Lake Coogee Estate Management Pty Ltd ACN 115 352 504 v Australian Securities and Investments Commission

WESTERN AUSTRALIA DISTRICT REGISTRY WAD 286 of 2006

AND: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

REASONS FOR JUDGMENT 1 Before the Court are motions by the Australian Securities and Investments Commission (ASIC) to vary orders made under two previous decisions. Orders granting permission to the plaintiffs as operators to wind up a Managed Investment Scheme (the scheme) were made in two decisions of Nicholson J (Lake Coogee Estate Management Pty Ltd v Australian Securities and Investments Commission (2006) 60 ACSR 281 and Lake Coogee Estate Management Pty Ltd v Australian Securities and Investments Commission [2007] FCA 692). The first was on 21 December 2006 and the second on 11 May 2007. Under order 4.2 of the orders made by his Honour the scheme was required to be completed by 11 May 2009, which is next Monday. 2 The first plaintiff (by order 4.6) was required to report to investors on the progress of completing the scheme. 3 Not only will the scheme not be completed by 11 May 2009, but in addition, the supervisor appointed by the orders as well as ASIC have both raised concerns as to the substance of the plaintiffs' reports to the investors. 4 On those two bases, then, ASIC has brought this application, both to extend the time for completion for a further year and, secondly, to vary some of the obligations imposed on the plaintiffs in the orders made on 11 May 2007, to report on the progress to the investors. 5 Part of the circumstances which underlie ASIC's application include the deterioration in the economy since the original orders were made and thus the diminished capacity to achieve winding up of the scheme by the relevant time. I should mention a third allied matter, which counsel has raised this morning. That is a concern that the funding needed for completion of the scheme, has not yet been finalised. The supervisor of the scheme is of the view that the funding is necessary in order to complete the scheme. If the funding were not to become available, ASIC has foreshadowed that pursuant to liberty to apply, which I will grant this morning, it may well bring the matter back before the Court.

THE ROLE OF THE COURT 6 The current motion was first before the Court, on 16 April 2009, but at that stage the investors in the scheme had only just received a copy of the motion and supporting affidavit. The matter was therefore adjourned to today to enable investors in the scheme to have the opportunity to consider the proposed orders as set out in a minute of proposed orders prepared by ASIC. Notice of that adjourned hearing and the minute of orders was served on the investors by ASIC, both by email and where necessary, by letter. Detailed evidence on the topic of notice to the investors has been provided by Ms Yates, an officer engaged by ASIC, who has had responsibility for communicating with investors in the scheme. At the time Ms Yate's affidavit was sworn on 5 May 2007, no communication had been received from any investor by way of objection in any way to the proposed amendments. I am satisfied that investors have had adequate notice. 7 The power of the Court under s 601EE(1) of the Corporations Act 2001 (Cth) is broad. This is reflected in a number of authorities, including Australian Securities & Investments Commission v Commercial Nominees of Australia Ltd (2002) 42 ACSR 240 where Barrett J said at [13]: Given that s.601EE(2) enables the court to make "any orders it considers appropriate for the winding up of the scheme" (emphasis added), it must be accepted that the court has jurisdiction to settle or prescribe any aspect or element of the basis for winding up or the winding up process which it is necessary to supply because that element cannot be obtained from any other source. In this respect, it is noteworthy that the statute itself does not attempt to lay down the basis for or method of winding up. That is, to my mind, an indicator of intention that the court should be able to act in the comprehensive way I have outlined. 8 This view was accepted by Nicholson J in his Honour's first decision. It has support also in the decision of Mansfield J, in Norman v Estate of Allan McFarlane (2009) 27 ACLC 38 at [12] where his Honour said the range of orders 'which may be made is unrestricted'. See also Mier v FN Management Pty Ltd [2006] 1 Qd R 339 where Keane JA (with whom McMurdo P and Douglas J agreed) referred to the observations of Barrett J at [18] (citations omitted): Unfortunately for present purposes, the Act, beyond directing that a registered scheme be wound up in accordance with its constitution, also leaves the detail of the winding up of a registered scheme in the hands of the Court, which may make such orders as it "thinks necessary to do so". See also Australian Securities & Investments Commission v Takaran Pty Ltd (No 2) (2002) 194 ALR 743 and Australian Securities and Investments Commission v Tasman Investment Management Ltd (2005) 56 ACSR 449, as well as Burton v Arcus (2006) 200 FLR 1. 9 The Court is also empowered under s 601EE to give directions to the person appointed by the Court to carry out the winding up. The directions would be analogous to those given to a company liquidator under s 479(3) or to a controller of property of a corporation under s 424(1). See Tasman at [8] and Burtonat [85]-[93].

