Trust Company (Nominees) Limited v Angas Securities Limited, in the matter of Angas Securities Limited

Federal Court of Australia|2014-12-24|Before: Mr AJ, Mr JA, Yates J

Pursuant to s 283HB(1)(g) of the Corporations Act 2001 (Cth) (the Act), the defendant prepare a three-way cash flow model in respect of its business, incorporating its profit and loss, its balance sheet and its cash flow projected over the period up to and including 31 December 2015.
Pursuant to s 283HB(1)(g) of the Act, the secured properties supporting loans 329, 522, 91, 308, 372 and 380 in the defendant's loan book be revalued in accordance with the following protocol: (a) independent values are to be selected jointly by the plaintiff and the defendant, being valuers who have not, in respect of a given property, valued that property in the last five years; (b) the selected valuers are to be jointly instructed by the plaintiff and the defendant; and (c) the plaintiff and the defendant are to jointly liaise with the instructed valuers, including by way of joint participation in any telephone calls and correspondence with valuers during the valuation process.
The protocol referred to in Order 2 may be varied by agreement between the plaintiff and the defendant.
Liberty be granted to the parties to apply on reasonable notice.
The originating process be adjourned for mention and, if necessary, for the purpose of making directions, at 9.30 am on 3 February 2015. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE MATTER OF ANGAS SECURITIES LIMITED (ACN 000 154 441) BETWEEN: THE TRUST COMPANY (NOMINEES) LIMITED

JUDGE: YATES J DATE: 24 DECEMBER 2014 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 The plaintiff seeks a number of orders under s 283HB(1) of the Corporations Act 2001 (Cth) (the Act).

Introduction 2 The plaintiff is the trustee for debenture holders under a deed dated 19 July 2000 (as amended), which it has entered into with the defendant as the issuer of debentures. The debentures have been issued in accordance with a prospectus, which was issued under Part 6D.2 of the Act. 3 The prospectus expired on 10 December 2012. The defendant does not currently have a "live" prospectus. It has continued to issue debentures to existing investors, but not to new investors. As at 5 December 2014, the defendant's liabilities to persons holding debentures, including principal outstanding and accumulated interest, were $238.13 million. 4 The defendant has granted a first ranking floating charge dated 19 July 2000 over its undertaking and all its real and personal property and assets in favour of the plaintiff to secure the payment of monies owing to debenture holders. The charge is registered on the Personal Property Securities Register. 5 One of the defendant's main activities is lending funds secured by registered mortgages over real property. The defendant is also the responsible entity of two managed investment schemes. 6 In relatively recent times, the plaintiff has formed significant concerns that the defendant may not have sufficient available assets to meet its obligations to all debenture holders when they fall due. The plaintiff is concerned that there is a risk of unequal treatment between debenture holders, while these concerns remain unresolved. These concerns are identified and explained in an affidavit sworn by Anna O'Sullivan on 16 December 2014. Ms O'Sullivan is a General Manager - Regulated Fiduciary Services with responsibility for the activities of the plaintiff as trustee. These concerns are also dealt with in an affidavit by Philip Patrick Carter, a partner in PPB Advisory who has had the primary responsibility for preparing a report by PPB Advisory to which I will refer in greater detail below. 7 Ms O'Sullivan's affidavit deals with the relationship between the plaintiff and the defendant, particularly from late October 2012, when the Australian Securities and Investments Commission (ASIC) wrote to the plaintiff and asked it to seek certain information from debenture issuers for whom the plaintiff acts as trustee. This request was made in the context of receivers and managers having been appointed to Banksia Securities Limited, a debenture issuer based in Kyabram Victoria, which had a significant debenture book. 8 It is not possible for me to detail all the matters canvassed in Ms O'Sullivan's affidavit. I will only refer to the significant events she records, and only then to give context to the reasons why the plaintiff seeks orders which, for a limited time (until 20 February 2015), would place restrictions on the defendant paying any money to debenture holders in respect of debentures issued under the trust deed, and from borrowing, including by way of accepting investments in debentures issued under the trust deed or reinvesting existing investments in debentures issued under the trust deed. The plaintiff also seeks orders in relation to the provision of information by the defendant. I should add that some of the financial material and analysis referred to by Ms O'Sullivan, and also by Mr Carter, has been overtaken by new data. I have endeavoured to indicate where that has happened in the summary that follows.

