First Plaintiff v Second Plaintiff

1 The collapse of the Environinvest managed investment scheme was not an isolated instance of failure of such a scheme. Other primary production schemes collapsed at around the same time and more recently. The schemes were designed and constructed to comply with the requirements of the Corporations Law and the Corporations Act 2001 (Cth), and at the same time offer substantial 'tax breaks'. It is not part of this proceeding to find the cause or causes of the failures, although it seems clear that the cause cannot be attributed solely to the global financial crisis or the prolonged drought. The causes will become more apparent as liquidations are concluded and resulting litigation finalised.

2 Wherever ultimate responsibility for the collapses may reside, it is difficult to overlook structural flaws in the design and regulation of managed investment schemes. These flaws facilitated investment strategies, management practices and decisions, regulatory attitudes and revenue policies which together conspired to cause huge financial loss to investors, the revenue, banks and other financial institutions, and the communities in which the schemes were operated.

3 Whenever an enterprise is designed and structured to depend upon third party financing of 'tax effective' investment as its primary source of revenue, failure is almost inevitable. The generation of such revenue can become the substitute business, with the primary production activity a mere adjunct, undertaken in order to satisfy criteria for the deductibility of invested funds. Such managed investment schemes should not be mistaken for real businesses.

4 The winding up of the PYEP, PYEP7 and PYEP9 schemes is near completion. Mr Downey has applied to the court for orders which, if made, will finalise the winding up of PYEP7 and PYEP9, and result in his discharge as the person responsible to ensure that these schemes were wound up under s 601NF (1) of the Act. No such application is made in respect of the PYEP scheme at this time, as negotiations are still in progress in relation to some trees on some parcels of land planted under a scheme project.

5 Environinvest is an unlisted public company that promoted and managed investment schemes, including the establishment and management of eucalyptus plantations, in which members of the public were invited to participate. It was the Responsible Entity of the schemes within the meaning of the Act. 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 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 had been appointed liquidator.

6 On 12 February 2009, judgment was given on an application by the receivers for orders to wind up managed investment schemes known as PYEP, PYEP 7 and PYEP 9. Orders were made directing the Prothonotary to nominate a person, from the role of official liquidators, to be appointed to take responsibility for ensuring that the schemes were wound up. For reasons which are not material to this application, it became apparent that there was great difficulty in finding an appropriate liquidator. Ultimately, Mr Downey agreed to accept appointment as the person responsible to wind up the schemes, on condition that the Commonwealth Bank gave him a partial indemnity for his fees. The bank agreed to that condition.

7 Mr Downey's appointment placed him in a position where it would be inevitable that he would be confronted by conflicting duties. In order to deal with the anticipated conflicts, a committee of management was established to monitor conflicts and to take remedial steps. One remedy was to require Mr Downey to seek court approval for a proposed course of action.

8 On 11 March 2010, judgment was given on an application by Mr Downey, as liquidator of Environinvest, for approval to disclaim certain leases.[1] While approval would not ordinarily be required, Mr Downey had been directed by the committee of management to seek approval because the decision might impact adversely on the interests of some scheme members. Orders were made which, in effect, excused Mr Downey from the consequences of any conflict, permitting him to do as he seemed rightly compelled to do, as liquidator of Environinvest, to disclaim the leases.

9 In order to finalise the schemes, Mr Downey filed an originating process dated 4 May 2010 and interlocutory processes dated 1 November 2010 and 10 November 2010. The originating process dated 4 May 2010 was amended on 21 June 2010. By that application, Mr Downey sought approval to enter into and perform three asset sale agreements, and to extinguish the rights of growers under leases over affected land. The principal agreement for which he sought approval was for the sale of land, trees and other assets pursuant to an Asset Sale Deed. The other two agreements involved the sale of trees only on properties known as Q2 and the Laurels. These agreements were described as the Q2 Sale Deed and the Laurels Sale Deed.

