scheme property, as defined in the constitution, is to confine the winding up as analogous to winding up a trust. There may be similarities but that is as far as it goes. As I have said, a scheme is a much broader concept, defined by the scheme documents, relationships, objectives, inputs and outcomes. The narrow definition of scheme property in the constitution must not be allowed to detract from the broad responsibility of the scheme liquidator to wind up the scheme.

87 Merely because scheme documents characterise a right, interest or asset as owned by an investor does not remove it from the scheme for the purpose of winding up. In Kay v ASIC[11] the scheme under consideration by the Court of Appeal in Western Australia was one involving the management of mortgages on behalf of lenders. Each mortgage was matched to a borrower. The prospectus asserted that each investor had an investment in a particular mortgage and rights under that particular mortgage. Each mortgage was an entirely separate transaction. There was no pooling of interest payments under the scheme and no sharing of profits. Each individual lender assumed the risk of the mortgagee's default. It was submitted in that case that the mortgage was not scheme property and, accordingly, not held upon trust for scheme members under s 601FC(2) of the Act. Notwithstanding those characteristics, the Court of Appeal held that each separate investment was part of an overall scheme. While there were different participants and the target or object of the various investments was usually different, they had the same overall supervisory structure, using the same method of operation and designed towards the same end.[12]

88 Nor are the scheme documents consistent in their treatment of the trees as owned by the growers and excluded from scheme property. While the PYEP constitution requires the responsible entity to convert to money all scheme property,[13] it contains the following definition:

Scheme property is the meaning given to the expression by section 9 of the Corporations Act and which, for the avoidance of doubt, is limited to the proceeds of the Project held in the Proceeds Fund and the Application Moneys held in the Application Fund.[14]

This definition is obviously designed to exclude trees in situ from scheme property.

89 The Proceeds Fund is defined to mean a fund which Environinvest was required by the constitution to hold,

into which will be deposited all proceeds and other money generated from the Project (including but not limited to harvest proceeds and insurance proceeds) but excluding the Application Money.[15]

90 Thus, once trees are harvested (or insurance moneys collected in the event of loss), the proceeds from the harvest because scheme property as defined by the constitution. To suggest that, in the course of winding up the scheme, Environinvest would not be entitled to convert the trees to cash, but may deal with the cash once the trees have been harvested, would lead to the absurd result that the product or intended outcome of the scheme (the trees) was beyond the reach of a scheme liquidator if they had not already been converted to cash (by harvest) at the time of a winding up order.

91 The PYEP 7 and PYEP 9 scheme documents are more explicit. The constitutions employ the term "project property" in lieu of "scheme property". In these constitutions project property,

has the same meaning as "scheme property" as that expression is defined under the Corporations Act and excludes any assets or other property vested in the grower.

The leases issued under the PYEP 7 and PYEP 9 schemes expressly acknowledge grower ownership of the trees.

92 Notwithstanding the attempt to isolate the trees from the definition of scheme property in the scheme documents, the Act does not permit that outcome. The Act defines scheme property and requires the responsible entity to ensure that scheme property is clearly identified as scheme property.

"scheme property" of a registered scheme means:

(a) contributions of money or money's worth to the scheme; and

(b) money that forms part of the scheme property under provisions of this Act or the ASIC Act; and

(c) money borrowed or raised by the responsible entity for the purposes of the scheme; and

(d) property acquired, directly or indirectly, with, or with the proceeds of, contributions or money referred to in paragraph (a), (b) or (c); and

(e) income and property derived, directly or indirectly, from contributions, money or property referred to in paragraph (a), (b), (c) or (d).

(1) In exercising its powers and carrying out its duties, the responsible entity of a registered scheme must:

(i) ensure that scheme property is:

(i) clearly identified as scheme property; and

(ii) held separately from property of the responsible entity and property of any other scheme; and

(j) ensure that the scheme property is valued at regular intervals appropriate to the nature of the property; and

(k) ensure that all payments out of the scheme property are made in accordance with the scheme's constitution and this Act; and...[16]

95 The contributions of money made by the growers, directly or indirectly to Environinvest as management fees were to be applied, at least in part, to the preparation of land, the purchase of seedlings, and to the planting and maintenance of the seedlings. The whole purpose of the scheme was to grow trees on individual allotments in the various plantations. The grower contributions were translated into trees. They are "property derived, directly or indirectly, from contributions".