Factual background 9 In November 2012, the plaintiff appointed 333 Advisory to conduct "an independent business review, involving a limited strategic and financial review" of the defendant. The plaintiff also wrote to the defendant to confirm that the defendant would be required, under the trust deed, to undertake additional reporting requirements, specifically a weekly liquidity report and a monthly issuer report. 10 On 3 April 2013, 333 Advisory issued its report in final form. Based on that report, the plaintiff wrote to the defendant on 5 April 2013 expressing its concern as to whether the defendant's property would be sufficient to repay its liabilities to debenture holders as those liabilities fell due, and its concern as to whether the defendant was in breach of the trust deed, in particular whether the defendant had conducted its business in a proper and efficient manner. In its letter, the plaintiff also sought the defendant's agreement to a reporting protocol and a series of undertakings. One of the undertakings concerned the revaluation of a number of properties over which the defendant held security for loans, focusing on properties which 333 Advisory had recommended for revaluation. 11 Not all these matters were agreed to. Nevertheless, in August 2013, the plaintiff and the defendant agreed on a revised reporting protocol and undertakings, under which the defendant would provide enhanced reporting. Under this protocol, a number of properties were to be revalued, as agreed between the plaintiff and the defendant in June 2013. 12 Although the plaintiff had initially requested a greater number of properties to be revalued, the defendant provided reasons for excluding some of them, given pending discharges, refinancing or sales. 13 The revaluations were undertaken by valuers engaged and instructed by the defendant. The valuation reports were sent to the plaintiff (the revaluation reports). 14 In the period from 24 April to 10 December 2013, the plaintiff and defendant had also engaged in correspondence in relation to the plaintiff's proposal to engage three separate accounting firms to review and advise the plaintiff in relation to the revaluation reports. The plaintiff and defendant were unable to agree on that issue. Consequently, on 18 December 2013, the plaintiff commenced proceedings in the Victorian District Registry of the Court to seek directions under s 283HA of the Act and orders under s 283HB(1) for the appointment of an independent accountant to review the revaluation reports. 15 The proceeding was settled on terms agreed between the parties. One of the terms was that the defendant would appoint its auditor, Deloitte Touche Tohmatsu (Deloitte), to conduct a review of the revaluations in accordance with the scope and procedures set out in the terms of settlement. In undertaking the review, Deloitte was to consult with KordaMentha, the plaintiff's nominee. Deloitte was required to prepare a report: setting out the results of the revaluation review "including any specific or general impairment provisioning, which in the opinion of Deloitte, may be required to be recognised by [the defendant] …"; and opining "whether the property of [the defendant] is sufficient to meet [the defendant's] liabilities when they fall due if any additional specific or general provisioning is required by the [Deloitte report] in excess of $4 million". 16 It was agreed that Deloitte would provide a draft report by 30 April 2014. Further, under the terms of settlement, Deloitte was to provide the plaintiff with an updated liquidity and going concern analysis by 15 April 2014. 17 On 15 April 2014, Deloitte provided the plaintiff with the liquidity and going concern analysis (the Deloitte liquidity report). 18 On 2 May 2014, Deloitte issued its draft report with respect to the revaluation of the properties. The report called for six properties to be further revalued. One of these properties was "Fernhill", at Mulgoa in New South Wales. According to the plaintiff, the report did not contain an opinion as required under the terms of settlement. A further draft of the report was submitted on 12 December 2014. 19 Between 2 May and 28 August 2014, the plaintiff and the defendant (or their representatives) corresponded on, and conducted a number of meetings concerning, a number of matters such as queries arising from the Deloitte liquidity report, information in relation to properties not the subject of the revaluation review, and a revised reporting protocol. The revised reporting protocol was subsequently agreed upon. It required the defendant to provide, in addition to other previously agreed reports, a monthly cash flow report. 20 On 30 September 2014, the defendant issued its Annual Report for the financial year ended 30 June 2014 (the 2014 Annual Report). The 2014 Annual Report disclosed a number of matters of concern to the plaintiff: The auditors - Deloitte - noted "a material uncertainty that may cast significant doubt about [the defendant's] ability to continue as [a] going concern and therefore, [the defendant] may be unable to realise its assets and discharge [its] liabilities in the normal course of business". It should be noted, however, that the material uncertainty relates, in part, to the fact that the plaintiff's independent business review remains incomplete. A note in materially the same form was included in the defendant's half year report dated March 2013, its 2013 Annual Report and its half year report dated March 2014. It should also be noted that this note did not cause Deloitte to modify its audit opinion. The defendant's total equity had reduced from $15.9 million (reported in the 2013 Annual Report) to $10.2 million. Impairment expenses had increased from $4.3 million (reported in the 2013 Annual Report) to $6.9 million. A net after tax loss of $5.3 million had been incurred, occasioned by a material reduction in interest revenue and increased impairment expenses to loan assets. There was a large number (both in quantum and value) of second ranking secured loans from entities owned or controlled by certain of the defendant's directors and shareholders. 21 On 4 November 2014, the plaintiff wrote to the defendant, expressing its concerns arising from the 2014 Annual Report and raising the following additional concerns: An increase in arrears from 30% of the defendant's loan portfolio at 30 June 2014 to 35% of its portfolio as at 30 September 2014, as disclosed in the most recent monthly issuer report. A decrease in new investments in debentures compared to forecasts contained in the most recent monthly cash flow reports. An increase in redemption requests for debentures compared to forecasts set out in the most recent monthly cash flow reports. The defendant was and remains only able to raise new funds from existing debenture holders as it does not have a current prospectus. The plaintiff was not aware of what, if any, disclosure the defendant had made to debenture holders regarding its financial position since 30 June 2014. 22 In its letter, the plaintiff advised that, in light of its concerns, it intended to engage PPB Advisory to assist it in reviewing these matters. 23 On 11 November 2014, Channel 7 in Adelaide broadcasted a two-part episode on its Today Tonight program regarding the defendant and a particular borrower in the defendant's loan portfolio. Without going into details, the program raised concerns about the defendant's financial viability and certain aspects of its conduct, particularly in relation to a loan portfolio property at Mulgoa and the valuation that had been obtained for that property. I infer that this is the "Fernhill" property to which I have referred. The defendant has rejected the accuracy of statements made in the program. However, the plaintiff's concern is not the accuracy of the reporting, but the negative publicity that the program may have had on the defendant's debenture investment and redemption rates, and hence on its cash flow and liquidity position. 24 In this connection, the defendant's weekly liquidity reports for the four weeks ending 5 December 2014, indicate a material decline in new investments by debenture holders and an increase in redemption requests in respect of maturing debentures. 25 On 17 November 2014, the plaintiff engaged PPB Advisory to report on whether: the defendant's property will be sufficient to repay debentures when they fall due; and whether the defendant is likely to be solvent throughout the period to 30 June 2015. 26 As at 5 December 2014, and based on materials then provided to it, PPB Advisory was unable to confirm that the defendant's property will be sufficient to repay the amounts it owes debenture holders, as and when those amounts fall due. 27 However, on that day, the defendant wrote to the plaintiff stating that: the defendant was not in breach of the trust deed and retained sufficient cash at bank and equity to meet its obligations to debenture holders; the defendant had obtained the six further revaluations required by the draft Deloitte report, with each valuation showing an increased value than that shown in the draft Deloitte report; and a number of related party mortgages identified in the 2014 Annual Report had been or were in the process of being discharged. 28 Notwithstanding the defendant's position (which I discuss in greater detail below), the plaintiff continues to have concerns about: the defendant's cash flow and liquidity; the defendant's net tangible assets; the defendant's equity buffer; and the conduct of the defendant's business. 29 On 12 December 2014, the plaintiff received a report from PPB Advisory in relation to the defendant's financial position. Amongst other things, the report noted that: PPB Advisory had been unable to confirm that the defendant's property will be sufficient to repay debentures when they become due; it may no longer be appropriate for the plaintiff to regard the defendant as a long-term viable manager of the debentures; recent trading losses and a decline in the quality of the defendant's loan portfolio have the potential to erode the defendant's relatively low equity buffer; the defendant manages its liquidity in the short-term (three months) only, which is inadequate given the long-term maturity profile of the debentures; the defendant's management of its cash flow and liquidity is inadequate given the quantum of the debenture holders' funds invested in loans to borrowers who appear to endure a very high level of arrears; and the defendant is subject to a number of material key risks which, if they materialise, will raise significant doubt about its ability to meet its liability to debenture holders as those liabilities fall due. 30 The plaintiff's concern about whether the defendant is presently able to satisfy its liabilities to debenture holders, is illustrated by the fact that, as at 5 December 2014: the defendant's reported value of its loan portfolio was $190.673 million; the defendant's cash at bank was $21.05 million; the defendant's liability to debenture holders was $238.13 million; and a sale of the defendant's loan book at full face value, plus its current cash reserves, would be insufficient to meet the defendant's liabilities to debenture holders. However, this equation does not take into account the defendant's other assets available to debenture holders. PPB Advisory noted in its report that, in the four months to 31 October 2014, the surplus of the defendant's assets over its liabilities to debenture holders was $27.7 million. 31 On 12 December 2014, the plaintiff received a further draft of the Deloitte report. Amongst other things, that draft records that the revaluation of the "Fernhill" property at Mulgoa does not comply with the valuation instructions provided to the valuer. The loan outstanding on that property, as at 30 April 2014, was approximately $21.824 million. 32 On 15 December 2014, the defendant provided the plaintiff with a report from Edwards Marshall. This report appears to have been prepared on the same scope of engagement as the PPB Advisory report. I will refer to the findings of that report in greater detail below.

The plaintiff's present concerns 33 At the present time, the defendant has provided certain undertakings to the plaintiff, including that it will not make any payments to debenture holders other than in respect of certain permitted payments. Those undertakings remain in effect until the giving of judgment in respect of the plaintiff's present application.

