FEDERAL COURT OF AUSTRALIA - Corrs Chambers Westgarth

FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2)

[2013] FCA 234

Citation: Australian Securities and Investments Commission v

ActiveSuper Pty Ltd (No 2) [2013] FCA 234

Parties: AUSTRALIAN SECURITIES AND INVESTMENTS

COMMISSION v ACTIVESUPER PTY LTD

(ACN 125 423 574), ACN 143 832 053 PTY LTD

(ACN 143 832 053), JASON GRANT BURROWS,

JUSTIN LUKE GIBSON, U.S. REALTY

INVESTMENTS #1, LLC (L-1666059-6), U.S.

REALTY INVESTMENTS #2, LLC (L-1666058-5),

U.S. REALTY INVESTMENTS #3, LLC (L- 1668734-

4), U.S. REALTY INVESTMENTS #4, LLC (L-

1668736-6), SYNDICATED PROPERTY GROUP LTD

(BVI COMPANY NUMBER 1678711), WORLDWIDE

PROPERTY OPPORTUNITIES LTD (BVI

COMPANY NUMBER 1678279), CAYCO

MANAGEMENT (REGISTRATION NUMBER CR-

265977), MOGS PTY LTD (ACN 136 499 360),

JEFFREY GEORGE, GRAEME SYDNEY

STONEHOUSE, MARINA ULRIKA LOVISA GORE,

MARK GORDON ADAMSON and CRAIG KIRRIN

GORE

File number: VID 426 of 2012

Judge: GORDON J

Date of judgment: 19 March 2013

Catchwords: CORPORATIONS – application to appoint provisional

liquidator – discretionary considerations for appointment of

provisional liquidator – whether appropriate to appoint a

provisional liquidator to a trustee company – company

automatically removed as trustee

Legislation: Corporations Act 2001 (Cth) Trusts Act 1973 (Qld)

Cases cited: Allstate Exploration NL v Batepro Australia Pty Ltd [2004]

NSWSC 261

Australian Securities Commission v AS Nominees Limited

(1995) 62 FCR 504

Australian Securities Commission v Solomon (1996) 19

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ACSR 73

Australian Securities and Investments Commission v

ActiveSuper Pty Ltd (No 1) [2012] FCA 1519

Australian Securities and Investments Commission v ABC

Fund Managers (2001) 39 ACSR 443

Australian Securities and Investments Commission v Chase

Capital Management Pty Ltd (2001) 36 ACSR 778


Finchley Central Funds Management Ltd [2009] FCA

1110


Global SDR Technologies Pty Ltd (2004) 51 ACSR 42


International Unity Insurance Pty Ltd (2004) 22 ACLC

1416

Australian Securities and Investments Commission, in the

matter of Bennett Street Developments Pty Ltd v

Weerappah (No 2) [2009] FCA 249

Australian Securities and Investment Commission v

Kingsley Brown Properties Pty Ltd [2005] VSC 506

Australian Securities and Investments Commission v Tax

Returns Australia Dot Com Pty Ltd [2010] FCA 715

Brylyn No 2 Pty Ltd; Re (1987) 12 ACLR 697

Constantinidis v JGL Trading Pty Ltd (1995) 17 ACSR

625

Denilikoon Nominees (No 2) Pty Ltd: Re (1981) 6 ACLR

262

Earth Loop Pty Ltd v AIAN Investments Pty Ltd [2008]

NSWSC 1042

Ebrahimi v Westbourne Galleries Ltd [1973] AC 360

Emmacourt Pty Limited v Jewels of Australia Pty Limited

[2007] FCA 1483

Galanopoulos v Moustafa [2010] VSC 380

Huntford Pty Ltd; Re (1993) 12 ACSR 274

Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606

Loch v John Blackwood Ltd [1924] AC 783

Lubavitch Mazal Pty Ltd v Yeshiva Properties No 1 Pty Ltd

(2003) 47 ACSR 197

New Cap Reinsurance Corporation Holdings Ltd; Re

(1999) 32 ACSR 234

Nilant v RL & KW Nominees Pty Ltd [2007] WASC 105

Riviana (Aust) Pty Ltd v Laospac Trading Pty Ltd (1986)

10 ACLR 865

Telfer v Astarra Securities Pty Ltd [2010] NSWSC 682

Tickle v Crest Insurance Co of Australia Ltd (1984) 2

ACLC 493

Yellowrock Pty Ltd v Eastgate Properties Pty Ltd [2004]

QSC 214

Zempilas v J N Taylor Holdings Ltd (No 2) (1990) 3 ACSR

518

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Date of hearing: 26 February 2013

Date of last submissions: 15 March 2013

Place: Melbourne

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 56

Counsel for the Plaintiff: Mr N O’Bryan SC, Mr J Moore and Ms C van Proctor

Solicitor for the Plaintiff: Australian Securities and Investments Commission

Counsel for the Twelfth,

Fourteenth and Fifteenth

Defendants:

Mr M Robins SC with Mr N Kirby

Solicitor for the Twelfth,

Fourteenth and Fifteenth

Defendants:

Clamenz Evans Ellis Lawyers

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION VID 426 of 2012

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS

COMMISSION

Plaintiff

AND: ACTIVESUPER PTY LTD (ACN 125 423 574)

First Defendant

ACN 143 832 053 PTY LTD (ACN 143 832 053)

Second Defendant

JASON GRANT BURROWS

Third Defendant

JUSTIN LUKE GIBSON

Fourth Defendant

U.S. REALTY INVESTMENTS #1, LLC (L-1666059-6)

Fifth Defendant


Sixth Defendant

U.S. REALTY INVESTMENTS #3, LLC (L- 1668734-4)

Seventh Defendant


Eighth Defendant

SYNDICATED PROPERTY GROUP LTD (BVI COMPANY

NUMBER 1678711)

Ninth Defendant

WORLDWIDE PROPERTY OPPORTUNITIES LTD (BVI

COMPANY NUMBER 1678279)

