Ingram, in the matter of 5Star Sinai Limited (administrators appointed) [2018] FCA 734

Solicitors for the second Interveners: Mr A McEwan of Miller & Young Solicitors

ORDERS NSD 13 of 2018

IN THE MATTER OF 5STAR SINAI LIMITED (ADMINISTRATORS APPOINTED) AND 5STAR SION LIMITED (ADMINISTRATORS APPOINTED) AND 5STAR PROPERTIES PTY LTD (ADMINISTRATORS APPOINTED)

BETWEEN: DAVID INGRAM AND RICHARD ALBARRAN IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF 5STAR SINAI LIMITED (ADMINISTRATORS APPOINTED) AND 5STAR SION LIMITED (ADMINISTRATORS APPOINTED) AND 5STAR PROPERTIES PTY LTD (ADMINISTRATORS APPOINTED) Plaintiff

JUDGE: FARRELL J DATE OF ORDER: 12 APRIL 2018

1. In relation to 5Star Sion Limited and pursuant to s 600H(1)(b) of the Corporations Act 2001 (Cth) (Act); (a) Any person who may have a subordinate claim within the meaning of s 563A(2) of the Act for the repayment of money paid as subscription monies for the issue of shares in that company; and (b) Who is able to establish that claim in accordance with r 75-85 of the Insolvency Practices Rules (Corporations) 2016 (Cth) (Rules) is entitled to vote as a creditor of that company, at the meeting of creditors to be convened pursuant to s 439A of the Act.
2. In relation to 5Star Sinai Limited and pursuant to s 600H(1)(b) of the Act; (a) Any person who may have a subordinate claim within the meaning of s 563A(2) of the Act for the repayment of money paid as subscription monies for the issue of shares in that company; and (b) Who is able to establish that claim in accordance with r 75-85 of the Rules is entitled to vote as a creditor of that company, at the meeting of creditors to be convened pursuant to s 439A of the Act.
3. Order 8 made on 7 February 2018 be discharged.
4. Liberty to apply on 48 hours' notice being given to the plaintiff.
5. Judgment on the issue of costs be reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 David Ingram and Richard Albarran are partners in Hall Chadwick. They are the joint and several administrators of 5Star Sinai Limited, 5Star Sion Ltd and 5 Star Properties Pty Ltd. 2 On 11 January 2018, Derrington J made orders pursuant to s 439A(6) of the Corporations Act 2001 (Cth) extending the convening period for the second meeting of creditors of each of the companies up to and including 8 February 2018. An affidavit of Mr Ingram dated 9 January 2018 was filed in support of the application for those orders. 3 On 6 February 2018, Messrs Ingram and Albarran filed a further interlocutory application seeking orders under s 439A(6) extending the convening period up to and including 30 April 2018 and orders (effectively under s 600H(1)(b)) that creditors with "subordinate claims" within the meaning of the definition in s 563A(2) of the Corporations Act be entitled to vote at the second meeting of creditors of each of the companies. That application was supported by a further affidavit of Mr Ingram dated 6 February 2018. 4 Following a hearing on 7 February 2018, the Court determined to make orders under s 447A (rather than s 439A(6)) as the interlocutory application was for a second extension of the convening period for the second meeting of creditors: see Mentha, in the matter of Griffin Coal Mining Company Pty Ltd (administrators appointed) (ACN 008 667 285) (No 2) [2010] FCA 449 at [35]-[36] per McKerracher J. The convening period was extended up to and including 7 May 2018. Among other reasons, this was to allow the administrators the time to establish whether offerings of shares under "Product Disclosure Statements" issued by Sion and Sinai could be regularised. The "Product Disclosure Statements" had not been lodged with the Australian Securities & Investments Commission (ASIC). It also allowed time to determine whether a transaction to which Properties is a party would resolve by 30 April 2018. 5 The question of whether orders should be made under s 600H(1) was adjourned until 12 April 2018. This was to allow time for any further creditors to emerge and so that creditors of the companies had an opportunity to make any submissions they wished to make on that matter. The administrators were ordered to give notice of the orders made on 7 February 2018 to all known creditors and ASIC by 28 March 2018. The timing was also designed to enable the administrators to be in a position to address the question of who could vote at the second creditors' meeting in its report to be provided to creditors before that meeting. 6 At the hearing on 12 April 2018, leave was given to Ms Rao of counsel to appear for Messrs Gyan Singh, Sumit Sethi and Rajesh Nair as interveners (Sion interveners). Mr McEwan, of Miller & Young Solicitors, was given leave to appear on behalf of a number of persons who claim to be shareholders of Sinai. Both sets of interveners are plainly persons whose interest might be affected by the outcome of the application under consideration. The administrators made no objection to that leave being granted. Both groups of interveners supported orders being made under s 600H(1)(b). 7 The Sion interveners were members of the committee of inspection appointed at the first meeting of creditors of Sion but they resigned. They claim to have applied for shares in Sion on the basis of a "Product Disclosure Statement" and made part payment for them, but they say that they never received a share certificate in relation to them. Ms Rao read the affidavit of Kathleen Naish sworn on 12 April 2018 and relied on written submissions dated 11 April 2018. 