Cash flow and liquidity 34 Although in [30] I noted that, as at 5 December 2014, the defendant had approximately $21 million in cash at bank, the plaintiff says that the defendant's actual available cash, at that date, was (approximately) $5.8 million, after taking into consideration the defendant's Minimum Liquid Asset Requirement of $11.4 million (required to be preserved in cash or cash equivalent assets under the trust deed), and $4 million, which, on 26 November 2014, the defendant undertook to set aside to meet its then liabilities to debenture holders which remained unpaid because of the undertakings which the defendant had provided at the plaintiff's request. 35 The most recent monthly cash flow report indicates that, by 30 June 2015, the defendant's cash position will improve by $19.2 million. It also indicates that the defendant anticipates receiving $2.49 million in new investments in debentures per month. This last-mentioned forecast is based on an assumption that the monthly average of total new investments in debentures for the 12 months ended 31 July 2014, will remain constant up to 30 June 2015. However, the defendant has acknowledged that this assumption is an overstatement, and has proposed a revised assumption of $1.516 million, based on the average of new investments received in the period 1 February 2014 to 30 November 2014. 36 The Edwards Marshall report says that an assumption of $1.35 million per month is appropriate, based on an average of new investments received in the period 1 April 2014 to 30 November 2014. It is necessary to look closely at this assumption. In November 2014, the actual amount of new investments was $870,000 although as at 16 December 2014, the amount of new investments was $1.296 million, an average of $1.083 for the two months. 37 In the four months ending 28 February 2015, the Edwards Marshall report assumes that $5.4 million in new investments will be received (4 x $1.35 million). This assumption is incorporated into its cash flow forecast. This forecasts that, as at 28 February 2015, the defendant will have available liquidity of $176,827. 38 In his affidavit, Mr Carter has expressed the opinion that this is "an extremely thin forecast liquidity margin for February 2015, given the extent of [the defendant's] current liability to debenture holders". Perhaps more importantly, Mr Carter has given evidence that, if one takes the actual new investment of $870,000 for November 2014, and applies the Edwards Marshall forecast of $1.35 million for December 2014, January 2015 and February 2015 then, as at 28 February 2015, the defendant will be in breach of its minimum liquid asset requirements under the trust deed. However, this conclusion must now be seen in light of recent financial information, not available to Mr Carter at the time he made his affidavit. This new material shows that this particular conclusion is not now correct. I refer, in that regard, to the defendant's present cash position discussed at [106] below, which has improved significantly having regard to the repayment of certain loans in December 2014. 39 The PPB Advisory report says that an assumption of $1 million per month is more appropriate. This is because, after publication of the 2014 Annual Report on 30 September 2014, the new investment rates following the disclosure of currently available financial information was $1.142 million (October 2014) and $870,000 (November 2014), an average of $1 million per month. A larger sample, from the start of the current financial year, until and including November 2014, also gives an average rate of new investment of $1 million per month. 40 In his affidavit, Mr Carter said that, if one takes the actual new investment of $870,000 for November 2014, and applies the PPB Advisory forecast of $1 million for December 2014, January 2015 and February 2015, then total new investments will be $3.87 million, which is $1.53 million less than the $5.4 million which has been forecasted in the Edwards Marshall report. As at 28 February 2015, this would put the defendant in breach of its minimum liquid assets requirements under the trust deed by $1.35 million. Once again, this conclusion is not now correct in light of the defendant's improved cash position. 41 With respect to redemptions and rollovers: Debentures to the value of $117.8 million will mature in the eight month period to 30 June 2015. The defendant expects that a total of $23.487 million worth of debentures will be redeemed between 1 December 2014 and 30 June 2015. 42 The expected redemptions are based on an assumption that, on maturity, 20% of the debentures will be redeemed and 80% will be rolled over. The defendant's redemption rates have remained relatively steady over a long period, signifying that its debenture holders have remained loyal. However, the plaintiff is concerned that this assumption might not be valid in light of the bad publicity received from the Today Tonight program (see [23] above) and that the rate of redemptions might increase in the period to 30 June 2015, a risk which is not contemplated by the defendant's cash flow and liquidity projections. 43 A sensitivity analysis performed by the plaintiff indicates that if, in the period to 30 June 2015: rollovers decrease to 75%, the defendant's liquidity will reduce by approximately $5.89 million; and rollovers decrease to 70%, the defendant's liquidity will reduce by approximately $11.78 million. 44 Another pertinent matter affecting the defendant's cash flow and liquidity, is the cash flow it generates from loan discharges. The latest monthly cash flow report forecasts that the defendant will receive approximately $15.204 million net cash inflow from loan discharges in the eight month period to 30 June 2015. The plaintiff says, however, that these inflows are reliant, in part, on non-performing loan assets being realised. 45 In its report, PPB Advisory noted that: it had been informed by the defendant of a revised loan discharge profile; previously scheduled discharges have failed to materialise; over 25% of the loan portfolio (by value) is five or more years old; and 40% of the defendant's loan portfolio (by principal value) is subject to the control of external administrators or the defendant in its capacity as mortgagee in possession, and may take an extended period of time to realise. 46 Thus, from the plaintiff's perspective, there is considerable uncertainty regarding the timing of forecasted loan discharges. Further, the plaintiff has specifically identified a number of non-performing loans where receivers and managers have been appointed to the property or the defendant is the mortgagee in possession of the property and where the secured property has been marketed for sale over an extended period of time, without success, or the property has been subject to a conditional sale contract, where the sale has fallen through. These loans have been incorporated into the defendant's cash flow projections. 47 The Edwards Marshall report also assumes that, in order to maintain its necessary level of liquidity throughout the forecast period, only 91% of amounts received as principal repayments during the period to 31 December 2015 will be advanced as new loans. Mr Carter has observed that, based on the defendant's Loan Schedule for the period July 2012 to November 2014, the defendant has taken steps to curtail its lending. New lending by the defendant has declined from $56.9 million for the year ending 30 June 2013 to $42.9 million for the year ending 30 June 2014, to $450,000 for the 5 month period ending 30 November 2014. 48 Mr Carter says, however, that "the majority of loans shown in the Loan Schedule are to existing … exposures rather than to new third party borrowers …". He exemplified this observation by reference to a particular borrower whose loan of $4.76 million was "discharged" and lent as a "new" loan in November 2012, September 2013, February 2014 and June 2014. 49 From a cash flow perspective, this does raise significant doubts about the defendant's cash receipts over the forecast period to 31 December 2015. If an expected discharge does not occur as expected, then the net cash inflow effect on the Edwards Marshall forecast is 9% of the expected discharge. The January 2015 discharges in the cash flow forecast are $13.14 million, which results in a positive cash flow of $1.183 million by 28 February 2015. Taking the loan of $4.76 million described above as an example, if that loan is not repaid in full in January 2015, as assumed, then the defendant's total liquidity will decline by $428,000 by 28 February 2015. 50 Mr Carter has given as another example, a loan of $3.42 million. In a Loan Discharge Portfolio as at November 2015, which has been provided by the defendant to PPB Advisory, the discharge date for this loan was advised as March 2015. However, the Edwards Marshall cash flow forecast treats this loan as being discharged in January 2015. Bringing forward the discharge date "improves" the defendant's total available liquidity as at 28 February 2015 by $307,800 (9% of $3.42 million). 51 In light of these matters, the plaintiff is concerned that the defendant may not hold sufficient liquid assets during the eight month period to 30 June 2015, to meet requests for redemptions of debentures in the event that: new investments in debentures decline further or even remain the same; redemption requests in respect of debentures increase from their current levels; or the defendant experiences delays in discharging its loan assets as forecasted.