Tenth Defendant

CAYCO MANAGEMENT (REGISTRATION NUMBER CR-

265977)

Eleventh Defendant

MOGS PTY LTD (ACN 136 499 360)

Twelfth Defendant

JEFFREY GEORGE

Thirteenth Defendant

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GRAEME SYDNEY STONEHOUSE

Fourteenth Defendant

MARINA ULRIKA LOVISA GORE

Fifteenth Defendant

MARK GORDON ADAMSON

Sixteenth Defendant

CRAIG KIRRIN GORE

Seventeenth Defendant

JUDGE: GORDON J

DATE OF ORDER: 19 MARCH 2013

WHERE MADE: MELBOURNE

THE COURT ORDERS THAT:

1. Pursuant to s 472(2) of the Corporations Act 2001 (Cth) (the Act), Michael Gerard

McCann and Graham Robert Killer, of c/- Grant Thornton, Ground Floor,

102 Adelaide Street, Brisbane in the State of Queensland be appointed as joint and

several provisional liquidators to the twelfth defendant, MOGS Pty Ltd (ACN 136

499 360) (the provisional liquidators).

2. The provisional liquidators have the following powers:

(a) to enter into possession and take control of all assets (including money) of the

twelfth defendant, including all assets of the twelfth defendant used in or

relating to its operations, together with all books, records, computers,

computer disks, and any other papers or records relating thereto;

(b) to deal with any monies held by or on behalf of the twelfth defendant or its

officers, employees or agents or any of them, being monies received in

relation to or employed in the twelfth defendant’s operations;

(c) to operate and inspect any account at any bank or other financial institution

being an account operated by the twelfth defendant or its officers, employees

or agents or any of them and to withdraw any such monies and to pay any such

monies into an account or accounts opened or maintained by or for the

provisional liquidators;

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(d) to appoint a solicitor, accountant or other professionally qualified person

either within or outside Australia to assist the provisional liquidators;

(e) to delegate to their partners, employees and agents whether within or outside

Australia any business or matter that the provisional liquidators are unable to

do themselves or that can be done more conveniently by those others;

(f) to receive any monies due to the twelfth defendant relating to its operations;

(g) to compromise any calls, liabilities to calls, liabilities capable of resulting in

debts and any claims (present or future, certain or contingent, ascertained or

sounding only in damages) subsisting or supposed to subsist between the

twelfth defendant and a contributory or other debtor or person apprehending

liability to the twelfth defendant, and all question in any way relating to or

affecting the property of the twelfth defendant, on such terms as are agreed,

and take any security for the discharge of, and give complete discharge in

respect of, any such call, debt, liability or claim;

(h) for the purposes of maintaining and securing the assets of the twelfth

defendant, to:

(i) pay any expense, including for the purposes of insurance;

(ii) execute any document;

(iii) bring or defend any proceeding;

(iv) to carry on business;

(v) to obtain credit; and/or

(vi) do any other act or thing,

in the name of or on behalf of the twelfth defendant, its officers, employees or

agents or any of them;

(i) to make any application to any court or regulatory agency for the purposes of

exercising the powers in (a) to (h) above;

(j) to apply for further orders, including the power to realise the assets and pay

the liabilities of the twelfth defendant, and to seek directions as to the

disposition of any remaining proceeds; and

(k) to receive remuneration on a time basis within the scale of charges approved

by the Court, such remuneration to be paid from the proceeds of the winding

up.

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3. The provisional liquidators shall, within 45 days of their appointment, provide to the

Court and to the plaintiff a report as to the provisional liquidation of the twelfth

defendant, including:

(a) the identification of the assets and liabilities of the twelfth defendant;

(b) an opinion as to the solvency of the twelfth defendant;

(c) the likely return to creditors of the twelfth defendant;

(d) any other information necessary to enable the financial position of the twelfth

defendant to be assessed; and

(e) any suspected contravention of the Act by the any directors and or officers of

the twelfth defendant.

4. Pending the final determination of the proceeding or until further order, the fourteenth

and fifteenth defendants (whether by themselves, their agents or howsoever

otherwise) be restrained, directly, or indirectly, from exercising or purporting to

exercise any power whether under cll 28 and 32 of the MOGS Unit Trust Deed

between the twelfth defendant and Goreco Pty Ltd dated 1 January 2011 (the Trust

Deed), or otherwise, to appoint a new trustee, or a co-trustee to the MOGS Unit Trust,

or to amend the Trust Deed.

5. The application by the plaintiff for the leave to amend its interlocutory application

dated 10 December 2012 be adjourned to a date to be fixed.

6. The interlocutory application filed on behalf of the 12th

, 14th

and 15th

Defendants on

10 December 2012 be dismissed.

7. Liberty to apply.

8. Costs reserved.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION VID 426 of 2012

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS

COMMISSION

Plaintiff

AND: ACTIVESUPER PTY LTD (ACN 125 423 574)

First Defendant

ACN 143 832 053 PTY LTD (ACN 143 832 053)

Second Defendant

JASON GRANT BURROWS

Third Defendant

JUSTIN LUKE GIBSON

Fourth Defendant


Fifth Defendant


Sixth Defendant


Seventh Defendant


Eighth Defendant

SYNDICATED PROPERTY GROUP LTD (BVI COMPANY

NUMBER 1678711)

Ninth Defendant

WORLDWIDE PROPERTY OPPORTUNITIES LTD (BVI

COMPANY NUMBER 1678279)

Tenth Defendant

CAYCO MANAGEMENT (REGISTRATION NUMBER CR-

265977)

Eleventh Defendant

MOGS PTY LTD (ACN 136 499 360)

Twelfth Defendant

JEFFREY GEORGE

Thirteenth Defendant

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GRAEME SYDNEY STONEHOUSE

Fourteenth Defendant

MARINA ULRIKA LOVISA GORE

Fifteenth Defendant

MARK GORDON ADAMSON

Sixteenth Defendant

CRAIG KIRRIN GORE

Seventeenth Defendant

JUDGE: GORDON J

DATE: 19 MARCH 2013

PLACE: MELBOURNE

REASONS FOR JUDGMENT

A. INTRODUCTION

1 The Australian Securities and Investments Commission (the Plaintiff) (ASIC) sought

the appointment of a provisional liquidator to MOGS Pty Ltd (ACN 136 499 360)

(the 12th

Defendant) (MOGS) with specified powers and for the provisional liquidator to

report to the Court and to ASIC. The application was made pursuant to s 472(2) of the

Corporations Act 2001 (Cth) (the Act).