10 Mr Downey sought court approval for the sale agreements because of his conflicting duties. On 30 June 2010, I approved the agreements, once again relieving Mr Downey of the encumbrance of conflicting duties.[2] On the same occasion I confirmed his power to terminate related grower leases; approved the apportionment of the proceeds of sale under the Asset Sale Deed, between land and trees; made a declaration and orders in relation to forestry property agreements and caveats; and declared that Mr Downey was justified in not seeking to convert certain trees into money. The remaining substantive issues arising under the amended originating process, dated 21 June 2010, related to the approval of Mr Downey's costs, expenses and remuneration, the allocation of funds from the sale of trees, and the ranking of other claims for costs and expenses. The claims included claims by the receivers and ABL Nominees Pty Ltd, under the principle enunciated in Re Universal Distributing Co Ltd (in liq).[3] It was anticipated, even at that stage of the winding up, that all claims for costs, expenses and remuneration would not be satisfied from the pool of funds derived from the realisation of scheme assets

11 Prior to dealing with the claims for costs, expenses and remuneration, it is convenient to first consider Mr Downey's application made by interlocutory process filed on 1 November 2010. In that application, Mr Downey sought approval to enter into an agreement, dated 28 October 2010, for the sale of all rights over and interest in all trees, acquired with the proceeds of contributions to the PYEP scheme, standing on allotments at Lucardies Road, Raglan, Victoria, known as Panthers. The property had a plantation area of 25 hectares over which Environinvest entered into leases with four growers under the PYEP scheme

12 The purchasers under the agreement were Stuart Dale Cullen and Fiona Suzanne Lehmann, who represented the owners of the land. Performance under the Panthers' Sale Deed was conditional on Mr Downey making a successful application to this court authorising him to enter into and perform the deed, and authorising him to extinguish the rights of growers in respect of the trees the subject of the sale. The extinguishment of rights would involve the termination by Mr Downey of the grower leases over the land.

13 Mr Downey also sought approval to apply the proceeds from the sale of the trees under the Panthers' Sale Deed to the gross tree sale proceeds derived from the realisation of PYEP scheme forestry assets, and that his costs and expenses of and incidental to the application be costs to be paid out of the PYEP gross tree sale proceeds on an indemnity basis. He sought the following declarations:

(1) The second plaintiff was justified in procuring the first plaintiff, in its capacity as the Responsible Entity of the Primary Yield Eucalypt Project (ARSN 093 575 270) (the PYEP Scheme) and as agent and attorney of the investors in the PYEP Scheme (Growers) to:

(a) enter into and perform the asset sale deed relating to the forestry assets on the property known as "Panthers" exhibited as JPD 121 to the affidavit of James Patrick Downey sworn 1 November 2010 (Panthers' Sale Deed);

(b) make, do or execute such documents and things to give effect to the Panthers' Sale Deed; and

(c) extinguish the rights of the Growers in respect of the forestry assets the subject of the Panthers' Sale Deed including by terminating and or surrendering any:

(i) sub-leases in respect of allotments entered into by Growers as part of their investment in the PYEP Scheme (Grower Leases); and

(ii) any other agreements or arrangements entered into by the Grower with respect to the PYEP Scheme.

(2) The second plaintiff is justified in procuring the first plaintiff, in its capacity as the Responsible Entity of the PYEP Scheme, to pay the funds from the sale under the Panthers' Sale Deed (Panthers' Tree Sale Proceeds) into the PYEP Tree Sale Proceeds (as that term is defined in the amended originating process dated 21 June 2010 and the interlocutory process filed 10 November 2010).

14 In January 2010, URS Australia Pty Ltd provided to Mr Downey an independent valuation of the plantation assets across the Environinvest schemes. The purpose of the valuation was to assist in the realisation of scheme property. The trees located on the Panthers' land were valued by URS at $17,000. Having received the report, Mr Downey undertook an extensive and difficult sale process in which he sought to attract buyers for land and trees. There were no offers for the trees on the Panthers' land from potential purchasers who engaged in negotiations. One explanation was that the Panthers' land was not for sale with the trees. Thus, a purchaser would be confronted by the complexity of dealing with the land owner to gain access to the trees for the purpose of maintenance and eventual harvest. In any event, the only offer received by Mr Downey for the trees was made by the owners of the land. They offered $18,000, less unpaid rent in the sum of $9,000, and a contribution towards legal costs in the sum of $1,000. The net amount offered by the purchasers was $10,000. Mr Downey said that he was prepared to accept that amount. His decision was supported by the URS valuation, but in the end, there were no other offers. He was left with little alternative but to sell the trees to the land owners.