Net tangible assets 52 In a letter to the plaintiff dated 12 November 2014, the defendant referred to an increase of its funds under management as demonstrating the continued success and profitability of its business. However, the debenture holders do not have recourse to assets held by the defendant in the managed investment schemes of which it is the responsible entity. 53 Further, PPB Advisory does not consider that the contingent fee income that the defendant receives as responsible entity is material to the defendant's financial position. In any event, the investors in those funds have the power to replace the defendant as responsible entity. 54 According to the monthly issuer report for the month ended 30 November 2014, the defendant's loan portfolio had a reported value of $190.67 million. However, $76.87 million of those loan assets were overdue. This represents 40% of the defendant's total loan portfolio as at that date. 55 There is also evidence that the defendant keeps a number of technically non-performing loans "within terms" by rolling over or extending the loans where the loan-to-valuation ratio permits an increased level of debt. In some circumstances, these arrangements (restatement arrangements) incorporate prepaid and capitalised interest. It seems to be the case that the defendant has not received cash proceeds from these arrangements. 56 In light of these arrangements, the plaintiff is concerned that: the defendant's reported loan arrears may be understated, because loans subject to restatement arrangements are not recognised as non-performing and do not carry any arrears, even though the borrowers may not be able to actually service those loans; the defendant's loan discharges (cash receipts) and loan settlements (cash outflows) may not be occurring as forecasted, contributing to uncertainty in the defendant's monthly cash flow reports; and profits being reported by the defendant in the current financial year are, to an extent, comprised of prepaid interest accrued pursuant to a restatement arrangement in respect of which no actual cash has been received. 57 Further, on the plaintiff's analysis, the defendant holds a substantial number of loan book assets in its portfolio that it has been unable to realise for an extended period of time. I have briefly referred to these at [46] above. These loans are identified at paragraph 159 of Ms O'Sullivan's affidavit. 58 The plaintiff is particularly concerned that, in light of the extended periods of time that the defendant has taken to realise these assets, the loan-to-valuation ratios may continue to rise in circumstances where the valuations of those properties may no longer be accurate. Further, according to the plaintiff, the current realisable value of a number of those properties cannot be assessed unless an updated valuation is obtained. It is apparent, however, that, with respect to a number of the properties identified in paragraph 159 of Ms O'Sullivan's affidavit, the loan-to-valuation ratios are extremely high and, in some cases, substantially in excess of 100%. 59 The plaintiff points out that the purpose of the Deloitte report was to provide for an agreed review of the defendant's net tangible asset position, based on reliable information in relation to the defendant's secured properties. The terms of settlement to which I have referred (see [15] above) were that Deloitte would conduct a review with a specified scope and would instruct valuers to revalue the relevant security properties, so that Deloitte could express the opinion that was sought. 60 The plaintiff says that, as events have transpired, Deloitte has not provided the opinion that was sought and, in fact, did not itself commission new valuations. Rather, the plaintiff says that under the defendant's terms of engagement with Deloitte, to which the plaintiff was not privy, the defendant, not Deloitte, selected, instructed and liaised directly with all valuers for the purposes of Deloitte's review. 61 Of the six properties identified in the draft Deloitte report, four were revalued by the same valuer. Further, the plaintiff says that KordaMentha has expressed serious doubts it about the reliability and relevance of the valuation reports used in the Deloitte report (other than the six properties it said should be revalued), as all those valuations are now in excess of 12 months old. 62 Therefore, the plaintiff is concerned that the valuations obtained for the purpose of the Deloitte report may not be independent, objective or relevant, in the sense that: the relevant valuers may not have been free from influence by the defendant; some of the valuers may not have been free from self-interest in respect of their revaluations of certain properties; and a large number of the revaluations are already in excess of 12 months old. 63 The aggregate value of loans affected by the Deloitte report, and the further loans which the plaintiff has identified (see [46] above), is approximately $91 million, representing 46.6% of the defendant's reported loan portfolio as at 31 October 2014. The plaintiff says that it has not been able to assess the underlying value of those assets for an extended period of time, with reference to updated independent valuations and appropriate accounting review of those valuations to assess impairments.

Equity 64 The plaintiff considers the defendant's current "equity buffer" to be insufficient. The defendant's equity ratio (total equity divided by total assets), assessed by reference to its monthly issuer report for November 2014, is 3.9%. In her affidavit, Ms O'Sullivan said that the plaintiff considers that there is a material and unresolved risk that either or both of the following may occur: The defendant's cash flow projections will not eventuate, for the reasons summarised at [34]-[51] above and it will be required to draw on its current equity buffer in order to meet its liabilities as they fall due. The plaintiff accepts that this observation must now be qualified in light of the defendant's improved cash position as at December 2014: see [106] below. The defendant's net tangible asset position is or may become insufficient to meet its liabilities as they fall due because of the matters referred to at [52]-[63] above, thus eroding the defendant's current equity.

Conduct of the defendant's business 65 The plaintiff is concerned that the defendant has changed its business model and has commenced to "run-off" its debenture loan portfolio. The defendant, however, says that its business model has not changed since July 2010. 66 Despite the defendant's assurances that its loan portfolio is not in "run-off", the plaintiff points to: the defendant's statement in a letter dated 28 August 2014 that "there has been [a] gradual run-off of the debenture fund"; the lack of new lending by the defendant; the lack of a "live" prospectus; and what the plaintiff sees as the progressive and increasing decline in both the amount of debentures on issue and the reported value of the defendant's loan book. 67 Further, the defendant has stated that its cash forecasts should only be prepared on a bi-annual basis and not on a monthly basis because its business is "lumpy" when viewed from month-to-month. These remarks are of concern to the plaintiff who says that the control and active monitoring and management of the defendant's cash flow and liquidity is critical to ensuring that the defendant can meet its obligations to debenture holders, particularly when, in the plaintiff's view, the defendant has a number of "illiquid" or non-performing loan assets in its portfolio. Further, the plaintiff considers the defendant's proposition that a monthly cash flow forecast is not a useful management tool to be "unsatisfactory". The plaintiff says that that proposition "does not reflect the level of management scrutiny of [the defendant's] cash flow and liquidity position expected in light of the substantial sums of Note Holder's [sic] investments with which [the defendant] deals". Moreover, the plaintiff has not as yet received the cash flow report for November 2014, which was due to be provided by 15 December 2014. 68 The plaintiff is concerned that: despite repeated attempts in the past, the defendant has not been able to realise a number of its securities held for non-performing loan assets, including but not limited to the properties referred to at [46] above; the defendant has been unable to realise the properties referred to at [46] above at a value that would discharge the relevant loans; and the defendant has utilised funds from a mortgage investment scheme to co-invest in its debenture-funded loan portfolio, where a number of those assets are now non-performing. 69 The plaintiff is also concerned that the value of the defendant's loans is affected by related party mortgages, which, as at 30 June 2014, represented 32%, by principal, of the defendant's total loan portfolio. The plaintiff is concerned that there are apparent conflicts of interest in the management of affected security properties and loans. 70 Further, a portion of the defendant's monthly cash flows are in respect of restatement arrangements. The plaintiff is concerned that such arrangements may constitute a new investment by the defendant within the scope of the trust deed and may, at least in some cases, breach the permitted loan-to-value ratio stipulated in the trust deed. The plaintiff is also concerned that these arrangements may not have been entered into on "commercially reasonable terms".

Generally 71 For all these reasons, the plaintiff is concerned that there is a material risk that the defendant may not have sufficient assets available to meet its obligations to debenture holders when those allegations fall due and that, if the defendant is permitted to make payments to debenture holders while those concerns remain, there will be a risk of unequal treatment of debenture holders.