2 ASIC submitted that there was substantial evidence that MOGS had committed,

or been knowingly concerned in, a number of contraventions of the Act including breaches of

s 1041H(1) (misleading or deceptive conduct in respect of a financial product or service),

s 911A(1) (provision of financial services without a relevant licence) and s 727(1) (offering

securities without a current disclosure document lodged with ASIC). In general terms,

ASIC sought the appointment of a provisional liquidator:

1. to secure and preserve MOGS’ assets pending the final hearing and determination of

ASIC’s winding up application against MOGS; and

2. to empower an independent expert and officer of the Court to investigate MOGS’

affairs and report back to the Court.

ASIC’s application was opposed by MOGS.

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3 There was also an application by MOGS, Graeme Sydney Stonehouse

(the 14th

Defendant) (Mr Stonehouse) and Marina Gore (the 15th

Defendant) (Mrs Gore) to

set aside ex parte orders made against them on 3 December 2012. Each application was

supported by extensive affidavit evidence. These applications came on for hearing on

26 February 2013.

4 During the course of argument, it became apparent that MOGS was, at least to some

extent, acting as trustee of the MOGS Unit Trust.

5 Prior to that time, neither ASIC nor MOGS had adduced evidence of the fact that

MOGS acted as trustee of the MOGS Unit Trust. Taken at its highest, the evidence was

unclear as to whether the transactions undertaken by MOGS (and the subject of criticism by

ASIC) were undertaken by MOGS as trustee of the MOGS Unit Trust or in its own right.

Surprisingly, MOGS had failed to inform the Court that it was a trustee of the MOGS Unit

Trust, had not provided the Court with a copy of the MOGS Unit Trust Deed and had not

identified the unitholders of the MOGS Unit Trust. The blame does not rest with MOGS

alone. ASIC was aware of MOGS’ status, but apparently had not turned its mind to these

questions until the issue was raised by the Court.

6 ASIC and what may be described as the MOGS parties (MOGS, Mr Stonehouse and

Mrs Gore) were directed to consider ASIC’s application for appointment of a provisional

liquidator having regard to the Court’s concern that MOGS appeared to be a trustee, at least

in respect of some assets and activities, the fact that the Court had not been provided with the

documents referred to in [5] above and that the unitholders of the MOGS Unit Trust were not

then known and had not been notified. The possibility of replacing the trustee under s 80 of

the Trusts Act 1973 (Qld) was also raised by the Court.

7 ASIC and the MOGS parties filed outlines of legal submissions directed to the

question of the Court’s power to appoint a provisional liquidator to a trustee company. At the

same time as the MOGS parties filed their legal submissions (namely 28 February 2013),

the MOGS parties filed an affidavit sworn by Mr Stonehouse (the Stonehouse affidavit).

That affidavit was important for what it said and what it did not say.

8 First, the Stonehouse affidavit provided the Court with a copy of the MOGS Unit

Trust Deed and the resolutions for the transfer of units in the MOGS Unit Trust. The trustee

was MOGS. The sole unitholder was Mash Investments Pty Ltd (ACN 149 597 384),

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as trustee of the MASH Investments Unit Trust. Mash Investments Pty Ltd is a company

controlled by Mr Stonehouse and Mrs Gore. A copy of the MASH Investments Unit Trust

Deed was also annexed to the Stonehouse affidavit. The unitholders of that trust are listed as

MAC Enterprises (Aust) Pty Ltd as trustee of the MAC Bloodline Trust, Mascard Pty Ltd as

trustee of the Mascard Trust, Mark Adamson (the 16th

Defendant) (Adamson) as trustee of

the MGA Trust and Dr William and Shannon Anseline as trustee of the Anseline Superfund.

It will be necessary to return to consider the balance of the Stonehouse affidavit later in these

reasons for judgment.

9 In response to the submissions filed by the MOGS parties and the Stonehouse

affidavit, ASIC filed an outline of submission by which it sought, for the first time, not only

the appointment of a provisional liquidator to MOGS but also the following:

1. the appointment of those appointed as provisional liquidators as replacement trustees

of the MOGS Unit Trust pursuant to s 80 of the Trusts Act 1973 (Qld); and

2. orders restraining the defendants from seeking to remove or replace the Court

appointed trustees or to appoint co-trustees of the MOGS Unit Trust.

On Friday 15 March 2013, ASIC applied for leave to amend its interlocutory application to

include these two further orders.

10 These reasons for judgment will deal with some relevant principles and then consider

ASIC’s application.

B. SOME RELEVANT LEGAL PRINCIPLES

(1) Appointment of a provisional liquidator

11 Section 472(2) of the Act gives the Court power to appoint a provisional liquidator at

any time after the filing of a winding up application and before the making of a winding up

order. The Court has a wide and complete discretion whether or not to appoint a provisional

liquidator: Re Huntford Pty Ltd (1993) 12 ACSR 274 at 277.

12 The matter was explained in Re New Cap Reinsurance Corporation Holdings Ltd

(1999) 32 ACSR 234 at [23]:

… As was said in Re McLennan Holdings Pty Ltd [(1983) 7 ACLR 732] at

p 738 and affirmed by the Court of Appeal in Constantinidis, the power to

appoint a provisional liquidator is by no means limited, the grounds on which

a provisional liquidator may be appointed are infinite, and all that really has

to be shown is that there is a bona fide application constituting sufficient

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ground for the making of the order.