15 Mr Downey sought the court's approval to proceed with the transaction in order to satisfy the condition in the Panthers' Sale Deed. The condition was no doubt designed to address his conflicting duties, brought about by his appointment as liquidator of Environinvest and as the person appointed to wind up the PYEP scheme. Those who might have an interest in challenging the Panthers' Sale Deed, in particular the growers, were given notice of this application and have not raised any objection. But for his conflicting duties, Mr Downey would not have been required to seek the approval of the court. I am satisfied that there was and is a reasonable basis for the decision by Mr Downey to enter into the Panthers' Sale Deed and propose to authorise his entry into and implementation of the deed.

16 In Re Environinvest Ltd (No 3),[4] I decided, in relation to the PYEP scheme, that Mr Downey had the power under the Constitution to terminate the grower leases and other agreements or arrangements as may be required for the purpose of the winding up. Consistent with that decision, I am satisfied that Mr Downey, as scheme liquidator, is entitled to terminate the four sub-leases over the Panthers' land and I will so declare.

17 Inclusion of the proceeds, from the sale of the trees on Panthers, within the general fund for distribution, described in the originating process as the PYEP Tree Sale Proceeds, would not be appropriate if there was a real prospect that the relevant growers might have a better chance of a return if the proceeds were kept separate. That is not the case. Having regard to the amount of the claims against the fund for costs, expenses and remuneration; the size of the fund; and the modest amount realised from the sale of the Panthers' trees, I am of the opinion that common sense requires that the proceeds from the sale of the trees on Panthers, should be added to the general fund for distribution. The convenience of such a course is in the interests of all stakeholders.

18 In relation to his application for costs, expenses and remuneration made in the application dated 21 June 2010, Mr Downey sought the following orders:

(1) Pursuant to section 601NF(2) of the Act, that the second plaintiff is justified in

(a) procuring the first plaintiff to enter into and perform the Terms of Settlement dated 18 October 2010 (exhibited as confidential exhibit "JPD-124" to the affidavit of James Patrick Downey sworn 10 November 2010 (the Terms); and

(b) distributing the funds from the sale under the Panthers' Sale Deed (Panthers' Tree Sale Proceeds), the PYEP Tree Sale Proceeds and the PYEP No 7 Tree Sale Proceeds (as those terms are defined in the amended originating process filed 23 June 2010 and the interlocutory process filed 10 November 2010) (Gross Tree Sale Proceeds) in accordance with paragraph 3 and schedule 2 of the Terms.

(2) Pursuant to section 601NF(2) of the Act, the second plaintiff distribute and pay out the Gross Tree Sale Proceeds as follows:

(a) the PYEP Tree Sale Proceeds (including the Panthers' Tree Sale Proceeds):

(i) to the receivers and managers of the first plaintiff (Receivers) in the sum of $288,160.77;

(ii) to ABL Nominees Pty Ltd (ACN 106 751 521) (ABL) in the sum of $112,440.80; and

(iii) the remainder in accordance with the percentages recorded in Schedule 2 of the Terms;

(b) the PYEP No 7 Tree Sale Proceeds, to the receivers and managers of the first plaintiff and ABL Nominees Pty Ltd (ACN 106 751 521) in accordance with the percentages recorded in Schedule 2 of the Terms.

(3) The second plaintiff be entitled to his remuneration, costs and expenses for acting in the capacity of scheme liquidator of the PYEP Scheme (Scheme Liquidator's PYEP Costs) for the period 30 April 2009 to 18 October 2010, fixed in the sum of $998,860.36 in accordance with the Terms.

19 A substantial amount of material was filed in support of claims by Mr Downey, the receivers, ABL and the growers to support their claims. Mr Downey filed affidavits sworn 16 September 2010 and 15 October 2010. Other claimants also filed material. David Gordon Sherwood and Anna Elizabeth Smith filed affidavits, both sworn 16 September 2010, on behalf of the receivers; Susan Mary Phillips filed an affidavit, sworn 20 September 2010, on behalf of growers represented by Brian Ward & Partners; and Howard Hilton Chait filed an affidavit, sworn 30 September 2010, on behalf of ABL Nominees Pty Ltd, the receivers and managers appointed by it to Primary Yield Finance Pty Ltd (Receivers and Managers Appointed) (in Liquidation) and Bendigo Bank Ltd.