The draft Deloitte report 72 A significant concern expressed by the plaintiff is that the valuations obtained for the purposes of the Deloitte report may not be independent, objective or relevant: see [59]-[62] above. This is, in part, due to the fact that, on the plaintiff's case, the defendant, not Deloitte, selected, instructed and liaised directly with all the valuers engaged to undertake the revaluations. 73 The terms of settlement (see [15] above) provided that, for the purposes of the report, and if necessary, Deloitte may commission new independent valuations, provided the valuer was an Approved Valuer as defined in the trust deed. As events transpired, it was Deloitte who required a change to the terms of its retainer with the defendant to provide that it "may recommend that [the defendant] commission new independent valuations". This was because Deloitte did not consider that it should choose a valuer to revalue the relevant properties. 74 Stephen Thomas Harvey, a partner in Deloitte, has deposed that the process for engaging the valuers was as follows: The defendant nominated a valuer from the defendant's valuation panel for each of the six revaluations that were recommended in the Deloitte report. The defendant engaged the valuers. Deloitte Copland Real Estate Advisory was consulted and was satisfied with the qualifications of each nominated valuer. Deloitte received no queries from KordaMentha as to which party had engaged the valuers, until Deloitte received an email from KordaMentha on 23 October 2014 raising that matter as an issue. KordaMentha was aware of the identity of the valuers from at least May 2014, when Deloitte provided a list of the valuers concerned and when KordaMentha requested the opportunity to comment on the chosen valuation firm. I infer that KordaMentha raised no objection with Deloitte as to the valuers that had been selected. 75 It should be noted that the Deloitte report was to consider revaluation reports that the defendant had provided to the plaintiff in respect of 29 loans. Deloitte recommended that, in respect of six valuations, further revaluations be obtained. No substantive issues have been raised in respect of the balance of the reports that had been submitted, although the plaintiff says that at least some of these reports are now older than 1 year. 76 Five of the six further revaluations were provided to Deloitte in June 2014. All reported a higher "as is" valuation than the revaluation reports considered by Deloitte. 77 The delay in obtaining the sixth further revaluation report concerning the "Fernhill" property at Mulgoa appears to have arisen, at least in part, by what the defendant says was "the poor health and prohibitive workload of the affected valuer". The further valuation in respect of "Fernhill" was received by the defendant on 3 November 2014 and provided to Deloitte that day. 78 In its draft report, Deloitte concluded that this further revaluation does not meet an accepted standard for a valuation of that quantum. Deloitte concluded that the report is lacking in market evidence and that the approach, particularly with regard to the added value of buildings and structural improvements, is questionable. Thus, this revaluation remains outstanding. 79 Another significant concern expressed by the plaintiff is that no opinion is expressed in the Deloitte report about whether the property of the defendant is sufficient to meet the defendant's liabilities to debenture holders when those liabilities fall due. 80 Mr Harvey has deposed that the draft of the Deloitte report provided on 12 December 2014 (see [31] above) is finalised, from Deloitte's perspective. It remains subject, however, to consultation with KordaMentha, as required by the terms of settlement. 81 Further, Mr Harvey has deposed that, under the terms of settlement, Deloitte was only required to provide the opinion, referred to above, if any additional specific or general provisioning was required in excess of $4 million. Importantly, the final draft Deloitte report expresses the opinion that no provisioning is required to the carrying value of the loans. Therefore, Mr Harvey says, "the question as to the sufficiency of the [d]efendant's property did not arise".

The Edwards Marshall report 82 As I have noted at [32] above, the Edwards Marshall report appears to have been prepared on the same scope of engagement as the PPB Advisory report. 83 The author of the Edwards Marshall report, Brian Morris, a chartered accountant and registered company auditor, has made a forecast for the defendant for the period to 31 December 2015 in respect of its likely income, expenditure and cash flows for each month from November 2014 to December 2015, and the state of the defendants' affairs at the end of each of those months. 84 This forecast has been derived using a financial model based on the financial model that the defendant has used for the preparation of its budgets for the period ended 31 December 2015. 85 Mr Morris has deposed that his forecast is based on certain assumptions, which include: the reinvestment rate on the defendant's maturing debentures; the amount of new debenture investments that the defendant will obtain each month in the forecast period; the receipt of principal and interest from the borrowers to whom the defendant has advanced funds, including the timing of those receipts; and the amounts that the defendant will relend to new borrowers following the repayment of existing loans. 86 These assumptions were derived by Mr Morris based on his review of the books and records provided to him by the defendant for the purposes of preparing his report, and on his discussions with the directors and officers of the defendant, which he describes in the report. 87 The conclusions of the Edwards Marshall report are that the defendant will have sufficient cash flows to: be able to fund net repayments of debentures of $22 million in the period to 31 December 2015; maintain a loan portfolio that will be in excess of $183 million at 31 December 2015; and exceed its minimum liquidity requirement of 5% of debenture funds at all times during the 2015 year. 88 The Edwards Marshall report stresses that the forecast is predicated on the assumption that the defendant will retain the level of investor support that prevailed in the period prior to 31 October 2014. The report stresses that this necessarily assumes that the defendant does not suffer adverse publicity as a consequence of the plaintiff's appointment of PPB Advisory and the requirement that the defendant cease repaying maturing debenture funds. 89 At [36] above, when summarising the plaintiff's present concerns about the defendant's cash flow and liquidity, I noted that the Edwards Marshall report assumes that the defendant will receive $1.35 million per month in new investments in debentures, based on the average of new investments received in the period 1 April 2014 to 30 November 2014. 90 However, as I have noted, there is evidence that, in the period 1 to 18 December 2014, the defendant received new deposits of $1.296 million. This period post-dates the adverse publicity that might have been generated by the Today Tonight program to which I have referred at [23] above. As at 19 December 2014, Mr Morris deposed that, having regard to the historical levels of new investment received by the defendant during the period when it has not had a prospectus in the marketplace, he remains of the opinion that the assumption that the level of new investments will average $1.35 million is reasonable, although dependent on no further adverse publicity regarding the defendant's performance. In his affidavit of 22 December 2014, Mr Morris did not qualify his opinion. 91 As Mr Morris puts it, it is a matter of judgment whether the new investment level will average $1.35 million per month or $1 million per month, the assumption which PPB Advisory prefers. In the event that new investments average $1 million per month, the defendant's cash flow for the 2015 calendar year will be approximately $4.2 million lower than the Edwards Marshall report forecasts, which will require the defendant to reduce its lending by that amount. I should add, however, that, since the expiry of the prospectus on 20 January 2014, the defendant has received, on average, $1.5 million per month in new debenture investments. 92 At [37]-[40] above, I have referred to Mr Carter's assessment of the defendant's liquidity margin (i.e. the defendant's cash balances in excess of 5% of debentures on issue) as at 28 February 2015. Mr Morris says that Mr Carter's analysis gives no consideration to loan settlement outflows (i.e. the forecasted level of new loan advances each month). Mr Morris says that the defendant's liquidity margin should be assessed having regard to its ability to refrain from or delay new lending by $17.28 million, which would result in the defendant having, potentially, an aggregate of $17.46 million cash at bank as at 28 February 2015. 93 With regard to the forecasted loan discharges, and the plaintiff's concern that the defendant's currently forecasted loan discharges contain a high degree of uncertainty and fluidity which might affect the defendant's liquidity (see [44]-[51] above), Mr Morris said that his forecast assumes that 91% of principal repayments will be lent as new advances. He has acknowledged, however, that a critical consideration is the fact that a significant proportion of the defendant's borrowers are in default of existing loan arrangements and that, in cases, the defendant has taken control of the property that secures these loans. The Edwards Marshall report says that "such circumstances create a heightened level of concern about the ability of [the defendant] to recover these loans". Nevertheless, the Edwards Marshall report concludes that, provided that the defendant is able to retain investor support, its management should be able to continue to manage the portfolio of non-performing loans and secure a "satisfactory outcome" for the defendant's debenture holders (i.e. the defendant's management should be able to continue to manage the loan portfolio so as to enable the defendant to meet its interest and principal obligations to debenture holders). 94 Mr Morris has deposed, however, that the principal impact of delays in the receipt of forecasted loan discharges will be an inability to make new advances on the dates assumed in the forecast (which are determined by the assumed dates of loan repayments). Mr Morris says that, while the inherent difficulty of forecasting loan repayments exists, provided the defendant retains its investor support, delays in repayment will not, of themselves, prevent the defendant continuing to operate as a going concern. Mr Morris has also deposed that the majority of loans that have been made by the defendant are in order and that the cash flow from these loans should be sufficient to enable the defendant to meet its obligations.