The responsible entity holds scheme property on trust for scheme members.

97 Whatever the scheme documents and constitutions may say about the meaning of scheme property or project property and the ownership of trees - it is the Act which plainly defines scheme property and declares that it is held on trust for scheme members. To remove the trees from regulation under Part 5C as scheme property would be to emasculate the Act by stripping the schemes of effective regulation, removing the intended scheme outcomes from the regulated supervision of Environinvest, including its ability to deal with the property in a winding up.

98 The plaintiffs submitted that the leases automatically terminate upon the making of an order that the scheme be wound up. They seek a declaration to that effect. I do not agree that the project documents, including leases, automatically terminate on the making of such an order.

99 Clause 33 of the PYEP constitution (and similar provisions in the other constitutions) provides that the project continues until wound up. In my view, the scheme is not wound up until all scheme property has been called in, realised and any final distribution made to members. Winding up a scheme is a process, not an event. An order has no immediate statutory effect as in the case of an order winding up a corporation.[17]

100 There are provisions in the constitutions which are consistent with that approach. The process of winding up under the PYEP constitution assumes that at least some agreements may continue to operate during the process. Under cl 34.2(d) the responsible entity may postpone any part of the winding up if it is in the growers' interest to do so. There may be circumstances that justified the completion of a project. To postpone a part of the winding up may require some project documents to continue to operate.

101 Clause 34.4 of the PYEP constitution expressly authorises the responsible entity, during the winding up, to terminate "any other agreements or arrangements it has entered into with the growers which relate to this project". If termination of project documents is to take place automatically upon the making of an order to wind up a scheme, there is no work for cl 34.4. The documents described therein also fall within the definition of "project documents". At the end of the winding up process the scheme terminates and so do all project documents.

102 It is just and equitable to make an order that each of the registered managed investment schemes be wound up. There are circumstances that compel the making of such an order in respect of the registered schemes.

103 Notwithstanding the opinion expressed by Ferrier Hodgson to the contrary, I am satisfied that each scheme is insolvent in the sense that it is wholly dependent upon Environinvest for management and administration. Environinvest does not have the funds to continue its functions in relation to the schemes. Substantial funds will be required. The growers have not advanced any proposal for the future management of the schemes. In many instances the growers have withheld amounts due under management agreements and leases as part of an ongoing dispute with Environinvest. The plantations are being maintained by the receivers pending the outcome of this proceeding.

104 In Re Orchard Aginvest Ltd,[18] Fryberg J was prepared to proceed on the basis that an order to wind up a scheme under s 601ND could be made merely because the Primary Agribusiness Fund, a registered managed investment scheme, was insolvent. His Honour did not attempt to draw a distinction between the responsible entity and the scheme (the Fund) for that purpose. Insofar as the scheme is characterised as no more than a trust fund or "scheme property" held on trust for scheme members by the responsible entity, the condition of insolvency may not easily attach. But in my view the scheme is something more than trust assets or scheme property.

105 By adopting a more generous definition of a scheme, by reference to the scheme documents, relationships, objectives, inputs and outcomes, the concept of insolvency may be applied without much difficulty if the scheme has broken down because the responsible entity has no funds to continue the management and administration of the scheme and no reasonable prospect of getting in those funds. The scheme is, in my view, insolvent; it has failed and it is just and equitable that it should be wound up.[19]

106 Ferrier Hodgson have opined that the schemes as a whole are not viable. Their analysis was designed to ascertain whether the plantations or some of them, had a positive net present value. The assessment assumed funding, which is not available. Even if substantial funds were to made available over the next eight or nine years only the 1998 project yielded a modest net present value. Because, budgeted expenditure applied in the report did not include a component for head office overheads, that conclusion may be optimistic.

107 A calculation of net present value, on the assumption that funds would be available from some source to maintain plantations, is unrealistic when there is no prospect that such funds will be available. Moreover, the property rights necessary to continue the scheme are being eroded. Environinvest is currently in arrears in rental payments for land leased by it. It is the lessee of nineteen properties employed in the schemes. The owners of some properties have terminated leases and re-entered their land. There is default in the payment of rent in relation to other land. The CBA has appointed receivers over seventeen properties.

108 Opposition to the plaintiffs' application to wind up the schemes was confined to the growers, including Mr Stephenson who appeared on his own behalf. On 9 December 2008, the growers who were members of the PYEP scheme made application to appoint James Witham as interim receiver and manager of that scheme.