8 Mr Golledge, counsel for the administrators, read the affidavits of Mr Ingram dated 9 January and 6 February 2018 and a further affidavit of Mr Ingram dated 11 April 2018. The 11 April affidavit updated the Court on matters connected with the administration, on compliance with the Court's orders made on 7 February 2018 to notify creditors (including persons with subordinate claims) and in relation to likely returns to creditors if the companies were wound up. 9 At the hearing on 12 April 2018, Mr Golledge tendered a letter from Ms Alison Sampson, a lawyer in the Enforcement - Corporations and Corporate Governance Group at ASIC. The letter indicated that ASIC had been advised of the application for orders under s 600H, that ASIC did not intend to appear at the hearing and that it did not seek to be heard. It also stated that it appeared that Mr Ingram no longer pressed the application as it applied to Properties so that it did not advise its position in relation to that company; I will address this last matter below. 10 No creditor or shareholder of any of the companies appeared to oppose orders being made under s 600H(1)(b). 11 Following the hearing on 12 April 2018, the Court made orders (among other things) pursuant to s 600H(1)(b) that any person who may have a "subordinate claim" within the meaning of s 563A(2) for the repayment of money paid as subscription monies for the issue of shares in Sinai or Sion who is able to establish that claim in accordance with r 75-85 of the Insolvency Practice Rules (Corporations) 2016 (Cth) is entitled to vote as a creditor of that company at the meeting of creditors to be convened pursuant to s 439A of the Corporations Act. These are the reasons for making those orders and in relation to the Sion interveners' application for costs, judgment on which was reserved.

Background 12 The following background is based on the parties' submissions and the affidavits and exhibits relied on by the administrators and the interveners and the documents tendered on 12 and 18 April 2018. 13 Prior to the appointment of the administrators, Sion and Sinai conducted a business which involved raising funds from members of the public and purchasing real estate using those funds. It was thereby intended to provide a return to investors on their capital investment. This is commonly known as "landbanking". 14 That business model required Sion and Sinai to comply with the fundraising provisions of Ch 6D of the Corporations Act. Mr Ingram says that it appears that the companies did not lodge disclosure documents with ASIC as required by s 718 and they failed to comply with the form and content requirements of ss 710 and 711. I note that the "Product Disclosure Statements" are ambiguous as to whether Sion or Sinai were also offering some sort of "unit" interest in land to be managed by the issuing company, which might also give rise to claims. 15 When this came to ASIC's attention, the companies sought to satisfy ASIC's concerns through correspondence and meetings in the period between September-November 2017. Following a meeting between members of ASIC's enforcement team and directors of the companies on 6 December 2017, the administrators were appointed by resolution of the directors of each of the companies. ASIC's investigation continues. In summary, the position of the companies appears to be as follows.

Sinai 16 The administrators understand that 130 individuals or entities subscribed an aggregate amount of around $5,552,502 for 149 shares in Sinai. This is based on a list set out at annexure DI3-8 and applicant's Exhibit "G". Applicant's Exhibit "G" is a spreadsheet which Mr Golledge understands to form the share register of Sinai which the administrators found among its records. An ASIC search undertaken on 18 April 2018 indicates that there are 51 "A" class shares and 149 ordinary shares on issue. It also records that Properties was Sinai's previous ultimate holding company. 17 Subscriptions were sought pursuant to a "Product Disclosure Statement" (set out at annexure DI3-9) and a share application form (set out at annexure DI3-10). The amount subscribed was paid into Sinai's bank account and it was used to purchase a property at Menangle Park in south-western Sydney for $4.25 million and to pay expenses (including stamp duty) of $780,000. Sinai currently receives rental income on the property. 18 The administrators have received a proposal for a deed of company arrangement (DOCA). Mr Ingram says that he has raised questions and requested further particulars of the proposal, but no response has yet been received. However, should a DOCA proposal be received that is capable of being implemented, the people who subscribed for shares on the basis of the "Product Disclosure Statement" would be those most affected by a decision whether to liquidate Sinai or accept the DOCA or terminate the administration, decisions which will be made at the second meeting of creditors. 19 The administrators' analysis of the financial position of Sinai as at 30 January 2018 is set out at annexure DI3-11. Without adjudication on creditors' claims, the administrators have assessed that "subordinated creditors" (that is, subscribers under the "Product Disclosure Statement") would be likely to be paid 100 cents in the dollar. This is primarily due to their assessment that, net of realisation costs, Sinai's assets are estimated to be worth $6,784,241 (taking into account a valuation of the Menangle property obtained by the directors in December 2017) and there are likely priority and other unsecured creditor claims in the order of $40,000 or slightly more (if liabilities to the Australian Taxation Office are greater than currently assessed).