The defendant's present financial position and business model 95 A lengthy affidavit has been provided by the defendant's Executive Chairman, Andrew Luckhurst-Smith. Together with the affidavits given by Mr Harvey, concerning the Deloitte report, and Mr Morris, concerning the Edwards Marshall report, this affidavit seeks to answer a number of the plaintiff's concerns as to the defendant's financial position and its business model. 96 On the present evidence, the defendant's financial position can be summarised as follows. 97 According to the 2014 Annual Report, as at 30 June 2014, the defendant had: cash and cash equivalents of $22,020,623; total assets of $267,187,957; total liabilities $257,012,358; and equity of $10,175,599. 98 The defendant has received additional funds of $8,590,027 by way of investments in redeemable preference shares it has issued. The holders of redeemable preference shares rank behind the debenture holders for repayment. 99 For the year ended 30 June 2014, the defendant made a net loss after tax of approximately $5.423 million, down from a profit of $608,199 in the previous financial year. This loss is principally due to provisions of $6.879 million booked against some of the defendant's loan assets; professional fees of approximately $1.834 million (attributable to legal, trustee and consultancy costs in relation to the plaintiff's independent business review); and increased accountancy and valuation fees in connection with the plaintiff's independent business review. 100 For the year ended 30 June 2014, the defendant's assets of $267.2 million provided a surplus of $27 million over the defendant's liabilities to debenture holders of $240.2 million. In the present year to date, this surplus had increased to $27.7 million. 101 The defendant's business is profitable. Its year to date profit is $897,709 (before tax and dividends). 102 In broad terms, the defendant's income is generated through: the issue of ordinary shares, preference shares, retained earnings and fixed interest securities (i.e. debentures); interest income on funds lent to borrowers secured by first mortgage security; and the management of pooled mortgage funds. 103 The defendant's main cash outflows are: loans made to borrowers; redemption payments to debenture holders who redeem their investments at the end of their fixed term (and occasionally on hardship grounds); interest payments to debenture holders, paid monthly; and rent, salaries, office expenses and other disbursements. 104 Approximately 80% of the debentures have been issued for a fixed period of 12 months. The balance (20%) of the debentures has been issued for a fixed period of three years. The proceeds from the issue of debentures are primarily invested in loans owned by first ranking mortgages on real property. The loans are typically for terms of approximately one year at interest rates of between 14% and 21%. The defendant's loan book funded by debenture funds has a total value of approximately $190.17 million. 105 The defendant has 2098 debenture investors and 4353 separate debenture accounts. In the present financial year, to 31 October 2014, the average reinvestment rate (by dollar amount) on matured debentures has been 85%, against a forecasted average reinvestment rate of 80%, for the same period. Prior to the plaintiff's independent business review which commenced in November 2012, the average reinvestment rate on matured debentures was 90%. The defendant's redemption requests for December 2014 were forecasted to be $2.708 million. In fact, redemption requests have totalled $2.272 million, $455,000 less than forecasted. This amounts to a reinvestment rate for December 2014 of 83.4%. 106 As at 22 December 2014, the defendant had cash at bank of $32.272 million. That sum is nearly three times more than the defendant's 5% minimum liquid asset requirement under the trust deed of $11,936,508. The defendant's current liquidity position in this regard is better than as at January 2013 and January 2014. 107 Mr Luckhurst-Smith has deposed that the defendant has met all redemption requirements as and when those requirements fell due, until acquiescing in the undertaking sought by the plaintiff, to which I have referred at [33] above. 108 Mr Luckhurst-Smith has deposed that a fundamental part of the defendant's business is the management of loan recovery where repayments are not serviced. The defendant classifies loans as "non-performing" when principal repayment is overdue by more than 30 days, or a fee or interest payment is overdue. Mr Luckhurst-Smith has deposed that the defendant adopts a realisation strategy that seeks to maximise the value of secured properties, rather than an immediate "fire sale". 109 As at November 2014, 35.9% of the defendant's loan book (by value) was non-performing. In the period July 2012 to November 2014, 34.3% of the loan book (monthly average) was non-performing. Prior to that time, non-performing loans represented 43% (monthly average) of the loan book. 110 Mr Luckhurst-Smith has deposed that it is an ordinary aspect of the defendant's business model, as an asset-based lender, that some of its borrowers become subject to external administration, whether because of action taken by the defendant or other creditors. He has also deposed that the defendant's income from its performing loans is "sufficient to enable [the defendant] to manage out non-performing loans in a manner that enables [the defendant] to maximise the value of underlying security on the non-performing loan[s]", without the need to engage in a "fire sale" of assets in order to generate income to pay debenture holders. 111 In his affidavit, Mr Luckhurst-Smith identified the main loans of the defendant in arrears and provided a narrative of the present status of those loans. It is not necessary to summarise that narrative in these reasons. Mr Luckhurst-Smith's affidavit included a summary of the defendant's entire debt loan portfolio, which had been reviewed by him. Mr Luckhurst-Smith expressed his confidence, based on his review and his own knowledge of the defendant's loan book, that the defendant's currently performing loans will continue to be serviced in accordance with their terms and repaid or refinanced at or prior to the expiry of their terms. He also expressed confidence that "loans recovered from performing (and non-performing) loans can be reinvested in new loans on profitable terms …". 112 With regard to the forecasted discharge rates, Mr Luckhurst-Smith has deposed that, in December 2014, the defendant has received approximately $10.387 million in loan account discharges. This is significantly higher than the inflow of $4.827 million forecasted for that month in the Edwards Marshall report. 113 With regard to the restatement arrangements, Mr Luckhurst-Smith expressed the view that the plaintiff's concerns are "misconceived". He said that these arrangements were "extensions" on commercially reasonable terms for the purpose of maximising the value of the secured property and the ultimate return to the defendant's investors, in accordance with its disclosed policy on the management of non-performing loans. He said that amendments to loan arrangements are often made on terms where interest for the period of the extension is prepaid and an extension fee is received by the defendant. He said that the defendant had no need to engage in a "fire sale" of assets immediately on expiry of the initial loan term. To do so would be inconsistent with its business model. 114 Mr Luckhurst-Smith also made clear that, contrary to the plaintiff's concerns about the treatment of prepaid interest, the defendant does not book prepaid interest to a profit and loss account. Rather, prepaid interest is booked as a liability to the balance sheet and "unwound" monthly to profit as the interest falls due. 115 With regard to related party mortgages, Mr Luckhurst-Smith noted that the 2014 Annual Report and all the defendant's prospectuses issued up to and including the expired prospectus, disclosed all related party mortgages ranking behind the defendant's first ranking mortgages. Mr Luckhurst-Smith deposed that many of these related party mortgages have recently been discharged, with no consideration being paid to the related party, or are in the course of being discharged for no consideration. In his affidavit, Mr Luckhurst-Smith provided a narrative of the present state of related party mortgages which had been raised in recent correspondence between the plaintiff and the defendant. Once again, it is not necessary to summarise that narrative in these reasons. 116 With regard to the plaintiff's concern about the defendant's criticism of the need to provide monthly cash flow reports as the plaintiff has required, Mr Luckhurst-Smith noted that the defendant does not use these reports to manage its business. This is not to say, however, that the defendant does not monitor its cash position in a timely way. Mr Luckhurst-Smith has deposed that a cash liquidity report is prepared internally by the defendant's Finance Department. The report monitors the defendant's cash balance and is updated and provided to the defendant's management, twice weekly. The report is also used to compile a lending liquidity report to enable the defendant to assess lending inflows and outflows against loans due to settle that month. 117 With regard to the plaintiff's concern about whether the defendant has changed its business model, I have already recorded that the defendant disputes that there has been any such change. The plaintiff's concern seems to be based on the fact that a large percentage of the defendant's debenture loan book is due to be discharged in the next 12 months. However, as I have also noted, 80% of the defendant's debentures are only for a one-year term. The balance is for three-year terms meaning that, approximately, one-third of those debentures will mature in any one year. This is a normal incident of the defendant's current business model, subject to the historical experience that a high percentage of maturing debentures are reinvested. Mr Luckhurst-Smith has deposed that the defendant continues to make new loans from debenture funds. 118 The defendant's debenture fund has reduced by 10% over the last 24 months, during the course of the plaintiff's independent business review. Mr Luckhurst-Smith has deposed that a gradual reduction of the fund could continue at the rate of $1 million per month for a further 15 years, before the defendant would require cash from its currently non-performing loans to pay debentures then due. 119 Notwithstanding this evidence, Mr Luckhurst-Smith has also deposed to the fact that the defendant is currently in the early stages of negotiations in respect of an unsolicited offer to purchase the whole of the defendant's loan book (at par) and to take an assignment of the corresponding security for the repayment of the loans. The defendant and the prospective purchaser have entered into a Memorandum of Understanding providing for due diligence to occur in early January 2015 with a view to implementation occurring prior to 31 March 2015.