109 The growers submitted that it was premature to wind up the scheme and that they had not had sufficient opportunity to investigate the viability of individual plantations and the possibility of finding a replacement responsible entity. The growers were anxious to preserve all of their rights and in particular their leasehold interests until such time as they had sufficient opportunity to have a court appointed receiver, who will,

investigate the state of each of the plantations and their viability, on a plantation by plantation basis, and report back to the growers and other investors in the Scheme... and to the court, by February 2009. In the meantime, the growers are anxious to avoid a termination of the Scheme because of the effect it might have on their leases and the trees, and ultimately their ability to realise or salvage their interests in the Scheme.

110 Mr Witham presented as a person qualified and experienced in forestry whose report, it was submitted, would enable the growers to make sensible and informed decisions as to how their interests in the schemes would be best realised so that the court might fashion any winding up order in a way best suited to that end. Thus, the growers sought time and information.

111 The growers were first notified of the plaintiffs' application in late October and early November 2008. Some growers first appeared in this proceeding at a directions hearing on 23 October 2008. By 7 November 2008, approximately 65 growers were represented. That number grew steadily until at the conclusion of the hearing 76 growers were represented by counsel.

112 In order to assist the parties, the growers and the court, orders were made which resulted in the preparation of the Ferrier Hodgson report on solvency and viability. Although I disagree with some conclusions in connection with solvency and the right of indemnity, the report provides a very useful review of the scheme structure and analysis of viability. Following its preparation, the growers had an opportunity to meet and consider the report. Having regard to the financial position of Environinvest, the fragile lease structures, the refusal by numerous growers to pay rental and management fees and the growers' failure to put forward any rescue proposal or replacement responsible entity, a further report on viability on individual plantations is not warranted. The viability of individual plantations cannot determine the outcome of this application. It is not possible to wind up only part of the scheme. Individual circumstances may, of course, influence the way in which the winding up takes place. For example, it is open to the scheme liquidator to postpone some part of it.

113 The growers submitted that before ordering that a scheme be wound up the,

court must be satisfied that it is in the growers' best interest and not to their disadvantage.

114 In my opinion such an approach is far too narrow. In Re PWL Ltd[20] Heenan J accepted that it is just and equitable to order the winding up of a registered managed investment scheme pursuant to s 601ND(1)(a) of the Act if it is insolvent. His Honour had been referred to Re Orchard Aginvest Ltd.[21] His Honour also accepted that it is just and equitable for the court to intervene and to wind up a registered scheme where the original arrangement as set out in the prospectus has broken down. His Honour said,

the phrase "just and equitable" is broad and designed to accommodate a multiplicity of situations. It is not possible to define the phrase in exhaustive terms. In each case it will be a question of fact for determination upon the evidence relating to the scheme or corporation put before the court... A determination of whether or not it is just or equitable to wind up the entity will not depend upon particular factual consequences...[22]

I have already found that the schemes have failed and that they are insolvent.

115 The growers submitted that if cl 33.2 of the PYEP constitution is to take effect their leases will terminate on the making of a winding up order and they will suffer consequential prejudice. I have already found that the leases do not terminate automatically on the making of a winding up order. That is not to say that a scheme liquidator may not terminate some or all of the leases in the exercise of power under cl 34.4 of the PYEP constitution[23] although notice must be given to the growers affected.

116 The growers also submitted that amendments made to the constitution, following their investment, are invalid because they were made in contravention of the Act. They identify in particular the provisions relating to the termination of the scheme and its effect on project documents. They submitted that the amendments were not made by special resolution but by the responsible entity which was only authorised to make such amendments,

if the responsible entity considers the change will not adversely affect members' rights.[24]

They submitted that the amendments were not authorised because they adversely affected member's rights.

117 No grower has sought to set aside any of the constitutions. The constitutions which regulate each of the registered schemes are those which are lodged with ASIC and which, in the case of the PYEP scheme, was last lodged on 30 June 2003. Until set aside, that constitution governs the winding up of the PYEP scheme. In any event I have found that the termination risk is not as the growers anticipated. Scheme documents do not terminate automatically on the making of an order to wind up a scheme.

118 Growers also opposed the winding up because they contended that the receivers have a collateral purpose in seeking to wind up the schemes. That purpose, it is said, is to more efficiently realise the property subject to the CBA charge and mortgages.