20 There were two broad categories of claims. First, claims under the Universal Distributing principle made by the receivers and ABL. These claims were based on money expended to preserve charged assets. The second category were claims for costs and expenses in the litigation, and for Mr Downey's remuneration.

21 Mediation of the claims was undertaken by Associate Justice Gardiner of this court. Growers represented by Brian Ward & Partners participated in the mediation. Growers represented by Wright Patton Shakespeare Law elected not to attend, informing Mr Downey that its clients no longer wished to participate in the proceeding. All other claimants participated.

22 The mediation was successful. Agreement was recorded in Terms of Settlement dated 18 October 2010. There were conditions precedent. Mr Downey, as scheme liquidator, was required to obtain authorisation from the court to enter into and give effect to the Panthers' Asset Sale Deed and to include the proceeds within the general pool for distribution. The terms included agreement that the proceeds from the sale of trees on the Panthers' land would form part of the general pool available for distribution. That condition has now been satisfied.

23 The parties also agreed on an apportionment of the funds, which included specified amounts payable to the receivers and ABL in respect of their Universal Distributing claims, with the balance allocated between claimants on the basis of agreed percentages applied to agreed gross claims. A further condition precedent was the court approval of the apportionment and payment out under the Terms of Settlement.

24 As the growers represented by WPS Law did not participate in the mediation, Mr Downey considered it prudent to notify each of them of the settlement and of his proposed application, made to the court on 12 November 2010, for court approval. There was no response to his notification. Having regard to the earlier communication from those growers to Mr Downey, prior to the mediation, the absence of a response is not surprising. No material was filed in opposition to the applications.

25 Mr Downey has advised that, if implemented, the Terms of Settlement will result in the whole of the fund being paid to claimants for costs, expenses and for his remuneration. Even then, all claims will not be fully satisfied. The growers will receive nothing.

26 It might be argued that mediation was an inappropriate process to resolve issues relating to the performance of statutory duties, and an assessment of Mr Downey's remuneration. That is particularly so when Mr Downey's claims for remuneration were not separately reviewed and approved. I am of the opinion, however, that the employment of mediation in this case was fully justified.

27 The mediation was preceded by the filing of extensive and detailed evidence in support of the claims. It was attended by all interested parties; and conducted by an Associate Justice of this court. There was negotiation and compromise. In order to reach agreement, claimants made substantial concessions, discounting their claims. I was told that there was active and vigorous scrutiny of all claims by those participating in the mediation. Thus, while mediation of the quantum of such claims and percentage entitlements may not usually be appropriate, it was appropriate in this case. There was a real risk that adjudication of the issues would result in dissatisfaction, possible appeals and resulting delay. The cost of adjudication may have been disproportionate to the quantum of the fund available to meet the costs, expenses and remuneration. I will approve the Terms of Settlement and the resulting distribution of funds.

28 By his application dated 10 November 2010, Mr Downey sought to be relieved of any obligation to convert to money the growers' trees on properties known as Beenak and Blacksands. He sought the following declaration:

Pursuant to section 601NF(2) of the Act, the second plaintiff is justified in not seeking to realise or to convert to money the property of the Primary Yield Eucalypt Project (ARSN 093 575 270) (the PYEP Scheme) consisting of the rights and interests of the Growers in the trees located on the properties commonly known as Beenak, more particularly described in certificates of title Volume 02522 Folio 332, Volume 02543 Folio 591 and Volume 02712 Folio 382 and Blacksands, more particularly described in certificates of title Volume 02851 Folio 049, Volume 03642 Folio 261 and Volume 09623 Folio.

29 The registered proprietor of the properties known as Beenak and Blacksands is STY Holdings Pty Ltd (in liquidation). St George Bank holds the first registered mortgage over the properties. Roger Pescott, a former director of Environinvest, was also a director of STY Holdings. Gideon Rathner is liquidator of STY Holdings. There are PYEP growers with trees on the land. PYEP investors, in 1997, 1998 and 1999, leased 13 allotments on Beenak, ranging from a little over one hectare up to 17 hectares. There were three investors in the 1998 and 2001 schemes, with allotments on the Blacksands property.