Sion 20 Sion accepted $4,071,300 from 203 subscribers who are listed in annexure DI3-2. The administrators understand that each of the subscribers received a "Product Disclosure Statement" in the form of annexure DI3-3 and each of them submitted a share application form in the form of annexure DI3-4. The subscription was for the initial scheduled payments for a proposed $15 million fundraising. Having regard to actions taken by ASIC, the directors gave undertakings that they would cease fundraising until non-compliance by Sion with Ch 6D had been rectified. The administrators do not hold a similar document to the register/spreadsheet held in relation to Sinai and it appears that share certificates were not issued to the subscribers and they were not registered as members. The ASIC search undertaken on 18 April 2018 indicates that Sion has only 15 "A" class shareholders. 21 Sion entered into a contract for the purchase of land at Luddenham for $10.5 million. In an effort to secure time to complete the purchase, this amount was increased to $11.5 million and a staged payment regime was agreed. Subscription money was used to pay the deposit on this contract and stamp duty. It was also used to lend money to related companies. 22 When the time came for the contract for purchase of the land to be settled, Sion could not proceed because it could not raise funds from the public due to the undertaking given to ASIC and because it could not raise funds privately. The vendor ultimately terminated the contract and the deposit was forfeited to the vendor. The administrators are currently in the process of obtaining a refund of stamp duty and attempting to recover moneys lent to related companies. It appears that the Sion interveners have formed a company and lodged a prospectus to raise funds for the purchase of the Luddenham property. 23 As with Sinai, the administrators have received a draft DOCA in relation to which they have raised questions and requests for particulars for which they are yet to receive a response. The administrators hold the same views which they held in relation to Sinai about the degree of interest that subscribers for shares under Sion's "Product Disclosure Statement" would have in whether or not the DOCA should be accepted or whether Sion should be liquidated or the administration ended. 24 Set out at annexure DI3-5 is the administrators' financial analysis of the liquidation "base case" without adjudication on the validity of creditor's claims. Sion has assets as follows: Asset $ Cash at bank 528,621 Funds held in solicitor's trust account 55,118 Stamp duty refund 680,231 Related party loan 800,000

The aggregate of these assets is $2,063,970, or $1,263,970 if the related party loan proves unrecoverable. Sion lent Properties $1.6 million and the administrators anticipate that creditors of Properties will receive between ten and fifty cents in the dollar. The amount reported as held in the solicitor's trust account has been paid to the administrators. 25 There are a number of related party claims. Properties claims $323,023 for services under a Management and Administrative Services Agreement. There is an amount of $13,057 claimed by an employee for a component of unpaid wages. According to minutes of a general meeting, Sion agreed to issue parcels of 8 shares to a value of $85,000 per share to each of three directors. The aggregate "value" attributed to the shares is $2,040,000. The minutes of general meeting record resolutions that the directors were entitled to those shares for services rendered. An ASIC search indicates that there are only 15 "A" class shares on issue, it appears that these shares have not been issued. 26 The administrators estimate that creditors with "subordinate claims" (which I take to be the subscribers under the "Product Disclosure Statement") would receive between 14.48 cents and 27.85 cents in the dollar after priority claims have been paid and subject to the administrator's costs.

Properties 27 The administrators understand that Properties distributed an Information Memorandum (in the form set out at annexure DI3-14) seeking expressions of interest in entering a joint-venture property development scheme. To register interest, 26 people each paid a "refundable deposit of $1,000 per unit as registration fee" (as written). Mr Ingram says that he does not understand that any claim arising out of such a deposit to be postponed under s 563A. The administrators have received no DOCA in relation to Properties.