119 The receivers acknowledge that it is not appropriate that they be appointed to wind up the scheme. They have never sought to conceal or disguise the advantage to the CBA of winding up to facilitate the sale of the land on which trees presently stand. An order to wind up the schemes would not, however, be justified to assist the CBA in realising its security. That is not a basis upon which an order will be made. In the present case there is no alternative but to wind up the schemes.

120 There are three excluded offer projects promoted by Environinvest in 1998, 1999 and 2000. Mr Stephenson was a member of the 1999 project. He submitted that the excluded offer projects were materially different to the registered schemes and that even if the registered schemes were to be wound up it did not follow that the excluded offer schemes should also be wound up. Mr Stephenson submitted that the court did not have power to wind up the excluded offer schemes and that it was not appropriate for a receiver to be appointed under s 37 of the Supreme Court Act 1986 to do that which was not authorised under the Corporations Act.

121 The excluded offer schemes have no trustee and are not managed or administered under a trust deed. Each grower acquired a lease or leases over land, much in the same way as did growers under the registered schemes. The plaintiffs' application to wind up the excluded offer schemes is based upon their relationship with the registered schemes. They rely upon the following matters:

(1) The schemes were promoted by Environinvest.

(2) While another entity was appointed manager, it seems reasonably clear that management was in fact undertaken by Environinvest.

(3) The excluded offer schemes were mismanaged by Environinvest. Mr Stephenson's own experience demonstrates an unsatisfactory course of dealings involving his lease interests and plantations.

(4) Environinvest mingled excluded offer grower plantations with registered scheme grower plantations.

(5) There is evidence that the excluded offer growers' leases were surrendered and new leases executed, all apparently under the powers of attorney purportedly granted by the grower. These transactions were undertaken without the knowledge or consent of the grower. The documents are inaccurate with a mismatch between the description of land where continuity is required.

122 To order the winding up of the registered schemes, in circumstances where the scheme liquidator is given no corresponding control over the excluded offer leases and trees, may be inconvenient to an efficient process of winding up the registered schemes. I am not, however, persuaded that the excluded offer projects are so connected to the PYEP scheme that they should be the subject of a winding up process under the PYEP constitution. Unless the excluded offer schemes form part of the PYEP scheme, the court has no power to order that they be wound up under Part 5C.9 of the Act.

123 The parties to the excluded offer projects deliberately set out to create relationships which did not attract the regulation and thus protection of the Corporations Law. In my view they succeeded in that objective and the schemes are not regulated under Part 5C of the Corporations Act. The growers chose to stand outside the protection of the Corporations Law and consequently, the Corporations Act. Merely because the excluded offer projects were promoted and managed by Environinvest is not enough to change the fundamental relationships, rights and obligations.

124 There is evidence of the mismanagement of the excluded offer projects by Environinvest. That may be cause for complaint by growers, such as Mr Stephenson. But the fact of mismanagement, whether involving poor documentation, inappropriate intermingling or inappropriate dealings does not change the nature of a scheme that was never intended to fall within the protection afforded prescribed interests under the Corporations Law, by converting it into part of another registered managed investment scheme.

125 The plaintiffs submitted that if the excluded offer projects are not found to form part of the PYEP scheme to be wound up with that scheme, the court should appoint a receiver of the assets of the excluded offer projects, including the trees, with power to sell the trees and discharge liabilities. The plaintiffs rely upon Burness v Belousoff [25] as an example of a court appointed receiver with power to administer assets where the liquidator's power to administer them was controversial. In Burness v Belousoff trust assets required protection. The excluded offer projects do not involve any such relationship. Instead, the relationships are defined by leases and a management agreement.

126 Section 37 of the Supreme Court Act 1986 provides that the court may appoint a receiver if it is just and convenient to do so. An order may be made either unconditionally or on such terms and conditions as the court thinks fit. If a receiver is to be appointed to take control of assets, it must be for the purpose of getting in, holding or securing funds or other property to safeguard the property for the benefit of those entitled to it.[26] The court will appoint receivers for the purpose of winding up a partnership,[27] to protect trust property,[28] to preserve property pending a determination of rights of parties[29] and to protect the assets of a company.[30]

