DISCRETION
17 The Court has discretion as to whether to order the winding up of the Scheme in the circumstances. The issue which senior counsel for the plaintiff, and in a neutral way counsel for the Trustee, addressed was principally whether there was utility in making the orders which I made where the Court had already appointed the Trustee as trustee of the bankrupt estate of McFarlane. There is no suggestion that the Trustee has not acted expeditiously and competently in the administration of the bankrupt estate. Nor is there any suggestion that he will not continue to do so.
18 However, there are several factors which influenced me to make the orders which I made notwithstanding those circumstances.
19 The first, and principal, factor derives from the fact that the principal potential source of funds either to the investors in the Scheme, and possibly more generally to the creditors of the estate, is a cause of action or causes of action against McFarlane's bankers, or others involved in the administration of the funds received. It is common ground that such a cause of action, if available, is likely to be the principal avenue of further funds becoming available either to the investors in the Scheme or to the estate. That is because it now appears that, at least to a very significant degree, McFarlane did not invest funds deposited with him but applied them to his own purposes, so that either they have been dissipated or are no longer traceable.
20 From the point of view of the Scheme investors, presumably the potential cause of action involves exploring whether McFarlane's bank which conducted the trust account, or some other entity, was or had reason to be aware of the general nature of the Scheme, in particular the source of funds deposited by McFarlane, and somehow acted so as to permit those funds to be applied by McFarlane in ways other than those contemplated by the investors and to his own benefit, in circumstances where that bank, or those others, were delictual and so may be accountable for the investors' losses or some of them. That is obviously a very general expression of a potential line of investigation of a possible cause of action. It is not intended to indicate that such a cause of action may or may not exist.
21 The Trustee of the estate must attend to the interests not simply of the investors in the Scheme, but to other creditors of the estate. He has sought legal advice as to whether the estate itself might have a cause of action against the relevant bank or against others. Whether such a claim might be based upon similar grounds possibly available to the Scheme investors, or different grounds, is unclear.
22 However, in my view, the Liquidators of the Scheme would have a more refined and clearer focus in investigating such a potential cause of action than the Trustee, whose duty is not simply to the investors in the Scheme but to the creditors of the estate generally. Moreover, I perceive a possible difficulty confronting the Trustee that any general cause of action available to the estate on behalf of all its creditors would be on behalf of the estate, so that the Trustee would be faced with bringing such a claim as if he were standing in the shoes of McFarlane. There is clearly a significant potential obstacle to such a claim which would probably not be faced by the Liquidators on behalf of the investors in the Scheme. The latter point was only briefly adverted to in the course of submissions. I mention it without placing too much weight upon it. In my view, the investors in the Scheme have a different and somewhat more refined basis for exploring a claim against the bank or others than does the Trustee, as the Trustee is more widely accountable to all creditors of the estate.
23 I appreciate that the Trustee may continue to explore what assets are available to the estate of McFarlane (including possible causes of action) and could apply to the Court for directions if he discerned at any point that he did have a possible conflict of interest between attending to the interests of the creditors in the estate generally, and to the group of creditors in the estate who represent investors in the Scheme. However, it is important if such potential causes of action are to be investigated, that the avenues of investigation be explored as promptly as practicable. In my view, it is preferable that the Trustee not be put in the position by the Court where he is taking action which may focus on a cause of action available only to some creditors of the estate.
24 Secondly, I have taken into account that there was no direct opposition to the winding up of the Scheme and to the appointment of the Liquidators. Although the Trustee did not formally acknowledge the existence of the Scheme, he did not contend that there was no such scheme or that there was not, or may not have been, at least two classes of creditors of the estate: investors in the Scheme on the one hand, and McFarlane's personal creditors, including his trade creditors, on the other. If that is the case, he accepts that at some point there is potential for the interests of those two groups of creditors to conflict. Quite properly, he raised for the Court's consideration whether at present that potential conflict was such as to warrant the incurring of the additional expense which must necessarily flow from the winding up of the Scheme and the appointment of the Liquidators. However, the fact that it would have been unwise, if not unfair to the Trustee, to have appointed the Trustee also as the liquidator of the Scheme once the decision had been made to wind it up, provides sufficient reason to indicate why it is appropriate to have made the orders at the time they were made.
25 I note that ASIC, having been served with the application, has adopted a neutral position on the application, albeit because it was itself insufficiently informed as to the nature of the Scheme to adopt a positive attitude one way or the other to the application of the plaintiff.
26 Thirdly, I have taken into account that, although not all members or potential members of the Scheme have been identified, a significant number of them have positively expressed support for the orders made, and a significant percentage of them in terms of value (in excess of 50 per cent) have done so. The remainder have not been fully identified, or have chosen to express no view in support of or in opposition to the proposed orders.
27 I do not consider that the relative powers of the Trustee or of the Liquidators are so different as to have influenced the exercise of the discretion. There was some debate about that topic, but on reflection the different statutory sources of their respective potential investigative powers did not operate as an indication or counter-indication as to whether the discretion should be exercised as it was.
28 Finally, I note that, notwithstanding the risk of the duplication of costs, the Court will expect the Trustee (as he has indicated he will) and the Liquidators (who had not had an opportunity to formally express such a view to the Court) to cooperate in their respective roles so as to minimise the degree of duplication in the performance of their respective tasks. Obviously, the Liquidators' focus will be upon exploring the availability of the potential cause of action referred to. To the extent to which it would not be inconsistent with the interests of the investors in the Scheme, the Liquidators will no doubt keep the Trustee informed of those investigations. In the event that either the Trustee or the Liquidators become concerned about inappropriate or unnecessary duplication of costs, they may seek directions from the Court.
29 I note the difficulty which the orders made sought to address regarding the possible inter-mingling of investors' funds and personal funds of McFarlane. That concern was properly raised by counsel on behalf of the Trustee. If, as is possibly the case, the McFarlanes Trust Account was used for purposes beyond the deposit of funds received by him from investors in the Scheme, there may well be difficulties in identifying the separately sourced funds or their application. I endeavoured to accommodate that circumstance by the concluding part of Order 7 defining the Scheme property. It may have to be further considered. However, even if the McFarlanes Trust Account (or the bank account into which investors' funds were deposited) was used for the deposit of funds from other sources or if it was used for the legitimate application of funds within it, I did not consider that was a reason why either I should not determine that there had been a pooling of investors' funds or should not exercise my discretion upon my findings to wind up the Scheme and to make the orders which were made.
I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.