13 It is well established that appointment of a provisional liquidator pending the

determination of a winding up application is a drastic intrusion into the affairs of the

company and will not be done if other measures would be adequate to preserve the status

quo: Zempilas v J N Taylor Holdings Ltd (No 2) (1990) 3 ACSR 518 at 522; Constantinidis v

JGL Trading Pty Ltd (1995) 17 ACSR 625 at 635; Lubavitch Mazal Pty Ltd v Yeshiva

Properties No 1 Pty Ltd (2003) 47 ACSR 197 at [105]; Australian Securities and Investments

Commission, in the matter of Bennett Street Developments Pty Ltd v Weerappah (No 2)

[2009] FCA 249 at [8]; Australian Securities and Investments Commission v Tax Returns

Australia Dot Com Pty Ltd [2010] FCA 715 at [86].

14 Therefore, an applicant must also show some good reason for intervention prior to the

final hearing of the winding up application. For example, an applicant may show that the

appointment is needed in the public interest or to preserve the status quo or to protect the

company’s assets or affairs: Allstate Exploration NL v Batepro Australia Pty Ltd [2004]

NSWSC 261 at [30]; Weerappah at [8].

15 An applicant for the appointment of a provisional liquidator must establish,

among other things, that there is a reasonable prospect that a winding up order will be made

on the application: Tickle v Crest Insurance Co of Australia Ltd (1984) 2 ACLC 493 at 494;

Australian Securities Commission v Solomon (1996) 19 ACSR 73 at 80; Weerappah at [8].

It will be necessary to return to consider this aspect.

16 In Solomon at 80 Tamberlin J listed six principles concerning the appointment of a

provision liquidator, which are often cited in this context:

(a) The court should only appoint a provisional liquidator where it is

satisfied that there is a valid and duly authorised winding up

application and that there is a reasonable prospect that a winding up

order will be made: see Debelle J in Re J N Taylor Holdings Ltd;

Zempilas v J N Taylor Holdings Ltd (1991) 3 ACSR 516; 9 ACLC 1

at 12-3.

(b) The fact that the assets of the corporation may be at risk is a relevant

consideration.

(c) The provisional liquidator’s primary duty is to preserve the status

quo to ensure the least possible harm to all concerned and to enable

the court to decide, after a further examination, whether the company

should be wound up: Re Carapark Industries Pty Ltd (in liq) (1966)

9 FLR 297; 86 WN (Pt 1)(NSW) 165 at 171.

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(d) The court should consider the degree of urgency, the need

established by the applicant creditor and the balance of convenience:

Re Club Mediterranean Pty Ltd (1975) 11 SASR 481 at 484 per

Bright J. The power is a broad one and circumstances will vary

greatly. Commercial affairs are infinitely complex and various and it

is inappropriate to limit the power by restricting its exercise to fixed

categories or classes of circumstances or fact.

(e) It may be appropriate to appoint a provisional liquidator in the public

interest where there is a need for an independent examination of the

state of accounts of the corporation by someone other than the

directors: Tickle v Crest Insurance Co of Australia Ltd (1984) 2

ACLC 493.

(f) Where the affairs of the company have been carried on casually and

without due regard to legal requirements so as to leave the court with

no confidence that the company’s affairs would be properly

conducted with due regard for the interests of shareholders, it may be

appropriate to appoint a provisional liquidator: see Montgomery

Windsor (NSW) Pty Ltd v Ilopa Pty Ltd (1984) 2 ACLC 224.

17 His Honour proceeded to list at 81-2 a further eight considerations which weighed in

favour of the appointment of a provisional liquidator in that case several of which are

presently relevant:

In this proceeding, the evidence leads to the conclusion that it is essential that

a provisional liquidator be appointed to each of the three corporate

respondents immediately. The relevant considerations are as follows:

…

(b) There is on any view at present, a substantial deficiency of assets

against liabilities which has not been contested. This is not a case of

marginal insolvency.

(c) There is a demonstrated lack of control over the assets of the

corporations arising from the intermingling of moneys between the

corporate respondents. For practical purposes they have been

administered as if comprising a single undertaking operated to suit

the whims or purposes of Mr Solomon without due regard to their

individual best interests.

(d) No proper records have been kept of the moneys lent to or distributed

between the corporate respondents which were received from

investments made with Mr Solomon. For example, it appears that

investment moneys procured to be invested in taxis and share

markets have been diverted to publishing ventures of Mr Solomon

and his personal enterprises.

(e) Mr Solomon is the controlling mind and will of the corporate

respondents and faces a conflict of interest. He is a debtor to the

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investors and liable to them in respect of moneys advanced and at the

same time he is a creditor of the corporate respondents as result of

the on lending to the corporate respondents. They have no doubt

received the funds with notice that they were placed by the investors

with Mr Solomon for investment in nominated ventures.

Mr Solomon proposes to engage in further commercial activities

through the corporate respondents and to obtain further credit.

(f) It is essential, in these circumstances, that an independent person is

appointed who can ensure that any remaining funds are not further

diverted by Mr Solomon for other ventures or intermingled with

additional moneys. An independent person would be in a position to

realise the assets, determine the claims and administer the remaining

funds evenly as between the investors free from any personal or

pecuniary interest in the outcome.

(g) There is cogent evidence that moneys may have been obtained

illegally by offering prescribed interests in contravention of the

Corporations Law. The corporate respondents were no doubt on

notice of such illegality.

…

See also Weerappah where Goldberg J adopted the approach of Tamberlin J in Solomon:

Weerappah at [10]. Despite MOGS’ submission to the contrary, several of these

considerations are relevant to the present application, at least on ASIC’s version of events.

18 There is arguably one qualification to these principles. In Riviana (Aust) Pty Ltd v

Laospac Trading Pty Ltd (1986) 10 ACLR 865 at 866 Young J said that where there is an

application made and the company appears, the onus is not as heavy on the applicant because:

… the court takes into account the fact that the company is present, so that

the company has an opportunity of putting before the court any relevant

factors as to why a provisional liquidator should not be appointed. If the

plaintiff’s affidavits raise matters to which a court would expect there to be

some answer and there is no answer provided then that in itself raises a

matter of suspicion that it may well be in the public interest to put in a

provisional liquidator.