127 In National Australia Bank Ltd v Bond Brewing Holdings [31] the Appeal Division of the Supreme Court of Victoria, while acknowledging the broad scope of the remedy to protect legal and equitable rights where no lesser remedy would meet the case, cautioned against the appointment of a receiver, pointing to the great harm that will be done to a person by being dispossessed. The court said,[32]

The appointment of a receiver is one of the oldest remedies of the Court of Chancery, and a very useful remedy it is. But its very efficacy means that a corresponding caution must attend its employment. Where a receiver is sought to protect property of which no-one is in actual possession, no-one will be ousted by the appointment and probably no great harm will be done. But where the subject matter is in the defendant's hands he may suffer an irreparable wrong by being dispossessed and of course this danger will weigh with a judge from whom the remedy is sought. The appointment of a receiver which is to be, so to speak, at the expense of the defendant's possession and without his consent is a step never to be taken without proper consideration of the defendant's position: Owen v. Homan (1853) 34 H.L. Cas. 997, at pp. 1032-3; [1853] EngR 883; 10 E.R. 752; cf. the views expressed a little earlier by A'Beckett J. in Marquis of Ailsa v. Watson (1846) 1 Shad. 77, at p. 78 and Atkins v. Smith (1851) 5 Shad. 103, at pp. 104-5. Where a receiver is sought, not merely of a particular asset of the defendant, but of all his assets, particular caution is required and where, as in the present case, the receiver is to possess himself of and to manage the assets and undertaking of a collection of companies which, whether they are solvent or not, are in a very large way of business, very great circumspection is required. Of course in a strong enough case the court might, without warning to a trading company, divest it of control of its undertaking and assets. But it must always be borne in mind that the appointment of a receiver in such a case authorises an irresistible invasion and that even if the army of occupation is withdrawn after only a short time things may never be the same again. Rights of property and the company's privacy are violated. Quite apart from the taking out of the companies' hands of control of their assets and the management of their businesses, there was in the present case the added consideration (which will not infrequently be present where a receiver is appointed to a company) that the making of the order might well have most serious legal consequences for the companies or for related companies having regard to the terms of securities given by them. And in addition to the legal consequences there was the commercial consideration that, as Picarda, Receivers and Managers, p.4, has observed, the receiver is often seen not as the company doctor but as the undertaker, so that a blow is struck to the standing and credit of the defendants.

The drastic nature of the power to appoint a receiver is emphasised in the decisions mentioned in 65 American Jurisprudence 2d, para. 20, where authority is cited for the propositions that the power is a drastic, harsh and dangerous one and should be exercised with care and caution, that receivership is a drastic course allowed only under pressing circumstances and granted only with reluctance and caution and that the appointment of a receiver is an extraordinary and drastic remedy, to be exercised with utmost care and caution and only where the court is satisfied there is imminent danger of loss if it is not exercised.[33]

128 There being no statutory power to wind up the excluded offer projects, it would be quite wrong, in my view, to employ the appointment of a receiver to achieve indirectly that which cannot be done directly. The excluded offer grower leases and trees are not trust property. Where there is an intermingling of plantations, the scheme liquidator may experience some inconvenience because of an inability to deal with the land and trees belonging to excluded offer growers. Convenience in the winding up of the schemes is no justification, in my view, to divest the excluded offer growers of their property rights at this time.

129 The present circumstances do not warrant the appointment of a receiver of the excluded offer grower leases or the trees on their plantations. All of those who may be affected by any such order are not parties to the proceeding. But, circumstances may change. The time may come when excluded offer growers consider it desirable to have a receiver appointed to ensure that their interests are protected in a winding up of PYEP with scheme trees on adjacent land. The appointment of a receiver may also bring a degree of efficiency and order to the resolution of disputes concerning leases, sale of encumbered property and harvesting. The appointment of a receiver might also be necessary should the winding up of the PYEP scheme be frustrated or unduly inhibited by excluded offer growers. But in my view the court does not have power to terminate a valid lease between a grower and lessor merely because it is more convenient to the expedient winding up of the PYEP scheme.

130 I do not propose at this time to make any order for the appointment of a receiver of excluded offer project assets, however they may be defined.