Consideration 28 Section 600H of the Corporations Act provides as follows: 600H Rights if claim against the company postponed (1) A person whose claim against a company is postponed under section 563A is entitled: (a) to receive a copy of any notice, report or statement to creditors only if the person asks the administrator or liquidator of the company, in writing, for a copy of the notice, report or statement; and (b) to vote in their capacity as a creditor of the company, at a meeting ordered under subsection 411(1) or during the external administration of the company, only if the Court so orders. (2) In this section: external administration includes the following: (a) voluntary administration; (b) a compromise or arrangement under part 5.1; (c) administration under a deed of company arrangement; (d) winding up by the Court; (e) voluntary winding up. 29 Section 563A of the Corporations Act provides as follows: 563A Postponing subordinate claims (1) The payment of a subordinate claim against a company is to be postponed until all other debts payable by, and claims against, the company are satisfied. (2) In this section: claim means a claim that is admissible to proof against the company (within the meaning of section 553). debt means a debt that is admissible to proof against the company (within the meaning of section 553). subordinate claim means: (a) a claim for a debt owed by the company to a person in the person's capacity as a member of the company (whether by way of dividends, profits or otherwise); or (b) any other claim that arises from buying, holding, selling or otherwise dealing in shares in the company. 30 Sections 600H and 563A of the Corporations Act are not fine examples of the parliamentary draftsperson's art. Having regard to the authority of the decisions of Jagot J in Re QRx Pharma Ltd (administrators appointed) (2015) 235 FCR 456; FCA 1140 at [12]-[23] and Black J in In the matter of TEN Network Holdings Ltd (admins apptd) (recs and mgrs appted) [2017] NSWSC 1247 at [160], I accepted that s 600H applies in the context of a voluntary administration. 31 I also accepted that subscribers for shares in Sion and Sinai "might reasonably be considered to possess a real financial interest in the external administration" (see In the matter of TEN Network Holdings at [161]) as they might be expected to obtain a return after other creditors had been paid. 32 Mr Golledge and Ms Rao made a number of submissions concerning the bases on which subscribers for shares in Sion and Sinai may have claims in relation to the offering of shares under the "Product Disclosure Documents" which were not lodged with ASIC. While I consider that some of the claimed bases are unlikely to be well-founded (as the submissions relied on provisions of Ch 6D which are predicated on a prospectus having been lodged with ASIC, for instance, s 737), I was satisfied that (in addition to other possible bases of claims) s 1325 of the Corporations Act is a basis for making claims for compensation for loss which arise from breach of provisions of Ch 6D; this might include s 718. 33 Ms Rao submitted that, while it may well be that the Sion subscribers are simply ordinary creditors (for instance, because they were never registered as shareholders so that they never received shares for which subscription moneys were paid and Sion may be a bare trustee of the subscription moneys), having regard to the terms of s 563A(2), orders should be made under s 600H to put beyond doubt their entitlement to vote at the second creditors' meeting. There was no evidence submitted that any of the subscribers for shares in Sion or Sinai had commenced proceedings to recover moneys subscribed or any loss based on breach of Ch 6D. Nonetheless, such claims appear to be available in the circumstances in which shares were offered for subscription. It is my view that those circumstances justify the grant of leave to enable the subscribers to vote at the second creditors' meeting of the relevant company if their claims are "subordinate claims" within paragraph (b) of the definition in s 563A(2). 34 The administrators submitted that s 563A(2) applies to claims any subscribers under the "Product Disclosure Statements" for shares in Sion and Sinai may have, whether or not shares have been issued. In response to the Court's query as to how the subscribers' claims might be within s 563A, Mr Golledge focussed his argument on the phrase "or otherwise dealing in shares in the company" in paragraph (b) of the definition of "subordinate claim" in s 563A(2). At the hearing on 12 April 2018, Mr Golledge submitted that applying for shares (whether or not shares are issued) amounts to a "dealing" for the purposes of paragraph (b) of s 563A(2) because: (1) Section 9 of the Corporations Act defines "dealing" as follows: dealing, in relation to financial products, when used in a provision outside Chapter 7, has the same meaning as it has in Chapter 7. (2) Subscription for shares is a "financial investment" because s 761A (which appears in Ch 7) defines "financial product" as follows: financial product has the meaning given by Division 3. Note: references in this Chapter to financial products have effect subject to particular express exclusions (for example, see sections 1010A and 1074A) or inclusions (see section 1040B). (3) Section 763A (which is in Div 3 of Pt 7.1) relevantly defines "financial product" which, when taken with s 763B (and in particular Note 1 to that section), includes a share in a company (exceptions under s 763E not being relevant): 763A General definition of financial product (1) For the purposes of this Chapter, a financial product is a facility through which, or through the acquisition of which, a person does one or more of the following: (a) makes a financial investment (see section 763B); (b) … ; (c) … . This has effect subject to section 763E. … 763B When a person makes a financial investment For the purposes of this Chapter, a person (the investor) makes a financial investment if: (a) the investor gives money or money's worth (the contribution) to another person and any of the following apply: (i) the other person uses the