30 Mr Downey was unable to sell the trees as part of the sale process concluding in the Asset Sale Agreement, for which approval was given on 30 June 2010, presumably because the land could not be offered for sale with the trees. Following Mr Rathner's appointment as liquidator of STY Holdings, Mr Downey wrote to him asserting an interest in the trees on the properties. Before the communications between Mr Downey and Mr Rathner matured into anything more than the statement by Mr Downey of his position and entitlement, St George wrote to Mr Downey advising that, as mortgagee in possession, it had given instructions to sell the properties. St George made reference to a number of caveats lodged by claimants who alleged an interest in the land. St George contended that it had never consented to any lease being granted and did not consider itself bound by the leases. The reference in the correspondence to the Portas Road property is a reference to the property also known as Blacksands.

31 St George asserted an entitlement to terminate the leases because of the appointment of the liquidator, and a receiver and manager, to Environinvest Land Lease Pty Ltd (in Liquidation) as head lessee. Mr Downey was concerned that upon termination of the head leases, and with St George asserting the absence of any notice of grower leases, his ability to deal with the trees was significantly compromised. Mr Downey said that he was not in a position to litigate grower rights against St George, due to the absence of funding, but that in any event the likely costs of litigation might well outweigh any amount realised in respect of the trees.

32 URS made no valuation of the trees on Beenak and Blacksands because it could not gain access to the land to undertake a valuation. In November 2008, Ferrier Hodgson provided a report to the court on the solvency and viability of the schemes, estimating the net present value of the trees planted on Blacksands under the 1998 project at a negative value of ($128); and for the 2001 project, a net present value of $75,807. The trees on the Beenak property were attributed a net present value of $42,107.

33 The values ascribed to individual plantings by Ferrier Hodgson may have been over estimated, because the authors did not have regard to Environinvest's right of indemnity.[5] The extent of any over estimation was unclear. Mr Downey submitted that the valuations, made in November 2008, did not take account of the current state of the trees or claims for unpaid rent. He was of the opinion that a cost benefit analysis did not support a challenge to the rights asserted by St George, when coupled with the uncertain return. Mr Downey submitted that were he to be wholly successful in challenging St George's claims, realising a sum approximating the net present value estimated by Ferrier Hodgson, the contribution made to the general pool of funds for distribution may not, in any event, be enough to even satisfy the unpaid component of claims for costs, expenses and remuneration. Accordingly, it was most unlikely, even on a best case scenario, that such an outcome would produce a benefit to growers. Thus, in circumstances where all interested parties were represented, or had notice of this application; and in the absence of any objection, Mr Downey submitted that it was appropriate to excuse him from further pursuing the realisation of the trees on the Beenac and Blacksands land.

34 I have a degree of discomfort about this part of the application, but accept Mr Downey's judgement that there is no utility in challenging the rights asserted by St George for a potential return, if it would not result in a return to growers. My discomfort is caused by the absence of any current assessment and valuation of the trees. The difficulty for Mr Downey is that he cannot gain access to the trees without the cooperation of St George. That may require him to litigate. In the circumstances, notwithstanding my discomfort, I propose to excuse Mr Downey from further pursuing the realisation of the scheme property on Beenak and Blacksands.

35 By Interlocutory Process dated 10 November 2010, Mr Downey sought an order or direction pursuant to s 601NF(2) of the Act or alternatively, the inherent jurisdiction of the court, discharging him as scheme liquidator of the PYEP7 and PYEP9 schemes, 14 days after the making of the order. The delay of 14 days was to provide him with sufficient time to discharge reporting obligations to ASIC. The form of the orders or directions sought was as follows:

(1) Pursuant to section 601NF(2) of the Act, the second plaintiff is justified in not requiring the first plaintiff to engage a registered company auditor to audit the final account of the Primary Yield Eucalypt Project No 7 (ARSN 108 736 705) (PYEP No 7 Scheme) and the Primary Yield Eucalypt Project No 9 (ARSN 117 062 601) (PYEP No. 9 Scheme).