131 The responsible entity is unable to discharge its function under each constitution to wind up the schemes. It is insolvent and unable to carry out any of its management functions. Mr Downey has been appointed liquidator. The CBA has entered into possession of the assets and undertaking of Environinvest. Section 601NF makes provision for the appointment of a person to take responsibility for ensuring that a registered scheme is wound up in accordance with its constitution in circumstances where the responsible entity is unable to do so. Section 601NF provides,

(1) The Court may, by order, appoint a person to take responsibility for ensuring a registered scheme is wound up in accordance with its constitution and any orders under subsection (2) if the Court thinks it necessary to do so (including for the reason that the responsible entity has ceased to exist or is not properly discharging its obligations in relation to the winding up).

(2) The Court may, by order, give directions about how a registered scheme is to be wound up if the Court thinks it necessary to do so (including for the reason that the provisions in the scheme's constitution are inadequate or impracticable).

(3) An order under subsection (1) or (2) may be made on the application of:

(a) the responsible entity; or

(b) a director of the responsible entity; or

(c) a member of the scheme; or

(d) ASIC.

132 Having regard to the position of Environinvest, it is necessary that a person be appointed to take responsibility to wind up the schemes.

133 The plaintiffs had initially applied to undertake the winding up of the schemes although they now concede that it would not be appropriate for them to do so. Their concession is correct. They represent the CBA, acting as its agent to realise assets in order to satisfy the indebtedness of Environinvest to the CBA. To also undertake the winding up of the schemes would expose the receivers to an unacceptable conflict between their duty to the CBA and to the ultimate beneficiaries of any distribution from the schemes, namely the growers.

134 Mr Downey's position, as liquidator of Environinvest, is also not without the potential for conflict should he be appointed to take responsibility for winding up the schemes. The plaintiffs maintain that Environinvest has a right of indemnity from scheme property. The extent and value of that right is uncertain. The growers, on the other hand, contended that Environinvest has acted in breach of its duties as responsible entity and manager which may have the consequence of disqualifying it from any right of indemnity it might otherwise have. If Environinvest does have a valuable right of indemnity, the value will most probably only benefit the CBA. While a liquidator in Mr Downey's position could discharge the responsibility of winding up the schemes, provided adequate measures were put in place to ensure that any possibility for conflict could be dealt with by appropriate undertakings and directions,[34] I propose to direct the appointment of an independent liquidator.

135 The plaintiffs seek an order for costs on behalf of Environinvest, in whose name this application is brought, to include the plaintiffs' costs, expenses and remuneration in causing Environinvest to bring the application and any reserved costs. The plaintiffs also seek an order that their costs be paid out of the assets of the registered schemes in the winding up on an indemnity basis, such indemnity to be supported by an equitable charge or equitable lien. They point to the orders made by Heenan J in Re PWL Ltd.[35]

136 Having found that the first and second plaintiffs have standing to bring this proceeding in the name of Environinvest, the plaintiffs are entitled to their costs. ABL submitted that any such order should be confined to reasonable costs on a solicitor client basis and that no order should be made for costs on an indemnity basis or for an equitable charge or lien in favour of the plaintiffs. It submitted that ordinarily the costs of a winding up application are paid on a party/party basis, although it was acknowledged that such costs are ordinarily paid in order of priority set out in s 556(1)(b) of the Act. ABL further submitted that the costs ought to come out of scheme property, not other property, for example, property of the growers which does not form part of scheme property. The only order sought by the plaintiffs is that costs be paid out of assets of the scheme.

137 Clause 34.3 of the PYEP constitution provides that the responsible entity may retain from the proceeds of realisation of scheme property such funds as, in the reasonable opinion of the responsible entity, may be required to pay its own remuneration and expenses for work to be done prior to and following the realisation of scheme property. Similar provision for costs and expenses in the winding up is found in each of the PYEP 7 and PYEP 9 constitutions.

138 In my view the constitution authorises the responsible entity to indemnify itself out of scheme assets for the cost and expense incurred in making this application. I propose to make an order to that effect in respect of the responsible entity. As for the first and second plaintiffs, they are entitled to their reasonable costs, expenses and remuneration to be paid from the assets of the schemes to be wound up with priority to the costs of the scheme liquidator in winding up the schemes.

139 The receivers seek to be indemnified in relation to the reasonable costs, expenses and remuneration in preserving scheme assets. Their claim is made pursuant to the principle enunciated in Re Universal Distributing Co Ltd (In liquidation).[36] Where a liquidator or receiver has incurred expenses in the protection of the property of another, that property will ordinarily bear the costs reasonably incurred in the care and preservation of the property.[37]

140 ASIC supports the claim by the receivers. On the other hand, ABL and the growers oppose any such order for indemnity.

