McPharlin, in the matter of United Investments Trust (in liq) [2014] FCA 506

REASONS FOR JUDGMENT 1 On 7 May 2014, I made an order pursuant to s 480(c) of the Corporations Act 2001 (Cth) (the Act), that the plaintiff Hugh Lachlan McPharlin as liquidator of the managed investments scheme known as the United Investments Trust (the Scheme) be released as liquidator of the Scheme. 2 That order completed the plaintiff's role as liquidator of the Scheme, and effectively brought its administration to an end. It also had the effect of discharging the plaintiff from all liability in respect of any act done or default made by him in the administration of the affairs of the Scheme: see s 481(3) of the Act. 3 I indicated that I would publish brief reasons for making that order. These are my reasons for doing so. I have had the benefit of the helpful submissions of counsel for the plaintiff in support of the application. 4 The Scheme was established on 12 July 1999 as a discretionary trust. From July 2002, it operated as a fixed unit trust, contrary to the terms of the trust deed. It was clearly an unregistered managed investment scheme contrary to s 601ED of the Act. 5 The corporate trustee of the Scheme was Jetsby Pty Ltd (Jetsby) and at relevant times its directors were Terry Loveday and James Balacco. The investors in the Scheme, called contributories, initially applied funds which were invested in shares, derivatives and other equities of other companies. The Scheme activities escalated from about mid 2001 with apparently greater risks than the initial more modest investments. Nearly all of the moneys invested by the contributories in the Scheme were lost in connection with speculative overseas investments in New Zealand and in the United States of America. 6 In early September 2002, the directors of Jetsby approached the Australian Securities and Investments Commission (ASIC) with concerns about the overseas investments Jetsby had made on behalf of the contributories. As a result of ASIC's investigation into the Scheme, the Court made an order on 13 September 2002 that the Scheme be wound up and that the plaintiff be appointed its liquidator, and that he could exercise such functions as powers is set out in Chapter 5 of the Act as he would be entitled to exercise if the Scheme were a company, subject to necessary modifications. 7 The plaintiff has conducted the liquidation of the Scheme in an apparently appropriate way. The details of its administration had been exposed in his affidavits. He has collected what appear to be the only available assets of the Scheme, cash deposits of some $176,000. He has communicated fully with the contributories, both directly, and from October 2002 through the Committee of Inspection established at a meeting of contributories. He has appropriately consulted the Committee of Inspection which has supported him in the administrative decisions he has made, and now supports him in the application for the completion of the winding up of the Scheme. He has advertised to identify any creditors of the Scheme, and having done so, has determined that there are no creditors entitled to participate in the available funds. 8 Having collected the available funds, subject to one matter to which I shall refer below, the plaintiff applied to the Court and obtained an order pursuant to s 485(2) of the Act dealing with the adjustment of rights between the contributories of the Scheme, and pursuant to s 488(2) of the Act to distribute the surplus of $150,000 (after payment of his expenses) to the contributories in accordance with the basis of adjustment which he had proposed and in accordance with a schedule to the order then made. The reasons for making those orders appear in the decision of Besanko J in McPharlin, in the matter of United Investments Trust (in liq) [2013] FCA 635. I have taken much of the recital of facts in these reasons from that judgment, and that those facts are also amply established by the affidavit evidence relied upon by the plaintiff on this application. 9 It is clear the plaintiff has pursued available resources and properly accounted for them. The basis of his remuneration has been approved by the Committee of Inspection on behalf of the contributories, and the amount of it disclosed to the contributories and to the Committee of Inspection: see rr 7.5 and 7.6, Federal Court (Corporations) Rules 2001. There is only one type of potential asset, namely the prospect of the plaintiff pursuing either from Jetsby or from its directors some part of the moneys invested by Jetsby under the directors', or pursuing the investments where they have been made overseas, with a view to exploring the extent to which there may be some recoverable funds from them. That covers the vast majority of the funds of the contributories. 10 I am satisfied that the plaintiff has considered whether to pursue such a claim against Jetsby and its directors, and has made a sound commercial judgment that he should not do so. On the material before me, Jetsby is a company with no significant assets. It is also apparent that Loveday and Balacco have no assets which might be available to meet any judgment against them. They were each prosecuted for their roles in carrying on an unregistered management investment scheme and were convicted. The plaintiff has expressly considered the prospect of such a legal avenue for the recovery of lost assets and has determined that it would be uneconomic and, in essence, both fruitless and expensive. 11 The plaintiff has also considered the prospect of pursuing recovery of the invested assets nonetheless/ Again, he is satisfied that there is good commercial reason why it would not be economic to do so, having regard to the prospects of recovery and the costs involved in pursuing what might be an entirely fruitless set of proceedings. He has consulted the Committee of Inspection on that. On behalf of the contributories, the Committee of Inspection agrees that such further investigation is not worthwhile. 12 There has been no objection to the order made by any creditor or putative creditor, contributory or other interested person. 13 I am satisfied that the plaintiff has made an appropriate judgment not to pursue those avenues in the circumstances. 14 Finally, I record that I am also satisfied that all the procedural requirements under the Rules have been complied with. It is not necessary to record specifically the steps that have been taken. I note that, upon the making of the order, the payments of fees and disbursements to the plaintiff for his remuneration in accordance with the hourly rate approved by the Committee of Inspection will mean that there will be no unpaid costs, charges or expenses. I note that there is a statement of the financial position of the Scheme, and a summary of the liquidator's receipts and payments in winding up the Scheme in the supporting affidavit material. Having regard to that material, and the absence of any objection to the release of the plaintiff as liquidator of the Scheme, in my view, it is unnecessary to further require a report from the accounts of the liquidator to be prepared by an auditor. 15 In all the circumstances, in my view, it is clear that the plaintiff was entitled to the order which was made for the reasons which appear above. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.