(2) The second plaintiff is relieved from ensuring that the first plaintiff, in its capacity as Responsible Entity of the PYEP No 7 Scheme and PYEP No 9 Scheme, complies with section 301(1) of the Corporations Act 2001.

(3) Pursuant to section 601NF(2) of the Act, 14 days after the date of this order, the second plaintiff is discharged as the scheme liquidator of the PYEP No. 7 Scheme and the PYEP No. 9 Scheme.

36 Clause 31.5 of the PYEP7 scheme Constitution requires that upon forming the view that the winding up is complete, the Responsible Entity must engage a registered company auditor to audit the final accounts of the scheme, and must send a copy of the report to the growers within 60 days after having received the report. Mr Downey said that he does not have funds to meet the requirement to appoint an auditor. He relied on his professional qualification, as a certified practising accountant, and as the person responsible for the preparation of a draft final account. The draft account is brief, recording receipts in the sum of $68,596.02, derived from the sale of trees together with $59.42 interest. From that sum is deducted GST (already paid) with the proceeds to be distributed on the following basis:

• Bank charges $16.30
• Receivers and managers of Environinvest Ltd 67% $41,773.91
• ABL Nominees Pty Ltd 33% $20,575.21.

The percentages are a reflex of the agreement embodied in the Terms of Settlement. Mr Downey acknowledged that the final accounts assumed approval of the allocation of funds on the agreed basis, and that as time passed additional interest would accrue, and bank charges may be incurred. Interest and bank charges are, however, relatively insignificant.

37 The requirement for the appointment of an auditor, and an audit report, presuppose the preparation of accounts to be audited. The appointment of an auditor is designed to provide independent verification of the accuracy of the accounts prepared by the Responsible Entity after completing the winding up. The fact that Mr Downey is a certified practising accountant does not substitute for the independent verification and report of an auditor. There are, however, exceptional circumstances which, in my view, justify a departure from the verification process required under the Constitution. These circumstances are: (1) the absence of funds to engage an auditor; (2) the relatively modest amount recovered from the sale of scheme assets; (3) the limited nature and number of transactions involved to realise the scheme assets; (4) the fact that the proceeds available for distribution will not be sufficient to satisfy all claims for costs, expenses and remuneration; and (5) the fact that there was no opposition to the proposed course by growers, who have been notified of the application.

38 In the circumstances, I will relieve Mr Downey from his obligation under cl 31.5 of the PYEP7 scheme constitution, as the person appointed to take responsibility for ensuring that the scheme is wound up in accordance with its constitution, from engaging a registered company auditor to audit the final accounts of the scheme. I will direct that Mr Downey provide a copy of his final report of receipts and payments to the growers in substitution for the requirement under cl 31.5.

39 The circumstances relating to the PYEP9 scheme are a little different. While the Constitution requires Mr Downey to convert to money all scheme property, he has not been able to convert any such property into money, and therefore has no sale proceeds. Trees planted on behalf of growers investing in the PYEP9 scheme were planted on nine properties. Three of the properties: Hunters, Ledcourt and Pomonal were owned by Environinvest and sold under the Asset Sale Deed. The purchaser of the freehold interest in Hunters did not attribute any value to the trees. Mr Downey has already been relieved of any obligation to convert to money the trees on Ledcourt and Pomonal.[6] The remaining two parcels on which trees were planted on behalf of those investors, Addisons and Moystons, are on land owned by interests associated with Mr Pescott. Mr Downey has been unable to gain access to the land as the head leases were terminated, and the registered proprietor will not permit access to the land, or does not recognise grower interests.

40 Apart from what he had already achieved, Mr Downey deposed that he was not aware of any other scheme property that could be converted to money. In the absence of sale proceeds from the conversion of PYEP9 scheme property, Mr Downey is unable to recover scheme liquidator's costs; nor does he have any funds with which to cause the Responsible Entity to pay those costs and expenses.

41 Clause 35.5 of the PYEP9 scheme constitution is in the same terms as cl 31.5 of the PYEP7 constitution, requiring the appointment of an auditor. The preparation of final accounts for the PYEP9 scheme would result in a nil balance with no funds for distribution. In the circumstances, I am of the opinion that Mr Downey should be excused from preparing final accounts which have no utility. Furthermore, in the circumstances the appointment of an auditor would serve no useful purpose. I will excuse Mr Downey from preparing final accounts for the PYEP9 scheme, and from the appointment of an auditor under cl 35.5 of the Constitution.