THE MERITS 10 The substantive evidence relied upon by ASIC, is set out in an affidavit of the appointed supervisor, Mr Sean Fraser, as well as an additional affidavit of Ms Yates. Mr Fraser has provided the last quarterly report (dated 6 March 2009) to the Court and to ASIC on the progress of the scheme. The plaintiffs' report to the investors has also been produced. 11 Mr Fraser expresses the view that investors are likely to be better off if the development proceeds to completion rather than terminates immediately. The plaintiffs agree with that view. 12 Mr Fraser refers to the progress of the development in his report to the Court and to ASIC, but he does note that there are challenges to completion of the scheme even in the extended timeframe. 13 In his opinion the development will require a further 12 months to complete construction and site works in a manner contemplated by the orders initially made by Nicholson J. ASIC has contended, and I accept, that it is appropriate to accept the opinions of Mr Fraser, and to extend the period for completion by 12 months. 14 There is a further issue. The plaintiffs, in seeking to continue the scheme, sought to ameliorate the unregistered and unprotected position of investors, with the reporting and supervising functions which had been ordered. Nicholson J, in his second judgment, referred to the plaintiffs' submissions that the additional reporting obligations enhanced investment protection and later concluded that the strength of the protections in the proposed orders, which included the further reporting obligations, made this case exceptional and justified the alternative means of winding up the scheme by the plaintiffs themselves being the operators. In the course of completing the scheme the plaintiffs have reported approximately every quarter, as to the progress. 15 As indicated, the supervisor is of the opinion that the information the investors are required to have to properly consider the progress of the scheme and the risks faced, is insufficiently provided in the reports to date. He sets out the information which he considers should be provided. ASIC submits and it is unopposed, that it is appropriate to accept the opinions of Mr Fraser as to the need to improve the content and quality of information provided to investors, particularly in the economic circumstances which prevail. The manner of adjustment suggested by Mr Fraser is also acceptable to the plaintiffs. 16 Accordingly, the initial orders which were made on 11 May 2007 by Nicholson J will be varied so as to both extend the scheme and to provide for additional reporting. 17 The orders that I make will be in accordance with the minute which has been provided by ASIC and that includes liberty to apply and provision for the costs of ASIC in relation to this motion (including any reserved costs) to be costs in the winding up. 18 I order as follows: For the purposes of these orders the terms defined in the orders made on 11 May 2007 have the same meaning where those terms are used here: 1. Effective from the date of this order, the orders made 11 May 2007 be amended as follows: a. In paragraphs 4.2 the number 24 be deleted and the number 36 be inserted in its place. b. In paragraph 4.6 at the end, the following sentence be added: "The quarterly reports from the first plaintiff to Investors on the progress of the Scheme shall address each of the following subjects: i. The progress achieved in the period since the last report including: 1. Development work; 2. Environment issues; 3. Approvals; and 4. Pre-sales and terminations. ii. The completion of key milestones by reference to a project timeline chart which includes: 1. Constructions works; 2. Pre-sales; 3. Settlement of lot sales; 4. Repayment of debt; and 5. Payment of distributions to investors. iii. The financial forecast for the Scheme to completion in current circumstances and by comparison to the Information Memorandum. iv. Key elements of the financial forecast including: 1. Costs and revenue changes (both actual and forecast); and 2. Key risks to costs and revenues and their potential impact. v. The progress of lot sales. vi. Sensitivity analysis tables. vii. Scheme finances including: 1. The status of each finance facility relevant to the Scheme, including the progress of and anticipated out comes expected for: approvals, reviews, variations, changes to limits, levels of funds drawn down; and 2. Identification of all covenant breaches. viii. Management changes and changes to agreements with related parties." 2. There be liberty to the parties including the Supervisor to apply on 48 hours notice. 3. The Defendant's costs of this motion including any reserved costs be costs in the winding up of the Scheme. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.

Associate: Dated: 8 May 2009 Counsel for the Plaintiffs: WC Zappia

Solicitor for the Defendant: Australian Securities and Investments Commission