contribution to generate a financial return, or other benefit, for the investor; (ii) the investor intends that the other person will use the contribution to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated); (iii) the other person intends that the contribution will be used to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated); and (b) the investor has no day-to-day control over the use of the contribution to generate the return or benefit. Note 1: Examples of actions that constitute making a financial investment under this subsection are: (a) a person paying money to a company for the issue to the person of shares in the company (the company uses the money to generate dividends for the person and the person, as a shareholder, does not have control over the day-to-day affairs of the company); or (b) … . … (4) Section 764A(1)(a) specifically includes a "security" as a "financial product". Section 761A defines "dealing" and "security" (relevantly) as follows: dealing in a financial product has the meaning given by section 766C (and deal has a corresponding meaning). … security means: (a) a share in a body; … (5) Last, s 766C(1)(a) specifically includes applications for acquiring a financial product as a "dealing". 35 This analysis appears to be consistent with the explanation for amendments made to s 563A following the decision of the High Court in Sons of Gwalia Ltd v Margaretic (2007) 231 CLR 160; HCA 1: see the Revised Explanatory Memorandum for the Corporations Amendment (Sons of Gwalia) Bill 2010 (Cth). Paragraphs [1.9] and [1.10] of the Revised Explanatory Memorandum provide as follows (emphasis in original): Detailed explanation of new law … 1.9 The Bill provides that payment of a debt owed by a company to a person in their capacity as a member of the company or a claim that arises from the buying, holding, selling or otherwise dealing in shares of a company, is postponed until after all other debts payable by, and claims against, the company are paid. Included in the claims that are postponed by this section would be a claim by a member for the return of capital. The Bill would also ensure that claims for interest in relation to claims that are not subordinated under section 563A would rank higher in priority to claims that are subordinated under section 563A. This maintains the status quo. The Bill is not intended to change the current position that any claim for interest arising from a claim that is subordinated under section 563A would rank in equal priority with the claim that is subordinated by section 563A. [Schedule 1, item 2, section 563A] 1.10 In relation to the use of the word 'dealing' in section 563A, section 9 of the Corporations Act provides that dealing in financial products, which includes shares, has the meaning provided for in Chapter 7 of the Corporations Act. Section 766C of the Corporations Act lists various activities which fall within the definition of dealing, including applying for the issue of a share in a company. … 36 On this basis, the claims of shareholders in Sinai who applied for shares under the "Product Disclosure Statement" would fall within paragraph (b) of s 563A, although in my view, those claims also fall under paragraph (a) of the definition. Section 563A as enacted before the Corporations Amendment (Sons of Gwalia) Act 2010 (Cth) (Sons of Gwalia Amendment Act) commenced provided as follows: 563A Member's debts to be postponed until other debts and claims satisfied Payment of a debt owed by a company to a person in the person's capacity as a member of the company, whether by way of dividends, profits or otherwise, is to be postponed until all debts owed to, or claims made by, persons otherwise than as members of the company have been satisfied. 37 A Full Court decided that claims made by a person who is a shareholder for the return of capital subscribed on the basis of breach of a provision of Ch 6D fell within the terms of s 563A as then enacted: see Cadence Asset Management Pty Ltd v Concept Sports Ltd (2005) 147 FCR 434; FCAFC 265. That the claims of Sinai shareholders are "subordinate claims" is therefore consistent with the parliamentary intent to address the effect of the High Court's decision in Sons of Gwalia v Margaretic expressed in the Revised Explanatory Memorandum. 38 On the other hand, subscribers for shares in Sion appear never to have been registered as members; the administrators say they have not found a share register reflecting issues to them, the ASIC register does not indicate that any shares were issued to them and the Sion interveners say that they did not receive share certificates. Since they never became members of Sion, s 563A, as enacted prior to its amendment by the Sons of Gwalia Amendment Act, would not have applied to them. It is unlikely that the amendment was intended to change that result, despite the terms of paragraph [1.10] of the Revised Explanatory Memorandum. The better view is most likely to be that the subscribers for shares in Sion are ordinary creditors. 39 However, to avoid any doubt and having regard to the extended definition of "dealing" (a term used in paragraph (b) of the definition of "subordinate claim" in s 563A(2)) and [1.10] of the Revised Explanatory Memorandum, it was appropriate to grant leave under s 600H to subscribers for shares in Sion to vote at the second meeting of its creditors. 40 As originally proposed, the orders would have related to "any person who may have a subordinate claim within the meaning of s 563A(2)". Following service of Ms Rao's written submissions, the administrators agreed that the proposed terms should change to refer expressly to the subscribers. As all of the parties before the Court agreed to that form of order, I agreed that orders should be made in those terms. The directors of Sion did not appear at the hearing or seek to make submissions to the Court in relation to the basis of any claim that they might have having regard to the minutes of an annual general meeting concerning the issue of shares to them for management services. The administrators are yet to rule on any claim they might have. However, in order to avoid any prejudice to those directors, the orders made granted liberty to apply should that be required. 