42 Section 301(1) of the Act requires a registered scheme to have a financial report for a financial year audited in accordance with Division 3, and to obtain an auditor's report. I doubt that these requirements have application to a managed investment scheme in the course of being wound up. Division 3 presupposes the active role of directors and a continuing business or undertaking. On the other hand, s 539(1) of the Act requires a liquidator to lodge accounts with ASIC which may require the appointment of an auditor. That requirement seems to draw a distinction between the role of an auditor in a winding up and when directors remain in control of the company. Each scheme constitution requires the preparation of accounts and the appointment of an auditor following a winding up. These measures, it seems to me, are not intended to overlap with or augment the requirements of s 301(1). They are intended to apply in substitution for the statutory obligation when it no longer has any application.

43 Having regard to the directions proposed to be given in relation to the provision of a final report by Mr Downey and its distribution to members, I propose to direct that insofar as s 301(1) has any application to the winding up of the schemes, Mr Downey is excused from compliance.

44 The winding up of the PYEP7 and PYEP9 schemes have been completed. Mr Downey must now finalise the accounts of the PYEP7 scheme for distribution to the growers. He may be discharged as scheme liquidator after he has, (1) implemented the agreements for which approval is sought, including the Terms of Settlement under which costs, expenses and remuneration are allocated and paid; (2) provided a copy of the final accounts of PYEP7 to growers; and (3) complied with his reporting obligation to ASIC to notify it of completion of the winding up of the schemes. These conditions differ from those proposed by Mr Downey and should be incorporated into the order.

45 Brian Ward & Partners, solicitors acting on behalf of the growers (although not all), informed the court that their clients neither consented to, nor opposed, the making of the orders, although they expressed no view about the proposed order in relation to compliance with s 301(1) of the Act. ASIC adopted the same position. The receivers and managers of Primary Yield Finance, and their appointor, ABL, informed the court that they consented to the orders and directions, save for the direction excusing Mr Downey from attempting to sell the trees on Beenak and Blacksands. Those parties did not oppose that order, and did not express any view about the proposed order in relation to compliance with s 301(1) of the Act.

46 Mr Downey sought an order for costs substantially in the following terms:

The costs and expenses of the second plaintiff of and incidental to the application by amended originating process filed 21 June 2010 and the interlocutory process filed 1 November 2010 and 10 November 2010 (including legal costs on an indemnity basis and all costs and expenses incurred in causing the first plaintiff to bring the applications) be regarded as costs of the second defendant in the winding up of the PYEP Scheme and the PYEP No 7 Scheme and be paid out of the Gross Tree Sale Proceeds in accordance with the Terms.

47 I am satisfied that Mr Downey is entitled to his costs of the applications. His applications for costs are not opposed by most parties and ASIC, and are consented to by ABL.

48 Mr Downey sought an order maintaining the confidentiality of the Terms of Settlement. The need for confidentiality was not adequately explained, apart from the fact that the parties to the deed had agreed to confidentiality. I do not propose to make a final order for confidentiality at this time, but will provide the parties with a further opportunity to persuade the court that such an order is appropriate. My reservation arises from the nature of the claims and the fact that they were mediated in private. There is a sound argument that in such circumstances the Terms of Settlement should not remain confidential.

PRIMARY YIELD EUCALYPT PROJECT NO. 7 (ARSN 108 736 705)

PRIMARY YIELD EUCALYPT PROJECT NO. 9 (ARSN 117 062 601)

[1] Environinvest Ltd v Great Southern Property Managers Ltd (No. 2) [2010] VSC 323.

[2] Re Environinvest Ltd (No 3) [2010] VSC 301.

[3] [1933] HCA 2; (1933) 48 CLR 171.

[4] Re Environinvest Ltd (No 3) [2010] VSC 301.

[5] Re Environinvest Ltd [2009] VSC 33, [9]-[11].

[6] Re Environinvest Ltd (No 3) [2010] VSC 301.