The defendant's attitude to the orders sought 120 The defendant opposes the orders that are being sought. It says that they are unnecessary and inappropriate. 121 First, and foremost, the defendant says that it will have sufficient property to repay debentures when they fall due, and that it is, and will remain, solvent. 122 Mr Luckhurst-Smith has deposed that, on the basis of the defendant's debenture maturity analysis through to 30 November 2017, and taking into account that approximately 80% of maturing debentures will be reinvested for a term of one or three years, the defendant is only required to fund $3 million on account of average redemption payments per month. 123 Mr Luckhurst-Smith has also deposed that the defendant is able to pay this amount on an ongoing basis from the repayment of performing loans. In other words, the defendant is not reliant on new debenture investments in order to pay outgoing debenture redemptions, which appears to be suggested in Ms O'Sullivan's affidavit. 124 Mr Luckhurst-Smith has deposed that interest received by the defendant from its borrowers is more than sufficient to pay its interest obligations to debenture holders. 125 Moreover, Mr Luckhurst-Smith has deposed that the defendant's interest income on "the performing portion of its loan book" is sufficient to service monthly interest due to debenture holders. 126 Further, I have already noted that the draft Deloitte report has concluded that no provision is required to the carrying value of the loans the subject of concern in the defendant's accounts. 127 Secondly, the defendant has expressed an understandable concern that its business is heavily reliant on the confidence of its investors and that the continued "freeze" which the plaintiff seeks will only result in procuring the very situation about which the plaintiff is concerned - a loss of investor confidence resulting in an obligation on the defendant to fund redemptions beyond its capacity.