41 I was also satisfied that it was appropriate to include in the orders the requirement that the person be "able to establish that claim in accordance with r 75-85 of the Insolvency Practice Rules (Corporations) 2016 (Cth)". In effect, that imposes a requirement that the administrator attribute a "just estimate" to the subscribers' claims lodged with them. I was satisfied that this was appropriate for the same reasons as given by Brereton J in In the matter of SurfStitch Group Limited [2018] NSWSC 164 at [20]-[23] and [26]. I note that that judgment addressed reg 5.6.23 of the Corporations Regulations 2001 (Cth), the statutory predecessor of r 75-85 of the Insolvency Practice Rules. 42 I note that counsel for the administrators advised the Court that all persons who may be creditors (whether or not they have a "subordinate claim") will be advised of the Court's orders in the report to creditors which will be circulated to creditors before the second creditors' meeting. While s 600H(1)(a) only confers a right to receive a report upon request in writing, the administrators consider that the appropriate course in this case is that all persons who may have "subordinate claims" receive the report. 43 Although counsel for the administrators submitted that, out of abundant caution, the offering made by Properties under the Information Memorandum should be treated in the same way as the offerings made under the "Product Disclosure Statements" issued by Sinai and Sion, there is nothing in the Information Memorandum issued by Properties which suggests that any shares were offered for subscription or purchase. Accordingly, I declined to make an order under s 600H in relation to creditors of Properties. 44 In preparing reasons for the orders made, I had cause to consider s 766C in more detail. Section 766C provides as follows (subsection (2A) which deals with crowd funding is omitted): 766C Meaning of dealing (1) For the purposes of this Chapter, the following conduct (whether engaged in as principal or agent) constitutes dealing in a financial product: (a) applying for or acquiring a financial product; (b) issuing a financial product; (c) in relation to securities or managed investment interests - underwriting the securities or interests; (d) varying a financial product; (e) disposing of a financial product. (2) Arranging for a person to engage in conduct referred to in subsection (1) is also dealing in a financial product, unless the actions concerned amount to providing financial product advice. (2A) … (3) A person is taken not to deal in a financial product if the person deals in the product on their own behalf (whether directly or through an agent or other representative), unless: (a) the person is an issuer of financial products; and (b) the dealing is in relation to one or more of those products. (3A) For the purposes of subsection (3), a person (the agent) who deals in a product as an agent or representative of another person (the principal) is not taken to deal in the product on the agent's own behalf, even if that dealing, when considered as a dealing by the principal, is a dealing by the principal on the principal's own behalf. (4) Also, a transaction entered into by a person who is, or who encompasses or constitutes in whole or in part, any of the following entities: (a) a government or local government authority; (b) a public authority or instrumentality or agency of the Crown; (c) a body corporate or an unincorporated body; is taken not to be dealing in a financial product by that person if the transaction relates only to: (d) securities of that entity; or (e) if the entity is a government - debentures, stocks or bonds issued or proposed to be issued by that government. (5) Paragraph (4)(c) does not apply if the entity: (a) carries on a business of investment in securities, interests in land or other investments; and (b) in the course of carrying on that business, invests funds subscribed, whether directly or indirectly, after an offer or invitation to the public (within the meaning of section 82) made on terms that the funds subscribed would be invested. 45 No submissions were made at the hearing on 12 April 2018 concerning the impact of the qualifications to the definition of dealing in s 766C(1) set out in the subsequent subsections. I considered it appropriate to seek further submissions as to their impact. The administrators and the interveners were invited to make submissions as to whether subscription for shares amounted to a "dealing" for the purposes of paragraph (b) of the definition of "subordinate claim" in s 563A(2) having regard to s 766C as a whole. For example, the exemption in s 766C(3) might have had the effect that many subscribers in Sion would not have been "dealing" when they applied for shares on their own behalf, although those who subscribed for shares as trustee might have been. Further written submissions were provided by Mr Golledge and Ms Rao on 18 April 2018 and each made oral submissions at a brief hearing; Mr Golledge ultimately supported Ms Rao's submissions. 46 The Revised Explanatory Memorandum provides marginal assistance on the interpretation of the term "dealing" where it is used in paragraph (b) of the definition of "subordinate claim" in s 563A(2). It is unfortunate that [1.10] of the Revised Explanatory Memorandum refers only to "s 766C", rather than s 766C(1), if it is intended to capture only that definition of "dealing" without the subsequent qualifications. 