See also Emmacourt Pty Limited v Jewels of Australia Pty Limited [2007] FCA 1483 at [11];

Earth Loop Pty Ltd v AIAN Investments Pty Ltd [2008] NSWSC 1042 at [19] and Australian

Securities and Investments Commission v Global SDR Technologies Pty Ltd (2004) 51 ACSR

42 at [50].

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(2) Winding up under s 461(1)(k) of the Act

19 In the present case, the appointment of a provisional liquidator is sought where the

winding up is sought on the just and equitable ground under s 461(1)(k) of the Act. There is

no dispute that ASIC has standing to bring an application to wind up a company on the

statutory just and equitable ground: ss 462(2) and 464 of the Act. The classes of conduct

which justify the winding up of a company on the just and equitable ground are not closed,

and each application will depend upon the circumstances of the particular case: Ebrahimi v

Westbourne Galleries Ltd [1973] AC 360 at 374 and 376-379; Australian Securities and

Investment Commission v Kingsley Brown Properties Pty Ltd [2005] VSC 506 at [95]-[97];

Nilant v RL & KW Nominees Pty Ltd [2007] WASC 105 at [117]. Nevertheless, it is possible

to discern some guiding principles from the authorities.

20 It has long been established that a company may be wound up where there is

“a justifiable lack of confidence in the conduct and management of the company’s affairs”

and thus a risk to the public interest that warrants protection: Loch v John Blackwood Ltd

[1924] AC 783 at 788. In Australian Securities and Investments Commission v ABC Fund

Managers (2001) 39 ACSR 443 at [119], Warren J (as her Honour then was) set out three

“general fundamental principles”:

First, there needs to be a lack of confidence in the conduct and management

of the affairs of the company … Second, in these types of circumstances it

needs to be demonstrated that there is a risk to the public interest that

warrants protection. Third, there is a reluctance on the part of the courts to

wind up a solvent company.

(Citation omitted.)

21 In relation to the first, a lack of confidence may arise where, “after examining the

entire conduct of the affairs of the company” the Court cannot have confidence in “the

propensity of the controllers to comply with obligations, including the keeping of books,

records and documents, and looking after the affairs of the company”: Galanopoulos v

Moustafa [2010] VSC 380 at [32]; see also Australian Securities Commission v AS Nominees

Limited (1995) 62 FCR 504 at 532-3; ABC Fund Managers at [117]-[118]; Australian

Securities and Investments Commission v International Unity Insurance Pty Ltd (2004) 22

ACLC 1416 at [135]-[139].

22 There is thus a significant overlap between the matters relevant to the just and

equitable ground and the matters which weigh in favour of the exercise of the Court’s

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discretion to appoint a provisional liquidator. For example, matters which indicate “the

propensity of the controllers to comply with obligations, including the keeping of books,

records and documents, and looking after the affairs of the company” might also demonstrate

that “the company’s affairs have been conducted in a manner without regard to legal

requirements or accepted principles of corporate management”.

23 In relation to the second, a risk to the public interest may take several forms.

For example, a winding up order may be necessary to ensure investor protection or where a

company has not carried on its business candidly and in a straightforward manner with the

public: International Unity Insurance at [138]; see also Australian Securities and

Investments Commission v Finchley Central Funds Management Ltd [2009] FCA 1110 at [3].

Alternatively, it might be justified in order to prevent and condemn repeated breaches of the

law: Kingsley Brown Properties at [96]; see also AS Nominees at 527; Australian Securities

and Investments Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778 at

793. Again, there is an overlap between matters which would pose a risk to the public

interest for the purpose of s 461(1)(k) and which are relevant to the appointment of a

provisional liquidator.

24 In relation to the third, it has been said that “a stronger case might be required where

the company was prosperous, or at least solvent”: Kingsley Brown Properties at [96].

Solvency, however, is not a bar to the appointment of a liquidator on the just and equitable

ground, particularly where there have been serious and ongoing breaches of the Act:

ABC Fund Managers at [124]-[130].

C. ASIC’S APPLICATION

(1) Introduction

25 ASIC must establish two matters:

1. that there is a reasonable prospect that a winding up order will be made on the

application; and

2. that there are present factors sufficient to require the exercise of the Court’s discretion

to appoint a provisional liquidator prior to the final hearing.

26 ASIC relied upon five grounds as justifying the appointment of a provisional

liquidator to MOGS:

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1. in excess of $4 million raised from Australian investors and paid to MOGS appears to

have been dissipated by MOGS and both the receipt and dissipation of those funds

require investigations;

2. MOGS has engaged in transactions with no apparent commercial purpose, failed to

comply with its obligations, and there are accounting inconsistencies and inaccuracies

for which there is no or no satisfactory explanation;

3. MOGS has contravened the law including by maintaining inadequate accounts and

records;

4. the information provided by Mrs Gore lacks veracity; and

5. MOGS’ appears to be insolvent.

27 It is neither necessary nor appropriate to consider each of these allegations in detail.

However, by way of example, the evidence disclosed transactions of the following nature:

1. payments of $1,674,588.72 to GFC09 Pty Ltd, a company associated with the

personal insolvency of Craig Gore (the 17th

Defendant and the husband of Mrs Gore)

(Mr Gore), and payments of $798,758.62 to Mr Gore personally, those payments

purportedly being made in accordance with a consultancy agreement under which

MOGS agreed to pay Mr Gore a fee of $2 million per year;

2. payments to Mrs Gore totalling $832,983.92 in the nine months between 21 October

2011 and 31 July 2012 in circumstances where Mrs Gore alleged that she received a

salary of $350,000 per year;

3. payments of $274,012.31 to Mr Gore’s former wife in the nine months between

21 October 2011 and 31 July 2012 purportedly in accordance with a consultancy

agreement between MOGS and Mr Gore’s former wife in circumstances where his

former wife denied ever performing work for, or being engaged by, MOGS or issuing

any invoice to MOGS; and

4. the alleged assignment of what were referred to as “promissory notes”, given by a

company known as Propel Consolidated Holdings in favour of Mr Gore’s former

wife, to MOGS, in circumstances where a director of Propel, a Mr Simon Banks-

Cooper, denied that the promissory notes had been assigned.