consideration 128 Section 283HB(1) of the Act relevantly provides: 283HB Specific Court powers (1) If the trustee or ASIC applies to the Court, the Court may make any or all of the following orders: … (b) an order restraining the borrower from paying any money to the debenture holders or any holders of any other class of debentures; … (f) an order restricting borrowing by the borrower; (g) any other order that the Court considers appropriate to protect the interests of existing or prospective debenture holders. 129 The principal orders that the plaintiff seeks are that the defendant be restrained from paying any money to debenture holders until, at least, 20 February 2015 (the freeze period), save for certain "permitted" payments (s 283HB(1)(b)); that the defendant be restrained, in the freeze period, from borrowing (including by accepting, under the trust deed, investments in debentures) and from reinvesting any existing investments in debentures issued under the trust deed (s 283HB(1)(f)); and that the defendant be restrained, in the freeze period, from paying money to or for the benefit of any related body corporate of the defendant or related entity, and, further, that the defendant be ordered to return any funds for investment in debentures issued under the trust deed, received in the freeze period (s 283HB(1)(g)). 130 Relevantly to the present case, s 283HB(2) of the Act provides that, in deciding whether to make an order under s 283HB(1), the Court must have regard to: the ability of the borrower (here, the defendant) to repay the amount deposited or lent as and when it becomes due; and the interests of the borrower's creditors. 131 The principal question arising on this application is whether the "freeze" now sought by the plaintiff should be granted. 132 On the evidence before me, I am not persuaded that such a "freeze" is, at the present time, justified or in the best interests of debenture holders. 133 I am persuaded, on the present evidence, that the defendant is solvent and will remain solvent in the foreseeable future and, specifically, that the defendant will have sufficient liquidity to meet its obligations to debenture holders as and when those obligations fall due. This is the conclusion of the Edwards Marshall report. On the other hand, the PPB Advisory report rises no higher than to say that, as at 12 December 2014, PPB Advisory had not been able to properly consider the defendant's solvency. 134 Both parties acknowledge that the conclusion of the Edwards Marshall report depends critically on the assumptions made in that report - in particular the assumption that the defendant will retain the level of investor support that prevailed in the period prior to 31 October 2014. Lack of investor support is the principal risk to the defendant's solvency, although the other assumptions in the Edwards Marshall report should also continue to be a focus of attention. The point of present importance is that all assumptions in the report are capable of being monitored closely, particularly in the immediate future. 135 Nevertheless, as the defendant has stressed, its present cash position is three times greater than that required under the trust deed, and it has not been shown that it is, or ever has been, in breach of the trust deed or of any other statutory or regulatory provision required to be observed by it in the conduct of its business. It also emphasises that PPB Advisory's own conclusion is that, for the four months ended 31 October 2014, the defendant has a surplus of assets over liabilities of $27.7 million. 136 The defendant's view is that, if such a "freeze" were to be granted - indeed, if the current "freeze" were to continue beyond 31 December 2014 - adverse publicity will arise, which is highly likely to lead to the perception that the defendant is unable to pay its debenture liabilities as and when those liabilities fall due. This would result in loss of investor support - manifested by a possible collapse in reinvestment in respect of matured debentures - that, according to the defendant, would lead, inevitably, to the defendant's insolvency. Both Mr Luckhurst-Smith and Mr Morris have given evidence as to the possibility of that scenario. 137 The plaintiff's evidence, on the other hand, does not address the possibility that the relief it seeks will precipitate a loss in investor support or the consequences of that loss of support. Nevertheless, in submissions, the plaintiff accepted the possibility that a continuation of the "freeze" may well result in a loss of investor support. 138 I am persuaded that if the "freeze" that is sought were to be granted, or if the current "freeze" were to continue, there is a real likelihood that investors would perceive this to mean that the defendant is unable to pay its debenture liabilities as and when those liabilities fall due, even though, as I have said, the present evidence does not justify that conclusion. In this connection, I accept Mr Morris' evidence that, if the freeze were to continue, the defendant will not have funds with which to continue to operate its lending business and will be forced to call in loans and/or realise securities earlier than it may have intended. This is likely to lead to a loss of investor confidence and losses on the realisation of its assets by reason of the need for the forced realisation of securities. I also accept Mr Morris' evidence that any freeze on repaying matured debentures will likely cause investor disharmony and a loss of investor support that, inevitably, would lead to a decline in debenture funding that would materially undermine the defendant's solvency. Indeed, if that were to happen, it is likely that the defendant would then be placed into external administration. In that eventuality, the debenture holders may well be worse off than if loans were to be discharged in the ordinary course of the defendant's business, as revealed in the evidence, or even if loan securities were to be realised by the defendant as mortgagee in possession or through its own appointment of a receiver to the secured property: see, for example, the observations of Rares J in Australian Executor Trustees Ltd v Provident Capital Ltd (2012) 203 FCR 461 at [65]. This potential damage must weigh heavily in the balance. 139 Further, I accept the real possibility, based on Mr Luckhurst-Smith's evidence, that if the "freeze" that is sought were to be granted, it would result in grave prejudice to the defendant's prospects of concluding a transaction with the prospective purchaser of its loan book. Mr Luckhurst-Smith has deposed to his concern that, if the freeze were to be continued, the prospective purchaser will withdraw from further discussions. Mr Luckhurst-Smith has deposed to his belief that, given what he has described as the "rapid deterioration" of the defendant's relationship with the plaintiff since early November 2014, the prospective purchase is in the best interests of debenture holders. 140 As I have noted, the plaintiff also seeks orders in relation to the provision of information by the defendant. This has two broad aspects. The first concerns the preparation by the defendant of a three-way cash flow model in respect of its business, incorporating its profit and loss, its balance sheet and its cash flow projected over the period up to and including 31 December 2013. The defendant does not regard the provision of this information as necessary, particularly in light of the Edwards Marshall report, but has nevertheless agreed to provide it. 141 The second aspect concerns the revaluation of certain properties. As developed in submissions, the plaintiff seeks to have the real property securities underlying 17 loans revalued because the valuation dates of the current valuations are now in excess of one year. Of these loans, six are non-performing loans. There is another non-performing loan, but as this is secured by a chattel mortgage, it can be put to one side for present purposes. The valuations in relation to these six non-performing loans have not been considered - because they were not required to be considered - in the Deloitte report. 142 The defendant has signified its preparedness to obtain new valuations in respect of these secured properties, on the basis that the valuations are undertaken by valuers appointed by it. However, the defendant objects to the other valuations being obtained. It does so on the basis that its affairs, in that regard, have already undergone a degree of examination which, in submissions, the defendant said is "astonishing". The defendant developed this submission as follows. 143 As at 3 April 2013, as part of the independent business review of the defendant's affairs commenced in November 2012, 333 Advisory had undertaken a loan portfolio review of the valuations supporting 50% of the defendant's loan book. The review undertaken in the Deloitte report was in respect of the valuations supporting the other 50% of the defendant's loan book. Of these, only six valuations were called into question, as I have already recorded. As I have also recorded, the conclusion expressed in the final draft of the Deloitte report, which is still subject to consultation with KordaMentha, is that no impairment provisioning is required. Thus, in the defendant's submission, since April 2013 - a period less than 2 years - the valuation of each secured property supporting the defendant's loan book has been the subject of review. Further, the defendant's assets are audited yearly and half-yearly by Deloitte. At no relevant time has Deloitte, as auditor, expressed the view that the holding value of the secured property in the defendant's accounts is inappropriate. 144 I am not persuaded on the evidence currently before me that there is any necessity to carry out revaluations on the secured properties supporting all loans other than the non-performing loans. The plaintiff's rationale for seeking these new valuations is that the present valuations are currently in excess of one year. However, that fact alone does not persuade me that the valuations are unreliable. No evidence leading to that conclusion has been placed before me. 145 The valuation of properties in relation to the non-performing loans stands in a different position, not least because the defendant has agreed - at least in concept - to undertake new valuations. I am not persuaded, however, that this should be left solely in the defendant's camp. The plaintiff submits that it is appropriate that it be involved in the selection and instruction of the valuers concerned. I think that is appropriate. In its originating process, the plaintiff sought a revaluation of properties according to a protocol. The defendant has not directed any criticism to that protocol, beyond its submission that it alone should appoint and instruct the valuer or valuers concerned. 146 There is a further matter I should note. The form of relief sought by the plaintiff in prayer 6 of the originating process goes beyond the question of new valuations. The submissions of the parties were nevertheless directed to the question of the need for revaluations. The plaintiff advanced the position that an order should be made that the defendant provide such access to its books and records as reasonably required by PPB Advisory for the purpose of it advising and reporting to the plaintiff. The basis for that wide form of order was not developed in submissions. 147 Under clause 6.5(d) of the trust deed, the defendant is obliged to give the plaintiff "such information as is reasonably required by it in relation to the business, property, affairs, accounting records or other records of the Group Members". I have not been taken to any material that would suggest that the defendant is in breach of that obligation. Further, it has not been suggested that this clause of the trust deed does not provide sufficient recourse to the plaintiff in relation to obtaining the information it might reasonably seek. For this reason, at the present time, I decline to grant any broader relief than that properly developed in submissions. 148 Finally, I should record that ASIC appeared at the hearing of this application by counsel. ASIC submitted that, on the material with which it has been served, it considers that the plaintiff has reasonable grounds to hold material concerns about the defendant's financial position. On that basis, it submits that the plaintiff should be given access to whatever books and records, and assistance from the defendant, it considers necessary in order to investigate and resolve its concerns. That position is understandable. However, as I have endeavoured to explain, the plaintiff's position appears to be covered by clause 6.5(d) of the trust deed and, at the present time, no satisfactory basis has been established for the provision of information extending beyond that already required to be provided under that clause, in addition to the three-way model and obtaining the new valuations to which I have referred. 149 With respect to the "freeze" that is sought, ASIC made clear its position that, in the time available to consider the affidavit evidence with which it has been served, it is not in a position to say to the Court one way or the other whether it considers such a "freeze" to be necessary or appropriate. 150 ASIC also referred to the defendant's obligations of continuous disclosure, but advised the Court that it did not seek, at the present time, any orders in that regard.

Disposition 151 For these reasons, I decline to grant the "freeze" which the plaintiff presently seeks. However, I will make orders in relation to the provision of the three-way model by the defendant, and in relation to the new valuations sought in respect of the non-performing loans. I have also raised with the parties the desirability of bringing the matter back before me for mention early in the new Law Term. I certify that the preceding one hundred and fifty-one (151) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.

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