47 Ms Rao's submission described the interpretation of whether any transaction is a "dealing" within s 766C and regulations as "byzantine". She correctly points out that, having regard to the qualifications to s 766C(1) in subsequent subsections or in the regulations, participation in some transactions amounts to a dealing by one party but not by the other party to it and differentiates between types of investors. This makes sense in the context of determining when a person must be licensed to "deal" in "financial products". It makes far less sense in the context of determining whether a person has a claim which should be treated as a "subordinate claim" in the external administration of a company. It is difficult to see why a person who has a claim resulting from subscribing for shares on his or her own behalf should be treated differently as a creditor to a person who has a claim because he or she applied for shares as an agent for others. While this would tend to support an interpretation of "dealing" as defined in s 766C(1) without taking account of the qualifications in subsequent subsections and the regulations, there is no apparent justification for extending the definition of "subordinate claim" to include a person who never became a shareholder. 48 There is a strong argument that "buying, holding, selling or otherwise dealing" in paragraph (b) of the definition of "subordinate claim" in s 563A(2) should be read ejusdem generis. The terms "buying", "holding" or "selling" are apt to describe a dealing in or relationship with an existing share. On that analysis, "dealing" in s 563A(2)(b) should be taken to involve an issued share, whether or not the share is still held at the time the claim is made but subscription for shares would only be a "dealing" when it results in the issue of a share (such was the case with Sinai). This would be largely consistent with the reference in paragraph [1.10] of the Revised Explanatory Memorandum to the definition of "dealing" in ss 9 and 766C. On that basis, both before the High Court's decision in Sons of Gwalia v Margaretic and the amendment of s 563A, a subscriber for shares which are never issued would not have a "subordinate claim" but would be treated as an ordinary unsecured creditor unless s 722 of the Corporations Act can be invoked or the terms of offer indicate that subscription moneys will be held on trust until shares are issued. 49 In her submissions, Ms Rao correctly pointed out that the process of voluntary administration is designed to promote fair, but necessarily (having regard to the timeframes in s 439A) pragmatic decision-making. I accept that an application of this kind is generally not the appropriate vehicle to determine finally the question of whether the claims of subscribers for shares in Sion are "subordinate claims". The dominant issue should be whether it is fair that those persons be included in the process of decision-making at the second creditors' meeting having regard to whether they might reasonably be considered to possess a real financial interest in the external administration. I accepted that in the circumstances of this application it would not be fair that they be excluded from voting and that leave should be granted under s 600H(1)(b). Accordingly, having regard to the submissions made by Ms Rao and Mr Golledge, I was satisfied that it was not necessary to vary or revoke the orders made on 12 April 2018 and entered on 15 April 2018.

Costs 50 At the hearings on 12 April and 18 April 2018, on behalf of the Sion interveners, Ms Rao sought an order for costs to be paid as costs of the administration of Sion. The administrators opposed costs being awarded in relation to Ms Rao's appearance on 12 April 2018, but did not oppose an order being made in relation to her submissions dated 18 April 2018 and her appearance later that day. Mr McEwan did not seek an order for costs on behalf of the interveners who are said to be shareholders of Sinai at either hearing. 51 The Court's power to permit intervention in proceedings under r 9.12 of the Federal Court Rules 2011 (Cth) is as follows: 9.12 Interveners (1) A person may apply to the Court for leave to intervene in a proceeding with such rights, privileges and liabilities (including liabilities for costs) as may be determined by the Court. (2) The Court may have regard to: (a) whether the intervener's contribution will be useful and different from the contribution of the parties to the proceeding; and (b) whether the intervention might unreasonably interfere with the ability of the parties to conduct the proceeding as the parties wish; and (c) any other matter that the Court considers relevant. (3) When giving leave, the Court may specify the form of assistance to be given by the intervener and the manner of participation of the intervener, including: (a) the matters that the intervener may raise; and (b) whether the intervener's submissions are to be oral, in writing, or both. Note 1: The Court may give leave subject to conditions - see rule 1.33. Note 2: The Court may appoint an amicus curiae. 52 Section 43 of the Federal Court of Australia Act 1976 (Cth) addresses the Court's power to make orders as to costs in proceedings before it. It relevantly provides as follows: 43 Costs (1) The Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which this or any other Act provides that costs must not be awarded. … (1A) … . (2) Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge. (3) Without limiting the discretion of the Court or a Judge in relation to costs, the Court or Judge may do any of the following: (a) make an award of costs at any stage in a proceeding, whether before, during or after any hearing or trial; (b) make different awards of costs in relation to different parts of the proceeding; (c) order the parties to bear costs in specified proportions; (d) award a party costs in a specified sum; (e) award costs in favour of or against a party whether or not the party is successful in the proceeding; (f) order a party's lawyer to bear costs personally; (g) order that costs awarded against a party are to be assessed on an indemnity basis or otherwise; (h) … : 53 The discretion in s 43 is unconstrained, save that it must be exercised judicially. Having regard to s 43 of the Federal Court of Australia Act and r 9.12 of the Rules, this Court has power to make the costs order sought by Ms Rao. 54 Rule 2.13 of the Federal Court (Corporations) Rules 2000 (Cth) provides as follows: 2.13 Leave to creditor, contributory or officer to be heard (1) The Court may grant leave to any person who is, or who claims to be: (a) a creditor, contributory or officer of a corporation; or (b) an officer of a creditor, or contributory, of a corporation; or (c) any other interested