This list is by no means exhaustive.

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(2) Background

28 The history of these proceedings was summarised by Dodds-Streeton J in Australian

Securities and Investments Commission v ActiveSuper Pty Ltd (No 1) [2012] FCA 1519 at

[5]-[31]. It is unnecessary to repeat that summary in any detail.

29 MOGS is an Australian company. It has two directors: Mrs Gore and Mr Stonehouse.

As noted earlier, Mrs Gore is the wife of Mr Gore. Mr Stonehouse is a business associate of

Mr Gore. Mr Gore is an undischarged bankrupt and is therefore forbidden from being

involved in, directing or managing any Australian company. Adamson is Mr Gore’s solicitor.

Adamson was a director of MOGS from May 2011 until April 2012.

30 On 28 February 2013, Mr Stonehouse described MOGS’ role as follows:

2. MOGS was incorporated on 7 April 2009.

3. Initially, MOGS traded in its own right, however, on and from

1 January 2011, MOGS accepted the position of trustee of the

MOGS Unit Trust and since that date its sole business has been

conducted as trustee the MOGS Unit Trust.

4. Presently all of MOGS’s [sic] business is on behalf of the MOGS

Unit Trust in its capacity as trustee. That business is owned by and is

an asset of the MOGS Unit Trust.

5. A copy of the MOGS Unit Trust Deed is exhibited as exhibit GS-2.

6. The sole unitholder of the MOGS Unit Trust is Mash Investments

Pty Ltd as trustee for the MASH Investments Unit Trust. A copy of

the resolutions of MOGS as Trustee of the MOGS Unit Trust and

related transfers and certificates of Units in the MOGS Unit Trust are

exhibited as exhibit GS-3.

7. A copy of the MASH Investments Unit Trust Deed is exhibited as

exhibit GS-4.

8. The present unitholders of MASH Investments Unit Trust are set out

in exhibit GS-5.

9. Because the business of MOGS was, prior to 1 January 2011,

undertaken by MOGS Pty Ltd in its own right (not as trustee) some

assets used by the MOGS Unit Trust were and remained owned by

MOGS Pty Ltd in its own right. The most significant of these assets

was a BMW X6 (bought well before anyone from MOGS met

Burrows). As a result of this ownership, some entries are made into

the accounts on a “loan” account allocated to MOGS Pty Ltd for the

use of these assets.

10. I have questioned MOGS’s [sic] accountant, Timothy Munro about

these transactions and he advised me, and I believe, that these entries

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were done in accordance with normal accounting practices and the

entries referred to are proper and appropriate.

(Emphasis added.)

31 On 28 February 2013, Mr Stonehouse also went on to describe MOGS’ business

activities (or at least some of them) as follows:

29. Since about January 2011, MOGS has sold approximately of [sic]

300 homes and has a substantial business.

30. In addition, presently MOGS has 43 homes in various states of

completion that are due to settle (assuming they are completed)

within 6 months. These 43 homes would be at risk of not completing

if a provisional liquidator is appointed to MOGS.

31. No one, to my knowledge, has ever paid MOGS an option fee or

deposit and then not been able to complete their purchase due to any

default of MOGS.

In other words, MOGS is apparently engaged in large continuing commercial transactions

with what may well be wholly innocent third parties – but allegedly solely in its capacity as

trustee of the MOGS Unit Trust. But that of itself raises serious questions.

32 As noted earlier, its role as the trustee of the MOGS Unit Trust and the details of

those trust arrangements were not disclosed until late February. The documents exhibited to

the Stonehouse affidavit repaid close reading. Clause 28 of the MOGS Unit Trust Deed,

entitled “Removal or retirement of Trustee” states:

28.1 A Trustee shall automatically be removed from office if:

28.1.1 …

28.1.2 being a company it shall … have a petition for its winding up

presented against it or …

…

28.3 The Unitholders by Ordinary Resolution or a Trustee may at any time

appoint one or more co-trustees.

…

28.5 If at any time it appears to the satisfaction of the Trustee that it would be

desirable to do so the Trustee may in its sole and unfettered discretion resign

and by instrument in writing appoint a successor as the Trustee in any place

outside the state or territory of the applicable law and transfer to such Trustee

the Trust Fund and thereafter this Deed shall be construed as if Part 5 of the

Schedule specified the law of that place as the applicable law.

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(Emphasis added.)

Part 5 of the Schedule specified the applicable law as the Law of the State of Queensland.

33 Other clauses of the MOGS Unit Trust Deed should be noted. Clause 32.1 relevantly

provides that:

Subject to clause 32.2, the Trustee may with the sanction of a Special

Resolution of Unitholders revoke add to release delete or vary this Deed and

all or any of the trusts or powers declared or any trusts or powers declared by

any revocation addition release deletion or variation made from time to time

and may declare any new or other trusts or powers concerning the Trust

Fund.

34 None of this was disclosed by MOGS prior to, or at, the initial hearing of ASIC’s

application for the appointment of a provisional liquidator to MOGS. However, the non-

disclosure did not stop there. MOGS also did not disclose (and therefore did not address) the

legal effect of ASIC’s application to wind up MOGS under s 461(1)(k) of the Act.

35 Clause 28.1.2 provides for the automatic removal of MOGS as trustee of the MOGS

Unit Trust when a petition for its winding up is presented against it. This proceeding

(an application for the winding up of MOGS on the just and equitable ground under

s 461(1)(k) of the Act) was filed (and served) in December 2012.