141 If claims made by the receiver qualify under the applicable principles they will be entitled to indemnification and a lien in relation to their claim. Much of the argument proceeded in a vacuum of information about the claims. It is not possible to adjudicate on the validity of a claim without sufficient information to assess whether it qualifies as one to which the indemnity applies. The receivers are at liberty to make such a claim or claims, supported by evidence, and those claims can be adjudicated separately. It is premature to say more about them at this time other than to acknowledge the applicable principle.

142 I am satisfied that it is just and equitable to wind up each of the PYEP, PYEP 7 and PYEP 9 registered managed investment schemes. I propose to make an order pursuant to s 601ND(1) of the Act directing the responsible entity to wind up each of those schemes in accordance with the respective constitution and any orders the court may make under s 601NF(2) of the Act.

143 I propose to direct the Prothonotary to nominate a liquidator to take responsibility for ensuring that each of the schemes is wound up in accordance with its constitution and any orders the court may make under s 601NF(2) of the Act.

144 I have found that the grower leases and other scheme or project documents do not terminate automatically upon the making of an order to wind up a scheme. They may, however, be terminated by the scheme liquidator but only upon giving notice to any grower affected.

145 For the purpose of winding up the schemes, I have found that the leases and trees standing on the allotments leased by growers investing in the registered schemes may be dealt with by the scheme liquidator in the winding up process. The trees are scheme property for that purpose and the leases may be terminated under cl 34.4 of the PYEP constitution and the corresponding provisions in the other constitutions.

146 I propose to make a declaration that Environinvest is indemnified out of scheme assets for its costs and expenses of and incidental to this application to wind up the schemes, including the reasonable costs, expenses and remuneration of the receivers incurred in causing Environinvest to bring the application, such costs and expenses to be paid in priority to the costs and expenses of the scheme liquidator.

147 I decline to make any order at this time for the reasonable costs, expenses and remuneration of the receivers under the Universal Distributing principle. Such an application may be made at any time.

148 I decline to make any order for the appointment of a receiver under s 37 of the Supreme Court Act 1986 to take possession of and deal with any of the assets of growers who invested in the excluded offer projects.

149 I dismiss the originating process issued by the growers dated 9 December 2008, there being no utility in the appointment of Mr James Witham as an interim receiver of the PYEP scheme for the limited purpose of investigating the viability of the various plantations

[1] A 1997 eucalypt plantation project and cropping, tomato and lamb production schemes managed by Environinvest are not included.

[2] Schedule C is a summary, on a property by property basis, of the grower plantations on each property, an indication of the size of each holding, the particular schemes in which the growers invested and the property owner. There are discrepancies in the property descriptions, boundaries and the size of plantations. For present purposes those discrepancies are not material. The information available does not indicate ownership details of a small number of properties.

[4] In the PYEP 7 constitution, Project Documents mean,

the agreement for lease, grower lease, the management agreement and any other documents required to be entered into by the grower to hold an interest in the project.

In the PYEP 9 constitution, Project Documents mean,

the agreement for lease, the grower lease, the management agreement, the power of attorney made by a grower in favour of the responsible entity, and any other documents required to be entered into by a grower to hold an interest in the project.

[5] The liquidator is a party to the proceeding. He was represented by counsel, although chose not to attend throughout most of the hearing. He raised no objection to the application by the receivers in the name of Environinvest.

[6] Kelaw Pty Ltd v Catco Developments Pty Ltd (1989) 15 NSWLR 587, 592; Wily & Anor v Commonwealth (1996) 66 FCR 206, 224.

[7] Section 601NE(1), (2); s 601NF(1); Re Stacks Managed Investments Ltd (2005) 219 ALR 532; [2005] NSWSC 753.

[8] ASIC v GDK Financial Solutions Pty Ltd [2006] FCA 1415; (2006) 236 ALR 699 at para [22].

[9] See Mier v FN Management Pty Ltd [2005] QCA 408; [2006] 1 Qd R 339.

[15] PYEP constitution. Emphasis added.

[17] Re Stacks Managed Investments Ltd [2005] NSWSC 753.

[19] See also Cumulus Wines v Huntley [2004] NSWSC 609 at para [21].

[20] [2008] WASC 232 at para 43.

[23] See cl 31.4 of the PYEP 7 constitution and cl 35.4 of the PYEP 9 constitution.

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