person; to be heard in a proceeding without becoming a party to the proceeding. (2) If the Court considers that the attendance of a person to whom leave has been granted under subrule (1) has resulted in additional costs for any party, or the corporation, which should be borne by the person to whom leave was granted, the Court may: (a) direct that the person pay the costs; and (b) order that the person not be heard further in the proceeding until the costs are paid or secured to the Court's satisfaction. (3) The Court may order that a person who is, or who claims to be, a creditor, contributory or officer of a corporation be added as a defendant to the proceeding. (4) The Court may grant leave to a person under subrule (1), or order that a person be added as a defendant to a proceeding under subrule (3): (a) on application by the person or a party to the proceeding; or (b) on the Court's own initiative. (5) The Court may: (a) appoint a creditor or contributory to represent all or any class of the creditors or contributories on any question, or in relation to any proceeding, before the Court, at the expense of the corporation; and (b) remove any person so appointed. 55 The Sion interveners' submissions filed on 11 April 2018 did not specify under what power they sought to intervene nor did they seek to become a party. The administrators did not oppose leave being granted or seek to have them joined as a party. The submissions were wholly directed to supporting the administrators' application under s 600H and to the question of whether or not they should be taken to have "subordinate claims". They did not address the question of whether or not they should be joined as a party and the Court granted leave to their intervention without making such an order. The submissions also did not foreshadow whether the Sion interveners would seek an order as to their costs. 56 The Court granted the Sion interveners leave to intervene on the basis that they were plainly "interested persons" in the proceedings, and likely "creditors" whether or not their claims were "subordinate claims". They sought only to make submissions in relation to orders under s 600H which would directly affect their interests. No order was made joining them as a party. Having regard to the nature of the proceedings and these circumstances, leave should be taken to have been granted under r 2.13 of the Federal Court (Corporations) Rules and costs orders made having regard to the tenor of that rule. 57 Mr Golledge opposed Ms Rao's application for costs on 12 April 2018 on the bases that the Sion interveners undertook limited exposure to liability for costs when they applied to intervene and the assets available to creditors in the administration should not be required to bear the Sion intervener's costs. He relied on the decision of Barrett J in Re Pan Pharmaceuticals; Selim v McGrath [2004] NSWSC 129 at [20]: These considerations, coupled with the emphasis by members of the High Court in Knight's case [Knight v FP Special Assets Ltd (1992) 174 CLR 178] on the extraordinary nature of the aspect of the general costs power that involves orders against non-parties, lead me to think that some very special factor outside the ordinary and expected course of events and engendering a justifiable expectation of compensation in the mind of the non-party would have to be found before any relevant aspect of the comprehensive jurisdiction with respect to costs might be regarded as properly and regularly invoked in favour of a non-party as against a party. In other words, such an award, if ever appropriate, will be extraordinary and exceptional. Someone who seeks and is granted leave under r 2.13(1) chooses a course entailing the limited costs exposure described in r 2.13(2). Such a person can have very little expectation of being awarded costs. 58 On 12 April 2018, Ms Rao noted that Brereton J had allowed such costs in SurfStitch. Ms Rao also drew to the Court's attention to correspondence between the lawyers for the administrators and the lawyers for those interveners on a range of matters. Ms Rao submitted that the application to intervene had been necessitated by the administrators' failure to respond with sufficient clarity to their requests for information and that the interveners' submissions had had an impact on the form of orders made. 59 I was not satisfied that it would be appropriate to make the order sought by Ms Rao in relation to the hearing on 12 April 2018 and decline to do so. I am not satisfied that the intervention was necessitated by the nature of the dealings between them and the administrators. I do not think that the perspective of the Sion interveners added materially to the Court's consideration of the application on 12 April 2018. The mere fact that the Sion interveners appeared in their own interest and their submissions had some impact on the form of the orders does not, in the circumstances of this matter, justify burdening the administration with their costs of the application and hearing on 12 April 2018. I am persuaded that Barrett J's reasoning in Re Pan Pharmaceuticals at [20] should be applied in the context, despite the fact that Brereton J made such an order in Surfstitch; I note that Brereton J gave no reasons for making that order despite the comprehensive way in which he dealt with other matters. 60 It is undoubtedly true that Ms Rao's submissions filed on 18 April 2018 were of assistance to the Court in addressing the concerns raised with the administrators and the interveners. However, even though Mr Golledge advised that the administrators did not resist the order sought by Ms Rao, I am not satisfied that the order sought should be made. Although there are undoubtedly difficulties in the interpretation of ss 563A and 600H and the submissions filed on 18 April 2018 were required to address gaps in the material put to the Court on 12 April 2018, I am not persuaded that such an order is justified. I therefore decline to make an order that the Sion interveners' costs be costs in the administration of Sion. I certify that the preceding sixty (60) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.