36 On 12 March 2013, the Court directed the following questions to ASIC and the

MOGS parties:

(1) does ASIC intend to pursue its application for the appointment of a

replacement trustee for the MOGS Unit Trust: par 11(b) of ASIC’s

submissions dated 1 March 2013?;

(2) if yes to (1), does ASIC intend:

(a) to formally amend its interlocutory process; and

(b) to provide notice of the application to the unitholders of the

MOGS Unit Trust?;

(3) Clause 28.1.2 of the MOGS Unit Trust Deed (pg 29) provides that:

“A Trustee shall automatically be removed from office if:

…

28.1.2 being a company it shall … have a petition for its

winding up presented against it …”

(a) who is the trustee of the MOGS Unit Trust and if the trustee

is a company, provide the relevant details of that company

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including date of incorporation, names of directors, names of

shareholders;

(b) when (and pursuant to what power) was the trustee

appointed?

(c) what are the assets and liabilities of the MOGS Unit Trust

and who has day to day control of those assets;

(d) have any one of the powers contained in cl 28.3 or 28.4 (or

both) been exercised and if so, when and how?

(e) has the power in cl 32 been exercised and if so, when?

(4) what assets (if any) does the 12th Defendant hold in its own right?

(5) does ASIC intend to pursue its application for the appointment of

receivers and managers to the assets of the MOGS Unit Trust: par 13

of ASIC’s submissions dated 1 March 2013?;

(6) if yes to (5), does ASIC intend:

(a) to formally amend its interlocutory process; and

(b) to provide notice of the application to the unitholders of the

MOGS Unit Trust?;

… If any party wishes to refer to evidence already filed, the answers should

include appropriate cross-references. If there is additional material relevant

and necessary to providing an answer to these questions, the nature of that

material should be identified.

Prior to the response being filed, Senior Counsel for ASIC and the 12th, 14

th

and 15th defendants are directed to confer to identify areas of agreement and

disagreement.

37 The MOGS parties responded on 15 March 2013 as follows:

(3) (a) MOGS Pty Ltd is the trustee of the unit trust.

(b) The unitholders held a meeting on 16 December 2012, which

had the effect of allowing MOGS to continue in the role as

trustee as long as a liquidator is not appointed, pending a

further meeting and receipt of legal advice to the trust.

(c) They are (as at 17 December 2012), in summary,

as disclosed in the affidavit of Timothy Munro and the

accounts as provided to ASIC. MOGS Pty Ltd presently has

day to day control of the assets, subject to the Court orders.

(d) Yes, on 16 December 2012 MOGS Pty Ltd was reappointed.

Additionally, a further unitholder meeting has been called for

21 March 2013 to table legal advice and further consider the

issue in light of the recent Court hearing.

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(e) No.

(4) MOGS Pty Ltd owns a motor vehicle in its own right (the Toyota

Hilux previously referred to), but has no other significant physical

assets apart from its right of indemnity as trustee.

What transpired at the meeting on 16 December 2012 (held after the application to wind up

MOGS was filed and served) was not disclosed. No less importantly, how MOGS says it can

continue as trustee in light of cl 28.1.2 and the extant application to wind up MOGS was not

addressed. These facts and matters raise more questions than they answer. MOGS’ answers

to these questions were opaque at best.

38 In that context, ASIC applied for leave to amend its interlocutory process to seek an

appointment of a new trustee to the MOGS Unit Trust. The basis for that application being,

as the Court understands it, that the MOGS Unit Trust has no trustee. It is appropriate to

defer the hearing of that application to a later date.

(3) Analysis

39 What then is the current position?

40 ASIC’s application came before the Court in circumstances where ASIC seeks relief

against, inter alia, MOGS, Mrs Gore and Mr Stonehouse for their alleged involvement in the

misuse of funds obtained from Australian investors (principally the trustees of self-managed

superannuation funds). ASIC alleges that MOGS received investor funds by two routes:

1. funds raised pursuant to a so-called “US Realty Memorandum” for investment into

distressed real estate in the United States, but loaned, at least in part, by the fifth to

eighth defendants to MOGS; and

2. funds raised pursuant to so-called “product placement memoranda” for investment

with the ninth and tenth defendants, but loaned, at least in part, by entities associated

with those defendants to MOGS.

41 There was evidence regarding the raising of those funds, the loan agreements,

the receipt of those funds by MOGS and MOGS’ subsequent use of the funds.

MOGS strenuously denied any wrongdoing.

42 Separately, there are numerous past transactions entered into by MOGS which are

said by ASIC to require investigation: see [26]-[27] above. The transactions appear to raise

serious questions. At present, it is unnecessary to resolve those disputes. It is unnecessary to

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resolve any of those disputes because, no less importantly, the terms of the MOGS Unit Trust

Deed are such that it is difficult to see how MOGS by its own acts (as it asserts) can avoid the

consequences of ASIC filing an application for it to be wound up – its automatic removal as

trustee of the MOGS Unit Trust.

43 There is a sufficient prospect that MOGS is no longer the trustee of the MOGS Unit

Trust. According to Mr Stonehouse, that is its sole activity: see [30] above. According to

the Stonehouse affidavit, MOGS’ own asset position is limited: see [30] above. Put simply,

MOGS’ substratum has gone: see, by way of example Solomon at 81-2.

44 There is however another difficulty. Although it appears that MOGS’ substratum has

gone, it continues to conduct, or appears to conduct, “MOGS’ Business”. In December 2012,

Timothy Munro (a director and chief executive officer of Change Accountants and Advisors

which had been engaged for three years to do accounting work for MOGS) filed an affidavit

in which he stated that MOGS’ operating profit for the first six months of the 2013 financial

year was approximately $5 million and was expected to be in excess of $8 million.

That evidence was said to be based on a review of a profit and loss statement and him having

spoken with “the directors and sales staff of MOGS”. In a later affidavit dated 21 February

2013, Mr Munro described MOGS’ solvency as follows:

MOGS is currently paying its debts as and when they fall due. It is in part

doing so by arrangements with third party funders. As long as MOGS’

funding facility remains in place I have no current concern about its

solvency. I understand from the Directors that the funding arrangements

would be immediately terminated if a provisional liquidator was appointed.

45 Mrs Gore’s evidence was that:

… MOGS has had to obtain finance from other sources or make

arrangements in order to fund and complete the property developments for

purchasers (including many SMSF) …

46 The “third party funders” were not identified. The terms of the financing

arrangements were not disclosed. The extent to which these facilities are drawn down was

not disclosed. Mr Stonehouse did not address or seek to explain the assertion that “the

funding arrangements would be immediately terminated if a provisional liquidator was

appointed”.

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47 The appointment of a provisional liquidator pending the determination of a winding

up application is a drastic intrusion into the affairs of the company. However, having regard

to the facts and circumstances outlined, there are currently no other measures that would be

adequate to preserve the status quo. In the circumstances (Riviana at 866), there is a

reasonable prospect that a winding up order will be made. Indeed, the Court cannot presently

ascertain MOGS’ current legal and factual status, including its financial standing, and the

basis on which it concurrently conducts “the business of MOGS”: see [20]-[24] above.

48 MOGS is apparently engaged in large continuing commercial transactions with what

may well be wholly innocent third parties (including self-managed superannuation funds) –

but allegedly in its capacity as trustee of the MOGS Unit Trust. MOGS’ failure to provide

satisfactory answers to direct questions about its current status itself raises suspicion. In this

context, it is important to recall that, as at 28 February 2013, Mr Stonehouse stated that the

completion of 43 homes “would be at risk of not completing if a provisional liquidator is

appointed to MOGS” (emphasis added). He did not explain or describe that risk. He did not

state that the homes would not be completed.

49 In the circumstances, it is appropriate, and in the public interest, that a provisional

liquidator be appointed to MOGS: cf Riviana at 866. There is a need for an independent

examination of the state of accounts of the corporation and its activities by someone other

than the directors.

50 The provisional liquidators will need to take control and preserve the assets MOGS

holds whether as trustee or otherwise. The provisional liquidators will, of course, also need

to form a view about ASIC’s application to appoint a substitute trustee to the MOGS Unit

Trust.

51 One submission that MOGS made in response to ASIC’s application to appoint a

provisional liquidator to MOGS was that the “Corporations Act remedies were not

appropriate for trust companies”. That contention is rejected: see [11]-[18] above. MOGS’

submission is misconceived. In particular, Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10

ACSR 606 and cases subsequently referring to Kizquari referred to by MOGS do not assist.

Each of those cases is restricted to the oppression context. Those remedies are quite distinct

from the power of the Court to appoint a provisional liquidator. There is no reason, in the

authorities or in MOGS’ submissions, to extend the Kizquari line of reasoning to whether it is

appropriate to appoint a provisional liquidator.

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52 Next, MOGS submitted that Re Brylyn No 2 Pty Ltd (1987) 12 ACLR 697 (a case

relied upon by ASIC in support of its application for appointment of a provisional liquidator)

was “questionable”. In addition, MOGS submitted that none of the other cases cited by ASIC

addressed how or why a provisional liquidator should be appointed to a trustee.

This submission is also misconceived. First, MOGS appears to have lost is substratum.

It has been automatically removed as trustee: see [32] and [35] above. It does not appear to

hold significant assets in its own right: see [30] above referring to [9] of the Stonehouse

affidavit. The current state of the evidence (in light of the non-disclosure by MOGS)

compels the appointment of a provision liquidator given the nature and apparent extent of its

business.

53 Secondly, several of the authorities cited by ASIC (Telfer v Astarra Securities Pty Ltd

[2010] NSWSC 682, Weerappah, Yellowrock Pty Ltd v Eastgate Properties Pty Ltd [2004]

QSC 214 and Re Denilikoon Nominees (No 2) Pty Ltd (1981) 6 ACLR 262) concerned the

appointment of a provisional liquidator to one or more trustee companies. While there was

little or no consideration of the “how” and the “why” of appointing a provisional liquidator,

the mere status of the company as a trustee was no bar to the appointment of a provisional

liquidator. What was important in each of those cases (and important here) was, and remains,

the individual circumstances of the particular case.

54 Finally, until ASIC’s application for leave to seek the appointment of a new trustee is

heard and determined, the best method of preserving the status quo would be to restrain the

unitholder (Mash Investments Pty Ltd) from exercising or purporting to exercise any power

whether under cll 28 and 32 of the MOGS Unit Trust Deed, or otherwise, to appoint a new

trustee, a co-trustee or to amend the Trust Deed. At present, Mash Investments Pty Ltd is not

a party to the proceeding. In those circumstances, Mr Stonehouse and Mrs Gore

(the directors of Mash Investments Pty Ltd) should be restrained, directly, or indirectly,

from exercising or purporting to exercise any power whether under cll 28 and 32 of the

MOGS Unit Trust Deed, or otherwise, to appoint a new trustee, a co-trustee or to amend the

Trust Deed.

D. CONCLUSION

55 The foregoing analysis is incomplete. That is inevitable. This is an application for

the appointment of a provisional liquidator. However, in the circumstances disclosed, there is

a reasonable prospect that a justifiable lack of confidence in the conduct and management of

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MOGS, and a case for winding up of MOGS on the just and equitable ground, would be

made out at trial.

56 It is therefore appropriate that a provisional liquidator be appointed to MOGS with

specified powers and for the provisional liquidator to report to the Court and to ASIC.

Consistent with that current view, it is inappropriate to set aside the orders made on

3 December 2012 made against Mr Stonehouse and Mrs Gore. Of course, if circumstances

change, they may renew their respective applications.

I certify that the preceding fifty-six

(56) numbered paragraphs are a true

copy of the Reasons for Judgment

herein of the Honourable Justice

Gordon.

Associate:

Dated: 19 March 2013

FEDERAL COURT OF AUSTRALIA - Corrs Chambers Westgarth

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